Know Your Rights Under Washington’s Insurance Fair Conduct Act

Washington State’s Insurance Fair Conduct Act (a/k/a “IFCA”) provides important legal protections for insurance policyholders. IFCA was passed by the legislature and then ratified by the voters in 2007. IFCA was enacted based on lengthy testimony in legislative hearings from industry experts and consumer advocates about how insurers abused their policyholders despite existing laws.

IFCA prohibits insurers from unreasonably denying coverage or payment of benefits under an insurance policy. There are some important differences between denying “coverage” versus denying “benefits.”

An insurer denies “coverage” when it refuses to pay a claim on the basis the claim isn’t covered under the policy or is excluded from the policy. Denying coverage is pretty straightforward. For example, if your homeowner’s insurer refuses to pay for damage to your home in a fire because you were renting the house on airbnb and they say the policy excludes property used for business purposes, that’s a denial of coverage. Or if your disability insurance company refuses to pay benefits because they claim you don’t meet the definition of disability under the policy, that’s also a denial of coverage.

“Benefits” can be more complicated. The benefits you get under an insurance policy are broader than just whether the loss is covered. For example, you get the benefit of a full and fair investigation of your claim at the insurer’s expense. That means an insurer can violate IFCA even where they agree the loss is covered but refuse to pay all the benefits owed under the policy, for instance, because they refused to investigate all the evidence and thus miss important parts of the claim.

IFCA gives policyholders important remedies where an insurer violates IFCA.

First, the policyholder gets paid for their losses resulting from the insurer’s violation. This typically entails the amount of the claim the insurer refused to cover, or the amount of the benefits the insurer refused to pay.

Second, the policyholder gets paid their attorneys’ fees and litigation costs. That’s important because paying lawyers and expert witnesses can get expensive. If you have to go to court to recover $100,000 in policy benefits but litigation costs you $90,000 in lawyers’ and experts’ fees, the $10,000 you’re left with is a hollow victory. IFCA fixes this problem by requiring the insurer to pay these costs, allowing the policyholder to keep the insurance payment they should have received without having to go to court.

Third, the policyholder can recover triple their damages if the court decides the insurer’s conduct was so bad as to warrant extra relief. This often depends on whether the insurer violated Washington State’s insurance regulations requiring fair claims handling, or could depend on the insurer’s violation of industry standards, or general unfairness.

However, IFCA has two big caveats.

First, IFCA doesn’t apply to health insurance carriers. That’s unfortunate because health insurance is under-regulated and prone to abuse, and health insurance policyholders are uniquely vulnerable to insurer misconduct because the rules are so complex and the stakes often very high. Health insurers are, however, subject to the patient bill of rights.

Second, the policyholder must send the insurance company a notice of the company’s IFCA violations before filing suit, and must send a copy to Washington’s Office of the Insurance Commissioner.

Third, IFCA does not apply to most employer-sponsored insurance, which is often exclusively governed by a federal law called ERISA.

IFCA violations can be complex, so it’s important to consult a lawyer to be sure you know your rights.