Minnesota Republican Gov. Tim Pawlenty is expected to sign a recently approved measure setting penalties for bad faith actions by insurers, according to an industry trade group, which said the modified bill was "acceptable."
The legislation, given final approval Monday on a 93-39 vote in the House, has exclusions for punitive damages and damage caps that the American Insurance Association said are "relatively high."
"One key aspect we are most pleased with is the bill is limited to first-party claims only, thereby eliminating the potential for double lawsuits for each insurance claim as was the case with the original bill," said Steve Schneider, AIA vice president, Midwest Region.
Mr. Schneider said while AIA wishes the damage limits were lower, "a majority of the bill is acceptable."
The issue of "bad faith" insurance practices was under debate at the state capitol for two years. The final bill, (Senate File 2822), that passed through a conference committee this week, limits bad faith causes of action to first-party claimants only.
If an insurer is found to be acting in bad faith, policyholders can be awarded up to $250,000 in damages, with a $100,000 cap on attorneys' fees, but punitive or exemplary damage awards are excluded.
Before it went to the conference committee the Senate version of the bill had been changed to put a cap on attorneys' fees of $40,000 while providing consumers with a maximum award of only $100,000 if insurers were found to have acted in bad faith.
The original Senate version had no such attorneys' fee limit and was read by some to also allow for third-party bad faith claims, even though trial lawyers advocating the measure said it was intended to be first-party only.
Under the measure sent to the governor, a reasonable basis is required for denying a claim, and insurers are allowed to conduct a fraud or fire investigation without violating the statute.
"The very high level allowed for attorneys' fees is a cause for concern going forward, as that may encourage unnecessary lawsuits, but having limits on damage awards is a sound policy," Mr. Schneider said. AIA said in no way is the bill a satisfactory template for national legislation.
If the governor signs the bill, the new law would become effective Aug.1.
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