Civil Actions – Liability of Disability Insurer – Failure to Act in Good Faith

While we did not appear at the House hearing on this bill, we delivered very strong testimony in both the Senate Judicial Proceedings and Senate Finance Committees on this bill.

HB990 would add individual disability insurance to the current list of property and casualty insurance for which a bad faith action can be maintained against the insurer under the Unfair Claims Settlement Practices Act of the Insurance Article.

The JLC is not generally involved in situations where liability is an issue.  Here, however, we felt it necessary to explain to the two legislative committees that there is a relatively small number of individual disability insurers remaining in the market (10 is the estimate we’ve been given) and that this kind of legislation could have a chilling effect on an insurer’s willingness to either maintain an open market for individual disability insurance in Maryland, or to maintain its current underwriting standards.  In other words, an insurer could view this increased liability exposure and respond by reducing the availability of individual DI in the state.

The two Senate Committees responded quite differently to our arguments.  The Judicial Proceedings Committee was unpersuaded, and issued a favorable report on the bill by a vote of 10-1.    By contrast, the Finance Committee, which is the policy committee that considers all insurance issues, accepted our arguments and voted against the bill by a vote of 9-2.  Unfortunately, when the bill made it to the Senate floor the position of JPR prevailed and the bill was passed.