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Washington Insurance Fair Conduct Act becomes law

Insurance industry associations are criticizing Washington Gov. Chris Gregoire for signing into law the Insurance Fair Conduct Act, a measure they say will raise insurance costs.

The law, which will take effect on July 22, increased allowable monetary damages claimants are able to collect from insurers, requires payment of costs and attorneys’ fees, and permits the courts to award triple damages as a punitive measure.

According to the American Insurance Association, National Association of Mutual Insurance Companies, Professional Insurance Agents (PIA) of Washington and the Property Casualty Insurers Association of America, ESSB 5726 will encourage lawsuits by plaintiff attorneys, and lead to a backlog in the courts.

The law “will line the pockets of plaintiff trial lawyers with gold at the expense of the insurance consumer. [ES]SB 5726 is a perfect example of special interest legislation being cloaked in the guise of consumer protection,” said Christian John Rataj, NAMIC western region state affairs manager. “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.”

“The Governor’s decision to sign [ES]SB 5726 despite its acknowledged, dangerous flaws is a great disappointment … Washington will become the easiest state in the nation in which to file frivolous, costly lawsuits against insurance companies,” said Kenton Brine, PCI Northwest regional manager. “By setting the nation’s lowest threshold for allowing punitive lawsuits against insurers for even minor or accidental claims-handling mistakes, ESSB 5726 will allow virtually every insurance claim, regardless of merit, to become a “bad faith” lawsuit.”

“The Governor’s signing of this legislation is especially perplexing given her stated priority of making Washington a more friendly state in which to do business,” said Ken Gibson, AIA vice president of the western region. “Adding a layer of costs onto small and large businesses alike would seem to be very counter productive to her goal of improving the business climate. Unfortunately, insurance claims handling in Washington will now be out of step with the rest of the nation.”

“More liability for insurance companies and the potential of a lawsuit in every policy written is not good for business and it is definitely not good for consumers,” said PIA Washington/Alaska Executive Vice President Clark Sitzes. “All it will lead to is higher premiums because of a rise in risk for insurance companies.”

He noted that Washington has consumer protection laws, with the right to sue for breach of contract, bad faith and other issues and recover damages as well as attorneys fees.

Yet he said the insurance commissioner and department of insurance “are tireless watchdogs for the consumers of this state and that also makes this law totally unnecessary.”

The problem with the law, the association said, is that there is an assumption that insurance companies are not taking care of their obligations.

“The insurance companies writing business in Washington State care about the consumers they insure,” Sitzes said. “For proof you need look no farther than the statistics generated by the catastrophic windstorms of last winter. Hundreds of claims filed and the Washington Department of Insurance received virtually no complaints about failure to honor insurance.”

Topics Carriers Legislation Washington