Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The Minnesota Senate has approved bad faith legislation albeit only after significant insurance industry lobbying ameliorated some of the more onerous provisions of the original proposal.

As originally drafted, SF 2822, an insurer would be deemed to be acting in good faith unless the policyholder could prove the absence of a reasonable basis for denying benefits and that the insurer knew of the lack of a reasonable basis or acted in reckless disregard of the lack of a reasonable basis. A claimant must give written notice 60 days before bringing any such action during which time an insurer may avoid liability by acting to cure the violation.

The revised bill expands the definition of what constitutes good faith, caps the amount of economic damages and attorney’s fees that a prevailing insured may recover, and expressly limits the scope of the legislation to first party insurance (which is defined as precluding claims under liability insurance policies).  The amended version caps attorneys fees at $40,000 while providing consumers up to $100,000 if insurers are found to have acted in “bad faith.”

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The National Conference of Insurance Legislators (NCOIL) is poised to adopt new model legislation governing the role of state guaranty funds in responding to the insolvency of property and casualty insurers. T

he proposed model legislation, which was approved by NCOIL’s property and casualty insurance committee on November 16, 2007, comes in response to complaints that most model acts, which were adopted pursuant to the 1970 National Association of Insurance Commissioners 1970 recommendation, are outdated and do not reflect the complexity and realities of today’s insurance marketplace. The NCOIL action comes at a time when the NAIC model, which was adopted in 1970 and last amended in 1996, is currently being reconsidered by an NAIC receivership and insolvency task force.

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Although insurers have fared relatively well in recent years in contesting law suits alleging  bad faith, they have recently lost ground in state legislatures.  In addition to the new administrative regime for adjusting bad faith claims in Maryland and the Oregon referendum reported on earlier this week by Diane Polscer, legislation has now been proposed in Michigan that would permit policyholders to recover treble damages if an insurer unreasonably denied a claim to sue for damages (including costs).   Senate Bill 866, which was introduced on November 1 and referred to the Committee on Economic Development and Regulatory Reform, would require insureds to give 20 days notice before such claims could be made.

While the fate of SB 866 is unclear, a proposal of this sort would have a dramatic impact on Michigan law.  Michigan is among the few states that do not recognize claims for breach of an impllied covenant of good faith and fair dealing against insurers.   As a result, bad faith damages are, for the most part, limited to penalty interest.

SB 866 also highlights the growing trend of plaintiffs and policyholder to obtain remedies and rights through the legislative process that they've heretofore been unable to secure in court.

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As we previously reported, Washington State voters will decide the fate of the Insurance Fair Conduct Act (IFCA) on Election Day when Referendum 67 appears on the ballot. If passed by voters, the IFCA will allow for un-capped treble damages awarded at the discretion of the trial court, mandatory awards of reasonable attorney’s fees, actual litigation costs and statutory costs for violations. The AP has reported that nearly $14.5 million has been spent by trial lawyers and insurance companies battling over Referendum 67, making it one of the most expensive ballot-measure contests in state history. Stay tuned for our updates on Referendum 67 as Election Day approaches.

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Only two months after Governor Spitzer vetoed efforts to permit "direct actions" in New York and impose a requirement of prejudice in late notice cases, a new bill has been introduced in the State Senate and Assembly that would change New York law in much the same way that SB 06306 proposed to.  The new proposal, which is co-sponsored by 38 senators and 120 Assemblymen, would:

• Permit injured parties to bring declaratory judgment actions directly against the insurer of the party responsible for their injuries.
• Give insurers that deny coverage for bodily injury claims on the basis of late notice a 60 day grace period in which to file a DJ naming the third party claimant (in which event the claimant may not bring its own DJ). 
•  Stipulate that untimely notice will not invalidate coverage (except as to claims made policies) without proof of prejudice.  Prejudice is defined as the impairment of a "significant interest," including the ability to investigate, settle or defend a claim.
• Require insurers to prove prejudice if the delay was two years or less but assign the burden of disproving prejudice to policyholders if the delay was longer than two years.  Prejudice shall exist as a matter of law if, prior to notice, the insured's liability is fixed by a judgment, arbitration or settlement.        
• Add a new section to 3420(d) requiring insurers to confirm the existence and limits of liability insurance coverage to injured parties within 60 days of a written request.

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The Insurance Fair Conduct Act (IFCA) was passed by the Washington State Legislature in May 2007 after much legislative debate as to the need for the unprecedented remedy of un-capped treble damages awarded at the discretion of the trial court for a violation of the IFCA. Violations of the IFCA can result from (1) an unreasonable denial of a claim for coverage or payment of benefits or (2) violations of the Washington Administrative Code regulations concerning improper claims handling. In addition to the possibility of discretionary uncapped treble damages, mandatory awards of reasonable attorney’s fees, actual litigation costs and statutory costs for violations are required under the IFCA.

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