Washington Bad-Faith Bill Veto Urged

Three insurance groups said they are asking Washington's governor to veto a measure that would make it easier to convict insurers of bad faith and impose triple damages.

The Insurance Fair Conduct Act, which is opposed by the Property Casualty Insurers Association of America (PCI), American Insurance Association and the National Association of Mutual Insurance Companies was given final approval in the State Senate Saturday by a 31-18 vote.

Democratic Gov. Chris Gregoire now has the bill, which members of her party gave strong support. It also had the backing of a trial lawyer-backed group–the Washington Network for Civil Justice Accountability.

PCI Chief Executive Officer June Holmes wrote the governor that passage of the bill (ESSB 5726) “sends a chilling message to insurance companies domiciled or doing business in the state of Washington.”

She warned the governor that the measure “will prove costly for your state's court system and costly for Washington families and businesses. And yet, to our knowledge, there has been no evidence provided during the hearings or debate on this bill that show a clear and convincing need for this legislation in Washington.”

Ms. Holmes letter said it was not clear why the measure was needed. She said that consumers who have insurance complaints or grievances already have the ability to:

o File a complaint with the state insurance commissioner, which could lead to sanctions ranging from fines to cancelling an insurer's ability to do business in Washington.

o Sue for breach of contract, which provides access to broader damages in Washington than in most other states–and which includes access to recovery of actual damages and attorney fees.

o Sue for bad faith, which allows for even broader damages than those available under breach of contract–and broader than most states in the nation.

o Bring a claim under Washington's Consumer Protection Act, which has been deemed to include the Insurance Trade Practices Act–which (unlike most states) provides access for citizens to a private right of action, allowing for recovery of their policy limits, actual damages and attorney fees and the award of treble damages up to $10,000.

She noted that after a windstorm last year, more than 42,500 claims were processed, and the insurance commissioner's office reported only three complaints led to the opening of a file by the department's consumer protection division.

ESSB 5726, wrote Ms. Holmes, proposes the lowest standard in the nation to trigger access to punitive damages. Any “unreasonable act,” or even a minor violation of a single unfair trade practice in the Washington Administrative Code, could trigger punitive consequences, she said.

The bill, her letter said, has the lowest standard for burden of proof, requiring only a “preponderance of evidence” to establish liability for punitive damages, not “clear and convincing evidence” as is required in 32 states.

“Damages, which may be trebled under ESSB 5726, are all actual damages, which under current Washington law include non-economic damages as well as out-of-pocket expenses. As such, awards will not only increase, but so will the costs of settling disputed claims outside of a trial,” she wrote.

“If this bill is signed into law, Washington insurance consumers and small businesses will pay for the increased insurance costs caused by frivolous litigation,” predicted Christian John Rataj, NAMIC Western Region state affairs manager.

“Signature of this bill will put Washingtongrossly out of step with howinsurance claims are handled by the rest of the country,” said Steve Suchil, AIA assistant vice president, Western Region.