A new bill that recently passed the New Jersey Senate would give new protections for residents from predatory practices by insurance companies. The bill, the New Jersey Insurance Fair Conduct Act (S-2144), was sponsored by state Sen. Vin Gopal (D-Monmouth) and Sen. Nicholas Scutari (D-Union/Middlesex/Somerset). According to Sen. Scutari, the intent of the legislation is to allow “for consumers to have the ability to fight back.”
Much-needed protection from predatory practices
Current law provides limited protection for consumers in the face of dishonest and even predatory practices by insurance companies. Too often, New Jersey residents faithfully pay their premiums for years only to be told they are not covered when they make a claim. In essence, consumers are at the mercy of whatever their insurance company claims their policy means.
This new legislation would create a legal cause of action for individuals treated unfairly or unreasonably by their own insurance companies and allow them to file lawsuits against those insurance companies. Some insurance company practices addressed by this law include:
- Unreasonable delay in payment of a claim
- Unreasonable denial of a claim
- Misrepresenting contents of an insurance policy
- Discrimination against the insured person
- Attempting to settle a claim in an unfair manner
Strong legal penalties necessary to keep the insurance companies under control
In addition, the proposed legislation entitles a successful plaintiff to “treble damages” – a legal term meaning that the amount of compensatory damages (financial compensation for losses) is tripled. For example, an insurance company found to have unreasonably denied a claim worth $100,000 could be ordered to pay out $300,000 in damages in the event of a successful lawsuit, as well as attorney’s fees, prejudgment interest and litigation expenses.
These penalties, while seemingly harsh, are necessary to rein in insurance companies’ behavior. Treble damages create a strong financial incentive for the insurance companies to treat consumers fairly in the first place, since the cost of losing a lawsuit is much greater than the cost of paying the original claim. Without treble damages, insurance companies could go on unfairly denying claims just to see if they could get away with it – after all, the cost of losing a lawsuit would be the same as the cost of paying the claim in the first place, so the net loss to the insurance company would be very little.
Moreover, treble damages provide additional compensation for consumers who may have needed to take out a loan, cash in retirement or make other financial sacrifices because of the delay or denial of benefits. Since lawsuits against insurance companies often take years to make their way through the court system, those secondary losses can be substantial, especially in cases where the victim is injured or disabled and loses income while dealing with medical bills and other expenses.
Assembly needs to pass companion legislation
S-2144 passed the state Senate on June 7. In order for the New Jersey Insurance Fair Conduct Act to become law, its companion legislation, A-3850, needs to pass the state Assembly as well. The bill is sponsored by Assemblymembers Annette Quijano (D-Union), Raj Mukherji (D-Hudson), Shavonda E. Sumter (D-Bergen and Passaic) and Joann Downey (D-Monmouth). The bill would then go to Gov. Phil Murphy (D).
We urge state lawmakers to pass this legislation with all due expediency and put more power in the hands of New Jersey residents. As trial attorneys, we’ve seen firsthand the consequences of dishonest and predatory practices by insurance companies, which affect victims at precisely the moment when they need help most. In our view, this legislation is long overdue.