Insureds’ rights to coverage and the good-faith handling of their insurance claims was front and center in the recent referendum concerning the Washington Insurance Fair Conduct Act (R-67).1 As passionate arguments on both sides made clear during this debate, insurance — because of its ubiquity and importance to our society — occupies a unique place in state law.
It is one of the few industries where state law carves out a unique set of rights for parties. As the Act shows, these rights are constantly evolving. An understanding of these rights is important to any lawyer’s practice; whether you are working on a deal or defending a lawsuit, your client’s rights and obligations under their insurance policies are at issue.
A rights paradigm might seem a surprising way to consider the business relationship between insurers and policyholders, because an insurance relationship is based on a contract — a type of relationship that is generally unique to the contracting parties who freely devise their own particular bargained-for rules. In most contractual relationships, we have decided, as a matter of policy, that freedom to contract is in each party’s best interest and the market will efficiently allocate scarce resources. But the stakes are simply too high when it comes to insurance to allow the parties such unfettered freedom.
Many policyholder rights are codified in RCW title 48 and section 284 of the Washington Administrative Code. WAC section 284-30 specifically describes the trade practices that insurance companies are required to follow and defines unfair or deceptive methods of competition and acts and practices in the conduct of the business of insurance.
Some of the general rights would be applicable to any contract where parties are required to act in good faith. For example, WAC 284-30-350 requires insurers to obtain the details of “all pertinent benefits, coverages or other provisions of an insurance policy or insurance contract under which a claim is presented” and prevents concealment of such information.
Other protected rights may be more esoteric only because they are so specific. For example, WAC 284-30-380 describes the standards for “prompt, fair and equitable settlements applicable to all insurers” and prescribes specific time limits and negotiation tactics and strategies to which an insurance company must adhere. These include a prohibition on insurers from “negotiat[ing] for settlement of a claim directly with a claimant who is neither an attorney nor represented by an attorney until the claimant’s rights may be affected by a statute of limitations or a policy or contract time limit.”
Still other codified rights may be more obscure and answer concerns that may be raised by specific policyholders facing particular losses. For example, WACs 284-30-390 through 391 answer specific questions about automobile insurance, such as what a policyholder may expect from her insurer if her vehicle is repairable (WAC 284-30-3902) or whether a policyholder may get his vehicle repaired at a shop of his choice (WAC 284-30-3902).
While an insured may not have the right to choose defense counsel, an insured has the right to certain obligations from defense counsel hired by the insurance company. In the context of an insurance company that accepts the defense of the insured subject to a reservation of rights, there are heightened obligations on defense counsel.2 An insurer also has certain obligations to settle claims on behalf of its insured.3
The Insurance Fair Conduct Act buttresses insureds’ rights in Washington. Under RCW § 48.30.015, a “first party claimant”4 who is “unreasonably denied a claim for coverage or payment of benefits by his insurer” may bring an action in state court to recover his actual damages. This is commensurate with an insured’s right under common law.
“After finding that the insurer has acted unreasonably in denying a claim for coverage or payment of benefits” or has violated certain WAC provisions (WAC 284-30-330; 284-30-350; 284-30-360; 284-30-370 and 284-30-380), the court may increase an insured’s damages to an amount not to exceed three times actual damages and award reasonable attorneys fees and actual and statutory litigation costs.5 In one of the first known decisions interpreting the Act, U.S. District Court Magistrate Judge James P. Donohue has held that the Act is not to be retroactively applied and refused to allow plaintiff the right to amend its complaint to state a cause of action under the Act.6
Despite the importance of these rights, they are not often understood or respected. Although the relationship between an insurer and policyholder remains a contractual one, it remains critically important for lawyers to understand the varied rights that the state has established to protect insureds.
Angela M. Niemann is a shareholder at the firm of Heller Ehrman LLP. Her practice focuses on commercial litigation and the representation of policyholders in insurance coverage counseling and disputes. Niemann is co-chair of Heller Ehrman’s Litigation Department. Andrew Kamins is an associate at Heller Ehrman. His practice includes commercial litigation and insurance coverage litigation and counseling.
1 Now codified as RCW § 48.30.015.
2 Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381 (1986).
3 See Truck Ins. Exch. v. Century Indem. Co., 76 Wn. App. 527 (1995).
4 “First party claimant” means anyone asserting a right to payment as a covered person under an insurance policy. RCW § 48.30.015(x).
5 RCW § 48.30.015(x). An insured’s right to an award of costs and attorneys’ fees was first recognized by the Washington Supreme Court in Olympic Steam-ship Co. v. Centennial Ins. Co., 117 Wn.2d 37 (1991).
6 HSS Enterprises, LLC v. AMCO Ins. Co., Case No. C06-1485 (W.D. Wash. Feb. 1, 2008).
Go Back