6/11/2013. The State of Bad Faith Part I: Washington State. Introduction

The State of Bad Faith

Part I: Washington State

Bob Meyers

Eliot Harris

Introduction

Roadmap

 Overview of WA insurance

bad faith law

 Recent developments

 Mitigating risks: claim

h

dli

handling

 Defending bad faith cases

 Questions

Why care?

 Materially ↑ exposure

 Expensive to address

 Avoidable

Overview of WA Bad Faith Law

Key Authorities

Washington Administrative

Code (“WAC”)

Common law

C

P t

ti

A t

WAC / Policy

Common Law

Consumer Protection Act

(“CPA”)

Insurance Fair Conduct Act

(“IFCA”)

Interrelated

CPA

IFCA

Overview of WA Bad Faith Law

Common Law

 “Good faith” = duty to consider

insured’s interests equally

 Evidence of bad faith

 Violation of WAC

 Breach of insurance policy

 Breach + “unreasonable,

frivolous, or unfounded” =

actionable CL bad faith

 Damages and remedies

 Presumption of harm?

 Tort damages

 Coverage by estoppel?

 Reasonable attorney fees not

recoverable

Overview of WA Bad Faith Law

Consumer Protection Act

 Prohibits “unfair or deceptive

acts or practices” in trade or

commerce

 Prima facie case:

 Unfair or deceptive act

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 Unfair or deceptive act

 In trade or commerce

 Impacts public interest

 Proximately caused

 Injury to business or property

 Remedies

 Reasonable attorney fees

 Treble damages (up to $25k)

 Unreasonable denial

 Unreasonable WAC violation

 Bad faith

Insurance Fair Conduct Act

 No major binding interpretive authorities  What is actionable?

 Most: Unreasonable denial required  WAC violation actionable?  Who is a first party claimant?

 A “first-party claimant” who has

been “unreasonably denied a claim for coverage or payment of benefits” may bring an action to recover actual damages, attorney fees, and costs.

 Court “may” award treble damages

f bl d i l WAC

 Who is a first-party claimant?  Insureds with liability insurance?  Creditors? Subrogees? Assignees?  What is a “denial of pymt of benefits”?

 Lowball offer?

 Must WAC violation be unreasonable?  Must demonstrate actual damages  Remedies

 Reasonable attorney fees  Treble damages (uncapped)

for unreasonable denial or a WAC violation.

 Court “shall” award reasonable

attorney fees and costs for unreasonable denial or a WAC violation.

 Claimant may only bring an action if

it has given 20 days’ notice and the insurer has not resolved the basis for the action.

Overview of WA Bad Faith Law

Example

 Insured rear ended by an uninsured motorist who was 100% at fault  Insured’s alleged damages:

 $85k in medical expenses  Emotional distress, general

What causes of action are

potentially viable?

A. Common law bad faith B. CPA

C. IFCA D. A and B Emotional distress, general

damages

 $65k in lost wages (disputed)  $10k in P.D.

 Insured demanded $100k UIM limit  Insurer sent a check for $60k  Insured sued

E. All of the above

What remedies are potentially

available in the suit?

A. Reasonable attorney fees B. Treble damages C. Coverage by estoppel D. A and B

E. All of the above

Overview of WA Bad Faith Law

Discovery

 Presumption that 1st-party insurer may not assert atty-client privilege or work product protection in a bad faith suit

 First-party insurance

 Prevents insurers from obstructing discovery

 Presumption is rebuttable  Not engaged in “quasi-fiduciary”

tasks

 Counseling insurer re: “its own potential liability”

 Rebut  in camera review, redaction  Unresolved issues:

 Quasi-fiduciary vs. counseling  Third-party insurance?  Federal court?

Overview of WA Bad Faith Law

Summary

 Substantial body of law

 Interrelated

 The courts provide insureds

with wide latitude in

discovery

 Harsh remedies

 The courts often apply the

law and remedies liberally

Mitigating Risk: Claim-Handling Tips

Avoid WA bad faith law?

 Consider choice-of-law issues early  Insured or claim outside of WA?  Which state has “most significant

relationship” to the claim handling?  Develop contacts with other state

 Send letters to insured at non-WASend letters to insured at non WA addresses

 Send letters to insured from non-WA addresses

 Ask for communications to be sent to you at a non-WA address  Position yourself to argue that WA

does not have “most significant relationship” to claim handling, and that WA law does not apply

Mitigating Risk: Claim-Handling Tips

Follow the WAC militantly



Key WAC provisions

Acknowledge claim within 10

working days



Respond to communications

within 10 working days

Complete investigation within

30 days “unless the

investigation cannot

reasonably be completed

within that time”

Hire counsel to help

Assume that you have no

attorney-client privilege



Precautions



Segregate communications



Label communications

Insurer should send

claim-related communications



WA insureds seek to disqualify

insurer counsel



Might enhance choice of law

argument

Mitigating Risk: Claim-Handling Tips

Reservation of rights

 Content

 Prompt, specific, and clear

 Intro in layman’s terms

 Defending subject to RoR

S lit th fil

 Split the file

 Not “required”

 Evidence of bad faith?

 Requesting information

 Consider effect of a

coverage DJ on the

underlying litigation

 Timely supplement

Mitigating Risk: Claim-Handling Tips

IFCA Notice



Cure alleged defect?



Might avoid litigation



Might set up MSJ



Preemptive suit?



Preemptive suit?



Consider bad-faith

implications



Choose (non-WA?)

forum

Defending a Bad Faith Suit

Remove to federal court?

 Most insurers remove

 Read the assigned judge’s bad faith opinions

Escape Washington?

 E.g., where are witnesses re: coverage and bad-faith issues?  “Public-interest” factors

 E.g., not burdening local jurors with non-local disputes  Consider filing parallel suit in the

other jurisdiction

Defending a Bad Faith Suit

Discovery



Anticipate early request for

claim file and atty-client docs



Prepare privilege log

Move for protective order

Show that attorney gave legal

advice



Consider early discovery re:

damages



Damages = Achilles’ heel

Possibly rebut presumption of

harm

Defending a Bad Faith Suit

Dispositive motions

Insured’s motion

Look at proximate cause and damage issues

If violation is incontrovertible Consider “owning” and

“h i i ” “humanizing” Angle for issue of fact re:

reasonableness Insurer’s motion

Damages = Achilles’ heel Possibly mitigate insured’s

heightened expectations Consider “big-picture”

 Washington is a tough jurisdiction  There are ways to help mitigate risk

both before and during litigation  If you have any specific questions:

 [email protected]  [email protected] Ch k I L Bl  Check Insurance Law Blog:

SedgwickInsuranceLaw.com  Twitter: @SedgwickLLP