Washington Supreme Court Addresses the Insurance Fair Conduct Act

Washington Supreme Court Addresses the Insurance Fair Conduct Act

Perez-Crisantos v. State Farm et al., Wash. Sup. Ct., No. 92267-5, (February 2, 2017), is perhaps the most favorable ruling for insurers from the Washington Supreme Court in the past several years. The Perez-Crisantos Court was asked to decide whether, in the absence of an unreasonable denial of coverage or benefits, the Insurance Fair Conduct Act (IFCA) creates an independent and private cause of action for an alleged violation of Washington’s Unfair Claims Settlement Practices Regulations. Definitively, the Court held that it does not.

In Perez-Crisantos, the insured was involved in car accident and sustained injuries. The insured was not at-fault and ultimately settled with the at-fault party’s insurance carrier for its policy limits. The insured then tendered a claim for underinsured motorist (UIM) benefits to his insurance carrier, State Farm. State Farm paid its personal injury protection (PIP) limit of $10,000 in medical benefits and $400 in lost wages, but did not pay benefits under the UIM policy, taking the position that the insured had already been made whole. Arguing that State Farm unreasonably denied benefits, the insured sued State Farm alleging violations of IFCA, the Consumer Protection Act (CPA), chapter 19.86 RCW, bad faith and negligence. This lawsuit was stayed while the UIM claim was sent to arbitration.

The arbitrator found that the insured’s damages from the accident totaled $51,000. After adjusting for settlement with the at-fault party, PIP payments, and attorneys’ fees, the insured received $24,000 of new money from State Farm. The stay in the bad faith lawsuit was then lifted. State Farm moved for summary judgment arguing that it had acted reasonably and that the parties had simply had a reasonable disagreement about the value of the claim. The insured moved for partial-summary judgment arguing that State Farm had violated WAC 284-30-330(7)’s prohibition of forcing first party claimants to litigation to recover “amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions.” The Spokane County Superior Court ruled in State Farm’s favor, finding no evidence that State Farm’s actions were unreasonable, and dismissed the case with prejudice.

The insured appealed directly to the Washington Supreme Court, seeking a determination as to whether IFCA creates an independent and private cause of action for an insurer’s technical violation of the Unfair Claims Settlement Practices Regulations in the absence of an unreasonable denial of coverage or benefits.

Like many of the federal courts before it, the Washington Supreme Court struggled with the interplay of paragraphs 2, 3, and 5 of the statute, and ultimately found that the statute was ambiguous. The Court further admitted that the result of an isolated regulatory violation was not clear.

[G]iven that the trier of fact must find that an insurer acted unreasonably under subsection (1), and that such a finding mandates attorneys’ fees under subsection (3) and gives the trial court discretion to award treble damages under subsection (2), it is not clear what a finding of a regulatory violation accomplishes. (emphasis added).

. . .

IFCA explicitly creates a cause of action for first party insureds who were “unreasonably denied a claim for coverage or payment of benefits.” IFCA does not state it creates a cause of action for first party insureds who were unreasonably denied a claim for coverage or payment of benefits or “whose claims were processed in violation of the insurance regulations listed in (5),” which strongly suggests that IFCA was not meant to create a cause of action for regulatory violations.” (Internal citations omitted) (emphasis added).

In finding IFCA ambiguous, the Court then analyzed IFCA’s official ballot title and determined that it was not the legislature’s intent to create a private cause of action for mere technical violations.

This language does not suggest an intent to create a private cause of action for regulatory violations. Quite the opposite: it suggests that IFCA creates a case of action for unreasonable denials of coverage and also permits treble damages in some circumstances. On balance, we conclude that the legislative history suggests that IFCA does not create a cause of action for regulatory violations. (emphasis added).

The Washington Supreme Court then advised that Washington’s current pattern jury instruction on IFCA is a misstatement of the law. The current pattern instruction concludes that IFCA creates a cause of action if an insurer “unreasonably denied a claim for coverage” or “unreasonably denied payment of benefits,” or “violated a statute or regulation governing the business of insurance claims handling.” Based on the foregoing, this instruction is clearly incorrect.

The Perez-Crisantos decision is a rare win for insurers in what has become a very difficult jurisdiction. This decision should prove extremely important as IFCA claims, and IFCA claims premised solely on technical violations of Washington’s insurance regulations, are becoming more and more prominent. To the extent that you have detailed questions about this case or how it may affect any of your pending or future claims or litigation, do not hesitate to contact our office.

New Decisions Impacting Insurance Law

New Decision Update

 Two well-reasoned decisions from the Western District of Washington have recently provided clarity to Washington law on a pair of subjects that have been of particular interest in the insurance industry in the past several years in this jurisdiction.

These decisions further support our office’s frequent advice that the Federal District Court is a forum that insurers should consider in disputed coverage matters.

The Cox Decision Involving the Scope of IFCA 

Kathryn Cox, et al., v. Continental Casualty Company, 2014 U.S. Dist. 68081 (W.D. Wash. May 16, 2014) reconsideration denied, 2014 U.S. Dist. LEXIS 78457 (W.D. Wash. June 6, 2014)

On May 16, 2014, Judge Marsha Pechman issued an order clarifying the scope of the Washington Insurance Fair Conduct Act (IFCA), RCW 48.30.015  The Court ruled that based on the express statutory language, an IFCA cause of action is not available to an insured in the context of a third-party liability claim.  In a coverage and extra-contractual lawsuit brought by an insured alleging bad faith and IFCA violation by the insurer arising from the manner in which the insurer attempted to negotiate the settlement of a third-party claim, the Court held that the insured had no standing to bring an IFCA cause of action and dismissed the IFCA claim.  On a motion for reconsideration, the Court was pointed in its analysis in affirming its initial ruling.

The Court reasoned that the text of the statute gives rise to a cause of action for any “first party claimant” who is unreasonably denied benefits.  “First party claimant” is defined as someone “asserting a right to payment” under a policy.  A third-party policy does not grant a right to payment to its holder.  Rather it applies to indemnify the holder for third-parties damages.  As such, the policyholder has no right of payment as required under the statute, and therefore no standing to assert an IFCA claim.

The MKB Decision on the Applicability of Cedellin Federal Court

MKB Constructors v. Am. Zurich Ins. Co., 2014 U.S. Dist. LEXIS 78883 (W.D. Wash. May 27, 2014).

             On May 27, 2014, Judge James Robart issued a decision on an insured’s motion to compel the production of documents from the defendant insurer based on the Washington State Supreme Court decision in Cedell v. Farmers Insurance Company of Washington, 176 Wn.2d 686, 295 P.3d 239 (Wash. 2013).  Specifically, the insured sought the production of documents identified in the insurer’s privilege log based on the position that under cedell those documents were presumptively not privileged.  The insured sought in the alternative an in camera review of those documents by the Court in order to determine whether the assertion of privilege was appropriate.

The Court rejected the insured’s arguments and took the opportunity it the written decision to provide a detailed analysis of Cedelland its applicability in the federal courts under the Erie doctrine.  The Court begins by addressing the substantive requirements of Cedellconcerning the attorney-client privilege and acknowledges that underCedell an insurer must demonstrate that the attorney was not engaged in the “quasi-fiduciary tasks of investigating and evaluating or processing” a claim.  The question then was the mechanism by which the insurer could meet this burden.

The Court rejected the Cedell mandate that an the trial court must review any disputed documents in camera holding that this requirement is procedural in nature and is not required of the federal courts under the federal rules.  Ultimately, the Court held that while it is within the federal court’s discretion to require an in camera review, it is not required to do so and it may require insurers to meet the burden by other means, including through the identification of the disputed documents in a privilege log.

The Court then addressed the Cedell case in the context of assertions of protection under the Work-Product Doctrine.  The Court heldCedell is inapplicable in federal court when the work-product doctrine is invoked.  As a result, assertions of protection from disclosure of work-product material will be controlled by the federal rules of civil procedure and none of the Cedell presumptions or procedural requirements will be applicable in the federal courts.