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Insurance companies who don’t do what they’re supposed to – pay claims promptly and treat policyholders fairly – act in bad faith. It’s bad business and too many insurers seem to get away with it. Washington state residents recently did something about it.

Referendum 67

It’s doubtful that any resident of Washington hasn’t heard of Referendum 67 as it’s been bitterly fought in the evergreen state. Here’s a recap for the rest of us:

Referendum 67 would allow consumers who sue insurance companies alleging bad faith to seek triple damages. Those who opposed the referendum said that it would likely bring frivolous lawsuits and eventually drive up insurance rates for everyone. Those who supported the referendum (which turned out to be 57 percent of the voters) said that it provides policyholders with a way to punish insurance companies who don’t do what they’re supposed to and may actually cause them to stop acting in bad faith to avoid lawsuits.

A campaign of misfortune

The battle over Referendum 67 was fierce. According to the Washington State Insurance Commissioner’s Office, the insurance industry threatened to spend nearly $8 million to defeat the referendum through a series of television and print ads. However, according to Mike Kreidler, Washington State’s Insurance Commissioner, the ads were ‘a campaign of misfortune’ that didn’t provide Washington residents with truthful information. Kreidler set the record straight by issuing these comments:

• Auto and homeowner insurance premiums will not go up because of Referendum 67. The fact is that if insurance companies treat their own policyholders the way they are required to be treated by law, insurance rates won't change. The only insurance companies with something to fear are those who make a practice of acting in bad faith with their own customers.
• Health insurance premiums will not go up because of Referendum 67. The fact is that health insurance plans are specifically excluded from being covered.
• Insurers will not be deluged by frivolous claims because of Referendum 67. Referendum 67 simply requires insurance companies to pay legitimate claims in a timely fashion and makes it illegal if they don't. Insurance companies playing by the rules will not have any additional requirements under Referendum 67.
• In fact, insurance companies who treat their customers fairly will actually have an advantage in the marketplace because competitors that don't treat policyholders fairly will be subject to court-approved penalties. What's more, all penalties assessed against an insurance company charged with unfair practices must be court-approved under Referendum 67.

Referendum 67 has already been approved by the state legislature and the governor. It goes into effect in early December 2007 after the Secretary of State certifies the election results.