Last week, the Washington Court of Appeals (Division II) squarely addressed an issue that has divided federal courts in Washington for years (and had not been previously addressed directly by Washington state courts): whether an insurer can avoid Insurance Fair Conduct Act ("IFCA") exposure simply by paying policy benefits after a coverage dispute has been resolved.
In Labeaume v. First National Insurance Company of America, the Court held that payment of UIM benefits — even payment of the full arbitration award — does not necessarily extinguish an insured's IFCA claim. The Court reasoned that IFCA is designed to remedy unreasonable denials of coverage and benefits, including the consequential economic and noneconomic damages that may flow from forcing an insured to litigate to obtain policy benefits. If later payment alone barred an IFCA claim, insurers could effectively immunize themselves from liability by paying benefits only after the insured incurred the expense, delay, and harm associated with litigation. The Court concluded that an insurer's payment of benefits may cure the contract claim, but it does not automatically cure the extracontractual damages allegedly caused by the earlier unreasonable delay/denial.
As a result, insureds may continue pursuing IFCA claims for consequential damages, attorney fees, costs, and potential treble damages even after policy benefits have been paid in full.
Takeaway: The decision provides strong support for the proposition that an insurer cannot necessarily “pay its way out” of IFCA exposure once a claim has been unreasonably denied. The focus remains on the reasonableness of the insurer’s conduct at the time of the denial and whether that conduct caused damages beyond the unpaid policy benefits themselves.