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Liability Reform

Every year, we see legislative, regulatory, and policy proposals that could lead to increased litigation and higher costs, which would impact everyone who purchases insurance.

To have a vibrant, effective insurance marketplace, policyholders and insurers need a legal system that is both fair and efficient. Unfortunately, plaintiff lawyers, judges and politicians are taking more and more steps to redefine fairness—often after the fact—resulting in litigation that is becoming increasingly expensive and inefficient.

APCIA is working to reform several areas of the law that are subject to abuse and driving up costs.

Liability Reform FAQs

What is Assignment of Benefits Reform?

An assignment of benefits (AOB) is “a document signed by a policyholder that allows a third party, such as a water extraction company, a roofer, or a plumber, to ‘stand in the shoes’ of the insured and seek direct payment from the insurance company.”

For more than 100 years, AOBs have been around to help complete work done for a claim covered by the insurance contract—in other words, AOBs are used to help resolve insurance claims, not promote litigation.

Plaintiff attorneys and service contractors have turned AOBs’ intended use upside down, using them not to settle claims, but to generate lawsuits and increase their fees. As AOB lawsuits and litigation expenses have dramatically increased, policyholders—caught in the middle—end up paying the price.

APCIA is working with lawmakers to put insurance consumers ahead of litigation abusers and restore AOB to its original and legitimate intent.

What are ‘Bad Faith’ laws?

Although many of these measures appear to provide consumer protections, experience has shown that these laws are actually just a tool that trial attorneys use to generate pointless lawsuits or unwarranted damage awards.

Since existing law already provides protections against bad conduct, bad faith outcomes have almost exclusively been connected to greater costs—to the primary benefit of trial attorneys—not improvements for policyholders. Where “bad faith” laws have been invalidated or rejected, insurance costs decreased to the benefit of policyholders.

APCIA is working to ensure more states follow this path.

Some of the terms being used are quite technical—can you break them down?

Liability reform can be complex, and yes, some of the language we use when addressing reform measures must be legally precise. Here are a few terms you’ll see regularly on issues that APCIA has prioritized, with definitions.

Bad Faith actions create a cause of action (the circumstances that permit someone to make a legal claim) that allows an insured individual to seek coverage from their own carrier, due to another person’s inadequate coverage.

Assignment of Benefit, which is often abbreviated as “AOB,” determines who receives the insurance payment following property damage that results in a homeowner’s policy claim. It is usually paid to the homeowner, who then pays the contractor for repairs.

Manipulating AOBs can lead to contractor fraud, which covers a wide range of activities. It typically involves some type of manipulation of a homeowner’s policy. For example, contractors who push to shift the assignment of benefit to be paid directly to themselves can inflate a damage quote—increasing costs without the homeowner ever realizing it.

Tort reform is another term you’ve likely seen. It’s a broad term for proposed changes in the civil justice system that seek to reduce the incidence of litigation.