In January, we reported that California’s Supreme Court had embraced a problematic approach to the state’s Unfair Insurance Practices Act—one that allows the Commissioner of Insurance to create new statutory torts by regulating the manner in which specific business operations are conducted. This month, in Perez-Crisantos v. State Farm Fire & Cas. Co., No. 92267-5 (Wash. Feb. 2, 2017), the Supreme Court of the State of Washington held that a similar statute—Washington’s Insurance Fair Conduct Act (IFCA)— does not create a private right of action for violations of the Insurance Commissioner’s regulations. The rationales for these two decisions are not mutually exclusive, because the Washington case turned on a statutory ambiguity that appears to be unique to IFCA. Furthermore, it’s not entirely clear that Perez-Crisantos has resolved that ambiguity. Nevertheless, the new case provides some valuable material for the ongoing debate over the scope of insurance regulators’ authority.
What’s The Problem?
IFCA, RCW 48.30.010 et seq., was enacted by Washington’s legislature in 2007 and then ratified by the state’s voters. It broadly prohibits “unfair methods of competition or … unfair or deceptive acts or practices in the conduct of” the business of insurance. The statute expressly defines and prohibits certain acts, and it also authorizes Washington’s Insurance Commissioner to “define … other acts and practices … to be unfair and deceptive,” by promulgating appropriate regulations. Sections 48.30.010(5) and (6) provide that the commissioner may issue a cease and desist order to any person found violating such regulations; that violation of the commissioner’s order may result in a fine; and that the commissioner may also “take such other or additional action as is permitted under the insurance code for violation of a regulation.”
Section 48.30.015 of IFCA gives certain aggrieved policyholders a right to sue their insurer for damages. Subsection (1) provides:
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 … .
Subsections (2) and (3) amplify this provision, authorizing the superior court to award treble damages, attorneys’ fees and costs in certain cases. Unfortunately, they appear to apply to at least some cases that do not fall within the scope of Subsection (1):
(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.
Subsection (5) contains a list of regulations promulgated by the Insurance Commissioner, under the authority granted in Section 48.30.010. These regulations contain a number of prohibitions, some of which do not entail the unreasonable denial of a claim or payment. For example, an insurer could fail to disclose all “pertinent benefits” to a first-party claimant, in violation of WAC 284-30-350(1), without denying or underpaying the relevant claim. Subsection (5) also states that “[a] violation of any of [the enumerated regulations] is a violation for the purposes of subsections (2) and (3) of this section.”
Thus, Subsections (2), (3) and (5) of Section 48.30.015 clearly authorize an award of treble damages and/or attorneys’ fees, based solely on a violation of insurance regulations. But the statute does not clearly state that a policyholder who complains solely about a regulatory violation may bring a civil action in which such an award could be made. Nor is this omission obviously accidental. Subsection (1) expressly creates a private right of action only for the unreasonable denial of a claim. That is in distinct contrast with the two subsections that immediately follow; they refer both to violations of Subsection (1) and to the regulations listed in Subsection (5). Similarly, Subsection (5) expressly references Subsections (2) and (3), but not Subsection (1).
In short, the text of Section 48.30.015 provides evidence that the legislature (and the citizenry) did not intend to create a private right of action for violation of regulations alone—at least insofar as the regulations do not involve the unreasonable denial of a claim. Yet Subsection (5) provides that a violation of any of the regulations it names “is a violation for the purposes of subsections (2) and (3).” Thus, for at least some regulatory infractions, the statute appears to create a remedy, without giving policyholders the means to obtain it.
The plaintiff in Perez-Crisantos was rear-ended while waiting to make a left turn in Spokane in November 2010. He subsequently incurred more than $50,000 in medical bills. His insurer paid $10,000 (along with $400 for lost wages), which was the limit of his Personal Injury Protection (PIP) coverage. The driver who caused the accident had $25,000 in liability coverage, and the plaintiff settled with him for that amount. The plaintiff then sought the balance of his expenses under the underinsured motorist (UIM) portion of his own automobile policy.
His insurer acknowledged the validity of the claim, but disputed the amount. It took the position that the total value of the plaintiff’s claim was no greater than the amount of his settlement with the negligent driver. According to the insurer, the $54,000 the policyholder had expended included treatment for a shoulder injury that was unrelated to the accident, as well as payments for chiropractic treatments the insurer considered “excessive.” When the plaintiff asked the insurer to reconsider, it consulted an orthopedic surgeon, who confirmed its valuation.
The plaintiff then filed an action, asserting claims for bad faith, negligence, violation of IFCA and violation of several insurance regulations. The parties agreed to stay the claims for extra-contractual damages while they arbitrated the claim for UIM coverage. The arbitrator’s valuation of that claim came in between those of the two parties, and the insurer paid the plaintiff an additional $24,000.
The stay of the lawsuit was then lifted, and the plaintiff filed an amended complaint, alleging (among other things) that the insurer had violated WAC 284-30-330(7). That regulation makes it an unfair or deceptive act for an insurer to
[c]ompel a first party claimant to initiate or submit to litigation, arbitration, or appraisal to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions or proceedings.
This regulation is among those listed in IFCA’s Section 48.30.015(5).
The parties cross-moved for summary judgment, and the trial court ruled that the plaintiff had failed to establish a basis for finding that the insurer had acted wrongfully. Specifically, it held that “[t]here has never been one scintilla of evidence” that the defendant had acted “unreasonably” or with an “ulterior motive.” The case was dismissed with prejudice, and the Supreme Court granted direct review.
In affirming the judgment of the trial court, the Supreme Court unanimously concluded that the plaintiff had failed to establish “a genuine issue that [the insurer] acted unreasonably.” Eight justices chose to address the additional question of whether IFCA created a private right of action for violation of an insurance regulation, even where the insurer has not unreasonably denied coverage. The ninth justice concurred in the result, but asserted that it was not necessary to reach the statutory question.
The issue the court addressed has previously been answered by federal courts exercising diversity jurisdiction. As the Supreme Court noted, however, those cases came out on both sides of the question. See Langley v. GEICO Gen. Ins. Co., 89 F.Supp.3d 1083 (E.D. Wash. 2015) (recognizing implied cause of action for violation of regulations); Workland & Witherspoon, PLLC v. Evanston Ins. Co., 141 F. Supp. 3d 1148 (E.D. Wash. 2015) (no private right of action absent unreasonable denial of a claim or benefits).
The Washington court found that Section 48.30.015 of IFCA does not permit policyholders to sue for regulatory violations. The decision rests primarily on the language of the statute—specifically, the difference between the language of Subsection (1) and that of Subsections (2) and (3):
IFCA explicitly creates a cause of action for first party insureds who were ‘unreasonably denied a claim for coverage or payment of benefits.’ IFCA does not state it creates a cause of action for first party insureds who were unreasonably denied a claim for coverage or payment of benefits or ‘whose claims were processed in violation of the insurance regulations listed in (5),’ which strongly suggests that IFCA was not meant to create a cause of action for regulatory violations.
The majority also acknowledged, however, that the statute is “ambiguous”—and, therefore, that the parties could cite extrinsic evidence about its underlying intent. In Langley, for example, the federal court was swayed by a Voters’ Pamphlet issued in connection with the referendum on IFCA in 2007. One portion of the pamphlet conflated the language of Subsections (1) and (2), telling voters that the proposed statute
would authorize any first party claimant to bring a lawsuit … for unreasonably denying a claim for coverage or payment of benefits, or violation of specified insurance commissioner unfair claims handling practices regulations … .
On the other hand, the same pamphlet contains the “official ballot title,” which appears to reflect the distinction between the first two subsections:
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.
This language was cited by a trade group, the American Insurance Association, in a brief filed as amicus curiae. The Supreme Court found that “[t]his language does not suggest an intent to create a private cause of action for regulatory violations.
A Broader Point
Finally—but importantly—the court found that its construction of IFCA “avoids absurd results.” Citing several regulations that are listed in Section 48.30.015(5), but which do not involve the unreasonable denial of a claim, the court explained:
[I]f we found that violation of regulations listed in IFCA was independently actionable, then ‘[m]aking a claim payment to a first party claimant or beneficiary not accompanied by a statement setting forth the coverage under which the payment is made,’ not responding until the 11th working day to ‘pertinent communications from a claimant reasonably suggesting that a response is expected,’ and notifying a claimant on the 16th day that a claim had been accepted would all be actionable[,] even if the insured was never unreasonably denied coverage or the payment of benefits.
The court did not elaborate on this argument, but it is possible to read in it a simple and important principle for interpreting insurance statutes. Typically, those statutes formulate explicit rules for insurers, while also authorizing an insurance regulator to adopt additional rules. The Washington court’s argument suggests that the authority to issue regulations should not be interpreted as extending beyond the types of act that are addressed by the statute itself.
That was the principle underlying a recent Minnesota decision, which found that certain business practices of an insurer (in that case, diversity in management and procurement) were not “related to the duties and responsibilities entrusted to the commissioner,” within the meaning of the authorizing statute. This principle was also affirmed in the California appellate court decision that the state’s Supreme Court reversed last month. While overturning the lower court’s ruling, the Supreme Court purported to leave the principle intact.
In Perez-Crisantos, the same principle meant that “IFCA creates a cause of action for unreasonable denials of coverage,” but it does not authorize the Insurance Commissioner to create causes of action that are unrelated to that specific, forbidden practice.
Are We Done?
The concurrence in Perez-Crisantos charged that “the majority’s putative ‘holding’ adds to the confusion surrounding IFCA’s purpose and scope.” It pointed out that Subsections (2) and (3) of Section 48.30.015 expressly state that a court may award treble damages and attorneys’ fees after finding either that the insurer has unreasonably denied a claim, or that it has violated one of the regulations listed in Subsection (5). The majority’s opinion appears to want to preserve that authority, but it does not explain how a court might now be in a position to award treble damages without finding an unreasonable denial. If, that is, there is now no private right of action for a purely regulatory violation, what finding of liability could there be on which threefold damages could be paid?
Because the majority vacillated on this point, the concurrence concluded:
I believe today’s opinion will engender only further debate and not the definitive interpretation the majority is apparently reaching for.
Washington is not always a friendly jurisdiction for insurers, and Perez-Crisantos is far from a stinging denunciation of regulatory overreach. Nevertheless, the case does uphold an important principle about the scope of agencies’ authority to govern and penalize insurers’ business practices. The provenance of the decision makes it all the more valuable.