Five Things Insurance Claimants and their Business Attorneys and Brokers Should Know About Disputed Insurance Claims in Washington (Article by Paul Raskin)
Five Things Insurance Claimants and their Business Attorneys and Brokers Should Know About Disputed Insurance Claims in Washington
By Paul R. Raskin
Virtually everyone submits an insurance claim at some time in their life. And virtually everyone knows someone who has had an insurance claim delayed or denied. Most insurance claimants, however, do not know about Washington’s Insurance Fair Conduct Act and other laws designed to give insureds a leg up in the claims process and level the playing field between the policyholder and insurance company.
Five things that every insurance claimant and their independent broker and business attorney should know about disputed insurance claims in Washington are discussed below:
1. Washington rules for policy interpretation are favorable to the insured: exclusions must be construed narrowly, and any ambiguity in coverage must be construed in favor of the insured.
2. The insured is owed a duty of good faith, and the insurer cannot put its interests first.
3. Washington insurance regulations protect insureds in the claims process, requiring insurers to disclose all applicable coverages and benefits and prohibiting insurers from engaging in delay, low-ball settlement offers, and other unfair claims and settlement practices.
4. Treble damages and attorney’s fees are recoverable if an insurer unreasonably denies coverage or fails to pay benefits.
5. Claimants have notice, cooperation and other obligations.
1. Ambiguity Must Be Construed in Favor of the Insured
Washington law applies rules of insurance policy interpretation favorable to the insured that can make the difference between coverage and denial. Chief among these is the rule that ambiguity in an insurance policy must be construed in favor of the insured. Where there are two reasonable interpretations of an insurance clause, the meaning and construction most favorable to the insured must be applied. Additional rules of policy interpretation include:
· “Exclusions from insurance coverage are contrary to the fundamental protective purpose of insurance,” and courts “will not extend them beyond their clear and unequivocal meaning.”
· Insurance policies should be given “the kind of reasonable and sensible construction … that the average person purchasing insurance would give.”
· Insurance policies should be given a “practical” interpretation, not a “strained or forced construction that leads to an absurd conclusion, or that renders the policy nonsensical or ineffective.”
· Undefined terms in an insurance policy are given their ordinary and common meaning, not their legal, technical meaning.
These well-established rules should prevent an insurer from imposing an unduly narrow or overly technical interpretation of a policy clause to avoid or limit coverage. They can make the difference between a claim being paid and a claim being limited or denied.
2. Insurers Owe a Duty of Good Faith
Insurers owe a duty of good faith to their insureds under both statute and case law. RCW 48.01.030 requires that “all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters.” Under case law, the insurer must deal fairly with its insured, giving equal consideration to the insured’s interests. In other words, the insurer cannot put its interests first. If it does, the insurer can be liable for bad faith damages extending beyond the insurer’s coverage obligations.
Bad faith may exist, for example, if an insurer fails to reasonably and timely investigate a claim and identify all coverages available to the insured, or if the insurer violates industry claims handling regulations (discussed below), or otherwise unreasonably denies a claim or fails to pay benefits.
3. WAC Regulations Protect Insureds in the Claims Process
Washington Administrative Code (“WAC”) regulations impose strict requirements on insurers during the claims and settlement process. These claims handling regulations are codified at WAC 284-30. They contain “standards for prompt investigation of claims,” define specific “unfair settlement practices,” and address “insurer misrepresentation of policy provisions” and other insurer conduct. Violations of such regulations constitute “per se” violations of the Consumer Protection Act (“CPA”) and evidence of bad faith.
The regulations require prompt action by insurers and preclude foot-dragging. Insurers should generally respond to insurer communications within ten working days and complete claim investigations within 30 days:
· WAC 284-30-360(3) (requiring response to “communications from claimant” within ten working days for individual insurance policies or 15 working days for group policies).
· WAC 284-30-370 (“Every insurer must complete its investigation of a claim within thirty days after notification, unless the investigation cannot reasonably be completed within that time”).
· WAC 284-30-330 (2) (requiring insurers to acknowledge and act reasonably promptly upon communications with respect to claims).
· WAC 284-330(5) (requiring insurers to affirm or deny coverage of claims within a reasonable time after completed proof of loss documentation has been submitted).
Insurers are required to fully disclose all benefits and coverages applicable to a claim, and provide written explanation of the basis for any denial:
· WAC 284-30-350(1) (“No insurer shall fail to fully disclose to first party claimants all pertinent benefits, coverages or other provisions of an insurance policy under which a claim is presented”).
· WAC 284-30-330(13) (“Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement” is unfair and deceptive act).
The regulations also prohibit commonly employed unfair settlement practices, including low-ball settlement offers, refusing to pay claims without reasonable investigation, and other insurer misconduct. For example:
· WAC 284-330(4) (“Refusing to pay claims without a reasonable investigation”).
· WAC 284-30-330(7) (“Compelling a first party claimant to initiate or submit to litigation by offering less than the amounts ultimately recovered”).
· WAC 284-30-330(6) (“Not attempting in good faith to effectuate a prompt, fair and equitable settlement of claims in which liability has become clear”).
· WAC 284-30-350(5) (“No insurer shall request a first party claimant to sign a release that extends beyond the subject matter that gave rise to the claim payment”).
(See the Code for additional regulations that may be applicable to any specific claim.)
4. Treble Damages and Attorney’s Fees
Washington law affords substantial relief to insureds where their insurer unreasonably denies coverage or fails to pay benefits. The Insurance Fair Conduct Act, better known as “IFCA,” provides that an insured may be awarded up to three times its actual damages plus attorney’s fees. IFCA’s treble damages provision applies for the benefit of all first-party claimants, including both individuals and businesses. Only health plans are excluded.
IFCA provides a useful tool to obtain recovery of a covered loss when a claim is unreasonably denied. IFCA has been instrumental to resolving insurance claims, sometimes without litigation and most often without trial.
Exemplary damages and attorney’s fees also may be recovered under Washington’s Consumer Protection Act where an insurer violates WAC regulations (discussed above) or otherwise acts in bad faith.
Separate from IFCA and the CPA, attorney’s fees are also recoverable by an insured under common law where the insured is required to litigate to obtain coverage. In other words, if your insurer forces you to file suit to obtain coverage and you prevail, you should be entitled to have your legal fees paid by the insurer irrespective of whether the insurer’s actions were reasonable. If the insurer acted unreasonably, the insurer may also be liable under IFCA for three times your damages.
5. Duties of Insured
While the insurance regulations and IFCA address insurer conduct during the claims process, it is important to recognize that insurance policies generally have provisions imposing duties on the insured. These include notice, cooperation, and suit limitations clauses, among others, and insureds must also act in good faith.
Notice clauses may require the insured to provide notice of a loss immediately or as soon as practicable. It is important to follow notice provisions, although Washington courts have held in the context of occurrence-based policies that insurers cannot deny or reduce coverage for failing to meet notice requirements absent a showing of prejudice to the insurer. In other words, under an occurrence policy, an insurer cannot claim that late notice defeats or reduces coverage absent a showing of prejudice to the insurer. Notice provisions have been more strictly enforced under claims-made policies that require a claim to be made during the period in which the policy is effective.
Cooperation clauses require that the insured cooperate with the insurer during the claims process. Insureds should provide honest and timely information. A good practice is for insureds to also request that the insurer advise if any further information is needed. That should reinforce the insurer’s obligation to inform the insured of what further information may be needed to resolve coverage or adjust a claim and preclude the insurer from arguing that the claim was delayed by the insured’s failure to provide pertinent information.
Also keep in mind suit limitations clauses, which may require that any suit against the insurer be commenced within a set time-period. Suit limitations clauses are generally shorter than otherwise applicable statutes of limitations. They have been enforceable under Washington law, provided they do not run afoul of RCW 48.18.200, which precludes suit limitations clauses that for property, marine or transportation insurance provide less than one-year after the loss to commence suit or less than one year after the cause of action accrues for other types of insurance.
Finally, a few commonsense reminders during the claims process: Be courteous. It is a good practice, and if coverage is denied and suit is filed, your claim letters may be in front of the court or jury. Be forthright. Timely respond with correct information to an insurer’s request for information. When able, make reasonable efforts to mitigate damages.
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This article is of course non-exhaustive, and legal issues can vary widely among claims. A thorough understanding of the insurance policy and applicable law can be essential to obtaining the best results for an insurance claimant. Insureds and their business attorneys and independent brokers are encouraged to seek advice from an experienced insurance litigator.
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Paul Raskin is the Managing Attorney at Raskin Litigation, PLLC, a boutique Seattle area law office focused on business litigation, real estate litigation, and the representation of policyholders in insurance claims and insurance coverage, bad faith, and IFCA litigation. Paul can be reached at Paul@RaskinLitigation.com. This article is for informational purposes only; nothing within it should be construed as the provision of legal advice or the formation of an attorney-client relationship.