NAII Says N.J. Domestic Violence Law Could Encourage Abuses

April 18, 2003

A recently enacted New Jersey law prohibiting discrimination by insurers against individuals or applicants based on a history of domestic violence could reportedly inadvertently open the door for fraud and an unfair subsidization of high-risk consumers.

“Although it purports to protect innocent victims of domestic violence, S.B. 1789 may well not achieve this goal,” said Donald Cleasby, assistant vice president and assistant general counsel for the National Association of Independent Insurers (NAII). “By eliminating insurance exclusions for intentional acts, the new law removes abuse perpetrators from financial responsibility by requiring insurers to cover them for whatever damages they wreak.”

Most insurance policies reportedly include intentional act exclusions, which discourage willful, wanton and unlawful activity; such exclusions make people personally responsible for the consequences of their acts, according to Cleasby.

The law also reportedly breaks new ground by creating a “special class” of risk rather than prohibiting unfair discrimination; as a result, people not in the special class will have to subsidize these individuals by paying higher premiums.

Finally, the law reportedly invites insurance fraud by providing an opportunity for dishonest people to avoid adverse insurance consequences by slapping an “abuse” label on a claim, according to Cleasby. “There is nothing to prevent a policyholder from intentionally destroying property and then claiming that abuse was involved in order to collect the insurance proceeds.

“The insurance department didn’t receive many complaints about abuses in this area, which calls into question why this law is needed.”

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