Opinion ID: 2585831
Heading Depth: 2
Heading Rank: 1

Heading: Bad Faith Settlement Offers

Text: In reaching its decision on whether Hartford committed bad faith by asserting a contributory negligence defense, and by making correspondingly low settlement offers, the Court of Appeals quoted Keller v. Allstate Insurance Co., 81 Wash.App. 624, 633, 915 P.2d 1140 (1996): The fact that the insurer is ultimately unsuccessful in its policy defense does not render the insurer liable for bad faith refusal to settle claims provided that the insurers['] actions were reasonable, and the insurer had probable cause to pursue its defense. Therefore, the insurer should not be held liable for extra-contractual damages where there is a legitimate controversy as to whether benefits are due or the amount of such benefits.... Ellwein v. Hartford Accident & Indem. Co., 95 Wash.App. 419, 425, 976 P.2d 138 (1999). The court went on to state: Our inquiry thus focuses on whether, as a matter of law, Hartford was reasonably justified in its actions defending Ellwein's UIM claim. Id. After conducting that inquiry, the court found that, given the conflicting evidence regarding the color of the lights at the time of the accident, and Mrs. Ellwein's status as the disfavored driver, Hartford's settlement practices were not unreasonable and, thus, Hartford did not commit bad faith. Id. at 427, 976 P.2d 138. The Ellweins assert that the Court of Appeals' decision is based on the misguided premise that the existence of disputed facts regarding a bad faith claim mandate, rather than prevent, summary judgment. The Ellweins assert that the evidence raised a serious question as to whether Hartford's contributory negligence assessment was reasonable, pointing to: (1) Hartford's pre- and post-UIM claim letters to Safeco in which it asserted that Mrs. Ellwein was not at fault; (2) Hartford's internal memorandum where it recognized the weaknesses of Cooper's testimony; and (3) Solito's destruction of file notes. Under the Ellweins' theory, summary judgment regarding Hartford's bad faith settlement offers should have been denied. We disagree. Appellate review of summary judgment dismissal is de novo. E.g., Stuart v. Am. States Ins. Co., 134 Wash.2d 814, 818, 953 P.2d 462 (1998). Under that standard, this court must determine whether, after reviewing all relevant pleadings and affidavits in favor of the nonmoving party, any genuine issue of material fact exists that prevents the moving party from being entitled to judgment as a matter of law. E.g., Stuart, 134 Wash.2d at 818, 953 P.2d 462 (citing CR 56(c)). When the summary judgment standard is applied in light of the unique and narrow nature of bad faith claims, we are convinced that the Court of Appeals was correct. RCW 48.01.030 imposes a duty to act in good faith upon insurers, and violation of that duty may give rise to a tort action for bad faith. See, e.g., Indus. Indem. Co. of N.W., Inc. v. Kallevig, 114 Wash.2d 907, 917, 792 P.2d 520 (1990). Claims of bad faith, however, are not easy to establish; insureds must meet a heavy burden. Nat'l Sav. Life Ins. Co. v. Dutton, 419 So.2d 1357, 1362 (Ala.1982). Insureds must prove bad faith as a matter of law. Ordinarily, if the evidence produced by either side creates a fact issue with regard to the validity of the claim and, thus, the legitimacy of the denial thereof, the tort claim must fail.... Id.; see also Kirk v. Mt. Airy Ins. Co., 134 Wash.2d 558, 560, 951 P.2d 1124 (1998) (citing case) (to establish tort of bad faith, insured must show insurer's settlement actions were unreasonable, frivolous, or unfounded); Kallevig, 114 Wash.2d at 917, 792 P.2d 520 (insurers generally not guilty of bad faith if they have a reasonable justification for their actions) (citing cases). Applying the bad faith standard in the summary judgment context, an insurer is ordinarily entitled to summary judgment dismissal of a bad faith claim unless the insured shows there was no reasonable basis for the insurer's actions. Stated another way, where there is no real dispute that an insurer had a reasonable basis for its actions, dismissal of the bad faith claim on summary judgment is appropriate. See Keller v. Allstate Ins. Co., 81 Wash.App. 624, 633, 915 P.2d 1140 (1996) (insurer not guilty of bad faith if `legitimate controversy' as to benefits due (quoting 15A GEORGE J. COUCH, COUCH ON INSURANCE § 58:1 (Ronald A. Anderson & Mark S. Rhodes, 2d rev. ed.1983))); Pruitt v. Alaska Pac. Assurance Co., 28 Wash.App. 802, 804, 626 P.2d 528 (1981) (bona fide dispute over existence and extent of damage precluded bad faith claim). This fairly debatable standard for determining bad faith, as it is commonly called, is followed in the vast majority of jurisdictions. [7] The logic of putting insureds to task in bad faith cases has been described as follows: An insurer is entitled to dispute claims so long as it has a reasonable basis. If reasonable minds could not differ on the coverage-determining facts, a verdict should be directed or summary judgment rendered on coverage. If that cannot be done, it ordinarily must follow that the insurer had reasonable grounds to dispute the facts, precluding any possibility of bad faith. 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); see also Douglas G. Houser, Good Faith as a Matter of Law: The Insurance Company's Right to Be Wrong, 27 TORT & INS. L.J. 665-70 (1992). [8] Applying this standard, we completely concur with the Court of Appeals' finding that dismissal of the bad faith claim regarding Hartford's settlement practices was warranted. As the court noted, it is undisputed that Hartford, as a UIM insurer, had a general right to assert a comparative fault defense. Furthermore, the ambiguous and somewhat conflicting eyewitness reports alone created an issue as to whether Gleason entered the light on the yellow. Had Gleason entered the light on the yellow, Mrs. Ellwein would have been at least partially responsible for the accident by breaching in her statutory duty to yield. See RCW 46.61.185 (duty to yield imposed upon driver turning left at intersection). Consequently, even absent Cooper's revised report, this claim of bad faith was properly dismissed because of Hartford's legitimate basis for asserting comparative fault.