The Colorado House is considering a bill that is designed to protect consumers by strengthen penalities when insurance carriers act unreasonably. However, the Property Casualty Insurers Association of America (PCI) is urging the Colorado Legislature to reject the bill, saying it would expand “bad faith” liability for insurance companies.
If passed, House Bill 1407, Concerning Strengthening Penalties for the Unreasonable Conduct of an Insurance Carrier, would increase the penalties that the insurance commissioner could impose for the violation of any law, rule, or order of the commissioner up to $5,000 per act, or $50,000 aggregate annually, unless the carrier knew it was violating any law, rule or commissioner order, in which case the penalties would be $50,000 per act, or $750,000 aggregate annually. The bill would prohibit an insurer from unreasonably delaying or denying a claim for payment of benefits by a claimant. Also, the bill would create a cause of action for a claimant who is unreasonably denied insurance benefits, and would allow a claimant to recover two times the actual damages sustained.
PCI said it is strongly opposed to HB 1407 because “it will hurt the very people it is intended to protect by encouraging more lawsuits and raising insurance rates for consumers and businesses,” the association said in a statement. “The bill lowers the threshold for allowing lawsuits against insurers, it increases monetary damages, requires payment of costs and attorneys’ fees. The new private right of action is very broad and would apply to both personal and commercial lines, as well as units of government as claimants.”
Additionally, the bill could breach the “exclusive remedy” doctrine under workers’ compensation as to “disability benefits,” PCI said. “Bad faith legislation such as that advancing in Colorado can have a chilling effect on fraud investigations.”
“Insurers take very seriously their obligation to uphold the terms of the insurance contract and to act fairly with policyholders and individuals who file claims,” PCI continued. “Insurers are committed to investigating claims thoroughly and promptly. A complete review of a claim benefits consumers by reducing instances of fraud. These investigations ultimately help to keep insurance costs in check by ensuring that only legitimate claims and charges are paid.”
For more information on HB 1407, visit http://www.leg.state.co.us/CLICS/CLICS2008A/csl.nsf/fsbillcont3/D26CDE1842EE880E872573F500562BD9?Open&file=1407_01.pdf. For more information on PCI’s opposition to the bill, e-mail Kelly.firstname.lastname@example.org.
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