Procedural Bad Faith Exists Separately From Insurance Coverage
Last week, the Washington Supreme Court ruled in St. Paul Fire and Marine Ins. Co. v. Onvia, Inc. that an insured may have bad faith and Washington Consumer Protection Act claims against its insurance carrier even though the carrier did not have to defend or indemnify -- if the carrier made procedural missteps in deciding that there was no coverage.
That is correct – the insurer did not have an obligation to defend or indemnify, and the insured still may have a claim for damages. But, harm and damages must be proven.
Here, it appears that there was a delay of almost nine months between tender and denial of coverage, during which time the insured defended itself in the litigation and entered settlement negotiations. Because the duty of good faith toward an insured applies to the handling of the claim, if the claim was handled badly, there may be a claim for procedural bad faith. As for the Consumer Protection Act cause of action, a violation of the investigative requirements of the Washington Administrative Code automatically establishes the first element of a claim under the Consumer Protection Act. Under the Washington Administrative Code, an insurer has a duty to act promptly in communication and investigation after a claim is tendered.
The message for insureds is to keep track of the efforts made in connection with tender of a claim so that you can prove damages, if necessary. For carriers, the clock is ticking on handling that tender of claim.
