Opinion ID: 1794820
Heading Depth: 1
Heading Rank: 1

Heading: Lowman

Text: Aetna contends that the doctrine of the duty to exercise an enhanced obligation of good faith while defending under a reservation of rights should not apply because MBI did not surrender complete control of the defense to it. Aetna argues that when an insured is offered a defense under a reservation of rights it has two choices either reject the defense and assume complete control of third-party claims against it, or accept the defense and surrender control to the insurer. The tender of a reservation-of-rights defense by an insurer is essentially a straddle whereby the insurer minimizes its downside while protecting its rights. Based on evidence presented in the trial court, the fact-finder could reasonably have concluded that Aetna offered a reservation of rights; MBI responded to Aetna's tender of a defense pursuant to a reservation of rights with a counter-proposal that involved another form of a straddle, with MBI demanding that it remain in control of ongoing settlement negotiations while requesting that the defense attorney tendered by Aetna to defend the action remain in the background during settlement negotiations; that MBI did not insist that the Aetna defense attorney take no action or otherwise prevent the defense attorney from conducting an investigation and otherwise taking steps expected of defense counsel, such as evaluating the case against MBI; and that Aetna acquiesced in this arrangement. Consequently, I would reject Aetna's efforts to confine the enhanced obligation of good faith to arrangements where the insurer assumes complete control of the defense. The simple fact that the insurer does not dominate the defense should not serve as the basis to spare the insurer from the duty to refrain from acting in such a fashion as to prefer its interests over those of its insured. However, even imposing the burden of acting in enhanced good faith upon Aetna, I am unable to find sufficient detriment to MBI in the context of the Lowman case, particularly in view of MBI's domination of the defense of the action and Aetna's refusal to follow the advice of the MBI defense counsel that it consulted on the coverage question. I recognize that the State of Washington, in the context of its embrace of the doctrine of enhanced duty of good faith as a tort remedy in Butler, holds that a violation of the duty gives rise to a rebuttable presumption of prejudice. Nevertheless, even if we were to follow Butler on the detriment issue, I am hard pressed to find ample evidence in this record to justify a conclusion that, as to the Lowman case, the presumption was not rebutted.