Two More Federal District Court Judges Hold IFCA Is Not Retroactive

This blog previously reported on Magistrate Judge James P. Donohue’s decision in ESS Enterprises, LLC v. AMCO Insurance Co. (W.D. Wash. 2008) that the Insurance Fair Conduct Act (IFCA) does not apply to conduct predating the effective date of the Act, December 6, 2007. Two federal district court judges have recently followed suit.

1. Malbco Holdings, LLC v. AMCO Insurance Co. (E.D. Wash. 2008)

On March 11, 2008, Chief Judge Robert H. Whaley of the United States District Court for the Eastern District of Washington denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct occurring before the effective date of the Act.

In 2004, a hotel owner filed an insurance claim with two insurers for water damage to the hotel. The insurers denied the claims. In 2005, the hotel began to collapse from the water damage, which led the hotel owner to re-tender the claims in 2006. Both insurers again denied the claims in March and September 2007. The hotel owner filed suit in October 2007.

In January 2008, the hotel owner moved to amend its complaint to add claims under IFCA. The court ruled, “It is apparent from the language of the IFCA that the Legislature did not provide for retroactivity, it is not curative, and it is not remedial. The Washington Legislature has not expressed an intent to apply the IFCA retroactively, and indeed the statute is worded in present and future tenses.” The court noted that the property damage, insurance claims, and denials “all occurred well before the enactment of the IFCA,” and further that resubmitting claims after IFCA became effective does not constitute a new or continuing violation because this “would allow an end run around the Legislature’s intent.”

Update: The Malbco ruling has been selected for publication in F. Supp. 2d.

2. Aecon Buildings, Inc. v. Zurich North America (W.D. Wash. 2008)

On March 28, 2008, Judge Marsha Pechman of the United States District Court for the Western District of Washington similarly denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct that occurred before the effective date of the Act.

Aecon Buildings, Inc., a general contractor, settled an owner’s claims against Aecon and then tendered a request for indemnification to certain subcontractors’ insurers in 2006. Aecon filed suit against the insurers in April 2007.

In February 2008, Aecon moved to amend its complaint to add an IFCA claim. Aecon contended that IFCA is retroactive because it is “remedial.” The court ruled, “Although [IFCA] relates to remedies -- it provides for actual and treble damages, costs, and attorneys’ fees -- it also affects substantive rights by creating an entirely new right of action for first party insurance claimants unreasonably denied their claims.” The court also reasoned that IFCA cannot be applied retroactively because it provides for recovery of a penalty and “is couched in forward-looking language.”

The Malbco and Aecon rulings, like HSS Enterprises, are not binding on state courts in Washington. However, they represent a clear rejection of retroactivity arguments in federal court, and their reasoning is likely to be followed in state court.