New York State could be on the verge of making the same mistake that drove up auto insurance premiums in Florida, and so did California, until its Supreme Court learned the mistake of its ways.
Legislation currently going through the New York State Assembly would drastically shift responsibility to unfair claims settlement practices by the police, away from the Treasury Department and towards the crime system. Bill 5623 would make it far easier to sue insurance companies for alleged “bad faith”, including by extending the right to third parties to bring direct actions against insurers.
The measure was approved by the Congregation Insurance Committee on July 14th by 14 votes to 6 and by the Congregation Code Committee on July 17 by 15 votes to 6. The Congregation Rules Committee voted 22-7 on July 22 to move the legislation to the Assembly Floor. An accompanying draft is currently available to the Senate Monitoring Committee.
The proposal recalls California’s experience following the landmark 1979 decision by the California Supreme Court in the Royal Globe Insurance Co. v Superior Court, which found that third party plaintiffs were direct charges of malicious intent by insurers in the settlement of Could collect contracts in which the applicant was not a party.
The foreseeable consequence of this judgment was seen almost immediately. Between 1980 and 1987, the number of auto liability claims filed in California’s Supreme Courts increased 82 percent and their severity increased by a factor of four. Personal injury lawsuits related to auto claims doubled between 1982 and 1987, peaking at 91,450 cases. These trends were quickly reversed when the California Supreme Court overturned the Royal Globe’s decision in 1988.
Perhaps a more direct comparison can be found in Florida, which, like New York, employs a flawless auto insurance system. In states without fault, which are primarily based on personal injury protection (PIP), claims for liability for personal injury should be rare. This is not the case in Florida, one of only five states that allow third parties not named in the insurance contract to make claims against insurers in bad faith.
A 2018 Insurance Research Council report shows how personal injury claims were made in Florida following a 1993 decision that resulted in bad faith by third parties, and in particular, how this loss frequency compares to New York, New Jersey and Pennsylvania are compared without error.
This difference in the amount of claims and lawsuits is also clearly evident in the price of car insurance. According to the latest Insure.com survey, Florida consumers now pay the third highest auto insurance rates in the US, with an average premium of $ 2,239. New York, on the other hand, ranks 37th with an average premium of $ 1,320. Should AB 5623 make its way through the congregation and be signed by Governor Andrew Cuomo, New York should expect the rankings to improve rapidly.
The purpose of insurance is to compensate the policyholder, make it whole. It is not an asset to the plaintiffs or their attorneys. New York lawmakers should learn and reverse the lessons of California and Florida before it’s too late.
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