Payment of an underinsured motorist arbitration award resolves the amount owed under the policy. Whether it also resolves liability arising from the insurer's earlier handling of the claim presents a different question. In Labeaume v. First National Insurance Company of America, 37 Wn. App. 2d 445 (2026), Division II of Washington's Court of Appeals held that full payment does not necessarily foreclose an Insurance Fair Conduct Act claim for damages caused by an allegedly unreasonable denial of benefits. The decision is not final; First National has petitioned the Washington Supreme Court for review, and the petition remains pending as of the date of this publication.
The decision also addressed the effect of a damages waiver used to qualify a tort claim for mandatory arbitration. The court concluded that the arbitration-specific waiver did not extend to a subsequent UIM claim and that the record did not establish a preclusive damages determination entitling the insurer to summary judgment. Together, the rulings require insurers to examine both the legal effect of the underlying tort resolution and the consequences of their own claim decisions.
Factual Background of the Case
Jane Labeaume suffered injuries in a November 2018 collision for which the other driver was entirely at fault. That driver carried $100,000 in bodily injury coverage. Labeaume sued and submitted the matter to mandatory arbitration, filing a statement of arbitrability contending that her claim exceeded $100,000 but waiving recovery above that amount "for the purpose of arbitration."
The arbitrator awarded $85,929.35. Labeaume maintained that the parties reached a binding settlement for that amount before the deadline to request a trial de novo expired. The release followed later, and the superior court dismissed the action with prejudice without entering judgment on the arbitration award.
Labeaume then pursued benefits under her own $250,000 UIM coverage. First National valued her total damages at $77,214.46 and concluded that the tort settlement had fully compensated her. Its evaluation excluded certain treatment and wage loss based on medical records suggesting that her soft tissue injuries had resolved. Labeaume's attorney challenged that assessment, identifying an early medical reference to possible post concussive syndrome. First National maintained its position without further investigation.
After Labeaume sued for breach of contract in June 2022, a second arbitrator determined in June 2023 that her total accident damages were $205,590. After offsets for the tortfeasor's $100,000 liability limit and personal injury protection benefits already paid, the UIM award totaled $94,822.80. First National paid the award on June 21, 2023.
The following month, Labeaume submitted an IFCA notice and subsequently amended her complaint to add IFCA, bad faith, and Consumer Protection Act claims. First National sought summary judgment, arguing that the earlier waiver precluded UIM recovery and that payment of the UIM award eliminated IFCA exposure. The trial court denied the motion and certified both questions. Division II granted discretionary review and affirmed, rejecting on both grounds.
An Arbitration Waiver Does Not Automatically Fix UIM Damages
Washington's UIM statute ties coverage to damages the insured is legally entitled to recover. First National argued that Labeaume's waiver and unchallenged tort arbitration award limited that entitlement to an amount below the other driver's liability limits, leaving no basis for UIM benefits.
The court read the waiver in its procedural context. Its express limitation to the purposes of arbitration did not purport to restrict a later claim under Labeaume's insurance policy. The court also relied on the established principle that settlement below a tortfeasor's policy limits does not, by itself, prevent UIM recovery. Hamilton v. Farmers Ins. Co. of Wash., 107 Wn.2d 721, 727, 733 P.2d 213 (1987).
The distinction between settlement and adjudication was central. In Neff v. Allstate Insurance Co., 70 Wn. App. 796, 799, 803, 855 P.2d 1223 (1993), a final judgment entered on a mandatory arbitration award supported collateral estoppel against a later UIM claim. No comparable judgment existed in Labeaume's case. Moreover, viewing the evidence in her favor, the court had to assume that the parties reached a binding settlement while a trial de novo remained available.
The court therefore found at least a genuine factual dispute concerning whether the earlier proceedings limited her recoverable damages. The holding does not invalidate arbitration waivers generally or eliminate the potential preclusive effect of a final judgment. Rather, it requires attention to the waiver's language, the settlement chronology, and the disposition actually entered.
Full Payment Does Not Necessarily Resolve an IFCA Claim
The broader implications arise from the court's treatment of IFCA. RCW 48.30.015 permits a first-party claimant to recover actual damages caused by an unreasonable denial of coverage or payment of benefits, together with the remedies specified in the statute. The court may increase damages to as much as three times actual damages, and the statute provides for attorneys' fees and litigation costs in qualifying circumstances.
First National argued that its payment of the entire UIM award, before Labeaume submitted her IFCA notice, cured any actionable denial. The court disagreed because the award compensated accident-related injuries. It did not determine or compensate injuries attributable to the insurer's alleged misconduct. That distinction builds on existing Washington authority. In Beasley v. Geico General Insurance Co., 23 Wn. App. 2d 641, 666, 517 P.3d 500 (2022), rev. denied, 200 Wn.2d 1028 (2023), the court recognized that IFCA actual damages can include noneconomic harm caused by an unreasonable denial. Labeaume applied that principle to the payment-and-cure question. Satisfying the policy obligation does not necessarily compensate financial or emotional harm caused by the earlier denial.
The court here also acknowledged conflicting federal decisions and expressly stated that the issue would benefit from Washington Supreme Court review. It nevertheless held that IFCA claims can survive full payment in at least some circumstances, particularly where payment follows a determination of benefits after litigation.
In doing so, the court sided with Leahy v. State Farm Mut. Auto. Ins. Co., 3 Wn. App. 2d 613, 418 P.3d 175 (2018) and Cohodas v. Cont'l Ins. Co., 717 F. Supp. 3d 1008 (W.D. Wash. 2024) and declined to follow Young v. Safeco Ins. Co. of Am., No. 20-CV-01816-LK- 2022 WL 4017893 (W.D. Wash. Sept. 2, 2022), which concluded that an IFCA claim for denial of payment cannot survive when the insurer ultimately pays the claimant's full demand.
The Cure Must Address the Basis of the Action
IFCA requires written notice to the insurer and the insurance commissioner before suit. The statute affords the insurer a 20-day opportunity to resolve the basis for the action. First National contended that allowing a claim after full payment would deprive that provision of meaning. The court disagreed and explained that an insurer receiving notice after benefits have been paid can cure by paying extracontractual damages caused by an initial unreasonable denial. It also recognized that those damages may develop during the coverage litigation. An insured may incur interest or collection charges associated with unpaid medical bills, or experience emotional distress, before the policy dispute concludes.
For insurers, the practical implication is that an IFCA response should address the conduct and injury identified in the notice. Confirmation that benefits have been paid may leave the alleged basis for the action unresolved. Counsel should assess whether the record supports an unreasonable denial, whether the claimed additional losses resulted from that denial, and whether those losses remain uncompensated. The opinion does not require acceptance of every consequential damages demand. Liability, causation, and the amount of damages remain matters for proof. It does, however, undermine a cure analysis confined to the contractual payment when the notice identifies separate harm.
Reasonableness Remains the Essential Defense
The court preserved a distinction between an unreasonable denial and a reasonable dispute over value. Mere delay does not establish an IFCA claim. An insurer that accepts coverage and reasonably disputes the amount owed does not violate the statute simply because payment awaits resolution of that dispute. Conversely, an unreasonably low offer can amount to an effective denial, a principle the court drew from Morella v. Safeco Insurance Co. of Illinois, No. C12-0672RSL, 2013 WL 1562032, at *4 (W.D. Wash. Apr. 12, 2013).
It also explains why a nominal or partial payment offers no automatic protection. The relevant inquiry concerns the substance of the evaluation and the evidence supporting it. First National retained evidence relevant to that inquiry. The UIM award was substantially below Labeaume's $250,000 demand, a fact the court recognized as potentially bearing on reasonableness. The court also identified the absence of an independent investigation as a consideration supporting further factual review.
Claims professionals should build a record that explains the valuation when it is made. Medical causation disputes, treatment gaps, wage loss, and competing interpretations of the record should receive specific analysis. When the insured identifies evidence contradicting an earlier conclusion, the file should document how the insurer considered that evidence and whether further inquiry was warranted.
The opinion does not prescribe an expert examination for every disputed claim. The practical question is whether the investigation supports the decision and whether the insurer responded meaningfully to material information.
Implications for Washington Insurers
Labeaume requires separate evaluation of policy benefits and claim-handling exposure. The settlement demands a careful review of waiver language, finality, and timing. The later payment demands an equally careful review of whether it resolves the harm alleged under IFCA. Perhaps the decision's most consequential lesson concerns the period before payment. An insurer defending an extracontractual claim must explain why its earlier position was reasonable, even after the amount owed under the policy has been determined and paid. A supported valuation, responsive investigation, and substantive evaluation of the IFCA notice provide the foundation for that defense. Payment completes the contractual obligation; the claim handling record determines what may remain.
Pending Review by the Washington Supreme Court
The conclusions reached by the Court of Appeals, Division II, are not guaranteed to be final. First National has petitioned the Washington Supreme Court for review (Supreme Court No. 1056702), and Labeaume filed an answer opposing review on September 21, 2026. The petition remains pending as of the date of this publication. The issues presented track the two questions the trial court certified for appellate review. First, whether Labeaume's mandatory arbitration with the underinsured motorist, including her waiver of damages above $100,000 for purposes of that arbitration, waived any right to recover UIM benefits from First National. Second, whether First National's payment of the subsequent UIM arbitration award precluded Labeaume from pursuing additional actual damages under IFCA.
First National seeks review principally under RAP 13.4(b)(4), contending that the decision resolved a split among federal district courts on an issue of substantial public interest. Labeaume responded that the Court of Appeals' resolution of an apparent split among nonbinding federal decisions does not warrant further review, that the IFCA holding follows from the text and purpose of the statute, and that the waiver ruling is consistent with the civil arbitration rules and Hamilton.
