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Insurance Bad Faith Law in Washington State
Effective Claims Handling
November 1, 2013
Rick BealAshbaugh Beal LLP
The Speakers
Thomas JonesCozen O’Connor
Found at WAC 284-30 Modeled after Unfair Claim Practice
Regulations Incorporated as predicate acts in
Washington’s Insurance Fair Conduct Act Violations in the course of a Reservation of
Rights Defense May Result in Coverage by Estoppel
Most frequently litigated regulation is WAC 284-30-330(4).
Washington Fair Claim Practice Regulations
Coventry Associates v. American States St. Paul v. Onvia Aecon Buildings v. Zurich American American Manufacturers Mut. Ins. Co. v.
Osborn Ins. Co. of Pennsylvania v. Highlands Ins.
Co. Cardenas v. Navigators Ins. Co. RCW 48.30.015(5) WPI 320.05
The Legal Consequences of an Inadequate Investigation
Harris, Washington Insurance Law, p. 17-11: The letter should cite:
1. The applicable language upon which the reservation is based;
2. The general conceptual nature of the reservation; and
3. Any known facts supporting the reservation.
Requirements for a Reservation of Rights Letter in Washington
A general reservation of rights may not be sufficient to preserve a coverage defense. (Harris, p. 17-11).
Under Tank v. State Farm, the insurer has the responsibility for fully informing the insured “of all developments relevant to his policy coverage and the progress of his lawsuit.”
It may be a risk to include reservations of right in a denial letter, since the investigation is supposed to be complete by then, and a denial may not be based upon speculation or conjecture.
Requirements for a Reservation of Rights Letter in Washington
The duty to defend, if any, arises with the filing of the complaint.
An insurer must provide a defense if it is unable to rule out the potential of coverage. It is thus safest to provide a defense under reservation of right “a prompt and reasonable fashion.”
Policyholder may want to send a “breach” letter out at the point at which it first contends the insurer is delinquent in providing a defense.
Some courts will decline to hold a breach if it appears additional time was necessary for the insurer to investigate extrinsic evidence to determine whether the Plaintiff’s allegations arguably implicate coverage.
At What Point Should an Insurer Make a Decision Whether to Provide a Defense
The regulatory basis of the duty: WAC 284-30-330(13). How to handle the conundrum where the claim
representative is not a lawyer, but the insurer wishes to disclose the legal bases of the denial.
Should an insurer deny indemnity based upon its factual investigation even though it is still providing a defense? If so, may it utilize facts derived from the defense being provided under reservation of right?
May the policyholder require the Insurer to make a pre-mediation disclosure of indemnity benefits, and require the citation of facts and applicable law in support of a refusal to make indemnity benefits available in the full amount of reasonable settlement value of the Plaintiff’s claim?
The Duty to Disclose Factual and Legal Bases for Denial of Coverage
The Duty of Good Faith in Washington is statutory: RCW 48.01.030.
In Tank v. State Farm, the Washington Supreme Court held that the duty requires an insurer to consider the interests of the insured equally with its own “in all matters.”
This rule is known by many throughout the insurance industry as “The ‘Golden Rule” of insurance.
Most policyholder attorneys believe the duty is reciprocal.
Washington’s Definition of Good Faith
Policyholder and Insurer should attempt to agree at the outset to a protocol and timeline for the investigation.
The policyholder should not play “gotcha” with the insurer. Periodic conference calls between policyholder and insurer
to discuss developments will typically forge an alliance against the Claimant.
There is no substitute for communication. Implement the “four ates” of WPI 320.05: “ Investigate,
evaluate, communicate and negotiate.” Both insurer and policyholder should take advantage of the
fact that neither wants to end up in expensive litigation with the other.
Claims Handling from an Operational Point of View
Questions
Rick Beal Ashbaugh Beal [email protected] 206.286.5900
Tom Jones Cozen O’Connor [email protected] 206.224.1242
Speaker Contact Info
