Washington State's New Insurance Law Being Closely Watched Across Country
Georgia needs to pass an insurance law similar to the one recently passed in the State of Washington requiring insurers to pay triple damages and attorney's fees if they are found to have acted in "bad faith". Unfortunately, the bad faith law in Georgia has very little deterrent value as it only provides wronged policyholders 25% of the actual damages plus attorney's fees. That is a minor penalty to pay especially with smaller claims.
Across the country, insurance companies, trial lawyers and legislators are closely watching a November referendum in the state of Washington that could change how insurers are required to treat their customers. Insurance companies are using the referendum process to try to strike down the new law in Washington state.
Insurance giants like Allstate, State Farm, Safeco and Farmers have poured more than $8 million into the referendum battle. Their goal is to convince voters to reject a law passed earlier this year that could force insurers to pay up to triple damages and lawyer fees if they fail to pay a legitimate claim and then lose in court. A "yes" vote on the referendum allows the law to go into effect while a "no" vote strikes the law down.
The campaign to woo voters has already begun. The insurance industry-backed group is already running television commercials depicting greedy lawyers planning to sue and warning consumers that the law will lead to frivolous lawsuits and higher rates.
It's not a new tactic by the insurance companies. Earlier this year, CNN exposed a controversial insurance industry strategy that began in the mid-1990s.
Former insiders say insurance companies began limiting or denying legitimate claims in minor injury cases and reaped billions in profits as a result. The strategy has tied up courts across the country -- over minor claims, judges told CNN -- for months and even years. How did they do it?
"It really came down to basically three elements: a position of delay, a position of denying a claim and ultimately defending that claim that you're denied," said Jim Mathis, a former insurance industry insider.
Supporters of the law say it forces insurance companies to pay legitimate claims in a timely and fair fashion and frees the courts from relatively minor cases that clog the system for months and even years. If companies act in good faith, they are not going to have a problem and there will be no penalty. On the other hand, if they are found to have acted in bad faith with their own customers, then they will have to pay a reasonable penalty for their wrongdoing. This provides a reasonable deterrent to the insurance companies to do the right thing, especially when it comes to their own policyholders to whom they owe a fiduciary duty of good faith.
