New Jersey Governor Signs Auto Insurance Bad Faith Bill Into Law

New Jersey Gov. Phil Murphy has signed into law a bill that proponents have said makes the auto insurance claims process fairer for policyholders and businesses have warned will raise premiums.

The New Jersey Insurance Fair Conduct Act gives motorists who are injured in car accidents the right to file civil lawsuits against auto insurers., without first waiting for the state insurance regulator to act. The law establishes a private cause of action for motorists against insurers for “unreasonably” denying or delaying claims for uninsured or underinsured motorist benefits.

Motorists may obtain verdicts up to three times the amount of their coverage plus attorney’s fees and litigation expenses.

Proponents argued that the law would motivate insurers to avoid litigation by accelerating estimates and repair negotiations and also paying more heed to a current state law mandating that damaged vehicles be inspected within seven business days.

The legislation was sponsored by Senate Judiciary Chair Nicholas Scutari.

“With this bill, we are trying to give consumers the protection they deserve from the unfair business practices of insurance companies,” said Senator Scutari. “Too often people are taken advantage of and can’t fight back. Our bill allows for consumers to have the ability to fight back.”

“There is an inherent conflict of interest between profit motives of insurers and the interests of the insured,” said Senator Vin Gopal. “We need to install safeguards in our insurance system so the insured receive what they are owed in a prompt and fair manner.”

But industry interests have a different view.

“While this bill was portrayed as an effort to ensure that auto insurance companies act in good faith, there are already legal mechanisms in place to do so. Instead, this law will now open the floodgates for lawsuits that tip the balance of negotiating power into the hands of plaintiff attorneys, no matter the merits or frivolity of the case,” New Jersey Business and Industry Association President and CEO Michele Siekerka said in a statement.

NJBIZ said the costs to insurers to contest these cases will “now result in the inevitable rise in auto insurance rates for New Jersey residents and businesses.”

Other states, including neighboring Pennsylvania, have similar bad faith laws to pursue claims against insurers. Pennsylvania’s law allows multimillion-dollar punitive damages awards in certain cases.