Defeat for Insurance Industry; Wash. Voters Approve Referendum 67

November 7, 2007

Much to many insurance companies’ dismay, Washington voters approved Referendum 67 yesterday, with 520,667 or 57 percent of voters in favor of the initiative to allow insureds to collect triple damages if their insurer unreasonably denies a claim or violates unfair practice rules. Forty-three percent of voters, or 393,924 residents, voted “no.”

The battle leading up the vote was one of the most contentious and expensive in state history. Campaign finance reports showed that trial lawyers and insurance companies spent nearly $14.5 million at the last tally just days before the election, the Associated Press reported.

According to the National Association of Mutual Insurance Companies (NAMIC), Washington consumers will likely see their rates increase as a response to the voter-approved legislation.

“Washington state voters let fear prevail over fact this election year when they let the scare tactics of the trial bar lead them to ignore the facts surrounding insurer claims settlement practices and consumer claims experiences,” said Christian J. Rataj, NAMIC’s Northwestern state affairs manager.

Washington’s Referendum 67 was launched by a coalition of business and community leaders, consumers and insurers after the Legislature enacted the “Insurance Fair Conduct Act” (SB 5726), a law that allows first-party insurance claims to become a “bad faith” lawsuit — triggering access to awards totaling three times actual damages. Insurers believed SB 5726 discourages insurance companies from investigating or denying any claim to avoid the potential of a lawsuit alleging bad faith, and gives trial lawyers new incentives to file suits on even the most questionable claims.

The legislation would allow the filing of first-party bad faith lawsuits against carriers for punitive damages in cases where a carrier denies a claim, and the policyholder believes that the settlement denial was simply “unreasonable,” including a “mere” unintentional technical violation of the Washington Administrative Code, Rataj explained. “It was much-less restrictive than other states where claimants can only sue for denials that are willful, deceitful or fraudulent,” he said.

According to Rataj, Consumers Against Higher Insurance Rates, of which NAMIC is a member, presented “clear and irrefutable” evidence to voters that settlement disputes between insurers and policyholders are statistically rare; current state law already protects consumers from unfair claims practices; and R-67 will create an unnecessary cost-driver that will lead to higher insurance rates for consumers.

“Unfortunately, the insurance and business communities’ attempt to educate consumers about the truth and protect them from this ‘sugar-coated poison pill’ legislation was trumped by crafty lawyer misrepresentations about a couple of highly sensationalized, aberrational, and unrelated claims settlement disputes. It opens the door to frivolous lawsuits and will undoubtedly drive up insurers’ expenses, leading to rate hikes.” Rataj said. “Hopefully, voters in Washington will learn quickly, like California voters did, that this new ‘pay-more-so-lawyers-can-sue-more’ law is nothing but an anti-consumer protection act that only helps trial lawyers redirect policyholder premium dollars to trial lawyer bank accounts.”

A recent study by consulting firm Milliman Inc. estimated the measure could cost Washington insurance consumers $650 million annually or $205 per year for an average family household. The Milliman report also showed that insurance rates went up in five states with similar laws and that consumers could see rate increases of up to 7 percent per household.

Rataj also indicated that the state budget office said the law would increase rates for consumers, state agencies, and local governments.

“Washington’s voters have spoken, and we respect their choice to approve R-67,” said Kenton Brine, regional manager for PCI. “But PCI and our members continue to believe Washington consumers will not be well-served by an increase in lawsuits and higher claims costs, which drive up insurance rates. We think going forward it is very important that the insurance industry, Legislature and governor to work together to track how this law adds congestion to our courts, increases insurance fraud and impacts rates for consumers.”

“This is an unfair and costly law driven by the trial bar simply to increase the number of lawsuits filed,” Rataj added. “NAMIC will work with lawmakers and other stakeholders to repeal this law in the next legislative session.”

Sources: NAMIC, PCI, Secretary of State Election Site

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