In 2007, the Washington state legislature passed the Insurance Fair Claims Act (IFCA) which provided Washington consumers a legal cause of action against insurers who violate their fiduciary duty to their policyholders. The Act permits the Office of the Insurance Commissioner (OIC) to penalize insurers for, among other things, improper denial of claims in “bad faith” and overcharging customers for insurance policy premiums. In 2010, the OIC levied $583,750 in fines against insurers doing business in Washington state. According to an article1 in The Olympian dated April 7, 2011, the OIC has fined Washington insurers more than $167,000 in the first quarter of 2011 alone. Fines collected by the OIC are placed in the state’s general fund to pay for other state services.
Examples of fines and disciplinary actions in 2011 include:
• Aetna Life Insurance Company was fined $65,000 for violations, including unreasonably denying 220 claims for acupuncture treatment. In addition, the company refunded $16,427 to policyholders.
• Philadelphia based Ace American Insurance Company was fined $50,000 for using premium rates not filed with the state.
• Progressive American Insurance Company, Progressive Northwestern Insurance Company. and Progressive Max Insurance Company were fined $30,000 for improperly deducting sales tax and fees from cash value calculations in more than 1,700 auto claims. Another $415,299.00 was also refunded to its policyholders.
The insurance companies have responded. In an article by the Puget Sound Business Journal dated May 17, 2011, Karl Newman, president of the Northwest Insurance Council (NWIC) was quoted as saying:
Insurance companies have a fiduciary [duty] to pay every legitimate claim and deny everything that’s not covered under the contract … The law [IFCA] came from a flawed assumption [there wasn’t enough protection in place for policyholders].”2
According to the NWIC, the Insurance Fair Claims Act has overburdened the insurance industry with unnecessary costs, causing insurance companies to compare the cost of paying a claim it considers fraudulent against the risk of defending its decision to deny a claim in court.
According to the NWIC, there has been a 9.3% increase of “questionable claims” in Washington state since 2008, costing an alleged $200 million in claims related costs. In spite of the claimed increase in indemnity and claims related expenses allegedly caused by IFCA, insurance companies in the state of Washington remain extremely profitable, collecting $8.4 billion in new premiums, while paying out $5.1 billion in claims in 2009, according to the OIC.
Anyone with a complaint against an insurer, agent or broker can contact the insurance commissioner’s office at 1-800-562-6900 or file a complaint at www.insurance.wa.gov.