A CREATURE OF OUR OWN MAKING: WASHINGTON’S INSURANCE FAIR CONDUCT ACT
By: Diane L. Polscer; Gordon & Polscer, L.L.C.; Portland, Oregon
Submitted by the Insurance PAC
The words “bad faith” are found in few, if any, insurance policies. Nevertheless, the insurance industry has grown accustomed to this concept, as courts have long read obligations and penalties between the lines of insurance policies.
Recently, legislatures in some states began to join this effort, creating statutory claims that can asserted by policyholders against insurers.
The biggest hammer for policyholders created so far may be the Insurance Fair Conduct Act passed in the state of Washington in 2007, which allows recovery of three times the policyholder’s “actual damages” without any cap. RCW 48.30.015.
Unfortunately for insurers, this statute is not only severe but “less than clear.”[1] Already, “IFCA,” as it is known, has given rise to significant disagreement on some of its most basic elements: (1) when a claim can be brought, and (2) what can be recovered.
1. Does IFCA require an “unreasonable” denial?
Ironically, a split among courts has arisen out of what some may consider the clearest language of the statute. The first paragraph of IFCA lays out who can bring the new claim:
“Any first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits by an insurer may bring an action in the superior court of this state * * *.”
RCW 48.30.015(1) (emphasis added). Based on this language, it would appear that only a policyholder whose claim is denied can bring an IFCA claim. One court, however, expanded this reading to allow an IFCA claim where the insurer only delayed paying a claim.[2]
Further, in 2015, a court construed IFCA to create an “implied claim” that can be asserted even if the insurer timely pays the policyholder.[3] Despite the express language limiting IFCA claims to policyholders who are “unreasonably denied” claims, based on other sections of the statute, this court found that an IFCA claim can be maintained solely on the grounds that the insurer violated a claims-handling requirement of the Washington Administrative Code.[4]
Nine months later, another judge in the same federal district court rejected the “implied” IFCA claim.[5] The court noted that it found IFCA’s statutory language “less than clear,” describing the relationship between IFCA’s subsections as “vexing.”[6] Ultimately, the court found it unnecessary to “perfectly harmonize the various IFCA subsections” in light of the plain language quoted above, limiting IFCA to the denials of coverage or benefits.[7]
Until Washington’s Supreme Court weighs in, courts may continue to disagree about when an IFCA claim can be brought, a troubling uncertainty for insurers.
2. What damages can be recovered under IFCA?
IFCA expressly lists the type of damages that can be awarded: “actual damages.” RCW 48.30.015(3). The question is what this term means. IFCA does not define it. One recent federal district court decision offers an answer to this question, at least in two respects.
First, the court found that the term requires that the damages be proximately caused by the IFCA violation.[8] An arbitrator in that case made a determination of the damages suffered by the insured that were proximately caused by an automobile accident, which the insured argued was a calculation of “actual damages” for purposes of IFCA.[9] However, the court disagreed, finding the arbitration award “an estimation of the damages caused by the accident itself, not those caused by [the insurance company’s] alleged unreasonable denial of IFCA benefits.”[10]
Second, the court found that IFCA excludes the availability of emotional damages as “actual damages.”[11] This court looked to Washington authority interpreting other statutes that do not address emotional distress damages, finding “the requisite degree of culpability as a proxy for whether the legislature intended to make emotional damages available.”[12] Because IFCA proscribes “unreasonable” conduct, which is “similar to negligence, not an intentional tort,” the court concluded that “emotional damages” cannot be recovered under the statute.[13]
With the potential for triple damages under IFCA, these issues take on a heightened importance for policyholders and insurers alike.
CONCLUSION
A statutory claim is a creature of our own making. The legislature chooses when it can be maintained and how much recovery it allows. In the case of IFCA, the statute’s drafting leaves elemental questions unanswered. While courts continue to flesh out these issues, and even disagree on their resolution, insurance companies in Washington are left in a precarious position, not necessarily knowing when an IFCA claim is coming or how hard it might hit.
For other jurisdictions considering a new statute, IFCA may serve to illustrate at least a few issues that should be addressed by the legislature up front.
[1] Workland & Witherspoon, PLLC v. Evanston Ins. Co., No. 2:14-CV-403-RMP, 2015 WL 6553877, at *6 (E.D. Wash. Oct. 29, 2015).
[2] Country Preferred Ins. Co. v. Hurless, No. C11-1349RSM, 2012 WL 2367073, at *6 (W.D. Wash. June 21, 2012).
[3] Langley v. GEICO Gen. Ins. Co., 89 F. Supp. 3d 1083, 1090 (E.D. Wash. 2015).
[4] Id. at 1090 (citing RCW 48.30.015(2)(3)(5)); contra Lease Crutcher Lewis WA, LLC v. Nat’l Union Fire Ins. Co. of Pittsburgh, PA, No. C08-1862RSL, 2010 WL 4272453, at *5 (W.D. Wash. Oct. 15, 2010); see, e.g., WAC 284-30-370 (requiring investigation to be completed within 30 days unless it cannot reasonably be done in that time).
[5] Workland, 2015 WL 6553877, at *8.
[6] Id. at *6.
[7] Id.
[8] Schreib v. Am. Family Mut. Ins. Co., No. C14-0165JLR, 2015 WL 5175708, at *5 (W.D. Wash. Sept. 3, 2015).
[9] Id.
[10] Id.
[11] Id. at *8.
[12] Id.
[13] Id.
Diane L. Polscer is a founding member and managing partner of Gordon & Polscer, L.L.C., in Portland, Oregon and Seattle, Washington. Her practice focuses on insurance coverage, commercial litigation, and a wide range of business and insurance disputes. She is involved in a leadership role in many professional organizations, including serving on NAMWOLF’s Admissions Committee.