Washington Insureds May Claim Bad Faith Against Liability Insurers Even in Absence of Any Duty to Defend or Indemnify
In response to certified questions from the United States District Court for the Western District of Washington, the Washington Supreme Court has held that an insured may have a cause of action against its liability insurer for procedural bad faith and violation of Washington’s Consumer Protection Act (CPA) even if the insurer had no contractual duty to defend, settle, or indemnify the insured. But an insured must show actual harm; damages are not presumed.
The case, St. Paul Fire & Marine Insurance Co. v. Onvia, Inc., involved a class action complaint against Onvia for sending unsolicited advertising, by facsimile in violation of the Telephone Consumer Protection Act of 1991. Onvia’s insurer, St. Paul Fire & Marine, failed to timely respond to a tender of the claim. Onvia later settled the class action, agreeing to entry of a judgment in favor of the class for $17.515 million and an assignment of its claims against St. Paul in exchange for an agreement that the judgment would be enforced only against St. Paul.
St. Paul filed a declaratory judgment action in federal district court to establish that there was no coverage. The class representative counterclaimed for procedural bad faith and violation of the CPA based upon St. Paul’s handling of Onvia’s tender. While the district court agreed that St. Paul had no duty to defend or indemnify, it certified questions regarding the counterclaims to the Washington Supreme Court.
Focusing on an insurer’s duty of good faith, the Supreme Court held that “a third-party insured has a cause of action for bad faith claims handling that is not dependent on the duty to indemnify, settle, or defend .” In doing so, the Court rejected St. Paul’s argument that there can be no liability for violation of Washington’s insurance claims-handling regulations (WAC 284-30-330(2)-(4); WAC 284-30-360(1), (3); WAC 284-30-370). Similarly, the Washington Supreme Court held that “the CPA recognizes a claim for violation of claims-handling regulations that does not depend on a finding of bad faith or the existence of a duty to settle, indemnify, or defend.”
The Court, however, declined to recognize coverage by estoppel in this context. Instead, the Court stated that the insured must provide actual harm and that the insured’s damages are limited to the amounts incurred as a result of the proven bad faith.
