UIM Claimant Not Entitled to Extra-Contractual Damages Per Washington Judge

The Western District of Washington recently issued an opinion in Beasley v State Farm Mut. Auto. Ins. Co., 2014 WL 1494030 (W.D. Wash. Apr. 16, 2014), addressing an insured’s extra-contractual claims following an uninsured motorist (UIM) claim.  After addressed the insurance claim’s tortured history, the court determined that all of the insured’s extra-contractual claims failed as a matter of law.  Importantly, the court found that Washington law (1) did not recognize a claim for breach of fiduciary duty in the context of an insured-insurer relationship, (2) that WAC 284-30-330(7) imposed a “reasonableness” requirement; and (3) the difference between the amount offered by an insurance company prior to litigation and the amount actually recovered by the insured during litigation is not dispositive of WAC 284-30-330(7).

The case stemmed from an automobile accident that occurred in December 2001, in which the insured made a left turn at a yellow light and was struck by an oncoming driver that was uninsured.  The insured, his passenger, and the passengers in the other vehicle suffered injuries as a result of the accident.  In early 2002, the insured submitted a claim for personal injury protection (PIP) benefits along with an authorization to obtain medical and employment records.  The insured then revoked the release about a month later.  The insured never formally submitted a claim for uninsured motorist (UIM) benefits following the accident, but informally mentioned such a claim in correspondence.  In July 2012, the insurance company paid the insured PIP benefits, and determined he was entitled to UIM benefits for 50% of the damages because both drivers were equally at fault for the accident.

The parties did not resume communications until 2005 when they began discussing arbitration of the insured’s UIM claim.  In April of that year, the insurance company served the insured with discovery requests and a statement of damages.  Despite repeated reminders, the insured did not respond to the requests until March 2008.  The parties did not make any marked progress on the claim until three years later in March 2011, when the insured executed another release for his medical and employment records.  The insurance company then conducted two independent medical examinations (IME).  In March 2012, the insured demanded full policy limits and provided notice of intent to file a claim under the Insurance Fair Conduct Act (IFCA).  That June, the insurance company responded with an offer of $25,000, but did not explain the basis for the offer.  The insured responded with an offer of $97,000, but the parties were not able to reach a compromise.  The arbitrator awarded the insured $72,500 in total damages on the UIM claim.  The insured then filed an action against the insurance company alleging breach of contract, bad faith, breach of fiduciary duty, negligence, and violations of the Insurance Fair Conduct Act (IFCA) and Consumer Protection Act.

Washington Administrative Code (WAC)

In support of his extra-contractual claims, the insured initially argued that the insurance company violated several provisions of the WACs which detail unfair claim handling practices.  The insured first argued that the insurance company violated WAC 284-30-330(1), which prevents an insurer from misrepresenting pertinent facts during the claims process, when it asserted in the arbitration discovery responses that the insured was completely at fault for the accident.  The court rejected the insured’s argument, citing the insurance company’s response which indicated it was still investigating the issue of liability and the fact that it determined from the outset that the insured was 50% at fault for the accident.

Next, the insured argued that the insurance company violated WAC 284-30-330(6), which bars an insurance company from not attempting in good faith to effectuate prompt and reasonable settlement of claims where liability has become reasonably clear.  The basis of the insured’s argument was that the insurance company did not make an offer for more than 10 years after the claim and that its $25,000 offer a week before arbitration did not take into account a number of his damages.  Initially, the court found as a matter of law that the insurance company’s delay in making an offer was not in violation of the claim handling standard due to the insured’s delay in providing the pertinent medical and wage loss information.  The court also determined that the insured’s expert did not create an issue of fact that would preclude summary judgment on the issue because the expert failed to take into account the insured’s revocation of the authorization to obtain the information.  Further, the court rejected the insured’s contention that the late $25,000 violated the regulation, finding that the offer was reasonably based on information from the insurance company’s independent medical examination (IME) physician.

Finally, the insured argued that the insurance company violated WAC 284-30-330(7), which prohibits an insurance company from compelling an insured to initiate or submit to arbitration by offering substantially less than was owed.  The court cited to Washington law that (1) there is an implied “reasonableness” requirement in this section of the WAC, and (2) the difference between the amount recovered and the amount offered is not dispositive of the issue.  The court determined that the insurance company’s offer was based upon a reasonable investigation of the damages and was not arbitrarily low.  Accordingly, it determined as a matter of law that the insurance company did not violate this section of the WAC.

Insurance Fair Conduct Act (IFCA)

In support of his IFCA claim, the insured argued that the alleged violations of the WAC constitute per se violations of the statute.  The court rejected the insured’s position, citing to a number of decisions finding that the IFCA requires the insured to initially establish that the insurance company “unreasonably” denied a claim for failed to pay benefits.  The court did, however, find violations of WAC may justify the imposition of treble damages under the IFCA.  Additionally, the court determined that the insurance company did not withhold payment of benefits and that it complied with the terms of the insurance contract.

Breach of Fiduciary Duty

The court also rejected the insured’s claim for fiduciary duty as a matter of law, citing the fact that no Washington court has recognized a claim for breach of fiduciary duty in the context of an insured-insurer relationship.  Specifically, the court cited to another Western District of Washington opinion in Baker v. Phoenix Ins. Co., 2014 WL 241882, *3 (W.D. Wash. Jan. 22, 2014), as the basis of its finding.  While the court recognized that an insurance company has a duty to act in good faith and preserve the integrity of insurance, it does not support the finding that an insurance company has a fiduciary obligation to its insureds.

Negligence/Bad Faith and Consumer Protection Act (CPA)

The insurance company sought dismissal of the insured’s claims for bad faith, negligence, and violation of the Consumer Protection Act on the ground that the insured cannot establish that it suffered harm.  In response, the insured generally argued that the insurance company caused damages by withholding insurance benefits, including interest on those benefits.  The court sided with the insurance company on the ground that it promptly paid the arbitration award, and that the insured failed to provide evidence of any other economic damages as a result of the insurance company’s conduct.  The court also noted that Washington law recognizes that an insured may make a claim for emotional damages, the insured in this case did not present evidence establishing such an injury.  Similarly, the court rejected the insured’s CPA claim on the ground that it could not establish the causation of damages based upon the insurance company’s purported unfair or deceptive acts or practices.

MLR regularly litigates similar claims in Washington and Oregon.  Please contact us with any questions or concerns regarding this case or any other matter you see on the Insurance Coverage Blog.

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