Washington Bad Faith Initiative Passes

I’ve been remiss in passing along one other election result of insurance interest—the results of Washington State’s Referendum 67—although to my defense, it’s a few time zones away, I don’t work much with Washington these days, and my free time the past few days has been eaten up doing battle with my family’s health insurer and a hospital’s business office.

Anyway….Referendum 67 passed 57%-43%.

As to what Referendum 67 actually is, I point to this Insurance Journal article:

Washington’s Referendum 67 was launched by a coalition of business and community leaders, consumers and insurers after the Legislature enacted the “Insurance Fair Conduct Act” (SB 5726), a law that allows first-party insurance claims to become a “bad faith” lawsuit—triggering access to awards totaling three times actual damages. Insurers believed SB 5726 discourages insurance companies from investigating or denying any claim to avoid the potential of a lawsuit alleging bad faith, and gives trial lawyers new incentives to file suits on even the most questionable claims.

The legislation would allow the filing of first-party bad faith lawsuits against carriers for punitive damages in cases where a carrier denies a claim, and the policyholder believes that the settlement denial was simply “unreasonable,” including a “mere” unintentional technical violation of the Washington Administrative Code, Rataj explained. “It was much-less restrictive than other states where claimants can only sue for denials that are willful, deceitful or fraudulent,” he said.

I can understand consumer advocates’ desire to provide additional incentive for insurers to treat insureds who are also claimants fairly. (After the last round of personal phone calls, emails, and faxes, I can really understand….)

However, the way of the world being what it is, I can’t help be concerned about the potential for certain types of lawyers seeing a profit opportunity here.

And, the measure doesn’t seem to be to forgiving of the reality that honest mistakes can, and will, occur. Yes, such honest mistakes ought to be fixed as quickly as possible upon discovery, but the threat of treble damages for innocent mistakes seems to be rather harsh.

It also would seem to provide a certain incentive for mid-level managers and executives to fight remedying such errors. It’s not impossible to imagine a business being willing to fix a simple mistake…but if the cost of the remedy quadrupled, under some circumstances it’s very easy to imagine the inflated cost being large enough to merit fighting.