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Washington’s Insurance Fair Conduct Act (IFCA) allows insureds to sue their insurers for an unreasonable denial of coverage or benefits, and recover triple damages if the insurer acts unreasonably or violates certain regulations. On February 2, 2017, the Washington Supreme Court ruled in Perez-Crisantos v. State Farm Fire & Cas. Co. that violation of IFCA regulations alone is not actionable as an independent cause of action.

The insurer denied a first-party underinsured motorist (UIM) claim on the grounds that the insured sought benefits for excessive chiropractic treatment and a surgery that was unrelated to the injuries sustained in the auto accident with the underinsured driver. Subsequently, a UIM arbitrator disallowed some of the chiropractic treatment, but found that the surgery was related to the accident and awarded damages to the insured.

In his suit against the insurer, the insured argued that he was forced to litigate in order to receive UIM benefits that were due to him and that the insurer improperly encouraged employees to deny claims or settle for unreasonably low amounts. The insurer countered that the case involved a reasonable disagreement about the value of the claim and that a delay in payment of UIM benefits until after arbitration was not a denial under the statute.

Washington’s IFCA provides that, “after finding that an insurer has acted unreasonably in denying a claim for coverage or payment of benefits or has violated a rule,” a court may award treble damages and shall award reasonable attorneys’ fees and actual and statutory litigation costs, including expert witness fees (RCW 48.30.015(2), (3)). Thus, the insured moved for summary judgment claiming the insurer violated a prohibition on making a first party claimant litigate by offering substantially less than the amounts ultimately recovered.

The trial court granted the insurer’s motion for summary judgment based on its finding that there was no evidence the insurer acted unreasonably. Further, the court ruled that disparity between an offer and an arbitration award alone does not establish a statutory violation. In reviewing the trial court’s dismissal of the case with prejudice, the Washington Supreme Court noted that local federal courts are split on the issue of whether first party insureds can state an independent cause of action under IFCA premised solely on a regulatory violation and recognized that the IFCA is ambiguous.

After reviewing decisions on both sides of the issue and extrinsic evidence of legislative intent, the Washington Supreme Court ruled that regulatory violations are not independently actionable. The Court explained that regulatory violations are relevant to the award of attorneys’ fees and damages associated with a violation, but allowing an independent cause of action based on a regulatory violation would allow recovery of damages even when there has been no unreasonable denial of coverage or benefits.

In a partial dissent, the majority was criticized for taking the opportunity to interpret the IFCA and leaving many questions unanswered. Other Washington courts have struggled with the interpretation of the IFCA, prompting one judge to describe the relationship between the statute’s subsections as “vexing.” Insurers may wish to consult coverage counsel if questions about statutory claims or claim handling arise in a particular jurisdiction.