The West Virginia House of Delegates passed Senate Bill 414 on Friday prohibiting third-party bad-faith lawsuits against insurance companies. SB 414 is part of Gov. Joe Manchin’s insurance and tort reform proposals, it will now have to go back to the Senate to concur on changes.
House members debated the bill for more than two hours on the floor before rejecting non-leadership amendments and passing it.
Manchin and lawmakers of both parties believe the $50 million in savings insurers have promised remains on the table. The governor has said insurance companies would cut their rates within 90 days of the legislation’s passage.
“I think it’s a good compromise to a difficult situation,” House Minority Leader Charles Trump, R-Morgan told the Charleston Gazette-Mail.
Manchin’s bill would ban lawsuits filed by nonpolicyholders against the insurer of the other party involved in an accident. These “third-party” lawsuits allege the insurer resolved the accident claim in “bad faith,” or in violation of the state’s Unfair Trade Practices Act.
Instead of lawsuits, third parties would file administrative complaints with the state insurance commissioner. As proposed by Manchin, the bill would allow the commissioner to fine offending insurers.
The House Judiciary Committee amended the bill Tuesday to allow the commissioner to also award restitution to consumers.
Consumers could recoup any economic costs and up to $10,000 in such “non-economic” damages as pain and suffering, but not punitive damages or lawyer costs. Most insurers would pay fees into a special fund for such awards. The governor supports the change.
According to the Gazette-Mail there are many differences between the House and Senate versions of the legislation. The House created a fund to pay uncompensated victims, increased the policy surcharge that goes to volunteer fire departments, ordered the state Insurance commissioner to produce a report by next January analyzing what the legislation has done, and added an amendment requiring that the Insurance Commission consumer advocate be an attorney.
But even with those sweeteners, opponents bellowed across the chamber during debate on one large amendment that would limit third-party bad faith lawsuits, but not prohibit them.
“You’re going to turn that hate for the insurance companies into hate for us,” Delegate Rick Thompson, D-Wayne and chief sponsor of the opposition amendment, warned colleagues.
Delegates turned back his amendment 34-66, rejected another that would have had the consumer advocate intervene in rate cases by a vote of 40-60, then passed the bill by a 70-29 vote.
“I believe I have a right to waive my right to trial by jury,” Delegate Joe Talbott, D-Webster, said. “But I don’t believe I have the right to take away your right to trial by jury.”
Consumers will have to file a complaint with the commission about an insurance firm dealing in bad faith, then wait 60 days for the company to reach a settlement. If not, the Insurance commissioner must rule on the bad-faith complaint within 30 more days and can fine a firm up to $250,000 if it is found to have a history of bad-faith dealings. Thompson pointed out the commissioner has the power to sanction insurance firms currently and despite consumers filing “thousands of complaints” no firm has been sanctioned.
Manchin has said insurance firms have promised a $50 million automobile insurance rebate if the bill, and some other tort reform measures, pass the Legislature. That equals about 30 cents a day for each insured vehicle, Delegate Sharon Spencer, D-Kanawha, said.
Delegate Mark Hunt, D-Kanawha and a Charleston lawyer, said his law firm settled between 350 and 400 vehicle accident cases last year without filing a lawsuit. “One of the big reasons is we have this,” he said, adding consumers need leverage to get insurance companies to settle cases fairly and quickly.
Instead, opponents predicted court filings will increase dramatically under the new legislation. Last year, West Virginia was 35th in the nation in the number of lawsuits filed per population of 100,000, said Delegate Tim Manchin, D-Marion. Neighboring Virginia and Maryland were in the top 10, while Ohio was 14.
The fund will need additional money, and she pointed out supporters hope to make that up with taxpayer funds.
The same is true of the surcharge. Currently, the state collects 1 percent off every insurance renewal or new policy with 50 percent of that, or about $9 million, going to volunteer fire departments and the other half going to help pay off teachers’ retirement. The proposal takes out the teachers’ contribution, leaving the state’s General Revenue Fund to make up that $9 million.
Initially, supporters wiped out the money for the fire companies, too. But after learning that opponents planned to give volunteer firefighters the full 1 percent, supporters amended the bill to give firefighters $10 million.
Judiciary Chairman Jon Amores, D-Kanawha, offered a simple reason to vote against the major amendment: “It would gut the purpose of this bill,” he said.
Supporters say the main purpose of the legislation is to lower vehicle insurance rates and bring more insurance companies into the state to allow for competition.
Insurance lobbyists won’t say whether the industry will abide by its pledge to knock up to $100 off every auto policy in West Virginia, but lawmakers say changes to Gov. Joe Manchin’s proposal shouldn’t torpedo the discounts.
Jill Bentz, president of the West Virginia Insurance Federation, declined to comment to the Gazette-Mail on the changes to Senate Bill 418, but said she had distributed copies of the amended legislation to her members. Other insurance lobbyists have referred requests for comment to Bentz.
Manchin proposed the legislation after major insurers complained about the number of third-party lawsuits, estimating they cost the industry about $167 million a year.
The $50 million in promised savings represents 5.4 percent of the $924.8 million that West Virginians paid auto insurers in premiums in 2002, the most recent year for figures.
The bill would require insurers to file their rates with the commissioner every six months for the next two years. Manchin argues that provision would ensure the promised savings.
Manchin’s chief foes over the bill have been the state’s trial lawyers. They have questioned whether insurers would honor their pledge to reduce rates.