TN Consumer Protection Act No Longer Applies to Insurance

A Tennessee law that allows consumers to collect three times their actual damages when defrauded or deceived will no longer apply to insurance companies and agents under a bill given final legislative approval Monday night.
Critics contend the bill (HB1189) lessens citizen rights against insurance companies that refuse to pay legitimate claims and engage in other abusive practices. Tennessee Citizen Action, which advocates for consumer rights, said in an alter that it “attempts to gut the Tennessee Consumer Protection Act.”
But Senate Speaker Pro Tempore Jamie Woodson, R-Knoxville, who is Senate sponsor of the bill, said ample consumer protections will remain in state law.
She said the bill “clarifies legislative control over the insurance industry” in response to “judicial activism” that caused insurance companies to be covered by the Consumer Protection Act.


The act in question, approved by the Legislature in 1977, does not state “anywhere in the legislative record” that there was a legislative intent to cover insurance companies and agents and make them subject to paying treble damages, she said.
The general state insurance law has an entire 40-page chapter laying out penalties for deceptive practices, Woodson said. One provision allows a judge to add an extra penalty of up to 25 percent actual damages for “bad faith.”
The state Court of Appeals in 1987, followed by the state Supreme Court in 1998, declared that insurance can be forced to pay extra, said Sen. Roy Herron, D-Dresden, and that has been widely accepted in the court system..
He said there are 1,463 out-of-state insurance companies doing business in Tennessee and just 79 Tennessee-based insurance companies. The beneficiaries of the bill, he said, are the out-of-state companies that “bend the rule and engage in unfair and deceptive practices.”
Herron said it was particularly inappropriate to approve such a bill when the Legislature last week approved a separate bill that lowers civil penalties the state Department of Commerce and Insurance can assess against insurance companies and agents for “knowing” wrongdoing. Current law allows penalties of up to $25,000 per violation; the bill lowers that to a $1,000 maximum.
Herron was one of just seven senators, all Democrats, to vote against the bill while 21 voted for it. It passed the House 94-3 earlier and now goes to Gov. Bill Haslam for his expected signature.

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