PLAINTIFFS CAN NOW BRING CLAIMS FOR BAD FAITH AGAINST THEIR OWN AUTO INSURERS
Below is a preview of Alexandra Loprete's February 2022 article in New Jersey State Bar Association Young Lawyer’s Division Publication “Dictum”
By Alexandra Loprete
Civil Trial Attorney at O’Connor, Parsons, Lane & Noble in Springfield, New Jersey.
A new law recently approved by the New Jersey General Assembly and Senate, and signed by Gov. Murphy, gives motorists injured in motor vehicle collisions the right to file civil lawsuits against their own auto insurers for bad faith. The new law is a welcome change to many plaintiffs and their attorneys. Previously, a plaintiff suing another driver (referred to as a “third-party claim”) that obtains a jury verdict exceeding the defendant’s insurance policy limits could pursue a “bad faith claim” against a defendant’s insurance carrier that refuses to negotiate the plaintiff’s claim in good faith and fails to settle a meritorious claim within the policy limits and within a reasonable amount of time.
However, in the context of a first party claim against their own insurance carrier for uninsured or underinsured (“UM/UIM”) coverage claims, plaintiffs have lacked the ability to bring a claim against their own auto insurance carrier for refusing to settle a meritorious claim within the policy limits and within a reasonable amount of time. Because of this disparity in the law between first and third-party claims, plaintiffs would often wait a significant amount of time – sometimes as long as six to seven years – before their own insurance carrier would agree to resolve a UM/UIM claim. Many believe that this new law will incentivize insurers to negotiate meritorious UM/UIM claims in good faith, including resolving claims for fair value within a reasonable time.
The law had bi-partisan support from incoming State Senator Jon Bramnick (R-Union), incoming Senate President Nicholas Scutari (D-Union), and other advocates who said the measure would extend a requirement to negotiate in good faith already imposed upon insurers dealing with claims made by injured persons with who are seeking the benefit of the tortfeasor’s insurance rather than their own insurance. “If it’s your own company, they have no obligation under the current law to deal with you or negotiate with you in good faith, as you would a tortfeasor that causes the accident,” said Scutari, a prime Senate sponsor. Sponsors and advocates of the new law hope that it will eliminate the long delay often associated with resolving UM/UIM claims and will allow plaintiffs the benefit of their own insurance coverage in a timely manner just as they are afforded the benefit of the tortfeasor’s coverage.
There is hope that this new law will have an immense impact on the everyday motorist. Most motorists do not realize that their own auto insurance policy provides coverage to them if they are injured in a motor vehicle collision or as a pedestrian by a driver that has minimal or no auto insurance coverage. This coverage is known as UM/UIM and allows injured parties to collect the difference between any coverage available from the tortfeasor and their own UM/UIM policy limit. You should consult with an attorney if you believe you may have a UM/UIM claim.
Here is an example using facts from a real case. Walter White was driving his BMW sedan to meet his wife at dinner on a Friday night in 2015. He was rear ended at a busy intersection and pushed into oncoming traffic by a 1998 Honda civic driven by 17-year-old Jessie Pinkman. Walter’s car was totaled, and he was hospitalized for six weeks and required three spinal surgeries. His lawyer, Sal Goodman, filed a lawsuit against Jessie Pinkman. Although liability was not contested, Jessie only had the state minimum auto coverage of $15,000. Therefore, Walter would only be able to collect $15,000 from Jessie, notwithstanding any attorney’s fee. Sal collected $15,000 from Jessie’s auto insurance carrier within one year of the motor vehicle collision. Prior to accepting the $15, 000, Sal Goodman wrote to Walter’s insurance company and put them on notice that he would be making a claim for $85,000 out of the $100,000 available by way of Walter’s own UIM coverage through his own auto insurance policy. However, Walter’s insurance carrier denied his claim for UIM benefits indefinitely. Notwithstanding efforts from both the plaintiff and defense attorney, Walter’s insurance carrier refused to resolve his claim for $85,000 despite the fact that Jesse was clearly at fault for the accident and Walter’s injuries are clearly worth far more than $85,000. While the insurance carrier withheld payment, Walter had to pay out of his own pocket to make accommodations to his home, to pay his outstanding medical bills, and to hire aides to help around the house. Finally, six years after Walter’s auto collision, a trial takes place and the jury awards Walter $3 million. However, because he only has $100,000 in UIM coverage, he is only able to collect $85,000.
Under the old law, this scenario would leave Walter and his attorney with no recourse against the auto insurance company for failing to resolve the case in a timely fashion for $85,000. Instead, Walter and Sal would be forced to wait six years and incur a significant amount of expenses litigating the case through trial, while the insurance carrier faced no risk of having to pay more than 85,000 (beyond the available policy limits) as a result of their delay. Under the old law, even if Sal and Walter were successful at trial they would be unable to secure the full verdict amount of $3 million and are left with only $85,000 less trial costs and expenses.
Under the new law, Walter and Sal would have the ability to bring a claim for bad faith against Walter’s auto insurance carrier for failure to negotiate in good faith and resolve the case within the policy limits in a timely fashion before significant trial expenses were incurred. If Walter and Sal were successful under the new law, they would be able to collect their trial costs and the excess verdict amount up to 3 times the amount of the policy limits. Under the new law, Walter’s insurance company is incentivized to resolve the claim with its insured, Walter, for $85,000 far before six years and a jury trial. If Walter’s insurance carrier refuses to negotiate in good faith before trial, they will now face exposure by way of an excess verdict and trial costs.
In the scenario above, under the new law, Walter would still not collect the $3 million jury verdict but rather his recovery would be limited to $255,000 ($85,000 times three) plus pre- and post-judgment interest, reasonable attorney’s fees and reasonable litigation expenses.
While this is just one example of how the new law could benefit the everyday motorist, you should consult with an attorney to see how the new law may benefit you.
The Assembly passed the bill 45-22-4 and the Senate passed it 23-13. It took effect immediately and supplements Title 17 of the Revised Statutes.
About the Author
Alexandra Loprete is a civil trial attorney at O’Connor, Parsons, Lane & Noble in Springfield, NJ, and represents plaintiffs in medical malpractice, nursing home neglect, and personal injury cases. Alexandra serves on the Executive Committee of the New Jersey State Bar Young Lawyer’s Division, is co-Chair of the New Jersey Women Lawyers Association Young Lawyers Committee, and is a member of the New Jersey Law Journal Young Lawyer’s Editorial Board.