Panag v. Farmers Ins. Co. of Washington
166 Wash. 2d 27, 204 P.3d 885 (2009)
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Rule of Law:
The Washington Consumer Protection Act (CPA) applies to collection agencies' deceptive efforts to collect insurance subrogation claims, even when there is no direct consumer relationship or consensual transaction between the parties and the alleged debt arises from an alleged tort. To establish injury under the CPA, a plaintiff need not make payment but can show out-of-pocket expenses incurred to investigate the true legal status of the alleged debt.
Facts:
- Rajvir Panag and Michael Stephens were involved in separate automobile accidents.
- The drivers of the other cars claimed underinsured motorist benefits from their respective insurance providers, Farmers Insurance (in Panag's case) and Omni Insurance (in Stephens' case).
- A Farmers insurance adjuster concluded Panag was 40 percent at fault for her accident, and her insurance policy was canceled three weeks before the incident.
- Farmers retained Credit Control Services (CCS) to recover the full amount ($6,442.53) it had paid on the claim from Panag.
- CCS sent Panag "FORMAL COLLECTION NOTICE" letters displaying collection agency seals, demanding the full amount due, taking an urgent tone, and threatening penalties like license suspension and litigation costs if she did not pay.
- An Omni insurance adjuster determined Stephens was at fault for his accident and initially sent him a bill for $444.09, which Stephens paid, not reporting it to his insurer.
- Omni subsequently paid its insured over $6,000 for a bodily injury claim related to Stephens' accident and then retained CCS to recover this subrogation claim.
- CCS sent Stephens a "FORMAL COLLECTION NOTICE" demanding $6,412, and later a second letter threatening legal action and telling him to "act immediately."
Procedural Posture:
- Rajvir Panag filed a class action lawsuit against Farmers Insurance and Credit Control Services (CCS) in the trial court (court of first instance).
- Michael Stephens filed a class action lawsuit against Omni Insurance Company and Credit Control Services (CCS) in the trial court (court of first instance).
- The trial court granted partial summary judgment in favor of Stephens as to liability and reserved ruling on damages.
- In Panag's case, the trial court granted the defendants' motion for dismissal on summary judgment, ruling Panag failed to establish injury.
- The Court of Appeals (intermediate appellate court) granted discretionary review of both cases, linking them for review.
- The Court of Appeals affirmed the trial court's decision in Stephens' case.
- The Court of Appeals reversed the trial court's decision in Panag's case, remanding for trial.
- Credit Control Services, Farmers Insurance Company, and Omni Insurance Company (Petitioners) petitioned the Washington Supreme Court for review.
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Issue:
Does the Washington Consumer Protection Act (CPA) apply to a collection agency's allegedly deceptive efforts to collect on an insurance company's subrogation claim against an underinsured motorist, even if there is no direct consumer or business relationship between the parties or payment made, and can expenses incurred in investigating such a claim constitute sufficient injury?
Opinions:
Majority - Madsen, J.
Yes, the Washington Consumer Protection Act (CPA) applies to a collection agency's allegedly deceptive efforts to collect on an insurance company's subrogation claim, even without a direct consumer relationship or payment. The court held that the CPA's plain language allows "any person" injured by a violation in "trade or commerce" to sue, and "trade or commerce" broadly includes anything "directly or indirectly affecting the people of the state." The court rejected the petitioners' arguments for a "consumer or business transaction" prerequisite or an "adversarial relationship exemption," citing precedents where the CPA applied in the absence of a direct consumer relationship (e.g., third-party beneficiaries, trade name infringement, learned intermediaries). The court reasoned that collection agencies are highly regulated, and public policy dictates accountability for deceptive practices. The collection notices were deceptive because they created a "net impression" of a liquidated debt when they were merely unadjudicated tort claims, potentially misleading a substantial portion of the public. Finally, the court clarified that injury under the CPA does not require payment of the alleged debt; out-of-pocket expenses incurred in investigating the true legal status of the alleged debt, such as consulting an attorney, postage, or parking, are sufficient to establish injury to business or property.
Dissenting - C. Johnson, J.
No, the Washington Consumer Protection Act (CPA) should not apply to a collection agency's efforts to collect insurance subrogation claims arising from tortious conduct. Justice Johnson argued that the majority's interpretation rewrites the CPA and inappropriately expands the "trade or commerce" element of the Hangman Ridge test. The dissent asserted that precedent for extending "trade or commerce" beyond a direct consumer relationship always involved some form of intended beneficiary or intermediary (special) relationship, not an adversarial relationship arising out of tortious conduct, which lacks the consensual business transaction foundation traditionally protected by the CPA. The dissent further contended that relying on the Federal Debt Collection Practices Act (FDCPA) and the state Collection Agency Act (CAA) was inappropriate because these acts explicitly do not apply to tort-based subrogation claims, and the majority incorrectly bootstrapped their relevance to justify CPA application. No legislative intent supports such an expansion, and the CPA should remain limited to protecting consumer relationships.
Analysis:
This case significantly broadens the reach of Washington's Consumer Protection Act (CPA), affirming that its protections extend beyond traditional consumer-merchant relationships and consensual transactions. By rejecting the "adversarial relationship exemption" and the need for a direct consumer relationship, the court ensures that businesses engaged in debt collection, even for tort-based subrogation claims, are subject to scrutiny for deceptive practices. This ruling enhances consumer protection against aggressive or misleading collection tactics, particularly for individuals who may not understand the nuanced legal status of an alleged debt. It also provides a lower threshold for establishing injury, recognizing that investigative expenses, even if small, are sufficient, thereby making CPA claims more accessible and potentially encouraging more private attorney general actions.
