Posted On: April 17, 2007, 1:49 pm CDT

Posted By: tom

The problem (one of many) with this bill is that if, as reported, a mere violation of the administrative code, can support a bad faith claim, the what really is "bad faith" has been trivialized. The litmus test in many states for a defense against bad faith is that the issue was "fairly debatable" - in other words, the converse is that bad faith can only be found if there's no conceivable way a reasonble person could interpret the policy the way the insurer did. This law would result in any error, even a good faith mistake about the meaning or interpretation of a code section, supporting at least allegations of bad faith.

Who do you suppose ends up paying for this? The insurers? Not likely - even though some states bar use of bad faith settlement amounts in rate making, the fact is that most cases with bad faith allegations get settled - maybe for more than they are worth, but still, settled without specific allocation to bad faith.

As a result, there's upward pressure on severities, which feed right into the rate making process. In the end, EVERY insurance consumer pays more so a few people can bring bad faith cases, even where there is none.