Betts Patterson Mines

What’s the Harm?: WAC Violations and the Vanishing “Standalone” IFCA Claim

As regular readers of this blog will recall, Washington State is a hotbed of bad faith litigation thanks in no small part to Washington’s Insurance Fair Conduct Act (IFCA). Some recent decisions suggest that “standalone” IFCA claims will generally lack awardable damages.

First, a little background. IFCA’s jurisdiction provision allows a first party claimant “who is unreasonably denied a claim for coverage or payment of benefits by an insurer [to] bring an action . . . to recover the actual damages sustained[.]” RCW. § 48.30.015(1). IFCA allows for enhanced damages based on either an unreasonable denial of coverage or a violation of certain rules in the Washington Administrative Code. RCW § 48.30.015(2).

While IFCA causes of action are nominally limited to policyholders who have a valid claim for insurance coverage or benefits that has been unreasonably denied, at least one federal district judge has concluded a violation of the Washington Administrative Code provisions referenced in subsection 2 is a sufficient basis for an IFCA claim, even though the policyholder’s actual coverage claim is invalid. Langley v. Geico, –F.Supp.3d–, 2015 WL 778619 (E. D. Wash., Feb. 24, 2015) (this blog has previously addressed the misreading of 48.30.015(1) in Langley) in “Judge Mendoza Holds that IFCA Applies to Standalone WAC Violations”.

The reason Langley and cases like it threaten such great mischief is that the Washington Administrative Code “rules” incorporated into IFCA are frustratingly vague: insurers must do “reasonable” investigations, complete them in a “reasonable” time (and within 30 days unless that’s not “reasonably possible”), and respond to all communications “reasonably promptly.” With no “safe harbor” provision in the rules, there is almost always a colorable argument that a “reasonable” insurer could have investigated a claim more thoroughly, or less invasively, or responded to an individual communication more quickly. These arguments are grounded in factual disputes and Washington courts are prone to deny summary judgment on this issue without much further analysis. Xia v. ProBuilders Specialty Ins. Co., RRG, No. 71951-3-I, 2015 WL 5011474, at *14 (Wash. Ct. App. Aug. 24, 2015).

Apart from a potential denial of coverage does any other harm comes from an insurer’s violation of one of the WAC provisions? United States District Judge Robart considered this question at some length in a recent opinion in Schreib v. Am. Family Mut. Ins. Co., No. C14-0165JLR, 2015 WL 5175708, at *7 (W.D. Wash. Sept. 3, 2015). In most cases, the answer may be nothing. The Schreib opinion holds “emotional damages” are not recoverable in the context of an IFCA claim.

The other class of potential “damages” present in virtually every lawsuit is attorney fees. To obtain attorney fees, however, an IFCA plaintiff must demonstrate that it is entitled to some other type of damages or equitable relief. Id. See also Xia v. ProBuilders, supra. Taken together, Schreib and Xia suggest that the threat of liability from “standalone” IFCA claims in Washington will be more apparent than real.

Jeremy Schulze