Costly, frivolous suits will result from ‘bad faith’ insurance bill

Insurance costs are a central component to the affordability challenges both residents and businesses face in New Jersey.

Policyholders in the Garden State currently pay among the highest average premiums in the nation. Instead of trying to find solutions that would lessen the financial burden, the New Jersey Legislature recently introduced a bill that could cause these already exorbitant rates to skyrocket and threaten the ability of businesses to operate in the state.

Assembly bill A-4293/3850 would rewrite the legal definitions of good faith and bad faith in a way that would open the floodgates for frivolous lawsuits based on bad faith claims, and could increase insurance costs by as much as 40 percent. This “bad faith” bill would allow individuals additional opportunities to sue insurance companies for minor delays in processing claims.

The legislation is so vague and overly broad that overzealous attorneys would be able to sue insurance companies for normal mistakes that occur in the ordinary course of business.

The unfortunate reality for many companies, particularly good actors, is settling the case out of court often makes more financial sense — even if the defendant is convinced the case is winnable.

Opportunistic lawyers will have free rein to target businesses with baseless lawsuits in the hopes of obtaining unjustified, lucrative settlements. The bill certainly offers a financial incentive to do so, as it provides for payment of actual damages, all litigation costs (including attorney fees) and triple damages.

To offset the costs of litigation, these companies would pass the burden directly onto policyholders in the form of higher premiums.

The unintended consequences of this legislation are immense. New Jersey’s taxes, among the highest in the nation, are already a deterrent for businesses looking for a new home. If this bill were to pass, the financial burden of operating a business in our state could be prohibitive. Whether it’s relating to business interruption coverage, general commercial liability insurance or workers’ compensation insurance, broadening the vague standards by which a claimant can pursue a bad faith claim will raise premiums for all of these necessary business expenses.

In the age of rapid technological advancement, New Jersey legislators should be doing everything within their power to encourage new and exciting innovative companies to set up shop in the Garden State. If this bill passes, our state could lose out on the opportunity to house the next game changing company and the good paying jobs that come along with it.

Our legislators must focus on enacting fair policies that would incentivize businesses to locate in New Jersey instead of restrictions that would drive them away and hamper the state’s economic future. All of this is why the New Jersey Business & Industry Association is trying to stop this bill in the Assembly.

Everyone will pay for the increased, unnecessary litigation that will result from a bill with such vague language. We need to prevent adding yet another cost burden on New Jersey residents and businesses. Please reach out to your Assembly members to vote “no” on the bad faith bill.

Chrissy Buteas is chief government affairs officer of the New Jersey Business & Industry Association.