Minnesota Lawmakers OK Compromise on Suing Home, Auto Insurers

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The Minnesota Legislature approved this week a compromise bill giving consumers more clout in court when they disagree with their home and auto insurance companies.

The legislation passed the Senate 47-15 and the House 93-39. It now goes to Gov. Tim Pawlenty.

A House-Senate conference committee came up with a plan to limit insurance policyholders to recovering $250,000 in damages and $100,000 in attorneys’ fees if they could show that their claim was denied unreasonably.

The so-called “good faith” legislation would require consumers to show that their insurer knowingly denied a reasonable claim or acted recklessly _ in other words, failed to act “in good faith.”

GOP Senate Minority Leader David Senjem predicted the changes will push up premiums and hurt consumers.

“Higher caps, more litigation. More litigation, higher premiums. Higher premiums, bad for people,” said Senjem, R-Rochester.

But Sen. Tarryl Clark said her bill should deter insurance companies from offering policyholders less than their damages.

“It is good for consumers,” said Clark, DFL-St. Cloud. “It will help them get what they paid for, which is our goal. But it also recognizes the industry’s needs. It gives them some ability to have some understanding and some predictability of what their costs will be in the future.”

Washington D.C.-based the American Insurance Association (AIA) said the compromoise had some merit.

“We appreciate the Legislature’s thorough debate on the issue of ‘bad faith’ and while we wish the damage limits were lower, a majority of the bill is acceptable,” said Steve Schneider, AIA vice president, Midwest Region. “One key aspect we are most pleased with is the bill is limited to first party claims only, thereby eliminating the potential for double lawsuits for each insurance claim as was the case with the original bill.”

Another national insurance trade agreed that the compromise accomplished some the goals it sought.

“Our goal throughout this two year debate over bad faith lawsuits has been to protect consumers from the negative consequences of legislation that would provide the trial bar with a new class of lawsuits,” said Ann Weber, vice president and counsel for the Property Casualty Insurers Association of America (PCI). “The legislation that passed accomplishes much of that goal. We are pleased that the compromise crafted in the conference committee relied heavily upon key principles outlined the Senate version of the bill and limits the scope of bad faith claims. It strikes a careful balance between consumers and insurers. However, we are concerned that the punitive damage awards allowed in the bill still provides personal injury attorneys with an incentive to file unnecessary lawsuits. Overall this is positive step forward that we hope will end the trial bar’s push for unnecessary “double” lawsuits that ultimately drive up insurance costs for consumers.”

Pawlenty said he hadn’t seen the legislation yet, but had it described to him after negotiations with House and Senate conference committee members.

“It seems like it’s the basis of a compromise solution, but I need to go through it,” Pawlenty said.

The AIA and PCI contributed to this story.