Washington Insurance Fair Conduct Act Becomes Law

Insurance industry associations are criticizing Washington Gov. Chris Gregoire for signing into law the Insurance Fair Conduct Act, a measure they say will raise insurance costs for consumers.

According to the American Insurance Association, National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America, Senate Bill 5726 will encourage lawsuits by plaintiff attorneys, and lead to a backlog in the court system.

“SB 5726 will line the pockets of plaintiff trial lawyers with gold at the expense of the insurance consumer. SB 5726 is a perfect example of special interest legislation being cloaked in the guise of consumer protection,” said Christian John Rataj, NAMIC Western Region State Affairs Manager. “This new law will increase the cost of insurance for individuals and businesses in the state, burden the judicial system with frivolous legal claims, and adversely impact the timely settlement of insurance claims.”

“The Governor’s decision to sign SB 5726 despite its acknowledged, dangerous flaws is a great disappointment. Under this law, Washington will become the easiest state in the nation in which to file frivolous, costly lawsuits against insurance companies,” said Kenton Brine, PCI NW Regional Manager. “By setting the nation’s lowest threshold for allowing punitive lawsuits against insurers for even minor or accidental claims-handling mistakes, SB 5726 will allow virtually every insurance claim, regardless of merit, to become a “bad faith” lawsuit – triggering access to awards totaling 3 times actual damages.”

“The Governor’s signing of this legislation is especially perplexing given her stated priority of making Washington a more friendly state in which to do business,” said Ken Gibson, AIA vice president, Western Region. “Adding a layer of costs onto small and large businesses alike would seem to be very counter productive to her goal of improving the business climate. Unfortunately, insurance claims handling in Washington will now be out of step with the rest of the nation.”

SB 5726 increased allowable monetary damages, and the law requires payment of costs and attorneys’ fees, and permits the courts to award triple damages as a punitive measure. The legislation is scheduled to take effect on July 22, 2007.

Source: AIA, NAMIC, PCI