The Washington State Court of Appeals, Division II, has issued a published opinion upholding a lower court’s decision that permits an insured motorist to maintain legal claims against her automobile insurance carrier, despite the company having subsequently satisfied an arbitration award. The appellate ruling, released Tuesday, sustains a judgment entered by Clallam County Superior Court Judge Simon Barnhart on May 10, 2024.
The legal dispute centers on the interpretation of the state’s Insurance Fair Conduct Act, specifically whether a carrier is protected from liability for extracontractual damages once it pays an arbitration award following a coverage dispute.
The underlying incident occurred in November 2018, when a local driver was involved in a collision and was found to be entirely at fault. Because the negligent driver’s liability policy capped out at $100,000, the plaintiff’s initial personal injury claim proceeded to mandatory arbitration. To enter that specific arbitration process, the plaintiff executed a document waiving any claims exceeding the $100,000 policy limit.
In January 2021, an arbitrator awarded the plaintiff $85,929.35. Rather than pursuing a new trial, the plaintiff and the at-fault driver settled for that amount. The superior court then filed a stipulation dismissing the case with prejudice, noting the matter was fully settled.
Following the settlement, the plaintiff filed an underinsured motorist (UIM) claim with her own insurer, seeking to access her $250,000 UIM policy limit. She argued that her total damages surpassed the settlement amount. The insurer, however, calculated her gross damages at $77,214.46, relying exclusively on its review of submitted medical records.
The carrier excluded damages incurred after July 2019, citing a note from the plaintiff’s physical therapist that she was "pain free" and that postconcussive symptoms had not yet been reported. Since the insurer’s damage estimate was lower than the $85,929.35 settlement received from the at-fault driver, the company initially refused to pay additional UIM benefits without further documentation.
Represented by attorneys based in Port Townsend, the plaintiff sued the insurer for breach of contract. A second arbitration proceeding determined that her total crash-related damages amounted to $205,590. On June 21, 2023, the insurer paid the plaintiff $94,822.80. This payment represented the remaining balance of her damages after accounting for the $100,000 limit of the at-fault driver’s policy and personal injury protection payouts already issued.
In the superior court, Judge Barnhart denied the insurer’s motion, stating that no Washington State legal authority supported the company’s position. The insurer subsequently sought discretionary review from the Court of Appeals to certify the legal questions, which paused the local trial proceedings.
In its Tuesday decision, the three-judge appellate panel unanimously sided with the trial court. Judge Rebecca Glasgow, writing for the panel, clarified that the waiver signed by the plaintiff was strictly limited to the initial arbitration with the at-fault driver. Because the parties reached a settlement and the trial court never entered a final judgment on that specific arbitration award, the plaintiff was not legally barred from seeking UIM coverage from her own insurer.
The appellate court further ruled that an insurer’s eventual payment of an arbitration award does not automatically shield the company from claims regarding an allegedly unreasonable initial denial of coverage.
A Clallam County Superior Court panel has ruled that an insurance company’s subsequent payment of benefits does not automatically dismiss a claim for extracontractual damages arising from an allegedly unreasonable initial denial. Writing for the majority, Judge Glasgow stated that the core purpose of the Insurance Fair Conduct Act is to safeguard policyholders. Consequently, if a final damages determination has already been reached, later payments do not bar a lawsuit alleging that the insurer’s initial refusal to pay was unreasonable. Judges Anne Cruser and Bernard Veljacic agreed with the majority’s reasoning.
The court clarified that its ruling does not establish that First National’s initial conduct was objectively unreasonable. The opinion explicitly noted that the decision does not determine, as a matter of law, that the insurer acted reasonably. Instead, the factual questions regarding whether the insurer effectively denied the claim or behaved unreasonably are reserved for a jury or other fact-finder in a subsequent proceeding.
This ruling permits the lawsuit filed by a local resident to proceed past the summary judgment stage and continue through the court process in Clallam County.