Voters will decide fate of insurance bad-faith statute

By Jeffrey P. Downer

Enforcement of Washington’s new statute governing bad-faith claims against insurers is stayed until the November 2007 election, when the voters will decide whether to approve it.

The Washington Legislature passed, and Washington’s governor signed into law, the “Insurance Fair Conduct Act” earlier this year. But as a result of a petition drive, the Act will appear on the November ballot as Referendum 67. The voters may approve or disapprove the Act. Until then, the Act will not go into effect.

The Act would liberalize the standards for proving insurer bad faith. It creates a statutory cause of action for compensatory damages and makes an insurer liable for attorney fees incurred by a “first party claimant who is unreasonably denied a claim for coverage or payment of benefits by an insured[.]” The Act impliedly allows an insured recover reasonable attorney fees if the insurer handles the claim negligently or too slowly, even if the policy does not cover the claim in the first place.

Equally significantly, the Act also would permit an award of punitive damages, in the discretion of the trial court. Those damages would be three times the insured’s actual compensatory damages. Whereas Washington’s existing Consumer Protection Act would limit these treble damages to $10,000, the new Act would place no such cap on treble damages, so that a bad-faith verdict could become exorbitantly expensive for an insurer.

Both the insurance industry and the plaintiff’s bar in Washington have launched big-budget advertising campaigns for and against Referendum 67.

The Lee Smart Quarterly is a publication of the law offices of Lee, Smart, Cook, Martin & Patterson, P.S., Inc. for clients and others. It is intended as general information only and is not to be construed as legal advice. You should consult an attorney if you have any specific legal questions.

Editor: Jeffrey P. Downer	Eml: jpd@leesmart.com
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