The Insurance Fair Conduct Act (Referendum 67) becomes effective December 6, 2007, and insurance companies are seeking ways to mitigate the impact. Obviously, diligent compliance with the claims settlement regulations in WAC 284-30 remains a priority. And since the stakes are higher if a denial of coverage or benefits is found to have been “unreasonable,” increased review of such decisions may be called for, particularly for claims involving large losses.
There are at least two less obvious ways to mitigate the impact in particular cases.
First, all claims filed under the Insurance Fair Conduct Act, which likely will include most bad faith claims, must be preceded by a 20-day notice of claim to the insurer and the insurance commissioner. (The Office of the Insurance Commissioner has created a "cover sheet" for the notice.) An action may then be brought only if the insurer “fails to resolve the basis for the action” within 20 days. When received, such notices should be forwarded to senior claims personnel. The notices provide an opportunity that did not exist before to avoid or mitigate the impact of bad faith litigation. Depending on the insurer’s response, the litigation might be avoided, the claimant might need to prove that the insurer’s response did not resolve the basis for the action, or the potential bases for alleging bad faith might be narrowed.
Second, the Insurance Fraud Reporting Immunity Act, chapter 48.50 RCW provides immunity from liability for bad faith or other extra-contractual damages if the insurer relies on a “written opinion” from an “authorized agency” that the claim is under investigation or that a crime has been charged. If an insurer suspects that a claim might be fraudulent, the insurer should report the claimant to an “authorized agency” (e.g., law enforcement, the attorney general, or the insurance commissioner) and obtain a “written opinion” from such agency that the claimant is being investigated or has been charged with a crime. The Insurance Fraud Immunity Act also provides immunity from liability in any civil or criminal action arising from the reporting of information to an authorized agency under the fraud reporting provisions of the insurance code.
Insurers are advised to consult legal counsel about these and other ways to mitigate the potential impact of the Insurance Fair Conduct Act in general and in particular cases.