October 2014 Bar Bulletin
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October 2014 Bar Bulletin

Seven Years after the Insurance Fair Conduct Act

By Isaac Ruiz


The Insurance Fair Conduct Act (IFCA) is popularly known for authorizing awards of attorney fees and enhanced damages in favor of prevailing claimants. It is easily the last decade's most significant development in Washington insurance law. The statute was enacted by the Legislature, signed by the governor and approved in a voter referendum in 2007.1 It took effect December 6 of that year.2

IFCA authorizes an action by any first-party claimant to an insurance policy who is unreasonably denied a claim for coverage or payment of benefits by an insurer.3 A claimant who prevails on an IFCA claim recovers the actual damage sustained plus the "costs of the action," which include reasonable attorney fees and litigation costs.4

The trial court may also increase the total damages award to an amount not to exceed three times the actual damages after finding that the insurance company acted unreasonably in denying a claim for coverage or payment of benefits or violated one of several enumerated sections of claims-handling regulations found in the Washington Administrative Code.5

In its first seven years of existence, IFCA spawned a significant body of case law, a volume of the Gonzaga Law Review6 and a treatise written by yours truly.7 I just finished a project to compile IFCA's legislative history,8 including - for the first time - commissioning transcripts of the legislative hearings that led to the statute's passage.

One day, perhaps soon, the Washington Supreme Court will deliver its first opinion definitively interpreting IFCA. I can't think of a better time to revisit IFCA's origin or to survey the major legal issues that have arisen surrounding the statute.

In 2007, proponents of IFCA saw the need for a more comprehensive set of remedies for insurer misconduct.9 One problem involved the absence of a universal attorney fee right for prevailing claimants. Insurance claimants who prevailed on a breach-of-contract claim sometimes faced arguments that their contract claim wasn't the right kind of contract claim to warrant an award of attorney fees.10

The Washington Supreme Court never clearly held that judges should award attorney fees to an insured who prevailed on a bad-faith claim.11 Proponents believed that more comprehensive remedies, with the possibility of enhanced damages, would "put some necessary incentives and balancing into the law, and frankly put - for insurers to treat insureds fairly and also put value back into your policy...."12

Opponents felt that existing remedies were adequate, that the statute would lead to an explosion of lawsuits, and that Washington consumers ultimately would pay the price in the form of higher premiums.13 "[T]he real premium that's going to be paid, and the real downside to this legislation, is the increased premium that's going to be paid by the 4.5 million drivers who have first party insurance...."14

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