Alliance, AFACT Ask Governor to Veto WC and Litigation-Cost Control Bills

The Alliance of American Insurers is on record as having asked Texas Gov. Rick Perry to veto two insurance-related bills One of the bills, SB 1654, is also opposed by the Association of Fire and Casualty Companies of Texas. The governor had until June 17 to “…act on the measures.” The first, HB 3458, would turn the Texas Workers Compensation Insurance Fund into a mutual insurance company. The Alliance says flaws in the bill will lead to unfair competition.

“While the Alliance and its member companies do not oppose TWCIF becoming a mutual insurer, we do oppose the manner in which the bill preserved the fund’s federal tax advantage,” wrote David R. Anderson, Alliance vice president and assistant director of workers’ compensation and health.

“We estimate that this federal tax exemption, which is applied to all the fund’s residual market and voluntary writings, has saved the fund approximately $250 million since 1991, and thus has been a major contributor to its approximate current surplus of $600 million.

Anderson went on to state the Alliance’s “concern that this substantial excess surplus will be used by the new mutual to unfairly compete in the Texas workers’ compensation market with excessively low prices or unreasonably high dividends to policyholders to obtain even more voluntary business.

“This could gradually force the market share of private insurers lower and lower, resulting in an unhealthy monopoly in Texas…This is not an idle fear. We are seeing an advanced stage of this now in Oregon and to a lesser extent in California.”

The second bill, SB 1654, strips an insurer’s ability to control how a lawsuit it is funding is defended and will lead to substantial increases in insurance costs for Texans, claims the Alliance.

AFACT says the bill could eliminate the insurance companies’ traditional role of participating in the defense of their clients sued in tort litigation. This role is important because insurers are typically furnishing most, if not all, of the money that is used to either settle a claim or pay a judgment.

Although the insurer might not be a named defendant in a suit, an insurer paying the cost of defense has a right to provide input and control over how a lawsuit is defended, according to Joe Woods, Alliance Southwestern regional manager.

“While attorneys must preserve their independent professional judgment, this should not translate into the right of independent action that is contrary to the needs and desires of the insurer/client. It must be the client who decides how to proceed in a matter, not the attorney,” he wrote in a letter to Gov. Perry.

“This control is granted through the insurance contract and is justified since the contract usually imposes the ultimate financial risk on the insurer,” Woods added.

Topics Lawsuits Carriers Texas Workers' Compensation