Bryce Wilcox - Voter's Approval of Referendum 67 Should Make Insurance Companies More Responsive to Valid Claims

Prior to Washington voters passing Referendum 67, Washington law prohibited insurance companies from engaging in unfair methods of competition or unfair and deceptive acts or practices. While the law sounds formidable, there was not a significant downside to insurance companies who broke it.

Under the law as it existed prior to Referendum 67, a business whose claim was unreasonably denied could file a lawsuit against its insurance company, alleging violations of the insurance code, violations of Washington’s Consumer Protection Act, and breach of contract, claiming injuries caused by its insurer’s wrongful conduct. Depending on the facts of the claim, a business claimant could recover money damages for the loss shown to have been caused by the insurance company’s behavior, which typically was the amount of the coverage it purchased, plus attorney fees and litigation costs in some instances. If the claimant prevailed on its Consumer Protection Act claim, it could also seek treble damages up to maximum of $10,000. Of note, if coverage was not disputed, but there was a disagreement over the amount of the claim, the claimant could not recover the attorney fees expended to litigate the question, even if it ultimately prevailed. By approving Referendum 67, Washington voters agreed with the legislature that this was insufficient to deter insurance companies from unreasonably addressing valid claims.

Referendum 67 authorizes a first-party claimant to bring a lawsuit to recover damages, attorney fees and litigation costs against an insurance company that unreasonably denies a claim for coverage, refuses to pay benefits, or violates specified unfair claims handling practices. First-party claimants are individuals or entities asserting a right to payment as a covered person under an insurance policy. This is in contrast to a “third-party” claimant, who is one that asserts a claim against an insured person or entity.

Under the new law, a successful first-party claimant may recover the actual damages it sustains as a result of its insurance company’s unreasonable conduct, together with reasonable attorney fees and litigation costs, as determined by the court. Significantly, the court may also increase the total award of damages to an amount not exceeding three times the actual damages if it finds that the insurance company acted unreasonably in denying or paying a claim or violated certain insurance claims rules. This exposure to unlimited treble damages should cause insurance companies doing business in Washington to more closely examine claims before denying them and to treat the various rules and regulations governing their conduct more seriously. In order to take advantage of the new protections, a business asserting that its insurer wrongfully denied a claim must provide written notice to its insurer and to the Insurance Commissioner’s office at least 20 days before filing a lawsuit.

Another significant change is that Referendum 67 covers the unreasonable refusal to pay benefits. Consequently, it now looks as if a claimant can seek damages, attorney fees, and treble damages if coverage is granted, but a dispute arises concerning the amount of its claim. Under pre-existing law, a successful claimant in this instance would have only received the amount of its claim, without additional damages or attorney fees.

The risk to an insurance company that fails to follow the rules in Washington is much greater after the voters approved Referendum 67. The additional enforcement mechanisms under the new law should provide greater incentive for insurance companies to fairly and thoroughly examine all aspects of a claim before coverage is denied or payments are refused. While the insurance industry attempted to characterize Referendum 67 as a measure that would only benefit “trial lawyers,” the real beneficiaries of the new law are individuals and companies whose first-party insurance claims are processed and resolved in a more fair and efficient manner.

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