Where Are the West Virginia Car Insurance Premium Reductions?

In 2005, the West Virginia Legislature passed the Third-Party Bad Faith Act, which eliminated the right of an injured party (in these cases, referred to as the “third party”) to sue the negligent party’s insurance company if the insurer did not fairly settle the injured party’s claim. The legislature took this action based on concerns presented by the West Virginia Insurance Commissioner (and others) that third-party lawsuits were having a detrimental effect on West Virginia car insurance premium costs and were clogging up the legal system with claims.

Overview of the Third-Party Bad Faith Act

Instead of a lawsuit, the Third-Party Bad Faith Act allows an injury victim to present a complaint to the Insurance Commissioner if the injury victim believes that the negligent party’s insurer failed to fairly handle or settle his or her claim. The insurer has the opportunity to correct the issues raised in the complaint. If the Insurance Commissioner finds that the complaints are not satisfactorily resolved within a certain time frame, the Insurance Commissioner will investigate the complaint.

After investigation, if the Insurance Commissioner finds that the complaints are valid, the Commissioner may forward the complaint to the Office of Consumer Advocacy, an agency created by the act, for more investigation and a hearing, or the Commissioner may take administrative action including imposing cease-and-desist orders, penalties from between $1,000 and $10,000, revocation or suspension of an insurance license, and restitution to a state aggrieved claimant trust fund.

Why Did the Legislature Eliminate Third-Party Lawsuits Against Insurers?

In 2004, the legislature passed a bill requiring the Insurance Commissioner to investigate the legal and economic consequences of West Virginia’s third-party private right to sue an insurer for unfair settlement procedures. In a report to the legislature, the Insurance Commissioner detailed numerous harms created by this private cause of action including that it created an incentive for duplicative litigation by the injured party, an incentive for insurers to settle claims for higher amounts to avoid protracted and costly litigation, a conflict of interest between insurer and insured as insurer must protect its own financial interests as against those of the insured who may or may not have been negligent, and that it resulted in increased premiums since the insurers passed the higher settlement and litigation costs on to consumers.

For these reasons, the Insurance Commissioner ultimately recommended that the legislature abolish third-party bad faith claims. The legislature went on to enact the Third-Party Bad Faith Act the year after the Insurance Commission study.

Has the Third Party Bad Faith Act Had Its Intended Effect?

In a 2006 article in The West Virginia Insurer defending the legislative insurance reforms, Insurance Commissioner Jane Cline stated: “What we are seeing is more availability in products and companies are beginning to address the affordability, in that we have seen significant rate reductions on the part of major writers in this state and, I think, that’s the benefit for consumers, having available and affordable products.”

Later, in a 2007 panel on insurance reforms reported on by The State Journal, Insurance Commissioner Cline indicated that most of the 653 claims that had been submitted to the Insurance Commission since the law went into effect had been resolved without resorting to administrative remedy, the final step in the Insurance Commission’s complaint review process. But the Insurance Commissioner offered no showing that the legislation has resulted in a decrease in car insurance rates for consumers.

According to RateWatch on Insurance.com, at the end of 2005, West Virginia’s average annual car insurance premium costs had fallen 9.8% from 2004, although insurance rates across all states in the nation dropped an average of 5.6% that year. During 2005, West Virginia ranked eleventh in highest average annual car insurance premium costs in the nation. Since 2006, West Virginia consumers have seen large decreases, but also small increases, in year-to-year comparisons in average annual car insurance premium costs. In March 2010, West Virginia ranked thirteenth in average annual car insurance premium costs in the nation, although the state showed a decrease of 5.6% from February.

Who Has Benefited From the Ban on Third-Party Lawsuits?

Since 2005, West Virginia consumers have not seen dramatic drops in annual car insurance premium costs. West Virginia’s annual car insurance premiums still rank at or near where they ranked in 2005, before the Third-Party Bad Faith Act came into effect.

As Insurance Commissioner Cline stated, most insurance bad faith claims will never be litigated as they are now resolved at or before the point that the Insurance Commission determines an administrative remedy is necessary. Insurers are better able to control costs as they can now offer lower settlement amounts to many more injured parties without the worry of protracted litigation. Thus, many personal injury victims have received lower settlements or no settlement offer as a result of the Act.

Conclusion

Car accident injury victims still have the right to fair and timely compensation from the negligent party’s insurance company. A knowledgeable personal injury attorney can advise injury victims about the insurance claim process and litigation options.