Friday, July 17, 2009


The American Insurance Association (AIA) expressed its support this week for the “Resolution Opposing Unfair and Unbalanced Insurance ‘Bad Faith’ Legislation” adopted by the American Legislative Exchange Council’s (ALEC) Civil Justice Task Force at the organization’s annual meeting held July 15-18 in Atlanta.

The resolution is responsive to the plaintiffs’ bar’s attempts to pass “bad faith” legislation in several states. The goal of such legislation is to undermine established principles of contract law by expanding insurers’ liability for handling and processing claims with alleged “bad faith.”

“AIA supports this resolution because it correctly recognizes that ‘bad faith’ legislation is an unreasonable expansion of extra-contractual liability,” said Eric Goldberg, AIA associate general counsel. “Insurers have a genuine interest in meeting their contractual obligations with their insureds,” added Goldberg. “'Bad faith' legislation is merely an attempt by the plaintiffs’ bar to inject itself and tort principles into the policyholder-insurer relationship and expand private causes of action in a way to enrich themselves.”

Each year, insurers handle the vast majority of millions of first-party claims (i.e. claims from their customers) in a completely acceptable manner. They do, of course, have an absolute interest in doing so because an insurer fundamentally owes its insured what the insurance policy provides. Almost all of the disputes that do arise are amicably settled. A tiny fraction of claims (approximately 1 in 5,000) result in insureds suing their carriers.

“AIA urges state legislatures to adhere to the traditional principles of contract law and resist the plaintiffs’ bar’s self-serving interests,” said Goldberg. “Courts don’t need to be clogged up with new and unnecessary lawsuits when ample safeguards and remedies currently exist to protect consumers,” added Goldberg. “Adoption of 'bad faith' legislation and the subsequent lawsuits that follow only serve to drive up consumer costs and encourage improper claims settlement. Moreover, these bills serve to mask insurance fraud and arson as they discourage proper claims investigation. That’s not something policyholders or our economy can afford,” concluded Goldberg. The resolution notes that ALEC will “strongly oppose legislation that would unreasonably and unfairly expand ‘bad faith’ laws.”

The resolution now goes to ALEC’s board for review and approval.

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