In a recent case, Division 1 of the Washington Court of Appeals began its decision with this pretty straight-forward paragraph:
*1 ¶ 1 For purposes of the statute of limitations, a bad faith claim against an insurer accrues when the underlying judgment against the insured becomes final. Here, the action was commenced well within the applicable statutory period, three years after entry of a judgment in the underlying tort action. We reverse the trial court's decision setting aside the jury verdict, reverse the trial court on its refusal to submit the Consumer Protection Act (CPA) FN1 claim to the jury, and remand for further proceedings.
FN1. Ch. 19.86 RCW.
Download Tarutis v. Farmers Insurance Co. (Wash. Ct. App. Div. 1, Case No. 64477.7.I, Opinion Filed July 5, 2011) PUBLIC ACCESS,, also published as Moratti v. Farmers Ins. Co, 2011 WL 2611763 *1 Paragraph 1 (Wash. Ct. App., Div. 1, July 5, 2011).
This language is deceptively simple. In addition to unique Consumer Protection Act issues*, the Washington State Appellate Court added to the growing number of cases involving a Liability Insurance Company's announced Duty to Initiate Settlement Negotiations.
The Court followed the developing Rule in these terms: "An insurer owes its insured a duty to act in good faith, which includes an affirmative duty to undertake a good faith effort to settle when an insured's liability is likely." Moratti v. Farmers Ins. Co., 2011 WL 2611763 at *3 Paragraph 12. [Emphasis added.] In Washington State, "Insurance Bad Faith" appears to be treated alike regardless of whether it allegedly involves a Wrongful Refusal to Defend or an alleged Failure to Settle. The Washington State Appellate Court panel applied this Rule to the case of an alleged Wrongful Refusal to Defend:
We therefore hold that when an insurer wrongfully refuses to defend, it has voluntarily forfeited its ability to protect itself against an unfavorable settlement, unless the settlement is the product of fraud or collusion.
Id.
To put it another way, the Washington State Appellate Court held in this regard:
An insurer has a duty to make a good faith effort to settle a claim, including an obligation to conduct good faith settlement negotiations sufficient to ascertain the most favorable terms available.
Id. at *6 Paragraph 20.
This is in line with the developing Rule, summarized above, which does not require a settlement offer by the Liability Insurance Company in a case against its Insured where the Insured's Liability is "probable" and the Injured Claimant's Damages are "great," i.e., likely in excess of Policy Limits. What is required instead is subject to a rule of reason: A good faith duty to initiate settlement negotiations in such a case.
*The Washington State Consumer Protection Act issues addressed by the Court in this case will be addressed in a separate post here.
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