Insurance lobby focuses on legal issues

The state’s insurance lobby has been busy at the State House over the last six months, keeping tabs on hot issues such as House Bill 5290, which would allow third-party bad faith lawsuits against insurers, and lead hazard legislation. Both high interest bills, however, wound up tabled last month toward the end of the General Assembly session.

Also drawing attention from the insurance industry in the first half of 1999: the appointment of Thomas Schumpert as the new head of the state Department of Business Regulations. Gov. Lincoln Almond named Schumpert, a Cumberland resident with extensive banking experience, to replace Barry Hittner about four months after Hittner vacated the DBR director’s job. The DBR regulates the state’s insurance industry.

The state Senate confirmed Schumpert’s appointment to the $87,692 a year post on May 25 with a vote of 45 to 0.

As far as Bill 5290 goes, it’s fair to say that most insurance company executives weren’t sad to see the proposal tied up by the Senate Judiciary Committee, which held a six-hour public hearing on the matter. Every insurance company with headquarters in Rhode Island, several insurance industry trade associations, and the Governor’s Insurance Task Force publicly opposed the bill. The bill’s major support group was the Rhode Island Trial Lawyers Association.

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The Judiciary Committee voted to hold the bill for further study in early June, which prevented it from being voted on by the entire Senate. It had already been approved by the full House of Representatives by a vote of 80 to 1 on May 5.

As proposed, the bill would allow third party claimants to sue an insurance company if it acted in “bad faith” when refusing to pay out a claim. Under current state law, the person who owns the insurance policy can sue his or her insurance company if “bad faith” actions are suspected. A third party, however, can only file a complaint with the DBR, which could issue a cease and desist order against the insurer, fine the company, or revoke its license.

The National Association of Independent Insurers argued that such lawsuits have driven up insurance costs in the handful of states that allow them. In California, where third-party bad faith suits were allowed from 1979 to 1988, insurance companies blame such suits for an increase in auto insurance prices, according to NAII officials. The average cost of bodily injury claims tripled from $50 per insured vehicle to $184 per insured vehicle, according to other insurance industry statistics.

Kenneth Nails, general counsel for Amica Mutual Insurance Co. in Johnston, said in a recent interview: “It’s unnecessary. There’s sufficient recourse for claimants. What the Trial Bar wants is to go for punitive damages.”

But the Trial Lawyers Association contends the bill would not cause outrageous insurance increases.

Anthony DeSisto, the association’s chief lobbyist, said the bill is simply strong “consumer protection legislation.” Its goal, he said, is to prevent “harass and delay” tactics allegedly used by some insurance companies to get claimants “so desperate they’ll take almost anything.”

As for the lead legislation, state Senator Thomas J. Izzo asked that the bill he submitted be “held on the desk” until the next session to avoid a frenzied review in the last days of this session. The Cranston Democrat said he wanted to give General Assembly members adequate time to deal with the bill’s detailed and complex proposals, which includes incentives for property owners to remove lead hazards from rental units.

Izzo, who chairs the Senate Health, Education and Welfare Committee, worked with a panel of nearly 20 representatives from the business community, state government, and local advocacy groups on the 32-page bill. Because it is a high-interest bill, General Assembly leaders allowed the bill to be filed in mid-May, about three months after the usual deadline.

Among other things, the bill would phase out the state’s existing “innocent owner provision,” which protects property owners from liability if a child or pregnant woman is poisoned by lead on their property; establish a $25,000 liability cap for insurance companies when steps have been taken to make property lead safe and poisoning still occurs; and would set up a fund for lead poisoning victims.

The bill has raised some controversy though among real estate agents who argue that forcing landlords to make their property lead safe could increase rental rates and make home ownership impossible for some people. The cost for making a single unit lead safe can be $7,000 to $14,000, which could be overwhelming for people who own triple-decker apartment buildings. The Trial Lawyers Association has also voiced objections to setting limits on the compensation a victim or victim’s family can seek from insurance companies.

In a statement on the Senate floor, Izzo asked for a hold on the bill, saying: “Often we pass legislation without concerning ourselves too much with how it will actually be implemented. Our job is usually to enact law, the function of the executive branch is to implement it. With regard to the Lead Hazard Mitigation Act, which is extraordinarily important legislation, I have concluded that it is appropriate for us to develop a good understanding of how implementation will occur.”

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