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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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Insurer's Failure to Act in Good Faith - Burden of Proof - Third Party Claim

Posted Tuesday, March 21, 2017 by Ed Harper

Insurer’s Failure to Act in Good Faith - Burden of Proof – Third Party Claims

Washington Pattern Instruction 320.01.01 states: “the plaintiff has the burden of proving that the insurance company failed to act in good faith in one of the ways claimed by the plaintiff.

If you find that the insurance company failed to act in good faith in one of the ways claimed by the plaintiff, and the law presumes that the plaintiff was injured and/or harmed and/or damaged and/or prejudiced and that the failure to act in good faith was a proximate cause of this injury and/or harm and/or damage and/or prejudice. You are bound by that presumption unless you find that the insurance company’s failure to act in good faith did not injure and/or harm and/or damage and/or prejudice the plaintiff. The insurance company bears the burden of proof that any failure to act in good faith did not injure and/or harm and/or damage and/or prejudice the plaintiff.”

In short, the plaintiff bears the burden of proving the amount of damages.

With Ellwein v. Hartford Accident and Indemnity Company, 142 Wn. 2nd 766, 15 P 3rd 640 (Washington 2001) the court held that the Hartford insurance company in misappropriating the plaintiff’s accident reconstruction expert acted in bad faith. (At page 768.)

In Ellwein, which was the UIM claim, Hartford encouraged and ultimately changed accident reconstructionist Bill Cooper’s opinion to be more favorable to the insurance company.

The relationship between a UIM insurer and its insured is by nature adversarial and at arms-length. In Fisher v. Allstate Insurance Company, 136 Wn. 2nd 240, 249, 960 1P 2nd 350 (1998), the UIM insurance provides an excess layer of coverage designed to provide full compensation for all amounts that the claimant is legally entitled to where the tortfeasor is underinsured. Allstate insurance company v. Dejbod, 63 Wn.App. 278, 281, 818 P 2nd 608 (1991).

In Ellwein the court articulated quotes the insurer must deal in good faith and fairly as to the terms of the policy and not overreach the insured, despite its adversary interest. In their analysis, the court stated, “We find in Hartford’s claim, he believed Cooper was its expert disingenuous. Hartford clearly understood Cooper to be the Ellwein expert, and intended to manipulate his conclusions, as is evidenced by its apparent satisfaction and having been to get the reconstruction expert to reevaluate his position.”

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Insurer's Failure to Act in Good Faith- Burden of Proof

Posted Tuesday, March 14, 2017 by Ed Harper

Insurer’s Failure to Act in Good Faith - Burden of Proof

Washington Pattern Instruction 320.01 states the following: “the plaintiff has the burden of proving each of the following propositions:

1 – That the insurer failed to act in good faith in one of the ways claimed by the plaintiff;2 – That plaintiff was injured or damaged; and3 – That the insurer’s failure to act in good faith was a proximate cause of the plaintiff’s injury or damage.

If you find from your consideration of all the evidence that each of these propositions has been proved, your verdict on the claim of failure to act in good faith should be for the plaintiff. On the other hand, if any of these propositions has not been proved, your verdict on the claim of failure to act in good faith should be for the insurer.”

The plaintiff’s burden of proof, in establishing the insurer’s liability for bad faith, is in essence the attempt to prove that they failed to act in good faith. “The duty to act in good faith or liability for acting in bad faith generally refers to the same obligation.” Tank v. State Farm, 105 Wn.2d 381, 385, 715 P 2d 1133 (1986).

Additionally the case of Van Noy v. State Farm, 142 Wn. 2d 784, 793, 16 P.3d 574 (2001) helps establish what the plaintiff has to prove when they allege the insurer failed to act appropriately.

In Van Noy, which was a class action lawsuit by 1st party claimant’s alleging there personal injury protection (PIP) was not handled adequately by State Farm, the court articulated that the insurer State Farm had a duty to exercise a high standard of good faith which obligates it to deal fairly and give “equal consideration” in all matters to the insured’s interests. Van Noy at 794.

State Farm had been delaying payments on PIP claims brought by their insured, and then summarily sending these claims for peer review, thereby violating their insurance policy which said “payments will be made on a monthly basis within 30 days…” The claims by the class against State Farm for reaching their fight to Sherry and contractual obligations and thereby acted in bad faith were allowed to proceed to trial.

In the concurring opinion by Justice Talmadge, the justice points out “the fact that the relationship between 1st party insurers and ensure and claims handling will be found in the duty of good faith as expressed in the Washington insurance code…” Van Noy at 801. Justice Talmadge points out the duty owed by 1st party insurers to insureds is one of good faith. Citing Coventry Associates v. American states, 136 Wn.2d 269, 960 P.2d 933 (1998). Further he states RCW 48.01.030 defines the public interest which requires that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Additionally he refers to WAC 284 – 30 the fair claims handling statute which states: “The insurer must deal fairly with its insured in the claim context of a claim and must give equal consideration to the interests of the insured in handling a claim”. Van Noy, at 801

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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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Washington Jury Instruction: Insurance Fair Conduct Act

Posted Tuesday, February 28, 2017 by Ed Harper

Washington Jury Instruction on Insurance Fair Conduct Act

Washington Pattern Instruction 320.06.01 states as follows: “Plaintiff claims that (name of insurer) has violated the Washington Insurance Fair Conduct Act (IFCA). To prove this claim, the plaintiff has the burden of proving each of the following propositions:

1 – that the insurer unreasonably denied a claim for coverage or unreasonably denied payment of benefits or violated a statute or regulation governing the business of insurance handling;

2 – that the plaintiff was injured or damaged; and

3 – that the insurer’s act or practice was a proximate cause of the plaintiff’s injury or damage.

If you find from your consideration of all the evidence that each of these propositions has been proved, your verdict on this claim should be for the plaintiff. On the other hand, if any of these propositions has not been proved, your verdict on this claim should be for the insurer.” (Emphasis has been added.)

In a recent case, Perex-Chrisantos v. State Farm Fire and Casualty Company, 92267-6 (February 2, 2017), the Washington Supreme Court viewed the portion of this instruction “violated a statute or regulation governing the business of insurance claims handling” and was beyond the IFCA provisions. The court stated “on balance, we conclude that the legislative history indicates that IFCA does not create a cause of action for regulatory violations.”

The court mentioned that jury instructions are not law. State v. Brush, 183 Wn. 2nd at 557. When misstating the law, the jury instruction deceives the jury. Instead the court “shall declare the law.” Here, the court determined that the jury instruction incorrectly interpreted the statutory law which articulated and set up IFCA.

Apparently the committee who instituted the pattern jury instruction failed to comprehend that IFCA allows the 1st and 2nd portions and part of the 3rd of the jury instruction but not – solely as violation of a statute or regulation for the case to continue of an IFCA violation. A statutory violation may still be evidence of an unreasonable act or actions by the insurance company, but this does not lead to straightaway proof of an IFCA violation on its own.

The court continued that they felt “it is unlikely the legislature would’ve intended to create a private cause of action for violation of only some of the specific regulations listed in RCW 48.30.015 (5).” Thus, violations of the RCW will provide for additional evidence to be considered in regards to the unreasonable actions of the insurance company,.

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