§17.16 - "Extracontractual" Claims in the Context of Environmental Insurance Coverage Claims: Comm

• Jurisdiction: Washington

§17.16 ExtraContractual Claims in the Context of Environmental Insurance Coverage Claims: Common-Law Bad Faith, Consumer Protection Act, Insurance Fair Conduct Act

Extracontractual claims related to environmental insurance coverage are discussed below.

(1) General bad faith law

An insurers duty of good faith is established both by statute and common law. See Am. Mfrs. Mut. Ins. Co. v. Osborn, 104 Wn.App. 686, 697, 17 P.3d 1229, review denied, 144 Wn.2d 1005 (2001) (citing Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385, 715 P.2d 1133 (1986)). The statutory requirement of insurance good faith is found in RCW 48.01.030, which states:

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.

An insurers breach of its statutory or common-law duties of good faith gives rise to the tort of bad faith. See Griffin v. Allstate Ins. Co., 108 Wn.App. 133, 143, 29 P.3d 777 (2001), review denied, 146 Wn.2d 1005 (2002). Insurer conduct is deemed bad faith in Washington if it is "unreasonable, frivolous, or unfounded." Smith v. Safeco Ins. Co., 150 Wn.2d 478, 485, 78 P.3d 1274 (2003). To recover for the tort of bad faith, the insured must prove that (1) its insurer breached the duty of good faith, and (2) the insured was harmed as a result. See Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 276, 961 P.2d 933 (1998).

In Van Noy v. State Farm Mutual Automobile Insurance Co., 142 Wn.2d 784, 791, 16 P.3d 574 (2001), the Washington Supreme Court, citing Tank, 105 Wn.2d at 385-86, found, consistent with Tank, that an insurance company has a good faith obligation that rises to a level higher than that of mere honesty and lawfulness of purpose when dealing with its insureds. It referenced a quasi-fiduciary obligationto deal fairly and give the insureds interests equal consideration with its own interests in all regards. Van Noy, 142 Wn.2d at 794. This is not the same thing, as the court has often remarked, as a true fiduciary relationship. St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 130 n.3, 196 P.3d 664 (2008).

Bad faith continues to be a frequently litigated and ever-changing area of Washington law. As discussed in §17.8, above, on duty to defend, an insurers duty to defend is triggered if the insurance policy conceivably covers allegations in the complaint. Am. Best Food Inc. v. Alea London, Ltd., 168 Wn.2d 398, 404, 229 P.3d 693 (2010) (emphasis in original). If an insurer unreasonably and incorrectly declines to provide a defense, the insurer is acting in bad faith. See id. at 414; see also Xia v. ProBuilders Specialty Ins. Co., RRG, 188 Wn.2d 171, 174-75, 400 P.3d 1234 (2017) (failure to investigate "efficient proximate cause" rule prior to declining coverage was wrongful refusal to defend insured).

Additionally, Washington courts have found numerous acts to constitute bad faith as a matter of law. If the insured can prove that its insurer engaged in any such acts or omissions, it may meet its burden of demonstrating that (1) the insurer breached its duty of good faith for the purposes of a tort claim, and (2) the insurer engaged in an unfair or deceptive act or practice for purposes of establishing certain required elements of claims under the CPA, Chapter 19.86 RCW. See Indus. Indem. Co. of the Nw., Inc. v. Kallevig, 114 Wn.2d 907, 923, 792 P.2d 520 (1990). The following acts or omissions have been held to constitute bad faith:

(1)	failure to conduct reasonable claims investigation e.g., Griffin, 108 Wn.App. at 146-47;
(2)	failure to negotiate in good faith, e.g., Tyler v Grange Ins. Assn, 3 Wn.App. 167, 179, 473 P.2d 193 (1970);
(3)	failure to reasonably settle within policy limits e.g., Moratti v. Farmers Ins. Co., 162 Wn.App. 495, 254 P.3d 939 (2011), review denied, 173 Wn.2d 1022 (2012), cert. denied

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