WASHINGTON
Washington State Bill Opens Way for Policyholder Restitution for Infractions, Per-Violation Penalties
OLYMPIA, Wash. //BestWire// - Washington’s legislature is considering a bill that would grant the insurance commissioner’s office the power to require restitution directly to policyholders for violations of state law and allow property/casualty insurers to incur fines on a per-violation basis.
As it stands, the only path of recourse for wronged policyholders is through the courts, Insurance Commissioner Patty Kuderer said in a statement. The legislation is one of the top priorities for Kuderer, who is in her first term as commissioner after winning the November election (BestWire, Nov. 6, 2024).
“Any fine we collect goes into the state general fund. It does not make the policyholder whole,” Kuderer said.
The Office of the Insurance Commissioner gave several examples of restitution-generating violations, such as using an unapproved rate or acting as an unauthorized insurer. Currently, there is no way for a policyholder to be reimbursed for overpayment due to an unapproved rate, and the commissioner can fine unauthorized insurers but cannot order them to repay the money they took.
Restitution payments would also include 8% simple interest, which would commence on the date the obligation arose, the commissioner's office said.
“As the new insurance commissioner for Washington state, I don’t believe we should be passing people off to seek help in the already clogged court system when we could be providing restitution directly,” Kuderer said in a statement.
The property/casualty industry doesn’t oppose the bill in general, but it is uncertain of its necessity. Existing consumer protections already give the regulator with the ability to fine carriers and order policyholders be reimbursed, according to a letter to Washington House members from the American Property Casualty Insurance Association, Northwest Insurance Council and National Association of Mutual Insurance Companies.
For example, one commissioner order from 2024 required an insurer to pay a $25,000 fine and $133,233.48 in restitution for an incorrect rate charge, the trade groups said. Another 2024 order, this one for market conduct issues, resulted in a $15,000 fine and $86,217.24 restitution payment.
Should Washington lawmakers move forward with the bill, they should include due process guardrails, the trades said. This could include adding language that references the state’s Administrative Procedures Act, which governs how administrative hearings are conducted.
The groups also recommended limiting restitution to actual damages.
The bill would also allow the commissioner to fine property/casualty insurers up to $10,000 on a per violation basis, instead of a $10,000 limit regardless of the number of violations, the commissioner’s office said. This aligns the P/C industry’s rules with those governing health insurers, who already face per violation fines, and would pave the way for higher penalties.
The industry did voice concern about these changes, saying that the regulator already has the ability to negotiate penalties with P/C insurers that go beyond $10,000. This makes adding the per violation wording necessary, the trade groups wrote.
“If the current limit is $10,000, but the OIC can issue a consent order that includes a $40,000 fine plus restitution, it is chilling to consider the penalty in a consent order when the OIC is authorized to issue up to $10,000 per violation,” the letter to lawmakers said.
The groups also urged lawmakers to consider only applying the per violation authority for cases that are contested with an administrative hearing that the regulator prevails at.
Lawmakers should also consider the use of caps or aggregate limits on penalties, a method used in other states, the trade groups said. The bill should also include different fine levels and caps for negligent and intentional conduct.
(By Steve Hallo, senior associate editor, BestWire: Steve.Hallo@ambest.com)