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New Jersey’s Duty of Good Faith and Fair Dealing in Insurance Contracts
When you pay your business insurance premiums every month, you expect your insurer to honor the coverage you purchased. Many business owners sign insurance policies without reviewing every detail, trusting that their insurer will handle claims fairly if something goes wrong. New Jersey law supports that expectation.
Every contract in the state, including insurance policies, includes a legal obligation known as the duty of good faith and fair dealing. When an insurer fails to meet that obligation, a business may have legal options beyond a simple claim dispute.
What Is the Duty of Good Faith and Fair Dealing?
Under New Jersey law, every contract carries an implied duty of good faith and fair dealing. In the insurance context, this means insurers must act honestly and fairly when handling policies and evaluating claims. They must review claims promptly, investigate the facts carefully, and consider the interests of the policyholder as well as their own. Courts have long recognized this duty in contract law.
What Actions Can Violate This Duty?
An insurer may violate its duty when it handles a claim in an unreasonable or unfair manner. Common examples include delaying a claim without justification, denying coverage without conducting a proper investigation, or misrepresenting the terms of a policy. Offering an unreasonably low settlement or failing to communicate important information about coverage can also raise concerns. Courts typically focus on whether the insurer had a reasonable basis for its decisions and whether it evaluated the claim in good faith.
How Does This Apply to Business Insurance Claims?
Commercial insurance policies—including general liability, property, and business interruption coverage—are all subject to this legal duty. When a claim involves property damage, lost income, or another business interruption, delays or improper denials can create serious financial strain. Courts recognize that an insurer’s conduct during the claims process can affect a company’s operations, which is why they closely review how insurers handle commercial claims.
What Is the Difference Between a Denied Claim and Bad Faith?
A denied claim does not automatically mean an insurer acted in bad faith. Insurance companies can deny claims when coverage does not apply or when the evidence does not support the claim. The key question is whether the insurer had a reasonable basis for its decision after conducting a full and fair investigation. If the insurer ignored evidence, rushed the investigation, or applied policy language in a misleading way, the denial may cross the line into bad faith.
What Damages Can a Business Recover for Bad Faith?
If a business proves that an insurer acted in bad faith, it may recover more than the original claim amount. Courts may award consequential damages, which are losses that resulted from the insurer’s improper conduct. For example, a company might recover lost income caused by an unreasonable delay in processing a claim. In rare cases involving especially serious misconduct, punitive damages may be available under the New Jersey Punitive Damages Act.
What Should I Do After a Suspected Bad Faith Denial?
If you believe your insurer handled a claim improperly, gather all of the documentation related to the claim, including denial letters, policy documents, claim forms, emails, and other written communications. Request a clear written explanation of the insurer’s decision and keep records of all conversations with claims representatives. After reviewing the information, consider contacting the insurer to ask for clarification or reconsideration of the decision. If the issue cannot be resolved directly, speak with an experienced insurance attorney.
Our Experienced New Jersey Insurance Lawyers at Herold Law, P.A. Are Ready to Protect Your Business Interests
If you need legal advice about business insurance matters, contact our experienced New Jersey Insurance Lawyers at Herold Law, P.A. Call 908-679-5011 or complete our online form today for a consultation. We are located in Warren, New Jersey and serve clients throughout the state.
