If your home or business is affected by a disaster and you have purchased property damage insurance, you may immediately feel a sign of relief. That relief could be fleeting, upon a discovery that the promptly submitted insurance claim has been denied. Immediately you realize there are statutes and regulations that protect consumers from wrongful denials. Unfortunately, the level of protection will depend on the which of the fifty states your property is located. The insurance industry is regulated by each state, so the protections afforded by law can vary distinctly from state to state.

To encourage uniformity, the National Association of Insurance Commissioners (NAIC) promulgated the Unfair Claims Settlement Practice Act (UCSPA). Regulations were enacted to implement the Act that are generally followed by each state. However, despite this major effort, interest groups in each state have been able to influence and modify the laws, disrupting uniformity across the states.

Each state has an insurance department that regulates their insurance industry. and each state has their own statutes, regulations, and case law on handling insurance claims. Some states offer broad protection for the policy holder while other states afford very narrow, ill-defined protections. I am lucky enough to practice law in one of the states that offer this very narrow, ill-defined protection: New Jersey.

New Jersey, recognizes that an insured can sue an insurer under a breach of contract suit for failure to properly handle and pay an insurance claim. The state also acknowledges that an obligation of good faith and fair dealing is embodied in every insurance policy. This good faith obligation requires the insurer to act fairly and reasonably in processing, investigating, evaluating, and paying a claim. Violating this obligation is often referred to as bad faith. In New Jersey, an insurer is liable for bad faith only where it denies a claim that is not “fairly debatable” and it either knows that is the case or is malicious and reckless in their claim denial. So, in effect, if the insurer can prove that they investigated the claim, the likelihood of a bad faith claim denial finding, in New Jersey, is slim.

Unfortunately, for New Jersey policyholders, wrongfully denied insurance claims are not entitled to the recovery of special damages flowing from that breach. “Special Damages” include but are not limited to consequential economic loss, tort damages such as damages for emotional distress, attorneys’ fees, and possibly punitive damages. Regrettably, in the Garden State a policyholder forced to file a lawsuit and incur the inherent costs associated with such litigation, can never truly be restored to their pre-loss condition.

If you live in New Jersey and your insurer denies or underpays your home or business property damage claim there are options. A qualified, licensed public adjuster can be hired to assist with the preparation, presentation and adjustment of the claim. If it’s an underpayment of a claim and not a coverage issue, the policy appraisal clause can be invoked. If all appeal rights under the policy are exhausted, a complaint can be filed with the Office of Insurance Claims Ombudsman at www.state.nj.us/dobi/ombuds.htm. Finally, an attorney can review the legal merits of the case and advise accordingly.