S 3198Insurance

Insurance - Liability Insurance

This bill prohibits insurance companies from deducting legal defense costs and fees from liability insurance policy limits.

Held for study

Population
Affected

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Introduced Apr 3, 2026Committee Senate Judiciary

Plain-English Summary

This bill prohibits "wasting policies" in liability insurance for property damage and personal injuries. A wasting policy is one where the costs of defending a claim, such as attorney fees, are subtracted from the total policy limit. Under this legislation, insurance companies must ensure the full policy limit is available to pay the actual claims to victims, and defense costs cannot reduce that available amount. This rule does not apply to workers' compensation insurance.

For younger readers

Imagine you have a bucket of water meant to put out a fire. Right now, the people carrying the bucket are allowed to drink some of the water on the way, leaving less water to put out the fire. This bill makes a new rule for insurance companies. It says that if an insurance company promises a certain amount of money to help someone who gets hurt, the company cannot use any of that promised money to pay for their own lawyers. All the money must go to the person who needs it.

Who & Where It Applies

Impacted groups

PolicyholdersInsurance companiesAccident victimsDefense attorneysSmall business owners

Impacted communities

All

Constitutional & Fiscal Check

None Likely.

Estimated cost

Amount unknown

Estimated revenue

None

Bill Analysis

Both viewpoints

For Progressives

Protects victims by ensuring the full insurance policy amount is available to compensate them for injuries or damages, rather than being depleted by corporate legal fees.
Prevents insurance companies from using prolonged, expensive legal battles to intentionally drain a policy's limits, which often hurts lower-income individuals seeking fair settlements.
Increases corporate accountability by forcing insurance companies to pay for their own legal defense costs out of pocket instead of passing those costs onto the policyholders or victims.
May cause insurance premiums to rise significantly, which could make liability insurance unaffordable for low-income individuals, small businesses, and non-profits.
Could lead to insurance companies offering lower overall policy limits to offset the unpredictable costs of legal defense, potentially leaving policyholders underinsured.
Might result in insurers being more aggressive in denying claims outright or dropping coverage for vulnerable individuals and small organizations to avoid open-ended legal expenses.

For Conservatives

Ensures that individuals and businesses who purchase liability insurance get exactly what they paid for, protecting their financial assets from being unfairly drained by legal defense fees.
Promotes transparency and truth in advertising within the insurance market by requiring policy limits to accurately reflect the actual coverage available for claims.
Encourages quicker settlement of legitimate claims and reduces frivolous legal stalling tactics by insurance companies, promoting efficiency in the civil justice system.
Imposes a strict government mandate that interferes with the free market, limiting the ability of insurance companies and consumers to negotiate mutually agreeable contract terms.
Will likely increase the cost of doing business for insurance companies, leading to higher premiums that burden consumers and businesses.
Removes a cost-effective insurance product (wasting policies) from the market, reducing consumer choice and flexibility in how businesses manage their risk and liability.

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.