Insurer's Duty of Good Faith - General Duty

Posted Tuesday, March 28, 2017 by Ed Harper

Insurer’s Duty of Good Faith - General Duty

Washington Pattern Instruction 320.02 states: “An Insurer has a duty to act in good faith. This duty requires an insurer to deal fairly with its insured. The insurer must give equal consideration to its insured’s interest and its own interests and must not engage in any action that demonstrates a greater concern for its own financial interests than its insured’s financial risk. An insurer who does not deal fairly with its insured, or who does not give equal consideration to its insured’s interests, fails to act in good faith.

In proving that an insurer failed to act in good faith, the insured must prove that the insurer’s conduct was unreasonable or frivolous and/or unfounded. The insured is not required to prove that the insurer acted dishonestly or that the insurer intended to act in bad faith.”

RCW 48.01.030 sets up the statutory basis for this jury instruction:

“The business of insurance is one affected by the public interest requiring that all persons be actuated by good faith; abstain from deception and practice honesty and equity in all insurance matters. Upon the insurer, and the representatives rest the duty of preserving inviolate the integrity of insurance.”

The insurance company must hold their interests in equal consideration with the interests of their insured. With* Mutual of Enumclaw v. Dan Paulson Construction Inc., 161 Wn.2d 903, 169 P.3d (2007) the Supreme Court of Washington noted that because of Mutual of Enumclaw, “Subpoenaed to the arbitrator, explaining into ex parte letters to the arbitrator,” it needed information to resolve its coverage dispute with Dan Paulson Construction Inc. (DPCI). The court held that “Mutual of Enumclaw’s subpoena and ex parte communications to the arbitrator constituted bad faith, that mutual of Enumclaw did not rebut the resulting presumption of harm to DPCI, and that Mutual of Enumclaw did not raise a genuine issue of material fact with respect to whether the settlement amount was reasonable.” (MOE* at 908.)

Initially the court ascertained the standard that an insurance company must avoid any action that may infringe on their obligation of fairness towards its insured because of “Potential conflicts of interest between the interests of insurer and insured, inherent in a reservation of rights defense.” -* Tank v. State Farm Fire and Casualty Company,* 105 Wn. 2nd 381, 383, 715 P. 2nd 1133 (1986). The court factually determined that by sending it subpoena and two letters to the arbitrator, Mutual of Enumclaw clearly had greater concern for its own interests then how its conduct might affect DPCI financial risk. “Mutual of Enumclaw’s great concern for its own interests and lack of concern for DPCI’s risk conclusively demonstrates that Mutual of Enumclaw had a greater concern for its own interest than for DPCI’s financial risk. (Tank at 388). The conclusion was that Mutual of Enumclaw acted in bad faith.

Furthermore, the court determined that due to Mutual of Enumclaw’s bad faith interfered with the defense DPCI, Mutual of Enumclaw failed to rebut the presumption of harm to their insured. This presumption of harm arises as, “Insured should not be required to prove what might’ve happened had the insurer not breached its duty to defend in bad faith; that obligation rightfully belongs to the insurer who caused the breach.” Kirk v. Mount Airy Insurance Company, 134 Wn 2nd 558, at 563, 951 P.2nd 1124 (1998).

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