Ladies and Gentlemen:
There is a two pronged attack underway in New Jersey to create a bad faith cause
of action against insurers in first party claims, including uninsured motorist
(UM) and underinsured motorist (UIM) claims. The first prong is spearheaded
by New Jersey state Senator Nicholas Scutari, D-Union. On June 8, 2006, Senator
Scutari introduced bill S-1958 that seeks to establish a private cause of action
for unfair claims settlement practices, including those committed in the handling
of first party claims. Under current law, the unfair claims settlement practices
referenced in N.J.S.A. 17:29B-4, The Insurance Trade Practices Act, do not
create a private cause of action against an insurer. Pierzga v. Ohio Casualty,
208 N.J.Super. 405 (App.Div. 1986). The damages recoverable under the proposed
legislation include the benefits properly due under the first party claimant's
insurance policy with interest, incidental and consequential damages, court
costs and reasonable attorney's fees. Punitive damages may be available if
the insured presents clear and convincing evidence of "actual malice or
wanton and willful disregard of persons who foreseeably might be harmed by
the insurer's acts or omissions." The bill has sat in committee since
its introduction and has no companion Assembly bill.
The second prong of the attack consists of two cases pending before the Superior
Court of New Jersey, Appellate Division. In Accisano v. Allstate Ins. Co.,
A-156-06, Accisano herniated a disk in her neck. She settled with the third
party tortfeasor for $14,500 on a $15,000 policy. She sought UIM benefits of
$50,000 on a $100,000 UIM policy from Allstate. Allstate did not pay the $50,000.
A Monmouth County jury awarded $250,000 which was molded to the amount of the
policy ($100,000) less the tortfeasor's coverage ($15,000) resulting in a molded
verdict of $85,000. Accisano has filed an appeal arguing that Allsate's refusal
to settle was in bad faith as reflected by the size of the verdict. Accisano
also argues the appropriate remedy is a judgment for the full $250,000.
The other case on appeal is Taddei v. State Farm Indemnity. In Taddei,
the insured sustained herniated discs in his neck and back and tore a rotator
cuff. He demanded his $100,000 UM policy from State Farm. State Farm offered
$75,000. An Essex County jury returned a $2.6 million verdict. The trial judge
molded the verdict to State Farm's policy limit of $100,000.
The insureds argue the insurers have nothing to lose because their liability
is capped at the policy limits. Therefore, insurers are willing to take their
chances with a jury.
The opposing viewpoint is that this is purely a matter of contract and the
insured is not entitled to more than the insured purchased with his or her
premium. Once the Superior Court of New Jersey, Appellate Division renders
an opinion in either of these cases I will advise. However, there is always
the possibility that the cases will settle while on appeal and prior to any
decision by the Appellate Division.
On a separate note, an insured is not entitled to pursue a first party bad
faith claim against a PIP insurer. Endo Surgi Center, P.C. v.Liberty Mutual
Insurance Company, 2007 1038758 (N.J.Super. AD). The court held that because
PIP benefits are statutory in nature, the procedures and remedies provided
by the No-Fault Act for enforcement of an insured's rights to PIP benefits
are exclusive. Thus, an insured's only remedies against a PIP insurer are those
set forth in the No-Fault Act: interest and attorney's fees.
If you should have any questions, please do not hesitate to contact me.
Very truly Yours,
Glendon E. Danks
