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Washington Supreme Court Rules for Insurers Under IFCA

The Washington Supreme Court has issued a decision that clarifies the scope of statutory claims against insurers under the state’s Insurance Fair Conduct Act (IFCA).  In Perez-Cristanos v. State Farm Fire and Cas. Co., 2017 Wash. LEXIS 92, ___ Wn.2d ___ (2017), the court curtailed the ability of insureds and other claimants to seek triple damages based on regulatory violations.

IFCA, enacted in 2007, created a statutory cause of action against insurers for unreasonable denial of coverage or benefits.  The consequences of an IFCA judgment can be severe: in addition to a mandatory award of attorney fees, the statute authorizes an award of triple damages if an insurer is deemed to have unreasonably denied benefits or violated a specific set of insurance regulations.

An unresolved question under IFCA is what acts by an insurer allow a claimant of file an IFCA suit.  Insurers have taken the position that only an unreasonable denial of benefits gives a claimant the right to sue under IFCA.  If an insurer violates the specified claims regulations in addition to denying benefits, damages for the regulatory violations then can be tripled. Insurance claimants, on the other hand, have argued that they can file an IFCA suit based solely on regulatory violations, even without an unreasonable denial of coverage.  The dispute is significant because IFCA cases have been allowed to proceed based solely on the accusation that an insurer has violated regulations-for example, by failing to respond to communications within specified deadlines-even if the insurer has not denied coverage.

There have been no published Washington appellate decisions on this issue.  Federal district courts have addressed it periodically, but federal court opinions are not binding on state court judges and do not establish Washington law.  Many–but not all–federal courts have ruled that an unreasonable denial of benefits is a threshold issue, and that an IFCA case cannot be based solely on regulatory violations.  The Washington Supreme Court’s decision makes it settled Washington law that an IFCA claim may be filed only if there has been an unreasonable denial of benefits.

The Perez-Cristanos opinion arose from an underinsured motorist (UIM) insurance dispute, but it is not limited to UIM cases.  It has broad application to any case in which a claimant asserts that an insurer has violated claims regulations but there has been no denial of coverage or benefits.  The decision is significant because claimants sometimes have used minor regulatory violations to inflate a claim to many times its actual value.  While it does not affect common law claims for insurance bad faith or Consumer Protection Act violations, the Perez-Cristanos case will aid insurers by reducing opportunities for claimants to artificially inflate claim value, instead allowing valuation based on the merits of a claim.

If you have further questions, please feel free to reach out to your Karr Tuttle Campbell insurance attorney.

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