Ashbaugh Beal LLP
Found at WAC 284-30
Modeled after Unfair Claim Practice
Incorporated as predicate acts in
Washington‟s Insurance Fair Conduct Act
Violations in the course of a Reservation of
Rights Defense May Result in Coverage by
Most frequently litigated regulation is WAC
Coventry Associates v. American States
St. Paul v. Onvia
Aecon Buildings v. Zurich American
American Manufacturers Mut. Ins. Co. v.
Ins. Co. of Pennsylvania v. Highlands Ins. Co.
Cardenas v. Navigators Ins. Co.
Harris, Washington Insurance Law, p. 17-11:
The letter should cite:
The applicable language upon which the
reservation is based;
The general conceptual nature of the reservation;
Any known facts supporting the reservation.
A general reservation of rights may not be
sufficient to preserve a coverage defense. (Harris,
Under Tank v. State Farm, the insurer has the
responsibility for fully informing the insured “of all
developments relevant to his policy coverage and
the progress of his lawsuit.”
It may be a risk to include reservations of right in a
denial letter, since the investigation is supposed to
be complete by then, and a denial may not be
based upon speculation or conjecture.
The duty to defend, if any, arises with the filing of the
An insurer must provide a defense if it is unable to rule
out the potential of coverage. It is thus safest to
provide a defense under reservation of right “a prompt
and reasonable fashion.”
Policyholder may want to send a “breach” letter out at
the point at which it first contends the insurer is
delinquent in providing a defense.
Some courts will decline to hold a breach if it appears
additional time was necessary for the insurer to
investigate extrinsic evidence to determine whether the
Plaintiff‟s allegations arguably implicate coverage.
The regulatory basis of the duty: WAC 284-30-330(13).
How to handle the conundrum where the claim representative
is not a lawyer, but the insurer wishes to disclose the legal
bases of the denial.
Should an insurer deny indemnity based upon its factual
investigation even though it is still providing a defense? If so,
may it utilize facts derived from the defense being provided
under reservation of right?
May the policyholder require the Insurer to make a premediation disclosure of indemnity benefits, and require
the citation of facts and applicable law in support of a
refusal to make indemnity benefits available in the full
amount of reasonable settlement value of the Plaintiff‟s
The Duty of Good Faith in Washington is statutory:
In Tank v. State Farm, the Washington Supreme
Court held that the duty requires an insurer to
consider the interests of the insured equally with
its own “in all matters.”
This rule is known by many throughout the
insurance industry as “The „Golden Rule” of
Most policyholder attorneys believe the duty is
Policyholder and Insurer should attempt to agree at the
outset to a protocol and timeline for the investigation.
The policyholder should not play “gotcha” with the insurer.
Periodic conference calls between policyholder and insurer to
discuss developments will typically forge an alliance against
There is no substitute for communication.
Implement the “four ates” of WPI 320.05: “ Investigate,
evaluate, communicate and negotiate.”
Both insurer and policyholder should take advantage of the
fact that neither wants to end up in expensive litigation with
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