Washington State is already a policyholder-friendly jurisdiction, and the amendments proposed by Patty Kuderer, the newly minted Insurance Commissioner, would only strengthen the protections that Washington law provides to its policyholders. The website for the Office of the Insurance Commissioner (“OIC”) provides the impetus for the proposed changes:
While the state’s total number of automobile and homeowners’ insurance claims has remained consistent over the past six years, the insurance commissioner has received an increase in consumer complaints and Insurance Fair Conduct Act notices, which indicate a consumer’s intent to sue their insurer. The spike in consumer complaints and lawsuits against insurers indicates potential insurance code violations.
Any changes proposed by the OIC are significant because they modify the terms and conditions of insurance policies, creating new obligations for insurers. See, e.g., Britton v. Safeco Ins. Co., 104 Wash.2d 518, 526 (1985) (“an insurance regulatory statute becomes a part of the policy of insurance”).
So what are the proposed changes, and why should policyholders care?
Relief for Insureds Stuck between a Rock and a Hard Place
If an insured experiences a loss, insurance policies typically provide contradictory directives: on the one hand cautioning the policyholder against incurring any additional costs without the insurer’s consent, but on the other hand requiring the policyholder to take “reasonable” efforts to mitigate damages and prevent further loss.
One of the proposed additions (WAC 284-30-330(20)) would require insurers to approve a proposed course of action submitted by policyholders to protect “property from further damage after a loss event” within five business days. If an insurer rejects the policyholder’s proposed scope of mitigation, it must then “disclose the reasons why” and include a “dollar amount itemization of the disapproved items.”
Easier Access to Claim Files for Policyholders and Bigger Hurdles for Insurers to Withhold them
This proposed amendment to WAC 284-30-340 (“File and record documentation”) would codify the process through which policyholders can obtain and review insurers’ “claim files” which largely tracks Washington’s case law on the topic. See, e.g., Cedell v. Farmers Ins. Co. of Washington, 196 Wn.2d 686, 207 (2013) (holding that the insured “is entitled to broad discovery, including, presumptively, the entire claims file.”); Bagley v. Travelers Home and Marine Ins. Co., 2016 WL 4494463 5 (W.D. Wash) (ordering insurer to produce “all documents in [an insured’s] claim file that relate to claim handling,” including training materials and claim manuals, employee compensation information, personnel files, and loss ratio/profit information).
What a Claim File Includes
WAC 284-30-340, as it currently exists, dictates what should be in a “claim file”: “all notes and work papers pertaining to the claim in enough detail that pertinent events and dates of the events can be reconstructed.” The proposed amendment to WAC 284-30-340 adds a section providing that “First party claimants [those seeking coverage under policies that they purchased] have the right to request and receive “any portion” of the claim file, which includes but is “not limited to” the following:
- All written reports
- Claim notes,
- Estimates, bids, plans, measurements, and drawings,
- Engineer reports,
- Contractor reports,
- statements,
- photographs,
- video recordings, or
- any other documents or communications
Amendment to Claim File Rules
The proposed amendment provides that an insurer has 15 business days from the date it receives the request to produce “all of the appropriate requested claim documents” to the insured. An insurer may withhold a part of the claim file if it is “legally privileged, contains third-party financial information,” or if it is a “specific investigative record” that must not be disclosed due to the “reasonable investigation of alleged criminal activity.”
Another aspect of the proposed amendment would make it harder for insurers to refuse to produce their claim files on assertions of privilege and/or proprietary information, reasons commonly cited by withholding insurers. See Cedell and Bagley. Under the proposed amendment, an insurer who refuses to produce any part of the claim file for the foregoing reasons must “provide a log indicating what the withheld information is and the reason for either the assertion of privilege, or nondisclosure, or both.”
The amendment would give Washington insureds the ability to request and receive information that the insurer is obligated to produce and to record. Insureds would be able to recover this information without a court order and assess whether their insurer acted appropriately and reasonably.
Insureds Are Entitled to Substantive Updates and Specificity Regarding Insurer Investigation
As WAC 284-30-370 currently stands, Washington regulations require that an insurer has 30 calendar days from the time it receives a claim for policy benefits to investigate the facts surrounding the loss, investigate the relevant polic(ies) (coverages available to the insured and / or potential exclusions or limitations), and to provide its coverage position to the insured, in which the insurer applies the facts of the loss against the relevant policy language and applicable law. If the insurer is unable to complete the above within 30 calendar days, it must notify the insured.
Deadline and Substantive Updates on Insurer Investigations
A proposed change to WAC 284-30-370 would impose additional responsibilities on those insurers unable to complete their investigations within 30 calendar days. Under the proposed amendment, if 30 calendar days have passed before the insurer completed its investigation, the insurer’s notice to the insured must include, at a minimum, “a summary of any decisions or actions that are substantially related to this disposition of a claim,” including:
- the amount of loss;
- every item the insurer is waiting on to complete its investigation of the claim; and
- if a new adjuster is assigned, confirmation that the new adjuster has reviewed the claim file and is prepared to timely continue the investigation
This proposed change would provide insureds with a mechanism to make sure the insurer is actively working to investigate the claim. Moreover, an insurer would breach the proposed amendment if it sent boilerplate “our investigation is ongoing” letters that do not provide any substantive update to the insured. Instead, those insurers would have to specifically outline any items preventing the completion of their investigation. Insurers would be obligated to complete and share a valuation of the insured’s loss, and insureds could rest easier knowing that changes in adjusting personnel cannot slow down the resolution of their claim without liability for unfair claims-handling practices.
Prohibiting Unfair Claim Settlement Estimation Practices
The OIC’s apparent goal of improving an insured’s access to information is also borne out in another proposed amendment to WAC 284-30-330, titled “Specific unfair claims settlement practices defined.” The proposed amendment to subsection (4), which prohibits claim denials without a reasonable investigation, adds to the existing provision that “A reasonable investigation includes, but is not limited to, conducting a reasonable individual assessment of either the covered loss, or damages, or both,” and specifically notes that a reasonable investigation “cannot rely solely on the use of a database, which includes, but is not limited to, estimating software and benchmarks gathered from one or multiple databases.”
For more on the OIC’s rulemaking process, visit this OIC webpage.
Miller Nash’s insurance recovery attorneys are glad that the OIC periodically revises claims handling regulations to align with the needs of Washington’s policyholders. Our insurance recovery team will continue to monitor the amendment process and will report back once the OIC has finalized the amended regulations.
This article is provided for informational purposes only—it does not constitute legal advice and does not create an attorney-client relationship between the firm and the reader. Readers should consult legal counsel before taking action relating to the subject matter of this article.
