Damages - New Jersey

The following is a general overview of some of the categories of damages that are available in New Jersey courts when a policyholder brings a lawsuit for a bad-faith insurance denial.

Breach of Contract and Breach of the Duty of Good Faith

The most common causes of action for failure to pay insurance benefits are breach of contract and breach of the duty of good faith. Typically, the damages for these claims are limited to the amount of the claim or the amount of the policy limits.

Consequential Damages

New Jersey courts have held that when there is a breach of the duty of good faith, insurers are also liable for consequential damages caused by the denial of payment. Consequential damages have been defined as those damages that are "foreseeable" to the parties, and they may be in excess of the policy limits. A breach of the duty of good faith has been held to occur when the insurance company lacked a "fairly debatable" reason for the denial.

Punitive Damages

An insurance company may be liable for punitive damages under New Jersey law if a plaintiff can show, by clear and convincing evidence, that the insurer acted in a wanton and malicious manner when it denied the claim. Punitive damages, however, are rare in New Jersey and most states.

New Jersey Consumer Fraud Act

The New Jersey Consumer Fraud Act ("CFA") is a statute that protects consumers by allowing them to recover treble damages and attorney's fees arising from an unconscionable commercial practice. This is a powerful protection for consumers.

The New Jersey Supreme Court has held that the CFA applies to the sale of insurance policies. Although courts have been divided on whether it applies to insurance denials, there is no apparent reason why it should not. In fact, the Third Circuit Court of Appeals has stated:

We conclude that while the New Jersey Supreme Court has been silent as to this specific application of CFA, its sweeping statements regarding the application of the CFA to deter and punish deceptive insurance practices makes us question why it would not conclude that the performance in the providing of benefits, not just sales, is covered, so that treble damages would be available for this claim under the CFA.

Weiss v. First Unum Life Ins. Co., 482 F.3d 254 (3d Cir. 2007).

You can see my article published on this topic in the New Jersey Law Journal: Does the Consumer Fraud Act Apply to First-Party Insurance Claims?

Without the protections of the New Jersey Consumer Fraud Act, policyholders may be left vulnerable to insurance companies that decide to routinely reject claims as part of their business model without fear of any meaningful repercussions. After all, in many cases, the worst that could happen to the insurance company would be that it would ultimately have to pay the claim, after the policyholder is forced to commence litigation to enforce his or her rights.

Please contact New York and New Jersey Insurance Lawyer Eric Dinnocenzo at (212) 933-1675 for a free consultation if you have experienced a bad faith insurance denial.