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'Good faith' closer to becoming law

Published (3/28/2008)
By Craig Green
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As he presented the “good faith” bill on the House floor, Rep. Joe Atkins (DFL-Inver Grove Heights) said that in every other state, insurance holders have this type of protection. Insurance companies are required to act in ‘good faith’ when filling or denying claims with their customers. Minnesota is another step closer to joining the other states.

Approved by the House 81-51, HF3115/SF2822*, sponsored by Atkins and Sen. Tarryl Clark (DFL-St. Cloud), now awaits signature by the governor. The Senate approved it March 19 on a vote of 50-15.

According to the bill, a policy holder would be allowed to sue their insurance company for not settling a claim in “good faith,” meaning they can prove that the insurance company did not have a reasonable basis for denying a claim. The insurance company must also have known that it had no reasonable claim, or acted with “reckless disregard” for the lack of reason.

The bill would also provide reimbursement for legal fees to the insured.

Rep. Steve Smith (R-Mound) presented a delete-all amendment based on language provided by Sen. Linda Scheid (DFL-Brooklyn Park). The amendment further clarified that the “good faith” claims could only come about in “first party” cases, meaning the policy holder is directly insured by the insurance company in question. The amendment further allowed for awards above costs and disbursements, not to exceed $100,000, and capped attorneys’ fees at $40,000.

Smith’s amendment also provided that insurance agents are not personally liable under the “good faith” provisions, and those businesses with insurance policies over $500,000 would be allowed the same ‘good faith” protections as consumers. Although the Smith amendment was eventually adopted, the business policy section was stripped from the bill.

Concerns were raised, on the House floor and in earlier committee meetings, that the bill could result in higher premiums for consumers. Smith did not agree. He said that it would be “outrageous” for the state, specifically the Department of Commerce, to allow insurance companies to raise rates on customers because of the companies’ bad conduct.

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