Although the Insurance Fair Conduct Act (IFCA) has been in place for ten years now, the Washington Supreme Court has at last resolved one of the Act’s most significant ambiguities: whether a regulatory violation, without more, could not be actionable under the statute. And, thanks in part to the hard work of Joe Hampton, Dan Syhre, and Katy Boling of our office, who prepared an amicus brief to the court, the ambiguity has been resolved in favor of insurers, a rare accomplishment.
IFCA by its terms created a private cause of action for an “unreasonable denial of coverage or payment of benefits.” Its remedies include guaranteed attorney fees and costs, and treble damages. The stakes were therefore very high to minimize the scope of the Act.
The controversy before the court was whether violations of certain sections of the Washington Administrative Code (WAC) relative to insurance were an alternative basis for a claim in the absence of a denial of coverage or benefits. The Act purports to provide liability only for denials, but it also contains troublesome sections addressing these regulatory violations, and both the Office of the Insurance Commissioner and the committee that drafted the relevant Washington Pattern Jury Instruction on IFCA had interpreted these references to allow an independent cause of action for WAC violations. Federal district court decisions were split on the question, although most held that no cause of action existed for regulatory violations alone.
The Court first considered the legislative history of the Act, which was somewhat complicated by the fact that IFCA was originally a voter referendum. Thus, while the courted noted that some parts of the legislative history favored the plaintiff’s interpretation, it relied heavily on the official documents that were before the voters at the time they voted on the referendum; these documents suggested that IFCA would provide a cause of action for unreasonable denials only. The court held that on balance, the legislative history did not suggest any intent to create a cause of action for regulatory violations.
The court then considered the absurdity argument raised by amici on the cognizability of regulatory violations for IFCA liability. After all, such a conclusion would include a private cause of action for not responding to “pertinent communications” until the 11th working day instead of the 10th, or not accompanying a claim payment with a statement of which coverage from which the payment was made. The Court properly reasoned that it is “unlikely” that the legislature would have intended to create a private cause of action for violations such as these.
All in all, a good day for insurers at the Washington Supreme Court.
