Bill would hold insurers liable for punitive damages

March 29, 1991|By David Conn | David Conn,Annapolis Bureau of The Sun

ANNAPOLIS -- Marylanders would be able to sue their insurance companies for punitive damages if the companies acted in bad faith under a bill the Senate passed yesterday.

The insurance industry objects strenuously to the measure, which the insurers say could subject them to millions of dollars in lawsuits and result in higher premiums for consumers.

The bill passed the Senate 26-20, but it was reconsidered minutes later. It again passed, 24-22, exactly the constitutional majority.

"The bill will result in skyrocketing insurance rates and destroy our ability to fight fraud," said David Snyder, a vice president with the State Farm Insurance Cos.

But Sen. John A. Pica Jr., D-Baltimore, the bill's sponsor, said it would correct a flaw in Maryland's law that, in effect, prohibits consumers from collecting anything from their insurers beyond the limits of their policies. And collecting that money can be a costly process when the insurer refuses to pay, he said.

The bill would allow punitive damage claims if the insurer acted "intentionally and wrongfully and without legal justification or excuse" in failing to fulfill its contractual obligations. That's the definition of "legal malice," which is a much easier standard to prove than "actual malice."

"The consumer has absolutely no recourse under current law," Mr. Pica said.

The state's insurance law, which provides remedies to consumers if they believe their insurers have acted in bad faith, is completely ineffective, he said.

Since 1987, when an unfair claims practice law was enacted, not a single citation has been issued against an insurance company and not a single policyholder has been reimbursed under that law, Mr. Pica said.

The bill takes on more importance, he said, in light of a Maryland Court of Appeals ruling on Tuesday. The court, in the case of Schaefer vs. Miller, ruled that a plaintiff must prove the defendant showed "actual malice" before punitive damages can be awarded.

But Mr. Snyder said the legal standard to prove bad faith in the bill is so liberal that it would prevent insurers from legitimately questioning any claims.

"A company knows now that if it tries to control costs by cracking down on fraudulent or inflated claims, it could be punished with a million-dollar lawsuit," he said.

A similar bill has died in the House Economic Matters Committee, but Mr. Pica said he hopes to have his bill referred to the House Judiciary Committee.

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