Washington Bad Faith Law Increased Homeowners Insurance Costs by $190 Million

The Insurance Fair Conduct Act has increased litigation and settlements resulting in $190 million in higher homeowners insurance costs over two years, according to a new study released by the Insurance Research Council (IRC).

The IRC study examined the impact of the Insurance Fair Conduct Act enacted by in Washington in 2007. The study compared claim frequency and severity loss trends in Washington with frequency and severity trends in four other states with similar first-party bad faith laws.

Kenton Brine, assistant vice president for the Property Casualty Insurers Association of America, commenting on the new study stating, “Under the law, plaintiffs are required to notify the Washington Office of Insurance Commissioner not more than 20 days before a bad faith lawsuit may be filed. Since the law took effect in December 2007, thousands of new lawsuit notices have been filed – the chart tracking the notices is over 400 pages long. More than 150 lawsuit notices have been filed in the first 3 months of 2011 alone.

By creating the lowest standard in the country for someone to file a first-party bad faith lawsuit and allowing insurers to be sued for three times the amount of damages, plus attorney fees, the law has lead to larger payouts for personal injury lawyers and an increase in costs borne by insurers and policyholders. The threat of costly litigation and exposure to court-awarded treble damages and attorney fees has forced insurers to settle more claims with little investigation or pay claims in excess of their true value. That threat – and those costs – show no sign of relenting in 2011 or beyond.”