On February 2, 2016, the Washington Supreme Court provided some much needed guidance on what actions by an insurer will support a claim under Washington’s Insurance Fair Conduct Act (“the IFCA”). Perez-Crisantos v. State Farm Casualty Co., ___ P.3d ___ (No. 92267-5, Feb. 2, 2017). Although the IFCA was enacted in 2007 and is generally focused on preventing unreasonable conduct by insurers, the federal district courts in Washington have disagreed on what a plaintiff must show to maintain a cause of action. See Langley v. GEICO Gen. Ins. Co., 2015 U.S. Dist. LEXIS 26079 (E.D. Wash. Feb. 24, 2015); Cardenas, et al. v. Navigators Ins. Co., 2011 U.S. Dist. LEXIS 145194 (W.D. Wash. 2011). The Washington Supreme Court has not spoken on the issue until now.

Unlike a Washington common law bad faith action, the IFCA allows attorney fees and treble damages for a violation, one of the few instances in Washington where punitive damages are permitted. Unfortunately the language of the primary statute of the IFCA, RCW 48.30.015, is less than clear and has been kindly referred to as “vexing” by a judge in the Eastern District of Washington. Workland & Witherspoon v. Evanston Ins. Co., 141 F. Supp. 3d 1148, 1155 (E.D. Wash 2015).

The dispute centers on whether a violation of certain state insurance regulations, such as where an insurer does not respond to certain communications within 10 days, is enough to support an IFCA cause of action, or whether an insurer must unreasonably deny a claim for coverage or payment of benefits for an IFCA cause of action to exist. In a somewhat rare victory for insurers in the Washington appellate courts, the Washington Supreme Court sided with the insurer and held that there must actually be an actual denial of coverage for the insured to move forward with an IFCA lawsuit.

The case involved an underinsured motorist claim where State Farm paid PIP benefits but balked at paying the additional amounts the plaintiff demanded; an arbitrator subsequently ruled in favor of the plaintiff. The trial court dismissed plaintiff’s IFCA lawsuit on summary judgment and the Washington Supreme Court accepted direct review.

In ruling in State Farm’s favor, the court held that RCW 48.30.015 is ambiguous and therefore turned to its legislative history, including the ballot title that was put before Washington’s voters in 2007. The court concluded that the IFCA was meant to apply to denials of coverage as opposed to violations of the insurance regulations. In doing so it rejected the position of the Washington Pattern Jury Instruction committee, which had developed a jury instruction that contemplated the situation where the IFCA cause of action was based only upon a violation of the insurance regulations.

After Perez-Crisantos, it is now clear that violations of the Washington insurance regulations are relevant to an insured’s claimed damages under the IFCA, but such alleged violations by themselves are insufficient to pursue an IFCA cause of action. For such a cause of action to exist, the insured must show an actual denial of coverage.