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A ‘toothless’ insurance law gets some bite

One question I was unable to answer in my story Monday about a long-running federal insurance case is just how rare it is for a judge to allow a policyholder to proceed in Maryland with a fraud claim against its insurance company.

Alex J. Brown, a former assistant attorney general and senior counsel to the Maryland Insurance Administration, said Tuesday it’s rare enough that he was surprised U.S. District Court Judge Deborah K. Chasanow allowed American Capital Ltd.’s case against Travelers insurance to continue.

Brown was working for the government in 2007 when the state’s insurance law was changed to allow lawsuits against insurance companies for so-called failures to act in good faith. The intent of the law was to be able to make it easier to “call insurance companies on the carpet,” Brown said.

But the law has not worked the way it was intended, and attorneys believe the statute “fairly toothless,” he said. Even Brown, who now represents both insurers and policyholders as partner at Shapiro Sher Guinot & Sandler in Baltimore, advises clients it’s an uphill battle to win a lack-of-good-faith claim.

Now, with last week’s ruling in favor of American Capital, Brown expects more, similar fraud claims to follow.

“It’s something insurance companies need to be aware of,” Brown said of the ruling.

(On a related note, if you’re looking for the opinion in PACER, it’s docket entry No. 497 in the case. You might not figure that out from the description: “REDACTED DOCUMENT to 378 Memorandum Opinion, 493 Order on Motion to Seal.”)

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