WPI 320.03 Insurer's Failure to Act in Good Faith in Defending Subject to a Reservation of ...

Use this instruction when an insured claims that an insurer did not properly defend a claim handled under a reservation of rights.

An instruction on all of the listed duties may not be needed in every case. Use the bracketed phrases as appropriate. The court may choose to define the term “reservation of rights” if the term has not been adequately explained during the course of the trial.

This instruction was originally adapted from DeWolf & Allen, 16A Washington Practice, Tort Law and Practice § 28:9 (4th ed.), and is based on Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715 P.2d 1133 (1986). See Tank for further discussion regarding duties owed to the insured by counsel hired by the insurance company.

The court in Safeco Ins. Co. v. Butler, 118 Wn.2d 383, 823 P.2d 499 (1992), discussed at length the enhanced duties owed by an insurer to an insured under a reservation of rights. Once an insured proves bad faith conduct, a rebuttable presumption is created that the insured was prejudiced thereby, i.e., that harm was proximately caused by the insurer's bad faith conduct. See also Besel v. Viking Ins. Co., 146 Wn.2d 730, 737, 49 P.3d 887 (2002).

Furthermore, the Butler court stated that if the insured establishes bad faith handling of the claims, the insurer is estopped from denying coverage, even if a valid contractual exception to coverage would otherwise exist. This remedy is necessary for the cause of action of insurance bad faith because, otherwise, the remedy would be the same for insurance bad faith as it is for a simple violation of the insurance contract (which would limit recovery to matters covered by the insurance contract). Compare Safeco Ins. Co. v. Butler, 118 Wn.2d 383, with cases applying estoppel under contract analysis: Greer v. Nw. Nat'l Ins. Co., 109 Wn.2d 191, 743 P.2d 1244 (1987); Shows v. Pemberton, 73 Wn.App. 107, 868 P.2d 164 (1994).

Although the courts discuss an “enhanced” duty of good faith on the part of insurers, it is the WPI Committee's view that the term is unnecessary in a jury instruction, in which no comparative or baseline standard is offered or discussed.

The enhanced duty of good faith in a reservation of rights case requires an insurer to give equal consideration to its insured's interests and its own interests. See Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385–86, 715 P.2d 1133 (1986); Safeco Ins. Co. v. Butler, 118 Wn.2d at 389; Van Noy v. State Farm Mut. Ins. Co., 142 Wn.2d 784, 793, 797, 16 P.3d 574 (2001); Harris, Washington Insurance Law § 2.02 (3rd ed.).

This enhanced duty of good faith has been held not to apply to underinsured motorist (UIM) cases and to certain first-party cases. See Ellwein v. Hartford Acc. & Indem. Co., 142 Wn.2d 766, 778–81, 15 P.3d 640 (2001) (UIM case), overruled on other grounds in Smith v. Safeco Ins. Co., 150 Wn.2d 478, 78 P.3d 1274 (2003); see also Barstad v. Stewart Title Guar. Co., 145 Wn.2d 528, 542–43, 39 P.3d 984 (2002) (first-party case involving preliminary title commitments); 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); but see Am. States Ins. Co. v. Symes of Silverdale, Inc., 150 Wn.2d 462, 78 P.3d 1266 (2003) (denial of coverage case, in which the court applied the “equal consideration” test even though the case did not involve an enhanced duty of good faith).