Battle over Insurance “Fair Conduct” Law Heats up with Kickoff of Referendum 67

The public took little notice of new legislation on insurance claims handling as the insurance companies and trial lawyers battled in the Washington State Legislature this spring. Now that the law is most likely headed for a public vote, that’s about to change.

The “Insurance Fair Conduct Act” provides a cause of action against an insurer that “unreasonably” denies coverage or benefits to a “first party claimant” or violates certain claims handling regulations. Although this standard of liability is not appreciably different than under preexisting law, the new statute expands the scope of available remedies to include treble damages without limitation, as well as attorney’s fees and costs. An award of treble damages is not mandatory, but no additional showing is expressly required. The full text of the statute as enacted is posted here: http://www.leg.wa.gov/pub/billinfo/2007-08/Pdf/Bills/Session%20Law%202007/5726-S.SL.pdf.

The governor signed the Insurance Fair Conduct Act into law on May 15, 2007. A petition for referendum was filed a day later. If the signatures of 112,440 registered voters on a petition for a public vote are filed with the secretary of state by close of business on July 21, 2007, Referendum Measure No. 67 will appear on the ballot in November. See http://www.secstate.wa.gov/elections/initiatives/referendum2.aspx?y=2007.

The opening shots in the post-legislative battle were fired in the courtroom on June 8. The Washington State Trial Lawyers’ Association (WSTLA) filed a challenge to the ballot title and measure summary prepared by the attorney general to appear on the signature petitions, ballot, and voter’s pamphlet. This challenge was opposed by the attorney general and the referendum sponsor. The court revised the ballot title and measure summary to include the terms “fair conduct” and “fair practices,” but declined to remove references to the law’s exemption of certain health carriers. The court’s decision is final and not subject to appeal.

The action now moves to the public airwaves and the streets, where it’s going to be a high-profile and expensive battle for votes.