Washington

Wash. Admin. Code §284-30-300 and Common Law:

The Washington Consumer Protection Act protects consumers from unfair and deceptive acts, including violations of the Unfair Claims Settlement Practices.[1] Such practices include “ . . . (6) [n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. In particular, this includes an obligation to promptly pay property damage claims to innocent third parties in clear liability situations. If two or more insurers share liability, they should arrange to make appropriate payments, leaving to themselves the burden of apportioning liability.”[2]

A third-party claimant cannot sue an insurer directly for breach of the insurer’s duty of good faith under the liability policy, or the Consumer Protection Act.[3] However, the first-party claimant can assign his or her rights to a third-party claimant, which would allow the third-party to assume all the claim in the same standing as the first-party.[4]

Washington Courts use a “no limit” test to determine whether the insurer has given equal consideration to its interest and the insured’s interest.[5] The factors under Washington law to determine whether an insurer breached its affirmative duty to make a good faith effort to settle whether negligently or in bad faith include, but are not limited to: 1) strength of the injured claimant’s case on the issue of liability and damages; 2) the adequacy of the insurer’s investigation and evaluation; 3) the adequacy of the insured’s policy limits and the consequent risk to which each party is exposed in the event of a refusal to settle; 4) willingness or refusal to negotiate and the resulting climate for settlement; 5) any other action by the insurer demonstrating a greater concern for the insurer’s monetary interest than for the financial risk attendant to the insured’s situation.[6]

“[A]n insurance company which has paid a judgment against its insured to the extent of its liability under the policy of insurance, may be held liable for damages to its insured for a failure to adjuster or compromise a claim within the limits of liability, if that failure is attributable to negligence or bad faith.”[7] “The flat refusal to negotiate under circumstances of substantial exposure to liability, a demonstrated receptive climate for settlement, and limited insurance coverage may show lack of good faith . . . .”[8]

In determining whether to settle within policy limits, an insurer must formulate a realistic assessment of the “possibility of liability of its client to the injured party and the resultant range of compensation of the injuries suffered.”[9]It is an insurer’s affirmative duty to exercise due care and requires that it not take unreasonable risk and proceed to trial when the “changes of unfavorable results [are] out of reasonable proportion to the changes of favorable results.”[10] An insurer must give consideration to the interests of the insured when negotiation a settlement and cannot put its financial interest before the interest of the insured; to do so is to act in bad faith.[11]

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[1] Wash. Admin. Code § 284-30-300.

[2] Wash. Admin. Code § 284-30-330(6).

[3] Tank v. State Farm Fire & Casualty Co., 105 Wn.2d 381 (Wash. 1986).

[4] Id. at 393.

[5] Tyler v. Grange Ins. Ass’n, 473 P.2d 193, 200 (Wash. Ct. App. 1970).

[6] Smith v. Safeco Ins. Co., 50 P.3d 277, 281 (Wash. Ct. App.2002), rev'd on other grounds, 78 P.3d 1274 (Wash. 2003).

[7] Hamilton v. State Farm Ins. Co., 523 P.2d 193, 196 (1974) (citing Murray v. Mossman, 355 P.2d 985 (1960)).

[8] Id.

[9] Tyler, 473 P.2d at 200.

[10] Id. at 200, n.6.

[11] Singh v. Zurich Am. Ins. Co., 428 P.3d 1237, 1244 (Wash. Ct. App. 2018), rev. denied, 192 Wn.2d 1025 (2019).