Washington voters approving Referendum 67
November, 2007
By
Jerret E. Sale
Yesterday, Washington voters considered Referendum 67, a ballot measure that gave voters the opportunity to repeal "The Washington Insurance Fair Conduct Act," the newly-titled and amended Washington bad faith law. With approximately 51% of votes counted, Referendum 67 has been approved by 57% of voters and is expected to be approved when the final vote is tallied and the election results certified. If Referendum 67 passes, the Act will go into effect on December 6, 2007, thirty days after the election.
Under the new law, insurers may be liable for "unreasonably den[ying] a claim for coverage or payment of benefits" or for failing to comply with the WACs. Whether or not the legislature intended this effect, insurers can expect the argument that the "unreasonable" standard for coverage denials contemplates a lesser, negligence standard of culpability than the "frivolous and unfounded" standard that currently applies to bad faith claims.
In addition, the Act adds an element of punitive damages to a bad faith cause of action that previously did not exist. At the court's discretion and upon a finding that the insurer acted unreasonably, the court may "increase the total award of damages to an amount not to exceed three times the actual damages." To date, Washington only allows a treble damage recovery under the Consumer Protection Act ("CPA"), which caps treble damages at $10,000. Under the new law, there is no cap, and it is unclear what "actual damages" means. The court could treble damages of only that portion of the insured's damages actually attributable to the insurer's tortious conduct or all damages, including amounts due under the insurance contract. Moreover, courts may have the option of awarding additional treble damages under the CPA (up to $10,000). The punitive damages provisions raise constitutional issues of due process, depending upon how the Act is interpreted.
Finally, with regard to attorney fees, while the Act does not change an insured's entitlement to reasonable attorney fees and "actual and statutory costs, including expert witness fees" in the case of the tort of bad faith and violation of the CPA, it may extend the right to recover attorney fees and costs to cases where the insurer has committed WAC violations.
In our opinion, the Act will apply prospectively only. That is, it will apply to an insurer's conduct on or after December 6 but not before.