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Home / Insurance / Bill "Bad Faith" in New York repeats mistakes in California and Florida

Bill "Bad Faith" in New York repeats mistakes in California and Florida



The state of New York may be on the verge of making the same mistake that has pushed Florida car insurance premiums through the roof, and it did the same in California until its Supreme Court learned its faults.

Legislation currently competing through the New York State Assembly would drastically change the responsibility for the police's unfair application for settlement of claims away from the Department of Financial Services and against the claims system. Assembly proposal 5623 would make it much easier to sue insurance companies for alleged "bad faith", including by extending employment to third parties to bring direct action against insurance companies.

The measure was cleared by the parish insurance committee on July 1

4 in a vote of 14-6 and by the parish code committee on July 17 in a vote of 15-6. The parish rules committee voted 22-7 on July 22 to move the legislation to the parish floor. A companion is currently sitting before the Senate Insurance Committee.

The proposal is reminiscent of California's experience after the landmark 1979 California's Supreme Court decision Royal Globe Insurance Co. v. Superior Court which found that third party Complainant could bring direct action insuring bad faith of insurers when concluding agreements to which the applicant was not a party.

The foreseeable consequence of this judgment was seen almost immediately. Between 1980 and 1987, the number of vehicle liability claims in California's Superior Courts increased by 82 percent and their severity increased by a factor of four. Claims of personal injuries associated with auto claims doubled between 1982 and 1987, reaching a peak of 91,450 cases. These trends were quickly reversed when California's Supreme Court overturned the decision by the Royal Globe in 1988.

Perhaps a more direct comparison can be found in Florida, which, like New York, uses a car insurance system without errors. In a condition without fault, which mainly relies on coverage of personal injury protection (PIP), claims for bodily injury liability are intended to be rare. This is not the case in Florida, one in only five states that contributions to third parties are not mentioned in the insurance contract to bring damages to insurance companies.

A 2018 report from the Insurance Research Council shows how bodily injury claims took off in Florida following a 1993 decision that created third-party bad faith, and specifically how this frequency of claims compares to the non-fault states of New York, New Jersey and Pennsylvania.

The difference in the prices of claims and lawsuits is also clearly shown in the price of car insurance. According to the latest survey from Insure.com, Florida consumers now pay the third highest car insurance rates in the United States, with an average premium of $ 2,239. New York, on the other hand, is 37 with an average premium of $ 1,320. Should A.B. 5623 continues its way through the parish and is signed by statesman Andrew Cuomo, New York should expect to quickly climb up the rankings.

The purpose of the insurance is to protect the policyholder to make them whole. It is not to provide enrichment for the plaintiff or their lawyers. New York lawmakers should learn lessons in California and Florida and return before it's too late.

About R.J. Lehmann

Lehmann is the founder of the R Street Institute in Washington, D.C., where he serves as director, finance, insurance and trade and is a senior colleague. He can be reached at rlehmann@rstreet.org.

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