H 7723Insurance

Insurance - Liability Insurance

This bill bans insurance policies that deduct legal defense costs from the coverage limit available to pay claims.

Held for study

Population
Affected

Introduced Feb 12, 2026Committee House Corporations

Plain-English Summary

This legislation prohibits "wasting policies" in liability insurance contracts in Rhode Island. A wasting policy is one where the legal fees and court costs spent defending a lawsuit are deducted from the total coverage limit available to pay the injured person. Under this new bill, insurance companies must provide a policy limit that is fully available to pay for damages (like injuries or property damage). Any costs for legal defense must be paid by the insurer separately and cannot reduce the payout limit. This applies to personal injury and property damage policies but excludes workers' compensation.

For younger readers

Imagine you have a piggy bank set aside to pay for a window you accidentally broke. Usually, that money is just for the window. But sometimes, insurance companies take money out of that piggy bank to pay for their lawyers to argue about the broken window. This bill says they cannot do that anymore. The money in the piggy bank must stay there to pay for the damage caused, and the insurance company has to pay for the lawyers with their own extra money.

Who & Where It Applies

Impacted groups

Insurance companiesPolicyholdersAccident victimsAttorneysBusiness owners

Impacted communities

All

Constitutional & Fiscal Check

None Likely

Estimated cost

None

Estimated revenue

None

Bill Analysis

Both viewpoints

For Progressives

Ensures that victims of negligence or accidents receive the full compensation available under a policy, rather than having the funds depleted by the insurance company's legal bills.
Prevents corporations from weaponizing high legal defense costs to reduce the payout to injured parties, thereby strengthening the financial protection for vulnerable individuals.
Shifts the burden of litigation costs back onto the insurance industry, preventing them from eroding the social safety net intended to cover damages and injuries.
Could lead to higher insurance premiums for all residents, disproportionately impacting low-income drivers and families who struggle to afford mandatory coverage.
May increase operational costs for small businesses and non-profits, potentially straining their budgets or forcing them to reduce other community services.
Might cause some insurance carriers to stop offering certain high-risk policies in the state, limiting access to protection for those who need it most.

For Conservatives

Protects individual policyholders and small business owners from personal financial ruin by ensuring their insurance coverage limit is actually available to pay judgments against them.
Enforces strict contract clarity and truthfulness, ensuring that a "limit" stated in a policy is the actual amount available for indemnification, preventing misleading products.
Ensures that the specific terms of liability coverage are honored as expected, reinforcing the principle that paid-for services (indemnification) must be delivered in full.
Represents significant government interference in the free market by dictating the specific terms and conditions private companies are allowed to offer in contracts.
Will likely drive up the cost of doing business in the state by forcing insurance companies to raise premiums to cover unlimited defense costs, hurting the economic climate.
Benefits the trial lawyer lobby by removing the financial cap on defense spending, which may encourage more aggressive litigation and higher settlement demands.

Votes

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Full Bill Text

Changes to existing Rhode Island law · 6 additions

SECTION 1. Chapter 27-7 of the General Laws entitled "Liability Insurance" is hereby amended by adding thereto the following section: 27-7-1.1. Wasting policies prohibited. Every policy written insuring against liability for property damage or personal injuries or both, and every policy written indemnifying any person by reason of that liability, other than the payment of compensation under chapters 29 through 38 of title 28, shall state a policy limit to be available in full for payment of such claims. No portion of the policy limit may be used for the payment of fees or costs to defend a claim.

SECTION 2. This act shall take effect upon passage.