Hotly debated and lobbied by trial lawyers on one side and the insurance industry on the other, a bill expanding consumers' rights to sue insurers cleared the Minnesota House on Thursday.

The bill, which passed 81 to 51, would require insurers to act in "good faith" when denying claims from clients or face possible penalties through lawsuits.

The House legislation differs from a Senate version, and the proposals must be reconciled in a conference committee, which the House sponsor said could be done in minutes. The Senate version passed last week.

In a major compromise, both bills limit damages and attorneys' fees, making it more palatable to both sides. Attorneys' fees would be capped at $40,000 and damages at $100,000. The bill would require a policyholder to show that the insurer had no reason to deny the claim and was reckless in its denial.

Although the insurance industry had said rates would go up if the bill is passed, Rep. Joe Atkins, DFL-South St. Paul, said consumers and insurers who perform as they should will see no impact. In fact, he said, it should hold insurers more accountable and likely will reduce the potential for litigation.

"There is no evidence anywhere in the country that this has any impact on rates whatsoever," said Atkins, chief House sponsor of the bill. "The main thing is that if they have a claim that used to be denied with no good faith basis, now they have a remedy for that."

An amendment in the House version would require provisions to be put on hold if average state premiums went up by more than 20 percent, as determined by the state commerce commissioner.

"I am so confident that this will have no impact on rates I welcome that and suggest people should support it," Atkins said.

Gov. Tim Pawlenty's office has indicated support of the compromise measures, signaling a potentially calm ride for legislation that has been contentious in the past several years.

But acrimony persisted during debate Thursday. Rep. Steve Smith, R-Mound, continued to rail against what he said were heavy-handed tactics of the insurance industry, which has taken out full-page newspaper ads and encouraged consumers to contact legislators about what it has called "the trial lawyers tax."

Said Smith: "I have their ads, I've seen their ads. I have a flier. I'm extremely disappointed in the misinformation that's been sent to us. I am unwilling to let them prevail."

Mark Brunswick • 651-222-1636