In a significant victory for insurers, the Washington Supreme Court interpreted the Insurance Fair Conduct Act (IFCA), RCW 48.30.015, for the first time and held that IFCA does not authorize an independent cause of action for policyholders to sue their insurers for mere procedural violations of insurance claims-handling regulations. The decision in Perez-Crisantos v. State Farm Fire & Casualty Co., – P.3d –, 2017 WL 448991 (Feb. 2, 2017), finally resolves a longstanding debate in Washington insurance law and narrows the types of claims available under IFCA.
In 2007, the Washington Legislature enacted and the voters ratified IFCA. The purpose of IFCA was to provide insureds with another legal resource against their insurer for wrongful denials. By its terms, IFCA allows a policyholder “who is unreasonably denied a claim for coverage or payment of benefits” to sue for his or her “actual damages.” Unlike traditional bad faith claims, IFCA claims also offer the extra incentive of enhanced damages by allowing the court to award up to triple damages, as well as attorney’s fees and costs. An award of triple damages is conditioned on a finding that either the insurer acted unreasonably in denying a claim or benefits, or the insurer violated one or more of several listed insurance regulations. The risk of a triple damages award can dramatically expand an insurer’s exposure and gives policyholders leverage in coverage disputes.
The “vexing” question resolved in Perez-Crisantos asked whether IFCA permitted insureds to sue their insurers for violations of the listed insurance regulations even in the absence of an unreasonable denial of coverage or benefits. Since IFCA’s enactment, the Washington Supreme Court had never interpreted the statute, and the statutory language is not a model of clarity. Without guidance from the state’s highest court, Washington’s federal courts split on this question. On one side of the debate, the federal courts in Western Washington held that no cause of action existed for regulatory violations alone. See Cardenas v. Navigators Ins. Co., 2011 WL 6300253, at *6 (W.D. Wash. 2011). On the other side of the debate, several federal courts in Eastern Washington held that IFCA provides an implied cause of action for regulatory violations to serve the underlying intent of the statute. See Langley v. GEICO Gen. Ins. Co., 89 F. Supp. 3d 1083 (E.D. Wash. 2015).
This question had serious implications for insurers because it potentially opened the door to awards of triple damages and attorney’s fees for procedural regulatory violations, even in the absence of coverage. For example, one of the regulations listed in IFCA requires insurers to respond to pertinent communications within 10 days. Under the approach followed by Langley, an insurer who responded on Day 11 could potentially be exposed to liability under IFCA, regardless of the substantive coverage issues.
The Washington Supreme Court settled this debate in Perez-Crisantos. In an opinion by Justice Steven C. González, the court reviewed IFCA’s statutory text and recognized that while it creates a cause of action for insureds who were unreasonably denied coverage or benefits, the text plainly did not state that it was creating an independent cause of action for regulatory violations. Next, the court turned to the legislative history to search for clues about the underlying intent. In particular, Justice González found that the voters pamphlet strongly suggested that IFCA exposure would arise only for unreasonable denials of coverage, and that voters would not have known they were authorizing a second type of claim. Finally, the court noted it was doubtful the legislature would have intended to create an independent claim for violations of certain of the listed regulations, many of which impose minor, technical requirements that one would not expect to give rise to litigation if an insured was not also unreasonably denied coverage or payment of benefits. Therefore, Perez-Crisantos concluded: “IFCA does not create an independent cause of action for regulatory violations.”
Perez-Crisantos provides important clarity to Washington insurance law and restricts the grounds upon which policyholders can attempt to assert claims under IFCA.