From the Desk of Kyle Riley: In this case, the United States District Court for the Western District of Washington certified the question of how “actual damages” are calculated under the Insurance Fair Conduct Act.
Claims Pointer: Washington’s Insurance Fair Conduct Act (“IFCA”) permits a prevailing party to recover up to three times the actual damages incurred in an action against an insurer. However, the term “actual damages” is not defined in the statute, and courts have had difficulty clarifying the term. Now, a federal court has requested that the Washington Supreme Court define what constitutes “actual damages” under IFCA. Insurers should pay close attention to this case as it proceeds through the court system, as a finding by the Washington Supreme Court could greatly impact how insurers choose to process claims.
Morella v. Safeco Ins. Co., 2013 U.S. Dist. LEXIS 53255 (W.D. Wash. April 12, 2013).
In 2006, Enzo Morella was struck by an uninsured motorist. Following the accident, Morella received physical therapy, massage therapy, and various medications to treat his pain. Safeco, Morella’s insurer, offered Morella $1,500 to settle his uninsured motorist claim. Morella rejected that offer. After receiving additional treatment, including chiropractic therapy, Safeco renewed its $1,500 settlement offer, which Morella again rejected.
Safeco’s policy mandated arbitration, which Morella requested in 2009. The arbitrator awarded Morella $62,000 in general damages. Morella then filed suit against Safeco, alleging breach of contract, bad faith, and violations of the IFCA. Morella moved for summary judgment.
The District Court rejected Safeco’s argument that because it did not deny coverage or benefits outright under the policy, IFCA did not apply. Instead, the Court concluded that an insurer “cannot escape IFCA simply by accepting a claim and paying or offering to pay an unreasonable amount.” The paltry amount offered by Safeco, coupled with its lack of investigation into the extent or Morella’s losses, amounted to an effective denial of Morella’s claims.
After determining Safeco’s fault, the Court turned to the question of “actual damages.” Under IFCA, a court can award up to three times the actual damages. Morella argued that his actual damages were the $62,000 awarded at arbitration. Safeco, however, pointed out that Morella had already received that amount at the time that he filed his lawsuit and, therefore, awarding that amount would constitute double recovery. This stumped the Court, which went on to ask, “What then, are the ‘actual damages’ that may be recovered in this IFCA action? Is it the $62,000 awarded in arbitration or is it simply the loss of use of that money for some period of time, the costs of the arbitration proceeding itself, or some other compensable injury?”
The Court, seeking an answer to this question from a state court, certified the question to the Washington Supreme Court, and stayed the present matter. By “pressing pause” on Morella’s lawsuit, the federal court hopes to avoid misinterpreting a tricky area of state law.
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