Bad Faith Nov2013 Effective Claims Handling


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Bad Faith Nov2013 Effective Claims Handling

  1. 1. November 1, 2013
  2. 2. Rick Beal Ashbaugh Beal LLP Thomas Jones Cozen O‟Connor
  3. 3.      Found at WAC 284-30 Modeled after Unfair Claim Practice Regulations 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 Estoppel Most frequently litigated regulation is WAC 284-30-330(4).
  4. 4.         Coventry Associates v. American States St. Paul v. Onvia Aecon Buildings v. Zurich American American Manufacturers Mut. Ins. Co. v. Osborn Ins. Co. of Pennsylvania v. Highlands Ins. Co. Cardenas v. Navigators Ins. Co. RCW 48.30.015(5) WPI 320.05
  5. 5.  1. 2. 3. 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; and Any known facts supporting the reservation.
  6. 6.    A general reservation of rights may not be sufficient to preserve a coverage defense. (Harris, p. 17-11). 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.
  7. 7.     The duty to defend, if any, arises with the filing of the complaint. 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.
  8. 8.     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 claim?
  9. 9.     The Duty of Good Faith in Washington is statutory: RCW 48.01.030. 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 insurance. Most policyholder attorneys believe the duty is reciprocal.
  10. 10.       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 the Claimant. 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 the other.
  11. 11.       Rick Beal Ashbaugh Beal 206.286.5900 Tom Jones Cozen O‟Connor 206.224.1242