Virginia’s "Bad Faith" Insurance Bill Sparks Controversy Over Potential Litigation and Premium Increases

In Virginia, a contentious debate has unfolded around Senate Bill 256, a "bad faith" insurance claims measure, which has ignited concerns among property/casualty insurers. These insurers are urging Governor Glenn Youngkin to veto the bill, arguing it could precipitate a surge in litigation against insurance companies and potentially increase motor vehicle insurance premiums by $220 million to $550 million. This measure, supported by trial lawyers, aims to revert the law to its pre-2017 status, ensuring consumer protection against insurers found acting in bad faith.

Senate Bill 256 proposes that if an auto insurance company is adjudged to have acted in bad faith in denying or failing to pay claims for property damage, medical expenses, or loss of income benefits, it must compensate the policyholder with double the judgment amount, including interest, attorney fees, and expenses. This stipulation also extends to third-party claims below $3,500 and uninsured/underinsured motorist claims up to $500,000.

The bill has sparked a debate about insurer accountability and the balance between protecting consumer rights and preventing excessive litigation. Proponents argue that it incentivizes insurers to treat policyholders fairly, citing a 2017 Virginia Supreme Court ruling that they claim diminished insurers’ duty to operate in good faith. Critics, however, view the bill as unnecessary and potentially costly, with the American Property Casualty Insurance Association (APCIA) warning of increased auto insurance premiums and a possible rise in uninsured drivers.

With its potential for broad financial and operational impacts on both insurers and policyholders, Senate Bill 256 represents a pivotal moment in Virginia’s insurance legislation. Its outcome could reshape the dynamics of insurer liability and consumer protection in the state, with wider implications for the insurance industry’s approach to risk management and claims handling.