Opinion ID: 1161058
Heading Depth: 1
Heading Rank: 5

Heading: Issue # 3 What Remedies are Available to an Insured if its Insurer Has Acted in Bad Faith?

Text: Once an insured has established harm resulting from the bad faith investigation, the insured is entitled to an appropriate remedy. Coventry argues coverage by estoppel is the appropriate remedy because it gives insurers a strong disincentive to act in bad faith and protects the insured from such conduct. In the alternative, Coventry suggests it is entitled to recover the portion of the premium it paid to American States for claims administration because American States should not be entitled to collect a premium, act in bad faith in using a portion of that premium, and then retain the entire premium amount. Pet. for Review at 20. American States asserts that Coventry is not entitled to either a return of a portion of its premium payment or coverage by estoppel. With regard to a return of a portion of the premium paid, American States argues that [h]arm based upon a computation of the value of services from the insurer is entirely speculative. Resp't Answer to Pet for Review at 18. With regard to coverage by estoppel, American States argues that coverage by estoppel arises only in third party reservation of rights cases. Because actionable bad faith is a tort, a plaintiff should not be limited to the economic damages within the contemplation of the parties at the time the contract was made. Safeco Ins., 118 Wash.2d at 393-94, 823 P.2d 499. In Safeco Ins., a third party reservation of rights case, we held coverage by estoppel was the appropriate remedy. Safeco Ins., 118 Wash.2d at 392, 823 P.2d 499. we also indicated that coverage by estoppel was appropriate in bad faith cases where coverage was appropriately denied, stating, an insurer who acts in bad faith should be estopped from denying coverage, even where an otherwise good policy defense exists. Safeco Ins., 118 Wash.2d at 393, 823 P.2d 499 (citing 1 Windt, supra, § 2.02, at 27-28). The issue here is whether the same reasoning applies in the first party context. We hold coverage by estoppel in the first party context is not the appropriate remedy because, unlike third party reservation of rights cases, the loss in the first party situation has been incurred before the insurance company is aware a claim exists. Furthermore, an insurer is not liable for the policy benefits but, instead, liable for the consequential damages to the insured as a result of the insurer's breach of its contractual and statutory obligations. In third party reservation of rights cases, though, coverage by estoppel is an appropriate remedy because the insurer contributes to the insured's loss by failing to fulfill its obligation in some way. This contribution to loss is particularly true when acts of the insurer have led the insured to believe it is covered under the terms of the policy. See 1 Windt, supra, §§ 2.03, 2.05 (insurer's breach of its duty to investigate should not result in the insurer being estopped from denying coverage). This difference between third party cases and first party cases warrants different remedies. We hold Coventry is not entitled to coverage by estoppel or a return of a portion of its premium but that its damages are limited to the amounts it has incurred as a result of the bad faith investigation, as well as general tort damages. The record before us establishes that Coventry was required to go through some financial expense as a result of the bad faith investigation conducted by American States. These expenses include the cost of hiring their own experts and investigators to determine if American States should have covered the claim. To that extent, Coventry is entitled to make a claim for those amounts and damages normally associated with bad faith and CPA violations. Coventry must, like every other plaintiff, establish those damages at trial.