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  • September 16, 2011

    Bill Seeks To Provide Private Remedy for Bad Faith in Insurance Claim Settlements

    Written By: Gerard H. Hanson

    On August 25, 2011, Sen. Nicholas Scutari (D-Union) proposed for introduction Senate Bill S-3036, which is described as providing a “private cause of action for bad faith in settlement of insurance claims.” The bill would permit a claimant (an insured or their assignees) to file a cause of action against an insurer “arising from the insurer’s breach of good faith and fair dealing with the claimant, which breach shall include the insurer’s failure to attempt in good faith to effectuate a prompt, fair and equitable settlement of a claim in which liability has become reasonably clear.”

    In Quinlan v. Curtiss-Wright Corp., the high court addressed whether an employee’s use of her employer’s confidential business records relating to her discrimination claim constituted a protected activity under LAD. In an opinion issued on December 2, 2010, the Court found that “in certain situations” the use of such material could be protected.

    According to the statement accompanying the proposed legislation, the bill intends to incorporate into statutory law the case law established by Rova Farms v. Investors Insurance Co., 65 N.J. 474 (1974) while at the same time reversing the recent New Jersey Supreme Court decision in Wood v. New Jersey Manufacturers Ins. Co., 2011 N.J. Lexis 679, 2011 WL 2314954 (N.J.), which granted the insurer a jury trial right in bad faith cases.

    The statute is vague as to whether it is intended to apply only to third-party claims, or whether it also applies to first party claims. Under the existing case law in New Jersey, “bad faith” claims in the first-party context are governed by the “fairly debatable” standard, while third party excess verdict claims utilize a “reasonableness” standard. Rather, the statute simply requires the insured to show that the “insurer acted unreasonably in the investigation, evaluation, processing, payment or settlement of the claimant’s claim for coverage under the policy or without a reasonable basis in denying the coverage.”

    Moreover, although the proposed statute purports to apply to any insurance policy issued under Title 17 of the Revised Statutes (i.e., property and casualty policies, as opposed to health and disability policies, which are issued under Title 17B), Wood arguably pertains only to casualty as opposed to property policies.

    Of additional note, paragraph 1(d) of the proposed legislation sets forth the damages that the insured may seek, which include “the full amount of damages as determined by the judge, regardless of the coverage limits," pre-judgment interest, reasonable attorney’s fees, reasonable litigation expenses, and punitive damages, where the insurer’s actions demonstrate, by clear and convincing evidence, actual malice or wanton or willful disregard of any person who might foreseeably be harmed by the insurer's actions.” Finally, the statute, if enacted, will apply prospectively only per paragraph 2 of its provisions.

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    For more information, contact one of the attorneys who work in this area:

    Gerard H. Hanson, Esq.
    Nicholas J. Ferrara, Esq. 
    Irene N. Komandis, Esq.
    Todd J. Leon, Esq.
    Suzanne M. Marasco, Esq.
    Cherylee O. Melcher, Esq.
    James G. O'Donohue, Esq.
    Jennifer L. Reed, Esq.
    Laura A. Schaff, Esq.
    Jeffrey L. Shanaberger, Esq.

    This article provides information of general interest and is not intended, and should not be used, as a substitute for consultation with legal counsel. Any questions regarding the specific issues raised in this article should be directed to the authors or to your contacts at Hill Wallack LLP.