While insurance companies are an important part of the American economy, and while they often provide peace of mind to people, sometimes they do not act fairly to people and businesses. Acting unfairly to people can take on many different forms. Sometimes it means not reasonably settling a claim from a car accident. Other times it means not agreeing to pay out an insurance policy after your home or business burns down in a fire. Regardless of how it happens, there are instances when an insurance company acts in what is called “bad faith.” Bad faith is an area of law in Washington State that helps leveling out the playing field between the powerful insurance company and the people who rely on insurance company for protection and coverage of their cars, homes, businesses, and property.

A common occurrence for people who are in car accidents occurs when the at-fault driver has a low car insurance policy—for example, $25,000—and the person bringing the lawsuit, known as the plaintiff, has medical bills and other damages that either exceed $25,000 or come to close to exceeding them and the insurance company for the at-fault driver refuses to pay out their insurance policy limits. If the insurance company for the at-fault driver acts unfairly by not settling a case with these hypothetical facts, there might be a bad faith claim that could be brought against the at-fault driver’s insurance company.

Depending on whether the correct procedural steps to “set up” the defendant’s insurance carrier were first put in place, you can succeed on a bad faith claim. However, it is also contingent on whether the defendant is willing to cooperate and assign his or “bad faith” claims to you in exchange for a covenant not to execute. A covenant is another word for a promise. This means that you, the plaintiff, will promise not go after the at-fault driver’s personal assets, such as his house or car, if the at-fault driver gives you his or her rights to sue his or her own insurance company. In effect, the at-fault driver then allows you to sue his or her own insurance from on their behalf. This is because there have been numerous cases in Washington State that have allowed this to happen.

For example, in Hamilton v. State Farm, 83 Wn.2d 787, 523 P.2d 193 (1974), the Washington State Supreme Court recognized the long-standing principle that an insurer has an affirmative duty to make a good faith attempt to settle within the limits of liability:

“We have recognized that, with great unanimity, the cases hold that an 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 adjust or compromise a claim within the limits of liability, if that failure is attributable to negligence or bad faith. Murray v. Mossman, 56 Wn.2d 909, 355 P.2d 985 (1960). And see Bowker v. McDonald, 49 Wn.2d 633, 145 P.2d 800 (1957). See also Burnham v. Commercial Cas. Ins. Co., 10 Wn.2d 624, 117 P.2d 644 (1941), where we said that if investigation of the circumstances and facts surrounding an accident disclose liability on the part of the insured, it is the affirmative duty of the insurer to make a good faith attempt to effect settlement. Hamilton, 83 Wn.2d at pg. 792.

For example, an insurance company can be guilty of bad faith for the following:

  • Wrongful refusal to defendant a claim — Waite v. Aetna, 77 Wn.2d 850, 467 P. 2d 846 (1970);
  • Failure to settle within policy limits — Hamilton v. State Farm, 83 Wn.2d 787, 523 P.2d 193 (1974);
  • Wrongful refusal to pay a claim — Levy v. North American Company, 90 Wn.2d 846, 586 P. 2d 845 (1978);
  • Conducting a shoddy investigation or an investigation in bad faith — Coventry Associates v. American States, 136 Wn.2d 269, 961 P.2d 933 (1998); and
  • Wrong failure to promptly adjust claims — Janofsky v. Preferred Ins. Exchange, 52 Wn.2d 801, 329 P.2d 207 (1958).

Because of these risk factors, one of the most effective ways to exert pressure on the insurance company to settle your case is to invoke the fiduciary duty they hold with their insured, who is also the at-fault driver, from a potential adverse excess judgment.

Bad faith cases are very complicated and they need a skilled attorney to properly handle them. If you believe you have been treated unfairly by an insurance company, whether it is your insurance company or the insurance company for the person who harmed you, please call The Jackman Law Firm for a free consultation.