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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