The National Association of Mutual Insurance Companies is applauding a move by a nonprofit group to adopt a resolution in opposition to insurance bad faith legislation.

The American Legislative Exchange Council’s resolution urges state legislatures to adhere to traditional principles of contract law and oppose legislation designed to: create new or expansive private causes of action; dilute existing standards for bad faith insurance claims handling; and provide for recovery of new extra-contractual damages, including damages multipliers and punitive damages.

Bad faith bills have been introduced in 14 states and Washington, D.C., this year.

ALEC, a nonprofit organization, lists among its mission the advancement of free market, limited government principles and conduct a policy making program uniting members of the public and private sector, according to their website.

Paul Tetrault

Paul Tetrault, NAMIC state affairs manager and a member of ALEC’s Civil Justice Task Force, said in a statement that while bad faith bills are typically described in “favorable terms” by sponsors, the resolution recognizes that such bills hurt consumers through increasing costs ultimately borne by policyholders.

“This resolution will be an effective tool in opposing trial-bar-backed efforts in the states to drastically increase the volume of litigation and expand insurer liability beyond reasonable levels,” Tetrault said. “The resolution also stresses the way in which the threat of excessive bad faith liability can interfere with the proper functioning of the claims settlement process, hindering insurers’ ability to detect fraud, which can result in payment of meritless claims.”

ALEC’s resolution notes bills introduced this year in Colorado, Connecticut, Florida, Georgia, Iowa, Maine, Montana, New Mexico, Nevada, New Jersey, New York, Oregon, Pennsylvania, Rhode Island, and Washington, D.C. that would expand insurer bad faith liability.

“Going forward, this resolution will help to show these bills for what they are – efforts to expand litigation and liability at the expense of consumers,” Tetrault said.