Insurance Research Council finds credible evidence
R-67 is adversely affecting Washington’s homeowner insurance system

Costs to homeowner insurance system
increased by $58 million in only nine months

REDMOND—Opponents of Referendum 67 expressed little surprise today that a new report finds the law increasing costs to the homeowner insurance system.

Referendum 67, approved by voters in 2007, may have increased homeowners claims costs by as much as $58 million in Washington during the first three quarters of 2008, according to a preliminary analysis released last week by the Insurance Research Council (IRC).

Dana Childers, who served as spokeswoman for the opposition to Referendum 67 and current executive director of the Liability Reform Coalition (LRC), said the IRC findings come as no surprise, and in fact reflect the behavior and costs predicted during the effort to defeat R-67 in 2007.

R-67 was financially supported by Washington trial lawyers. It allows lawyers to threaten triple damages to force insurance companies to pay more than is fair for insurance claims, a practice that will continue to raise insurance costs for businesses and consumers.

“Over 99 percent of homeowner claims were settled satisfactorily before personal injury lawyers persuaded legislators – then our state’s voters - to enact R-67,” said Ms. Childers. “The deceitful tactics of personal injury lawyers resulted in a needless and expensive law that is now – as predicted – generating more than 1,100 potential lawsuits, increasing homeowners insurance costs and putting more fees in the pockets of trial lawyers.

R-67 established a statutory private cause of action for insurance policyholders to sue their insurance companies if they believe the company has unreasonably denied their claim. The law also allows punitive damages equal to three times the actual damages, in addition to recovering attorneys’ fees and court costs.

The LRC and the business community in Washington vigorously opposed R-67 because of the impact on insurance costs. Ms. Childers, in speaking for the opposition to R-67, repeatedly said enactment of the law would increase both the number of frivolous lawsuits and the cost to settle insurance claims, factors that would increase the overall cost to the insurance system and require policyholders to pay more for insurance coverage.

In releasing this early report on the effects of R-67 on homeowners insurance, the IRC said “we believe the findings are sufficiently credible to merit distribution and consideration by those interested in the potential effects of R-67 in Washington, as well as the potential effects of similar legislation being debated in other states.”

Although the IRC noted that little is known about the length of time it takes for a law to affect behavior, the report did include the fact that as “of February 9, 2009, over 1,000 notices of intent to file lawsuits pursuant to the new law had been filed with the Washington Office of the Insurance Commissioner.” That number has since climbed to more than 1,100.

The sheer number of lawsuit notices filed – at rate of more than 2 per day on average - proves the law was written to benefit the politically powerful trial lawyers. Ms. Childers said.

“Other states that have considered or approved laws to protect consumers from unreasonable treatment have required the conduct of the defendant to be intentional or even malicious – as proven by clear and convincing evidence,” Childers said. Washington’s R-67, however, “allows a plaintiff’s lawyer to demand a settlement in writing, then, if the insurer doesn’t immediately write a check, the attorney can file notice of intent to sue for bad faith and treble damages.”

She noted that for trial lawyers, the threat of a lawsuit is “money in the bank.” The mere threat of a lawsuit will have the effect of causing insurance companies to weigh the costs of going to trial versus settling a claim since it costs money to defend against a claim, even if the claim is without merit.

The IRC will continue to monitor the effects of R-67 on homeowners insurance and is also pursuing a study on the law’s effect on auto insurance.

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