Today, in Isidoro Perez-Crisantos v. State Farm Fire & Casualty Company, the Washington Supreme Court held the Insurance Fair Conduct Act (IFCA) did not “create[] a new and independent private cause of action for violation” of  the Washington Administrative Code (WAC) “in the absence of any unreasonable denial of coverage or benefits.”

This case arose out of Perez-Crisantos’s claim for uninsured motorist (UIM) coverage following an auto accident. Perez-Crisantos’s insurer, State Farm, denied his claim on the grounds that he was seeking benefits for excessive chiropractic treatment and a shoulder surgery unrelated to the auto accident. Perez-Crisantos filed suit, alleging violations of IFCA, IFCA’s implementing regulations, and the Consumer Protection Act, as well as bad faith and negligence claims. Most claims were stayed while Perez-Crisantos’s UIM claim was arbitrated. The arbitrator found mostly in his favor, and ultimately Perez-Crisantos collected approximately $24,000 in UIM benefits.

When the stay was lifted, Perez-Crisantos amended his complaint to clarify he was alleging violation of WAC regulations relating to unfair settlement practices. Perez-Crisantos contended that State Farm required him to litigate in order to receive benefits to which he was entitled, in violation of regulations making it unfair or deceptive to “[c]ompel[] 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.”

On motions for summary judgment, the trial court ruled in favor of State Farm. Perez-Crisantos requested direct review, which the Washington Supreme Court granted. The dispute centered on the legislative intent of IFCA. RCW 48.30.015 provides:

  1. Any 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 in the superior court of this state to recover the actual damages sustained, together with the costs of the action, including reasonable attorneys’ fees and litigation costs, as set forth in subsection (3) of this section.
  2. The superior court may, after finding that an insurer has acted unreasonably in denying a claim for coverage or payment of benefits or has violated a rule in subsection (5) of this section, increase the total award of damages to an amount not to exceed three times the actual damages.
  3. The superior court shall, after a finding of unreasonable denial of a claim for coverage or payment of benefits, or after a finding of a violation of a rule in subsection (5) of this section, award reasonable attorneys’ fees and actual and statutory litigation costs, including expert witness fees, to the first party claimant of an insurance contract who is the prevailing party in such an action.

5. A violation of any of the following is a violation for the purposes of subsections (2) and (3) of this section:

(a) WAC 284-30-330, captioned “specific unfair claims settlement practices defined.”

As the Court explained, “given that the trier of fact must find that the insurer acted unreasonably under subsection (1), and that such a finding mandates attorney fees under subsection (3) and gives the trial court discretion to award treble damages under subsection (2), it is not clear what a finding of a regulatory violation accomplishes.”

Resolving a split among Washington federal courts, the Court held that the alleged regulatory violation at issue here was not independently actionable under IFCA. In doing so, the Supreme Court specifically disagreed with the Eastern District of Washington’s ruling in Langley v. Geico, Gen. Ins. Co., 89 F.Supp.3d 1083, 1085 (E.D. Wash. 2015).  Acknowledging IFCA was ambiguous, the court nevertheless concluded that the weight of the legislative history did not support reading IFCA to create an implied cause of action for regulatory violations.

Resolution of this split and the larger uncertainty surrounding IFCA actions is sure to be consequential for insurers. The Court’s holding will also result in a change to the pattern jury instructions for an IFCA claim.