Policyholders in New York and New Jersey presently have no private right of action against insurance companies for alleged violations of each state’s respective statutory claim handling guidelines – New York’s Unfair Claim Settlement Practices Act, N.Y. Ins. Law § 2601, and New Jersey’s Unfair Claim Settlement Practices Act, N.J. Admin. Code tit. 11, §§ 2-17.6 and 2-17.7. Although the New York and New Jersey statutes each prohibit insurers from engaging in unfair claim settlement practices, neither allows insureds the right to enforce the laws or seek damages for a violation by filing a lawsuit against the insurer. Rather, the Insurance Department for each state are vested with the exclusive power of enforcement, and then only when an insurer engages in a pattern of violations demonstrating that the mishandling of claims is a general business practice. That may soon change, however.
On January 8, 2013 and January 28, 2013, a pair of bills was re-introduced in the New Jersey Senate and Assembly, respectively, authorizing a private right of action by any insured directly against its insurer for a violation of New Jersey’s claim handling guidelines, regardless of any action by the Insurance Department and notwithstanding that the insurer did not violate the guidelines with enough frequency to constitute a general business practice. Senate Bill 2460, introduced by Senators Nicholas P. Scutari (D-Middlesex) and Jennifer Beck (R-Monmouth), and Assembly Bill 3710, introduced by Assemblywoman Linda Stender (D-Middlesex), are identical in text and seek to codify New Jersey case law recognizing private causes-of-action for first- and third-party bad faith claims handling, as set out in Pickett v. Lloyd’s, 131 N.J. 457 (1993) and Rova Farms Resort, Inc. v. Investors Ins. Co., 65 N.J. 474 (1974). Under the bills, an insured may recover: (1) the full amount of damages – without regard to policy limits; (2) prejudgment interest, reasonable attorney’s fees and litigation expenses; and (3) punitive damages on a showing of actual malice or willful and wanton disregard by clear and convincing evidence. If passed, the bills would take effect immediately, and apply to all claims filed after October 1, 2012 – thus ensuring application to Superstorm Sandy insurance claims.
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