Is My Insurer Treating My Claim Fairly? Tristan Swanson and Jake Jacobson 1

Washington Protections for Insureds: Overview Strong regulations. – Ch. 284 of the Washington Administrative Code. – Most important: WAC Insurance Fair Conduct Act plus additional statutory protections. – RCW – Consumer Protection Act. Strong, developed case law. – Tort of bad faith. – Negligence. 2

Is My Insurer Treating My Claim Fairly? Touchstone: – “It is a cornerstone of insurance law that an insurer may never put its own interests ahead of its insureds.” Put differently: – “[A]n insurance company’s duty of good faith rises to an even higher level than that of honesty and lawfulness of purpose towards its policyholders: an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured’s interests.” 3

Case Study: Am. Best Foods v. Alea London, LTD 4

Am. Best Foods v. Alea London, LTD Night club kicks out Patron A who started fight with Paton B. Readmits Patron A. Patron A starts fight with Patron B again. Night club kicks out Patron A and Patron B. Patron A shoots Patron B nine times in the parking lot. 5

Am. Best Foods v. Alea London, LTD Injured patron is brought inside Café Arizona. Manager orders that injured patron be dumped on the sidewalk outside. Patron sues Café Arizona on a variety of grounds, alleging, amongst other things, that he sustained further injuries as a result of being moved around and dumped on the sidewalk. 6

Am. Best Foods v. Alea London, LTD Café Arizona tenders defense to its liability carrier: Alea London, LTD. Exclusion for any claim arising out an assault of battery. Insurer denies all coverage. Insured argues that post-assault negligence causing distinct injuries not encompassed by assault exclusion. Insurer responds: “Washington courts would likely find the allegations of negligence not sufficient to trigger coverage.” 7

Am. Best Foods v. Alea London, LTD When Alea gave itself the benefit of the doubt relative to unsettled case law, was it treating its insured’s interests equally with its own? Supreme Court of Washington: – No. 8

Am. Best Foods v. Alea London, LTD “Alea failed to follow well-established Washington State law giving the insured the benefit of any doubt as to the duty to the defend and failed to avail itself of legal options such as proceeding under a reservation of rights or seeking declaratory relief. Alea’s failure to defend based upon a questionable interpretation of law was unreasonable and Alea acted in bad faith as a matter of law.” 9

Is My Insurer Treating My Claim Fairly: Washington’s Claims Practice Regulations Is there a WAC for that? WCA : – (1) Misrepresenting pertinent facts or insurance policy provisions. – (2) Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies. – (4) Refusing to pay claims without conducting a reasonable investigation. – (13)Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement. WAC & 370: -Insurer’s are required to complete investigations within 30 days (unless cannot be reasonably be completed within that time frame). -Acknowledge claims within 10 days -Respond to all “pertinent” communications within 15 days. 10

Hell Yeah Cycles v. Ohio Sec. Ins. Co. 11

Facts: Hell Yeah Cycles Restaurant (Handle Bar) and motor cycle shop (Hell Yeah Cycles) shared the same building. Extensive damage due to an electrical fire. Claim made to Ohio Security Insurance Co. under business owner’s property policy. 12

Hell Yeah Cycles: WAC violations Adjustment of claim: – Adjuster told insured that employee tools were subject to $80,000 limit but later admitted this was not the case. – Adjuster told insured that coverage for employee wages was limited to 60 days when there was no such limitation in the policy. – Adjuster told insured that coverage for his personal effects was limited to $2500 when the limit was actually much higher. – Adjuster told insured rent for HYC’s new location was included in $80,000 limits. However, this was not true. WAC (1): It is an unfair and deceptive practice to misrepresent pertinent facts or insurance policy provisions. Court: Finds that all four instances constitute violations of WAC (1). 13

Hell Yeah Cycles: WAC violations Adjustment of claim: – No checks provided what coverage the payment was issued under. WAC (9): It is an unfair and deceptive act to “make a claim payment to a first party claimant” not accompanied by a statement setting forth the coverage under which the payment is made. Court: Insurer violated 330(9) as a matter of law. 14

Hell Yeah Cycles: WAC violations (cont.) Denial of claim: After paying $80,000 dollars insurer denied remainder of claim by stating “maximum payment had been reached.” WAC (13): It is an unfair and deceptive practice to fail to “promptly provide a reasonable explanation of the basis in the insurance policy to the facts or applicable law for the denial of a claim.” Court: There was “no indication that OSI provided a reasonable or accurate explanation for its denial.” 15

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A Template for Successful Risk Management 1. Identify, designate and empower a Risk Manager for your entity. 2. Identify actions/inactions/events which constitute potential risks to your entity: Financial Human Resources Ethics & Integrity Compliance Others 3. Educate your entity’s management & line supervisors as to the nature of potential risks. 17

A Template for Successful Risk Management 4. Design, establish and communicate the protocol for how actions/inactions/event potentially constituting risks to your entity will be identified, reported and dealt with: Require such risk and/or situations to be reported to the Risk Manager ASAP; Consult in-house or out-house counsel to get attorney-client +/or work product protection for any investigative information; Conduct an investigation and document all information generated by it; Prevent employees or others over whom your entity has control from discussing the situation or the fact that an investigation is taking place with any outsiders; Engage outside help as soon as doing so appears warranted: – Legal; – Insurance Broker and/or Insurance Professional; – Technical Consultants; – Potential Experts: Liability Damages 18

A Template for Successful Risk Management 5. Formulate a public relations/press strategy as soon as practicable, designate the entity’s spokesperson and instruct your entity's employees how to respond to inquiries from outsiders. 6. If insurance is involved, in conjunction with your Insurance Professional and/or Broker, ensure that notice is properly and timely given to potentially liable insurers. 7. Apply the lessons learned from each risk management episode fine tune your risk management protocol and educate your entity's managers and employees accordingly. 19

Is My Insurer Treating My Claim Fairly? Tristan Swanson and Jake Jacobson 20