A consumer group, pushing to reinstate a controversial law that would allow more lawsuits against insurance companies, charged Tuesday that the firms have low-balled settlements to some accident victims for more than a decade.
Average insurance settlements to what are known as third-party victims — those injured but who did not cause the vehicle accident — fell to $ 6,996 last year from $7,326 in 1988, said the Foundation for Taxpayer and Consumer Rights. During that same period, average settlements nationwide rose 16 percent, according to the Santa Monica-based group.
“Too much of our premium goes to industry profits and not enough pays for legitimate claims,” said Foundation spokesman Doug Heller. “Payment on legitimate claims should rise to a suitable level.”
The group’s report is an opening salvo in what likely will be an escalating battle over the right to sue insurance companies for “bad faith.”
For many years, third-party accident victims could sue California insurers for acting in bad faith if the company was slow in processing a claim or offered a low settlement. But in 1988 the state Supreme Court overturned that law. The insurance industry hailed the ruling, saying it would help drive down the costs of litigation and lower insurance costs.
Insurance company representatives on Tuesday defended their settlement practices. They said bad-faith lawsuits often were used to jack up settlements and that since they were thrown out, payments have come down to more reasonable levels.
“I’m glad they went this far to validate that (bad-faith lawsuits) drove claims up an irrational amount,” said Barry Carmody, president of the Association of California Insurance Companies. “If you look at this, it’s a testament to our contention that there was a lot of fraud” under the old system.
Insurance officials said that the state’s average auto premium has dropped 11.3 percent since 1995 partly because the elimination of bad-faith suits saved companies money and they passed those savings on to drivers.
If bad-faith lawsuits are allowed again, that “will push up insurance company costs and that will get passed on to consumers,” said Dan Dunmoyer, president of the Personal Insurance Federation of California.
Insurance industry representatives said they expect a bill to resurrect bad-faith lawsuits will be introduced in the state Legislature soon, possibly by state Sen. Martha Escutia, D-Commerce. Her office declined comment Tuesday.
Last year, Escutia, then an assemblywoman, introduced such a bill. That effort, supported by the state’s trial lawyers, died before reaching the desk of then-Gov. Pete Wilson, a Republican.
Insurance industry officials said they think such legislation has a greater chance of passage this year. Both legislative houses and the governor’s office are under control of the Democrats, who traditionally have supported the powerful trial lawyers’ agenda.