You purchase insurance policy with the expectation that you will be covered in unforeseen events. In some instances, however, your carrier may claim that the loss either is not covered by your policy or that the amount of your loss is substantially less than you believe it is. In such instances you may want to explore the possibility that you have a bad faith denial claim against your carrier.
Washington’s insurance bad faith law derives from statutory and regulatory provisions and the common law. RCW § 48.01.030 requires that all persons involved in an insurance matter act with good faith, abstain from deception, and practice honesty and equity. In addition to the statutory requirement, WAC § 284-30-330 has defined the unfair methods of competition and unfair or deceptive acts or practices of the insurer in the business of insurance. Violation of this code constitutes an unfair practice under the Consumer Protection Act (CPA).
Common Law Bad-Faith Claim
Generally, insurance companies owe their insureds a duty to pay and a duty to defend.[i] Duty of good faith is a fiduciary relationship existing between the insurer and insured which implies a broad obligation of fair dealing and a responsibility to give equal consideration to the insured’s interests.[ii] Claims of insurer bad faith have the same elements as any other tort: duty, breach of that duty, and damages proximately caused by any breach of duty.[iii] A first-party insured has a cause of action for bad faith investigation even where there is ultimately no coverage because an insurer’s duty of good faith is separate from its duty to indemnify if coverage exists.
Duties of the Insurer
In order for the insurer to meet the duty of good faith, it has to act promptly, in both communication and investigation, in response to a claim or tender of defense. An insurer must deal fairly with an insured, giving equal consideration in all matters to the insured’s interests. After showing that the duty has been breached and the insurer has acted in bad faith, a rebuttable presumption is created that the insured has suffered harm.[iv]
In Transamerica Ins. Group v. Chubb & Son, Inc., 16 Wn. App. 247, 554 P.2d 1080 (1976), review denied, 88 Wn.2d 1015 (1977), the court held that an insured establishes prejudice as a matter of law where he or she shows that the insurer controlled the defense for 10 months before issuing a reservation of rights. The insurer who accepts the duty to defend under a reservation of rights, but then performs the duty in bad faith, is no less liable than the insurer who accepts but later rejects the duty. Each has equally breached its duty to the insured.[v] Prejudice is presumed when the insured establishes bad faith and then the burden shifts to the insurer to show that its acts did not prejudice the insured.
Washington Consumer Protection Act
In addition to the bad faith claim in tort, violation of WAC § 284-30-330, is a per se unfair trade practice violation which allows the insured to bring a cause of action under the Washington Consumer Protection Act (WCPA) for bad faith. The elements of WCPA bad faith claim are: (1) an unfair or deceptive act or practice (2) in trade or commerce (3) that impacts the public interest, (4) which causes injury to the plaintiff in his or her business or property, and (5) the injury is causally linked to the unfair or deceptive act or practice.[vi] However, the alleged injury for bad faith need not be economic and may include emotional distress or personal injury.[vii]
Insurance Fair Conduct Act (IFCA)
In addition to bad faith claims, the Insurance Fair Conduct Act (RCW § 48.30.015 ) gives insureds an additional claim for recovery of damages against the insurers who unreasonably deny claims. The IFCA was enacted in 2007, and gives first-party insureds a cause of action for up to three times their “actual damages” for any unreasonable denial of “a claim for coverage or payment of benefits by an insurer.”
The common law bad faith claim along with Insurance Fair Conduct Act and the consumer protection act allows the insured to recover attorney’s fees, treble damages and emotional distress damages.
Status of Limitation
You should keep in mind that there is a time limit within which you must file your lawsuit. According to Washington state statute RCW § 4.16.080 IFCA, bad faith and fair dealing claims are subject to threeyear statutes of limitation. Claims under Washington Consumer Protection Act are subject to fouryears statutes of limitation. The statutes of limitation for breach of the insurance policy is covered by RCW § 4.16.040, and it is six years.
[i] St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wash. 2d 122, 125, 196 P.3d 664, 665 (2008)
[ii] Tank v. State Farm Fire & Cas. Co., 105 Wash. 2d 381, 383, 715 P.2d 1133, 1135 (1986)
[iii] See St. Paul Fire & Marine Ins. Co. v. Onvia, Inc.
[iv] Safeco Ins. Co. v. Butler, 118 Wash. 2d 383, 385, 823 P.2d 499, 501 (1992)
[vi] See St. Paul Fire & Marine Ins. Co. v. Onvia, Inc.
[vii] Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 284, 961 P.2d 933 (1998)