Controversial insurance proposal on ballot in Washington state

Doctors worry that the possibility of triple damages against insurers would result in higher premiums.

By Amy Lynn Sorrel, AMNews staff. Nov. 5, 2007.

Washington physicians and insurers are working against a new law regarding "bad-faith" handling of insurance claims.

On the Nov. 6 ballot, Referendum 67 will ask voters to reject or approve the statute. The law allows policyholders to sue their insurance companies for up to triple damages, plus legal fees, when insurers unreasonably turn down their claims. A state court would decide whether the claims denial was unreasonable and whether triple damages were warranted.

The law is on hold pending the referendum's outcome.

Washington does not allow punitive damage awards. Although the new law, called the Insurance Fair Conduct Act, does not define its penalties as punitive damages, they are the equivalent, legal and policy experts said.

The act, signed by Gov. Chris Gregoire in May, would apply to most types of insurance, except health plans. It remains unclear whether the law would directly impact medical liability carriers.

The confusion arises because physicians are policyholders of medical liability insurance. However, medical liability claims are triggered by a legal complaint by, or on behalf of, a patient -- a third party. The question, then, is whether a patient or a patient's attorney can sue a physician's medical liability insurer for allegedly failing to properly cover the doctor's claim.

Also unclear is whether a physician, as a medical liability insurance policyholder, could sue his or her insurer for settling or defending a case in bad faith, or refusing to take on the doctor's claim altogether.