Insurers Trounced In Wash. Bad Faith Referendum

Under the bill, a statutory right to sue an insurer for bad faith is established, the threshold for lawsuits against insurers is lowered, and plaintiffs can sue for triple damages.

The Indianapolis-based National Association of Mutual Insurance Companies (NAMIC) said the Referendum 67 result means "consumers will likely see their rates increase."

The referendum, which passed with 57 percent of the vote, will allow triple damages to be assessed for "bad faith" denials of insurance claims.

Christian J. Rataj, NAMIC's Northwestern state affairs manager, in a statement said that Washington state voters had let "scare tactics of the trial bar lead them to ignore the facts surrounding insurer claims settlement practices and consumer claims experiences."

He noted that the legislation would allow the filing of first-party bad faith lawsuits against carriers for punitive damages in cases where a carrier denies a claim, and the policyholder believes that the settlement denial was simply "unreasonable," including a "mere" unintentional technical violation of the Washington Administrative Code.

According to Mr. Rataj, in other states claimants can only sue for denials that are willful, deceitful or fraudulent.

In its campaign to defeat the law, a combination of business groups–Consumers Against Higher Insurance Rates–had argued that settlement disputes between insurers and policyholders are statistically rare, that existing state law already protected consumers from unfair claims practices, and that the new law would create an unnecessary cost-driver leading to higher insurance rates.

Trial lawyers had countered with horror stories about a number of insurance claim denials.

In Mr. Rataj's view, these were "misrepresentations about a couple of highly sensationalized, aberrational and unrelated claims settlement disputes."

He voiced a hope that Washington voters would "learn quickly, like California voters did, that this new 'pay-more-so-lawyers-can-sue-more' law is nothing but an anti-consumer protection act that only helps trial lawyers redirect policyholder premium dollars to trial lawyer bank accounts."

During the campaign, insurers had presented a study by the consulting firm Milliman Inc., which estimated the measure could cost Washington insurance consumers $650 million annually–or $205 per year for an average family household.

The Milliman study also reported that insurance rates went up in five states with similar laws, and that consumers could see rate increases of up to 7 percent per household.

Insurance groups spent more than $11 million while advocates of the law by comparison laid out less than $4 million. "It was something the industry had to engage in," said Property Casualty Insurers Association of America spokesman Jeffrey Brewer.

Kenton Brine, PCI's Northwest regional manager, said trial attorneys presented "anecdotal stories that were not accurate or germane." One such case, he said, was the tale of a firefighter who was denied a medical claim and died of leukemia. The firefighter was actually covered by a self-insured entity, Mr. Brine noted.

Such anecdotes taken out of context were used to scare voters, he said.

Dana Childers, spokesperson for Consumers Against Higher Insurance Rates, said her group remains "convinced that Referendum 67 will result in more frivolous litigation and higher costs for consumers–concerns we expressed during the campaign."

However, she added, "the voters have spoken and we respect their decision. We will work diligently on behalf of insurance consumers and with the legislature, the governor and the insurance commissioner to ensure that Washingtonians continue to enjoy a healthy and vibrant insurance marketplace."