Opinion ID: 2549238
Heading Depth: 2
Heading Rank: 2

Heading: The Insurer's Burden on Summary Judgment in an Action for Bad Faith

Text: An insurer has a duty of good faith to its policyholder, and violation of that duty may give rise to a tort action for bad faith. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wash.2d 751, 765, 58 P.3d 276 (2002). To prove bad faith the policyholder must show the insurer's breach of the insurance contract was unreasonable, frivolous, or unfounded. Overton v. Consol. Ins. Co., 145 Wash.2d 417, 433, 38 P.3d 322 (2002). Whether an insurer acted in bad faith is a question of fact. Van Noy v. State Farm Mut. Auto. Ins. Co., 142 Wash.2d 784, 796, 16 P.3d 574 (2001). Accordingly, an insurer is entitled to a directed verdict or a dismissal on summary judgment of the policyholder's bad faith claim only if there are no disputed material facts pertaining to the reasonableness of the insurer's conduct under the circumstances and the insurer is entitled to prevail as a matter of law. Indus. Indem. of the NW, Inc. v. Kallevig, 114 Wash.2d 907, 920, 792 P.2d 520 (1990). However, Ellwein, which issued one week before Van Noy, appears to authorize dismissing a bad faith claim on summary judgment when there is a dispute regarding `coverage-determining facts.' Ellwein, 142 Wash.2d at 777, 15 P.3d 640 (quoting William T. Barker & Paul E.B. Glad, Use of Summary Judgment in Defense of Bad Faith Actions Involving First-Party Insurance, 30 TORT & INS. L.J. 49, 56 (1994)). Relying on Ellwein, the Court of Appeals dismissed the trustee's bad faith claim against American States because Ms. Ellis could not prove as a matter of law that she was entitled to coverage. American States Ins. Co., 111 Wash.App. at 490-91, 45 P.3d 610. In our companion case, Smith v. Safeco Insurance Co., No. 73299-0, 150 Wash.2d 478, 78 P.3d 1274, 2003 WL 22508858 (Wash. Nov. 6, 2003), we overrule Ellwein to the extent it purports to introduce a new summary judgment standard for insurance bad faith claims. Id., No. 73299-0, slip op. at 7, 150 Wash.2d at 485-86, 78 P.3d 1269. Thus, notwithstanding language in Ellwein to the contrary, an insurer must `give[ ] equal consideration in all matters to the [policyholder's] interests as well as its own.' Van Noy, 142 Wash.2d at 793, 16 P.3d 574 (quoting Van Noy v. State Farm Mut. Auto. Ins. Co., 98 Wash.App. 487, 492, 983 P.2d 1129 (1999)). Because the Court of Appeals dismissal of the bad faith claim was predicated on a misunderstanding of federal bankruptcy law and Ellwein, we reverse and remand to the trial court for proceedings consistent with this opinion. WE CONCUR: IRELAND, BRIDGE, CHAMBERS and FAIRHURST, JJ. MADSEN, J., (dissenting). This case involves a breach of contract claim arising out of an insurer's denial of coverage. The insurer denied coverage on a claim brought by the president of a corporation who intentionally destroyed the insured corporation's assets. Under federal case law, the contractual terms of an insurance policy remain enforceable even in bankruptcy and an estate's interest in property is determined by reference to state law. In this case, the contractual terms of the insurance policy exclude coverage when a person, authorized to act for the insured, causes loss through a criminal act. Furthermore, state case law precludes recovery where a dominating shareholder intentionally destroys assets of the insured corporation. Thus, there can be no recovery against the insurance policy in this case under either federal or state law. However, rather than adhering to overwhelming authority, the majority follows a poorly reasoned decision of the Fourth Circuit of the Court of Appeals and holds that the insurer is bound to indemnify such a loss based solely on the fact that the debtor corporation had filed bankruptcy. I must respectfully dissent.