The bill was the subject of intense debate with insurers and business groups charging that the proposed legislation would increase premiums and enrich trial lawyers, and consumer groups asserting that legislation was needed that requires insurers to act in “good faith” when paying insureds’ claims. Defense lawyers questioned the need for the proposed legislation, noting that existing common-law and statutory duties provided sufficient protection to policyholders.
S.F. 2822, provides, among other things, for damages if the insured can show (i) the absence of a reasonable basis for denying the benefits of the insurance policy and (ii) that the insurer knew of or acted in reckless disregard of the lack of a reasonable basis for denying the benefits of the insurance policy. The law limits damages and costs by capping awards at $250,000 and attorney fees at $100,000. S.F. 2822 also limits the liability of licensed insurance producers, providing that licensed insurance producers are only liable for their own errors, acts or omissions, but not for the errors, acts or omissions of the insurer.
S.F. 2822 is effective August 1, 2008 and applies to causes of action for conduct that occurs on or after that date.