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Op-Ed: Insurance Scammers Will Be the Winners If This Fair-Conduct Bill is Enacted

Most insurance claimants in New Jersey are honest, but a new bill that could triple damages on insurers for bad-faith dealings would be a boon to the ‘slippery minority’

Dennis Jay
Dennis Jay

Anxious homeowners deceived by shady contractors who did shoddy repairs — or no repairs — after Hurricane Sandy well know the hazards of insurance scams.

Well-organized, staged “crash rings” prowl some urban areas of New Jersey. Fake whiplash claims and other auto scams are another reason honest New Jersey drivers pay one of the nation’s highest auto premiums.

Medical rings also are a menace. A $100-million kickback scheme by Biodiagnostic Laboratory Services in Parsippany, for example, is a large drain on New Jersey health policyholders.

Scams (like bogus medical treatment after a car crash) also directly victimize people.

Fraud fighters in the Garden State wage an effective battle, yet scammers are too widespread. So here comes the New Jersey Insurance Fair Conduct Act (A-4293). It could be an insurance criminal’s best friend.

Triple damages

The bill would grant New Jersey residents a private right to sue insurers for alleged bad-faith dealings. Courts and juries also could impose triple damages on insurers if claimants win the lawsuit. Insurers owe New Jersey residents a fair shake in settling claims. This means paying claims as promptly and fully as the claims merit. Sandy’s aftermath has forced vigorous public debate about fair claim dealings — by insurers and policyholders alike. Balanced and reasonable bad-faith laws can help keep insurance dealings fair and upright. Most states have such protections.

Yet A-4293 is an outlier, and anything but fair play. Triple damages are so unfairly punitive that the measure would backfire. It would help cause costly surges of insurance fraud. New Jersey residents would keep paying a new fraud tax of yet-higher premiums, and a victim tax if they’re directly scammed by cons the bill unleashes. Here’s why:

Massive triple damages would be a Sword of Damocles hanging over every claim. The threat of defending a huge and possibly bogus bad-faith lawsuit could force many insurers to quickly — and reluctantly — settle claims instead of fully reviewing the facts to reach a fair and accurate claim decision.

Maybe a claim dispute is simply an honest, good-faith difference of opinion — or more darkly, the claimant threatens a frivolous lawsuit for a quick insurance windfall. Even worse, the claim is possibly fraudulent. In each case, insurers need enough time to investigate and be certain a claim is fairly decided — whether for whiplash, home fire, or a reported home burglary.

Extorting insurers

Inevitably, scammers would wield the cudgel of triple-damage suits to extort insurers into paying suspect claims. Any suspect claim, such as a fake slip-and-fall injury in a restaurant, could incite a dishonest lawsuit. Staged crashes or medical rings, especially, could mass-produce false claims and threats of bad-faith suits.

Insurers would constantly be forced to decide: Pay up now before they can properly and fairly investigate or be hauled into court for a costly lawsuit magnified by the threat of triple damages, no matter how spurious the claim. Juries can be less than sympathetic to insurers, and skilled criminals can exploit that feeling. The massive legal exposure would make defending against contrived bad-faith lawsuits an uncertain bet, and blood sport for scammers.

A-4293 thus would be an ace in the hole for fraudsters, to the continued harm of honest New Jersey residents. Even when honest, good-faith differences of opinion are prematurely paid solely to avoid a financial bath in court, that’s money out of everyone’s pocket.

New Jersey already has strong laws and regulations that protect consumers if they have a dispute with their insurer.

The vast majority of New Jersey insurance claimants are honest and forthright. The crooked or simply slippery minority can cause outsized damage to everyone else. Instead of tripling damages, let’s redouble New Jersey’s anti-fraud efforts.

Dennis Jay is the executive director of the Coalition Against Insurance Fraud.

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