More than 100 insurance-fraud bills are pending state action. Major state supreme court cases also could have a dramatic impact on fighting fraud. Privacy of consumer data – and how it affects fraud investigations – should be also be closely watched this year.
The California legislature rushed through AB 375, the nation’s most sweeping data privacy law last June. The California Consumer Privacy Act of 2018 (CCPA) takes effect Jan. 1, 2020.
The CCPA applies to insurers and all other businesses in the state and has very severe restrictions on the use of private data. It is not clear what impact it might or might not have on an insurer’s ability to even report fraud.
California legislators rushed a bill through to avoid a ballot initiative proposed by Alastair Mactaggart. Mactaggart agreed to withdraw the initiative if a law was signed by the Governor. Legislators in other states will watch closely for how California’s more-sweeping law moves forward.
The NAIC approved its model data security law. The model already was adopted last year by South Carolina, Ohio, and Michigan. Many other states will likely debate adopting versions of the NAIC model this year.
And there is relentless push back from the applicant/plaintiff attempting to impose personal bad-faith liability. Insurer employees can be sued personally for bad faith in Washington state, a lower court ruled.
Keodalah v. Allstate Insurance arose from a motorcycle collision with a pickup truck in Seattle, resulting in an uninsured motorist claim. The appeals court ruled that Tracey Smith, the Allstate adjuster, can be sued personally, including claims for treble damages and attorney fees. Liability also would extend to outside experts who assist insurers, such as IME physicians, third-party investigators and defense attorneys.
Keodalah addressed a split of authority in Washington. Several federal court judges issued rulings from 2005 through 2016 that non-insurer entities were exempt from bad faith claims and Consumer Protection Act claims.
In 2017, another Division of Washington’s Court of Appeals in Merriman v. American Guarantee & Liability Ins. Co., held that Washington’s generalized statute requiring good faith in the “business of insurance” applied to the insurer’s third-party administrator.
The Keodalah case has been appealed to the Washington state Supreme Court, and will be closely watched..
Courts in Montana, Texas, Mississippi and Kentucky, have long recognized claims against adjusters for bad faith and violations of statutes governing claim-handling practices. In contrast, numerous other courts – including in Oklahoma, Indiana, Hawaii, Alabama, Tennessee, New Mexico, West Virginia, California, New York and Pennsylvania – have held that adjusters generally cannot be liable for bad faith. Many other jurisdictions are undecided.
The plaintiffs bar has also sought to apply RICO laws as a penalty in workers’ compensation claims in a number of jurisdictions for at least a decade with poor results. The 9th Circuit Court of Appeals just affirmed the dismissal of a California effort in the unpublished case of Black v CorVel Enterprises Comp Inc.