Virginia Governor Faces Decision on Bad Faith Insurance Claims Bill Opposed by Auto Insurers

Property/casualty insurers are urging Virginia Gov. Glenn Youngkin to veto a “bad faith” insurance claims measure that they contend will “open the floodgates of litigation against insurance companies” and raise motor vehicle insurance premiums for consumers and businesses in the state by $220 million up to $550 million.

The bill’s supporters, including trial lawyers, say the measure simply returns the law to what it was before a 2017 court ruling and protects consumers in the few instances where an insurer is found to have acted in bad faith.

Under the measure (Senate Bill 256), if a personal or commercial auto insurance company denies, refuses, or fails to pay property damage, medical expense benefit, or loss of income benefit claims submitted its policyholders, and a court finds the carrier to be acting in bad faith, the insurer must pay the policyholder double the judgment amount plus interest, attorney fees, and expenses. It would also require the same of insurers on third-party claims of $3,500 or less, and on uninsured/underinsured motorist (UM/UIM) claims of up to $500,000 for personal injury or wrongful death.

During a February 9 hearing on the bill, Mark Dix, of the Virginia Trial Lawyers Association, cited a 2017 state Supreme Court ruling involving GEICO refusing to pay an uninsured motorist bodily injury claim submitted by one of its insureds. That opinion in GEICO’s favor said the law does not include a duty for an uninsured motorist insurer to settle a claim prior to trial “but rather creates a remedy for the conduct of UM carriers that refuse in bad faith to pay once the insured has obtained judgment.”

According to Dix, before that decision, it had been assumed that “auto insurers had a duty to operate in good faith with their own insureds.” But since that decision, that duty doesn’t arise until after judgment, which he claimed has prompted some auto insurers to make lowball offers or no offers to their own insureds. He told lawmakers that SB256 “incentivizes the auto insurers to treat their own insureds at least as fairly as they treat third parties.”

‘Horrible Things’

Sen. Scott Surovell, a sponsor of the bill, maintained that “big” insurers are the ones most likely to deny or refuse such claims, adding that “not all insurance companies are bad.”

Surovell questioned why restoring the law to what it was before the 2017 ruling will unleash all sorts of headaches as insurers have warned. “If all these horrible things were such a problem, I’m not clear why the insurance industry didn’t fall apart before 2017 when the Supreme Court, based on two words in the statute, completely turned the law upside down in Virginia. What this bill seems to do is give Virginians the value of the insurance that they pay [for] to protect them and their families,” the senator stated.

One fellow state senator cited personal family experience with an insurer acting in bad faith. “They acted in bad faith because they knew they could,” commented Sen. Aaron Rouse. “To hear insurance companies say that this is going to raise the fees and rates on their payers, that to me is also saying, basically, you know you’re acting in bad faith… you just submitted in testimony today that you’re going to raise the fees because you know what you’re doing is wrong.”

Unnecessary and Costly

Insurers blasted the measure as unnecessary, unprecedented and too costly.

Clark Lewis, of the American Property Casualty Insurance Association (APCIA), likened the change to adding a punitive damage provision — maintaining that no other provision in Virginia law allows for two times a judgment amount.

In a press release, APCIA said that SB256 is unnecessary since Virginia law already has an Unfair Claims Settlement Practices Law and the Virginia Bureau of Insurance has full regulatory authority to act on consumer complaints about under-and-uninsured motorist claims. APCI said that in five years, state regulators have found only seven instances of unfair claims violations by insurers.

But, APCIA warned, SB256 will “open the floodgates of litigation against insurance companies by establishing an onerous first-party bad faith law,” which the trade group said, “only a few other states in the U.S. have enacted.”

APCI cited an analysis it requested from actuarial firm Milliman that found the legislation could have an additional premium impact of $220 million to $550 million across motor vehicle insurance in Virginia, representing an increase of 5.6% to 14.3% for auto premiums for residents and businesses. The study concludes the median estimated impact is a 9.9% auto premium increase per policyholder annually.

Availability

“Senate Bill 256 would lead to higher auto insurance loss costs, increased litigation, and could increase the number of uninsured drivers on the road if coverage becomes less affordable,” said Nancy Egan, vice president of state government relations and counsel for APCIA.

Egan suggested the bill “would likely have a disproportionate impact on low-income Virginians who can least afford higher premiums.”

Egan said auto insurance costs for Virginians are already expected to go up in part because the state passed a bill increasing minimum limits beginning in 2025. “Senate Bill 256 could cause auto insurance costs to spike even higher,” she said, urging a veto of the measure.

Rising costs could lead to difficulties for some drivers trying to obtain insurance, cautioned Joseph Hudgins, of the Independent Insurance Agents of Virginia. Hudgins called “upward pressure on rates and availability of insurance” an “unintended consequence” in his statement opposing the bill.

The measure would go into effect July 1 if signed into law by the governor.

Gov. Youngkin, a Republican, has hundreds of bills to consider. Last Friday he signed 64 bills and vetoed eight others.