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  • Inge Johnstone

Leveling the Playing Field: Tools for Protecting Policyholders in the State of Washington


A policyholder being protected by insurance: the ultimate goal

Different states have different tools for protecting insurance policyholders from wrongful claims denials and other insurer malfeasance. If you want to see how the various states rank in terms of protecting policyholders you can check out the Essential Protections for Policyholders Project by Rutgers University and specifically this chart. Washington, South Carolina, and Hawaii top the list, each receiving five stars for giving policyholders tools  to enforce their rights against insurance companies. Since I am a member of the Washington bar, this brief article will explain the tools available in Washington for policyholders  and offer a glimpse of what other states might do to help level the playing field.


Bad Faith

In Washington, insurers have an obligation to deal with their policyholders fairly and treat the policyholder’s interests with equal regard to the interests of the insurance company. Bad faith occurs when an insurance company breaches its obligations by putting its interests first. See Anderson v. State Farm Mutual Insurance Co., 2 P. 3d 1029, 1033 (Wash. Ct. App. 2000).

Damages for bad faith can include “potential effect on the insured’s credit rating, damage to reputation ... loss of interest, attorney fees and costs, financial penalties for delayed payments, and emotional distress, anxiety, and fear.” Rybecki v. Progressive Casualty Insurance Co., 2023 WL 8544775 at *8 (Wash Ct. App. 2023).


Consumer Protection Act

A consumer can bring an action for violation of Washington’s Consumer Protection Act for various deceptive claims practices of insurers. Rybecki. The Washington legislature has specifically provided that the business of insurance is one affecting the public interest and that both insurers and insureds must act in good faith. See RCW 48.30.010. In addition, the Washington Administrative code provides a laundry list of prohibited claims behaviors from insurers including prohibitions against “refusing to pay claims without conducting a reasonable investigation” and forcing insureds into litigation by offering substantially less than the value of the claim. See WAC 284-30-330.


For violation of the Washington Consumer Protection Act, a policyholder can recover actual damages, costs of the suit and attorneys’ fees. RCW 19.86.090. A court may also award treble damages (triple the amount of actual damages- similar to punitive damages) up to a maximum of $25,000.


The Insurance Fair Conduct Act

The Washington Insurance Fair Conduct Act allows policyholders to file suit against property and casualty insurance companies that unreasonably deny claims. If the court finds that a claim denial was unreasonable, the insured can recover damages, including noneconomic damages like mental anguish, costs of the suit, and attorneys’ fees. In addition, if the court also finds that the insurance company has committed deceptive trade practices, like those mentioned in WAC 284-30-330, it may award treble damages.

Before bringing suit under this remedy, a policyholder must provide twenty days’ notice to the insurance company and the Department of Insurance and allow the insurance company an opportunity to correct the problem.


Breach of Contract

As in other states, a policyholder can sue for breach of contract and can recover policy benefits. In addition, to policy benefits, a policyholder also can recover consequential damages that result from a denial of benefits. See Rybecki at *11. In addition, when an insurer contests coverage, the policyholder can recover attorneys’ fees incurred in proving coverage. See Olympic S.S. Co. v. Centennial Ins. Inc., 811 P.2d 673, 681 (Wash. 1991).


In Conclusion

Washington provides a good example of how laws can level the playing field between insureds and insurers. Insurers collect premiums from their policyholders. They then use these premiums to pay their attorneys to challenge coverage and reduce payments. When policyholders can’t recover their attorneys’ fees in litigation, they often can only afford to sue an insurance company for a denial of a very large claim. This means that insurers can get away with denying many claims knowing that the insured will have a limited ability to challenge the denial. It also means that even if the insured recovers the policy benefits, they are not made whole because they had to pay an attorney to force the insurance company to pay the benefits they should have paid in the first place. Allowing recovery of attorney’s fees to policyholders for wrongful denial of claims by insurance companies puts the policyholder in the same position they would have been in had the claim been paid.


By setting out in statutes and regulations the behaviors that will give rise to bad faith liability, Washington gives insures a clear code of conduct to follow and allows for clarity in litigation. In addition, by allowing treble damages on appropriate occasions and attorneys’ fees, Washington discourages bad faith but doesn’t endanger the insurance marketplace.

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