WPI 320.00 Introduction
6A WAPRAC WPI 320.00Washington Practice Series TMWashington Pattern Jury Instructions--Civil
6A Wash. Prac., Wash. Pattern Jury Instr. Civ. WPI 320.00 (7th ed.)
Washington Practice Series TM
Washington Pattern Jury Instructions--Civil
April 2022 Update
Part XV. Insurance Bad Faith
Chapter 320. Insurance Bad Faith Actions
WPI 320.00 Introduction
Background. The duty to act in good faith owed by an insurer to an insured has been created judicially, Burnham v. Commercial Cas. Ins. Co., 10 Wn.2d 624, 117 P.2d 644 (1941), and legislatively, RCW 48.01.030, and implemented administratively by the Washington Administrative Code, WAC 284-30-300 et seq. Frequently, acts that constitute bad faith by an insurer will also be violations of the Consumer Protection Act, RCW Chapter 19.86. The courts have drawn freely from any of these sources to justify findings of what is called “insurance bad faith,” not always keeping the bases of their opinions clear. The law of insurance bad faith is still evolving in Washington. For detailed discussions of this area of the law, see Harris, Washington Insurance Law (3rd ed.) (especially Chapters 2 and 7 through 20), and DeWolf & Allen, 16A Washington Practice, Tort Law and Practice, Chapter 28 (4th ed.).
Nature of duty of good faith. An action for bad faith handling of an insurance claim sounds in tort. St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 196 P.3d 664 (2008); Woo v. Fireman's Fund Ins. Co., 150 Wn.App. 158, 208 P.3d 557 (2009). The duty has been held to require an insurer to use both good faith and reasonable care in handling insurance claims. Burnham v. Commercial Cas. Ins. Co., 10 Wn.2d 624, 117 P.2d 644 (1941). It arises out of the quasi-fiduciary duty between insurer and insured and the duty of good faith and fair dealing inherent in any contract. Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 389, 823 P.2d 499 (1992); see also St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d at 129 (duty of good faith is based on a source “akin to a fiduciary duty”). Compare with WPI 302.11 (Implied Duty of Good Faith and Fair Dealing). This is not a true fiduciary duty, and the insurer is not strictly liable. Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 389; Tyler v. Grange Ins. Ass'n, 3 Wn.App. 167, 473 P.2d 193 (1970).
The duty of good faith is enhanced in some cases, typically reservation of rights cases. See the discussion in the Comment to WPI 320.02 (Insurer's Duty of Good Faith—General Duty); but see Barstad v. Stewart Title Guar. Co, 145 Wn.2d 528, 542–43, 39 P.3d 984 (2002) (no enhanced duty in first-party cases involving preliminary title commitments); Ellwein v. Hartford Acc. & Indem. Co., 142 Wn.2d 766, 778–81, 15 P.3d 640 (2001) (no enhanced duty in UIM cases), overruled on other grounds in Smith v. Safeco Ins. Co., 150 Wn.2d 478, 78 P.3d 1274 (2003). See also Fortson-Kemmerer v. Allstate Ins. Co., 198 Wn.App. 387, 394–95, 398 P.3d 849 (2017), petition for review denied 189 Wn.2d 1039 (2018).
The duty of good faith applies to an insurance adjuster who is an employee. The adjuster may be found personally liable for violations of the duty of good faith and the Consumer Protection Act. Keodalah v. Allstate Ins. Co., 3 Wn.App.2d 31, 413 P.3d 1059 (2018), petition for review filed May 21, 2018; see also Merriman v. American Guarantee & Liability Ins. Co., 198 Wn.App. 594, 396 P.3d 351, review denied 189 Wn.2d 1038, 413 P.3d 565 (2017).
Third-party claimants. The common law duty to act in good faith is owed by the insurer to its insured, not to third-party claimants. Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715 P.2d 1133 (1986). A third-party claimant cannot bring a bad faith claim unless the insured has assigned the claim to the third party, Planet Ins. Co. v. Wong, 74 Wn.App. 905, 877 P.2d 198 (1994), or unless the insurer owes a direct contractual obligation to the third party (such as the duty owed to intended beneficiaries under the insurance contract). See Leslie v. Fidelity Nat'l Title Ins. Co., 598 F.Supp.2d 1176, 1182–83 (W.D. Wash. 2009); Tank v. State Farm Fire & Cas. Co., 105 Wn.2d at 394–95.
Nor do third-party claimants have a cause of action for per se violations of the Consumer Protection Act (CPA) as defined by the Insurance Commissioner in WAC 284-30-330 (defining specific unfair claims practices applicable to the settlement of insurance claims). Industrial Indem. Co. v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990); Tank v. State Farm, 105 Wn.2d at 393, 394. The court, however, has left open the possibility that third-party claimants may have non-per se actions under the CPA. Transamerica Title Ins. Co. v. Johnson, 103 Wn.2d 409, 418, 693 P.2d 697 (1985).
Duties of insurer. The duty owed by an insurer arises in several distinct contexts, and the duty of good faith is defined differently depending on the particular context. Good faith duties stemming out of the broad duty to defend a third-party claim arising from liability insurance include:
- 1. The duty to defend;
- 2. The duty to investigate, negotiate, and explore settlement within policy limits; and
- 3. The enhanced duty owed when defending an insured under reservations of rights.
See DeWolf & Allen, 16A Washington Practice, Tort Law and Practice § 28.4 (4th ed.).
Insurers who deny coverage to insureds in bad faith under homeowners insurance, property damage coverage, health insurance, and the like are liable. In Kallevig, the court stated the duty to act in good faith arose at least in part from RCW 48.01.030, which provides:
Duty to defend. For an overview of the general principles related to the insurer's duty to defend, see Am. Best Food, Inc. v. Alea London, Ltd. 168 Wn.2d 398, 229 P.3d 693 (2010). The opinion compares the duty to defend with the narrower duty to indemnify, addresses events that trigger the duty to defend, analyzes the duty in the context of a policy exclusion, sets forth the insurer's standard of care, and discusses the rebuttable presumption of harm for bad faith breaches.
Consumer Protection Act. The Supreme Court in Salois v. Mutual of Omaha Ins. Co., 90 Wn.2d 355, 581 P.2d 1349 (1978), held that an insurer's violation of the duty of good faith under RCW 48.01.030 is a per se violation of the CPA. This rule was modified by the court in Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 786, 719 P.2d 531 (1986), however, which held that the only per se unfair and deceptive acts or practices are those that are legislatively declared: “A per se unfair trade practice exists when a statute which has been declared by the Legislature to constitute an unfair or deceptive act in trade or commence has been violated.”
Because RCW 48.01.030 does not specifically declare that the failure to act in good faith is an unfair trade practice, as required by Hangman Ridge, its violation probably does not meet the Hangman Ridge test for a per se violation of the CPA. Hangman Ridge implies that it is a factual issue whether particular non-statutorily condemned acts of bad faith are also unfair or deceptive acts or practices under the CPA. See Donaldson, When Is Bad Faith Claims Handling an Unfair Trade Practice?, 28 Gonz.L.Rev. 11, 16 (1992); see also St. Paul Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 133–35, 196 P.3d 664 (2008) (applying the Hangman Ridge analysis to a bad faith action, without any indication that bad faith actions are per se CPA violations).
Two Court of Appeals opinions, however, have broadly held that an insurer's breach of its duty of good faith under RCW 48.01.030 does constitute a per se violation of the CPA. Gingrich v. Unigard Sec. Ins. Co., 57 Wn.App. 424, 788 P.2d 1096 (1990) (citing Salois); Ledcor Indus. v. Mutual of Enumclaw Ins. Co., 150 Wn.App. 1, 206 P.3d 1255 (2009) (citing Gingrich).
In Hangman Ridge, the court set forth five elements that a private litigant must prove to recover damages under RCW 19.86.090:
- 1. An unfair or deceptive act or practice;
- 2. That occurs in trade or commerce;
- 3. That impacts the public interest;
- 4. That causes injury to the plaintiff's business or property; and
- 5. Which injury is causally linked to the unfair or deceptive act.
Using the Hangman Ridge per se analysis, elements 2 and 3 above are established as a matter of law in any insurance bad faith action. Salois v. Mutual of Omaha Ins. Co., 90 Wn.2d 355, 581 P.2d 1349 (1978) (element 2); Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d at 791 (citing RCW 48.01.030) (element 3). The jury should be so instructed when a violation of the CPA is alleged in addition to the cause of action of insurance bad faith. Single violations of WAC 284-30-330 (“Specific unfair claims settlement practices defined”) are per se unfair or deceptive acts or practices. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 58 P.3d 276 (2002); Leingang v. Pierce Co. Med. Bureau, 131 Wn.2d 133, 151, 930 P.2d 288 (1997); Industrial Indem. Co. v. Kallevig, 114 Wn.2d 907, 923, 792 P.2d 520 (1990).
Contractual obligations. The insurer's duty to handle insurance claims in good faith is in addition to the insurer's contractual obligations under the insurance contract. The difference can be particularly important in terms of the remedy. Contractual estoppel cannot create coverage beyond the provisions of the insurance contract, but an insurer who acts in bad faith may incur liability beyond the contractual limits of the policy. Compare Greer v. Northwestern Nat'l Ins. Co., 109 Wn.2d 191, 743 P.2d 1244 (1987), with Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 823 P.2d 499 (1992).
Comparative bad faith. An issue has been raised by commentators regarding whether comparative bad faith should be used to reduce damages awarded in an insurance bad faith case. See DeWolf & Allen, 16A Washington Practice, Tort Law and Practice § 28:17 (4th ed.). No case has yet considered the question.
Scope of chapter. The instructions in this chapter are limited to the duty of good faith owed by insurers. While the duty of good faith applies also to insureds, see Tornetta v. Allstate Ins. Co, 94 Wn.App. 803, 973 P.2d 8 (1999), and RCW 48.01.030, instructions on this topic are not frequently needed and have not been included in this chapter.
The chapter also does not include a pattern instruction on damages. Damages instructions in this area of the law tend to be case-specific. For discussions of damages, see Harris, Washington Insurance Law, § 7.05 and Chapter 20 (3d ed.), and DeWolf & Allen, 16A Washington Practice, Tort Law and Practice §§ 28:2, 28:3, 28:7, 28:12, 28:12.50, 28:16.50 (4th ed.).
[Current as of September 2018.]
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