Will NJ Policyholders Get Their Day in Court?

On June 7, the New Jersey Senate voted 21-14 to approve the New Jersey Insurance Fair Conduct Act, which now pending before the General Assembly. This bill would create a statutory cause of action for the bad faith processing of first-party insurance claims.

Supporters of the bill say it is long overdue. Presently, the only party able to pursue claims against insurers is the state’s insurance regulator, the Department of Banking and Insurance. Unfortunately for policyholders, pursuing bad faith claims has been overwhelmingly unsuccessful. One possible explanation for those continued losses is that under the current system, a policyholder must show both that the insurance company unreasonably delayed or denied a claim, and that the insurer knew that it was acting unreasonably to succeed on a common-law bad faith claim.

Every contract imposes on each party the duty of good faith and fair dealing. Under current New Jersey law, bad faith claims are subject the “fairly debatable” standard established in Pickett v. Lloyd’s, 131 N.J. 457 (N.J. 1993).  A policyholder must show that there is no reasonable basis for the insurance company’s denial of the benefits under the policy and demonstrate the insurance company’s knowledge of or reckless disregard for the lack of reasonable basis for denying the claim. Id. at 473. The Pickett standard has proven to be a significant burden for policyholders as insurance companies are typically not found liable for bad faith. Ergo, Pickett tends to benefit insurance companies who act in bad faith.

The Insurance Fair Conduct Act would not only ease the burden for policyholders by eliminating the need to show the insurer had knowledge of its unreasonable behavior, but also allows policyholders to collect actual damages, treble damages, prejudgment interest, attorneys’ fees, and all reasonable litigation expenses from insurance companies found liable.

Those opposing the bill fear that it will open the floodgates of bad faith claims, clog up dockets, and may force insurers to increase premiums or limit their coverage. Attorneys who represent the insurance companies say this bill would expose insurers to bad faith suits even as a result of honest mistakes.

The inclusion of a limited power of attorney in a provider’s assignment of benefits is crucial in this scenario. Under New Jersey law, third parties are unable to bring a bad faith claim against an insurer where they have failed to show the policyholder assigned its right to bring such a claim against the insurer. By conferring authority on a healthcare provider under a power of attorney, the healthcare provider is then able to step into the shoes of the patient and affirmatively take steps to pursue a bad faith claim. This process mitigates the possibility of a suit for benefits brought by a provider being dismissed based upon an anti-assignment clause contained in a policyholder’s plan.

If enacted, the New Jersey Insurance Fair Conduct Act were would establish a private cause of action for an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy. Policyholders will finally get their day in court.

Buttaci Leardi & Werner LLC works with healthcare providers and patients across the country in challenging wrongful benefit denials. Our efforts on behalf of clients have secured millions upon millions of dollars in previously denied reimbursements, including one of the largest class action settlements by a commercial health carrier with a class of licensed healthcare providers in history.

Posted in: Regulation