Key Points

  • The Washington Court of Appeals, Division III, reversed a $20 million Insurance Fair Conduct Act award and its enhancement and ordered the IFCA claim dismissed with prejudice.
  • The court held that IFCA requires an unreasonable denial of coverage or benefits rather than mere delay, and that an insurer's timing of third-party liability payments is not a denial of benefits owed to the insured.
  • The court reversed the $47 million punitive damages award because the evidence did not show actual malice under Ohio law and, independently, because Washington law, which bars common law punitive damages, governs.
  • The court affirmed the bad-faith, negligence and Consumer Protection Act awards and the denial of a new trial, but vacated about $8.96 million in fees and costs for redetermination.
  • On cross-appeal, the court held the trial court applied the wrong standard in denying Consumer Protection Act injunctive relief and remanded for reconsideration under RCW 19.86.090.

A Washington appeals court on Tuesday threw out a $47 million punitive damages award against Nationwide Affinity Insurance Co. of America and ordered dismissal of a $20 million verdict under the state's Insurance Fair Conduct Act, erasing most of a $103 million judgment won by a policyholder whose three children died in a 2017 crash in Canada.

Judge Murphy wrote the Division III opinion, in which Chief Judge Staab and Judge Lawrence-Berrey concurred. The court upheld the jury's findings that Nationwide acted in bad faith, was negligent and violated the Consumer Protection Act, and it refused to order a new trial.

The decision narrows the Insurance Fair Conduct Act, or IFCA, which lets policyholders sue an insurer that unreasonably denies coverage or benefits and lets judges award up to three times the damages. The court held that the statute reaches denials, not delays, and does not cover an insurer's handling of payments to people suing its policyholder. It also held that Washington law, which does not allow common law punitive damages, governs a Washington policy even when the insurer made its claims decisions in Ohio.

According to the opinion, Meseret Shiferaw failed to stop at a stop sign in Alberta in August 2017, and her vehicle was struck by a semi-truck. She and her husband, Solomon Agere, were seriously injured, and their three children died. Her Washington-issued policy provided $200,000 in liability coverage, which Nationwide recognized early would not cover all the claims.

Nationwide declined to settle the family's claims or extend the Washington filing deadline while a claim by the truck driver remained unresolved, reasoning that a global settlement would best protect Shiferaw. In an August 2019 demand letter, Agere's lawyer warned that Nationwide would be putting its insureds in the "very unfair position of forcing a husband to sue his wife for his own injuries and the deaths of their children."

Agere sued in Spokane County Superior Court days later. Under a court order, Nationwide paid the $200,000 limit on Feb. 7, 2020. An arbitrator then awarded Agere and the estates about $17.1 million against Shiferaw, which Nationwide paid in full that August.

At trial on Shiferaw's cross claims in 2023, the jury awarded $27,136,000 in compensatory damages, including $20 million for the IFCA violation, and $47 million in punitive damages under the law of Ohio, where Nationwide is incorporated. The trial judge doubled the IFCA damages and applied a two-times multiplier to attorney fees, bringing the judgment to $103,229,771.04.

The appeals court gave three reasons the IFCA claim failed. First, Nationwide paid its full limit more than four months before Shiferaw sent the pre-suit notice the statute requires, which gives an insurer 20 days to cure. Letting an IFCA claim proceed on damages beyond the policy limits "would render the cure provision meaningless," the court wrote.

Second, the payment went to a third-party claimant, not to Shiferaw, and IFCA does not cover complaints about the timing of such payments. Third, the trial judge told jurors that Nationwide violated the statute if it "unreasonably delayed or denied" a claim. "That instruction expanded the statute beyond its text," Judge Murphy wrote, citing legislative history showing that a sponsor removed "delay" language from the bill.

The panel said federal trial court rulings allowing delay-based IFCA claims do not bind state courts. "A reasoned (even if ultimately unsuccessful) strategy to protect the insured from excess exposure across jurisdictions is not the equivalent of a refusal to pay a benefit that is due under the policy," the court wrote.

The court reversed the punitive award on two independent grounds. Even under Ohio law, it held, the evidence fell short of actual malice, which Ohio defines as hatred, ill will or a spirit of revenge, or a conscious disregard for others' rights that has a great probability of causing substantial harm. The record showed multiyear delays and inexperienced adjusters, and "Those facts support the jury's findings of bad faith and negligence," the court wrote. But it also showed "that Nationwide acted on advice of counsel and pursued a strategy of global resolution aimed at protecting Shiferaw."

Separately, the panel held that Washington law governs. The trial judge had applied Ohio law because Nationwide made its claims decisions there. The appeals court said the insurance relationship was formed, centered and regulated in Washington, and that Washington's interests "are greater than Ohio's interest in applying its punitive damages rules to claims-handling decisions directed at a Washington insured under a Washington policy."

In rejecting the new-trial request, the court noted that Nationwide lodged 632 objections to questions from Shiferaw's personal attorney, and the trial judge sustained 289. The panel wrote that "counsel on both sides engaged in questionable conduct that at times pushed the bounds of professionalism," but that the judge "consistently managed the proceedings in a fair and neutral fashion."

Because the judgment shrank, the court vacated about $8.96 million in fees and costs. The trial court must recalculate the lodestar, the hours reasonably spent multiplied by a reasonable hourly rate, for the surviving claims and decide whether any multiplier remains appropriate. "We express no view on whether a multiplier is still warranted," the panel wrote.

Shiferaw won her cross-appeal. The trial judge had refused to bar Nationwide from continuing the claims practices the jury found unlawful, using a test focused on irreparable harm to the person seeking the injunction. The panel held that the Consumer Protection Act imposes no such requirement and that the judge "applied the wrong legal standard and thereby abused its discretion."

Jason W. Anderson of Carney Badley Spellman, PS, is among the appellate lawyers listed on Nationwide's briefs. Shiferaw was represented on appeal by David M. Beninger and George M. Ahrend of Luvera Law Firm.

The case returns to Spokane County Superior Court for dismissal of the IFCA claim with prejudice, a redetermination of fees and costs, and reconsideration of the injunction request, which turns on whether an injunction would further the public interest. The panel refused Nationwide's request to assign a different judge, saying the same judge may preside if available.