New Washington Regulation Requires Mandatory Language in an Insurer’s Denial Letter

The Washington State Office of the Insurance Commissioner (the “OIC”) has issued a new regulation, WAC 284-30-770, which mandates that insurers include specific advisory language in “adverse notifications” sent to insureds. Beginning on August 1, 2020, insurers will be required to include the mandatory language in any notice, statement, or document, wherein the insurer denies a claim, issues final payment for less than the amount of the claim submitted, makes an adverse benefit determination, or rescinds, terminates, cancels, or does not renew a policy. In any such notice, the insurer must include the following language:

“If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner’s consumer protection hotline at 1-800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry.”

This language must appear on either the first page or at the end of the adverse notification, and must be in the same font and font size as used in the majority of the notification. The OIC has advised that the purpose of the new rule is to “increase consumer awareness of available agency assistance and to help consumers with their insurance questions by requiring contact information for the Office of the Insurance Commissioner on adverse notifications.”

Many insurers already include similar language in claims correspondences sent to insureds in states other than Washington. Please be advised that beginning on August 1, 2020, insurers will also be required to include the above-stated language in certain adverse correspondences regarding insurance matters in Washington.

To the extent you have questions regarding this new regulation or another insurance-related issue, please do not hesitate to contact the insurance coverage team at Gordon Rees Scully Mansukhani, LLP.

The Washington State Supreme Court Rules that Claims Adjusters May Not Be Held Personally Liable for Insurance Bad Faith

In 2018, the Washington Court of Appeals, Division 1, issued a ruling which rippled through the insurance community by finding that a claims adjuster may be held personally liable for the tort of insurance bad faith. However, in October 2019, the Washington State Supreme Court held that a claims adjuster may not be personally sued for insurance bad faith or for alleged violations of Washington’s Consumer Protection Act, RCW 19.86 et seq. (“CPA”). Keodalah v. Allstate Ins. Co., Slip. Op. No. 95867-0, 2019 WL 4877438 (Wash. Oct. 3, 2019).

In Keodalah v. Allstate Ins. Co., the Supreme Court ruled there is no statutory basis for a bad faith claim against an adjuster under RCW 48.01.030 because this statute does not create an implied cause of action. The Supreme Court also re-affirmed that a bad faith claim premised upon the common law may not be pursued against an adjuster, since an adjuster is outside the quasi-fiduciary relationship between the insurer and its insured. Further, the Supreme Court held that a CPA claim may not proceed against a claims adjuster as a matter of law, regardless of whether it is premised upon a per se regulatory violation or upon alleged bad faith.

In Keodalah, an insured brought suit against their insurer and its claims adjuster for the tort of insurance bad faith and the alleged violation of the CPA in connection with the insured’s claim for underinsured motorist (“UIM”) benefits. The insured alleged that the adjuster had improperly undervalued the UIM claim by relying on incorrect information regarding the subject auto accident. Id. In part, the insured premised his bad faith claim against the adjuster on RCW 48.01.030, which broadly provides “that all persons be actuated by good faith . . . in all insurance matters.” The Supreme Court thus evaluated whether RCW 48.01.030 created an implied cause of action for bad faith against a claims adjuster.

After analyzing the issue under the 3-prong “Bennett test”, the Supreme Court held that “RCW 48.01.030 does not create an implied cause of action for insurance bad faith.” This is because RCW 48.01.030 benefits the general public interest, rather than a specific, identifiable class of persons. RCW 48.01.030 also does not contain a specific enforcement mechanism which, the Supreme Court found, “suggests that the legislature did not intend to imply a cause of action based on violations of RCW 48.01.030.” Moreover, the Supreme Court reasoned that “[i]f we were to read the statute to imply a cause of action, by the statute’s plain language, such implied cause of action would apply against insureds as well. That is, insurers would be empowered to sue their insured … [which] would not be consistent with the legislature’s purpose in enacting the statute[.]” Accordingly, the Supreme Court held that a bad faith claim may not be pursued against a claims adjuster based upon a statutory violation of RCW 48.01.030.

Notably, the Keodalah decision also re-affirmed the Supreme Court’s prior rulings that a bad faith claim premised upon the common law may not be brought against anyone other than an insurer. In citing its ruling in Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381, 715 P.2d 1333 (1986), the Supreme Court in Keodalah stated that “this court has limited bad-faith tort claims to the context of the insurer-insured relationship[.]” This is because such claims are premised upon “the fiduciary relationship existing between the insurer and insured.” Keodalah, at *15 – 16, n. 6 (quoting Tank, 105 Wn.2d at 385). The Supreme Court found that no such fiduciary relationship exists with respect to a claims adjuster, and that limiting common law bad faith claims to actions against an insurer was consistent with a long line of Washington precedent. See, e.g., St. Paul Fire & Marine Ins. Co. v Onvia, Inc., 165 Wn.2d 122, 130 n.3, 196 P.3d 664 (2008).

Finally, the Supreme Court held that a CPA claim may not be pursued against a claims adjuster, regardless of whether the claim is premised upon alleged bad faith or upon a per se violation of Washington’s regulation concerning unfair claims settlement practices, WAC 284-30-330. By its terms, WAC 284-30-330 only applies to “unfair or deceptive acts or practices of the insurer.” Keodalah, at *14 (citing WAC 284-30-330) (emphasis original). Moreover, because “RCW 48.01.030 does not itself provide an actionable duty” for bad faith, it cannot form the basis for CPA liability against an adjuster. The Supreme Court explained that it has “limited CPA claims based on breach of the statutory duty of good faith” to the insurer because it is the insurer – not the adjuster – who owes a quasi-fiduciary duty to the insured. As a result, the Supreme Court held that “[b]ecause Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship, his CPA claim based on RCW 48.01.030 was properly dismissed.”

The Washington Supreme Court Rules that a Holder of a Certificate of Insurance Is Entitled to Coverage

The Washington courts have historically found that the purpose of a certificate of insurance is to advise others as to the existence of insurance, but that a certificate is not the equivalent of an insurance policy. However, the Washington State Supreme Court recently held that, under certain circumstances, an insurer may be bound by the representations that its insurance agent makes in a certificate of insurance as to the additional insured (“AI”) status of a third party. Specifically, in T-Mobile USA, Inc. v. Selective Ins. Co. of America, the Supreme Court found that where an insurance agent had erroneously indicated in a certificate of insurance that an entity was an AI under a liability policy, that entity would be considered as an AI based upon the agent’s apparent authority, despite boilerplate disclaimer language contained in the certificate. T-Mobile USA, Inc. v. Selective Ins. Co. of America, Slip. Op. No. 96500-5, 2019 WL 5076647 (Wash. Oct. 10, 2019).

In this case, Selective Insurance Company of America (“Selective”) issued a liability policy to a contractor who had been retained by T-Mobile Northeast (“T-Mobile NE”) to construct a cell tower. The policy conferred AI status to a third party if the insured-contractor had agreed in a written contract to add the third party as an AI to the policy. Under the terms of the subject construction contract, the contractor was required to name T-Mobile NE as an AI under the policy. T-Mobile NE was therefore properly considered as an AI because the contractor was required to provide AI coverage to T-Mobile NE under the terms of their contract.

However, over the course of approximately seven years, Selective’s own insurance agent issued a series of certificates of insurance that erroneously identified a different company, “T-Mobile USA”, as an AI under the policy. This was in error because there was no contractual requirement that T-Mobile USA be added as an AI. Nonetheless, the certificates stated that T-Mobile USA was an AI, and they were signed by the agent as Selective’s “authorized representative.”

In the ensuing coverage action, a question arose as to whether T-Mobile USA could be considered as an AI given the representations in the certificates. Significantly, the Washington State Supreme Court heard the matter pursuant to a certified question from the Ninth Circuit Court of Appeals, which had previously made several important findings that guided the Supreme Court’s treatment of the case. Chief among them, the Ninth Circuit had already concluded that Selective’s “agent [had] acted with apparent authority in issuing the certificate at issue[.]”

Based upon that predicate, the Supreme Court found that Selective was bound by the representations made by its authorized insurance agent in the certificate of insurance. The Supreme Court noted the general rule in Washington that an “insurance company is bound by all acts, contracts or representations of its agent … which are within the scope of [the agent’s] real or apparent authority[.]” Because the Ninth Circuit had already found that Selective’s insurance “agent acted with apparent authority when it issued the certificate to T-Mobile USA,” pursuant to this general rule in Washington, the Supreme Court concluded that “Selective [was] bound by the representations its agent made in the certificate of insurance.”

Selective sought to argue that T-Mobile USA’s reliance on the agent’s representations was unreasonable because T-Mobile USA knew it was not a party to the construction contract, and therefore knew it was not an AI. However, the Supreme Court found this argument was foreclosed by the fact that the Ninth Circuit had already “rul[ed] that the agent acted with apparent authority[.]” As a result, the Supreme Court reasoned that “the Ninth Circuit necessarily decided that T-Mobile USA’s belief that the agent was authorized to issue a certificate naming it as an additional insured was ‘objectively reasonable’ … [and thus] its reliance on that certificate [was] reasonable.”

The Supreme Court also rejected Selective’s argument that boilerplate disclaimer language in the certificate negated the grant of AI coverage to T-Mobile USA. For example, the boilerplate language stated that the certificate “confers no rights” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by the [policy].” The Supreme Court noted, however, that these disclaimers conflicted with the apparent grant of AI coverage to T-Mobile USA, which had been specifically written into the certificate by the insurer’s agent. Applying a canon of contract interpretation, the Supreme Court held that, in this instance, the “specific written-in additional insured statement [in the certificate] … prevails over the preprinted general disclaimers.”

It is questionable whether this finding can be applied more broadly. The Supreme Court was careful to note that “we do not hold that all disclaimers are ineffective. We hold that the disclaimers at issue here are ineffective because they completely and absolutely contradict the other, more specific promises in that same certificate.” Had the disclaimers not been so directly contradicted by the specific representations in the certificates, or if the Ninth Circuit had not previously held that Selective’s agent acted with apparent authority, this case may have been decided differently.

In any event, the T-Mobile USA case is a stark reminder of the significance that representations by an insurer’s authorized agents may have on coverage issues.