In the year since Hurricane Sandy struck New Jersey, numerous lawsuits have been filed by consumers against insurance companies alleging “bad faith”. Currently, the law recognizes an action for damages in excess of an insurance policy when the insurer’s failure to pay results from a denial or a withholding of benefits which is not even debatably valid and the insurer knowingly and recklessly denied the claim without a reasonable basis. (See Pickett v. Lloyd’s, 131 N.J. 457 (1993)). Unfortunately, the burden of proof to establish this cause of action can be very high. 

However, in response to the claims handling after Hurricane Sandy, the New Jersey legislature is considering amending the current bad faith legislation (also referred to as the Unfair Claim Settlement Practices Act) to make it significantly easier for claimants to bring a private cause of action for bad-faith denial of coverage. It will also eliminate the requirement that a claimant must prove that the insurance company’s conduct was part of a general business practice. 

Under the bill, if the person filing the claim can establish that such a violation took place, he or she is entitled to:

  • The full amount of damages as set forth in the final judgment (regardless of the coverage limits of the policy)
  • Prejudgment interest, reasonable attorney’s fees, and reasonable litigation expenses from the date of the institution of the action filed pursuant to the provisions of the bill. 
  • Punitive damages, when the insurer’s acts or omissions demonstrate, by clear and convincing evidence, actual malice or wanton and willful disregard of any person who foreseeable might be harmed by the insurer’s acts or omissions.

This bill is greatly needed in New Jersey in order to ensure that insurance companies act fairly when deciding how to resolve claims. 

New Jersey Assemblyman Reed Gusciora (D-Mercer/Hunterdon) proposed the bill (A-4382) and said it was necessary after hearing numerous stories from homeowners affected by Hurricane Sandy. The proposed bill can be found here

Has an insurance company unfairly denied a claim that you recently filed? If so, please contact the experienced attorneys at Stark & Stark to discuss your situation.