Court Opinion

ID: 4711960
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:37:40.649391+00
Date Added: 2024-06-11T08:07:11.252280
License: Public Domain

Talmadge, J.*
(concurring) — While I agree with the majority this case should be remanded for trial, I write separately because of the majority’s imprecise formulation of State Farm Mutual Automobile Insurance Company’s (State Farm) duty to its insureds.
As the majority notes, the Court of Appeals spoke in terms of an “enhanced” fiduciary duty owed by State Farm to its insureds. The Court of Appeals’ formulation of this duty implied the insurer was essentially a true fiduciary to *797its insured. The majority correctly disagrees with that formulation of the duty owed by insurers to insureds.3
In the most basic sense, a fiduciary duty arises out of a trust relationship:
A leading authority defines a fiduciary as “a person having a duty, created by his undertaking, to act primarily for the benefit of another in matters connected with his undertaking.” The usual expectation, based on the nature of the relationship, is that a fiduciary will discharge this undertaking to act on behalf of another in a selfless manner and will indeed act “primarily” for the benefit of the other, which includes keeping *798the interests of the other foremost in mind (through loyalty and full disclosure) and acting with care.
A fiduciary relationship is a relationship of trust, which necessarily involves vulnerability for the party reposing trust in another. One’s guard is down. One is trusting another to take actions on one’s behalf. Under such circumstances, to violate a trust is to violate grossly the expectations of the person reposing the trust. Because of this, the law creates a special status for fiduciaries, imposing duties of loyalty, care, and full disclosure upon them. One can call this the fiduciary principle. To recognize such duties and enforce a reasonable expectation of trust, requiring a person granted the trust of another to honor and respect that trust is both understandable and of utmost importance.
J. Dennis Hynes, Freedom of Contract, Fiduciary Duties, and Partnerships: The Bargain Principle and the Law of Agency, 54 Wash. & Lee L. Rev. 439, 441-42 (1997) (footnotes omitted).4
In our cases, we have held the utmost duty, placing the interest of the person to whom the duty is owed above that of the fiduciary’s personal interest, is owed only in the context of a “true” fiduciary relationship like trustee/beneficiary. Esmieu v. Schrag, 88 Wn.2d 490, 563 P.2d 203 (1977). This “true” fiduciary duty does not exist in the insurance setting. Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 389, 823 P.2d 499 (1992). But we have imposed a lesser fiduciary duty where the insurer defends an in*799sured under a reservation of rights. In Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381, 385-86, 715 P.2d 1133 (1986), we described this duty as follows:
Such a relationship exists not only as a result of the contract between the insurer and insured, but because of the high stakes involved for both parties to an insurance contract and the elevated level of trust underlying insureds’ dependence on their insurers. This fiduciary relationship, as the basis of an insurer’s duty of good faith, implies more than the “honesty and lawfulness of purpose” which comprises a standard definition of good faith. It implies “a broad obligation of fair dealing”, and a responsibility to give “equal consideration” to the insured’s interests. Thus, an insurance company’s duty of good faith rises to an even higher level than that of honesty and lawfulness of purpose toward its policyholders: an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured’s interests.
This duty in the third party context is entirely understandable. The insurer is simultaneously defending the insured against a lawsuit by a third party under the insurance policy’s duty to defend/duty to indemnify and litigating issues of coverage with the insured. The potential for an insurer’s conflicting loyalties and financial interests is manifest and our crafting of a fiduciary duty owed by insurers to insureds is entirely sensible.
But the duty owed by an insurer to an insured in the first party insurance setting is an entirely different matter and the majority’s formulation of the “fiduciary” duty owed by the insurer to the insured in the first party insurance context is imprecise. It is difficult to understand how an insurer can be a fiduciary to its insured when there is a conflict regarding a claim. This is not like the circumstance in a reservation of rights situation described in Tank. As one commentator noted:
The relationship between a first-party insurer and its policyholder is ill-suited for fiduciary controls. Indeed, fiduciary theory simply does not work here for at least two reasons. First and foremost, an insurer’s interests and an insured’s interests *800are not aligned when the insured is claiming on his own behalf, as they are in third-party cases where insurer and insured face a common adversary. The insurer is never cast as the insured’s agent. The insurer and insured do not deal in trust when a first-party claim is made; here they are adversaries. Even when a claim is clearly covered, the insurer and insured may disagree over the amount due or the nature of the benefits to be paid. This inherent conflict, which is well-recognized in insurance law, cannot be reconciled with the existence of a fiduciary relationship.
Second, there is no conceivable set of circumstances in which the insured surrenders control of litigation in which it is a party to the insurer. In the first-party context, any litigation is the product of either the insured or the insurer suing the other. Regardless, the insured controls the litigation.
Douglas R. Richmond, Trust Me: Insurers Are Not Fiduciaries to Their Insureds, 88 Ky. L.J. 1, 20 (2000) (footnotes omitted).
We have discussed the duty owed by first party insurers to insureds as one of good faith. Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 961 P.2d 933 (1998). Good faith is the proper analytical focus for first-party insurance because the relationship between a first party insurer and insured does not involve a fiduciary duty, enhanced, limited, or otherwise.
The more precise formulation of the duty owed by the insurer carrier to the insured is that of good faith, rather than a fiduciary duty. This duty of good faith permeates Washington’s Insurance Code. For example, RCW 48.01-.030 defines the public interest in insurance:
The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance.
See also ch. 284-30 WAC (fair claims handling). Under this duty of good faith, in the first party insurance setting, the *801insurer must deal fairly with its insured in the claim context of a claim and must give equal consideration to the interests of the insured in handling a claim.
While I agree with the majority’s disposition of this case, the stronger analytical anchor for the majority’s approach to the relationship between first party insurers and insureds in claims handling will be found in the duty of good faith expressed in Washington’s Insurance Code rather than the more amorphous and inappropriate formulation of a fiduciary relationship.
Johnson and Madsen, JJ., concur with Talmadge, J. Pro Tem.

 Justice Philip Talmadge is serving as a justice pro tempore of the Supreme Court pursuant to Const, art. IV, § 2(a).

 This confusion regarding the duty of an insurer to an insured is entirely understandable. As a commentator noted:
The characterization of an insurer’s responsibility as “fiduciary” is neither analytically precise nor functionally helpful. In fact, the courts’ use of the term “fiduciary” in insurance cases has been muddled and confusing. As early as 1960, the Washington Supreme Court characterized an insurer’s duty of good faith as one that “springs from a fiduciary relationship.” In Tank v. State Farm Fire & Cas. Co., the court continued to characterize the insurer-insured relationship as fiduciary in nature. However, in Safeco Ins. Co. of Am. v. Butler, [118 Wn.2d 383, 823 P.2d 499 (1992)] the court subsequently stated that it had always been “clear” from the “language” of Tank that it was not a “true” fiduciary relationship. After reconsidering its earlier characterization of the insurer-insured relationship, the court in Butler has offered the conceptually murky characterization that the relationship between an insurer and its insured has “fiduciary aspects,” but is “something less” than a true fiduciary relationship.
More recently, the Supreme Court has improperly characterized the insurer-insured relationship as one that involves even more than a normal fiduciary relationship. In McGreevy v. Oregon Mut. Ins. Co., the court referred to the relationship as a “special fiduciary relationship” and an “enhanced fiduciary obligation.”
Of more practical benefit are the specific standards imposed by WAC 284-30-300 et seq. and the general analytical tools formulated in Tank for the evaluation of whether an insurer complied with its good-faith duties. Characterizing the duty is far less important than defining, at least in general terms, what that duty requires. An insurer must know the extent to which it can weigh its legitimate interests against those of its insured. Without such guidance, an insurer cannot properly determine how to resolve the various problems that it will face in discharging its obligations.
In Tank and Butler, the court defined the weight that an insurer must give to its insured’s interests. The standard that an insurer must follow is both simple and conceptually clear: “[A]n insurer must deal fairly with an insured, giving equal consideration in all matters to the insured’s interests.” An insurer is not obligated to subjugate its own legitimate interests to the interests of its insured.
Thomas V. Harris, Washington Insurance Law § 2.2 (2000) (footnotes omitted).

The duty of a fiduciary to his beneficiary is essentially that of a trustee. A fiduciary “is bound to act in the highest good faith toward his beneficiary” and he may never seek to gain an advantage over his beneficiary by any means. A fiduciary must give priority to his beneficiary’s best interest whenever he acts on the beneficiary’s behalf. A fiduciary owes his beneficiary a duty of undivided loyalty, meaning that a fiduciary cannot abandon or stray from this relationship to further his own interests. Examples of fiduciary relationships include “an attorney for a client, a corporate director or officer for the corporation or its shareholders, an agent for the principal, a guardian for the ward, a bailee for the bailor, a partner for the other partners, joint venturers for one another, and a physician for his patient.”
Douglas R. Richmond, Trust Me: Insurers Are Not Fiduciaries to Their Insureds, 88 Ky. L.J. 1, 2 (2000) (footnotes omitted).