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.

Getting What You Pay For With Your Insurance Premiums

People frustrated dealing with their insurance company often wonder what they’ve been buying when they paid premiums for all those years. Insurance premiums buy you a whole host of benefits beyond just the possibility the insurer might someday pay you for a covered loss. Insurance premiums buy you the promise of peace of mind and fair treatment.

Even if the insurer thinks your claim might not be covered, or even if you yourself aren’t sure if you have a claim, the insurer can’t just throw you under the bus. The insurance policy is a contract that entitles the policyholder to non-coverage benefits such as a full and fair investigation, peace of mind, or the promise of fair treatment by the insurer.

In other words, besides just coverage, your premiums buy you the insurer’s promise to:

  • Fully, fairly and promptly investigate, evaluate, and adjust claims (or possible claims) at the insurer’s expense (not your own);
  • Explain all your potential coverages and benefits under the policy to help you identify potential claims;
  • Search for evidence to support your claim and assist you with your claim – not sit on their hands and make you prove your right to coverage;
  • Not deny claims based on speculation, a hunch, or biased information;
  • Keep an open mind and not pre-decide the outcome of the claim;
  • Tell the truth about the facts or policy provisions;
  • Comply with applicable Washington State claims-handling regulations;
  • Refrain from treating you like an adversary or opponent;
  • Treat your interests with equal regard as the company’s own interests; and
  • Apply the insurance policy provisions reasonably and fairly.

Even when the insurer accepts coverage, policyholders suffer harm if the insurer unreasonably denies them these benefits. For example, when an insurer fails to adequately investigate a policyholder’s claim, the policyholder must either perform their own investigation to determine if coverage should have been provided or take no action at all. In either situation, the policyholder does not receive the full benefit they paid for under their insurance contract. Or, where the insurer pays or offers to pay only a paltry amount that is far less than what you claimed, ignores the facts (as known or, in some cases, as would have been known had the insurer adequately investigated the claim), and would not compensate the you for the loss at issue, the benefits promised in the policy are effectively denied.

When the insurer denies benefits, the policyholder does not get what they paid for, faces delays, suffers emotional stress has to conduct and pay for the investigation themselves, and has to pay lawyers and experts. Under these circumstances, the policyholder has recourse under Washington’s Insurance Fair Conduct Act and Consumer Protection Act.

Know Your Rights – Long Term Care Insurance

Many people have long term care insurance, especially when they get older, because the cost of prolonged individual care due to an injury or illness can be significant.  For that reason, Long Term Care insurance is often part of people’s estate plan.

Long Term Care insurance can be subject to problems because the premiums get paid for years and years before coverage is needed, and, once it is needed, the policyholder is potentially to infirm to proactively protect their rights and make sure the insurer follows the policy.

Fortunately, Washington State’s insurance regulations give policyholders specific rights under Long Term Care insurance.

Long Term Care insurance policies must clearly explain the eligibility criteria and triggers for benefits, and advise the policyholder what circumstances give rise to a claim for benefits under the policy.  This includes specifying what medical findings a doctor must make to trigger coverage.  Further, eligibility requirements cannot be overly restrictive and cannot require an insured be precluded from performing more than three “Activities of Daily Living” (e.g., bathing and dressing).  Importantly, the Long Term Care policy must provide that the insured cannot perform an Activity of Daily living if the insured requires another person’s significant assistance.

Similarly, Long Term Care policies cannot limit benefits to unreasonable time periods or dollar amounts.  And, if the Long Term Care insurance policy replaces prior coverage, the insurer cannot apply an exclusion for pre-existing conditions.

Washington State law also limits what insurers can exclude from Long Term Care policies.  Long Term Care policies can only exclude coverage for things like acts of war, criminal acts, chemical dependency, etc.

Additionally, insurers cannot cancel Long Term Care policies unless they obtain for the policyholder equivalent coverage with another insurer.

Lastly, Long Term Care insurance must provide a grace period for the insured to make up missed premium payments.  This right is particularly significant because the beneficiaries of Long Term Care insurance are often elderly and rely on their children or others to handle their financial affairs and pay premiums.

Can the Insurance Company Retroactively Deny Your Claim On A New Basis After You File A Lawsuit?

Let’s say you make an insurance claim, and the insurance company denies the claim for reason A.  You think they’re wrong, so you take them to court and argue reason A is invalid and the company should have paid your claim.  In response, the insurance company admits reason A didn’t apply but now argues your claim should have been denied for reason B.  Can they do that?

Like most insurance law questions, the answer is “it depends.”

An insurer can waive or give up a basis for denying a claim if it does so knowingly and voluntarily.  For instance, if the adjuster tells the policyholder “I know the policy says you have to give us all the repair estimates by Tuesday, but don’t worry about it,” the insurer probably can’t deny your claim if you give them the estimates after Tuesday.

On the other hand, if the insurer doesn’t know about a basis for denying your claim despite a diligent investigation, the insurer probably hasn’t waived its right to assert that basis as a reason for denying your claim.  For instance, if a boat insurance policy provides the boat will stay within Puget Sound and the insurer only learns the boat was damaged in the open ocean after the fact, despite diligently investigating, the insurer may not have waived its right to deny the claim because the boat left Puget Sound.

Similarly, the insurer’s failure to deny coverage on a specific basis may bar the insurer from asserting that basis retroactively if the insured relies on the insurer’s failure to deny the claim on that basis.  In the boat insurance example above, if the insurer knew that the boat was being sailed outside Puget Sound in violation of the insurance policy, but continued to accept the insured’s premiums anyway, the insurer may not be able to deny coverage later if the boat is damaged.  Or, if the insurer denies coverage for an erroneous reason, and the insured pays an insurance expert to investigate the claim and fight the insurance company in court, the insurer may not be able to switch its reason for denying coverage and assert a new reason for denying coverage in court.

Similarly, for insurance polices issued through an employer that are subject to ERISA, courts will often find that the insurer or plan administrator must list all its reasons for denying a claim up front.  This is because federal regulations require full and fair review of ERISA claims, and specifically require the claim denial notice provide a detailed explanation of the reasons the claim was denied.  If the insurer or administrator hides a reason for denying benefits, they often lose the right to rely on that reason in a lawsuit.

Do I Have To Cooperate With My Insurer After A Loss?

Imagine your house catches fire and you make a claim for coverage under your homeowner’s insurance policy.  After a few weeks, the insurer denies the claim.  They don’t dispute the fire happened.  But they say they don’t have to cover the damage because you didn’t cooperate with their investigation.  They claim you should have sent them information about the loss and allowed them access to the property.

Can they do that?  The short answer is yes – after a loss, you have a duty to cooperate with the insurance company.  But this duty has limits.

Insureds, like insurers, have a general duty of good faith and fair dealing under Washington law that requires the insured to work cooperatively with the insurer.  This duty is made explicit in virtually every insurance policy through provisions specifying what actions the insured must take following a loss.

Typically, the duty to cooperate with the insurer after a loss requires:

  • Promptly notifying the insurer of the loss;
  • Taking steps to prevent ongoing damage (e.g., turning off the water to stop flooding from a burst pipe);
  • Documenting the loss (e.g., collecting photos or repair estimates);
  • Allowing the insurer access to the damaged property;
  • Providing the insurer information about the loss.

This general duty to cooperate is important.  The insurer can deny claims if the insured fails to cooperate as required under the policy and Washington law.  It’s therefore critical to cooperate with the insurer and to document that you’ve cooperated by, for instance, memorializing phone calls with the insurer and keeping copies of all the information you send them.

However, it’s also important to know your rights: the duty to cooperate has limits.  The insurer can’t force you to do things that are unreasonable or onerous.  The insurer still has the responsibility to fully and fairly investigate your claims at the insurer’s expense; they can’t make the insured do all the work.  And, critically, even if you fail to cooperate, the failure must be so egregious that it prevents the insurer from adequately investigating the loss, or otherwise materially prejudices the insurer’s interests.  In other words, the insurer can’t deny your claim for technical failures to cooperate.

In short, following a loss, it’s important to document your cooperation with the insurer’s investigation but also to be mindful of your rights.