Insurance companies are praising a recent move by lawmakers in Maine to that bars third party bad faith lawsuits against insurers.
The Property Casualty Insurers Association of America (PCI) said the vote last week by Maine’s Joint Committee on Insurance and Financial Services was a victory for consumers. If passed, the law would have had the potential to increase litigation cost, PCI said.
The vote showed “great wisdom in rejecting legislation that would have spurred an increase in frivolous lawsuits and costs that ultimately could find their way into the premiums consumers and businesses pay for insurance,” said Frank O’Brien, vice president and regional manager for PCI.
Six states have ever adopted some version of a third party cause of action: California, Florida, Kentucky, Massachusetts, Montana, and West Virginia. All six states experienced negative effects, PCI said, including a significant increase in the cost of insurance and significant increase in the number of uninsured people as the cost of insurance rises.
California and West Virginia recently enacted legislation to prohibit the practice all together. A California study showed that by creating a loophole to allow two lawsuits for every accident, premium costs grew from 11 percent to 19 percent.
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