Maine Committee Rejects Bad-Faith Legislation

The insurance industry is applauding Maine lawmakers for defeating legislation that they say could have opened up the industry to increased bad-faith litigation costs.

Maine's Joint Committee on Insurance and Financial Services voted unanimously against LD 1305, which would have provided a private right of action against insurers for third-party claimants. By changing existing law, third-party claimants could have received the right to sue insurance companies for violations of law that were not intended to trigger such private actions, explained the National Association of Mutual Insurance Companies, in a statement.

The bill "would have spurred an increase in frivolous lawsuits and costs that ultimately could find their way into the premiums consumers and businesses pay for insurance," said Frank O'Brien, vice president and regional manager for the Property Casualty Insurers Association of America.

NAMIC Northeast state affairs manager Paul Tetrault warned the bill "would set an extremely low threshold for litigation so that insurers would be subject to a multitude of lawsuits alleging violations of the statute."

PCI, NAMIC and the American Insurance Association each testified before the joint committee against the legislation. The trade organization said six states -- California, Florida, Massachusetts, Kentucky, Montana and West Virginia -- have some form of a third-party, bad faith cause of action and that each "experienced negative effects including a significant increase in the cost of insurance and significant increase in the number of uninsured people as the cost of insurance rises."

The industry has had success against bad-faith bills recently. In Connecticut, Iowa, Montana, New Mexico and Oregon, bills were defeated or withdrawn.