INDIANAPOLIS (Feb. 3, 2009) – A proposed expansion of a Connecticut unfair insurance practices law is unnecessary and would result in higher costs for insurance buyers, according to the National Association of Mutual Insurance Companies (NAMIC). The proposal is being considered by the state Legislature’s Insurance and Real Estate Committee.
“SB-763 would cause insurers to incur higher costs from increased litigation and higher claims settlement costs,” said Paul Tetrault, NAMIC’s Northeast state affairs manager. “This would inevitably result in upward pressure on the cost of insurance, at a time when individuals and businesses are already struggling with existing expenses.”
The bill, An Act Concerning the Connecticut Unfair Insurance Practices Act, would dramatically lower the standard for violations under the Act. It would also allow anyone – insureds or third-party claimants – to sue insurance companies and collect punitive as well as actual damages. The result would be “a dramatic increase in litigation,” that “could produce a substantial rise in costs ultimately borne by individuals and businesses that purchase insurance,” Tetrault said.
“The combined effect of these provisions would be an extremely low threshold for litigation, such that a suit could be brought by anyone for a single alleged violation,” Tetrault told the panel. “If this bill became law, insurers would be subject to a multitude of lawsuits alleging violations of the statute. Virtually every claim dispute would potentially be transformed into a court case.”
Under the legislation, insurers would likely bear substantial costs even if a claim is not valid or ultimately adjudicated in the claimant’s favor, Tetrault explained. “Even in cases in which suits were not filed, the low litigation threshold would result in an ever-present threat of litigation that would place improper pressure on the claims process. This dynamic could prompt insurers into settling what may be questionable claims or settling claims for higher amounts than may be warranted.”
Connecticut’s current statute is based on a model law of the National Association of Insurance Commissioners. It allows the insurance commissioner to initiate proceedings upon the belief that any person has been wronged by violation of the Act and can result in penalties up to $250,000 for knowing violations and to order restitution.
“In NAMIC’s view, the increase in costs that would be incurred from passage of SB-763 is completely unwarranted because the current statute provides a remedy that is more than adequate to protect consumers and promote appropriate conduct by insurers,” Tetrault said. “The existing statutory framework provides the commissioner with ample authority to protect Connecticut consumers.”
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Posted: Tuesday, February 03, 2009 12:00:00 AM. Modified: Friday, March 26, 2010 3:31:44 PM.
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