Lawyers Seek to Lift W. Va. Ban on Certain Bad Faith Suits

While West Virginia Gov. Joe Manchin and the insurance industry credit last year’s ban on “third party, bad faith” lawsuits for $77 million in policy rate cuts, Jenny Bonham believes it helped one insurer rip off her neighbor.

Bonham, a lawyer, told lawmakers last week she agreed to represent her neighbor after an auto accident, when the other driver’s insurer offered a low settlement despite a finding of fault.

Until the 2005 ban, West Virginians could sue to allege the other party’s insurer had failed to resolve a claim after an accident. Bonham said the neighbor’s accident had caused $5,000 in damages plus losses to his business. She recalled speaking to an adjuster after the insurer balked at paying more than $1,500.

“The adjuster kind of snickered and said, ‘You don’t have third party bad faith in West Virginia anymore. Go ahead and sue us,”’ said Bonham, of Summers County.

Bonham filed a lawsuit over the underlying claim, and the insurer later settled for $2,500. Because it was half of what her neighbor needed, Bonham said she waived her fee in the case.

Bonham was one of several residents and lawyers who urged a joint House-Senate committee assigned to insurance issues to repeal the lawsuit ban. They also questioned whether the ban has resulted in the savings touted by Manchin and the industry.

Lawyer Michael Romano argued insurers cut rates across the country as investment income boosted industry profits.

“Despite catastrophic nationwide events such as Hurricane Katrina, industry profits rose 18 percent in 2005 to yet another record level of $44.8 billion,” Romano said. “The industry used a couple of down years in a down market to coerce this Legislature and others to eliminate important consumer rights.”

Like Bonham, Romano cited cases of clients forced to sue for the underlying claim in the absence of leverage provided by the third party bad faith law.

“The insurance companies’ goal is to make people wait as long as possible and earn as much income as possible, because most victims will give up or settle for less,” Romano said.

Jim Kiser told the committee that the threat of a third party bad faith lawsuit helped him resolve a claim just before the ban took effect. The 27-year-old mechanic from Ripley said the insurer for the driver who rear-ended him last year had tried to offer less than the Blue Book value for his wrecked vehicle.

“That is what kept insurers in check, because they knew they had to be reasonable,” said Mark Staun, Kiser’s lawyer, after the committee meeting. “Now, there’s no recourse.”

Jill Bentz, a lobbyist for insurers, said after the meeting that the 2005 ban allows consumers to file complaints with the state insurance commissioner’s office. That administrative complaint process is working, Bentz said.

Bentz also noted that insurers had stopped selling new auto and home policies in the state or avoided the West Virginia market altogether before last year’s legislative changes.