Insurance Bad Faith Demand Letter - Washington

INSURANCE BAD FAITH DEMAND LETTER

State of Washington

[LAW FIRM LETTERHEAD]

SETTLEMENT COMMUNICATION - FOR RESOLUTION PURPOSES ONLY
WASH. ER 408 / FED. R. EVID. 408 MAY LIMIT SPECIFIED USES OF DISPUTED-CLAIM NEGOTIATIONS; THEY DO NOT CREATE A GENERAL PRIVILEGE

VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [________________________________]

Date: [__/__/____]

[________________________________] (Insurer)
[________________________________]
[________________________________], [____] [____]

Attention: [________________________________], [Title]
Re: FORMAL BAD FAITH DEMAND — WASHINGTON LAW
Insured: [________________________________]
Claimant: [________________________________]
Policy Number: [________________________________]
Claim Number: [________________________________]
Date of Loss: [__/__/____]
Policy Limits: $[____]
Response Deadline: [__/__/____] at 5:00 p.m. Pacific Time (TIME-LIMITED DEMAND)

Dear [________________________________]:

I. INTRODUCTION

This firm represents [________________________________] ("our client") in connection with the above-referenced insurance claim arising under Washington law. This letter constitutes a formal pre-litigation demand for payment of policy benefits wrongfully withheld and a warning of [________________________________]'s ("the Company") exposure to common-law bad-faith, Insurance Fair Conduct Act ("IFCA"), and Consumer Protection Act ("CPA") remedies.

Washington has one of the most insured-protective bad faith regimes in the country. The Washington Supreme Court has held for more than four decades that "the business of insurance is one affected by the public interest" (RCW 48.01.030) and that insurers owe their insureds a "heightened, fiduciary-like" duty of good faith. Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385, 715 P.2d 1133 (1986). The Company's conduct in this matter is a textbook violation of that duty and invites significant liability under Butler, IFCA, and the CPA.

This is a time-limited demand. The Company has until [__/__/____] at 5:00 p.m. Pacific Time to tender the full amount owed of $[____] and reach a mutually acceptable resolution. Failure to do so will trigger the formal 20-day pre-suit notice under RCW 48.30.015(8), followed by litigation in Washington Superior Court seeking the full range of statutory and common-law remedies.

II. THE WASHINGTON BAD FAITH FRAMEWORK

Washington law provides common-law bad-faith, IFCA, and CPA theories for qualifying claim handling, each with its own elements and remedies:

A. Common Law Bad Faith (Tort)

An insurer's bad faith in handling a claim is an independent tort. Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 389, 823 P.2d 499 (1992); Tank, 105 Wn.2d at 385. The question is whether the insurer's conduct was "unreasonable, frivolous, or unfounded." Smith v. Safeco Ins. Co., 150 Wn.2d 478, 484, 78 P.3d 1274 (2003).

First-party harm. The insured must prove harm caused by bad-faith claim handling. Butler's presumption of harm and coverage-by-estoppel remedy do not extend to adjustment of first-party claims. Coventry Associates v. American States Ins. Co., 136 Wn.2d 269, 281 (1998).

Independent Tort Even Without Coverage. First-party bad faith is actionable "even where no coverage exists," because the insurer's duty to investigate and evaluate is independent of coverage. Coventry Associates v. American States Ins. Co., 136 Wn.2d 269, 279–80, 961 P.2d 933 (1998).

Remedies include:

• Full policy benefits
• Consequential damages (economic loss caused by the bad-faith handling)
• General tort damages
• Emotional distress damages where proven
• Attorneys' fees under Olympic Steamship

B. Insurance Fair Conduct Act — RCW 48.30.015

IFCA was enacted by Washington voters (Referendum 67) in 2007 and is codified at RCW 48.30.015. It permits a first-party claimant "unreasonably denied a claim for coverage or payment of benefits" to recover:

1. Actual damages sustained (including the full policy benefits);
2. Treble damages at the court's discretion, up to three times actual damages (RCW 48.30.015(2));
3. Reasonable attorneys' fees and litigation costs, including expert fees (RCW 48.30.015(3)); the court must award these to a prevailing first-party claimant in a qualifying action after finding an unreasonable denial or a violation of a rule listed in subsection (5).

When an IFCA cause of action is established through an unreasonable denial of coverage or payment, a violation of a rule listed in RCW 48.30.015(5) — including WAC 284-30-330, -350, -360, -370, and -380 — may support the statute's additional damages and fee remedies. A rule violation alone does not create an IFCA cause of action.

Note: The Washington Supreme Court in Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wn.2d 669 (2017), clarified that a violation of a WAC regulation alone does not create an IFCA cause of action absent an unreasonable denial of benefits or coverage. A regulatory violation combined with an unreasonable denial, however, remains the strongest IFCA posture.

20-Day Pre-Suit Notice. RCW 48.30.015(8) requires written notice to the insurer and the Washington Office of the Insurance Commissioner at least 20 days before filing an IFCA action. This letter is a precursor to that formal notice.

C. Consumer Protection Act — RCW 19.86

A qualifying unfair-claims practice may support the CPA unfair-or-deceptive-act element. Indus. Indem. Co. of the Nw. v. Kallevig, 114 Wn.2d 907, 923, 792 P.2d 520 (1990). The claimant must prove the remaining elements. Elements: (1) unfair or deceptive act, (2) in trade or commerce, (3) public interest impact, (4) injury to business or property, (5) causation. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778 (1986).

CPA remedies include actual damages and a discretionary increase up to three times actual damages, with a $25,000 cap on the increased award for RCW 19.86.020 violations, plus attorneys' fees, costs, and injunctive relief (RCW 19.86.090).

D. Statutory Statement of Good Faith — RCW 48.01.030

RCW 48.01.030 states the insurance code's good-faith policy. It does not create an additional, separate private claim. Keodalah v. Allstate Insurance Co., No. 95867-0 (Wash. Oct. 3, 2019).

III. POLICY AND COVERAGE

A. Policy Details

B. Coverage Analysis

The policy provides coverage for [________________________________]. The loss clearly falls within the insuring agreement, and no exclusion applies. Washington construes insuring agreements broadly and exclusions narrowly against the insurer. Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165 (2005); Weyerhaeuser Co. v. Commercial Union, 142 Wn.2d 654 (2000).

Having acknowledged coverage (or having failed to timely deny under WAC 284-30-380), the Company owes the following affirmative duties under Washington law:

• Full, fair, and objective investigation (Tank, 105 Wn.2d at 386)
• Equal consideration of insured's interests (Tank, 105 Wn.2d at 388)
• Timely communication (WAC 284-30-330(2), -360)
• Completion of the investigation within 30 days after claim notice unless it cannot reasonably be completed in that period (WAC 284-30-370)
• Acceptance or denial within 30 calendar days after claim notification, or reasons for more time within that period and written updates every 30 calendar days while the investigation remains incomplete (WAC 284-30-380(1), (3); these timelines exclude medical professional liability claims)
• Good faith effort at prompt, fair, and equitable settlement (WAC 284-30-330(6))
• Honest and transparent explanation of coverage decisions (WAC 284-30-330(13))
• Refrain from compelling litigation through unreasonable offers (WAC 284-30-330(7))

IV. FACTUAL BACKGROUND

A. The Underlying Loss

On [__/__/____], [________________________________ DETAILED NARRATIVE ________________________________]

B. Chronological Timeline of Bad Faith Conduct

V. SPECIFIC BAD FAITH CONDUCT

The Company's handling of this claim constitutes bad faith under Butler and Tank and violates multiple WAC 284-30 regulations:

A. Unreasonable Delay — WAC 284-30-330(2), -360, -370, -380

• [________________________________]
• [________________________________]
• [________________________________]

The facts identified above may establish violations of Chapter 284-30 WAC. A regulatory violation can support a CPA claim, but under Perez-Crisantos a WAC violation alone does not create an IFCA cause of action without an unreasonable denial of coverage or payment of benefits.

B. Inadequate Investigation — WAC 284-30-330(3), (4)

• [________________________________]
• [________________________________]
• [________________________________]

RCW 48.01.030 requires good faith, honesty, and equity in insurance matters. The Company should identify the records it reviewed, explain how it investigated the concerns listed above, and address the evidence supporting this claim.

C. Unreasonable Valuation / Lowball Offers — WAC 284-30-330(6), (7)

Per WAC 284-30-330(7), compelling an insured to litigate by offering substantially less than amounts ultimately recovered is a per se unfair practice.

D. Misrepresentation of Policy Provisions — WAC 284-30-330(1)

The Company has misrepresented policy terms and applicable Washington law by: [________________________________].

E. Failure to Provide Basis for Denial — WAC 284-30-330(13)

The Company has failed to provide a "reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law" for its denial or reduced offer.

F. Failure to Communicate — WAC 284-30-330(2)

• [________________________________]
• [________________________________]

G. Inadequate Reserves / Improper Pressure

On information and belief, the Company's reserves on this claim have been manipulated for litigation-avoidance purposes rather than to reflect exposure, a further indicator of bad faith.

VI. STATUTORY VIOLATIONS

A. WAC 284-30-330 — Checklist of Violations

The Company's conduct independently violates the following subsections of WAC 284-30-330:

☐ (1) Misrepresenting pertinent facts or policy provisions
☐ (2) Failing to acknowledge and act promptly on communications
☐ (3) Failing to adopt reasonable investigation standards
☐ (4) Denying or refusing to pay a claim, in part or in full, without a reasonable investigation
☐ (5) Failing to affirm or deny coverage within a reasonable time after claim notice
☐ (6) Not attempting good-faith settlement when liability is reasonably clear
☐ (7) Compelling a first-party claimant into litigation, arbitration, or appraisal through offers substantially below amounts ultimately recovered
☐ (8) Attempting to settle for less than a reasonable person would believe was owed by reference to advertising material accompanying or made part of an application
☐ (9) Making a first-party claim payment without a statement identifying the coverage under which payment is made
☐ (10) Asserting a policy of appealing arbitration awards favorable to insureds or first-party claimants to compel a lower settlement
☐ (11) Delaying investigation or payment by requiring substantially duplicate documents or information from a claimant or provider
☐ (12) Failing to settle promptly under one coverage to influence settlement under another
☐ (13) Failing to promptly provide a reasonable explanation for denial / compromise
☐ (14) Unfairly treating a claimant differently because the claimant is represented by a public adjuster
☐ (15) Failing to honor a settlement draft within three business days after notice of receipt by the payor bank, absent a valid settlement-related reason
☐ (16) Failing to implement reasonable settlement-payment procedures, including the rule's applicable 15-business-day payment and 20-business-day release-document standards
☐ (17) Delaying or increasing the cost of appraisal through an unnecessary out-of-area appraiser
☐ (18) Exercising a contractual appraisal right without first making a good-faith settlement effort
☐ (19) Negotiating or settling directly with a claimant known to be represented by an attorney without the attorney's knowledge and consent, subject to the rule's routine-inquiry exception
☐ (20) Failing to approve or provide an approved mitigation scope within five business days of receipt when the policy requires protection from further damage
☐ (21) Rejecting a mitigation scope without the rule's explanation and dollar itemization
☐ (22) Requiring an appraisal-clause appraiser to change an actual-cash-value figure or loss valuation during appraisal
☐ (23) Providing inaccurate information to a nationwide specialty consumer reporting agency

B. WAC 284-30-360, -370, -380 — Claim Handling Timeline Violations

VII. DAMAGES UNDER WASHINGTON LAW

A. Contract Damages

B. Consequential Damages

Washington recognizes tort damages for consequential loss caused by bad-faith handling:

C. Emotional Distress Damages

Emotional distress damages are recoverable in first-party bad-faith tort actions in Washington where supported by evidence. Anderson v. State Farm, 101 Wn. App. 323 (2000). Our client has suffered [________________________________].

Estimated emotional distress damages: $[____]

D. IFCA Treble Damages (RCW 48.30.015)

If the Company's unreasonable denial is proven at trial, the court has discretion to treble actual damages:

• Actual damages: $[____]
• Maximum IFCA treble: $[____] (3×)

E. CPA Damages (Capped Treble)

A claimant who proves a private CPA claim may recover actual damages and reasonable attorney fees. The court may increase damages up to three times actual damages in its discretion; for an RCW 19.86.020 violation, the increased award is limited to $25,000, separate from actual damages and fees. RCW 19.86.090.

F. Olympic Steamship Attorneys' Fees

Under Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991), an insured who prevails after an insurer forces litigation over coverage may recover reasonable attorneys' fees. The rule does not award fees for a dispute solely over claim value. King County v. Vinci Construction Grands Projets, No. 92744-8 (Wash. 2017). Here, coverage is disputed because [IDENTIFY COVERAGE ISSUE, IF ANY]. We reserve a request for fees only to the extent the governing claim and fee rule support it.

G. Punitive Damages

Washington does not recognize common-law punitive damages. Instead, IFCA treble damages and CPA treble damages serve a similar deterrent function and will be vigorously pursued.

H. Prejudgment Interest

Prejudgment interest is recoverable on liquidated amounts from the date payment was due, at the statutory rate of 12% per annum (RCW 19.52.010).

VIII. DEMAND

A. Monetary Demand

Pay the total sum of $[____] as follows:

B. Settlement Terms

• Full release of the Company by our client in exchange for payment
• Confidentiality (optional — subject to negotiation; confidentiality provisions may not impair public OIC reporting)
• No requirement that our client withdraw any OIC complaint already filed (IFCA permits parallel regulatory proceedings)
• Correction of any adverse data reported by the Company to CLUE, ISO ClaimSearch, or similar industry databases

IX. TIME-LIMITED NATURE AND IFCA NOTICE WARNING

THIS DEMAND EXPIRES AT 5:00 P.M. PACIFIC TIME ON [__/__/____].

Consequences of Non-Acceptance

If the Company fails to tender the full demanded amount by the deadline:

1. Formal 20-day IFCA notice under RCW 48.30.015(8) will be served on the Company and filed with the Washington Office of the Insurance Commissioner (P.O. Box 40255, Olympia, WA 98504-0255). The OIC publishes IFCA notices monthly; this will become part of the Company's public regulatory record.

2. Litigation will be filed in the Superior Court of [________________________________] County, Washington, asserting:

   • Breach of contract
   • Common-law bad faith (tort)
   • Violation of IFCA — RCW 48.30.015
   • Violation of CPA — RCW 19.86.020

3. Our client will seek:

   • Full policy benefits
   • Prejudgment interest at 12%
   • Consequential and emotional distress damages
   • IFCA treble damages (up to 3x actual)
   • CPA actual damages and a possible discretionary increase (increased award limited to $25,000 for an RCW 19.86.020 violation)
   • Attorneys' fees under Olympic Steamship if a coverage dispute qualifies; IFCA fees and expert costs if its requirements are met
   • Costs

4. Regulatory complaints will be filed with:

   • Washington Office of the Insurance Commissioner (market conduct review may follow)

X. DOCUMENT PRESERVATION NOTICE — CEDELL

This letter constitutes formal notice to preserve all documents and electronically stored information relating to this claim. Under Cedell v. Farmers Ins. Co. of Wash., 176 Wn.2d 686, 295 P.3d 239 (2013), a rebuttable presumption against privilege may apply to counsel's claim-processing communications in a first-party bad-faith case other than a UIM claim. The insurer may show that counsel was advising on its potential liability rather than adjusting the claim. Litigation strategy and defense-counsel advice require a separate privilege analysis. Hoff v. Safeco Insurance Co. of Illinois, No. 50850-8-II (Wash. Ct. App. 2019).

Preserve all of the following:

• Complete claim file (live and archived, including deleted notes)
• Adjuster activity logs, diaries, and notes
• Reserve history and reserve change documentation
• Internal communications (email, Teams, Slack, instant messenger, voicemail)
• Supervisor approvals, round tables, and QA reviews
• Claims-handling manuals, guidelines, training materials
• SIU files (if any)
• All outside vendor reports (IME, peer review, engineering, bill review)
• Claim-processing communications with counsel, subject to court review of privilege objections
• Telephone recordings and transcripts
• Underwriting file and policy forms
• Market conduct audit reports

Any spoliation remedy depends on culpability and the importance of the missing evidence. An adverse-inference instruction requires intentional destruction or bad faith; negligent loss or conscious disregard alone does not support that instruction. Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) PLC, No. 79460-4-I (Wash. Ct. App. Apr. 24, 2023).

XI. CONCLUSION

The Company's handling of this claim is precisely the conduct that Butler, IFCA, and the CPA were enacted to deter. Washington law gives insureds some of the strongest remedies in the nation for insurer bad faith, and our firm is fully prepared to pursue them. We urge the Company to use this opportunity to resolve the matter fairly before the exposure escalates to IFCA treble damages, Olympic Steamship fees, and public OIC scrutiny.

Please direct all further communications to the undersigned.

Respectfully submitted,

[LAW FIRM NAME]

By: _______________________________
[ATTORNEY NAME], WSBA No. [____]
[________________________________]
[________________________________], WA [____]
Tel: [____]
Email: [________________________________]

Counsel for [________________________________]

ENCLOSURES:

• Policy declarations page and all endorsements
• Proof of loss / claim submission
• Correspondence chronology with the Company
• Damage and valuation documentation
• Expert and contractor reports
• Evidence of consequential damages

CC:

• [Client]
• Washington Office of the Insurance Commissioner (via complaint upon expiration)

Sources and References

• RCW 48.01.030 — Duty of good faith: https://app.leg.wa.gov/rcw/default.aspx?cite=48.01.030
• RCW 48.30.010 — Unfair practices: https://app.leg.wa.gov/rcw/default.aspx?cite=48.30.010
• RCW 48.30.015 — Insurance Fair Conduct Act: https://app.leg.wa.gov/rcw/default.aspx?cite=48.30.015
• RCW 19.86.020 — CPA unfair acts: https://app.leg.wa.gov/rcw/default.aspx?cite=19.86.020
• RCW 19.86.090 — CPA remedies: https://app.leg.wa.gov/rcw/default.aspx?cite=19.86.090
• RCW 19.52.010 — 12% prejudgment interest rate: https://app.leg.wa.gov/rcw/default.aspx?cite=19.52.010
• WAC 284-30-330 — Unfair claims settlement practices: https://app.leg.wa.gov/wac/default.aspx?cite=284-30-330
• WAC 284-30-360 — Acknowledgment: https://app.leg.wa.gov/wac/default.aspx?cite=284-30-360
• WAC 284-30-370 — Prompt investigation: https://app.leg.wa.gov/wac/default.aspx?cite=284-30-370
• WAC 284-30-380 — Prompt, fair, equitable settlement: https://app.leg.wa.gov/wac/default.aspx?cite=284-30-380
• Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 823 P.2d 499 (1992)
• Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715 P.2d 1133 (1986)
• Coventry Associates v. American States Ins. Co., 136 Wn.2d 269, 961 P.2d 933 (1998)
• Smith v. Safeco Ins. Co., 150 Wn.2d 478, 78 P.3d 1274 (2003)
• Cedell v. Farmers Ins. Co. of Wash., 176 Wn.2d 686, 295 P.3d 239 (2013)
• Indus. Indem. Co. of the Nw. v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990)
• Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991)
• Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778 (1986)
• Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 951 P.2d 1124 (1998)
• Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wn.2d 669 (2017)
• St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122 (2008)
• Washington Office of the Insurance Commissioner: https://www.insurance.wa.gov
• OIC Consumer Advocacy: 1-800-562-6900
• IFCA Notice Filing: https://www.insurance.wa.gov/laws-rules/insurance-fair-conduct-act-ifca
• Published IFCA Notices Log: https://www.insurance.wa.gov/notices-potential-lawsuits-against-insurers-under-insurance-fair-conduct-act