Opinion ID: 2514388
Heading Depth: 1
Heading Rank: 4

Heading: Cause of Action for Bad Faith Claims-Handling in the Absence of a Duty To Defend, Settle, or Indemnify

Text: ¶ 18 The first certified question asks us to decide whether an insured has a cause of action for mishandling of a claim, once a court has held that the insurer did not breach its duties to defend, settle, or indemnify. In the third-party context, an insurer can act in bad faith even where coverage is later determined to be unavailable. Kirk, 134 Wash.2d 558, 951 P.2d 1124 (finding refusal to defend third-party claim in bad faith actionable even though insured's claim was not covered); Butler, 118 Wash.2d 383, 823 P.2d 499 (holding insurer's delays constituted bad faith in third-party reservation of rights defense even though insured was not covered); Tank, 105 Wash.2d 381, 715 P.2d 1133 (recognizing failure to defend in third-party reservation of rights case constituted bad faith even though insured was not covered). This case presents a slightly different set of facts than in previous cases. Here the duty to defend, either outright or under a reservation of rights, is not implicated. The certified question presumes that St. Paul properly denied the insured's tender of defense. ¶ 19 The duty to defend is also obviously never implicated in a first-party insurance policy. But in Coventry, this court held that a first-party insured has a cause of action for bad faith investigation even where there is ultimately no coverage. 136 Wash.2d at 279, 961 P.2d 933. The court in Coventry reasoned that an insurer's duty of good faith is separate from its duty to indemnify if coverage exists. Id. This holding reflects settled Washington bad faith law. Coventry simply recognized the principles enunciated by the legislature in chapter 48.01 RCW: that the insurance business requires good faith, honesty, and equity in all insurance matters. Id. at 276, 961 P.2d 933 (quoting RCW 48.01.030). Although Coventry involved a first-party claim and here we have a third-party claim, there is no appreciable difference between this case and Coventry with respect to whether bad faith claims mishandling remains actionable in the absence of coverage. Despite the fact that the benefit of the insurance contract (i.e, payment) was not available to the insured in Coventry, we nevertheless found bad faith could be asserted where the insurer mishandled the claim by failing to conduct a reasonable investigation. Likewise, although here the benefit of the insurance contract (i.e., defense, settlement, and payment) is not available to the insured, if St. Paul handled the claim in bad faith, a cause of action based on this conduct remains available to the insured. We see no reason to depart here from the principle announced in Coventry. ¶ 20 Under Washington law every insurer has a duty to act promptly, in both communication and investigation, in response to a claim or tender of defense. WAC 284-30-330(2)-(4); WAC 284-30-360(1), (3); WAC 284-30-370. St. Paul's alleged failure to do so here forms the basis of RMS's bad faith claim. Resp. Br. of Def. at 19 n. 9. St. Paul asks this court to find that there is no liability for violation of insurance claims-handling regulations absent a bad-faith breach of the other obligations imposed under coverage provisions of the contract. But under state law insurers have not only a general duty of good faith, RCW 48.01.030, but also a specific duty to act with reasonable promptness in investigation and communication with their insureds following notice of a claim and tender of defense. These are necessarily obligations read into every policy. [4] Moreover, although none of our cases address the specific scenario here, we have consistently recognized that the duty of good faith is broad and all-encompassing, and is not limited to an insurer's duty to pay, settle, or defend. [A]n 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. [5] ¶ 21 We conclude 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.