State Insurance Regulators Ask Insurers to Extend Deadlines Following Storm

On December 3, 2007, a major storm caused flooding, mudslides, and other problems across Western Washington and Oregon. Insurance regulators in Washington and Oregon have responded with efforts to ease the burden on affected insurance consumers.

Yesterday, December 19, 2007, Washington Insurance Commissioner Mike Kreidler issued a notice asking that "all regulated entities issuing a contract of insurance in the affected areas voluntarily extend any time limit placed on an insured to perform any act or transmit information or funds to January 10, 2008." The "affected areas" include Grays Harbor, Lewis, Mason, Pacific, and Thurston counties, which were recently declared federal disaster areas by FEMA. Kreidler specifically requested that insurers "withdraw and reissue any notice or cancellation mailed one week prior to December 3, 2007 and not issue any new policy cancellations or non-renewals" in these counties.

Update: In response to requests for clarification from the industry, the OIC has narrowed its request to specific zip codes in the "affected areas." The following additional counties are included: Clallam, Jefferson, King, Kitsap, Skagit, Snohomish, and Wahkiakum.

In a press release by the Office of the Insurance Commissioner (OIC), Kreidler was quoted as saying, “I believe that this will help provide some small measure of comfort and peace of mind during the early recovery process, and help ensure that these winter storm victims do not lose insurance coverage during the time they need it most.” Kreidler cited concerns about "widespread disruption of mail, energy, transportation and basic communication services."

The OIC press release explains that "[t]he Insurance Commissioner's plea is a call for voluntary cooperation since he has no authority to order such relief." Oregon's insurance regulator, the Insurance Division of the Department of Consumer and Business Services, does not construe its authority so narrowly.

On December 7, 2007, the Insurance Division entered a mandatory emergency order that provides (among other things, and with certain exceptions), "As to any policy provision, notice, correspondence, or law that imposed a time limit upon an insured to perform any act or to transmit information or funds with respect to a contract of insurance, which act was to have been performed on or after December 3, 2007, the time limit shall be extended to January 3, 2008." The order prohibits insurers from canceling or not renewing policies until January 3, 2008, and from canceling or not renewing a policy solely because of a claim resulting form the storm. Insurers must withdraw and reissue any notices of cancellation issued or mailed the week preceding December 3, 2007.

The Oregon order applies to insurance contracts "issued, delivered, or covering a risk located in the areas within Lincoln, Tillamook, Clatsop, Columbia and Yamhill Counties that have been affected by the severe winter storm." The areas covered by the order are further narrowed by zip code.

Like Commissioner Kreidler, the Oregon Insurance Division cited concerns about disruption of electricity and mails. A press release by the Insurance Division quoted its acting administrator, Carl Lundberg, as stating, "The storm has disrupted the lives of many Oregonians, and, as a result, many of them nay not receive a cancellation notice or not be able to pay their insurance premiums on time. We want to ensure no one loses insurance coverage because of the storm."

Insurance Commissioner Receives 99 IFCA Notices

Before filing suit to recover under the Insurance Fair Conduct Act (IFCA), the first-party claimant must give 20-days written notice to the insurance company. A copy of the notice must also be filed with the Office of the Insurance Commissioner (OIC).

Although the IFCA was enacted by the legislature in April 2007 and signed by Governor Gregoire in May 2007, it only recently became effective due to a citizen petition for referendum. Voters approved the law on November 6, 2007, and it became effective on December 6, 2007, under article 2 section 1 of the Washington State Constitution.

Nonetheless, the OIC has been receiving IFCA notices since May 2007, a total of 99 notices (including a few "second" notices) over the course of about seven months:

May............................4 notices
June...........................2 notices
July...........................10 notices
August........................22 notices
September...................17 notices
October......................10 notices
November...................13 notices
December 1 through 13....21 notices

Click here to view a list of the IFCA notices received by the OIC through December 13, 2007.

Watch for regular updates to be posted on this blog.

Note: The receipt of an IFCA notice by the OIC does not mean that the claim has merit or that the insurance company has violated any laws. It serves only as evidence that the claimant has notified the OIC and the insurer pursuant to IFCA that the claimant intends to file suit against the insurer if the alleged basis for the claim is not resolved within 20 days. Accuracy of the information is not guaranteed.

Mitigating the Impact of the Insurance Fair Conduct Act

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.