NJ considers letting more people sue insurers — Some fear higher costs

Does your insurance company treat you fairly?

A proposed bill dubbed the New Jersey Insurance Fair Conduct Act would allow people to sue insurance companies for acting in bad faith when denying claims.

The measure stipulates someone may file a lawsuit against their insurer for an unreasonable delay or unreasonable denial of a claim for payment of benefits under an insurance policy, or if the insurance company engages in unfair methods of competition and unfair and deceptive acts or practices in the business of insurance.

These types of practices would include misrepresentations and false advertising, defamation, unfair discrimination, unfair claim settlement practices and failure to maintain complaint handling procedures.

Despite some bipartisan support for the bill, some worry that the law would cause insurance rates to rise.

Christine O’Brien, the president of the Insurance Council of New Jersey, opposes the legislation.

“The bill is anything but fair and certainly not fair to consumers," she said.

“When you broaden the standards by which people can sue, you just really increase the opportunity for more litigation that overall pushes up costs for everybody across the board.”

But one of the prime sponsors of the bill, Assembly Republican Leader Jon Bramnick, pointed out that the legislation says that the companies can be sued only for acting in bad faith.

“So my message to insurance companies is just act in good faith and you don’t have to worry about the law," he said.

O’Brien said an independent study by the actuarial firm Milliman confirms costs would rise by $2.8 billion. She said the legislation would be harmful because it would drive up premiums for auto insurance, home insurance, as well as commercial, business and medical malpractice insurance.

But Bramnick said “this is clearly a concern of insurance companies because if they deny claims this will open them up to a lawsuit.”

He said insurance companies have a course of action they can take against someone who files frivolous lawsuits.

“If you ask people who represent consumers in the state as opposed to people who represent insurance companies, you’ll realize this is an important piece of legislation," he said. “We’re talking about insurance companies that either deny or delay claims for reasons other than good faith. As long as they act in good faith, they have nothing to worry about.”

O’Brien said everyone in New Jersey already has an avenue to sue their insurance company if they feel they are not being treated fairly, so this measure is not needed.

O’Brien said under the proposed measure everyone’s insurance costs would rise, even if they did not file a lawsuit because “you need to predict how much risk you’re going to underwrite and then determine how much premium you’re going to collect in order to cover any number of claims that will be filed by policyholders.”

She said if there is a limitless opportunity for people to sue, “you are now trying to determine how much premium to collect in order to defend lawsuits.”

Holly Bakke, the former commissioner of the state Department of Banking and Insurance from 2002 until 2005 under Gov. Jim McGreevey, said she believes “people don’t appreciate all of the consumer protections in place with respect to insurance companies.”

She pointed out each insurance company operating in New Jersey goes through “a detailed financial examination and they also go through a market conduct examination" that determines whether are they treating consumers fairly.

Bakke said the legislation would enlarge the scope of existing law that allows consumers to file an insurance-related complaint “and my concern, and the experience in other states has shown, it means more litigation and that means it’s more costly for the consumer and for the system itself.”

She added if litigation costs go up, “then everyone winds up paying for that.”

“Why don’t we look at the existing system, make sure consumers are aware of it, and litigation should be the last resort. I think the existing law is working," she said.

You can contact reporter David Matthau at David.Matthau@townsquaremedia.com

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