In Peoples v. USAA, decided on November 27, 2019, the Washington Supreme Court held that insurance companies can be liable under Washington’s Consumer Protection Act (RCW Ch. 19.86) if they violate Washington claims-handling regulations and wrongfully deny benefits, even if the underlying claim is for personal injuries. In this case the plaintiffs alleged that USAA’s computer algorithms wrongfully denied coverage for medical provider costs, which are generally covered under auto policies as “personal injury protection” or “PIP,” without any individualized assessment of the costs. Washington’s CPA prohibits “unfair or deceptive practices in trade or commerce” and allows anyone who is “injured in [their] business or property” to sue for damages (including treble damages) and injunctive relief, plus attorney fees. The insurer argued that even if their denials were wrong, they did not injure these plaintiffs’ “business or property,” as the underlying claims were for personal injuries. Announcing a new rule (and disagreeing with several previous federal-court decisions), the Washington Supreme Court held that “the deprivation of contracted-for insurance benefits is an injury to ‘business or property’ regardless of the type of benefits secured by the policy.”

While this decision involves individual policyholders with personal injury claims under PIP coverage, it is an important case for commercial policyholders and their advocates to understand.  A number of federal courts in Washington had rejected CPA claims for PIP benefits, creating something of a “conventional wisdom” on the topic in favor of insurers. In this decision the Washington Supreme Court rejected those federal-court decisions as poorly reasoned. Because insurance law is a matter of state law, this has the effect of overruling all of those federal cases, and all federal judges will now be obligated to follow the Washington Supreme Court’s ruling.

The court’s rejection of federal-court decisions is important for commercial policyholders, because oftentimes insurers deny commercial-lines claims by citing to poorly-reasoned federal-court decisions.  This ruling illustrates that it is improper for an insurer to rely on a federal-court decision that does not strictly follow Washington state law. When faced with a denial based on a decision from a federal court, commercial policyholders and brokers should not give up. Instead, they should consult with counsel, and push back if the insurer is relying on an erroneous federal case.