The Senate Judiciary Committee was still studying a bill early last week that would allow third party claimants to sue an insurance company, if it acts in “bad faith” when refusing to pay claims. House Bill 5290 – approved by the House 80 to1 on May 5 – is opposed by every insurance company with headquarters here, insurance industry trade associations, the Governor’s Insurance Task Force, and the state’s three largest Chambers of Commerce, according to Kenneth Nails, general counsel for Amica Mutual Insurance Co. in Lincoln and a Task Force member. On the other side of the debate: the Rhode Island Trial Lawyers Association.
Gov. Lincoln Almond had not taken a position on the bill last Tuesday, but was watching its progress in the General Assembly, according to spokesman Jim Beardsworth.
Opponents contend the bill is “not only anti-insurance, but anti-business,” Nails said. Allowing a third party – someone who has filed a claim against an insurance policyholder and feels the claim was handled unfairly – to sue the insurance company could increase insurance rates and cause other adverse economic impacts, Nails said.
Now less than a dozen states apparently allow some form of third party bad faith lawsuits, including Massachusetts, Florida and West Virginia. California allowed them up until 1988 when the state Supreme Court reversed its decision in a 1979 case involving Royal Globe Insurance Co.
In California during the nine years when such suits were allowed, insurance companies reported that the average cost of bodily injury claims tripled from $50 per insured vehicle to $184 per insured vehicle, according to Nails. That rate was the highest in the nation, he added.
And another study showed that states with “weak bad faith laws” have seen a 6.4 percent increase in automobile insurance rates, Nails said.
Rhode Island law now allows the policyholder to sue his insurance company, if he feels the company has breached its contract, according to Joseph Annotti, an assistant vice president with the National Association of Independent Insurers. NAII is a trade association that represents some of the country’s largest insurers, including Metropolitan and Allstate.
And if a third party feels he or she was treated unfairly, that person can file a complaint with the state Department of Business Regulations, which regulates the insurance industry, Annotti said. Rhode Island has an “unfair claims settlement act,” which lists 16 things an insurance company cannot do when settling a claim, including low-balling its value and dragging out the settlement process. Annotti said if an insurer violates these rules, DBR can issue a cease and desist order, fine the company, or revoke its license.
Nails said of House 5290: “It’s unnecessary. Absolutely unnecessary. There’s sufficient recourse for claimants. What the Trial Bar (trial lawyers) wants is to go for punitive damages.”
Another cause for concern in the bill is wording that would also put self-insured companies at risk for third party bad faith lawsuits, Nails added.
“Stop & Shop, GTECH, Textron, Fidelity they insure themselves,” Nails said. “In effect, if someone were to slip and fall on their property, someone could not only sue them, but if GTECH doesn’t treat them right, they can sue for punitive damages.”
Under existing law plaintiffs can only recover actual damages, he said.
“This is really an economic issue. On the one hand you cannot invite companies here, like Fidelity, and invite companies to stay here, like Amica, and turn around and slap them on the face with new causes of action,” Nails said. “It shows we’re not business friendly, we’re lawsuit friendly.”
Meanwhile, the Trial Lawyers Association’s chief lobbyist, Anthony DeSisto, argued the bill is simply strong “consumer protection legislation” and said he doesn’t understand why it has generated so much opposition. The 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.”
The proposal would just extend the protection that already exists in Rhode Island for insurance policyholders, DeSisto said.
Henry Monti, a past president of the Trial Lawyers Association, spends most of his time dealing with personal injury claims at Gemma Law Associates in Providence.
“We’ve been having a problem in representing these people, consumers and their family members, particularly in regard to property damage,” Monti said. Sometimes settlements have been “delayed when (they) really shouldn’t (be)” by insurers, he added.
“We’ve had first party bad faith here for about 20 years. Insurance companies are doing well; they’re all recording record profits. This isn’t designed to hurt anybody; this is designed to make sure that they treat everybody in good faith,” Monti said. “This bill is designed to level the playing field.
“How could it cost them more money, if there haven’t been any significant bad faith cases in Rhode Island in the past 13 years?” he asked.
Differences in Rhode Island’s law would protect insurers from “frivolous lawsuits,” he said, arguing that standards for establishing such a case in California were not very high.
“It’s very important, because the insurance companies are getting more and more consolidated. They’re going to be bigger and bigger companies,” Monti said. “And the only protection the individual is going to have is the law and his lawyers.”
DeSisto added: “This is a technical correction. For them to say the entire insurance industry is going to come crashing down because of it, just doesn’t seem reality based.”
But Annotti said “it’s a huge issue, not just for insurance companies, for anyone that pays insurance premiums or for anyone who self insures.
“Insurance premiums rise, because the cost of settling claims increases; that’s not myth that’s fact,” he said. ”Merely the threat of a lawsuits is enough to inflate the cost of a payment. When claims get inflated, guess what: Premiums go up.”
