Insurance Journal is carrying an article offering industry feedback to SB 5276 in Washington State.
SB 5276 lowers the threshold of what constitutes an act of “bad faith” to minor infractions of insurance regs, and ups the potential punitive damage awards when a court finds the expanded threshold for “bad faith” to have been met.
The story includes the following comment:
“This so-called Insurance Fair Conduct Act could make Washington among the worst states in the nation for settling insurance claims,” said John Eager, senior director, claims for PCI. “Washington statutes provide broader remedies and damages than most states and under SB 5726, virtually every insurance claim holds the potential to become a ‘bad faith’ lawsuit. Insurers are already required by law to act in good faith in the interest of their policyholders, and severe penalties exist for those who do not. Consumers benefit from the reasonable resolution of disputes - not from windfall recoveries, higher insurance costs and higher fees for attorneys.”
In the wake of mishandling of some prominent Katrina claims, and general public dislike for “evil insurers”, it’s very understandable why the Washington State Legislature might seek such seeming consumer protection as this. However, I do think it’s worth keeping in mind two big points:
First, remember that most insurers are not altruistic entities. If our costs increase, we will pass those costs back to the policyholders, magnified due to the effects of commission, premium taxes, and risk loading. Most insurers do, after all, operate with an obligation to provide investors with a return appropriate to the riskiness of the business.
Second, does the measure provide for any additional judicial staffing? I don’t know what the situation is like out in the Pacific Northwest, but back here in Connecticut, folks love lawsuits, and hate seeing our already ridiculous level of taxation increased. As a result, we have a civil court system that’s bursting at the seams. My wife and I are claimants in a suit arising from an auto BI claim. Our claim is over five years old and we still have probably a couple of years before we finally get a trial. So please forgive me if I don’t find the prospect of anyone else having to face going to court in a lawsuit-happy, court-understaffed environment to be a particularly good idea.