Washington Court Addresses “First Party Insured” Requirement in IFCA

A Washington federal district court recently issued an opinion in Cox v. Continental Cas. Co., 2014 WL 2011238 (W.D. Wash. May 16, 2014).  The case addressed several extra-contractual insurance claims brought by a class of plaintiffs based on an assignment from the insured tortfeasor.  The court determined that the insured tortfeasor, and thus the class of plaintiffs, did not satisfy the definition of a first party claimant as set forth in the Washington Insurance Fair Conduct Act, and dismissed the claim.

In the lawsuit, the plaintiffs were a class of individuals that made malpractice claims against a dentist that had a policy with the insurance company. The plaintiffs brought the lawsuit directly against the insurance company based upon a settlement and assignment agreement they reached with the insured dentist.  The plaintiffs claimed that the insurance company was liable for bad faith, violation of the Insurance Fair Conduct Act (IFCA), violation of the Consumer Protection Act (CPA), and negligence.  The basis of the plaintiffs’ complaint was that the insurance company chose to settle each of the claims sequentially, rather than pursuing a global settlement of all claims against the dentist.  The plaintiffs claimed that there was ample opportunity for the insurance company to pursue a global settlement of the claims based on communications from the plaintiffs’ attorney, but that the insurance company failed to respond to the proposal.  After several years when a number of the individual claims were settled, the insurance company attempted to negotiate a global settlement with the remaining plaintiffs.  The plaintiffs ultimately proceeded to arbitration and received a $35,212,000 judgment against the dentist.

The insurance company moved to dismiss the plaintiffs’ claims on the basis that the allegations failed to state a claim.  The Court denied the insurance company’s motion with respect to the plaintiffs’ claims for bad faith, violation of the CPA, and negligence.  With respect to those claims, it found that the allegations in the complaint were sufficient to withstand a motion to dismiss.

The plaintiffs’ claim for violation of the IFCA was dismissed, however.  The court initially noted that an IFCA claim arises when “[a]ny first party claimant to a policy of insurance … is unreasonably denied a claim for coverage or payment of benefits by an insurer.”  RCW 48.30.015.  The court then noted that Washington law defines first party insurance as a policy that “pay[s] specified benefits directly to the insured when ‘determinable contingency’ occurs … allow[ing] an insured to make her own personal claim for payment against her insurer.”  Mut. of Enumclaw Ins. Co. v. Dan Paulson Const., Inc., 161 Wn.2d 903, 914 n. 8, 169 P.3d 1 (2007) (citing Thomas W. Harris, Washington Insurance Law sec. 1.2 (2d ed. 2006)).  Third-party liability insurance, on the other hand, “indemnif[ies] an insured for covered claims which others [third-party claimants] file against him.”  Id.  Based upon those definitions, the court determined that the dentist in this case was not a “first-party insured” as required under the IFCA; instead, he was a third-party liability claimant.  The court dismissed the plaintiffs’ IFCA claim on the basis that the assignee–the insured dentist–did not satisfy the requirement that the claim be brought by a first-party insured.

Maloney Lauersdorf Reiner frequently represents clients in lawsuits including claims under the Insurance Fair Conduct Act (IFCA), and other related extra-contractual insurance claims.  Please contact us with any questions about this case or any other matter you see on the Insurance Coverage Blog.

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