Does Minnesota Need A 'Good-Faith' Law to Protect Residents From Insurance Hassles?

Duluth News Tribune - 01/12/2008

Yes: Minnesotans pay for their policies and need to be assured they'll be protected by them.

In 2005, six-month-old Jonathan Johnson and his two-year-old brother, Jacob Johnson of Mora, Minn., died in a car accident with their mom and cousin. At that time, they were legally living with their father and grandfather three days a week. Their father, Charles Dack, and their mother were very young and not married.

Insurance policy limits were $100,000, but Dack's insurance company offered him $5,000 for each son. The offer was a blatant disregard for the value of each life lost. Yet due to Dack's youth, education and employment status, the company counted on him taking the money offered.

The insurance company even defended its offer in court. After a very long legal battle a jury understood the value of life and found Dack's loss to be $1.57 million. The insurance company paid its $100,000 policy limit and was free to get away with the injustice of the battle it forced Dack to endure without having to pay the bill.

This is all because Minnesota is one of the few states that does not have a "good-faith" law. As a result, Charles Dack could not collect the judgment amount the jury found appropriate.

Insurance companies have demonstrated a pattern of stonewalling policyholders for years. They frivolously deny, delay and defend against legitimate insurance claims. "Good-faith" legislation would require insurance companies to uphold their duty to act in good faith and to deal fairly in all transactions involving policyholders. When a policyholder suffers unjustified damage because of the actions of an insurance company, a "good-faith" insurance law could allow consumers to recover those damages, too.

During the last legislative session, an Insurance Federation-supported special interest group, Minnesotans Against Fraud and Higher Insurance Costs, led all special-interest groups in spending at the state capitol. This special-interest group spent more than $1 million to, as I saw it, distort the facts on "good-faith" legislation through radio ads and direct mail.

The special-interest group seemed to want you, the consumer, to believe that "good-faith" legislation would cause two lawsuits for every claim, giving lawyers twice the chance to collect. This claim is at odds with the truth. Minnesota has long-established laws against double recovery and frivolous lawsuits. Minnesota Statute 548.36, the "collateral source rule," provides an offset on damages for third-party payments made to a plaintiff, including insurance proceeds.

A study released by the Consumer Federation of America last January found that insurers have increased profits to record levels by overpricing policies, cutting back on coverage, underpaying claims and getting the taxpayer to pick up the tab for higher risks.

The same study showed that claim payouts dropped from 75 percent of premium in the late 1980s to a little more than 50 percent in 2006. This is a direct outcome of the success the insurance industry has had in shifting risks to consumers and taxpayers.

The insurance companies have opted to pay a public relations firm and form a special interest group so they may sustain the status quo, or business as usual, by forcing consumers to fight for the coverage they've already paid for. This tactic and status quo clogs up our court system and prolongs grief and hardship. Just ask Charles Dack. It's unfair and simply wrong. Minnesotans pay for their insurance and should be protected by it. Minnesota consumers need a "good-faith" law.

MICHAEL A. BRYANT is a partner with Bradshaw and Bryant PLLC in St. Cloud, Minn. He is the vice president of the Minnesota Association for Justice


No: Minnesotans already are adequately protected; proposed legislation would result in higher premiums, frivolous lawsuits

At any time, life can give an unexpected surprise. That's why Minnesotans put their trust in their insurance policies and their local insurance agents. Whether after a car accident, damage to a home or any other of life's unforeseen events, insurance companies are required to act in good faith when handling claims.

But what does acting in good faith mean to you, the policyholder? Acting in good faith means that your insurance company must either pay your claim in a reasonably prompt time or tell you why it won't, respond to your contacts, and inform you in writing of any adverse decisions about your claim. It's the insurer's commitment to you when you sign a policy.

Unfortunately, there are a few times, but not very often, when policyholders get into claim disputes with their insurers. Under state law, policyholders have the right to contact the Minnesota Department of Commerce if they feel claims aren't being hand led properly. The department investigates claims-handling practices and can issue fines and even revoke licenses if insurers are found to be acting in bad faith. Consumers also can contact the Minnesota Attorney General's office in an attempt to seek resolution.

Disappointingly, a very few bad experiences have given special-interest groups a motive to drastically change Minnesota law to allow a whole new set of lawsuits to be filed against insurance companies. These lawsuits are totally unnecessary and will drive up the cost of insurance.

Proposed by personal-injury attorneys in last year's legislative session, the "bad-faith" legislation would allow new lawsuits against insurance companies when they are accused of acting in bad faith. This is on top of the lawsuit they already can file if the consumer feels a claim has been denied improperly.

Instead of protecting consumers, these second - or double - lawsuits mean families will pay higher insurance premiums as more lawsuits get filed and more insurers decide to pay questionable or outright fraudulent claims to avoid the double-lawsuit threat. Minnesotans shouldn't have to pay higher premiums because some people are cheating the system.

Minnesota is not the only state that has tackled the issue of "bad faith." When California had "bad faith," lawsuits in auto accident cases grew by more than 80 percent in just seven years. Not surprisingly, car insurance premiums increased 48 percent over the same period.

When studying the reason for the increase in lawsuits, it was determined that most of the increase was from frivolous or fraudulent cases. When California abolished "bad faith," the lawsuits went away and policyholders benefited with dramatically lower auto-insurance rates. If Minnesota repeated California's mistakes, Minnesotans would be faced with potentially significant premium increases, some of which unfortunately would pay people who file fraudulent claims.

The simple truth is the legislation being proposed by the personal injury attorneys gives consumers no new protections in addressing their claim grievances, but imposes a great deal of new costs on consumers who will pay for it through higher premiums on virtually all lines of insurance.

Instead of seeking the smart path to claims resolution that already exists, the special interests want to authorize complicated, expensive lawsuits as the solution. Policyholders are not guaranteed a change in their claim at all. The only guarantee is attorneys' fees, and that really isn't a viable solution.

Thankfully, a bipartisan group of legislators worked together to defeat "bad faith" in Minnesota last year and prevent Minnesotans from receiving an unwarranted increase in insurance premiums. But, rest assured, we haven't heard the end of "bad-faith" legislation.

Real issues like transportation, education and health care need to be solved in St. Paul. The state Legislature shouldn't be debating a conjured issue that only benefits the special interests who are pushing it.

BOB JOHNSON is president of the Insurance Federation of Minnesota in St. Paul.

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