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.