Why are Legislators Trampling on Rights of Small Business Owners?
Legislation to Permit Insurance Companies to Act in Bad Faith
What is “bad faith”? An insurance company has an obligation to deal fairly with their policyholders – they must deal in good faith. If an insurance company acts in its own best interests and not in its insured’s best interests, it is acting in bad faith under the insurance contract for which the insured paid for protection.
For example, you own a business and during the course of your business activities someone is injured. You are sued and the case involves unfortunate and very serious injuries. You, as the business owner, have policy limits of $100,000. It is very clear that the amount of coverage will not protect you for the total value of the injured person’s injuries. You are understandably concerned that your business assets and livelihood could be threatened.
You have paid a premium and, in exchange for that premium, the insurance company has promised to protect you and your business from claims up to the amount of coverage. Under current laws, your insurance company has a “good faith” obligation to try and settle the claim for up to the total amount of your coverage and to secure a release that would protect you from any further exposure.
It is in the best interests of the insurance company not to pay that $100,000 until it is absolutely necessary or, they hope, not at all. Paying the $100,000 means money out of the insurance company’s coffers and, as importantly, less money they can invest to produce more profit. The problem is the insurance company is risking an exposure to you, your business and your family that far exceeds the policy limits.
Currently, if the insurance company drags its feet and fails or refuses to timely settle the claim against your small business, they may be guilty of bad faith and could be obligated to pay ANY ultimate judgments rendered against you and your business.
A bill introduced in the Senate by Senator Jon Thrasher and in the House by Rep. Dennis Baxley would eliminate the penalty for your insurance company’s failure to fulfill their obligations to you under the insurance contract. The bills, SB 1592 and HB 1187, are virtually identical and provide a complete rewrite of “the grounds for bringing an action based on the insurer’s failure to accept an offer to settle within policy limits.”
The bill, however, is weighted in favor of insurance companies and essentially eliminates any practical ability for an insured to prove an insurer acted in bad faith or that an insurance company has demonstrated a practice of denying payment on all claims by giving special protections to insurance companies:
With respect to “a first-party claim, the insurer does not owe a fiduciary duty to the insured and retains the right to protect materials covered by the work-product privilege found within the claim processing file.”
In other words, the insurance company owes their insured nothing and you, the insured, are not permitted to look in the insurance company file to determine whether they treated you fairly.
With respect to “a third-party claim, until a claim or action for payment on a policy of insurance is final, all files of an insurer, including papers, communications, investigatory reports, or other documents in the insurer’s files are the insurer’s work product and immune from production or discovery.”
In other words, if the insurance company acted in bad faith, no one is ever going to know that because the insurance company files are secret and protected from discovery.
If it is believed the insurance company has adopted a policy of denying claims the bill makes it nearly impossible for most small business owners or individuals to pursue damages for that wrongful conduct by providing that:
“Any person who pursues a claim under this subsection must post in advance the costs of discovery. Such costs shall be awarded to the authorized insurer if punitive damages are not awarded to the plaintiff.”
In other words, you can not sue your insurance company to punish them for wrongly denying your claim, even if you can prove they do it with everyone as a regular business practice unless you, the insured, can afford to post the costs covering discovery of these bad deeds by the insurance company – up front and before you can sue the insurance company.
The legislation also seeks to abolish long standing case law establishing damages for bad faith conduct by insurance companies:
“The civil remedies specified in this section are the sole remedies and causes of action for extracontractual (sic) damages for bad-faith failure to settle under an insurance contract. Any related common-law causes of action are replaced and superseded by this section. The provisions of this section apply to all cases brought pursuant to this section unless specifically controlled by s. 766.1185.” (emphasis added)
The net effect?
This is a bill to provide insurance companies safe harbor for bad conduct.
It is intended to protect insurance companies and not citizens, whether individuals or small business owners.
What could possibly motivate anyone to want to see this legislation passed, let alone proposed?