The Business Council opposes this legislation which would allow a private right of action by policyholders alleging unfair claims settlement practices by insurance companies. By replacing long-standing and successful administrative remedies, this bill substantially impacts the insurance industry and despite the written limitation on insurers from recovering any costs associated with this legislation in premium charges, will no doubt ultimately lead to greater costs for policyholders throughout the state.
Under this legislation, a policyholder could bring a judicial proceeding, claiming recovery under the policy plus interest, costs and policyholder attorney’s fees by asserting that an insurance company’s refusal to pay or unreasonable delays in payment to the policyholder was not substantially justified. The legislation would also authorize compensatory and punitive damages.
Monetary incentives such as these will only foster litigation and temper the use of statutory and regulatory mechanisms that are in place to address such delays in payment.
The Department of Financial Services (“DFS”) already regulates and enforces an administrative remedy to resolve disputes involving settlement practices of every insurance company transaction business in New York. Article 26 of the Insurance Law provides guidelines for unfair practices and provides policyholders with recourse through the DFS Financial Fraud and Consumer Protection Division.
DFS is authorized to penalize insurance companies for unfair claims settlement practices and, where there is a finding that a pattern of misconduct exists, the Department has been aggressive in issuing violations and fines against the companies. There is simply no evidence to support the premise that taking a claim through the judicial system will result in a more expeditious outcome. Instead, it will clog the courts with claims that already have reasonable means of resolution through negotiation and the use of the processes available through the regulatory agency.
Enactment of this bill will only serve to increase litigation in New York and to increase insurance premiums (automobile, home and business) without any discernible benefit to the consumer who is alleging a claim against an insurance policy. In fact, a 2015 Milliman actuarial study estimated that private right of action claims would increase annual cost of insurance, amounting to approximately 10% or $4 billion.
There are already sufficient remedies in place in law, regulation and currently through the judiciary that obviate any need for this bill. For these reasons we respectfully urge the legislature to disapprove this bill.