(Insurancenewsnet) – The American Insurance Association (AIA) opposed Maine LD 1305, An Act To Provide for Prompt Resolution of Insurance Claims by Providing for a Direct Remedy by Consumers, at a hearing today before the Insurance and Financial Services Committee. According to AIA, the legislation would create a new private right of action against insurers for third-party claimants.

“This is anti-consumer legislation that is unnecessary and will increase litigation costs at the expense of Maine’s policyholders and businesses during a time when the state’s consumers can ill-afford additional costs,” said John Murphy, AIA northeast region vice president.
Murphy explained that Maine’s Bureau of Insurance already protects the rights of consumers under the state’s unfair claims settlement practices laws which give the Superintendent of Insurance the authority to enforce corrective procedures and to levy fines upon insurers for misconduct towards a third-party.

“Historically, allowing third-party bad faith litigation against insurers has had a negative impact on insurance liability costs in the few states that have permitted it through legislative or judicial action,” said Murphy.

According to AIA, of the six states that have adopted some version of a third-party cause of action, all of them (California, Florida, Kentucky, Massachusetts, Montana, and West Virginia) have experienced negative effects, such as significant increases in the number of claimed bodily injuries, significant increases in the cost of insurance and significant increases in the number of uninsured people as the cost of insurance rises. In fact, a report released by the Insurance Commissioner of West Virginia found that the costs associated with such a disproportionate number claims have shown to cause a fundamental shift in the business practices of insurance carriers, thereby increasing the cost of insurance in the state, and particularly among auto lines. Both California and West Virginia have since acted to prohibit the practice.