Washington’s Insurance Fair Conduct Act (“IFCA”) provides insureds with a statutory cause of action against their insurers for wrongful denials of coverage, in addition to a traditional bad faith cause of action. Unlike a bad faith cause of action, the IFCA allows for enhanced damages under certain circumstances. Under the language of the statute, “any first party claimant to a policy of insurance” may bring a claim under IFCA against its insurer for the unreasonable denial of a claim for coverage or payment of benefits. There has been a split of authority in Washington among both the state appellate courts and federal district courts regarding whether the term “first-party claimant” refers only to first-party policies (i.e., a homeowner’s policy or commercial property policy) or whether it refers to insureds under both first-party and liability policies (e.g., CGL policies which cover the insured’s liability to others). The IFCA expressly defines the phrase “first-party claimant” as “an individual, … or other legal entity asserting a right to payment as a covered person under an insurance policy or insurance contract arising out of the occurrence of the contingency or loss covered by such a policy or contract.”
The Washington Court of Appeals, Division One, held that a “first-party claimant” means an insured under both first-party and liability policies (Trinity Universal Ins. Co. of Kansas v. Ohio Casualty Ins. Co., 176 Wn.App. 185 (2013)), but Division Three held that the IFCA applies exclusively to first-party insurance contracts (Tarasyuk v. Mutual of Enumclaw Insurance Co., 2015 Wash. App. LEXIS 2124 (2015)).
In the federal courts, the majority of decisions from the Western District of Washington have held that an insured with third-party coverage or first-party coverage can be a “first-party claimant” under IFCA. Navigators Specialty Ins. Co. v. Christensen, Inc., 140 F. Supp. 3d 11097 (W.D. Wash. Aug. 3, 2015 ) (Judge Coughenour); City of Bothell v. Berkley Regional Specialty Ins. Co., 2014 U. S. Dist. LEXIS 145644 (W.D. Wash. Oct. 10, 2014) (Judge Lasnik); Cedar Grove Composting, Inc. v. Ironshore Specialty Ins. Co., 2015 U. S. Dist. LEXIS 71256 (W.D. Wash. June 2, 2015) (Judge Jones); Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F.Supp.3d 1148 (E.D. Wash. Oct. 29, 2015) (Judge Peterson). These decisions held that any insured who has a right to file a claim under the insurance policy is a “first-party claimant” under the IFCA regardless of whether the policy provides first-party or third-party coverage.
However, Judge Pechman of the Western District of Washington ruled that an insured with third-party coverage is not a “first-party claimant” under IFCA in Cox v. Continental Casualty Co., 2014 U. S. Dist. LEXIS 68081 (W.D. Wash. May 16, 2014) and two subsequent cases. In Cox, Judge Pechman dismissed plaintiff’s IFCA claim on the ground that the insurance policy was a “third-party policy,” i.e. a third-party liability policy, and therefore the insured (who assigned his claim to the plaintiffs) was not a “first-party claimant.” The Ninth Circuit Court of Appeals recently affirmed the Cox decision on appeal, effectively resolving the split of authority in the federal courts in favor of a more limited interpretation of the IFCA. Cox v. Continental Casualty Co., 2017 U.S. App. 11722 (9th Cir. June 30, 2017).
Those watching this issue and looking for a reasoned analysis resolving the split of authority among the federal district courts in Washington will be disappointed, as the Ninth Circuit provided no basis for its holding on the issue, not even a recognition of the split among the courts. On the issue, the Court merely stated “[t]he policy in question is not a first party policy; thus, the Plaintiffs, standing in [the insured’s] shoes, cannot be a first party claimant.” The court’s failure to provide its reasoning for this holding is surprising, given that the parties addressed the split of authority in their briefs. Nonetheless, insurers should take note of this important decision limiting the scope of the IFCA in Washington’s federal courts.