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What's New: Government Affairs

Rhode Island Bad Faith Bill is Dead for 2012

Wednesday, June 27, 2012  

Rhode Island House Bill 7599 would have created a bad faith claim in connection with claims on probate bonds. The bill died when the legislature adjourned this month. The bill previously had been held in committee for further study after testimony from SFAA, Travelers and Liberty Mutual.

In our testimony, we were able to explain the three party nature of the surety bond such that if the bond principal, obligee and any claimant on the probate bond were able to sue the surety for bad faith, there would be a bad faith added to every claim on a probate bond. Even when the surety did exactly what it is obliged to do under its bond in investigating claims and paying legitimate claims on the bond, the surety still could be sued for bad faith by the party that defended against the claim. Under HB 7599, an executor that failed to perform as expected and appropriated the assets of the estate still could sue the surety for bad faith if the surety paid a valid claim to the beneficiaries. Such a suit may well be filed when the surety sought indemnity from such bond principal. The estate generally would be the loser in these cases as the estate would have to bear the expenses of the attorneys’ fees.

This is the sixth year in which a surety bad faith bill has been introduced Rhode Island. For the first three years, the bills focused on contract surety bonds, and then started to include fiduciary bonds as well. For the last three years, the bad faith legislation has focused on probate bonds. We expect the bill to be back in some form again in 2013.


 

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