S1559, legislation that would expand policyholders’ ability to bring bad faith claims against their automobile insurers, was released from the Senate Commerce Committee on Thursday, January 21, 2021, with amendments.

The sponsor of the bill, Senator Nicholas Scutari, testified in support of this legislation. Senator Scutari generally claimed that policyholders have no recourse against their auto insurers when they delay payment or offer unreasonably low settlements on UM/UIM claims (i.e., coverage for auto accidents involving uninsured or underinsured motorists). To remedy this purported problem, S1559 allows policyholders to bring private civil actions against their auto insurers for any “unreasonable delay or unreasonable denial of a claim for payment of [UM/UIM] benefits under an insurance policy” or violation of N.J.S.A. 17:29B-4 (which lists prohibited insurance trade practices that are currently enforced by the New Jersey Department of Banking and Insurance). 

S1559 does not define an “unreasonable” delay or denial, creating uncertainty that must be resolved through litigation. The bill does state that claimants are not required to prove that an insurer’s actions were part of a “general business practice”.  Most important, though, the initial draft of the bill provided that a successful claimant is entitled to “actual damages caused by the violation including, but not limited to, actual trial verdicts” and “prejudgment interest, reasonable attorney’s fees, and all reasonable litigation expenses”. At the outset of the hearing, however, Senator Scutari announced that the sponsors would be amending the bill to remove entitlement to interest, attorneys’ fees and litigation expenses.

NJCJI was among several representatives of the business community testifying against S1559. Insurance industry representatives were quick to point out that, contrary to Senator Scutari’s claim, the New Jersey Supreme Court recognized a cause of action for policyholders against carriers for bad faith delay or denial of claims. See Pickett v. Lloyd’s, 131 N.J. 457, 621 A.2d 445 (1993). Insurance industry representatives also testified that the bill would result in a significant increase in bad faith litigation due to its broad and ill-defined standards for violations along with the strong financial incentive for plaintiffs’ lawyers embedded in its remedy (i.e., actual trial verdicts often far exceed UM/UIM policy limits).

NJCJI’s President, Anthony Anastasio, then testified that the New Jersey Supreme Court and its Civil Practice Committee already carefully analyzed the exact issue raised by this bill. See Wadeer v. New Jersey Mfrs. Ins. Co., 220 N.J. 591, 110 A.3d 19 (2015). As a result of that analysis, the Court amended the Offer of Judgment rule to incentivize prompt payment of legitimate UM/UIM claims. Notably, the Civil Practice Committee rejected other penalties, such as fee shifting on all first-party claims, out of fear of generating distortions in the insurance market that could result in higher premiums. NJCJI argued that the Supreme Court’s well-crafted solution to this issue effectively struck the right balance between deterring delay and unnecessary litigation, while protecting carriers’ ability to investigate questionable claims and hold policies to their terms.

The Senate Commerce Committee voted in favor of releasing the bill, 3-2, on party lines.  The bill has yet to proceed in the Assembly.  Please email Anthony if you would like to discuss this legislation further.

Read NJCJI’s full written testimony here.  Listen to testimony delivered in Committee here. (S1559 is introduced at 41:30 and Anthony’s testimony can be heard at 50:36).

On Wednesday, January 13, 2021, the New Jersey Supreme Court issued its decision in Branch v. Cream-O-Land Dairy, in which NJCJI appeared as amicus curiae. The decision presents a cautionary tale for employers who rely on comments or decisions by officials from the New Jersey Department of Labor and Workforce Development (NJDOL) regarding the appropriateness of the employer’s compensation practices under the State’s wage-and-hour law.

By way of background, under New Jersey law, no employer can be held liable for failure to pay the minimum wage or overtime compensation if, in good faith, it conformed with and relied on a regulation, order, ruling, approval or interpretation by the Commissioner of NJDOL or the Director of its Wage and Hour Bureau, or an administrative practice or enforcement policy of NJDOL. Although this statutory “good-faith” defense to wage-and-hour claims has existed for decades, there is scant case law explaining the types of communications from NJDOL that employers can rely on or how they can establish good faith. 

Cream-O-Land Dairy received three separate communications from NJDOL officials over the course of ten (10) years, each after a field investigation, informing the company that it paid its employees appropriately. None of those communications, however, came from the NJDOL Commissioner or the Director of its Wage and Hour Bureau. Cream-O-Land was later sued by a putative class of employees for alleged unpaid compensation. In response, Cream-O-Land argued that its compensation practices were appropriate for the reasons previously communicated by NJDOL. Further, Cream-O-Land argued that the above-described statutory defense applied based on its good-faith reliance on NJDOL’s communications. The trial court agreed with Cream-O-Land and dismissed the class action on the basis of the good-faith defense, but the Appellate Division later reversed.

In support of the employer’s legal position in the case, NJCJI argued that the text and intent of the good-faith defense should allow employers to rely on guidance communicated by lower-level NJDOL officials when they act as the final decision-maker in an investigation. Unfortunately, the Supreme Court disagreed, relying on a narrow reading of the applicable statute to further the remedial purpose of the New Jersey wage-and-hour law. Accordingly, written communications from the Commissioner of NJDOL or the Director of its Wage and Hour Division, stating that an employer’s compensation practices are appropriate, remain the only clear safe harbor from litigation.

However, NJCJI is still pleased that the Supreme Court explicitly acknowledged the difficult situation that New Jersey employers face here. That is, the Supreme Court noted that NJDOL presently offers no formal procedure for employers to seek advisory opinions signed by the Commissioner or Director. Without a mechanism for employers to solicit such opinions, businesses risk litigation even when other NJDOL officials repeatedly assure them that their compensation practices are appropriate. The Supreme Court therefore suggested that NJDOL develop a procedure for employers to obtain these advisory opinions. The Supreme Court further suggested that the Legislature and NJDOL determine whether additional statutory or regulatory guidance should be provided to employers and employees regarding the applicability of the good-faith defense in wage-and-hour proceedings.

With the recent enactment of New Jersey’s “wage theft” law, employers of all sizes now face astronomical liability for violations of the State’s wage and hour laws. Employers should not be forced to endure costly “bet-the-company” litigation to get answers on these complex and often unsettled legal issues; especially in today’s unprecedented operating environment due to COVID-19. Accordingly, NJCJI hopes that NJDOL will follow the Court’s suggestion and establish a procedure for obtaining reliable advisory opinions on these issues so that a clear safe harbor will be available to employers. Further, NJCJI hopes that NJDOL or the Legislature will provide further clarity regarding the applicability of the good-faith defense.

NJCJI would like to thank Jeffrey Jacobson of Faegre Drinker for his excellent advocacy and representation of NJCJI in this matter.

A copy of the Court’s decision can be found HERE