Introduction on Bad Faith Insurance
Posted Tuesday, March 07, 2017 by Ed Harper
Introduction on Bad Faith Insurance
When an insurance company is sued for bad faith, proof is required that the insurance company failed to abide by their obligations towards their insured. Washington has several jury instructions regarding Insurance Bad Faith found in WPI 320.00 – .07. This point out the insurer has a duty to act in good faith towards its insured.
The nature of a bad faith action sounds in tort. The case of St. Paul Fire and Marine Insurance Company v. Onvia, Inc., 165 Wn. 2d 122, 190 6P.3d 664 (2008) the Supreme Court of Washington looked at whether the insured had a cause of action for common-law procedural bad faith for violating the Washington Administrative Code (WAC) and/or for violation of the Washington Consumer Protection Act (CPA), even though a court held that the insurer had no contractual duty to defend, settle, or indemnify the insured. The short answer for this is yes, the insurer can be found liable for bad faith for violating either the WAC or the CPA.
In Onvia, “The first certified question asks us to decide whether an insured has a cause of action for mishandling of a claim, once the court has held that the insurer did not breach duty to defend, settle, or indemnify. According to Safeco Insurance Company of America v. Butler, 118 Wn. 2d 383, 389, 820 P.2d 499 (1992) “an action for bad faith handling an insurance claim sounds in tort.” Thus the court went on to analyze these claims applying the same principles as any other tort: duty, breach of that duty, and damages proximately caused by any breach of the duty. Citing Dan Paulson 161 Washington 2nd at 916. Other cites omitted.
Case law also shows that the insurer has a quasi-fiduciary responsibility to act in good faith according to Tank v. State Farm Fire and Casualty Company, 105 Wn. 2d 381, 385 – 86, 715 P 2d 1133 (1986), “The good faith duty between an insurer and insured arises from a source akin to a fiduciary duty. This fiduciary relationship, as the basis of an insurer’s duty of good faith, implies more than the ‘honesty and lawfulness of purpose’ which comprises a standard definition of good faith. It implies an ‘obligation of fair dealing’… And a responsibility to give equal consideration to an insured’s interests” cite omitted.
In Onvia, the court determined that Onvia as the insured sent a request to St. Paul insurance company asking for coverage. St. Paul did not respond to Onvia’s request for more than 8 ½ months, when they denied coverage and denied providing a defense. Onvia assigned their claim to the original plaintiff Responsive Management Systems (RMS) “for claims arising for procedural bad faith in violation of the CPA. RMS alleged that St. Paul violated a number of Washington insurance claims – handling regulations in bad faith, including by failing to timely acknowledge and act upon the notice of the claim and tender of defense, and by failing to promptly or reasonably investigate the claim. St. Paul moved for summary judgment arguing that in absence of a duty to defend, it could not be liable for procedural missteps and processing Onvia’s claim.” Onvia at 165 Wn.2d at 128.
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