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                                   Testimony of the
               Trial Lawyers Association of Metropolitan Washington, D.C.

                              Bill 18-103
       Insurance Claims Consumer Protection Amendment Act of 2009

                           Public Hearing: June 25, 2009
                  Committee on Public Services and Consumer Affairs
                        Councilmember Muriel Bowser, Chair

      Good morning Councilmember Bowser and members of the Committee. I am
Salvatore Zambri, a Past-President of the Trial Lawyers Association of Metropolitan
Washington, D.C., and am pleased to be here to speak in support of Bill 18-103.

       Our organization is committed to promoting and protecting the rights of District
citizens and consumers. We enthusiastically advocate enactment of this bill because it
fosters fairness by correcting the current imbalance of power between consumers and
insurance companies.

       Bill 18-103 will provide a much-needed legal remedy for insurance consumers who
are victimized by unfair insurance practices. Currently, neither District of Columbia
statutory law nor common law provides consumers an effective remedy. The bill will rectify
this shortcoming in the law by creating a cause of action for insurance consumers who
have been harmed by unfair insurance practices.

        The bill addresses the unfortunate problem of insurance companies’ sometimes
exploiting their policyholders by neglecting to live up to their coverage promises or by
failing to settle insurance claims in good faith. These companies tend to capitalize on the
vulnerability of insureds when they are at their weakest and neediest. The phenomenon of
unfair insurance practices is by now well documented. See, e.g., David Dietz & Darrell
Preston, Home Insurers' Secret Tactics Cheat Fire Victims, Hike Profits (Aug. 3, 2007),

        Unfair insurance practices may take a variety of forms, such as unreasonably or
deliberately denying coverage, underestimating insureds’ losses, offering low-ball payouts
that fall far short of policyholders’ actual losses, bullying insureds to force a settlement,
postponing paying legitimate claims, and refusing to pay at all. These types of practices
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harm consumers in tangible and substantial ways, such as when, for example:

             a homeowner’s insurance company denies full payment for living expenses
              incurred by a policyholder whose house has been rendered uninhabitable by
              flooding caused by a leaking pipe;
             a property-casualty-insurance company refuses to pay for a small business’s
              loss of merchandise in a fire that the insurer without justification blames on
             an automobile insurer fails to cover medical expenses of a motorist who
              suffers debilitating neck and back injuries;
             a health insurer unreasonably delays approval of medical treatment deemed
              necessary by a policyholder’s physician.

      The courts in the following thirty-two states have responded to this problem by
recognizing a common-law cause of action sounding in tort for unfair insurance practices:
Alabama, Alaska, Arizona, Arkansas, California, Colorado (for delayed payment),
Connecticut, Hawaii, Idaho, Indiana, Iowa, Kentucky, Louisiana, Mississippi, Montana,
Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oklahoma,
Oregon, Rhode Island, South Carolina, Texas, Utah, Vermont, Washington, West Virginia,
Wisconsin, and Wyoming.

        Additionally, the legislatures in the following fifteen states have created a statutory
cause of action for insureds to sue their carriers for unfair insurance practices: Colorado
(Colo. Rev. Stat. §§ 10-2-1115 to -1116); Florida (Fla. Stat. Ann. § 624.155); Georgia (Ga.
Code § 33-4-6); Louisiana (La. Rev. Stat. Ann. § 22:1973); Maine (Me. Rev. Stat. Ann.
tit.24-A § 2436-A); Maryland (Md. Code Ann., Cts. & Jud. Proc. § 3-1701; Md. Code Ann.,
Ins. §§ 27-303 to -305 & 27-1001); Massachusetts (Mass. Gen. Laws ch. 93A, §9);
Minnesota (Minn. Stat. § 604.18); Montana (Mont. Code Ann. § 33-18-242); Nevada (Nev.
Rev. Stat. § 686A.310); North Carolina (N.C. Gen. Stat. §§ 75-1.1, 75-16); Pennsylvania
(42 Pa. Cons. Stat. §8371); Rhode Island (R.I. Gen. Laws §9-1-33); Tennessee (Tenn.
Code Ann. §§47-18-109(a)(1), 56-7-105); and Washington (Wash. Rev. Code §48.30.015).

       In the District of Columbia, however, no adequate cause of action is available to
policyholders seeking relief from unfair insurance practices. The District of Columbia Court
of Appeals recently expressly refused to recognize a tort of bad faith by insurance
companies in the handling of insurance claims. See Choharis v. State Farm Fire & Cas.
Co., 961 A.2d 1080, 1087 (D.C. 2008). The court instead relegated policyholders to a
claim for breach of contract. Id. The court further held that punitive damages are available
only in a tort action and not in a breach-of-contract action, even where it is proved that the
breach was willful, wanton, or malicious. Id. at 1091 (citation omitted).

        Contrary to what the court suggested in Choharis, a cause of action for breach of
contract does not provide an adequate remedy for a policyholder who has been harmed by
unfair insurance practices. A plaintiff in a contract action is entitled to recover only those
so-called consequential or special damages, such as lost profits, that are a foreseeable
result of the breach, that is, the damages that may reasonably be supposed to have been
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in the contemplation of both parties when they made the contract. In a tort action, by
contrast, a plaintiff is entitled to recover all the damages that the plaintiff experienced that
were proximately caused by the defendant’s wrongdoing. In a contract action, damages
are limited to only those that will put the plaintiff in the position she would have been in had
the insurance contract been complied with, whereas in a tort action, all damages are
allowed that will place the plaintiff as nearly as possible in the condition she would have
occupied if the wrong had not occurred. For example, damages for mental anguish
caused by the breach of a contract are generally not recoverable in a contract action, while
damages for mental anguish caused by civil wrongdoing are generally recoverable in a tort
action. And, as the Choharis court acknowledged, punitive damages to punish and deter
especially egregious misconduct are not available in a contract action but are in a tort
action. In short, no adequate remedy is available under common law to fully compensate
a District of Columbia policyholder victimized by unfair insurance practices or to effectively
deter insurers from engaging in these practices.

         Nor is there an adequate remedy available in our statutory law. Under the
Insurance Trade and Economic Development Amendment Act of 2000, when an insurance
carrier engages in unfair claim-settlement practices "with such frequency as to indicate a
general business practice," the Commissioner of the Department of Insurance and
Securities Regulation may order the violating carrier to both cease and desist from and to
correct these practices, and the Commissioner is authorized, but not required, to impose a
civil penalty for each violation for which the violator failed to cease and desist or which the
violator failed to correct. D.C. Code §§ 31-2231.17, 31-2231.22. This statute provides
little relief to a wronged policyholder. First, multiple infractions evidencing a general
business practice must be established before the Commissioner may act at all. Second, a
monetary penalty may be imposed only after the offending insurer has failed to comply
with an order to cease and desist from the misconduct and to correct a pattern of unfair
claim-settlement practices. Third, the monetary penalty is to be paid to the District, rather
than to the aggrieved policyholders. Fourth, the decisions whether to issue orders to
cease and desist from and to correct unfair claim-settlement practices, whether to impose
a monetary penalty, and, if so, how much to penalize the violating insurer are committed
exclusively to the discretion of the Commissioner; the victimized policyholders have no say
in the matter, and certainly have no cause of action under the statute. Thus, the Insurance
Trade and Economic Development Amendment Act of 2000 provides to policyholders no
adequate remedy for unfair claim-settlement practices.

       Since neither District of Columbia common law nor statutory law currently offers
mistreated policyholders meaningful relief, they must turn to this legislature for a solution.
Indeed, the Choharis court expressly deferred to the Council of the District of Columbia to
decide what causes of action and what relief should be available to wronged insureds: "If
there is something special in the insurance relationship that calls for protection of policy-
holders beyond that provided by contract principles, such a determination is one most
appropriately to be made by the legislative body.” 961 A.2d at 1087 (footnotes omitted);
see also id. at 1091. In this vein, the court noted:
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       The D.C.Code currently provides a statutory remedy for overdue payment of
       benefits and attorneys' fees for no-fault motor vehicle insurance. D.C. Code §31-
       2410(c), (e) (2001). It also contains provisions for the imposition of fines and the
       revocation of licenses of fire and casualty companies for committing unfair claim
       settlement practices “with such frequency as to indicate a general business
       practice.” D.C. Code §§ 31-2231.17(a), (c) -2502.03(a)(5) (Supp.2008). See the
       recently enacted Maryland statute making it an unfair claim settlement practice for
       an insurer to fail to act in good faith in settling a claim. Md. Code Ann., Insurance §
       27-303 (9) (Supp. 2008).

Id. at 1087 n.8.

        Bill 18-103, in effect, represents an acceptance of the court’s invitation for a
legislative solution to the problem of unfair insurance practices. Specifically, it
accomplishes the following:

                 creates a cause of action in the Superior Court of the District of Columbia
       for a consumer whose insurance company commits unfair claim-settlement
       practices, even if they do not rise to the level of "general business practices," or
       refuses to pay a claim within thirty days of receipt of sufficient documentation of the
       consumer's loss where the refusal is wrong, mistaken, in error, or unreasonable,
       regardless of any insurer intent;
                 authorizes policyholders to recover damages for this wrongdoing,
       including the following:
                           interest on the unpaid claim;
                           attorney and expert fees and costs;
                           monetary penalties of at least the unpaid claim amount but no
                  more than triple the unpaid claim amount, in cases where the insurance
                  claim amount due is not fairly debatable; and
                           punitive damages, but only where a carrier has "acted with
                  reckless disregard for the rights of the insurance claimant; or acted
                  maliciously, vexatiously or with intent to cause financial or personal injury
                  or harm";
                 requires the insured, before filing a cause of action, to provide written
       notice of the basis for the cause of action to the insurer, and bars the insured from
       bringing an action if the insurer pays the full contractual claim amount requested by
       the insured within a prescribed period after receipt of the insured’s written notice.

        Despite our support of Bill 18-103 in general, we do strongly feel that certain
amendments are necessary. We have attached a redlined version of the proposed
legislation that sets forth our requested amendments.

       Section 117a, subsection (c) should be amended by adding a new paragraph (2)
that would permit aggrieved insureds to recover damages for their economic and non-
economic losses. This paragraph is intended to clarify and delineate the "damages" for
which subsection (b) expressly authorizes an insurance claimant to bring an action.
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Because legislation, such as this bill, in derogation of the common law (as recently
expressed in the Choharis decision) will be strictly construed by the courts, it is imperative
that the bill unambiguously state the type of damages recoverable in the cause of action
that the bill would create. Allowing insureds to recover damages for all their economic and
non-economic losses proximately caused by their insurers’ unlawful claim-settlement
practices will best meet the salutary objective of making mistreated insureds whole. For
example, if an insurer unreasonably delays investigating and processing a claim for losses
suffered by a small retailer in a fire, the policyholder may well suffer business losses
beyond those contemplated by the insurance policy. Likewise, if an insurer unjustifiably
refuses to pay to repair a water-damaged house or to replace no-longer-usable furniture
and appliances, the insured homeowner will likely suffer substantial inconvenience and
emotional distress. To ensure that these insureds are fully compensated for their losses
resulting from their insurers’ wrongdoing, the bill must expressly authorize recovery of
economic and non-economic damages.

        Section 117a, subsection (g), paragraph (1) should be amended. The proposed bill
requires an insured to provide written notice of the claim precisely “Twenty days” before
filing any action. This will lead to much confusion and will create a significant calendaring
issue, as in the situation when the twentieth day falls on a weekend or on a holiday. We
suggest that the wording be changed to "Not less than thirty days". The words "Not less
than" would effectively lift the bill’s onerous current requirement that the insured’s action
be filed on precisely one specific day, namely, the twentieth day after the insured provides
written notice. Expanding the prescribed period from twenty days to thirty days is
necessary to prevent the problem of the insured filing suit before the insurer has a full
opportunity to cure. For example, if the claimant sent notice on January 1, he could file
suit, under the present language, on January 21. The carrier, however, is presumed under
the terms of subsection (g), paragraph (1) not to have received the notice letter until
January 4 — three days after it was mailed by the claimant. And under the terms of
subsection (g), paragraph (2), the carrier would have until January 24 — twenty days after
receiving the notice letter — to cure the claim by paying the full amount requested by the
insured. Consequently, the insured’s lawsuit would be filed three days before the
expiration of the period prescribed for the insurer to cure the claim, an outcome not likely
intended by the bill’s drafters.

      Subsection (g), paragraph (2) should be amended by deleting the phrase, “the 20-
day period,” which misleadingly seems to refer to some previously prescribed time period,
and by substituting instead simply ”20 days.”

       Subsection (g), paragraph (3) should be amended to be consistent with paragraph
(2) and to clarify that, to avoid a lawsuit by an insured, the carrier must cure the insured’s
claim within twenty days “of receipt” of the insured's notice, rather than within twenty days
of the sending of the notice.

       A new paragraph (4) should be added to subsection (g) to allow an insured to
include in a lawsuit any other claim that becomes known to the insured after the notice is
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given to the carrier, such as during the pretrial discovery phase of the lawsuit. This
provides fairness to the claimant and streamlines the legal process by eliminating the need
for multiple lawsuits for later-revealed causes of action.

         Subsection (g), paragraph (4) should be renumbered as paragraph (5) to
accommodate the proposed addition of a new paragraph (4). This paragraph should be
amended to state that the applicable statute of limitations on an insured’s action is tolled
for thirty days, consistent with our proposed amendment to paragraph (1), rather than for
twenty days. This paragraph should be further amended to provide that if the limitations
period, as tolled, would fall on a Saturday, a Sunday, a legal holiday, or another day when
the office of the Clerk of the Superior Court is closed, then the limitations period runs until
the end of the next day when the office of the Clerk is open. This provision is intended to
avoid potential confusion, surprise, or hardship in determining precisely when the statute of
limitations on an insured’s cause of action expires.

        Subsection (g), paragraph (6) should be amended by deleting the language that
would allow the Commissioner to intervene in the insured’s action. First, the
Commissioner’s intervention would make the lawsuit more complex, confusing, and difficult
than necessary. The party opposite the one on whose side the Commissioner intervenes
would be facing an unfair two-against-one battle. And the party on whose side the
Commissioner intervenes faces the prospect that the Commissioner may advocate a
position on the law or facts that would undermine rather than support that party’s position.
Second, this paragraph preserves the Commissioner's right to exercise his power and
authority to attempt to resolve the matter. Similarly, subsection (e) expressly maintains
intact the Commissioner’s authority and jurisdiction, including the authority to assess
penalties or costs. In short, our proposed amendment would allow an insured to seek
monetary relief through a lawsuit without in any way interfering with the Commissioner’s
current statutory authority to vindicate the public interest.

      A new paragraph (7) should be added to subsection (g) as a savings clause that
promotes fairness and justice. A similar clause can be found in D.C. Code §16-2804(b).

        In closing, Bill 18-103 will level the insurance playing field that now tips inequitably
in favor of insurers. The bill will encourage insurers to fairly and expeditiously handle
claims and will provide District residents and businesses the protection they need in the
event they become victims of unfair insurance practices. We therefore urge you to vote
Bill 18-103 out of committee with our requested changes.

___________________________                             _____________________________
Bruce J. Klores                                         Laurie A. Amell
Past President                                          President

____________________________                            _____________________________
James W. Taglieri                                       James Nathanson
Legislative Chair                                       Legislative Counsel

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