Washington State Insurance Law Blog

Indemnitor’s Comparative Fault Held Not Pertinent to Reasonableness of Indemnitee's Settlement of Underlying Claims

noreply@blogger.com (Jason W. Anderson) — Wed, 16 Jul 2008 14:43:00 +0000

The Heights at Issaquah Ridge Owners Association v. Derus Wakefield I, LLC (Div. I, July 7, 2008).

A condominium owners association sued the condominium developer, Derus, alleging construction defects. Derus filed a third-party action for contractual indemnity against the general contractor, Sacotte. Derus’ insurer, Steadfast, acknowledged coverage under one of two policies. After the trial court entered summary judgment on liability against Derus, Derus settled with the association and assigned its rights to the association, which then negotiated a settlement with Sacotte. Derus and Sacotte each stipulated to separate judgments against them in the amount of $8,344,993.

Steadfast intervened at the reasonableness hearings and argued that the settlements were not reasonable. The trial court disagreed and entered the stipulated judgments. The association, as Derus’ assignee, then sued Steadfast to recover the amount of the stipulated judgment against Derus. Steadfast appealed the ruling that the Derus’ settlement with the association was reasonable.

On appeal, Steadfast argued that the trial court abused its discretion in not considering two of the six “Glover factors” that govern whether a settlement is reasonable: (1) the relative fault of the settling parties and (2) the interests of a party not released by the settlement (i.e., Steadfast). The court of appeals disagreed and affirmed.

Steadfast argued that relative fault should have been considered because Derus and Sacotte had equal culpability, yet each settled for the full amount of stipulated damages. The court of appeals held that relative fault was not pertinent to the reasonableness of Derus’ settlement with the association. The association had no claim against Sacotte, which was a party only because Derus sued for indemnity. The court stated, “Construction defect cases . . . implicate contractual liability, rather than tort liability. . . . [C]omparative fault has no role in construction defect cases which involve contractual obligations to indemnify.”

As to the second factor, the court of appeals held that Steadfast’s only interest with regard to the settlement was the possibility of bad faith, collusion, or fraud by the settling parties, which was one of the Glover factors properly considered by the trial court.

IFCA Notice Update (5/27/08 - 6/13/08)

noreply@blogger.com (Jason W. Anderson) — Wed, 18 Jun 2008 15:42:00 +0000

Click one of the links below to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA). The OIC received 28 notices from May 27, 2008, through June 13, 2008.

List sorted by date
List sorted by insurer name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

Anderson Obtains Reversal of OIC Order in Superior Court

noreply@blogger.com (Jason W. Anderson) — Mon, 09 Jun 2008 15:55:00 +0000

On June 6, 2008, Jason W. Anderson of Carney Badley Spellman, P.S., obtained reversal of an administrative order entered by the Hearings Unit of the Office of the Insurance Commissioner (OIC) against a long-term care and life insurance company.

In the course of an OIC financial examination of the insurer pursuant to chapter 48.03 RCW, an OIC actuary concluded that the insurer’s reserves were inadequate. The OIC required the insurer to increase its reserves, which reduced the insurer’s capital and surplus below the statutory minimum. The OIC required the insurer to cure this deficiency, as well as to file a risk-based capital (RBC) plan pursuant to chapter 48.05 RCW.

The insurer requested a hearing to contest the reserve adjustments and sought discovery of the OIC actuary’s work papers. The OIC refused to produce them, citing a privilege in RCW 48.02.065(6) that protects work papers and other materials “produced by, obtained by, or disclosed to the commissioner” from disclosure “unless cited by the commissioner in connection with an agency action.” The insurer unsuccessfully argued that this privilege was not meant to shield materials from an insurer in a contested hearing, that the OIC “cited” its actuary’s work papers in connection with an agency action, and that due process required disclosure. The OIC hearing officer ruled against the insurer and affirmed the reserve adjustments after a hearing on the merits.

The insurer appealed to King County Superior Court, and Judge Richard D. Eadie reversed the hearing officer’s order. The court held that the hearing officer’s ruling that the OIC was not required to produce its actuary’s work papers was an erroneous application of RCW 48.02.065(6), that OIC actuary work papers are “cited by the commissioner in connection with an agency action” when the OIC relies on them in a contested hearing, and that the insurer was denied due process. The court further held that the hearing officer’s order was not supported by substantial evidence because the OIC actuary’s conclusions were inadmissible. The court held that the actuary’s conclusions lacked adequate foundation because they could not be understood without reference to his work papers.

OIC Recieves Over 520 Insurance Fair Conduct Notices in One Year

noreply@blogger.com (Jason W. Anderson) — Thu, 29 May 2008 15:34:00 +0000

The Insurance Fair Conduct Act (IFCA) requires a first-party claimant intending to file suit under the Act to provide 20 days written notice to the insurer and the Office of the Insurance Commissioner (OIC). Although IFCA did not take effect until December 6, 2007, following voter approval, the OIC has been receiving and tracking IFCA notices since May 22, 2007, shortly after the legislature and governor approved the law.

From May 22, 2007, to May 23, 2008, the OIC recieved over 520 IFCA notices. It is unknown how many resulted in litigation. Click one of the links below to view the list maintained by the OIC.

May 22, 2007 - May 23, 2008
Sorted by Date
Sorted by Insurer Name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

IFCA Notice Update

noreply@blogger.com (Jason W. Anderson) — Mon, 12 May 2008 15:15:00 +0000

Click one of the links below to view a list of notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA).

April 23, 2008 - May 9, 2008
Sorted by Date
Sorted by Insurer Name

May 22, 2007 - May 9, 2008 (almost a year)
Sorted by Date
Sorted by Insurer Name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

IFCA Notice Update (3/31/08 - 4/22/08)

noreply@blogger.com (Jason W. Anderson) — Tue, 22 Apr 2008 19:23:00 +0000

Click one of the links below to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA). About 62 notices were received by the OIC from March 31, 2008, through April 22, 2008.

List sorted by date
List sorted by insurer name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

The Problem of an Excess Insurer’s Liability When the Primary Insurer Is Insolvent

noreply@blogger.com (Jason W. Anderson) — Thu, 17 Apr 2008 14:35:00 +0000

Polygon Northwest Co. v. American Nat’l Fire Ins. Co. (Div. I, April 7, 2008).

The homeowners association of a condominium development sued the builder, Polygon Northwest, for construction defects arising before 1996 and continuing through 2000. Polygon had primary and excess liability insurance with various carriers during the relevant policy periods. United Capitol Insurance Company, which issued $2 million of primary coverage for 1998-2000, became insolvent in 2000. Great American Insurance Company was the excess insurer for the years when United Capitol was the primary insurer. Assurance Company of America and Commercial Underwriters Insurance Company provided primary coverage in other years, and Assurance and Ohio Casualty Insurance Company provided excess coverage in those years.

Polygon settled with the homeowners association for $7.8 million -- $6,314,000 for damages and $1,486,000 for litigation costs. Each insurer except Great American participated in funding the settlement. Assurance and Ohio Casualty sought equitable contribution from Great American.

Great American argued that someone had to actually pay the full limits of United Capitol’s policies before Great American’s excess coverage became available. Otherwise, it argued, it would be forced to “drop down” and cover United Capitol’s obligations. The trial court ruled that Great American was required to contribute to the settlement, but allocated liability for the $2 million “gap” in coverage created by United Capitol’s insolvency equally among the three excess insurers.

The court of appeals upheld Great American’s obligation to contribute to the settlement, reasoning, “Nothing in Great American’s policies stated that Great American’s liability was contingent on the actual payment of the limits of its underlying insurance.” The court distinguished Rees v. Viking Insurance Co., 77 Wn. App. 716 (1995), where the excess insurer was not liable after the plaintiffs released the primary insurer for less than its policy limit but purported to agree that the plaintiffs could seek additional funds from the excess insurer. The court observed that, unlike the settlement in Rees, the Polygon settlement was “substantially greater” than the limits of United Capitol’s primary policies.

The court of appeals reversed the trial court’s equal allocation of the settlement obligations among the excess insurers. The court held that Great American would not be required to “drop down” to cover United Capitol’s obligations. Great American’s policy addressed the insolvency of a primary insurer by providing that the excess coverage would apply as if the primary coverage were “valid and collectible.” The court reasoned, "Washington law does not, in fact, force insurers to pay for losses that they have not contracted to insure." The court observed that the trial court's role was "not to distribute among the various excess insurers the 'gap' in coverage created by United Capitol's insolvency but, rather, was to define each insurer's liability for the covered loss according to the terms of its policy or policies."

Among other things, the court also held that attorney’s fees were not payable under a supplementary payments provision that covered “costs taxed against the insured” and that the Olympic Steamship rule for attorney’s fees did not extend to equitable contribution claims between insurers.

Two More Federal District Court Judges Hold IFCA Is Not Retroactive

noreply@blogger.com (Jason W. Anderson) — Mon, 07 Apr 2008 19:18:00 +0000

This blog previously reported on Magistrate Judge James P. Donohue’s decision in ESS Enterprises, LLC v. AMCO Insurance Co. (W.D. Wash. 2008) that the Insurance Fair Conduct Act (IFCA) does not apply to conduct predating the effective date of the Act, December 6, 2007. Two federal district court judges have recently followed suit.

1. Malbco Holdings, LLC v. AMCO Insurance Co. (E.D. Wash. 2008)

On March 11, 2008, Chief Judge Robert H. Whaley of the United States District Court for the Eastern District of Washington denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct occurring before the effective date of the Act.

In 2004, a hotel owner filed an insurance claim with two insurers for water damage to the hotel. The insurers denied the claims. In 2005, the hotel began to collapse from the water damage, which led the hotel owner to re-tender the claims in 2006. Both insurers again denied the claims in March and September 2007. The hotel owner filed suit in October 2007.

In January 2008, the hotel owner moved to amend its complaint to add claims under IFCA. The court ruled, “It is apparent from the language of the IFCA that the Legislature did not provide for retroactivity, it is not curative, and it is not remedial. The Washington Legislature has not expressed an intent to apply the IFCA retroactively, and indeed the statute is worded in present and future tenses.” The court noted that the property damage, insurance claims, and denials “all occurred well before the enactment of the IFCA,” and further that resubmitting claims after IFCA became effective does not constitute a new or continuing violation because this “would allow an end run around the Legislature’s intent.”

Update: The Malbco ruling has been selected for publication in F. Supp. 2d.

2. Aecon Buildings, Inc. v. Zurich North America (W.D. Wash. 2008)

On March 28, 2008, Judge Marsha Pechman of the United States District Court for the Western District of Washington similarly denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct that occurred before the effective date of the Act.

Aecon Buildings, Inc., a general contractor, settled an owner’s claims against Aecon and then tendered a request for indemnification to certain subcontractors’ insurers in 2006. Aecon filed suit against the insurers in April 2007.

In February 2008, Aecon moved to amend its complaint to add an IFCA claim. Aecon contended that IFCA is retroactive because it is “remedial.” The court ruled, “Although [IFCA] relates to remedies -- it provides for actual and treble damages, costs, and attorneys’ fees -- it also affects substantive rights by creating an entirely new right of action for first party insurance claimants unreasonably denied their claims.” The court also reasoned that IFCA cannot be applied retroactively because it provides for recovery of a penalty and “is couched in forward-looking language.”

The Malbco and Aecon rulings, like HSS Enterprises, are not binding on state courts in Washington. However, they represent a clear rejection of retroactivity arguments in federal court, and their reasoning is likely to be followed in state court.

IFCA Notice Update (3/11/08 - 3/28/08)

noreply@blogger.com (Jason W. Anderson) — Mon, 07 Apr 2008 14:20:00 +0000

Click one of the links below to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA). About 48 notices were received by the OIC from March 11, 2008, through March 28, 2008.

List sorted by date
List sorted by insurer name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

Looking Ahead: Insurance Law Cases in the Washington Supreme Court

noreply@blogger.com (Jason W. Anderson) — Tue, 01 Apr 2008 18:29:00 +0000

At least three cases involving insurance law issues are pending in the Washington Supreme Court:

1. St. Paul Fire & Marine Insurance Co. v. Onvia, Inc. The issue is whether an insured has a cause of action against its liability insurer for bad faith based on violation of claims handling regulations or the Consumer Protection Act even though a court has held that the insurer has no contractual duty to defend, settle, or indemnify the insured. The court will answer a certified question from the United States Court of Appeals for the Ninth Circuit. Oral arguments in this case were heard on February 28, 2008.

2. Mutual of Enumclaw Insurance Co. v. U.S.F. Insurance Co. The issue is whether insurers who settled with an insured on a liability claim and were assigned the insured’s rights may make a late tender of the claim to a nonsettling coinsurer and receive the benefit of the late tender rule to maintain an action for contribution against the nonsettling insurer. The court is reviewing a decision by the Washington State Court of Appeals, Division One. Oral arguments in this case were heard on March 20, 2008.

3. Cornhusker Casualty Insurance Co. v. Brooks Samples. The issue is whether notice of an insurance policy cancellation sent by certified mail satisfied the “mailed” requirement of former RCW 48.18.290 (1997) where the insured did not receive the notice. The court will answer a certified question from the United States Court of Appeals for the Ninth Circuit. The date for oral arguments in this case has not been set.

The Washington State Insurance Law Blog will report on the court’s decisions in these cases once they are filed.

IFCA Notice Update (2/11/08 - 3/10/08)

noreply@blogger.com (Jason W. Anderson) — Tue, 11 Mar 2008 20:02:00 +0000

Click on one of the links below to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA). About 93 notices were received by the OIC from February 11, 2008, through March 10, 2008.

List sorted by date
List sorted by insurer name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

Insurance Fair Conduct Act Held Not Retroactive

noreply@blogger.com (Jason W. Anderson) — Fri, 22 Feb 2008 18:59:00 +0000

HSS Enters. v. AMCO Ins. Co. (W.D. Wash. 2008)

On February 1, 2008, a United States Magistrate Judge held that the Insurance Fair Conduct Act (IFCA) does not apply retroactively.

The plaintiff submitted a claim to the defendant insurer after its building was damaged in a fire. The plaintiff filed suit in September 2006 alleging that the insurer had made only partial payment for the loss and failed to pay for the “vast majority” of the claimed loss. Washington voters approved the IFCA in November 2006, and it became effective on December 6, 2007. After providing the required notice to the Office of the Insurance Commissioner and the insurer, the plaintiff moved for leave to amend its complaint to add a claim for relief under the IFCA.

The plaintiff contended that the IFCA applies retroactively and, even if it does not, the plaintiff should be permitted to assert claims arising from the insurer’s post-December 6, 2007, conduct.

The court ruled that the IFCA does not apply retroactively. Applying a presumption of non-retroactivity, the court reasoned that the legislature “has not expressed an intent to apply [the IFCA] retroactively, and plaintiff offers no authority suggesting otherwise. Furthermore, the statute is couched in present and future tenses.” The court rejected the plaintiff’s argument that the IFCA is a “remedial” statute and therefore retroactive, stating, “The IFCA concerns more than ‘procedure or forms of remedies,’ and does more than create a ‘supplemental remedy for enforcement of a preexisting right.’” The court further concluded that the IFCA would not be retroactive even if it were remedial because the statute creates a new cause of action and imposes a penalty. The court stated, “The fact that plaintiff’s IFCA claim might arise out of the same factual scenario as his other claims is of no moment.”

The court ruled that the plaintiff could not allege claims based on the insurer’s conduct after the IFCA effective date. The court reasoned that such claims would necessarily be based on “pre-IFCA enactment conduct as grounds for a present -- and allegedly a continuing -- IFCA violation.” The court ruled, “Such an argument not only raises serious continuing tort and statute of limitations concerns, but it also invokes the same retroactivity position the Court has already rejected.”

This decision most likely will not be the last word on the retroactivity of the IFCA. The federal court decision is not binding on state courts in Washington. However, they are likely to reach similar conclusions for similar reasons.

House Passes Bill that Would Allow More to Sue for Wrongful Death

noreply@blogger.com (Jason W. Anderson) — Fri, 22 Feb 2008 18:55:00 +0000

Last week, the Washington State House of Representatives passed E3SHB 1873, a bill that would amend Washington's wrongful death and survival statutes. The most significant change would be to expand the class of persons who may recover in a wrongful death action.

Under present law, there are two tiers of potential beneficiaries of a wrongful death action. In the first tier are the decedent's spouse or domestic partner and any children. In the second tier are parents and siblings. Second tier beneficiaries may recover only if they are U.S. residents, they were substantially dependent on the decedent for financial support, and there are no first-tier beneficiaries. In addition, a parent may sue for the wrongful injury or death of a minor child if the parent regularly contributed to the child's financial support or an adult child if the parent was substantially dependent on the child for financial support.

E3SHB 1873 would expand the second tier beneficiaries to include the parents of an adult child not only if they were financially dependent upon the child but if they had "significant involvement in the adult child's life." Second tier beneficiaries would also include "an individual who is the sole beneficiary of the decedent's life insurance and has had significant involvement in the decedent's life." "Significant involvement" would be defined as "support of an emotional, psychological, of financial nature within the relationship at or reasonably near the time of death, or at or reasonably near the time of the incident causing death."

The bill has faced significant opposition from groups such as the Washington Defense Trial Lawyers, the Association of Washington Cities, the Association of Washington Counties, the Office of the Attorney General, the Washington State Medical Association, and the Washington Society of Healthcare. Nevertheless, several proposed amendments to the bill that would have narrowed the scope of the changes failed.

Next for E3SHB 1873 are hearings in the Senate. A similar bill passed in the House last year but failed in the Senate Judiciary Committee when too few committee members would sign the committee report. E3SHB 1873 has been referred instead to the Senate Government Operations and Elections Committee. Click here for the bill as it passed the House. Click here to view the history, bill reports, and other information.

Update: This bill failed after the Senate amended it significantly and the House declined to approve the amendments.

IFCA Notice Update (1/7/08 - 2/8/08)

noreply@blogger.com (Jason W. Anderson) — Mon, 11 Feb 2008 17:03:00 +0000

Click on one of the links below to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA). About 125 notices were received by the OIC from January 7, 2008, through February 8, 2008.

List sorted by date
List sorted by insurer name

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

“Actual Cash Value” of Unreplaced Property Does Not Include Sales Tax

noreply@blogger.com (Jason W. Anderson) — Wed, 30 Jan 2008 22:46:00 +0000

Holden v. Farmers Ins. Co. (Div. I, Jan. 22, 2008)

The court of appeals held that coverage in a homeowner’s policy for the “actual cash value” of a property loss indemnifies the insured against actual loss and thus does not cover sales tax unless the insured actually replaces the property, incurring the sales tax.

Laura Holden’s homeowner’s policy included property loss coverage based on “actual cash value” as well as coverage for replacement cost. The policy defined “actual cash value” as the “fair market value of the property at the time of the loss.”

Holden filed a claim under the actual cash value provision for property destroyed in a fire, but did not replace the property. Farmers paid the fair market value not including sales tax. When Holden requested inclusion of sales tax, Farmers responded that she could claim the replacement cost, including sales tax, if she submitted a receipt reflecting the cost of replacement. Holden sued Farmers.

The trial court ruled that Farmers’ definition of actual cash value was ambiguous because Farmers does pay sales tax under the actual cash value coverage provision if the insured replaces the property and the policy does not include separate replacement cost coverage. The court construed the policy against Farmers as the drafter and entered summary judgment for Holden.

The court of appeals reversed. The court held that because actual cash value coverage indemnifies the insured for the actual loss sustained, sales tax is covered only if incurred by the insured. The court held that Farmers’ payment of sales tax under the actual cash value coverage in some circumstances did not render the clause ambiguous but was “a consistent application of the principles of indemnification.”

IFCA Notice Update (12/13/07-1/7/08)

noreply@blogger.com (Jason W. Anderson) — Fri, 11 Jan 2008 15:53:00 +0000

Click here to view a list of the most recent notices filed with the Office of the Insurance Commissioner (OIC) pursuant to the Insurance Fair Conduct Act (IFCA).

The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

State Insurance Regulators Ask Insurers to Extend Deadlines Following Storm

noreply@blogger.com (Jason W. Anderson) — Thu, 20 Dec 2007 21:43:00 +0000

On December 3, 2007, a major storm caused flooding, mudslides, and other problems across Western Washington and Oregon. Insurance regulators in Washington and Oregon have responded with efforts to ease the burden on affected insurance consumers.

Yesterday, December 19, 2007, Washington Insurance Commissioner Mike Kreidler issued a notice asking that "all regulated entities issuing a contract of insurance in the affected areas voluntarily extend any time limit placed on an insured to perform any act or transmit information or funds to January 10, 2008." The "affected areas" include Grays Harbor, Lewis, Mason, Pacific, and Thurston counties, which were recently declared federal disaster areas by FEMA. Kreidler specifically requested that insurers "withdraw and reissue any notice or cancellation mailed one week prior to December 3, 2007 and not issue any new policy cancellations or non-renewals" in these counties.

Update: In response to requests for clarification from the industry, the OIC has narrowed its request to specific zip codes in the "affected areas." The following additional counties are included: Clallam, Jefferson, King, Kitsap, Skagit, Snohomish, and Wahkiakum.

In a press release by the Office of the Insurance Commissioner (OIC), Kreidler was quoted as saying, “I believe that this will help provide some small measure of comfort and peace of mind during the early recovery process, and help ensure that these winter storm victims do not lose insurance coverage during the time they need it most.” Kreidler cited concerns about "widespread disruption of mail, energy, transportation and basic communication services."

The OIC press release explains that "[t]he Insurance Commissioner's plea is a call for voluntary cooperation since he has no authority to order such relief." Oregon's insurance regulator, the Insurance Division of the Department of Consumer and Business Services, does not construe its authority so narrowly.

On December 7, 2007, the Insurance Division entered a mandatory emergency order that provides (among other things, and with certain exceptions), "As to any policy provision, notice, correspondence, or law that imposed a time limit upon an insured to perform any act or to transmit information or funds with respect to a contract of insurance, which act was to have been performed on or after December 3, 2007, the time limit shall be extended to January 3, 2008." The order prohibits insurers from canceling or not renewing policies until January 3, 2008, and from canceling or not renewing a policy solely because of a claim resulting form the storm. Insurers must withdraw and reissue any notices of cancellation issued or mailed the week preceding December 3, 2007.

The Oregon order applies to insurance contracts "issued, delivered, or covering a risk located in the areas within Lincoln, Tillamook, Clatsop, Columbia and Yamhill Counties that have been affected by the severe winter storm." The areas covered by the order are further narrowed by zip code.

Like Commissioner Kreidler, the Oregon Insurance Division cited concerns about disruption of electricity and mails. A press release by the Insurance Division quoted its acting administrator, Carl Lundberg, as stating, "The storm has disrupted the lives of many Oregonians, and, as a result, many of them nay not receive a cancellation notice or not be able to pay their insurance premiums on time. We want to ensure no one loses insurance coverage because of the storm."

Insurance Commissioner Receives 99 IFCA Notices

noreply@blogger.com (Jason W. Anderson) — Fri, 14 Dec 2007 17:31:00 +0000

Before filing suit to recover under the Insurance Fair Conduct Act (IFCA), the first-party claimant must give 20-days written notice to the insurance company. A copy of the notice must also be filed with the Office of the Insurance Commissioner (OIC).

Although the IFCA was enacted by the legislature in April 2007 and signed by Governor Gregoire in May 2007, it only recently became effective due to a citizen petition for referendum. Voters approved the law on November 6, 2007, and it became effective on December 6, 2007, under article 2 section 1 of the Washington State Constitution.

Nonetheless, the OIC has been receiving IFCA notices since May 2007, a total of 99 notices (including a few "second" notices) over the course of about seven months:

May............................4 notices
June...........................2 notices
July...........................10 notices
August........................22 notices
September...................17 notices
October......................10 notices
November...................13 notices
December 1 through 13....21 notices

Click here to view a list of the IFCA notices received by the OIC through December 13, 2007.

Watch for regular updates to be posted on this blog.

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

Mitigating the Impact of the Insurance Fair Conduct Act

noreply@blogger.com (Jason W. Anderson) — Wed, 05 Dec 2007 21:51:00 +0000

The Insurance Fair Conduct Act (Referendum 67) becomes effective December 6, 2007, and insurance companies are seeking ways to mitigate the impact. Obviously, diligent compliance with the claims settlement regulations in WAC 284-30 remains a priority. And since the stakes are higher if a denial of coverage or benefits is found to have been “unreasonable,” increased review of such decisions may be called for, particularly for claims involving large losses.

There are at least two less obvious ways to mitigate the impact in particular cases.

First, all claims filed under the Insurance Fair Conduct Act, which likely will include most bad faith claims, must be preceded by a 20-day notice of claim to the insurer and the insurance commissioner. (The Office of the Insurance Commissioner has created a "cover sheet" for the notice.) An action may then be brought only if the insurer “fails to resolve the basis for the action” within 20 days. When received, such notices should be forwarded to senior claims personnel. The notices provide an opportunity that did not exist before to avoid or mitigate the impact of bad faith litigation. Depending on the insurer’s response, the litigation might be avoided, the claimant might need to prove that the insurer’s response did not resolve the basis for the action, or the potential bases for alleging bad faith might be narrowed.

Second, the Insurance Fraud Reporting Immunity Act, chapter 48.50 RCW provides immunity from liability for bad faith or other extra-contractual damages if the insurer relies on a “written opinion” from an “authorized agency” that the claim is under investigation or that a crime has been charged. If an insurer suspects that a claim might be fraudulent, the insurer should report the claimant to an “authorized agency” (e.g., law enforcement, the attorney general, or the insurance commissioner) and obtain a “written opinion” from such agency that the claimant is being investigated or has been charged with a crime. The Insurance Fraud Immunity Act also provides immunity from liability in any civil or criminal action arising from the reporting of information to an authorized agency under the fraud reporting provisions of the insurance code.

Insurers are advised to consult legal counsel about these and other ways to mitigate the potential impact of the Insurance Fair Conduct Act in general and in particular cases.

Q & A on Referendum 67

noreply@blogger.com (Jason W. Anderson) — Mon, 29 Oct 2007 20:28:00 +0000

With Election Day about a week away, if you live in Washington State or are involved in Washington’s insurance industry, you have probably seen and heard a lot about Referendum 67 but still have questions. Here are answers to some basic questions about R-67, including a few answers you may not have seen elsewhere.

How would R-67 change Washington law if approved?

The most fundamental change to existing law would be to permit recovery of up to three times the amount of actual damages in certain actions by policyholders against their insurers. Although tripling the damages would be discretionary for the court, the text of R-67 offers no guidance on when to do so.

An award of litigation costs, attorney’s fees, and expert witness fees to the prevailing plaintiff would be mandatory under R-67. Under existing law, litigation costs and attorney's fees are recoverable under the Washington Consumer Protection Act, along with triple damages up to $10,000.

What would be the standard for liability under R-67?

A violation of R-67 would occur if an insurer were to “unreasonably” deny a claim for coverage or payment of benefits or violate any of several regulations pertaining to claims handling. Most states require a finding of intentional, willful, or malicious conduct by the insurer to impose punitive damages.

Would premium rates increase?

Premium rates depend on many factors, but one respected actuarial firm has predicted that premium rates would rise if R-67 were approved. View the report here.

Does Washington law prohibit insurers from considering amounts paid to satisfy bad faith judgments in their rate filings?

Washington has no statute or regulation excluding extra-contractual payments from rate-filing calculations.

Who would be allowed to sue under R-67?

R-67 would allow suit by a “first party claimant,” which is defined as “an individual, corporation, association, partnership, or other legal entity asserting a right to payment as a covered person under an insurance policy or insurance contract arising out of the occurrence of the contingency or loss covered by such a policy or contract.” It is anticipated that claims would be asserted with respect to most types of insurance coverage.

Would claims under R-67 be assignable?

In general, a cause of action that allows recovery of a penalty (such as triple damages) is not assignable. However, this issue will be litigated if R-67 is approved.

Who would be subject to suit under R-67?

Every “insurer” transacting insurance in Washington State might be sued under R-67, with the exception of a “health plan offered by a health carrier.” A “health carrier” includes disability insurers, health care service contractors, and HMOs. A “health plan” is a “policy, contract, or agreement offered by a health carrier to provide, arrange, reimburse, or pay for health care services,” however, there are several exceptions including long-term care insurance, Medicare supplemental insurance, disability insurance, worker’s compensation insurance, employer-sponsored self-funded health plans, dental-only, and vision-only coverage.

When would R-67 become effective if approved?

If approved by a majority vote of the voters, the new law would become effective on the 30th day after the election, December 6, 2007.

Would R-67 apply retroactively to claims predating the effective date of the Act?

Washington statutes are presumed to apply prospectively only. So-called “remedial” legislation may apply retroactively, but not if it imposes a penalty. In 1975, the Washington Supreme Court held that the Washington Consumer Protection Act, which permits an award of treble damages subject to a cap, does not apply retroactively. However, this issue will be litigated if R-67 is approved.

Insurer Defending under Reservation of Rights Acted in Bad Faith by Sending Subpoena to Arbitrator for Coverage-Related Information

noreply@blogger.com (Jason W. Anderson) — Thu, 18 Oct 2007 15:26:00 +0000

Mutual of Enumclaw Ins. Co. v. Dan Paulson Construction, Inc. (Wash. S. Ct. 2007)

The Martinellis filed an arbitration claim against Dan Paulson Construction, Inc. (DPCI), alleging construction defects. DPCI’s insurer, Mutual of Enumclaw (MOE), agreed to defend under a reservation of rights. Before arbitration commenced, MOE filed a declaratory judgment action to determine coverage. Suspecting that DPCI would seek a lump sum award in arbitration, depriving MOE of the ability to determine the portions of the damage award, if any, that were for covered claims, MOE sent the arbitrator a subpoena duces tecum and planned to depose him with written questions after the hearing. MOE also sent the arbitrator a cover letter that was not copied to the parties. DPCI, the Martinellis, and the arbitrator demanded that MOE withdraw the subpoena.

During the arbitration hearing, DPCI and the Martinellis settled for a covenant judgment -- a stipulated arbitration award and judgment of $1.3 million, subject to a covenant not to execute. DPCI assigned its coverage and bad faith claims against MOE to the Martinellis, who counterclaimed in MOE’s declaratory judgment action that MOE acted in bad faith by sending the subpoena and ex parte cover letter to the arbitrator. The trial court agreed and entered summary judgment for the Martinellis, ordering MOE to provide coverage by estoppel of the stipulated judgment plus attorney’s fees, costs, and interest.

The court of appeals reversed, holding that MOE’s actions did not amount to bad faith because MOE faced “unreasonable options”: risking a bad faith claim by litigating coverage issues before arbitration or being forced to pay the entire award or settlement regardless of whether it was based on covered claims. On MOE’s discovery requests to the arbitrator, the court held: “This tactic, while somewhat clumsy, did not amount to bad faith.”

The Washington Supreme Court unanimously reversed the court of appeals and held that MOE demonstrated greater concern for its own interests than for its insured’s financial risk. This constitutes bad faith under Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715 P.2d 1133 (1986). The supreme court disagreed with the notion that MOE faced “unreasonable options.” The court stated: “An insurer defending under a reservation of rights is not automatically liable to pay the entire settlement amount. … Absent a successful bad faith claim and the resulting coverage by estoppel, the insured ‘still has the burden of proving how much of the [settlement] should be allocated to covered claims.’” Slip op. at 16, quoting Thomas V. Harris, Washington Insurance Law § 17.8, at 17-19 (2d ed. 2006).

The remedy of coverage by estoppel is applied in Washington when an insurer (1) provides no defense and the failure to defend is in bad faith or (2) provides a defense but places its own interests above the insured’s interests while doing so. The supreme court reaffirmed that the amount of a covenant judgment is the presumptive measure of an insured’s harm caused by the insurer’s bad faith if the covenant judgment is reasonable. The court rejected the insurer’s argument that intervening to participate in the reasonableness hearing would have been futile because the trial court’s authority to overturn the arbitrator’s finding of reasonableness was limited by the statutory scheme governing arbitration awards.

The supreme court also concluded that MOE failed to rebut the presumption that its actions, including the filing of the declaratory judgment action, harmed DPCI. The court concluded that MOE’s conduct caused uncertainty and increased risk for DPCI’s defense, interfered with its preparation for the arbitration hearing, interjected coverage issues into the arbitration, and might have prejudiced the arbitrator. While acknowledging that rebutting the presumption of harm is “almost impossible,” the court held MOE to this requirement because, “[a]s between the insured and the insurer, it is the insurer that controls whether it acts in good faith or bad. Therefore, it is the insurer that appropriately bears the burden of proof with respect to the consequences of that conduct.” Slip op. at 19. In addition, while the filing of a declaratory judgment action is not in and of itself bad faith, an insurer cannot use a declaratory judgment action to interfere with the defense of the underlying case.

Follow the Leader? Lead Caravan Driver Can Be Liable for Other Drivers’ Negligence

noreply@blogger.com (Jason W. Anderson) — Tue, 25 Sep 2007 19:39:00 +0000

Yong Tao v. Heng Bin Li (Div. 3, Sept. 18, 2007)

The court of appeals held last week that one driver can be held liable for another driver’s negligence.

The plaintiff was a member of a dance group that made a performance tour of the Northwest in 2001. The group’s director organized the schedule and arranged for the lodging and transportation. For one leg of the tour, the director rented three vans for travel from Spokane to Portland. He drove the lead van and instructed two other drivers to follow in caravan 200 meters apart.

The driver of the second van could not read English, had no map, and had never driven to Portland. He followed the lead driver as instructed. The caravan sped through a severe winter storm on an icy highway, possibly at speeds up to 75 miles per hour. The plaintiff was ejected from the second van when it skidded and flipped over. He sued the drivers of the lead and second van. The trial court granted summary judgment to the lead driver, and the plaintiff appealed.

The court of appeals held that the lead driver owed a duty to the plaintiff and that a jury could find that the second driver was the lead driver’s agent, resulting in vicarious liability, or that the two acted in concert, resulting in joint liability. The case was remanded for trial.

This decision will be cited in future cases involving drivers who caravan or who act illegally together. For example, the court likened the situation to drag racing, which can result in joint liability of the drivers.

Court Revises Voter’s Pamphlet Statement on Referendum 67

noreply@blogger.com (Jason W. Anderson) — Tue, 04 Sep 2007 23:11:00 +0000

The second and likely final round of pre-election court hearings on Referendum 67 was held Friday, August 31.

Having previously challenged the language of the attorney general’s ballot title and measure summary, the Washington State Trial Lawyers Association (WSTLA) challenged the explanatory statement written by the attorney general for the voter’s pamphlet in Thurston County Superior Court. The purpose of the explanatory statement is to describe the law as it presently exists and the effect of the proposed measure if approved. Dana R. Bieber, who filed the Petition for Referendum on the Insurance Fair Conduct Act, which is the subject of Referendum 67, intervened to defend the statement as written. She contended that, if the statement was to be revised, it should mention all of the remedies available to a policyholder under existing law.

Although largely unmoved by WSTLA’s challenge, Judge Ann Hirsch made two noteworthy additions to the explanatory statement. First, the court added a sentence regarding the recoverability of attorney’s fees in insurance coverage disputes under existing law. Second, the court added a reference to the claims-handling regulations that, if violated, can trigger automatic liability under the proposed law. The court rejected WSTLA’s requests to delete a reference to the availability of remedies in addition to actual damages under existing law, to revise the discussion of existing law regarding punitive damages, and to diminish or delete discussion of the exemption of most health insurance from the proposed law. Click here to see the explanatory statement as revised by the court.

WSTLA was represented by Philip A. Talmadge of Talmadge Law Group PLLC. The secretary of state was represented by deputy solicitor general James K. Pharris. The referendum petitioner was represented by Timothy J. Parker and Jason W. Anderson of Carney Badley Spellman PS.

Superior Court Invalidates Insurance Commissioner’s “Technical Assistance Advisory”

noreply@blogger.com (Jason W. Anderson) — Thu, 30 Aug 2007 22:07:00 +0000

Insurers, agents, and health carriers doing business in Washington commonly complain that the Office of the Insurance Commissioner (OIC) overstepped its statutory authority in imposing requirements on regulated entities. Occasionally, they challenge the OIC and prevail.

On August 27, 2007, a Spokane County Superior Court judge ruled that the OIC exceeded its authority in issuing a “Technical Assistance Advisory” (TAA) The court ruled the OIC’s advisory was inconsistent with the applicable statute. The OIC often issues TAAs without public notice or comment and without satisfying the rulemaking requirements of the Administrative Procedure Act. Although permitted by statute, TAAs are supposed to be advisory only and not enforceable.

The Associated Industries of the Inland Northwest, the Association of Washington Businesses, and other associations negotiate and contract with health carriers on behalf of their small-employer members. A recent TAA issued by the OIC interfered with these association plans and prompted the court challenge.

A statute requires health carriers to set premium rates for small employers based on “community rating,” which means that a group’s rates are determined largely by the claim experience of all groups. RCW 48.44.023(3). Another statute exempts small employers purchasing health plans through associations from this requirement. RCW 48.44.024(2). The OIC issued a TAA indicating that association rates must be based on the claim experience of the entire association membership and that rating based on the experience of an individual employer is prohibited. The associations felt that this would have the effect of increasing their members’ premiums.

The court ruled that the OIC attempted to impose community rating upon association members despite the exemption in RCW 48.44.024(2). In addition to being contrary to the statute, the court noted that the TAA amounted to a “major policy shift” for the associations, which had negotiated rates based on individual employer medical experience for over 12 years. The court ruled that only the legislature could change the statute and, if needed, the legislature would do so.

The OIC formally withdrew the TAA following the court's ruling signaling that it does not intend to appeal.

Dentist Plays Practical Joke, Prevails in Bad Faith Action for Failure to Defend

noreply@blogger.com (Jason W. Anderson) — Tue, 31 Jul 2007 20:19:00 +0000

Woo v. Fireman’s Fund (Wash. S. Ct. 2007)

Dentist Robert Woo played a practical joke while performing a dental procedure on an employee while she was under general anesthesia. The procedure involved the insertion of temporary bridges called “flippers.” Dr. Woo inserted flippers shaped like boar tusks, took photographs, and then concluding the procedure by inserting normal flippers. Upon viewing the photographs, the employee quit her job and sued alleging various torts.

Dr. Woo tendered the defense to his insurer, Fireman’s Fund, under professional liability, employment practices liability, and general liability coverages. Relying in part on a formal legal opinion of counsel, Fireman’s Fund refused to defend. Dr. Woo financed his own defense and settled with the plaintiff shortly before trial for $250,000. Dr. Woo then sued Fireman’s Fund alleging breach of the duty to defend, bad faith, and violation of the Consumer Protection Act. The trial court ruled that the duty to defend was breached, and the jury awarded $750,000 in damages, including damages for Dr. Woo’s emotional distress.

The court of appeals reversed and held there was no duty to defend. 128 Wn. App. 95, 114 P.3d 681 (2005). The Washington Supreme Court accepted review, reversed the court of appeals, and affirmed the judgment entered by the trial court. Four justices dissented.

The supreme court summarized the scope of the duty to defend, emphasizing its breadth and noting that the insurer must “give the insured the benefit of the doubt.” The court observed, “If the insurer is uncertain of its duty to defend, it may defend under a reservation of rights and seek a declaratory judgment that it had no duty to defend.”

The court held that Fireman’s Fund had a duty to defend under the professional liability coverage because Dr. Woo’s conduct conceivably fell within the broad definitions of “dental services” and “practice of dentistry” in the policy and a statute referenced in the policy. The court relied partly on the fact that the procedure involved an employee, which is related to the “ownership, maintenance, or operation of an office for the practice of dentistry,” and partly on the fact that insertion of the boar tusk flippers was “integrated into and inseparable from the overall procedure.” The court held that the legal opinion relied on by Fireman’s Fund did not justify refusing to defend under the professional liability coverage because the opinion was equivocal and acknowledged that the application of case law cited therein was questionable.

The court held there was also a duty to defend under the general liability coverages for bodily injury and personal injury. The court held that, although intentional conduct was excluded under the policy, and Dr. Woo’s conduct was likely intentional, it was conceivable that he did not intend that conduct to result in the alleged injuries.

In contrast, there was no duty to defend under the employment practices liability coverage because the emotional distress alleged by Dr. Woo’s former employee resulted from the practical joke, not from a wrongful discharge.

In summary, the court held that Fireman’s Fund breached its duty to defend and affirmed the jury’s verdict, even though it included damages for Dr. Woo's emotional distress based solely on his own testimony. This permitted Dr. Woo to recover a judgment that included the $750,000 verdict, the $250,000 Dr. Woo paid to settle his former employee’s claim, and Dr. Woo’s attorney’s fees and costs in the trial court. The supreme court also awarded Dr. Woo his attorney's fees and costs for all stages of the appeal.

If Referendum 67 becomes law, it will be asserted as a basis for recovering triple damages in cases similar to the Woo case. A million dollars or more of Dr. Woo's judgment might have been tripled if Referendum 67 were applicable to his case.