Washington Aims to Establish Insurance Fair Conduct Act

The Washington Senate has adopted an amendeed bill that insurance industry associations say will increase the number of lawsuits filed and needlessly drive up insurance costs for consumers.

Senate Bill 5726 was developed to create an insurance fair conduct act. According to the bill report, insureds and first party claiminats may bring a cuase of action against an insurer for unreasonable or negligent denial of coverage.

Supporters of the bill believed that Washington law put a heavy burden on insureds when they make an insurance claim, and any false statement, regardless of intent, voids the policy. Thus, the bill was developed “to create an incentive for insurers to treat claimants fairly.”

On the other hand, those that oppose the bill said it would “encourage frivolous lawsuits, because there is an incentive for insureds to litigate because plaintiffs who prevail under a bad faith claim are routinely awarded attorney’s fees and costs.”

The American Insurance Association (AIA), the National Association of Mutual Insurance Companies (NAMIC) and the Property Casualty Insurer Association of America (PCI) said lowering the threshold for first-party bad faith claims against insurers will provide claimants monetary damages, costs and attorney’s fees, and permit the courts to award treble damages. SB 5726 will make these same remedies applicable to unfair claims practice violations under the Washington Administrative Code.

“It is no surprise that personal-injury attorneys are angling to encourage lawsuits and line their pocketbooks. Unfortunately, SB 5726 will force Washington consumers and businesses to pay the price for their craving for ever more litigation – lawsuits that already cost every man, woman and child in Washington more than $800 per year,” said Steve Suchil, AIA assistant vice president, state affairs.

“SB 5726 is one of the most harmful measures included in a massive, unprecedented personal injury lawyer agenda moving through the Washington Legislature. Plaintiff’s attorneys paid $1.5 million in political contributions to candidates here over the last two years, and now they are demanding a return on their investment,” said Kenton Brine, PCI Northwest regional manager.

“Current law in Washington already protects consumers by providing for full compensation in the event of wrongful denial of insurance benefits, including compensation for attorney fees and court costs. Expanding insurer liability will likely increase the number of frivolous lawsuits filed against insurance companies in Washington, which will make it more difficult to do business in the state and ultimately increase insurance costs for consumers,” said Christian John Rataj, NAMIC western region state affairs manager.

SB 5726 was heard by the House Insurance, Financial Services and Consumer Protection Committee on March 22, 2007. The Committee will take a final vote on the measure on March 27, 2007. If the bill is approved by the Committee, it will then go for a vote of the full House of Representatives.

Sources: AIA, NAMIC, PCI, Washington State Legislature