'Bad faith' or big bonanza? Lawyers' bill: Effort to punish insurance companies could punish policyholders.

February 14, 1997

HERE WE GO AGAIN. The state's trial lawyers once more are attempting to punish "deep-pocket" insurance companies who fail to pay claims on time or who act in "bad faith" by unreasonably denying a customer's claim. If the lawyers succeed in Annapolis, the result could be fat fees for them and their clients -- and a rise in insurances premiums for the rest of us.

Under their bill, not only would insurance companies have to pay up for acting in bad faith, but they would also have to pay treble damages. That is sure to have a chilling effect on industry efforts to crack down on fraudulent claims. Why should a company risk a lawsuit where triple-damages could be imposed? It would be cheaper and safer to settle even questionable claims.

Lawyers say that is buncombe. All they want is to force insurers to be reasonable about settling claims. Their bill would give companies financial incentives to act in good faith.

But what happened in California doesn't bear that out. That state's Supreme Court created grounds for "bad faith" suits against insurance companies in 1979. Ten years later, the justices admitted they had erred.

The court concluded this had led to "undesirable social and economic effects. . . i.e., multiple litigation, unwarranted . . . claims, coercive settlements, excessive jury awards and escalating insurance [and] legal" costs. One of the state's largest auto insurers saw bodily injury claim costs soar 289 percent, claims payments slow dramatically and the number of claims involving an attorney rise sharply.

Is that what we want in Maryland? Studies show that 30 to 40 percent of accident claims are inflated. And yet this bill would act to deter investigation of potential fraud.

Yes, there are examples of extreme unreasonableness by insurers. But there are remedies already available, including relief through the state insurance commissioner. It would make more sense for legislators to strengthen provisions of the insurance code than to open the floodgates for a tidal wave of litigation aimed at reaping a treble-damages bonanza.

Pub Date: 2/14/97

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