Insurance industry fights 'bad faith' bill


ANNAPOLIS -- The concept seems so simple to Sen. John A. Pica Jr. that he can't understand why he has to keep coming back each year to fight for it:

If an insurance company fails to pay claims when it should and acts "intentionally and wrongfully," a customer can sue the company and ask for "punitive" damages to say that kind of behavior won't be tolerated.

That's the idea behind a "bad faith" bill the Baltimore Democrat presented to the Senate Finance Committee yesterday.

If Mr. Pica can't understand why the bill continues to fail, he need look no further than the dozen or so lobbyists who have signed up to oppose the measure for their clients -- members of the insurance industry.

Despite the strong opposition, the bill made it out of the Senate last year only to get bogged down in a House committee toward the end of the session.

Insurers worry privately that they might have a real fight on their hands this year, in part because they continue to fight a reputation for unreasonably challenging and denying claims.

"God knows why they do it," said Sen. Thomas L. Bromwell, D-Baltimore County. "I've seen them do it in workers' compensation [claims], where they cut them off for no apparent reason."

"On practically 99 percent of commercial business fires, the insurance company throws up [the suspicion of] arson, and everything stops" while the company conducts a lengthy investigation, said Sen. James C. Simpson, D-Charles.

Industry representatives said occasional abuses do occur.

But allowing people to sue for punitive damages is not the answer, argued Paul Tiburzi, a lobbyist for State Farm Mutual Automobile Insurance Co.

That approach would only invite more lawsuits and higher costs for everyone, he said.

"This bill would wreak havoc on your constituents because insurance prices would go up," Mr. Tiburzi warned.

Moreover, the threat of punitive damages would frighten companies away from investigating claims that ought to be challenged, said David Funk, a lobbyist for Medical Mutual Liability Insurance Co., which insures physicians against malpractice.

"Claims that shouldn't be paid under the policy, even fraudulent claims, are going to be paid if you enact this law," he said.

The industry's answer was to stick with current regulations, which give the state insurance commissioner the authority to crack down on companies guilty of abusing their customers.

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