Bad Faith Ban Among Laws Taking Effect

The Associated Press, July 8, 2005

West Virginians can no longer file lawsuits alleging the other driver's insurance company acted in bad faith as of today, when about a third of the bills passed by the Legislature this year take effect.

The ban on third-party bad faith lawsuits was among 86 bills sent to Gov. Joe Manchin on the final night of the regular legislative session, and set to become law 90 days later.

Among several insurance measures passed during the session, Senate Bill 418 targets lawsuits filed against insurance companies by people involved in accidents with policyholders. These nonpolicyholders, or third parties, allege the insurer failed to resolve the underlying claim reasonably.

As of today, nonpolicyholders can instead file a complaint with the state insurance commissioner. If the insurer does not settle the complaint within 60 days, the office would investigate it and hold a hearing if necessary. The commissioner could fine insurers found to have violated the state's Unfair Trade Practice Act and award the victim damages from a new fund paid into by all insurers.

Deputy Insurance Commissioner Bill Kenny said the office does not know how many complaints to expect once the bill becomes law.

"We have a sense that there were really only a handful of actual third-party suits filed,'' Kenny said. "There were a lot of threats, but only a handful of actual suits.''

Insurers' complaints about the lawsuits prompted Manchin to target them as part of the first regular session agenda of his term. Manchin promised every auto policyholder in the state savings that would total $50 million if lawmakers passed the ban. Kenny said insurers have so far reduced rates by $60.5 million.

Critics of the legislation, including lawyers who filed third-party cases, note that insurance rates have dropped nationwide.

"I think we would have gotten the rate decreases anyway if we had a competent and aggressive insurance commissioner,'' said Harvey Peyton, president of the West Virginia Trial Lawyers Association. "We don't agree with it. We think it's unfair and will be harmful to consumers.''

Kenny said State Farm, the largest provider of auto policies in West Virginia , has shared its rate changes from 36 other states. While the insurer lowered rates in all but two of those states, West Virginia saw the greatest drop at 10 percent.

"I would venture to say that we've never been at the head of the hit parade when it comes to reductions in automobile insurance,'' Kenny said.

Kenny added that an analysis of State Farm's filings of premiums received and claims paid out in West Virginia for 2004 suggests the insurer could have justified asking for a 6.8 percent increase in its auto rates.