Overview of IFCA’s Legislative History

By Isaac Ruiz, Keller Rohrback L.L.P.

Click here to read the historical source material.

Introduction of Bills

At the time of passage in 2007, IFCA was known as Engrossed Substitute Senate Bill 5726. That bill originated in the Senate Committee on Consumer Protection and Housing. At the same time as Senate Bill 5726 was introduced, however, the House Committee on Insurance, Financial Services, and Consumer Protection was considering a companion bill, House Bill 1491. Eventually, it was the Senate bill that carried the day.

Senate Bill 5726 received its first reading in committee on January 29, 2007. The substantively identical House Bill 1491 was first read in committee on January 22, 2007.

The Senate bill, as originally introduced, provided in part:

(1) Any insured or beneficiary to a policy of insurance who is unreasonably or negligently denied a claim for coverage or payment of 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.

The bill also provided that the superior court was required to award the claimant reasonable attorney fees and costs, and had discretion to award treble damages, “after a finding that an insurer has acted unreasonably or negligently in denying a claim for coverage or payment of benefits or has violated the Washington Administrative Code, increase the total award of damages to an amount not to exceed three times the actual damages.”

Substitute Bills

The Senate Committee on Consumer Protection and Housing held a hearing and took testimony on the proposal on February 8, 2007. See February 8, 2007 Senate Committee Hearing, SB 5726. On February 15, 2007, the Senate committee approved an amendment to limit a right of action to first party claimants. See February 15, 2007 Senate Committee Hearing, SB 5726.

Substitute Senate Bill 5726 was introduced on March 13, 2007. Gone was the reference to a “beneficiary to a policy of insurance,” which was replaced by “first party claimant.” The bill now read in part:

(1) Any insured or first party claimant to a policy of insurance who is unreasonably or negligently 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.

The attorney fees and treble damages provisions remained as before.

Meanwhile, House Committee on Insurance, Financial Services, and Consumer Protection held hearings on February 1, 2007, and February 27, 2007. See February 1, 2007 Committee Hearing, HB 1491; February 27, 2007 Committee Hearing, HB 1491. On February 27, the House committee adopted a Substitute House Bill. The Substitute House Bill read, in relevant part:

(1) Any first party claimant to a policy of insurance who is unreasonably or negligently 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.

Unlike the Substitute Senate Bill, the Substitute House Bill contained no reference to “any insured.” As with the Substitute Senate Bill, the attorney fees and treble damages provisions remained in intact.

Both the Substitute Senate Bill and the Substitute House Bill were reported out of their respective committees with “do pass” recommendations.

The Senate Bill Report summarized the bill as follows:

Insurers may not unreasonably or negligently deny insurance coverage for payment of benefits. Insureds or beneficiaries under an insurance policy may sue insurers for unreasonable or negligent denial of coverage or payment of benefits.

The court must award the following damages to insureds or beneficiaries upon a finding that the insurer unreasonably or negligently denied a claim or benefits or upon a finding that the insured violated the Washington Administrative Code: (1) actual damages sustained; (2) reasonable attorney’s fees; and (3) actual and statutory litigation costs, including expert witness fees.

The court may also increase the total award of damages to an amount that does not exceed three times the actual damages suffered by the insured or beneficiary.

[Senate Bill Report, SB 5726 at 2.]

The Senate Bill Report also summarized the effect of the changes in the substitute bill:

EFFECT OF CHANGES MADE BY RECOMMENDED SUBSTITUTE AS PASSED COMMITTEE (Consumer Protection & Housing): Only insureds and first party claimants may bring a cause of action against an insurer for unreasonable or negligent denial of coverage.

It is clarified that a violation of the Washington Administrative Code is not sufficient on its own to justify an award of treble damages; rather, the violation must also be negligent or unreasonable.

[Id.]

The House Bill Report described matters differently. It stated, in part:

An insurer may not unreasonably or negligently deny a claim for coverage or payment of benefits to any first party claimant.

Any first party claimant who is unreasonably or negligently denied a claim for coverage or payment of benefits by an insurer may bring an action in the superior court to recover the actual damages sustained, together with the costs of the action, including reasonable attorneys’ fees and litigation costs.

If the insurer has acted unreasonably or negligently in denying a claim for coverage or payment of benefits or has violated Title 284 of the Washington Administrative Code, the superior court must award reasonable attorneys’ fees and actual and statutory litigation costs, including expert witness fees, to the first party claimant.

If the insurer has acted unreasonably or negligently in denying a claim or has violated Title 284 of the Washington Administrative Code, the superior court may increase the total award of damages to an amount not to exceed three times the actual damages.

[House Bill Report, HB 1491 at 2-3.]

Comparing the substitute bill language to the original, the House Bill Report stated:

The definition section in the original bill is removed. A definition of “first party claimant” is added and used throughout the substitute bill. References to the Washington Administrative Code are narrowed to Title 284 WAC.

[Id. at 3.]

That was the end of the line for House Bill 1491, which never went to the full House of Representatives for a vote.

Amendments to Substitute Senate Bill

As for Substitute Senate Bill 5726, a series of proposed amendments followed in the full Senate.

  • Senator Weinstein proposed a successful amendment making it explicitly unlawful to delay an insurance claim. See 5726-S AMS WEIN S2651.1 at 2.
  • Moments thereafter, Senators Berkey and Weinstein successfully proposed to amend the bill by striking references to delays and by inserting the words, “as a covered person” after “payment.” See 5726-S AMS BERK S2868.1 at 1.
  • An amendment by Senator Honeyford that would have stricken the treble damages provision was rejected. See 5726-S AMS HONE S2676.1 at 1.
  • Senator Brandland proposed an unsuccessful amendment that would have made attorney fee awards discretionary; would have denied treble damages and attorney fees for WAC violations that did not amount to unreasonable denials of coverage; and would have imposed a “reasonableness” limitation on litigation costs to prevailing plaintiffs. See 5726-S AMS BRAN S2867.1 at 1.

Engrossed Substitute Senate Bill Passed by Senate

As amended, the Engrossed Substitute Senate Bill 5726 read as follows, in relevant part:

(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 rules under the Washington Administrative Code adopted by the commissioner under RCW 48.30.010(2), 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 rules under the Washington Administrative Code adopted by the commissioner under RCW 48.30.010(2), 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.

(4) The remedies set forth in this chapter are separate from the remedies prescribed by RCW 19.86.090 of the consumer protection act.

(5) “First party claimant” means 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.

[Engrossed Substitute Senate Bill 5726 at 3.]

The bill passed on March 13, 2007, by a count of 30 to 17, with 2 senators excused from voting and none reported absent.

Engrossed Substitute Senate Bill’s Journey in the House

Engrossed Substitute Senate Bill 5726 went to the House Committee on Insurance, Financial Services, and Consumer Protection. The committee held a hearing and took testimony on March 22, 2007. See March 22, 2007 House Committee Hearing, ESSB 5726. Another hearing occurred on March 29, 2007, during which a series of proposed amendments were taken up.

  • Representative Rodne unsuccessfully attempted to amend the bill by stripping the treble damages provision. See March 29, 2007 House Committee Hearing, ESSB 5726 at 3–4.
  • Representative Rodney unsuccessfully attempted to remove the mandatory nature of attorney fees awards. See id. at 4–5.
  • Representative Kelly unsuccessfully proposed and amendment to transform the bill’s attorney fee provision into a two-sided provision—in contrast to the bill language, which authorized awards to prevailing first party claimants only. See id. at 8–9.
  • Representative Santos proposed a successful amendment that for the first time enumerated regulations covered by the bill—namely, WAC 284-30-330, -350, -360, -370, and -380. See id. at 6–8.

With that change, ESSB 5726 emerged from committee on a 5 to 3 vote. See id. at 16.

On the floor of the House, the first amendment taken up was the amendment approved by the Committee on Insurance, Financial Services, and Consumer Protection, involving enumeration of the regulations covered by the bill. After that amendment, subsections (2), (3), and (5) read:

(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”;

(b) WAC 284-30-350, captioned “misrepresentation of policy provisions”;

(c) WAC 284-30-360, captioned “failure to acknowledge pertinent communications”;

(d) WAC 284-30-370, captioned “standards for prompt investigation of claims”;

(e) WAC 284-30-380, captioned “standards for prompt, fair and equitable settlements applicable to all insurers”; or

(f) An unfair claims settlement practice rule adopted under RCW 48.30.010 by the insurance commissioner intending to implement this section. The rule must be codified in chapter 284-30 of the Washington Administrative Code.

[5726-S.E AMH IFCP H3265.2 at 2–3.]

More proposed amendments followed:

  • A successful amendment by Representative Ericks introduced the requirement of a pre-suit notification. See 5726-S.E AMH ERIM HEDE 056 at 1.
  • A successful amendment by Representative Hunter provide that the bill would not apply to health plans offered by health carriers (as those terms are defined in RCW 48.43.005). See 5726-S.E AMH IFCP HEDE 054 at 1.
  • An effort by Representative Roach to replace the entire bill with a mandate that the insurance commissioner study “existing statutes and case law regarding remedies and cause of action related to claims practices of insurers” failed, see 5726-S.E AMH ROAD H3418.1 at 1, as did Representative Roach’s proposed amendment to delete the treble damages remedy, see 5726-S.E AMH ROAD H3419.1 at 1.
  • Representative Rodne unsuccessfully sought to amend the bill by limiting treble damages to cases in which the plaintiff showed by clear and convincing evidence that that acts giving rise to actual damages occurred with such frequency as to indicate a general business practice that the acts were willful, wanton, or malicious, or that they were in reckless disregard for the rights of first party claimants. See 5726-S.E. AMH RODN H3417.1 at 1–2.
  • Finally, Representative Rodne unsuccessfully attempted to amend the bill by making awards of attorney fees optional any by limiting awards of actual litigation costs to those that were “reasonable.” See 5726-S.E AMH RODN H3420.1 at 1.

Final Bill Text; Approval in Both Houses

The final text of what would become the Insurance Fair Conduct Act was now set. As amended by the House, Engrossed Substitute Senate Bill 5726 added the following subsection (7) to RCW 48.30.010:

(7) An insurer engaged in the business of insurance may not unreasonably deny a claim for coverage or payment of benefits to any first party claimant. “First party claimant” has the same meaning as in section 3 of this act.

A new section would be added to Chapter 48.30 of the Revised Code of Washington:

(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.

(4) “First party claimant” means 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.

(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”;

(b) WAC 284-30-350, captioned “misrepresentation of policy provisions”;

(c) WAC 284-30-360, captioned “failure to acknowledge pertinent communications”;

(d) WAC 284-30-370, captioned “standards for prompt investigation of claims”;

(e) WAC 284-30-380, captioned “standards for prompt, fair and equitable settlements applicable to all insurers”; or

(f) An unfair claims settlement practice rule adopted under RCW 48.30.010 by the insurance commissioner intending to implement this section. The rule must be codified in chapter 284-30 of the Washington Administrative Code.

(6) This section does not limit a court’s existing ability to make any other determination regarding an action for an unfair or deceptive practice of an insurer or provide for any other remedy that is available at law.

(7) This section does not apply to a health plan offered by a health carrier. “Health plan” has the same meaning as in RCW 48.43.005. “Health carrier” has the same meaning as in RCW 48.43.005.

(8)

(a) Twenty days prior to filing an action based on this section, a first party claimant must provide written notice of the basis for the cause of action to the insurer and office of the insurance commissioner. Notice may be provided by regular mail, registered mail, or certified mail with return receipt requested. Proof of notice by mail may be made in the same manner as prescribed by court rule or statute for proof of service by mail. The insurer and insurance commissioner are deemed to have received notice three business days after the notice is mailed.

(b) If the insurer fails to resolve the basis for the action within the twenty-day period after the written notice by the first party claimant, the first party claimant may bring the action without any further notice.

(c) The first party claimant may bring an action after the required period of time in (a) of this subsection has elapsed.

(d) If a written notice of claim is served under (a) of this subsection within the time prescribed for the filing of an action under this section, the statute of limitations for the action is tolled during the twenty-day period of time in (a) of this subsection.

[ESSB 5726.PL at 2–4.]

The Final Bill Report summarized the Engrossed Substitute Senate Bill as follows:

Summary: Insurers may not unreasonably deny insurance coverage of payment of benefits. First party claimants to an insurance policy may sue insurers for unreasonable denials of coverage or payments of benefits.

First party claimant is defined as an individual, corporation, association, partnership or any other legal entity who asserts the right to payment as a covered person under the insurance policy at issue.

Damages are available to plaintiffs upon a finding that the insurer unreasonably denied coverage or payment. A plaintiff may also recover damages upon a finding that the insurer violated one of five rules adopted by the Office of the Insurance Commissioner (OIC) and codified in chapter 284-30 of the Washington Administrative Code (WAC) or any additional rules that the OIC adopts that are intended to implement this act. The five WAC rules regulate insurers’ actions in the following areas: (1) specific unfair claims practices; (2) misrepresentation of policy provisions; (3) failure to acknowledge pertinent communications; (4) standards for prompt investigation; and (5) standards for prompt fair, and equitable settlements.

Upon finding a violation of the act, the court must award: (1) the actual damages sustained; (2) reasonable attorney’s fees; and (3) actual and statutory litigation costs, including expert witness fees. The court has the discretion to also increase the total award of damages to an amount that does not exceed three times the actual damages suffered by the plaintiff. A court’s ability to make any other determination regarding unfair or deceptive practices or to provide any other available remedy is not limited.

Health plans offered by health carriers are exempt from this bill.

A claimant must provide 20 days written notice to both the insurer and the OIC before filing suit under this section. The notice must provide for the basis of the cause of action. If the insurer does not resolve the claim during that 20-day period, the claimant may then bring suit without any further notice to the insurer.

[Final Bill Report, ESSB 5726 at 1–2.]

The House of Representatives passed the bill on April 5, 2007, by a vote of 59 to 38, with one representative excused. On April 14, 2007, the Senate concurred in the House amendments by a vote of 31 to 18. The Speaker of the House signed the bill on April 18, and the Governor signed the bill into law on May 15, 2007.

Referendum 67 and the Attorney General’s Explanatory Statement

Originally, the effective date of the Insurance Fair Conduct Act was to be July 22, 2007. The Insurance industry gathered sufficient signatures to place IFCA on that November’s ballot as a referendum measure, Referendum 67 (R-67).

Under law, the Thurston County Superior Court prepares the official ballot title for a referendum. See Voter’s Pamphlet at 13. The attorney general is required by law to prepare an “explanatory statement” for voters, which is revised by the court. See id. In the case of R-67, the official ballot title was as follows:

The legislature passed Engrossed Substitute Senate Bill 5726 (ESSB 5726) concerning insurance fair conduct related to claims for coverage or benefits and voters have filed a sufficient referendum petition on this bill.

This bill would make it unlawful for insurers to unreasonably deny certain coverage claims, and permit treble damages plus attorney fees for that and other violations. Some health insurance carriers would be exempt.

Should this bill be:

Approved [ ] Rejected [ ]

[Id.]

The attorney general’s explanatory statement read, in full:

The law as it presently exists:

The state insurance code prohibits any person engaged in the insurance business from engaging in unfair methods of competition or in unfair or deceptive acts or practices in the conduct of their business. Some of these practices are set forth in state statute. The insurance commissioner has the authority to adopt rules defining unfair practices beyond those specified in statute. The commissioner has the authority to order any violators to cease and desist from their unfair practices, and to take action under the insurance code against violators for violation of statutes and regulations. Depending on the facts, the insurance commissioner could impose fines, seek injunctive relief, or take action to revoke an insurer’s authority to conduct insurance business in this state.

Under existing law, an unfair denial of a claim against an insurance policy could give the claimant a legal action against the insurance company under one or more of several legal theories. These could include violation of the insurance code, violation of the consumer protection laws, personal injuries or property losses caused by the insurer’s acts, or breach of contract. Depending on the facts and the legal basis for recovery, a claimant could recover money damages for the losses shown to have been caused by the defendant’s behavior. Additional remedies might be available, depending on the legal basis for the claim.

Plaintiffs in Washington are not generally entitled to recover their attorney fees or litigation costs (except for small amounts set by state law) unless there is a specific statute, a contract provision, or recognized ground in case law providing for such recovery. Disputes over insurance coverage have been recognized in case law as permitting awards of attorney fees and costs. Likewise, plaintiffs in Washington are not generally entitled to collect punitive damages or damages in excess of their actual loss (such as double or triple the amount of actual loss), unless a statute or contract specifically provides for such payment.

The effect of the proposed measure, if approved:

This measure is a referral to the people of a bill (ESSB 5726) passed by the 2007 session of the legislature. The term “this bill” refers here to the bill as passed by the legislature. A vote to “approve” this bill is a vote to approve ESSB 5726 as passed by the legislature. A vote to “reject” this bill is a vote to reject ESSB 5726 as passed by the legislature.

ESSB 5726 would amend the laws concerning unfair or deceptive insurance practices by providing that an insurer engaged in the business of insurance may not unreasonably deny a claim for coverage or payment of benefits to any “first party claimant.” The term “first party claimant” is defined in the bill to mean 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.

ESSB 5726 would authorize any first party claimant to bring a lawsuit in superior court against an insurer for unreasonably denying a claim for coverage or payment of benefits, or violation of specified insurance commissioner unfair claims handling practices regulations, to recover damages and reasonable attorney fees, and litigation costs. A successful plaintiff could recover the actual damages sustained, together with reasonable attorney fees and litigation costs as determined by the court. The court could also increase the total award of damages to an amount not exceeding three times the actual damages, if the court finds that an insurer has acted unreasonably in denying a claim or has violated certain rules adopted by the insurance commissioner. The new law would not limit a court’s existing ability to provide other remedies available at law. The claimant would be required to give written notice to the insurer and to the insurance commissioner’s office at least twenty days before filing the lawsuit.

ESSB 5726 would not apply to a health plan offered by a health carrier as defined in the insurance code. The term “health carrier” includes a disability insurer, a health care service contractor, or a health maintenance organization as those terms are defined in the insurance code. The term “health plan” means any policy, contract, or agreement offered by a health carrier to provide or pay for health care services, with certain exceptions set forth in the insurance code. These exceptions include, among other things, certain supplemental coverage, disability income, workers’ compensation coverage, “accident only” coverage, “dental only” and “vision only” coverage, and plans which have a short-term limited purpose or duration. Because these types of coverage fall outside the definition of “health plan,” ESSB 5726’s provision would apply to these exceptions to “health plans.”

[Id. at 14.]

The Voter’s Pamphlet also included statements in favor of and opposed to R-67 from interested stakeholders. Supporters argued that R-67 “simply requires the Insurance Industry to be fair and pay legitimate claims in a reasonable and timely manner.” Id. at 15. Opponents argued that R-67 would lead to a spike in frivolous lawsuits and higher insurance rates. See id.

Washington voters approved IFCA in November 2007. The statute took effect December 6, 2007.


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