In 2007, Washington voters approved the Insurance Fair Conduct Act (“IFCA”). IFCA gives people recourse if their insurance company unreasonably refuses to pay their insurance claim. Recourse under IFCA includes important relief that consumers couldn’t previously get, including punitive damages up to three times the amount of their loss and attorneys’ fees. This was considered a big deal.
Insurers, naturally, have urged courts to read IFCA narrowly. Like any new statute, judges applying it in the first instance have to consider how the language approved by the voters applies to the facts of particular cases. So the first few batches of rulings on a new law like IFCA often have a big impact on how that law applies in the real world.
One way insurers have tried to limit IFCA’s reach is by arguing it doesn’t apply to a dispute about how much the insurance company pays on an insurance claim. The language approved by the voters states that IFCA applies to an insurance policyholder who is:
“unreasonably denied a claim for coverage or payment of benefits by an insurer[.]”
So if the company denies the claim and refuses to pay anything, IFCA obviously applies. What about where the insurer accepts the claim and then pays less than the value of the loss?
This happens frequently. For example, a homeowner has a house fire. They get a contractor’s bid to repair the home. It will cost $100,000. They make a claim to their homeowners’ insurance company. The insurance company tells them the loss is covered, but the company will only pay $50,000. Does IFCA apply?
“No”, according many insurers who have taken this issue to court. These companies’ creative lawyers have reasoned that paying less than the value of the claim isn’t the same as “denying a claim” or refusing “payment of benefits.” “After all,” the company says, “we didn’t deny coverage, and we did pay some benefits.”
A recent decision from the Washington federal court clarifies that this isn’t what the voters intended when they passed IFCA.
In the recent decision Kyu-Tae Jin v. GEICO Advantage Ins. Co., No. 2:22-cv-1714, (W.D. Wash. Nov. 2, 2023), a consumer sued their insurance company after the insurer failed to pay all of the Uninsured Motorist benefits they alleged were owed under their insurance policy.
The policyholder asked the insurer to pay the entire amount of his policy limits, which were $100,000. The insurance company offered to pay $2,000. The policyholder, as you might expect, sued for violation of IFCA, arguing the decision was unreasonable.
The insurance company asked the federal court to throw out the case before trial. The company’s argument boiled down to: “even if our decision wasn’t reasonable, we didn’t deny coverage, and we didn’t refuse to pay benefits–the policyholder just thinks we should have paid more.”
The federal court disagreed. It emphasized that paying any amount at all can’t immunize an insurer from an IFCA claim. The question for IFCA depends on whether the amount the company paid in benefits was “reasonable based on the information it had.”
So, the court reasoned, if the insurance company’s offer to pay $2,000 in response to a claim for $100,000 was unreasonable under the circumstances, the company would violate IFCA. Under the facts of the particular case, the court ruled a jury had to decide that question.
This interpretation would seem to make sense. It’s hard to imagine that the voters who approved IFCA in 2007 intended that an insurance company could get itself off the hook by paying $1 on a $1 million claim.
This decision helps provide some valuable clarity regarding IFCA’s scope.
Seattle Insurance and ERISA Blog 