The Washington Senate Business, Financial Services and Trade Committee approved a bill that would allow the insurance commissioner to order property/casualty carriers to pay restitution directly to policyholders for code violations, according to a report from AM Best.
The bill is a priority for new Washington Insurance Commissioner Patty Kuderer (pictured above), who said the measure would provide a way for policyholders to recover losses after a carrier’s code violation.
Currently, fines collected by the regulator are directed to a general fund. Kuderer said the bill would also reduce the burden on court dockets by offering consumers a more direct option for recourse following an insurance code violation.
“What I hear from the insurance industry is that the good companies already do that; they already pay restitution voluntarily,” she said. “But the bad actors don’t, and we don’t have a mechanism to require them to do that.”
Meanwhile, industry trade groups have questioned the need for the commissioner to have restitution authority. In a letter to the House committee, they argued that property/casualty companies are already required to reimburse policyholders in addition to paying fines.
The commissioner’s office stated that current laws do not mandate restitution. For example, if a producer defrauds a consumer, the commissioner can revoke the producer’s license and issue a fine but has no authority to ensure the consumer is repaid.
“The bill would allow for these consumers to be made whole, without having to hire an attorney and go to court,” Kuderer said. Her office stated that restitution orders would apply to bad actors, not to companies that negotiate settlements with consumers.
If enacted, the bill would also allow the commissioner to fine property/casualty insurers on a per-violation basis, according to a statement from the Office of the Insurance Commissioner. Under current law, the commissioner can issue a total fine of $10,000 against a company.
Industry groups have opposed this provision, arguing that the commissioner’s office already has the authority to negotiate penalties exceeding $10,000.
“If the current limit is $10,000, but the OIC can issue a consent order that includes a $40,000 fine plus restitution, it is chilling to consider the penalty in a consent order when the OIC is authorized to issue up to $10,000 per violation,” the trade groups stated in a letter to lawmakers.
Kuderer said these concerns are unfounded, noting that similar regulations already apply to other lines of insurance.
“We already have a per violation fine schedule for all other types of insurance and we have not seen that play out in practice. I see no reason why that would play out for property/casualty,” she said, adding that 40 other states have similar policies.
