As personal injury attorneys, we often find ourselves involved in legal action against insurance companies. When that happens, it usually goes like this: Our client gets injured and then files a claim with either their insurance company or the insurance company of the person responsible for the injury. The insurance company sits on the paperwork and doesn’t return phone calls, e-mails or letters, usually for a period of months. When the insurance company finally gets back in touch with the injury victim, it is either to inform them that the injury is not their problem for one reason or another, or they make a settlement offer that is so low that it will only cover some of the costs. This is about the time that our clients contact us.

When an insurance company rejects either a whole claim or most of it for no good reason, this is called “bad faith insurance.” And insurers engage in this sort of activity more than you would think.

A law was recently put into place in the state of Washington that would severely penalize any insurance company that gets caught rejecting a claim for no good reason. SB 5726, known as the Insurance Fair Conduct Act, was introduced to the Washington Senate on January 29th, 2007, and was passed by a wide margin on March 13th. The House passed it with an equally wide margin on April 5th, and the Governor signed it into law on May 15th.

This was when every tort reform organization and insurance company in America went ballistic.

The Insurance Fair Conduct Act makes it very difficult for insurers to do business as usual. If a judge finds that an insurer has denied a claim for no good reason, they will then be forced to pay THREE TIMES what the claim is worth, as well as court costs and attorney fees. Considering that insurers deny claims for no good reason on a pretty regular basis, this new law could cut into the billions of dollars of profits those insurers make every year.

Tort Reform organizations all over the country sent money and lobbyists to Washington, and the end result was the 160,000 signatures needed to place referendum R-67 on the ballot. R-67 would repeal the Insurance Fair Conduct Act, and insurers in Washington could then continue to deny claims just like they used to.

If you are asking yourself how insurers were able to get 160,000 people to support a bill that would hurt the very people offering their support, the answer is pretty simple. There is no one on earth that is more capable of making people hate their own rights as much as insurance companies. The marketing blitz on behalf of the ballot initiative featured the usual villains, with ads featuring mustachioed trial lawyers talking about how this new law will make it that much easier to sue anything that moves or breathes. The R-67 website that went up maintains that the IFCA will cause higher insurance rates, "frivolous lawsuits," overcrowded courts, and mentions all the usual "sky is falling" rhetoric.

It seems unlikely that simply asking insurance companies to live up to their contractually obligated financial obligations to their customers would cause all of these things. And the only people who could cause insurance rates to rise are the insurance companies themselves. The only purpose of this law is to place stiff penalties on those who are found to be breaking the law. If an insurance company has a valid reason to reject a claim, then they have nothing to worry about.

Another argument that is being made is that there is no need for such penalties; that the current legal system works fine on its own.

Michelle Tribble would beg to differ. The Washington resident was in two car accidents and had $18,000 worth of medical bills. Her insurance company rejected her claim, refused to pay even after an independent arbiter ruled in her favor, and finally paid up only after a judge forced them to. This whole process took four years, during which Ms. Tribble’s credit rating was effectively ruined because she had to use her credit cards to pay her medical bills.

What insurers in Washington are worried about is an end to the profit bonanza that they have enjoyed for the past decade or so. And insurers all over the country are taking notice. Hopefully the citizens of Washington will keep this law on the books, which could help put an end to bad faith insurance practices in their state, and could also serve notice to insurers in the rest of the country.