INDIANAPOLIS (April 27, 2009) – Legislation before a Maine legislative committee is unnecessary and would lead to higher costs for individuals and businesses, according to the National Association of Mutual Insurance Companies (NAMIC). Rather than helping insurance consumers as its name suggests, An Act to Provide for Prompt Resolution of Insurance Claims by Providing for a Direct Remedy by Consumers, would actually lead to higher costs through increased litigation and higher claims settlement costs, NAMIC told the Joint Standing Committee on Insurance and Financial Services today.

“In NAMIC’s view, LD-1305 represents a wholly unwarranted, reckless, and dangerous expansion of existing law that would have a dramatically negative effect on the insurance claims process and lead to a substantial increase in costly litigation,” testified Paul Tetrault, NAMIC’s Northeast state affairs manager. “Consequently, while this legislation would be a cause for concern under any circumstances, it is particularly worrisome and disconcerting that it is being considered in these strained economic times.”

The legislation would create a private cause of action for unfair claims practices by amending an existing statute, Tetrault explained. The result would be to allow third-party claimants to sue insurance companies for violations of statutory provisions that were not intended to trigger such private actions. The potential recovery would be two to three times the amount of judgment on claims arising out of the same transaction or occurrence.

“The bill would set an extremely low threshold for litigation so that insurers would be subject to a multitude of lawsuits alleging violations of the statute,” Tetrault told the committee. “A claim under the statute need not be valid or ultimately adjudicated in the claimant’s favor in order to result in substantial costs being incurred by an insurer.”

Tetrault said the proposal would raise costs even in cases in which suits were not filed. “The statute would create an ever-present threat of litigation that would place improper pressure on the claims process,” he continued. “This dynamic could hinder insurers’ ability to detect, investigate, and deny fraudulent claims and potentially prompt insurers to pay questionable claims or settle claims for higher amounts than may be warranted.”

Current law provides remedies “that are more than adequate to protect consumers and promote appropriate conduct by insurers,” Tetrault testified. “The impetus for this legislation is not a weakness or loophole in existing law but rather a bold attempt to increase the number of lawsuits and to inflate both damage awards and settlement values.”

© Copyright 2007, National Association of Mutual Insurance Companies (NAMIC).