The End of the Consumer Protection Act in Insurance Cases

This will probably come as no surprise to most but my feelings concerning the legislature's recent removal of the insurance industry from the protection of the Tennessee Consumer Protection Act are pretty strong.  I called every member of the legislature I knew, and some I didn't, in an attempt to stop the bill.  But there is a very strong insurance lobby in this state, and the bill flew through both the House and the Senate with flying colors.  

The saddest part about the new law is that it sends a clear signal that insurance companies are above the law, i.e., that ethical conduct is required of all businesses in this state except insurance companies who are free to act unfairly and deceptively without the threat of private recourse via the consumer protection statutes.  A decision by an insurance company to deny a claim is a very calculated risk.  Only a very small percentage of people whose claims have been denied will even pursue litigation.  And without the protection of the Consumer Protection Act, things will only get worse.  The consumer protection statutes helped even the playing field, and heightened the risk for insurance companies that wrongfully denied claims by exposing them to attorney's fees and treble damages in the event a judge decided that it intentionally acted unfairly or deceptively.  

The new law only hurts the consumer and really created no benefit at all for the insurance companies out there that were already acting in a good faith fashion.  On the other hand, it benefits greatly those insurance companies who treat their insureds unfairly.  This was not an area of the law that needed reform.  There was no risk of a runaway jury because the judge, not the jury, decided whether to award attorney's fees and treble damages under the Consumer Protection Act.  But without those protections, insurance companies can freely fun roughshod over insureds with little recourse.  

There is one positive about the new law, and that is that the language utilized in the new statute may have acknowledged the existence of a common law bad faith claim. More on that in future posts . . .

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Julie Sears - August 4, 2011 9:24 PM

Recent changes to Florida statutes concerning insurance, especially in the area of property insurance, will impact Florida consumers of insurance in much the same way as you suggest the Tenneessee legislation impacts insureds governed by Tenneessee law. Unfortunately, it appears that both legislatures have now effectively sanctioned what can be portrayed as an industry's decision to draft, market and sell agreements it intended to breach at the outset. And, while the Florida Supreme Court stands as a beacon of hope for those insureds whose policies are governed by Florida law (Unlike even some federal courts, the Florida Supreme Court has resisted the insurance industry's formidable effort to convince state and federal courts to read and apply insurance policies based on historical concepts and case law made irrelevant by the current policy language. Instead, the Court has remained true to elementary principles of contract and insurance policy interpretation, construing each agreement according to its own terms.) the beacon is dim; just as you point out, the prohibitive cost associated with gaining access to the "beacon" pushes it out of reach for those who need it most. (Thanks for your update - sorry to go on!)

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