About half of Washington’s 42.6 million land acres are forested. Nearly 37% are on privately owned land. Many urban areas are heavily forested or near forests. For example, Seward Park in eastern Seattle contains the 120-acre Magnificent Forest. An hour away is the beautiful Mt. Baker-Snoqualmie National Forest. While Washington has not seen wildfires as destructive as in my home state, California, it seems inevitable.
With great forests come great fires, and what follows are insurance claims for total losses, partial losses, smoke damage, or simply the loss of use of a structure or business due to evacuation orders. The twentieth century began with the Yacolt Burn, then the largest recorded forest fire in Washington history, destroying 238,920 acres – more than 370 square miles – and killing 38 people in Clark, Cowlitz, and Skamania counties. In 2023, the Oregon Fire and the Gray Fire burned over 600 structures, while 39 were lost in the 2016 Hart Fire and 195 in the 2015 Okanogan Complex Fire. Despite the relatively small burn areas of these 2023 wildfires, the average wildfire over the past ten years has burned over 100 acres.
Last week, I obtained my Washington law license. To get the Washington license, I had to study and become familiar with Washington law. I studied some for the purpose of passing the test only, knowing that I would likely never handle a criminal case, for example, but I also took on some “extra credit” to study Washington’s insurance law. I learned that unlike California and many other states, Washington law imposes statutory penalties on insurance companies for violating the state’s fair claims handling practices rules. That penalty is severe – the judge can multiply the jury’s damages award by three. The jury’s award itself can include many damages, like attorney fees, so the treble effect can be significant.
In California, there is no “red line” that an insurer crosses and automatically gets penalized. Although the state has a set of unfair claims practices, courts forbid using violations thereof as a basis for finding liability. Instead, violations of California’s unfair claims handling rules can be used as evidence that a jury considers in deciding if an insurer acted unreasonably. If the jury finds unreasonable conduct, it has the discretion to award additional damages beyond policy benefits like attorney fees and emotional distress, but in no set amount. Further, no penalty multiplies the awarded damages like in Washington. Will I find that my Washington clients get better claims services because the laws protect them more? I am eager to see whether these strong laws result in better claim handling in Washington.
Washington’s bad faith law can be broken down into two categories: statutory and common law. Statutory law is written by traditional lawmakers, like a legislature. Statutory law is often supplemented by regulations drafted by the enforcing executive agency, which are referred to as regulations. Common law, on the other hand, means the rules originate from judicial opinions and are borne from more basic civil litigation principles. A major difference between common law and statutory bad faith is typically a clearer standard for when bad faith occurs and additional penalties. Washington law has both, and the penalties are quite steep. Comparatively, my home state, California, has only common law bad faith. I am eager to see if my Washington clients received better claim service than my California clients.
Washington statutory law reiterates some principles from common law. For example, RCW 48.30.015(1) states, “[a]ny first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits by an insurer may bring an action … to recover the actual damages sustained, together with the costs of the action, including reasonable attorneys’ fees and litigation costs[.]” In addition, the Washington Insurance Fair Claims Act, or “IFCA,” allows a judge to penalize the insurer by trebling – multiplying by 3 – the damages awarded by the jury. This is allowed whenever an insurer has violated a specific list of “unfair methods of competition and unfair or deceptive acts or practices of the insurer in the business of insurance,” which includes:
(1) Misrepresenting pertinent facts or insurance policy provisions.
(2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.
(3) Failing to adopt and implement reasonable standards for the prompt investigation of claims arising under insurance policies.
(4) Refusing to pay claims without conducting a reasonable investigation.
(5) Failing to affirm or deny coverage of claims within a reasonable time after fully completed proof of loss documentation has been submitted.
(6) Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. In particular, this includes an obligation to promptly pay property damage claims to innocent third parties in clear liability situations. If two or more insurers share liability, they should arrange to make appropriate payment, leaving to themselves the burden of apportioning liability.
(7) Compelling a first party claimant to initiate or submit to litigation, arbitration, or appraisal to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions or proceedings.
(8) Attempting to settle a claim for less than the amount to which a reasonable person would have believed he or she was entitled by reference to written or printed advertising material accompanying or made part of an application.
(9) Making a claim payment to a first party claimant or beneficiary not accompanied by a statement setting forth the coverage under which the payment is made.
(10) Asserting to a first party claimant a policy of appealing arbitration awards in favor of insureds or first party claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration.
(11) Delaying the investigation or payment of claims by requiring a first party claimant or his or her physician to submit a preliminary claim report and then requiring subsequent submissions which contain substantially the same information.
(12) Failing to promptly settle claims, where liability has become reasonably clear, under one portion of the insurance policy coverage in order to influence settlements under other portions of the insurance policy coverage.
(13) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
(14) Unfairly discriminating against claimants because they are represented by a public adjuster.
(15) Failing to expeditiously honor drafts given in settlement of claims. A failure to honor a draft within three working days after notice of receipt by the payor bank will constitute a violation of this provision. Dishonor of a draft for valid reasons related to the settlement of the claim will not constitute a violation of this provision.
(16) Failing to adopt and implement reasonable standards for the processing and payment of claims after the obligation to pay has been established. Except as to those instances where the time for payment is governed by statute or rule or is set forth in an applicable contract, procedures which are not designed to deliver payment, whether by check, draft, electronic funds transfer, prepaid card, or other method of electronic payment to the payee in payment of a settled claim within fifteen business days after receipt by the insurer or its attorney of properly executed releases or other settlement documents are not acceptable. Where the insurer is obligated to furnish an appropriate release or settlement document to a claimant, it must do so within twenty working days after a settlement has been reached.
(17) Delaying appraisals or adding to their cost under insurance policy appraisal provisions through the use of appraisers from outside of the loss area. The use of appraisers from outside the loss area is appropriate only where the unique nature of the loss or a lack of competent local appraisers make the use of out-of-area appraisers necessary.
(18) Failing to make a good faith effort to settle a claim before exercising a contract right to an appraisal.
(19) Negotiating or settling a claim directly with any claimant known to be represented by an attorney without the attorney’s knowledge and consent. This does not prohibit routine inquiries to a first party claimant to identify the claimant or to obtain details concerning the claim.
Washington common law claims “for bad faith are analyzed by applying the same principles as any other tort: duty, breach of that duty, and damages proximately caused by any breach of duty.” Smith v. Safeco Ins. Co., 78 P.3d 1274, 1277 (Wash. 2003). To succeed on a common law bad faith claim, “an insured is required to show the breach was unreasonable, frivolous, or unfounded.” Id.; Heide v. State Farm Mutual Automobile Ins. Co., 261 F. Supp. 3d 1104, 1109 (W.D. Wash. 2017). Whether an insurance company’s behavior constituted bad faith is a question of fact, typically reserved to the jury. Id. Evidence that an insurer acted in a manner proscribed by the IFCA is evidence of common law bad faith. See, e.g., Coventry Associates v. American States Ins. Co., 961 P.2d 933, 936-938 (Wash. 1998).
With plenty of power behind policyholders treated unfairly, Washington should foster an environment of prompt, fair, and thorough claim adjustment. Whether that actually occurs in practice is another story. I look forward to helping the policyholders of Washington.
