When you pay your insurance premiums in New Jersey, you enter into a contract with your insurer that includes more than just financial terms—it includes an expectation of fair treatment. This principle is known as the duty of good faith and fair dealing. If an insurance company fails to act honestly, fairly, or reasonably in handling your claim, you may have grounds to file a bad faith lawsuit. In New Jersey, policyholders are protected against insurance companies that intentionally delay, deny, or underpay claims without a valid reason.
What Is Insurance Bad Faith?
Bad faith occurs when an insurance company violates its obligation to act in the best interest of the policyholder. It goes beyond simple mistakes or disagreements. Examples of bad faith conduct may include:
- Unreasonable delay in processing or paying a valid claim
- Wrongful denial of coverage without a proper investigation
- Failure to communicate important information about a claim
- Lowball settlement offers that are far below the actual value of the loss
- Failure to defend or indemnify a policyholder in a lawsuit
In such cases, New Jersey law allows policyholders to take legal action for more than just the original value of the claim—they may be entitled to additional damages.
Legal Basis for a Bad Faith Claim in NJ
In New Jersey, bad faith insurance claims can be brought under two primary legal theories:
- First-party bad faith – This applies when an insurance company refuses to pay a claim made by its own policyholder, such as property damage or medical expenses under the policy.
- Third-party bad faith – This applies when the insurer fails to settle a claim against the policyholder within policy limits, exposing the insured to excess liability. This often arises in liability insurance cases, such as auto accidents.
To succeed in a bad faith lawsuit in NJ, you must typically prove that:
- The insurer acted unreasonably in handling your claim; and
- The insurer knew it was acting unreasonably or recklessly disregarded your rights.
New Jersey courts evaluate bad faith based on whether the insurer’s conduct was fairly debatable. If there was a legitimate basis for the denial, a bad faith claim may not succeed—even if the insurer was ultimately wrong.
Steps to Take Before Filing a Lawsuit
Before you sue for bad faith, it’s important to build a strong case. Follow these steps:
- Document everything: Keep detailed records of your claim, including emails, letters, claim numbers, adjuster names, and dates of communication.
- Request a written explanation: Ask the insurer to explain the reasons for denial or delay in writing.
- File an internal appeal: Use the insurer’s dispute resolution process to challenge the decision.
- Contact the NJ Department of Banking and Insurance (DOBI): You can file a complaint for unfair claim handling practices.
- Consult an attorney: A lawyer with experience in insurance litigation can assess whether you have a valid bad faith claim and guide you through the legal process.
Damages Available in a Bad Faith Lawsuit
If you win a bad faith lawsuit in New Jersey, you may be entitled to:
- The amount of the original claim
- Consequential damages, such as lost income or emotional distress
- Punitive damages, in cases of willful misconduct or egregious behavior
- Attorney’s fees and legal costs
These damages go beyond the value of the insurance policy and are meant to punish wrongful behavior and deter future misconduct.
Conclusion
Yes, you can sue an insurance company for bad faith in New Jersey if they fail to treat your claim with honesty, fairness, and reasonable care. The law offers strong protections for policyholders, but proving bad faith can be complex. With the right documentation and legal support, you can hold your insurer accountable and seek the compensation you deserve.