Washington has long allowed insureds, through the common law doctrines of bad faith and breach of contract, to bring actions against insurers who are purportedly acting in bad faith when denying claims for coverage or payment of benefits. However, since 2007, thanks to the passing of the Insurance Fair Conduct Act (IFCA), RCW § 48.30.015, insureds now have a clear statutory path to compensation, including increased punitive damages. As a result, knowing what IFCA requires of insurers in order to avoid liability under the statute should be a paramount concern for adjusters when reviewing claims. The right recipe for avoiding liability under IFCA comes down to three “I”ngredients: Inform, Investigate, and Initiate.
IFCA provides that “[a]ny 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….”[i] This provision makes clear that IFCA’s application is limited to claims brought by named insureds against the insurer and arising from either a denial of coverage or a denial of payment. To bring an action for unreasonable denial against an insurer, an insured must first provide the insurer with written notice of the basis for the cause of action.[ii] Then, unless the insurer resolves the basis for the action within twenty days of receiving notice, the insured may file an IFCA action for an “unreasonably denied” claim.[iii] But what constitutes an “unreasonably denied” claim?
Rather than leave the interpretation of “unreasonably denied” exclusively to the mercy of the courts, the legislature created a clear avenue for insureds to file claims by enumerating per se violations of the act. IFCA specifically provides that a violation of any of the following five provisions of the insurance code automatically triggers liability under IFCA:
- WAC 284-30-330 (“specific unfair claims settlement practices defined”);
- WAC 284-30-350 (“misrepresentation of policy provisions”);
- WAC 284-30-360 (“failure to acknowledge pertinent communications”);
- WAC 284-30-370 (“standards for prompt investigation of claims”);
- WAC 284-30-380 (“standards for prompt, fair and equitable settlements applicable to all insurers…”).
Even further, the law authorizes the Insurance Commissioner to promulgate additional per se violations. Through RCW § 48.30.010, the legislature grants the Insurance Commissioner authority to declare particular settlement methods, acts, or practices as “unfair” or “unfit.” IFCA further provides that an insurer that engages in any such settlement method, act, or practice that the Commissioner deems “unfair” or “unfit” is per se liable under IFCA.[iv]
In addition to paving a clearer path to the courtroom, IFCA also entices claimants by placing a substantial reward at the end of that path. First, IFCA allows, though does not require, uncapped treble damages. Although the court may only treble the “actual damages” suffered by the insured, the court may do so without restraint. Second, the law mandates an award of reasonable attorney’s fees and both statutory and actual costs, including expert witness costs, to a prevailing insured.
So, what should insurers do to avoid running afoul of IFCA? The recipe for staying “reasonable” under IFCA has three primary ingredients: Inform, Investigate, and Initiate.
IFCA requires adjusters to keep a claimant fully informed about his or her claim(s). First, adjusters must reply promptly to communications from the claimant. Second, adjusters must inform a claimant of any avenue for coverage that is reasonably available to compensate the claimant. Third, adjusters must provide the claimant with information from the claim file unless the insurer has a legitimate legal reason to keep the information confidential.[v] Finally, adjusters must communicate not only the steps taken and the decisions made in regards to a claim, but also the reasoning for those steps and decisions. A court will find an insurer to be liable if the court determines that an adjuster is not providing the claimant with the basis for the adjuster’s decisions, or if the adjuster is providing a claimant with only a spurious explanation of how a claims decision was made.
IFCA places a burden on adjusters to investigate any claim, at any point in the claims process, that is reasonable based on the claimant’s rendition of the facts. An adjuster is not absolved of the requirement to investigate based upon the perceived credibility of the claimant, previous payout under a separate policy provision, or even a court’s ultimate finding that the insurer was correct to deny the claim. IFCA is holding adjusters to a higher standard of diligence, and adjusters would be wise to undergo that due diligence prior to a claims decision rather than down the road in expensive IFCA litigation.
IFCA stresses the need for an adjuster to initiate or continue settlement discussions by making a legitimate offer or counter-offer as soon as practicable. Since the enactment of IFCA, courts will not tolerate unnecessary delays or insincere low-ball offers once the adjuster has the information needed to make his or her decision.
All this is not to say that IFCA prevents adjusters from doing their job and doing it well. Although the award of treble damages provided for in IFCA is a serious consequence for acting unreasonably, courts are not going to penalize adjusters for reasonably disputing claims, waiting for the resolution of important factual issues, keeping confidential information confidential, or ultimately denying claims. As long as adjusters follow the above recipe and grant first party claimants due diligence and open communication when reviewing claims, insurers will have nothing to worry about, even if that twenty-day notice comes in the mail.
[i] RCW § 48.30.015(1).
[ii] RCW § 48.30.015(8)(a).
[iii] If written notice is properly provided, then the statute of limitations is tolled for the twenty-day period. See RCW 48.30.015(8)(d).
[iv] RCW § 48.30.015(5)(f).
[v] See Cedell v. Farmers Ins. Co. of Washington, 176 Wn.2d 686, 295 P.3d 239 (2013) (discussing the scope of what information in a claim file is discoverable in an insurance dispute). For a greater understanding of what information in a claim file can and cannot be withheld from an insured after Cedell, see our previous blog post entitled Claim File Disclosure: Tips for Protecting Privileged Information Post-Cedell.