I previously posted on Washington’s Insurance Fair Conduct Act, known as Referendum 67. If passed by the voters, it would allow first party claimants to recover triple damages and attorney fees for those claims “unreasonably” delayed or denied.
Existing law already allows a wronged insured to bring three separate causes of action against his/her insurer for such claims: breach of contract, bad faith and violations under Washington’s Consumer Protection Act (CPA). Such existing remedies often yield bizarre results as we saw in the Woo v. Fireman’s Fund case.
The Supreme Court’s knuckleheaded 5-4 ruling upheld a judgment to pay Woo $250K he paid to settle an underlying suit, plus $750K in emotional distress and attorney fees. Obviously, there are already plenty of incentives for an insurer to avoid these judgments by acting fairly, and under this legislation Woo could have received three times more as punitive damages in addition to the “emotional distress” damages which have a punitive measure built into them. And in case you are wondering, Fireman’s Fund coverage position was perfectly reasonable.
The television ads for the Approve 67 camp are demagogic and misleading, if not outright lies. The worst has to be the ad featuring Tiffany Forslund whose father, firefighter David Potter, died allegedly because an insurer delayed payment for necessary health treatment. Forslund says:
My father would have given his life in the line of duty, turns out the insurance company took it instead.
What tripe. Not only would R-67 not apply to her father’s claim (it is intended to benefit auto, home and property policies–not health insurance) it’s not true according to the mayor of the city for which Potter worked, who said it would be covered as a workers’ compensation claim or through the city’s health plan. But the attorneys promoting this legislation could not resist such a sympathetic story of a firefighter allegedly killed by an insurance company, even if it’s entirely off-point and probably untrue. Demagoguery at its finest. And, if the claim is true Potter’s family already has remedies under existing law for emotional distress, which, for a lost loved one are rightfully substantial and the threat of such judgments deter wrongful insurer conduct. Why shall we now triple those damages?
Attorney fees are typically one-third of the gross recovery. So if the gross recovery is tripled it equals a bigger fee. But let’s say the insured prevails but the gross recovery is small? No problem. Just submit your fee request to the court on an hourly basis if it provides a greater recovery for the attorney. And, here’s another little tidbit: the attorney fee provision is mandatory but the triple damages are at the court’s discretion. Who’s looking out for who here, really? And, that the triple/punitive damages are for the deliberately vague “unreasonable” and not for criminal, willful or wanton conduct as you would expect (and would be deserved) to award punitive damages makes for a juicy tidbit indeed.
And, there’s no crisis in the first place. Check out this link from the Insurance Commissioner of Washington State showing the number of complaints against individual insurers. In 2006, Private Passenger Auto Insurance Complaints averaged one complaint for every $1.5M in premium and Homeowners Insurance Complaints averaged one complaint for every $2.5M in premium. Hardly a crisis, and nothing worthy of threatening triple damages in every instance.
This legislation will enrich those attorneys bringing these suits, bring a windfall to a small number of insureds at the greater expense of all who pay insurance, directly or indirectly.