Washington insurers, trail lawyers at odds over treble damages

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With millions in campaign contributions and plenty of name-calling, trial lawyers and insurance companies in Washington are doing their best to spice up this fall’s otherwise ho-hum statewide vote. At issue is Referendum 67, a new law that would allow consumers to collect triple damages if their insurer unreasonable denies a claim or violates unfair practices rules. The law does not apply to health benefits.

In May, Gov. Chris Gregoire signed the “Insurance Fair Conduct Act” into law despite protests by the American Insurance Association, National Association of Mutual Insurance Companies and the Property Casualty Insurers Association of America.

“SB 5726 will line the pockets of plaintiff trial lawyers with gold at the expense of the insurance consumer. SB 5726 is a perfect example of special interest legislation being cloaked in the guise of consumer protection. This new law will increase the cost of insurance for individuals and businesses in the state, burden the judicial system with frivolous legal claims, and adversely impact the timely settlement of insurance claims,” said Christian John Rataj, NAMIC Western Region State Affairs Manager, shortly after the bill’s signing.

Based on their uneasiness with the new law, insurance industry associations launched a public campaign, hoping for support at the ballot box. With 155,000 petition signatures and $8 million contributed to the “no” campaign, Referendum 67 earned a spot on election day.

“Voters can — and should — reject this self-serving, trial lawyer-sponsored legislation,” Reject R-67 spokeswoman Dana Childers said.

Trail lawyers, however, said the threat of triple damages under the new law would keep insurance companies from unfairly rejecting legitimate claims. The Washington State Trial Lawyers Association and various attorneys have donated more than $877,000 to the Approve 67 campaign. The “yes” campaign also hopes to drum up support from interest groups, such as AARP, and labor unions.

“People buy insurance, pay their premiums on time, and all they ask in return is for the insurance industry to honor its commitment and deal with them honestly,” Approve 67 spokeswoman Sue Evans said. Because R-67 only allows triple damages when an insurance company acts unfairly, insurance firms will no longer get a competitive edge from over-zealously denying claims, she added.

Meanwhile, national research firm Milliman Inc. predicted Referendum 67 could raise insurance rates for Washington businesses and families by as much as an additional $650 million annually. For its study, Milliman based its estimates of R-67’s fiscal impact on the experiences of five states with similar laws. Researchers found that insurance premiums for Washington residents would go up due to added legal costs.

Corroborating those findings is state Office of Financial Management analysis that predicted the referendum would raise rates. OFM analysis predicted government agencies would likely pay more for auto, property and other liability insurance as a result of more lawsuits.

If the law stands, insurance companies will be forced to settle more lawsuits regardless of their legitimacy for fear of paying inflated damage awards, Childers said.

Regardless of merit, every insurance claim can become a “bad faith” lawsuit triggering access to award damages, said Ken Gibson, AIA vice president, western region.

Yet Evans and other R-67 supporters say existing types of lawsuits aren’t consumer-friendly enough because they don’t necessarily apply to all types of insurance, she added.

According to Democratic House Majority Leader Lynn Kessler, the bill will help some of the 4,000 people who file complaints each year, giving them greater recourse to the courts. “This is for all the people who get stiffed by their own insurance company,” she said during debate on the bill.