Safeco Ins. Co. of America v. Butler

Decision Date06 February 1992
Docket NumberNo. 57323-9,57323-9
PartiesSAFECO INSURANCE COMPANY OF AMERICA, Petitioner, v. Hap M. BUTLER and "Jane Doe" Butler, et al., Respondents.
CourtWashington Supreme Court

Page 383

118 Wn.2d 383
823 P.2d 499
SAFECO INSURANCE COMPANY OF AMERICA, Petitioner,
v.
Hap M. BUTLER and "Jane Doe" Butler, et al., Respondents.
No. 57323-9.
Supreme Court of Washington,
En Banc.
Feb. 6, 1992.

[823 P.2d 501]

Page 385

Gordon, Thomas, Honeywell, Malanca, Petersen & Daheim, Timothy J. Whitters, Bradley A. Maxa, Tacoma, for petitioner.

Bonneville, Viert, Morton & McGoldrick, Kenneth Fielding, James V. Handmacher, Tacoma, for respondents.

Margaret A. Morgan, Seattle, amicus curiae, for Washington Defense Trial Lawyers Ass'n for petitioner.

Richard B. Kilpatrick, Bellevue, Bryan P. Harnetiaux, David M. Grant, Spokane, ammicus curiae, for Washington State Trial Lawyers Ass'n for respondents.

UTTER, Justice.

An insurance coverage dispute arose between Hap and "Jane Doe" Butler and their insurer, Safeco Insurance Company of America (hereinafter "Safeco"). Safeco filed a declaratory judgment action to determine whether Hap Butler's actions were covered under a homeowner's insurance policy. The trial court granted Safeco summary judgment on the coverage issue. The trial court also granted Safeco summary judgment on the Butlers' claim that language in a letter from Safeco to the Insurance Commissioner estops Safeco from denying coverage. The Butlers amended their answer to allege Safeco acted in bad faith in violation of Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 715 P.2d 1133 (1986). The trial court denied Safeco's summary judgment motion on that claim. We granted review of all three summary judgment motions.

We affirm all three trial court rulings as follows: (1) the question of whether Safeco acted in bad faith is a disputed

Page 386

question of material fact that precludes granting Safeco's motion for summary judgment; (2) the injuries caused by Hap Butler were the result of his intentional act, and therefore his policy did not cover those injuries; and (3) language in a letter from Safeco to the Insurance Commissioner is not inconsistent with language in the policy, and therefore does not estop Safeco from denying coverage. The case is remanded for trial on the issue of whether Safeco acted in bad faith.

On July 3, 1986, 19-year-old Eddie Zenker and two companions used firecrackers to blow up several mailboxes in rural Pierce County. One of those boxes belonged to Hap Butler.

Butler heard the explosion, saw his ruined mailbox, and decided to attempt to find the people responsible. He took two loaded handguns and got into his car. He later stated his only reason for looking for the perpetrators was to get their license [823 P.2d 502] number and report them to the police. Butler eventually spotted the truck driven by Eddie Zenker. Believing the occupants of the truck to be the people who blew up his mailbox, Butler chased the truck at high speeds through the streets of Spanaway. The truck eventually stopped, and Butler got out of his car.

Butler claims he then saw a "flash" coming from the truck, and he believed someone in the truck was shooting at him. Butler reached into his car and picked up one of his guns. According to Butler, two people then got out of the truck. Believing he was about to be attacked, Butler fired six shots at the truck for the purpose of "break[ing] off any confrontation." He kept shooting after the people got back into the truck and started to drive away because he wanted to "make sure they left and didn't come back." One of the shots struck Eddie Zenker in the head, seriously injuring him. Butler claims he did not intend to shoot anyone, and that he intentionally fired at the truck rather than at the people getting out of the truck.

Paul Johnson, one of the truck's occupants, stated that no one got out of the truck after Butler stopped them. According

Page 387

to Johnson, as soon as Butler stepped out of his car, Zenker stepped on the accelerator to drive away. Butler started firing as soon as the truck began to move. Johnson said no one in the truck was armed or made any threatening movements toward Butler. An eyewitness, Arthur Kercher, also stated that no one got out of the truck, and that Butler started firing as soon as he stepped out of his car.

Butler hired Laurence Severance to defend him against the criminal charges that arose from the shooting. 1 Safeco placed attorney Ross Burgess on retainer in anticipation of the Zenkers' filing a civil suit. As the Zenkers had not yet filed suit, there was some confusion among the Safeco claims people whether the company retained Burgess to represent Safeco or Butler.

On July 28, 1986, Safeco directed Burgess to take no action regarding the potential civil suit without further notice. According to an internal memorandum, Safeco first wanted to determine whether there was coverage.

The Zenkers filed suit against Hap and "Jane Doe" Butler on July 31, 1986. The Butlers tendered the defense of the suit to Safeco on August 11, 1986. Safeco filed a declaratory judgment action on October 14, 1986. Two weeks later the company notified the Butlers that it would provide a defense under a reservation of Safeco's right to contest coverage.

Safeco asserted two grounds for denying coverage. First, Safeco claimed Zenker's injuries did not result from an "accident" within the meaning of the policy. Second, Safeco asserted the policy's exclusion of coverage for injuries that the insured intentionally caused applies to Butler's acts.

In January, 1988, the Zenkers and the Butlers entered a stipulated agreement in their suit. The parties stipulated to damages of $3,000,000. The court entered a judgment in that amount against the Butlers. The Zenkers agreed to

Page 388

limit their efforts to satisfy the judgment to any proceeds from the Safeco policy, or to any proceeds recoverable from a bad faith claim against Safeco. The Butlers assigned their rights to any bad faith claim to the Zenkers.

The trial court granted Safeco's motion for summary judgment on the issue of whether Eddie Zenker's injuries resulted from an act covered by the policy. The Butlers amended their answer to assert that Safeco was estopped from denying coverage. The trial court granted Safeco's motion for summary judgment on that issue. The Butlers again amended their answer to assert a counterclaim against Safeco for bad faith in handling the claim. The trial court denied Safeco's motion for summary judgment on the bad faith issue. A discussion of the elements of a cause of [823 P.2d 503] action for bad faith handling of an insurance claim is a necessary first step.

I
A

In Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 715 P.2d 1133 (1986), this court declared an insurer has an "enhanced obligation" to its insured when defending under a reservation of rights. 105 Wash.2d at 387, 715 P.2d 1133. The insurer can fulfill its enhanced obligation by meeting four criteria.

First, the company must thoroughly investigate the cause of the insured's accident and the nature and severity of the plaintiff's injuries. Second, it must retain competent defense counsel for the insured. Both retained defense counsel and the insurer must understand that only the insured is the client. Third, the company has the responsibility for fully informing the insured not only of the reservation of rights defense itself, but of all developments relevant to his policy coverage and the progress of his lawsuit.... Finally, an insurance company must refrain from engaging in any action which would demonstrate a greater concern for the insurer's monetary interest than for the insured's financial risk.

105 Wash.2d at 388, 715 P.2d 1133.

Because we found that the insurer in Tank did not breach its duty of good faith, we did not address the question of whether the insured must show that the insurer's bad faith

Page 389

acts resulted in harm in order to state a cause of action for a violation of Tank. We now hold that a showing of harm is an essential element of an action for bad faith handling of an insurance claim.

An action for bad faith handling of an insurance claim sounds in tort. Murray v. Mossman, 56 Wash.2d 909, 913, 355 P.2d 985 (1960); Evans v. Continental Cas. Co., 40 Wash.2d 614, 630, 245 P.2d 470 (1952); Tyler v. Grange Ins. Ass'n, 3 Wash.App. 167, 172, 473 P.2d 193 (1970). An essential element of any tort claim is that the alleged wrongful act caused harm. Christensen v. Swedish Hosp., 59 Wash.2d 545, 548, 368 P.2d 897 (1962). Therefore, harm is an essential element of an action for bad faith handling of an insurance claim. Cf. Burnham v. Commercial Cas. Ins. Co., 10 Wash.2d 624, 627, 117 P.2d 644 (1941) (harm is an element of an action for an insurer's negligent handling of the defense of a claim).

The Butlers argue that harm is irrelevant to a Tank violation. They point to language in Tank stating that an insurer's duty to act in good faith arises out of its fiduciary relationship with the insured. See 105 Wash.2d at 385, 715 P.2d 1133. The Butlers conclude an insurer's improper handling of a reservation of rights defense is tantamount to self-dealing, and should therefore be treated as a breach of fiduciary duty.

It is clear from the language of Tank, however, that the fiduciary relationship between an insurer and an insured is not a true fiduciary relationship. Tank holds that an insurer must give "equal consideration" to the insured's interests. (Italics ours.) 105 Wash.2d at 385-86, 715 P.2d 1133. Under a "true" fiduciary relationship, however, the insurer would have to place the insured's interests above its own. Cf. Esmieu v. Schrag, 88 Wash.2d 490, 563 P.2d 203 (1977); Tucker v. Brown, 20 Wash.2d 740, 150 P.2d 604 (1944); Wilkins v. Lasater, 46 Wash.App. 766, 733 P.2d 221 (1987). Thus, the Tank holding indicates that something less than a true fiduciary relationship exists between the insurer and the insured.

Page 390

In Tank, we relied heavily on Tyler v. Grange Ins. Ass'n, supra. The court in Tyler specifically rejected an argument...

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