OLYMPIA — Insurance companies and trial lawyers are at it again, smearing each other in television ads and painting vastly different versions of reality.

And, once again, voters are being asked to referee.

The fight this time is over Referendum 67, an insurance-industry-backed effort to repeal a new law allowing consumers to sue for triple damages if an insurance company "unreasonably" denies a legitimate claim.

Trial lawyers say the new law would give policyholders sorely needed leverage over insurance companies that they say too often try to stiff clients. But insurers warn it would lead to a deluge of frivolous lawsuits that would send rates soaring.

The ground rules for voters on Referendum 67 are a bit confusing. The trial lawyers are urging a "yes" vote on the referendum, which would ratify the new law. Insurers, who qualified the measure for the ballot, are pushing a "no" vote, which would kill the new law.

In many ways, Referendum 67 has become a replay of the battle waged two years ago over competing medical-malpractice ballot measures.

The insurance industry is sponsoring a blitz of TV ads filled with dire warnings about rising rates and portraying trial lawyers as money grubbers. Two ads show lawyers from the make-believe firm of "Sooem, Settle & Kashin" gloating about all the money they'll make with Referendum 67.

The ads are sponsored by a group that calls itself Consumers Against Higher Insurance Rates. But virtually all of the $9.7 million the group has raised for its campaign has come from insurance companies, mostly from out of state.

Meanwhile, trial lawyers — who have dumped nearly $1.7 million into the Approve 67 campaign — offer their own horror stories.

In a TV ad that began airing last month, Tiffany Forslund talks about losing her father — a firefighter for the city of Puyallup — to leukemia. Though doctors traced his cancer to chemicals he was exposed to on the job, the city's insurer balked at paying for a bone-marrow transplant, Forslund contends in the ad.

"My father would have given his life in the line of duty," she says. "Turns out the insurance company took it instead."

Democratic Gov. Christine Gregoire, who earlier this year tried brokering a compromise between the insurance industry and trial lawyers, said she plans to vote "yes" on Referendum 67.

But she worries hyperbole from both sides will leave voters mystified.

"Frankly, I don't believe any of the stuff that I'm seeing on television," Gregoire said. "I mean, they're in campaigns and they're going to say what they've got to say."

Emotion and anecdotes

The referendum will decide the fate of a bill passed this year by the Democrat-controlled Legislature and signed by Gregoire.

Under the measure, consumers could collect up to triple damages if a court finds their insurer acted in bad faith in denying a claim. It applies to nonmedical policies such as auto, home, business, property and long-term-care claims. It does not apply to health insurance, which is covered under a separate consumer-protection law.

Insurance lobbyists and their Republican allies tried hard to block the legislation in Olympia. When that failed, the insurance industry launched the referendum drive.

In their pitch to voters, both sides are relying more on emotion and anecdotes than on hard data.

State Insurance Commissioner Mike Kreidler, a Democrat, said he is convinced the law is needed.

He points to Ethel Adams, an Everett woman who was seriously injured when she got caught in a wreck caused by an enraged driver who was trying to run his girlfriend's truck off the road.

Farmers Insurance initially refused Adams' claim, arguing her injuries were not an accident but the result of an intentional act. Farmers eventually paid, but only after the company faced a barrage of criticism in the media.

Under current law, Kreidler said, it benefits companies to try to lowball and drag out claim payments.

"If this law had been in place, it would have given a great deal more incentive for the company to not just say, 'Take a hike,' " Kreidler said.

Doug Heller, who tracks insurance issues for the California-based Foundation for Taxpayer & Consumer Rights, said he was surprised to learn that Washington policyholders can only recover actual damages in lawsuits against their own insurers. Washington is one of a handful of states that does not allow punitive damages in liability lawsuits.

"It's like catching a bank robber and simply making them give the money back," Heller said. "That's not justice. That gives the bank robber the ability to play the odds."

Dramatic impacts —

or just a lot of drama?

The state Office of Financial Management, which is required to do fiscal analyses of ballot measures, essentially punted on Referendum 67. While OFM said the law would likely drive up insurance-claims payments as well as rates, the agency said it could find no conclusive studies or estimate the magnitude of those costs.

But the insurance industry and its allies, including much of the business community, are predicting dramatic impacts.

Don Brunell, president of the Association of Washington Business, said he fears allowing triple damages will open the door to broader punitive damages.

He said the new law would entice consumers and trial lawyers to push fraudulent claims. And the threat of getting hit with triple damages will cause companies to settle many of those claims.

He echoed concerns raised by the insurance industry that the legal threshold for proving damage would be the lowest in the nation.

"This is just going to lead to more litigation and ... tilt things more in favor of the people who are filing frivolous lawsuits," Brunell said.

A recent study commissioned by the insurance-backed Consumers Against Higher Insurance Rates predicts the triple-damage law would drive up rates by as much as $650 million for auto, home and business policies.

Dana Childers, spokeswoman for the Reject R-67 campaign, said the law isn't needed.

For starters, she said, consumers already have the right to sue insurers for breach of contract or for acting in bad faith. And they can also turn to the state insurance commissioner, who has the authority to dish out fines and use the "bully pulpit" to force insurers to pay.

For proof the current system is working, the campaign points to last winter's windstorms that caused widespread damage across Western Washington. According to insurance-industry figures, more than 42,000 property damage claims were filed — resulting in some $170 million in payments.

But only 25 windstorm-related complaints were filed with the Insurance Commissioner's Office, which issued just seven citations against insurers.

"Where's the problem?" Childers asked. "Where's the crisis?"

Wielding the hammer

In extreme cases, Kreidler has the ultimate hammer — he can take action to revoke a company's license to sell policies here.

But short of that, Kreidler said, his authority is very limited. He doesn't have the power to order companies to pay claims. He can fine them for violating state insurance regulations, but $10,000 is the maximum penalty he can dish out per violation.

Individual claims are not reported to Kreidler's office, so he has no way to track how often claims are disputed or delayed.

Last year, the office investigated nearly 2,800 complaints from consumers regarding auto, home and business policies. Over the past five years, the office estimates, it helped consumers recover tens of millions of dollars in unpaid claims.

But Kreidler said he figures the complaints he sees are "just the tip of the iceberg."

Gregoire said what irks her most about the Referendum 67 fight are the industry's warnings about soaring rates. As long as a company acts in good faith and pays claims on time, there's no reason for that company's rates to rise, she said.

"I'm not afraid of it because all it says is you can't unreasonably deny claims, and good insurance companies don't do that," Gregoire said.

Ralph Thomas: 360-943-9882 or rthomas@seattletimes.com