NAMIC: Third-Party Claims Practices Bill Would Harm Not Help Colorado Residents

January 20, 2006

The National Association of Mutual Insurance Companies (NAMIC) said it will oppose a Colorado bill on third-party claims practices on both legal and public policy grounds.

“Concerning Claims Practices for Bodily Injury to a Third-Party Claimant Arising Out of the Use of a Motor Vehicle, HB 1044, is a perfect example of legislation that will have adverse unintended consequences for insurance consumers and third-party claimants,” stated NAMIC’s Western State Affairs Manager, Christian John Rataj.

HB 1044 imposes unreasonable and impractical claims settlement timelines on insurers that could ultimately delay property damage settlements; requires insurance carriers to disclose confidential policy information-the amount of a consumer’s liability insurance coverage-to third-party claimants; and creates a legal cause of action for medical providers that could adversely impact the third-party claimant’s ability to receive full compensation for his/her bodily injury claim, according to Rataj.

According to the draft bill, as soon as the insurance carrier pays the third-party’s property damage claim, the insurer is presumed to be liable for the third-party’s bodily injury claim.

“This provision is both illogical and impractical, because it ignores the fact that determining liability for and calculating the value of a property damage claim is generally not as complicated as determining liability for specific bodily injuries, determining the amount of medical services necessary to address the third-party’s injuries, and calculating the value of the bodily injury claim the injured party is entitled to assert,” stated Rataj.

“To mandate that an insurer be presumptively liable for a bodily injury claim as soon as the carrier has settled the property damage claim is unreasonable and likely to delay the settlement of property damage claims, which is clearly not in the best interest of the third-party claimant,” added Rataj.

NAMIC is also concerned that the bill requires an insurer to disclose confidential terms of the contractual relationship between the insured consumer and his insurance carrier-the amount of liability insurance coverage purchased by the insurance consumer.

“The third-party claimant is not a contracting party to the professional relationship between the insurer and its client, so there is no legal reason why an insurer should be required to disclose confidential information about its insured to a non-contracting party,” stated Rataj.

“Further, there is no logical connection between the amount of the at-fault party’s insurance coverage limits and the medical treatment necessary to heal the third party or the potential value of the third-party’s bodily injury claim. Therefore, this proposed duty to disclose insurance coverage limits is unreasonable, unnecessary and likely to lead to the filing of frivolous and potentially fraudulent claims by unscrupulous claimants,” Rataj said.

HB 1044, also creates a “direct right of action against the insurer for the payment of third-party claims . . . ” and requires the insurer to pay the provider for services render as soon as the insurer has made payment for property damage or loss of a motor vehicle.

“The legal and practical effect of establishing a direct cause of action for the third-party’s medical provider is that it gives the health care provider legal standing in the injured third-party’s claim and creates a potential conflict of interest between the injured party and his/her health care provider, since both will have independent claims for direct and prompt payment from the insurance carrier,” Rataj said.

According to Rataj, HB 1044 may actually harm a third-party claimant in cases where the third-party claimant’s medical bills and bodily injury claim exceed the at-fault insured’s insurance liability policy limits. Under current state law, the provider and injured party would each have a legal claim that would be negotiated out so that the injured party and the health care provider each compromise the value of their respective claim to get the case settled.

However, pursuant to HB 1044, the health care provider would be legally entitled to collect while the injured third-party is being treated and is waiting for a medical diagnosis/prognosis necessary to assert a bodily injury claim. By the time the third-party claimant is able to properly determine the value of his bodily injury claim, the amount of the insurance liability coverage will likely be reduced. Thus, the consumer ends up being unable to receive a bodily injury payment that is equal to the value of the claim just so the provider can get 100 percent of his payment.

“Since the Colorado Fair Claims Practice Act, already sets forth claims practices settlement guidelines designed to promote fair, equitable and timely settlements of third-party claims, HB 1044 is really unnecessary,” stated Rataj.

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