New Jersey

Guide for Causes of Action for Bad Faith Claims

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Last Updated
July 20, 2021

New Jersey does not have a bad faith statute. In addition, New Jersey’s Unfair Trade Practices Act (N.J. Stat. Ann. 17:29B-1) does not support private causes of action.

A “personal injury claimant may not sue the carrier to recover the excess verdict beyond the coverage without an assignment of the claim from the insured.” Murray v. Allstate Ins. Co., 209 N.J. Super. 163, 165, 507 A.2d 247, 248, (1986) citing  Biasi v. Allstate Ins. Co., 104 N.J. Super. 155 (App.Div.1969), certif. den. 53 N.J. 511 (1969). “[P]ublic policy does not  mandate that the injured party in the accident should be deemed the intended beneficiary of the company's contractual duty to its policyholder to act in good faith regarding settlement.” Biasi, supra. Nonetheless, an insured can assign its claim against the insurance carrier for the carrier's unreasonable refusal to settle. Id.

Rova Farms Resort, Inc. v. Investors Insurance Co. of America, 65 N.J. 474, 323 A.2d 495 (1974) recognizes a common law bad faith cause of action for failure to settle claims against an insured under a liability policy. The Rova Farms Court, in employing tort and contract principles, did not enunciate a fairly debatable standard and imposed an affirmative obligation on the insurer to act in good faith to settle litigation against its insureds.

In the third-party liability context, bad faith claims may be brought by an insured against his/her insurance carrier which refused to settle within or tender policy limits to a plaintiff in settlement of the action against the insured. An insurer who contractually restricts the independent negotiating power of its insured has a positive fiduciary duty to attempt to negotiate a settlement within the policy limits. Rova Farms, 323 A.2d 495. An insurer is not per se liable for judgments in excess of policy limits when it failed to offer the policy limits. Rather a “decision not to settle must be a thoroughly honest, intelligent and objective one.” Id. at 503. The Rova Farms court went on to say that “any doubt as to the existence of an opportunity to settle within the face amount of the coverage or as to the ability and willingness of the insured to pay any excess required for settlement must be resolved in favor of the insured unless the insurer, by some affirmative evidence, demonstrates there was not only no realistic possibility of settlement within policy limits, but also that the insured would not have contributed to whatever settlement figure above that sum might have been available.” Id. at 501.

To show a claim for bad faith, the policyholder and/or assigned third-party has the burden of showing the absence of a reasonable basis for denying benefits of the policy and the defendant’s knowledge or reckless disregard of the lack of reasonable basis for denying the claim. Pickett v. Lloyd’s, 131 N.J. 457 (1993). Bad faith is an intentional tort. Id. at 473. To establish bad faith, a plaintiff must show the lack of a reasonable basis for denying the claim or unreasonably delaying its processing, and the insurer's knowledge or reckless disregard that it was acting unreasonably. Id. at 473-7. This claim cannot be sustained by evidence of negligence, mistake or delay in payment without some showing of the insurer's wrongful intent. Id. at 474. New Jersey’s Unfair Claims Practices Act provides a standard of conduct for insurers as to the settlement of claims. A deviation from the standards may be considered as evidence of bad faith.”

New Jersey’s Unfair claim settlement practices N.J.S.A. 17B:30-13.1, et seq. provides:

No person shall engage in unfair claim settlement practices in this State. Unfair claim settlement practices which shall be unfair practices as defined in N.J.S.17B:30-2, shall include the following practices:

Committing or performing with such frequency as to indicate a general business practice any of the following:

  1. Misrepresenting pertinent facts or insurance policy provisions relating to coverages at issue;
  2. Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies;
  3. Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies;
  4. Refusing to pay claims without conducting a reasonable investigation based upon all available information;
  5. Failing to affirm or deny coverage of claims within a reasonable time after proof of loss statements have been completed;
  6. Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear;
  7. Compelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds;
  8. Attempting to settle a claim for less than the amount to which a reasonable man would have believed he was entitled by reference to written or printed advertising material accompanying or made part of an application;
  9. Attempting to settle claims on the basis of an application which was altered without notice to, or knowledge or consent of the insured;
  10. Making claims payments to insureds or beneficiaries not accompanied by statement setting forth the coverage under which the payments are being made;
  11. Making known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration;
  12. Delaying the investigation or payment of claims by requiring an insured, claimant or the physician of either to submit a preliminary claim report and then requiring the subsequent submission of formal proof of loss forms, both of which submissions contain substantially the same information;
  13. Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage;
  14. Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.

Statute of limitations

Absent a policy provision to the contrary, the statute of limitations for insurance claims is six years. N.J.S.A. 2A:14-1.

Recoverable Damages

Consequential damages are recoverable. Pickett, supra. Attorney’s fees are recoverable under N.J.R. 4:42-9(a)(6), but limited to third party claims. Shore Orthopaedic Group, LLC v. Equitable Life Assur. Soc. of U.S., 938 A.2d 962, 969 (N.J. Super. App. Div. 2008).

Punitive damages are also recoverable, but only in “egregious circumstances.” To support an award of punitive damages t must be proven by clear and convincing evidence, that the injury, loss, or harm suffered was the result of the insurer’s acts or omissions and that either (1) its conduct was malicious or (2) it acted in wanton and willful disregard of the injured party’s rights. Malicious conduct is intentional wrongdoing in the sense of an evil-minded act. Willful or wanton conduct is a deliberate act or omission with knowledge of a high degree of probability of harm to another who foreseeably might be harmed by that act or omission and reckless indifference to the consequence of the act or omission. See, N.J. Model Civil Jury Charge 8.6.

New Jersey’s Punitive Damages Act that limits the amount of punitive damages in any civil action to the greater of $350,000 or “five times the liability of that defendant for compensatory damages.” N.J.S.A. 2A:15-5.9 et seq.

Contact Us

Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.