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What is a bad faith insurance claim?

In recent posts, we've spoken a bit about insurance law as it applies to auto accident coverage in the state of New Jersey. Auto insurance coverage, of course, is a critical resource for those injured in a car accident in New Jersey, and motorists rely on their insurance companies to deal fairly with them in paying claims.

Unfortunately, insurance companies don't always do right by their policyholders or those injured by policyholders. When this happens, the accident victim can end up being left to handle significant medical and other costs on their own. In some cases, the efforts of a policyholder to hold the insurance company to their obligations may be futile without taking legal action. In such cases, bad faith litigation may be a possible way to achieve resolution.

Bad faith claims are premised on the principle that New Jersey insurance companies owe their policyholders a duty of good faith and fair dealing in settling claims. An insurance company may be held liable for bad faith in cases where the company had no reasonable basis to deny the coverage and where the insurance company was aware of or recklessly disregarded that lack of reasonable basis.

The standard of proof for a bad faith claim in New Jersey, then, is relatively difficult to meet. In short, a claimant must be able to show that there is no debate--either on grounds of fact or law--as to whether the insurance company should have paid the claim. An insurance company that only acted negligently in failing to pay a claim or which made a mistake of some sort cannot be held liable for bad faith. This standard applies equally to both first- and third-party coverage disputes.

In our next post, we'll continue looking at this topic, as well as how our firm can help auto accident victims obtain the insurance coverage due to them.

Source: Federation of Regulatory Counsel, Inc., "Recent Decisions Impacting "Bad Faith" Law in New Jersey," Merin & O'Neill.  

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