The Olympian (Olympia, Washington)

The most expensive battle on the Nov. 6 general election ballot pits trial lawyers on one side against insurance companies on the other.

With rival television ads hitting the airwaves, many consumers might feel caught in the middle, not knowing what to believe.

Referendum 67 asks Washington voters whether they want to let policyholders sue their own insurance companies for up to triple damages when insurers unreasonably reject their claims — and it makes provision for policyholders to collect legal fees. The law covers all non-medical policies including home, auto, business, disability and even some health-related policies such as long-term care.

The Legislature, controlled by Democrats, passed a law to expand policyholders’ rights in April, but insurers mounted a referendum challenge that has forced the measure onto the ballot, asking voters to decide. A yes vote would approve the law, a no vote would reject it. Consumers already can sue to force an insurer to pay a claim, but there is nothing in the law to further penalize insurers that act in bad faith, according to Sue Evans, spokeswoman for the Approve 67 campaign. The best a consumer can do is win what is owed in the first place — taking home what is left after legal fees.

The legislation would change that by allowing extra damages, and it would provide for legal fees.

“Anecdotally, we know through the courts there is a problem,” Evans says. “The fact is nobody should have to hire a trial lawyer to get a legitimate claim paid.”

Opponents, backed by huge donations from out-of-state insurers, are fighting back, saying the legislation is unnecessary and costly for consumers. Reject 67 spokeswoman Dana Childers says it will lead to even more wasteful lawsuits and ultimately $650 million more in insurance premium payments by Washington
households next year.

That equates to $205 per household, according to a study by insurance-industry consultant Milliman Inc., which consumer groups criticize as not being neutral. Opponents, including Safeco Insurance lawyer Jody Pucell, also challenge the claim consumers can’t win legal fees under existing law. Pucell cites a few cases where fees have been awarded — and cases where monetary awards were also made for emotional damages. She contends that under existing law consumers are made whole.

But Ref. 67 backers say consumers usually don’t win such fees, because the disputes are over the amount of damages, which exclude attorney-fee awards.

The Ref. 67 campaign is on its way to becoming one of the most expensive in state history with more than $10 million raised.

Of that, $1.4 million was raised by the Approve 67 campaign led by trial lawyers, and almost $9 million more has bankrolled the Reject 67 campaign led by insurers.

National news accounts have uncovered evidence of major insurers’ systematically giving low-money offers to settle claims, including those for houses damaged by Hurricane Katrina. At the same time, insurance industry profits hit a record $73 billion in 2006, up from $49 billion the previous year, according to one Bloomberg.com report that delved into the practices for home and auto policies.

But Ref. 67 proponents have not provided data showing similar trends in Washington, and there is little independent data on either side to show that Washington’s insurance problems are worse than in other states — or that they are better.

So the two sides in the campaign cite horror stories. One Approve 67 story is about a Dairy Queen on Puyallup’s South Hill, where owners battled seven years to finally fix a water-damage claim.

The claim by restaurant owner Tom Thiery in 1997 led to insurer-paid repairs, but the repairs didn’t get all of the rot, which mushroomed over time, according to his wife, Laura Thiery. So after a customer stepped through a weak spot in the rotten floor in 2002, the Thiery couple began living what they consider an insurance nightmare.

“We were not made whole and we were put through hell to get what we got,” said Laura Thiery, a former insurance-industry worker who says the experience has changed her view of how some insurers work.

The couple ended up hiring a lawyer and suing after insurer Allstate first agreed to fix the problem then backed away from the claim the day before Thanksgiving, leaving the family out of business for a year and a half and employees collecting unemployment, Thiery said.

“We settled two months prior to a trial. We settled for less than we were finally entitled to. But they finally coughed up enough and we had to get on with our lives,” said Thiery, whose family was eager to get the restaurant open in time for the summer business season in 2004. The settlement “was between $400,000 and $500,000. … But it was about $100,000 less than we were probably entitled to.”

And the couple had to pay lawyer fees out of the settlement and their own pockets.

Thiery said the threat of triple damages under Ref. 67 would make insurers play more fairly, honoring valid payouts in a way she thinks Allstate failed to do for her family.

Allstate spokesman Ryan Priest in Bothell said his company declines to comment on individual cases. He referred questions about Ref. 67 to Childers of the Reject 67 campaign.

On the other side, Reject 67 points to its own horror story: The case of oral surgeon Robert Woo, who won $1 million from his insurance company over its refusal to cover his legal costs related to a prank. Woo put a pair of fake boar tusks in the mouth of a heavily sedated patient and took photos, but the patient, who was also his employee, later felt humiliated and sued.

The patient eventually won a $250,000 legal claim against the doctor. Woo’s insurer initially refused to pay, arguing that the prank was outside the scope of dentistry. But Woo sued and recovered the $250,000 from Fireman’s Insurance and $750,000 in damages, plus money for attorney fees, court records show. The state Supreme Court narrowly upheld the judgment in favor of Woo with a 5-to-4 ruling in July.

Woo’s legal victory is an example of the kind of “frivolous” lawsuit Ref. 67 is likely to spawn if triple damages become the law of the land, said Childers of the Reject 67 campaign.

Childers said the extra $205 in premiums per household identified by the Milliman report is money that would go into the pockets of trial lawyers, who would benefit from the new law by filing more lawsuits she considers “frivolous,” like Woo’s.

But Larry Shannon of the Washington State Trial Lawyers Association says the Woo case is different from those that Ref. 67 would address, because it involved a third-party and because the insurer denied coverage altogether. In those cases, a plaintiff like Woo can recover extra damages and legal fees.

Consumer experts say they are skeptical of the Milliman report and doubt insurance rates would soar under Ref. 67.

Robert Hunter of the Consumer Federation of America, which lists the publishers of Consumer Reports among its primary supporters, says Milliman mainly works for insurers and is not a neutral source. He said most states allow much higher damages to be recovered than what Ref. 67 would allow.

And Doug Heller of the Foundation for Taxpayer & Consumer Rights, based in Santa Monica, Calif., said Washington’s insurance commissioner could help hold down premiums in the state by making sure that litigation costs are not passed on to consumers.

Heller said Washington’s current law makes the state one of the weakest in the country for consumer protections in insurance.

Although Washington law lets consumers sue to recover their actual losses, there is no additional punishment to take the profit out of the insurer practice of stalling payments to consumers — because Washington suits are limited to the amount of actual damages and costs.

“In my view, that’s like making the bank robbers give back the money they stole then letting them go on their merry way,” Heller said.

Insurance Commissioner Mike Kreidler, a Democrat, said in an interview that he favors Ref. 67, which originally passed as Senate Bill 5726. “This bill, I think, gives us another tool for consumer protection. That is what we’re all about — to make sure we keep insurance companies on the straight and narrow,” Kreidler said.

“I know there absolutely won’t be any impacts for companies that act in good faith,” Kreidler predicted.

“A good insurance company is going to deal fairly and honestly with their policy holders. If it’s a close tie on whether a claim is going to be paid or not, they are going to give the edge under existing law to the policy holder… If you look at ads of insurers, you would swear that all of them do that already.”