E.D. Washington Addresses Extra-Contractual Insurance Coverage Claims

The Eastern District of Washington recently issued an extensive opinion in Hell Yeah Cycles v Ohio Sec. Ins. Co., 2014 WL 1671491, — F.Supp.2d — (E.D. Wash. Apr. 28, 2014), addressing an insured’s claims for violation of the Washington Consumer Protection Act, violation of the Insurance Fair Conduct Act, and insurance bad faith.  The insured’s lawsuit was based on the insurance company’s handling of a claim following an electrical fire that caused extensive damage to the building the insured was using to conduct its business, including the property located inside the building.  At the time of the fire loss, the insured had an insurance policy that covered its business property.  The adjuster assigned to the claim visited the property twice to document the loss.  Within two months of the fire, the insurance company made several payments on the insured’s loss, including advance payments for the property loss, for temporary rental space, and labor costs to mitigate further loss to the property.

The parties had a number of disagreements following the initial payments about the available coverage limits.  Most of the disagreements centered on application of additional coverages available under the policy, and the proof of loss provided by the insured.  The insurance company contended that the business personal property coverage limits were set at $80,000, and that the insured failed to provide evidence supporting application of the additional coverages beyond those that were paid.  On the other hand, the insured asserted that the additional coverages applied, that it provided sufficient proof of loss, and that the adjuster failed to adequately explain the terms of coverage available under the policy.

The insured filed suit against the insurance company alleging extra-contractual claims for violation of the Consumer Protection Act (CPA), violation of the Insurance Fair Conduct Act (IFCA), and bad faith.  As a basis for the extra-contractual claims, the insured cited a number of provisions under the Washington Administrative Code that govern insurance claims.  During the lawsuit, the insured moved for partial summary judgment on the grounds that the insurance company violated WAC 284-30-330(9) by issuing payments that were not accompanied by an statement explaining the coverage under which the payment was made, WAC 284-30-330(1) and WAC 284-30-350 by misrepresenting or concealing material provisions of the insurance contract, and WAC 284-30-330(6), (12), (13) and (16) by failing to attempt to settle the claim in good faith.  In addition, based on those alleged violations, the insured requested that the court grant partial summary judgment on claims under the CPA, IFCA, and for bad faith.  In effect, the insured requested that the court find that the insurance company was liable for each claim—leaving the issues of causation and damages.

In support of the CPA claim, the insured argued that the insurance company’s conduct constituted a per se “unfair or deceptive acts or practices” because it violated a number of WAC provisions.  After considering the undisputed evidence, the court determined that the insurance company (1) misrepresented the terms of the insurance policy in violation of WAC 284-30-350 and WAC 284-30-330(1); (2) failed to provide statements explaining the coverages under which payments were being issued in violation of WAC 284-30-330(9); and (3) violated WAC 284-30-330(13) by failing to promptly provide a reasonable explanation of the basis in the insurance policy for denying the claim.  Based on Washington law, the court found that each of these violations of the WACs constituted per se “unfair or deceptive acts or practices” under the insured’s claim for violation of the CPA.  Importantly, the court noted that the insured must also satisfy the other elements of a CPA claim in order to fully succeed on the claim.

The court did, however, deny the insured’s motion for partial summary judgment with respect to the claims for bad faith and violation of the IFCA.  Specifically, the court determined there were unresolved factual issues for trial with respect to whether the insurance company’s actions were reasonable under the circumstances.  The court determined that each of those claims would be decided at trial.

MLR frequently litigates extra-contractual insurance coverage claims in Washington, including claims for violation of the Washington Consumer Protection Act, the Insurance Fair Conduct Act, and insurance bad faith.  We are familiar with the legal and factual issues often presented in these cases.  Please contact us with any questions or concerns regarding this case or any other matter you see addressed on the Insurance Coverage Blog.

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