Opinion ID: 2631200
Heading Depth: 2
Heading Rank: 1

Heading: State Farm's Fiduciary Duty

Text: State Farm asserts that the Court of Appeals erred in two respects in its analysis of the fiduciary duty it owed to the plaintiff class. There are two components to State Farm's argument. First, it claims that the appellate court's opinion could be erroneously interpreted as imposing a duty on insurance companies to `disclose all facts that would aid its insureds in protecting their interests....' Pet. for Review at 9. It also asserts that the Court of Appeals incorrectly imposed a novel duty on State Farm when the court stated that `[a]n insurer has an enhanced fiduciary obligation ....' Pet. for Review at 11. In support of its argument, State Farm points to the following portion from the Court of Appeals opinion: A fiduciary or quasi-fiduciary relationship exists between an insurer and its insured. An insurer has an enhanced fiduciary obligation that rises to a level higher than that of mere honesty and lawfulness of purpose. It requires an insurer to deal fairly with an insured, giving equal consideration in all matters to the insured's interests as well as its own. The representatives argue that State Farm owed and violated three overlapping fiduciary duties to its insureds: (1) the duty to disclose all facts that would aid its insureds in protecting their interests; (2) the duty of equal consideration; and (3) the duty not to mislead its insureds. Whether or not breach of any of these duties is ultimately supported, at a minimum there is a factual question in this case whether State Farm fully, timely, or adequately disclosed the possibility of the retroactive denial of medical claims. Van Noy, 98 Wash.App. at 492, 983 P.2d 1129 (footnotes omitted). State Farm takes exception to this excerpt from the Court of Appeals decision to the extent it appears to impose a duty on State Farm to `disclose all facts that would aid its insureds in protecting their interests....' Pet. for Review at 9. It contends that an insurer does not owe such a duty to its insured. Such a duty, it argues, exists only in legal relationships that are deemed true fiduciary relationships such as the relationship between a trustee and a beneficiary. Id. (citing Allard v. Pac. Nat'l Bank, 99 Wash.2d 394, 663 P.2d 104 (1983)). State Farm is correct in observing that the phrase duty to disclose all facts that would aid its insureds has its roots in a decision of this court that dealt with a true fiduciary relationship, i.e., the relationship between a trustee and beneficiary. In Esmieu v. Schrag, 88 Wash.2d 490, 498, 563 P.2d 203 (1977), we observed that a trustee's fiduciary duty includes the responsibility to inform the beneficiaries fully of all facts which would aid them in protecting their interests.  Id. (emphasis added). After our decision in Esmieu, we noted in another case that the fiduciary duty we discussed in Esmieu was that of a true fiduciary and further observed that something less than a true fiduciary relationship exists in the insurance context. Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 389, 823 P.2d 499 (1992). Thus, it appears that the phrase State Farm assails, which is based on our decision in Esmieu, has no application in an insurance context. We are not troubled, however, by the fact that the Court of Appeals made reference to the language in Esmieu applicable to a true fiduciary. That is so because the Court of Appeals merely made reference to the duty to disclose all facts that would aid its insureds in setting forth the argument advanced by the class representatives. It did not, in our judgment, indicate that there was a factual question about whether this duty was breached. Rather, it concluded that there was a factual question about whether State Farm fully, timely, or adequately disclosed the possibility of the retroactive denial of medical claims. In short, the Court of Appeals did not hold, nor did it suggest, that State Farm was a true fiduciary. To the contrary, the opinion explicitly states that a quasi-fiduciary relationship exists between State Farm and the plaintiff class. Van Noy, 98 Wash.App. at 492, 983 P.2d 1129. State Farm also contends that the Court of Appeals erred by imposing a novel fiduciary duty on State Farm by stating that `[a]n insurer has an enhanced fiduciary obligation ....' Pet. for Review at 11. State Farm suggests that an insurance company has an `enhanced fiduciary obligation' only when it is defending an insured under a third-party liability policy, and under a reservation of rights. Id. at 11-12. Because in this case State Farm is dealing with its insured, it argues, it has no enhanced fiduciary obligation. Id. at 11. The lower court's discussion of fiduciary duty cannot, in our view, be read as wrongly stating the fiduciary duty that State Farm owed to the plaintiff class. As we have noted, the Court of Appeals correctly observed that there is a quasi-fiduciary relationship that exists between an insurer and its insured. Van Noy, 98 Wash.App. at 492, 983 P.2d 1129. The court was also correct when it followed the reference to an insurance company's enhanced fiduciary obligation with the statement that an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured's interests as well as its own. Van Noy, 98 Wash.App. at 492, 983 P.2d 1129. The latter statement from the Court of Appeals' opinion regarding the obligations of an insurer is unassailable because it is essentially a verbatim statement of the fiduciary duty that this court has imposed upon insurance companies in both first-party and third-party contexts. [2] See Coventry Assocs. v. Am. States Ins. Co., 136 Wash.2d 269, 280, 961 P.2d 933 (1998); McGreevy v. Or. Mut. Ins. Co., 128 Wash.2d 26, 36-37, 904 P.2d 731 (1995) (citing Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 385-86, 715 P.2d 1133 (1986)). It is not at all surprising to us, therefore, that the Court of Appeals cites to both McGreevy and Tank to support its discussion of the insurers' fiduciary duty. The only arguable problem with the Court of Appeals' formulation of the fiduciary duty is its use of the word enhanced to modify the words fiduciary obligation. See Van Noy, 98 Wash.App. at 492, 983 P.2d 1129. The use of that word is not, however, problematic because it is apparent that the Court of Appeals used it to emphasize the fact that an insurance company has an elevated good faith obligation that rises to a level higher than that of mere honesty and lawfulness of purpose. Van Noy, 98 Wash.App. at 492, 983 P.2d 1129. We are satisfied that the reference to enhanced fiduciary obligation was not made to impose a novel fiduciary duty on State Farm. A comparison of this court's discussion of an insurance company's fiduciary obligation in Tank and the Court of Appeals statement in Van Noy leads us to this conclusion. In Tank, we noted that: an insurance company's duty of good faith rises to an even higher level than that of honesty and lawfulness of purpose toward it policyholders: an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured's interests. Tank, 105 Wash.2d at 386, 715 P.2d 1133. As the excerpt from Tank illustrates, an insurance company has an elevated or enhanced duty of good faith which requires it to deal fairly giving equal consideration to its insureds. In sum, we believe that it is this duty of fair dealing and equal consideration that the Court of Appeals was referring to when it made the statement to which State Farm takes exception. We hold that the Court of Appeals did not err in its formulation of the applicable fiduciary duty that an insurer owes to its insured. That duty, as has been described by the courts of this state on several occasions, is a duty to exercise a high standard of good faith which obligates it to deal fairly and give equal consideration in all matters to the insured's interests. The Court of Appeals did not stray from that definition and, therefore, there was no error in its formulation of the applicable fiduciary duty that State Farm owes to the plaintiff class.