New Jersey Bill That Could Recreate Car Insurance Crisis of Early 2000s is Headed for Gov. Murphy’s Desk

By Sarah Wall | January 12, 2022

Trial attorneys are on the move. Having won a victory in New York on New Year’s Eve, when Gov. Kathy Hochul signed legislation tipping the balance squarely in the plaintiffs’ favor, trial attorneys now have their sights set next door on New Jersey.

On Monday, by a vote of 45-26, with nine members not voting, the New Jersey Assembly passed Assembly Bill 1659/Senate Bill 1559, the so-called “New Jersey Insurance Fair Conduct Act.” While the legislation claims to promote consumer protection, the only real beneficiaries will be the plaintiff attorneys, who will have many new opportunities to pursue frivolous lawsuits against insurers. Consumers, far from being “protected” from their insurers, will face higher premiums from the passed-along costs of high settlements or jury verdicts. Thus, unless Gov. Phil Murphy vetoes the bill, it’s New Jerseyans who will be the biggest losers from the anti-insurance policies of the Garden State.

Particularly, if signed into law, the bill will allow individuals injured in car accidents to sue their insurer if they feel it unreasonably denied or delayed a claim. If the insurance company goes to court and loses, the plaintiff is entitled to three-times the damages for which they originally sued, which could far exceed the amount of coverage originally purchased.

Triple damages, plus attorneys’ fees, litigation expenses, and the huge amount of time and resources it would take to argue individual claims in court, create a major incentive for the insurance company to settle lawsuits out of court, whether they’re frivolous or not. Trial attorneys know this, and with insurers on the back foot, the amount they seek in settlements would increase correspondingly.

Whether the insurance companies settle or fight in court is ultimately inconsequential, since either way, the costs would be transferred to and borne by New Jersey drivers. Already premium increases are being foretold. Geico, which offers the least expensive average car insurance in the state, sent an email last month to their New Jersey customers warning them about the bill’s potential to increase their premiums drastically.

History gives credence to Geico’s concerns. Two decades ago, a dysfunctional, uncompetitive marketplace was making it impossible for four of the six largest insurance companies to do business in New Jersey; insurers that did were forced to offer the highest premiums in the country. Legislators finally woke up to the crisis when State Farm announced in 2001 they would have to leave the state, leaving 800,000 New Jersey drivers with essentially nowhere to go. A comprehensive reform package was passed in 2003 with bipartisan support, returning $170 million to consumers in price reductions and refunds and paving the way for 70 insurers to compete in the state. A year later, State Farm announced the new reforms meant they could continue operations after all. Now, A-1659 threatens to return New Jersey to the bad old days, when legislators will have to learn again the consequences of their policy decisions.

Already, New Jersey has strong laws that protect consumers, and insurers are monitored and regulated by the state’s Department of Banking & Insurance to ensure those who file claims receive fair, speedy treatment. That leaves the only beneficiary as plaintiff attorneys. But they need no assistance from the state legislature: a recent report outlines the ways in which the plaintiff bar already benefits from “social inflation,” rising court awards from either out-of-court settlements or jury verdicts. Legislation like A-1659 that further tips the scales for the trial bar is not only unnecessary; it is deeply harmful to the millions of consumers who must purchase insurance in New Jersey.

So why is this unnecessary, potentially harmful legislation being pursued with such alacrity? The brisk march forward does contradict its usual pattern. The bill has been introduced several times over the course of the last few years, but with other groups issuing the same warnings on it since at least 2018, it has always stalled. A-1659 seemed to be destined for the same ill fate: the Assembly version of the bill was introduced in January 2020—a full two years ago—and its Senate counterpart just one month later. But while the Senate version passed in January 2021, the Assembly version stalled until just last month—23 months after it was introduced—when it passed out of Committee, only to receive a full vote and passage three weeks later. Why? A look at the sponsor list gives a clue. The Senate version’s main sponsor is the new Senate President, Sen. Nicholas Scutari, who was informally selected by the Democratic caucus in November 2021 after outgoing Senate President Stephen Sweeney lost his election in an upset. The official vote on Scutari’s elevation to Senate president will take place today, January 11, just one day after final passage of his “Insurance Fair Conduct Act” out of the legislature.

It’s clear why legislators have not focused on all of the externalities and have instead insisted A-1659 would be a protective measure for those who end up in accidents. The truth—that individuals who end up in car crashes are already protected by state law and regulations, and that A-1659 would benefit trial attorneys more than anyone else, while causing insurance rates for millions of drivers to skyrocket—would no doubt make the bill untenable. After Monday’s vote, the responsibility of preventing a potential resurgence of the insurance crisis of the early 2000s rests on Gov. Murphy and his veto pen. For the sake of millions of New Jersey drivers and insurance consumers, it is one he should take.

Topics Auto New Jersey

About Sarah Wall

The R Street Blog on Insurance Journal presents the work and viewpoints of the free market think tank R Street Institute in Washington, D.C. Sarah Wall is Government Affairs Manager (Northeast Region).

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