Insurance representatives came out en masse against to a bill that would allow policyholders to sue insurance companies for bad faith if there's a conflict over payment of a claim.
"This is the most dangerous piece of legislation before you today," said Paul A. Tiburzi, a lawyer representing State Farm Insurance Companies of Bloomington, Ill. "This will be a full-employment bill for lawyers," he told the Economic Matters Committee of the House of Delegates yesterday.
Tiburzi and other insurance company lobbyists contended that the measure would increase insurance premiums and work against efforts to curb insurance fraud. But a supporter of the measure said it is needed to prevent insurance companies from mistreating consumers.
The bill, introduced by Del. Curt Anderson, D-Baltimore, would permit policyholders of all types of insurance to collect for damages from an insurance company for dealing in "bad faith." Currently, insurance customers may only collect from insurance companies the amount due under their policies. Under Anderson's measure, policyholders could sue for punitive damages.
Tiburzi said a court order in California allowing consumers to sue for bad faith was a chief cause of a 289 percent increase in bodily injury claims in that state from 1979 to 1988. The order was overturned in 1988.
"We'd just have to pay some claims to avoid being sued," Tiburzi said. He said consumers already have the right to file complaints with the state Insurance Division to resolve a conflict over a claim.
Leo Doyle, a lobbyist for the National Association of Independent Insurers, agreed that the measure could be used by some customers to pressure insurers into paying questionable claims. "They cold make nuisances of themselves," he said.
The only person testifying on behalf of the bill was Dennis C. McCoy, who represents the Maryland Trial Lawyers Association. He said the bill would allow alternatives to settling disputes and would prevent abuses by insurance companies such as arbitrarily cutting claim payments or eliminating payments altogether.