Articles & Updates

Don’t Look Back: New Jersey District Court Finds That IFCA Does Not Apply to “Ongoing” Denial of Benefits

Dec 18, 2023 | Articles & Updates

Article by Daniel Twilla, Esq. and Josephine Mlakar, Law Clerk

A United States District Court for the District of New Jersey recently granted an insurer’s motion to dismiss an insured’s bad faith claim under the Insurance Fair Conduct Act (“IFCA”) where the date of the alleged bad faith conduct preceded the effective date of the IFCA.  Roach v. Allstate Insurance Co., 2023 WL 8542463 (D.N.J. Dec. 8, 2023).

In Roach, the insured submitted a claim for underinsured motorist (“UIM”) benefits following an automobile accident in 2019 that left her injured.  The insurer denied the insured’s UIM claim in 2020, and the insured sued for breach of contract against the insurer.  The IFCA was enacted on January 18, 2022.  The UIM claim proceeded to trial, during which the insurer maintained a “no-pay” position.  On February 22, 2023, verdict was entered in favor of the insured and against the insurer.  The insured then sued the insurer for (1) violation of the IFCA; (2) breach of fiduciary duty; and/or (3) breach of the covenant of good faith and fair dealing.

The insurer filed a motion to dismiss the IFCA claim, arguing that the IFCA does not apply to bad faith conduct that precedes the effective date of the statute.  The insured argued that maintaining a “no-pay” position in bad faith during the underlying litigation could give rise to a cause of action under the IFCA.

The District of New Jersey granted the insurer’s motion to dismiss the IFCA claim, finding that the insured failed to state a viable IFCA claim. The court held that the insured could not maintain a claim under the IFCA for bad faith conduct that preceded the enactment of the IFCA.  The court examined the IFCA’s statutory language – “shall take effect immediately” – and concluded that the plain and unambiguous language clearly intended for the IFCA to apply prospectively to bad faith conduct occurring after January 18, 2022.  The court explained that “the inquiry under the act is not when the underlying accident occurs, or even when the claim for insurance benefits accrues. Rather, it is when a claim for benefits is denied or, having been submitted, an unreasonable delay ensues.”

Additionally, the court noted three circumstances in which the presumption of prospectivity may be rebutted, one of which is when an amendment is “curative.” The court held that the IFCA is not “curative.”  The court explained that the “IFCA represents a meaningful development in the insurance industry because it provided a private cause of action to aggrieved insureds and broadened the scope of remedies available for prevailing parties, including treble damages and attorneys’ fees.” 

Lastly, the court held that the insurer did not violate the IFCA under a “continuing violation” theory by maintaining a “no-pay” position in the underlying litigation that was pending when the statute was enacted.  The court explained that the insured’s allegations did not raise any “independent acts of bad faith separate from the insurer’s claim denial that occurred prior to the IFCA’s enactment.”  The court further explained that if it were to apply the “continuing violation” theory, “the distinction between retroactive and prospective application would be obliterated, and insurance companies like Defendant would be required to reexamine any claim denials occurring prior to IFCA’s enactment if disputed after January 18, 2022.”