| I wanted to let you know about a ballot issue coming up in November that hits a nerve for all of us working in the insurance industry. It’s about the now highly-advertised Referendum 67. On the surface, it may look like a good way to prevent insurance companies from hassling people who file claims. In truth, it is more likely to increase the cost of doing business for insurance companies and lead to higher premiums for consumers. I am not sure that the key messages are getting through all the noise out there. So that is why I am resorting to an email in an effort to set the record straight.
R-67 calls for penalizing insurance companies with triple damages and unlimited plaintiff’s legal fees if a court finds the company has “unreasonably” denied a claim. This would be the lowest standard for punitive damages for insurers in the entire country. Every other state has a standard of conduct on the order of “willful, wanton, and malicious.” The Arizona standard is “evil mind.” Other state courts understand the potential misuse of punitive damages, so standards that trigger them have historically been high. R-67 would clearly change that, inviting fraud and abuse - leading to dramatically increased costs. The nationally respected actuarial firm, Milliman Inc. estimates that R-67 will cost the Washington economy $650 million annually - or $205 for a family insuring a home and two cars.
Washington policyholders currently have many remedies to address unfair claims practices by their insurer. Washington’s Consumer Protection Act specifically addresses insurance bad faith actions, and a suit can be brought under tort law. Furthermore, courts can and do award damages for “emotional distress” which often exceed the economic value of the disputed claim. Finally, the Insurance Commissioner has broad authority to take aggressive enforcement action and levy substantial fines - he can even revoke an insurer’s certificate to do business in the state. There are no allegations that the Insurance Commissioner is failing to protect consumers.
There is one more thing I want to bring to your attention as a business leader: In addition to businesses being faced with increased auto, property, and liability insurance premiums as a direct result of R-67, they will also face increased liability from the very likely expansion of punitive damages to all business sectors. The long standing public policy in Washington is that punitive damages are not allowed. R-67 represents an exception to that historic policy and will open the door for the courts to further expand punitive damages. Is an insurance company’s conduct denying a property claim which causes economic harm more egregious than the manufacture and sale of a defective product which causes injury or death? If not, than how can a judge deny a plaintiff’s request for punitive damages against a product manufacturer?
I hope you’ll join me in working to reject R-67. Together we will prevail in this battle with very costly consequences.
Paula Reynolds, President and CEO
Safeco Insurance
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