Washington State voters approved the Insurance Fair Conduct Act (“IFCA”) in 2007. IFCA increases the penalties available against insurers, including uncapped treble damages and expert witness fees. IFCA’s language says that it applies to “any first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits.” RCW 48.30.015. (emphasis added). First party claimants include insureds under personal auto policies seeking money for bodywork to their cars after a collision, homeowners claiming repair costs following a fire, or an apartment tenant wanting replacement cost for his TV after his apartment has been burglarized. These first party claims lack a third party arguing the insured is liable for this third party’s damages. In third party claims, the insured is not paid anything. Therefore, Washington’s Legislature – by limiting IFCA to “any first party claimant” – meant IFCA does not apply to claims under liability insurance policies. But the logical intent of seemingly clear language has not stopped attorneys from arguing IFCA should apply to liability insurance claims.
A new decision from Washington’s federal court hopefully will stop IFCA claims under liability policies. On November 12, 2014, Judge Marsha Pechman, of Washington’s Western District at Seattle, decided the statute’s language means what it says. In Central Puget Sound Regional Transit Authority v. Lexington Ins. Co., Judge Pechman dismissed a liability policyholder’s IFCA claim because this policyholder was not a “first party claimant,” as IFCA’s language requires for an actionable claim. Further, the Court denied the policyholder’s request to certify the issue to the Washington Supreme Court, holding that the issue is “not unsettled.” No. C14–778 MJP, 2014 WL 5859321 (Nov. 12, 2014 W.D. Wash.).
Central Puget Sound RTA largely followed Judge Pechman’s earlier analysis of IFCA’s “first party claimant” requirement in Cox v. Cont’l Cas. Co. There, the Court analyzed what “first party claimant” in IFCA means and concluded an IFCA claimant must be : (1) a policyholder, and (2) the relevant policy must be a first party policy.
The former requirement (policyholder or insured, as opposed to a third party claimant) has been well established in both the state and federal courts. See Trinity Universal Ins. Co. of Kansas v. Ohio Cas. Ins. Co. (holding IFCA claims cannot transfer by subrogation). After Cox and Central Puget Sound RTA, Washington’s federal courts have established the latter requirement (IFCA only applies to first party insureds). But Washington insurers’ counsel must alert the court to IFCA’s first party language. In 2012, another federal judge found a commercial general liability insurer liable under IFCA without discussing that the statute only applies to first party insureds. See Tim Ryan Constr. Co. v. Burlington Ins. Co.
With Cox and Central Puget Sound RTA, IFCA claims against liability insurers for alleged failures to defend or indemnify ought to be eliminated, at least in federal courts.
The Insurance Commando Blog would like to alert its readers that two of its own, Jeff Tindal and Mark Mills, will be speaking on December 8, 2014 in the seminar Construction Defect Disputes & Litigation: Using Coverage, Case Law and Indemnification to Shift Liability. Click the link for further details.
