The well-orchestrated attack on subrogation continues. Trial lawyer listservs, legal conferences, and organizational efforts to combat subrogation on all fronts have resulted in a rash of class action suits aimed at subrogated carriers based on alleged violations of the Made Whole Doctrine, alleged failures to reimburse deductibles, and alleged violations of fair debt collection practices legislation in a number of states. In the State of Washington, the battle is hot and heavy.
In Stephens v. Omni Ins. Co., 159 P.3d 10 (Wash. App. 2007), aff’d sub nom., Panag v. Farmers Ins. Co. of Washington, 166 Wash.2d 27, 204 P.3d 885 (2009) and Panag v. Farmers Ins. Co. of Washington, 204 P.3d 885 (Wash. 2009), tortfeasors brought actions against a collection agency and automobile insurers seeking recovery for violation of the Washington Consumer Protection Act (“CPA”) resulting from sending “deceptive” notices to collect on subrogation claims. It involved two cases:
- Stephens rear-ended an Omni insured causing $544 in damages and $6,400 in Bodily Injury payments. Omni/Credit Collection Services, Inc. (“CCS”) sent a letter saying the debt was “in collection.” Stephens v. Omni Ins. Co., supra.
- Panag, who was uninsured, was in an accident with Farmer’s insured causing $6,102 in property damage. CCS concluded Panag was 40% at fault. A formal collection notice tried to collect $6,400, sending out “Western Union” fake-looking telegrams. Panag v. Farmers Ins. Co. of Washington, supra.
CCS sent both Panag and Stephens a document entitled “FORMAL COLLECTION NOTICE,” setting forth the amounts paid by the insurers to their insureds as the “AMOUNT DUE.” In a series of increasingly threatening communications, CCS continued to pursue those sums, threatening litigation, license suspension, and various other costs. Panag and Stephens allegedly incurred significant costs in their efforts to contest the collection notices.
The CPA declares unlawful any “unfair or deceptive acts or practices in the conduct of any trade or commerce.” While the Federal Debt Collection Practices Act (“FDCPA”) applies only to a “debt,” the CPA does not. The Court held that the sale of CCS’ collection services to Omni and Farmers was sufficient to fulfill the “trade or commerce” requirement. They said the plaintiff doesn’t need to be the party doing the “consuming.”
In Panag, Panag and Stephens filed class action lawsuits against the insurers and CCS alleging violation of Washington’s CPA, R.C.W. § 19.86, et seq. The traditional test for a CPA claim is known as the Hangman Ridge test, which requires the plaintiff to establish: (1) an unfair/deceptive act or practice; (2) in trade or commerce; (3) affecting public interest; (4) an injury to plaintiff’s business or property; and (5) caused by that unfair or deceptive practice.
CCS argued that Panag and Stephens lacked standing, contending that a CPA claim could only arise in a business or consumer transaction, not in the context of collections where the parties are engaged in an adversarial relationship. The Washington Supreme Court rejected CCS’ contention, refusing to add a “sixth” element to the Hangman Ridge test stating: “A private CPA action may be brought by one who is not in a consumer or other business relationship with the actor against whom the suit is brought. … The Court concluded that the CPA is applicable to deceptive insurance subrogation activities” and ordered that the case proceed.
More recently, a federal court in the Western District of Washington has decided the case of Thornell v. Seattle Serv. Bureau, Inc., 2015 WL 999915 (W.D. Wash. 2015). Sandra Thornell, a resident of Texas, brought a class action suit alleging unjust enrichment and Washington CPA violations against State Farm, an Illinois corporation, and Seattle Service Bureau (“SSB”), a Washington corporation. According to the complaint, the violations stem from an allegedly deceptive practice by State Farm of referring unliquidated subrogation claims to SSB, which then sends debt collection letters demanding a specified sum to persons against whom the claims could be brought. Plaintiff further alleges she enrolled in a credit monitoring program at her expense and sought and retained counsel as a result of the debt collection letters she received from SSB on behalf of State Farm. She did not allege that she remitted payments to SSB or State Farm in response to the letters.
The defendant, State Farm, first asserts it is not directly or vicariously liable for the actions of SSB. The plaintiff argues State Farm is liable for the content of the letters sent by SSB because SSB was State Farm’s agent, SSB acted in concert with State Farm, and/or State Farm ratified the conduct of SSB. State Farm notes Washington courts have not automatically inferred an agency relationship between insurers and debt collectors, drawing a distinction between responsibility for the deceptive form of collection letters and the mere fact that an insurer deputized a debt collector to attempt to collect on or settle subrogated claims. At the summary judgment stage of a similar lawsuit, the Washington Court of Appeals held that “the practice of referring a subrogation interest to a debt collector does not by itself have the capacity to deceive a substantial portion of the public. [The collector] could have sent out [non-deceptive] letters like [the insurer’s].” Stephens v. Omni Ins. Co., supra. The defendant, therefore, urged the Court to hold that a complaint alleging referral, without more, does not state facts sufficient to withstand a motion to dismiss. State Farm also argued that the Washington CPA does not apply to claims made by plaintiffs who are not Washington citizens, particularly against non-Washington corporations.
The Federal Court certified the above issues to the Washington Supreme Court. The viability of the trial lawyers’ all-out assault against subrogation will move on and be placed in the hands of that state’s highest court.
If you have any questions regarding this article or subrogation in general, please contact Gary Wickert at [email protected].