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Bad faith auto insurer claims handling would cost double under Virginia bill

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Insurance | Legal
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A Virginia bill has advanced in committee that would require auto insurers to pay double the judgment amount to policyholders on unpaid or denied claims taken to court that are proven to be decisions made in bad faith.

Senate Bill 256 states that if an insurance company denies, refuses, or fails to pay property damage, medical expense benefit, or loss of income benefit claims filed by its policyholders under the provisions of their auto insurance, and a court finds the carrier to be acting in bad faith, they will be required to pay the policyholder double the judgment amount plus interest, attorney fees, and expenses.

Effective July 1, if passed, it would also require the same of insurers on third-party claims of $3,500 or less, and on uninsured/underinsured motorist (UM/UIM) claims of up to $500,000 for personal injury or wrongful death.

The Senate Committee on Commerce and Labor recommended the bill for passage last week 11-3 with one abstention. 

During testimony on the bill at the committee’s Feb. 9 meeting, Mark Dix, on behalf of the Virginia Trial Lawyers Association, said the bill is the answer to a 2017 case that changed insurance law in the state, Manu v. GEICO.

Ebenezer Manu filed a complaint against GEICO alleging that the insurer violated Virginia law by acting in bad faith when it refused to pay his uninsured motorist bodily injury claim.

The case was dismissed in Circuit Court, leaving Manu without a remedy against GEICO, which the Supreme Court affirmed.

“[W]e hold that Code § 8.01-66.1(D)(1) does not create a duty for UM carriers to settle a case prior to trial, but rather creates a remedy for the conduct of UM carriers that refuse in bad faith to pay once the insured has obtained judgment,” the Supreme Court opinion states. “Manu’s complaint failed to state a cognizable claim, and the circuit court did not err in sustaining GEICO’s demurrer and dismissing Manu’s claim with prejudice.”

Dix said, before that decision, “we had all assumed auto insurers had a duty to operate in good faith with their own insureds.”

“Ever since that decision, which said no, that duty doesn’t arise until after judgment, some auto insurers have seized upon that ruling to make lowball offers or no offers to their own insureds,” he said. “This bill gives insureds another tool in the toolbox and incentivizes the auto insurers to treat their own insureds at least as fairly as they treat third parties.”

Sen. Scott Surovell, sponsor of the bill, added that not all insurance companies are bad, but there are a few large companies that are.

“What this does is it restores the law to what it was before 2017,” he said. “If all these horrible things were such a problem, I’m not clear why the insurance industry didn’t fall apart before 2017 when the Supreme Court, based on two words in the statute, completely turned the law upside down in Virginia. What this bill seems to do is give Virginians the value of the insurance that they pay [for] to protect them and their families.”

Committee member Sen. Aaron Rouse thanked Surovell for carrying the bill, and shared that he’s had personal experience dealing with bad faith insurance practices with a company he declined to name.

“They acted in bad faith because they knew they could,” he said. “To hear insurance companies say that this is going to raise the fees and rates on their payers — that to me is also saying, basically, you know you’re acting in bad faith… you just submitted in testimony today that you’re going to raise the fees because you know what you’re doing is wrong.”

On behalf of the American Property Casualty Insurance Association (APCIA), attorney Clark Lewis testified that the bill is akin to a penalty or punitive damage provision and that he can’t find any Virginia law that allows for two times a judgment amount.

“Typically, in Virginia law right now, when you get in an auto accident the person that strikes you is the third party and there’s third-party insurance,” he said. “Under Virginia common law, there is an action for bad faith, and if you look at that case law you’ll see that it’s for wanton, reckless, intentional disregard, arbitrary, high standards of what is just not simply acceptable so that a court feels that a penalty is warranted.

“…if you’re found to act in lack of good faith, guess what happens? You get a fast pass to damages because it says ‘lack of good faith shall’ — not may, not in the discretion of the court, not in the discretion of the jury… so, low threshold, high judgment.”

In a news release, APCIA added that the bill would encourage litigation, and could cause UM/UIM premiums to increase by 19%, or higher.

APCIA Vice President and State Government Relations Counsel Nancy Egan said over the past five years inflation, supply chain issues, increasing medical care, and auto repair costs going up have caused a 36.2% hike in auto insurance rates.

“Senate Bill 256 could cause auto insurance costs to spike even higher,” she said. “APCIA urges lawmakers to protect Virginians from increasing auto insurance costs by putting a stop to Senate Bill 256.”

Virginians pay more for auto insurance coverage because of a bill Virginia lawmakers passed in 2021 that increased the minimum limits of insurance coverage required to purchase, APCIA said.

“When the next increase in minimum limits takes effect in 2025, auto insurance costs will increase for many Virginians, especially those who purchase the lowest levels of coverage and can least afford any more price hikes,” Egan said. “Senate Bill 256 could further exacerbate rising auto insurance costs.”

APCIA argues as well that SB 256 is duplicative of existing Virginia law, which already provides remedies for consumers under the Unfair Claims Settlement Practices Law.

“The Virginia Bureau of Insurance has full regulatory authority to handle consumer UM/UIM complaints and take action against insurers,” APCIA said. “Over a five-year period, the Bureau found only seven instances of unfair claims violations by insurers.”

Joe Hudgins, on behalf of Independent Insurance Agents of Virginia, testified during the committee meeting that while possibly unintended, consequences of the bill’s passage could include “upward pressure on rates and availability of insurance.”


Featured image credit: gerenme/iStock

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