Introduction

Since New Jersey is home to several large pharmaceutical manufacturers (J&J, Roche, Celgene, Dalichi Sankyo, etc), the Garden State, as it is known, is a preferred form for pharmaceutical-related products liability insurance claims. In addition to a number of insurance claims arising from products liability, New Jersey has vibrant policyholder claims for both intellectual property as well as unfair trade practices. New Jersey’s Governor Florio also crafted the Spill Act (NJSA 58:10-23.11s), which was a precursor the CERCLA (now known more widely as Superfund). As a result, New Jersey has been, and remains, a hotbed of environmental litigation. It is the 11th-largest state in the United States by population and also the most densely populated state in the US. It ranks 16th in domestic insurance carriers’ licensees. Despite its relatively small size, New Jersey ranks eighth in total premium written as reported to the National Association of insurance commissioners and their annual statement filings. It has very active shipping ports and ranks sixth in ocean, and inland marine premium is written within the market. New Jersey is fifth in private flood insurance with 5.93% of the United States market.

Shore State With Increasing Risk From Global Warming

In light of global warming and the increasing frequency and severity of weather events, premiums charged regarding New Jersey residential and business insurance have been rising significantly over the past ten years. New Jersey’s relatively low geography has also given rise increasingly severe and frequent flood events. Because many businesses are located in flat areas and near wetlands, New Jersey businesses are experiencing not only an increase in flooding events but in business interruption too. Its seashore is also an area of note from an insurance perspective. Historically, its shore towns were once summer playgrounds, as people from New Jersey, New York and Philadelphia would migrate for a week or two to the New Jersey shore and get sunburned. The trend over the last decade, which has accelerated after COVID-19, is that many are New Jerseyans are building year-round min-mansions on the Jersey shore. These homes are both expensive and particularly subject to damage from storm events. Insurance carriers are well aware of these trends and are (i) using sophisticated computer models to track and predict damage from storm events and (ii) refusing to offer coverage (or offering limited coverage) to properties that pose significant likelihood of claims. There are entire areas today where flat-roofed houses are either unable to obtain insurance or are able to obtain only moderate limits. Flooding has become an increased hazard in a number of areas of New Jersey.

This article addresses two topics regarding New Jersey insurance law today.

• Bedrock principles of New Jersey law and some highlights where New Jersey insurance law is distinct from New York (New Jersey’s sister state and where insurance for many New Jersey insurance companies is placed).
• Recent developments in New Jersey insurance law.

Bedrock Principles of New Jersey Insurance Law

New Jersey and New York share many common legal principles but in insurance the two states differ dramatically

On many legal issues at common law, New Jersey and New York law are similar if not identical. Insurance, however, is one area in which New York and New Jersey diverge significantly – especially in (i) environmental insurance law and (ii) products liability coverage. The two states have in common that an insurance policy (i) is a contract of adhesion and (ii) will be enforced as written to fulfill the expectations of the parties. If a term or condition is ambiguous, it will be construed against the insurer under the doctrine of contra proferentum. The ambiguity must be a real one and related to the claim, not merely some term that is arguably unclear.

New Jersey risks are likely to get new jersey law – unless otherwise expressly agreed

If an event arises in New Jersey, the New Jersey courts have made clear that they are going to apply New Jersey law to risk that affects New Jersey citizens and the state of New Jersey (Gilbert Spruance Co. v Pennsylvania Mfrs. Assn., 1345 N.J. 96 (1993)). Conversely, out-of-state risks faced by New Jersey residents or domicilaries are not likely to be addressed under New Jersey law unless there is a choice of law provision (Fu v Fu, 160 N.J. 108 (1999), in which New Jersey residents travelled to New York and had an accident in New York state. New York law applied to their insurance claim as the event occurred in New York).

Four corners plus

Many states make use of the “four corners” rule in applying insurance coverage to a claim. New York, for example, which is the most similar of the US states to English law in interpreting insurance contracts, applies the four corners rule. Following the Restatement (Second) of Contracts, means that the reasonable person standard will be applied in interpreting contracts. Compared to New York law, New Jersey is more lenient in analysing coverage and will consider the four corners plus extrinsic as well as some parole evidence. Typically, the New Jersey courts will engage in a searching review of the operative complaint and related documents in the event of a verified complaint to determine if coverage is triggered.

Exclusions limiting coverage are read narrowly – grants of coverage are ready broadly and liberally in favour of granting coverage

As set out in Merck & Co. v Ace American Ins. Co., 475 N.J.Super. 420, 434 (App. Div. 2023), grants of insurance coverage are read broadly and liberally in favour of the policyholder (475 N.J.Super. at 444).

New Jersey law maintains that insurance policies are contracts of adhesion and that contra proferentem applies

New York law emphasises reading the contract as written and is most akin to English Law. In contrast, for example, New Jersey law respects the insurance agreement as written, but if there are any significant ambiguities, New Jersey courts are more likely than New York courts to construe those ambiguities and the insurance policy in the light most favourable to the policyholder. New Jersey law views insurance policies as a contract of adhesion and therefore will construe any ambiguities against the drafter, which typically is the insurance company (Progressive Cas. Ins. Co. v Hurley, 166 N.J. 260 (2001); Zacarias v Allstate Ins. Co., 168 N.J. 590).

The New Jersey Supreme Court has stricken the sudden and accidental pollution exclusion on the basis that it was obtained by fraud upon the Department of Banking and Insurance (DOBI)

In the 1980s and 1990s, New Jersey led the nation in striking down the pollution exclusion, which was a provision endorsed into the Comprehensive General Liability (CGL) policy. The sudden and accidental pollution exclusion, adopted by the Insurance Services Office in 1973, was the basis for denial of many environmental cleanup claims. After reviewing the insurance carrier’s filings with DOBI, the Supreme Court concluded that the insurance carriers had misled DOBI by representing that the addition of the exclusion made no difference in the scope of coverage. Years later, the insurers argued that the language means what it says and therefore there was a significant change. The Supreme Court of New Jersey found the insurers estopped (Morton International v Commercial Union Insurance Co., 134 N.J. 1 (1993)).

New Jersey, along with California, has been a leader in insurance law regarding allocation of risk over time and over layers of coverage

New Jersey and California were two early leaders in addressing how risk and loss should be allocated over time among policies that provide coverage for environmental remediation (Owens Illinois v United Insurance, 138 N.J. 437 (1994) and Carter Wallace v Admiral Ins. Co., 154 N.J. 312 (1998)). The general policy of New Jersey allocation law is to (i) treat both insurer and insured as agreed by contract but (ii) where there is ambiguity, to maximize coverage for the policyholder.

The New Jersey DOBI is increasingly active

DOBI has become increasingly aggressive in confronting insurance fraud through enactment and enforcement of the Insurance Fraud Prevention Act, (the “Fraud Act”), which seeks to detect and eliminate insurance fraud. Although the Fraud Act, N.J.S.A. 17:33A-2 has not yet reached the New Jersey Supreme Court, it has reached the appellate division, an intermediary court, and there are a number of similar claims being prosecuted in the trial courts across the state of New Jersey. Insurance fraud has primarily been a concern in auto insurance and within healthcare, but there are an increasing number of allegations of insurance claims in the commercial insurance market.

Insurance carriers in New Jersey are increasingly asserting claims against policyholders sounding in fraud and abuse

Insurance carriers are more frequently making use of New Jersey’s Racketeering and Corrupt Influences Act (RICO), N.J.S.A. 2C:41-1, as well as the New Jersey Fraud Act. In Allstate v Carteret Medical Center, 2025 WL 52045 (29 January 2025), the appellate division of the New Jersey Superior Court (an intermediary appellate court) addressed claims by six related insurers against health care providers and others. The court found that these claims of fraud and abuse were not subject to the Personal Injury Protection (PIP) arbitration under new Jersey’s insurance cost reduction act (Liberty Ins. Co. v Techdan, LLC, 253 N.J. 87 (2023)).

New Jersey law permits extra-contractual claims if the carrier fails to settle within its policy limits

A further key decision in New Jersey law is Rova Farms v Investors Insurance Co., 65 N.J. 474 (1974). In this matter, a young man was injured at a resort and faced significant bodily injury. The case could have been resolved within the primary insurance policy limits, but the insurance carrier thought it could force the plaintiff to take less than the full face value of the policy. Unfortunately for the insurer, the primary carrier was wrong and the jury returned a verdict that was in excess of the primary policy. The Supreme Court of New Jersey found that the carrier was liable for the full amount of the jury verdict (even that beyond the policy value) because the carrier had violated the duty of good faith to resolve the matter up to the policy limits. Rova Farms is not truly a bad faith case but is perhaps best considered an opinion reforming the insurance policy in light of the insurer’s failure to settle within limits. Where a claim could have reasonably been resolved within the carrier’s policy limits, and it was reasonably obvious that coverage exists, the carrier is liable extra-contractually for any risk posed to the insured beyond the policy limits.

Bad faith is largely unavailable to policyholders in New Jersey

Although in theory a carrier can be found guilty of having acted in bad faith under New Jersey law, it is exceedingly rare. In the significant decision in Pickett v Lloyds, 131 NJ 457 (1993), it was shown that a policyholder is unlikely to obtain damages for bad faith because New Jersey law perceives bad faith to be a contractual issue (not a claim in tort) and the insurer is protected if the carrier can show that its actions were fairly debatable. To put this in context, in the Pickett case, the Supreme Court of New Jersey rejected the decisions in a number of other US states finding that an insurance carrier’s failure to act reasonably to protect the policyholder rendered the carrier liable in tort. Instead, the Supreme Court of New Jersey cited an Alabama case (National Security v Bowen, 447 S 2nd (1983) in which the insurer hired a hitman to attack the policyholder as the standard by which one could find bad faith. Given that hiring a hitman to kill a policyholder is extreme even by New Jersey standards, it is highly unlikely that any court in New Jersey will find bad faith against a carrier.

Consequential injury and damages for denial of coverage

The New Jersey courts have found that not only direct injury but consequential injury falls within the scope of insurance under New Jersey law (Great American Ins. Co. v Lerman Motors Inc., 200 N.J. 319 (App. Div. 1984); Cypress Point Condominium Assan, Inc., v Adria Towers, 226 N.J. 403 (2016)). 

The New Jersey Supreme Court found that insurance policies are a creature of contract and therefore following the issue English precedent in Hadley v Anor v Baxendale & Ors, EWHC J70 (1854), 156 ER 145, consequential damages are largely unrecoverable. Finding that contract was distinct from tort, the Supreme Court noted that in those rare circumstances where there was true bad faith, that perhaps the policyholder could recover. Absent egregious circumstances, however, punitive damages are not recoverable for an insurer’s wrongful refusal to pay a first-party claim (Taddei v State Farm, 401 N.J. Super. 449 (2008)). Simple negligence on behalf of the carrier where the mere failure to settle a debatable claim does not constitute bad faith (Bidali v New Jersey Mfrs. Ins. Group, 220 N.J. 544 (2015)). Put differently, to establish bad faith in a first-party action the policyholder must demonstrate that there was no debatable reason for the denial of benefits.   

New Jersey state court is preferred by policyholders; federal court is the preferred forum for carriers

There is a significant divide between federal and state courts. The state court of New Jersey is generally more favourable to policyholders and most policyholders will avoid federal court if at all possible. In theory, the New Jersey state and federal court should look at insurance coverage issues the same way because there is no federal law of insurance. That said, almost all policyholders will, if at all possible, avoid federal court in New Jersey. The distinction between the application of New Jersey insurance law has been stark at times. Where the same event gave rise to insurance claims in federal court as well as in the state court, the New Jersey state court has granted coverage while the federal court has declined coverage for the same event. 

Groundwater is considered property of the state

This is significant because CGL policies provide third-party coverage. That is, they provide coverage for damage done to the property of others. A discharge or release on site would be first-party coverage, but for the frequent fact in New Jersey that such discharge or release will impact groundwater. For the policyholder, this provides the avenue to trigger a comprehensive general liability policy. Because New Jersey law deems groundwater property of the state, policyholders facing PFAS/PFOA claims as well as those facing reopeners at RCRA and CERCLA sites due to PFAS/PFOA are likely to have some insurance coverage available.

Per and polyfluoroalkyl (PFAS/PFOA) substances hazardous under New Jersey law

Although the USEPA has been slow to declare PFAS/PFOA a hazardous substance under federal law, New Jersey has not hesitated. The Biden administration threatened potential reopeners under CERCLA and RCRA but was slow to act. New Jersey used its own Spill Compensation and Control Act, N.J.S.A. 58:10-23.11s to declare PFAS and PFOA hazardous substances. Notably, NJDEP reached a settlement with Solvay on 28 June 2023 regarding groundwater and soil contamination near West Deptford, New Jersey; but this was not a reopener. Solvay was required to pay for public water system upgrades to remove PFAS from drinking water as well as potable water wells. Similarly on 19 April 2024, the USEPA issued a policy threatening enforcement regarding PFAS and PFOA discharges at RCRA and CERCLA sites (David M Uhlmann, Assistant Administrator for USEPA’s Enforcement and Compliance Assurance Department) but it is unclear under the Trump administration that any such matters will be pursued.

Insurance claims are a chose in action

Once a claim has been asserted against a policyholder and triggers potential coverage, that insurance claim under New Jersey law is a chose in action and is freely assignable as property under New Jersey law. Because the right to assign a chose in action is a statutory rate, anti-assignment provisions contained in most insurance policies will not be honoured as they are deemed to be void as against public policy. Givaudan Fragrances v Aetna Casualty, 227 N.J. 322 (2017) expressly states that New Jersey law recognises insurance claims as personal property and disfavours any restriction upon alienation (sale) of those claims (See also N.J.S.A. 2A:25-1).   

By court rule in state court a policyholder who is successful in obtaining a declaratory judgment against an insurance carrier is entitled to legal fees and costs against the insurer

Although this rule has not been incorporated into the Federal Rules of Civil Procedure, it is deemed a substantive right in New Jersey law and therefore most federal courts will honour the obligation to provide a successful policyholder with fees and costs (Rule 4:42-9(a)(6)). The purpose of this rule to discourage insurance companies from unjustifiably denying valid insurance claims and refusing to defend or indemnify (Occhifinito v Olivo Const. Co., LLC, 221 N.J. 443 (2015)). 

New Jersey is really a “duty to reimburse rather than pay for defence” state

Under New Jersey law, the duty to defend is effectively a duty to reimburse. One of the ramifications of Burd v Sussex Mutual Ins. Co., 56 N.J. 383 (1970) is that New Jersey typically will not provide policyholder defence costs as the matter is actually progressing but rather converts the duty to defend into a duty to reimburse. This is an important consideration for a policyholder because if the defence costs are critical, New Jersey is not a particularly favourable forum. If however one is looking for indemnity costs, which cover the risk of the actual matter insured, and New Jersey is a reasonable forum, defence costs will typically follow at the conclusion of the matter.

The burden of proving defence costs are not insured is upon the carrier

If a complaint against the policyholder contains multiple counts and at least one is insured, the burden of evidence is then placed upon the carrier to demonstrate that a particular cost or expense was not related to the insured claim as opposed to the uninsured claim (Hebela v Healthcare Ins. Co., 370 N.J.Super. 260 (App. Div. 2004); SL Industries v American Motorists Ins. Co., 128 N.J. 188 (1992)).

In general, New Jersey law does not permit insurance coverage for punitive damages

As a general rule (with a few notable exceptions), New Jersey law does not permit an insured to claim coverage for a finding of punitive damages (Johnson & Johnson v Aetna, 285 N.J. Super. 575 (App. Div. 1995). The theory behind New Jersey’s refusal to grant coverage for an award of punitive damages is that the policyholder (claimant) should be responsible for its actions. One area that is open in New Jersey’s theories on punitive damages is that there are some punitive damage awards that are statutory and not based upon bad faith or reckless behaviour. It is unclear how the New Jersey courts will address a claim for coverage in such circumstances.

A carrier that unduly delays advising regarding the existence of coverage, or that fails to investigate a claim, may well be estopped from denying coverage under New Jersey law

In Griggs v Bertram, 88 N.J. 347 (1982), the Supreme Court of New Jersey found that the insurer was estopped from raising defences unless the carrier had investigated promptly upon receiving notice of the claim. The carrier had engaged in almost no investigation and therefore most of the carrier’s affirmative defences were unavailable to the carrier. If an insurer unduly delays in responding to a claim, they will be estopped from denying coverage.

Insurance claims are typically tried to a bench, but if there are factual (credibility) questions to be determined, they may be tried to a jury

Although declaratory judgment actions are inherently tried to a bench, if there are issues such as whether a broker exceeded their authority, that matter may be tried to a jury (Insurance Company of North America v Amadei, 162 N.J. 168 (1999)). All remaining issues, however, are to be tried to the bench.   

New Jersey is a “continuous trigger” state

The triggers for coverage under New Jersey law include (i) injury in fact, (ii) manifestation and (iii) continuous trigger. Under the continuous trigger theory, if an injury is not a discrete event, the date of the occurrence is the entire period from exposure to manifestation (Owens-Illinois, 138 N.J. 437).

Part B of a CGL (personal injury) policy has provided coverage to New Jersey insureds for defamation, libel, slander claims

This is evident from the cases of Information Spectrum, Inc. v Hartford, 182 N.J. 34 (2004); and City of Cape May v St. Paul, 216 N.J.Super. 697 (App. Div. 1987). 

Current Trends in New Jersey Insurance Law

Cybersecurity and data privacy

New Jersey has seen a significant increase in cyber threats, such as hacking, phishing, and various e-mail threats. New Jersey’s regulators are very focused on ensuring that businesses have appropriate protection in place, including insurance coverage. Insurers in turn are subject to rigorous laws regarding data breaches and this affects both how the insurers capture the information of any breach and how they relay it to the public. New Jersey is perhaps not unique in facing cyber threats but one of the trends we are seeing in New Jersey is that admits remain ultimately relatively low and higher limits are in essence really unavailable.

Merck & Co. v Ace, 475 N.J. Super. 430 (2023) is one of the most significant recent cases addressing a claim for cyber-related losses and in the interpretation of the war exclusion clause and commercial property insurance policies. The court found that the trial court was correct to look at the drafting history of the war exclusion clause and the insurer’s failure to use available policy provisions to exclude or limit coverage of cyber-related events.

Climate change and natural disasters

Rising sea levels and more frequent severe weather events are wreaking havoc on policyholders and carriers alike. Insurers in New Jersey and frankly in the entire eastern seaboard are using increasingly sophisticated models to determine what risk they are being exposed to. This includes expanded flood events and therefore flood insurance is becoming a more expensive option. Although there is a national flood insurance programme, New Jersey has some insurance flood coverage available to affected homeowners, but it is typically insufficient to rebuild.

Telemedicine

The COVID-19 pandemic accelerated the adoption of telemedicine and New Jersey has adopted laws requiring health insurers to cover medicine services at the same rate as in-person visits. Similarly, with regard to mental health care coverage, there is a strong legislative intent that mental health and substance use disorder treatments are covered equally with physical health treatments. This of course is causing tension for health care insurers and is putting pressure on rising rates.

Cannabis insurance

As the cannabis industry grows in New Jersey there is an increasing demand for specialised insurance products to cover some of the unique risks associated with cannabis business, including crop insurance, liability insurance and product liability coverage. To date there do not appear to have been any significant claims arising from cannabis, but given the number of cannabis businesses and the density of the population it is quite likely that this will be a significant area over the coming years.

Business interruption coverage

In May of 2021, the New Jersey legislature enacted a law requiring insurers issuing policies covering property loss or damage including business interruption to provide policyholders with a one-page summary of common insurance clauses. The issue with business interruption coverage however does not appear to be really so much the scope of the coverage but rather that policyholders frequently fail to understand that they need to give notice immediately in the event that they intend to claim business interruption. The typical American response to a problem is to try to fix it as best possible and then pursue the insurance company involved, but the business interruption coverage explicitly states that the policyholder must give notice before taking action. Unfortunately, this seems to be a continuing challenge.

Insurance coverage for greenwashing claims

Bearing in mind that the pollution exclusion has gone through multiple iterations since 1974, New Jersey courts have found that in several cases that later pollution exclusions bar coverage. Regarding known product failures, insurers in New Jersey have argued successfully that the pollution exclusion applies and, alternatively, that the exposure or claim was intentional and therefore violated the principle of fortuity in the formation of the insurance agreement.

Coverage for natural resource damages is at best unclear in New Jersey

Most New Jersey courts view damages as environmental response costs. NRDs are really restoration costs to restore the environment to a usable condition (either by wildlife or by people). Other cases have found that all agreed-upon environmental response costs are an insured risk under a CGL.   

COVID-19 insurance coverage

New Jersey law was initially unreceptive to claims for COVID-19 because of bacteria and virus exclusions within many of those policies (AC Ocean Walk v American Guarantee, 2022 WL 2254864 (N.J. App. Div. June 23, 2022); Jenkinson’s South v Westchester Surplus Ins. Lines Insurance Co., 2023 WL 3987554 (App. Div. June 13, 2023). s, 2023 WL 63883756 (App. Div. 2023)). Viral and bacterial exclusions do not violate public policy under New Jersey law.   

No duty to defend intentional or reckless acts arising addressed by employment liability claims

The Supreme Court of New Jersey has found that New Jersey law does not require insurers to defend or indemnify for acts of intentional or reckless acts within the scope of labour and employment law.   

Conclusion

New Jersey law continues to evolve and be a favoured forum for policyholders, but it is highly unlikely that the Supreme Court of New Jersey today will lead the nation in developing insurance law as the Garden State has done in the past. Rather, the trend is towards a less liberal interpretation of coverage than historic New Jersey law requires. The state’s insurance law had previously forged its own path (as the California courts had done), but today the courts are more likely to follow the Restatement of Insurance than set their own policy. Forum selection within the Garden State can have a significant impact upon outcome as there is a difference in treatment of policyholders and carriers in federal court versus state court, as well as within different areas in the state court system.