Insurance issues in the cannabis space are multiplying daily as operations continue to expand across United States markets. Cannabis companies face the risk of operational losses as a result of fires, burglary, business interruptions, and myriad other events. Cannabis companies also pay hefty premiums on insurance policies to cover those very losses.
Many companies discover, however, that despite their premium payments, insurers can be particularly difficult when the time comes to pay a claim. Some companies discover that they may need to pay more in attorneys’ fees to bring their insurer into line than they may have paid for the premium on their policies. Who should bear the risk for those fees in a live dispute between an insurer and a policyholder? Washington state has decided that under some circumstances, the insurer must pay those fees.
Washington’s Insurance Fair Conduct Act (“IFCA,” RCW 48.30.010 et. seq.) provides special protections for policyholders dealing with an especially intransigent insurer. One of those protections is a statutory basis for the policyholder to seek the attorneys’ fees it incurred in pursuing it’s claim for coverage. IFCA provides that no insurer shall engage in unfair methods of competition or in unfair or deceptive acts when handling an insurance claim.
If an insurer’s denial of a claim is “unreasonable,” then the policyholder may bring an action in Washington court seeking to recover the actual damages sustained as a result of any loss (what should be covered under the insurance policy to begin with), as well as reasonable attorneys and litigation costs for having to go to court at all. This is a compelling statutory lever for any cannabis business to deal with a bad-faith coverage denial.
Moreover, IFCA identifies statutory violations that would entitle a policyholder to collect the attorneys’ fees and litigation costs it incurs when it has to sue its insurer on any particular claim. An insurer may not engage in any of the following conduct in Washington unless it is ready to pay for the costs of litigation:
- Specific unfair claims settlement practices (defined to include misrepresentations of fact, failing to acknowledge communications from a policyholder, or refusing to pay claims without conducting a reasonable investigation, among others);
- Misrepresentation of policy provisions (defined to include withholding information about applicable coverages, giving false deadlines, or requiring execution of a release extending beyond the subject matter of the dispute, among others;
- Failure to acknowledge pertinent communications (defined to include failure to acknowledge receipt of notice of a claim within 10 working days (or 15 for group coverages));
- Failure to promptly investigate a claim (requiring a complete investigation within thirty days after notification of a claim unless such time would be unreasonable); and
- Failure to notify a policyholder whether a claim is accepted or denied within 15 working days of receipt of a fully completed and executed proof of loss.
In any of these situations, a policyholder has the right to collect the attorneys’ fees and costs it spends when it sues a stonewalling insurer. If you are experiencing difficulty communicating with your insurer or otherwise presenting a claim for coverage, a Harris Bricken coverage attorney can evaluate whether you may have a basis to collect professional fees for your representation. Having worked on both sides of this equation, our coverage attorneys know the insurer playbook inside and out, and are ready to assist with bringing your insurer into line.