On Groundhog Day 2017, the Washington Supreme Court issued its first major opinion interpreting the state’s 2007 “Insurance Fair Conduct Act” (IFCA). The decade-old legislation had caused shockwaves among insurers when its proponents (and IFCA claimants) argued that IFCA created a new statutory cause of action against an insurer, prescribing penalties for violating any one of 37 regulations set forth in the Washington Administrative Code (WAC).

Wrong, says the court: IFCA gives an insured no right to sue solely for an insurer’s violation of a Washington insurance regulation. Rather, the statutory right to sue requires an unreasonable denial of a claim for coverage or payment of benefits.

In Perez-Crisantos v. State Farm Fire & Cas. Co., No. 92267-5, __ Wn.2d __ (Feb. 2, 2017), the insured driver was struck from behind by an at-fault motorist whose liability insurance limit was $25,000. The insured driver collected this amount in settlement with the other driver and also received State Farm’s PIP coverage limit of $10,000 for his medical expenses. Asserting he had more than $50,000 in medical bills, Perez-Cristanos submitted an underinsured motorist (UIM) coverage claim to State Farm, his insurer. State Farm did not pay but asserted its refusal to pay was based on a disagreement over claim valuation. The UIM arbitration then awarded Perez-Cristanos the gross amount of about $51,000. Perez-Cristanos made an IFCA claim against State Farm and cited an unfair claims settlement practices regulation prohibiting insurer offers that are “substantially less than the amounts ultimately recovered ….”

Washington state’s highest court resolved an IFCA statutory-interpretation issue that the federal courts in Washington had already addressed many times. With few exceptions, the majority of federal judges that analyzed IFCA (RCW 48.30.015(1)-(8)) had reached the same conclusion: a denial of coverage or payment of benefits is required to sustain an insured’s IFCA cause of action. Lease Crutcher Lewis WA, LLC v. Nat'l Union Fire Ins. Co. of Pittsburgh, PA, 2010 WL 4272453, *5 (W.D. Wash. Oct. 15, 2010); Seaway Props., LLC v. Fireman's Fund Ins. Co., 16 F.Supp.3d 1240, 1255 (W.D. Wash. 2014); Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F.Supp.3d 1148, 1155 (E.D. Wash. 2015).

The remedies created by IFCA include requiring an award of “reasonable attorneys’ fees and actual and statutory litigation costs, including expert witness fees”; and permitting a discretionary award of up to “three times the actual damages,” without any other cap on these potential treble-damages. RCW 48.30.015(2)-(3). These remedy/penalty sections of IFCA referenced not only the insurer’s unreasonable denial of claims but also violations of the WAC’s rules against unfair claims settlement practices.

In short, the court held that IFCA did not create a private cause of action for regulatory violations alone. This holding was supported by the legislative history, which included (a) the legislature’s intentional omission of language authorizing IFCA claims based on WAC regulations; and (b) the language placed before the Washington voters when they voted on the November 2007 Referendum.

The court’s holding was intended to end years of disputes between policyholders and insurers over IFCA’s purpose and scope, by confirming that an unreasonable denial of coverage was required for all IFCA claims. Insurers should also understand these three further points about Perez-Crisantos v. State Farm:

Ambiguity in a statute and the “purpose of protecting insureds” is not enough to create a new cause of action. The court recognized that IFCA is “ambiguous,” but relied on its statutory-construction rules to conclude that if an additional IFCA cause of action were truly the legislature’s intent, the legislature would have to say so. There was simply no “implied” private cause of action in the IFCA statute.

Many other legal protections remain in place for Washington insureds. For example, the Washington Consumer Protection Act, RCW 19.86. Unreasonable violations of a WAC prohibition against “unfair” claims settlement practices can be bases for an insured’s private cause of action based on CPA statutory violations. However, under the CPA any increased damage award (up to triple the “actual damages sustained”) would be subject to a $25,000 cap. An attorney-fee award is available in Washington not only for claimants that establish CPA violations but also for an insured who is required to file a lawsuit in order to enforce an insurance contract. These causes of action and remedies remain potent deterrents against insurers handling Washington claims unreasonably.

Washington’s federal courts are the usual forum for IFCA statutory interpretation. The court’s Justices acknowledged that IFCA litigation was proceeding mainly in federal court. This trend will likely continue. Another important trend to watch is whether, perhaps in response to Perez-Crisantos v. State Farm, claimants may attempt to expand the fact situations qualifying under the IFCA statute as “denied” coverage or benefits. As one example, the federal District Court in Morella v. Safeco Insurance Co. of Illinois, held in 2013 that “the benefits … are effectively denied” when the insurer’s payment or offer does not demonstrate it appropriately valued the loss based on the known facts. However, based on the Perez-Crisantos v. State Farm facts and holding, a mere difference of opinion over the valuation of a claim is not an IFCA violation.

Ultimately, Perez-Crisantos v. State Farm supports insurers that focus on reasonably addressing coverage claims, and discourages punishment of those insurers if they technically violated insurance regulations during the process. An insured can no longer assert IFCA penalty claims based purely on an insurer’s alleged violations of the regulations referenced in sections of the statute.