St. Paul Fire and Marine Ins. v. Onvia
| Decision Date | 26 November 2008 |
| Docket Number | No. 80359-5.,80359-5. |
| Citation | 196 P.3d 664,165 Wn.2d 122 |
| Parties | ST. PAUL FIRE AND MARINE INSURANCE COMPANY, Plaintiff, v. ONVIA, INC., Onvia.Com, and Responsive Management Systems, in its individual capacity and as class representative of a purported settlement class, Defendants. |
| Court | Washington Supreme Court |
Daniel L. Syhre, Joseph D. Hampton, Betts, Patterson & Mines, P.S., Seattle, WA, Charles E. Spevacek, Michael P. McNamee, Meagher & Geer PLLP, Minneapolis, MN, for Plaintiff.
Daniel J. Dunne Jr., Orrick Herrington & Sutcliffe, Mark Adam Griffin, Margaret Elizabeth Wetherald, Karin Bornstein Swope, Keller Rohrback LLP, Seattle, WA, Roblin John Williamson, Williamson & Williams, Bainbridge Island, WA, for Defendants.
Laura Foggan, John C. Yang, Wiley Rein, Washington, DC, Marilee C. Erickson, Reed McClure, Seattle, WA, for Amicus Curiae on behalf of American Insurance Assoc., Complex Insurance Claims Litigation Assoc., National Association of Mutual Ins. Companies and Property Casualty Insurers Assoc. of America.
¶ 1 The United States District Court for the Western District of Washington, pursuant to chapter 2.60 RCW, certified the following questions to this court:
¶ 2 (1) Under Washington law, does an insured have a cause of action against its liability insurer for common law procedural bad faith for violation of the Washington Administrative Code and/or for violation of the Washington Consumer Protection Act (CPA), chapter 19.86 RCW, even though a court has held that the insurer had no contractual duty to defend, settle, or indemnify the insured?
¶ 3 If the answer to the first question is "yes," then:
(a) Should the court require the insured to prove that the insurer's conduct caused actual harm, or should the court apply a presumption of harm?
(b) How should damages be measured?1
¶ 4 In addressing certified questions we consider the legal issues not in the abstract but based on the certified record provided by the federal district court. RCW 2.60.030; see In re Elliott, 74 Wash.2d 600, 446 P.2d 347 (1968). The record here establishes that the insurer did not act in bad faith in refusing to defend, settle, or indemnify its insured on a third-party liability claim. The issue then is whether an insured may pursue common law bad faith and CPA claims based solely on procedural missteps by the insurer in handling the claim, once a court has determined that the insurer breached no duty to defend, settle, or indemnify the insured. We hold that, while such claims are viable, the insured in this circumstance is not entitled to a presumption of harm or coverage by estoppel, but must prove all elements of the claim, including actual damages.
¶ 5 This action arose out of a claim made on a third-party liability policy. Onvia is a for-profit corporation that sells a service called "DemandStar," which provides businesses with notices of opportunities to bid for government contracts. Onvia had liability insurance with St. Paul Fire and Marine Insurance Company.
¶ 6 On February 3, 2005, Responsive Management Systems (RMS) served Onvia with a class action complaint (the "underlying action"), alleging that Onvia engaged in "fax blasting," the mass sending of unsolicited advertisements via facsimile, in violation of state and federal law.
¶ 7 On February 24, 2005, Onvia's insurance broker allegedly tendered the underlying action to St. Paul by faxing St. Paul a copy of RMS's original complaint, a tender letter, and a notice form. (St. Paul states that it has no evidence in its file that it received the February 2005 communication, but there is evidence that the tender was successfully faxed to St. Paul.) St. Paul did not respond to Onvia's tender letter of February 24, 2005. There is evidence that the February 24, 2005 letter was resubmitted to St. Paul on August 5, 2005. Then in September, RMS filed an amended complaint. At some point—the exact date is disputed—Onvia sent a copy of the amended complaint to St. Paul.
¶ 8 St. Paul sent a letter dated November 4, 2005, denying coverage and defense. Following subsequent discussions between St. Paul and Onvia, St. Paul reaffirmed its denial on March 24, 2006.
¶ 9 Between February 2005 and the conclusion of the underlying action, Onvia defended itself with its own counsel in litigation and in settlement negotiations. In April 2006, while a motion for class certification was pending, Onvia and RMS entered into a settlement agreement whereby Onvia stipulated to class certification, entry of a judgment in favor of the class in the amount of $17.515 million, and an assignment of its right against St. Paul to RMS. In exchange, RMS agreed to execute the judgment only against St. Paul. The King County Superior Court found the settlement reasonable, approved the settlement, and entered final judgment for the settlement amount at a November 17, 2006 final approval hearing.
¶ 10 On July 26, 2006, St. Paul sought a declaratory judgment against RMS, which is the action giving rise to the certification. St. Paul asserted that it had no duty to defend, settle, or indemnify Onvia in the underlying action. RMS responded with three counterclaims: (1) breach of the contractual duties to defend, indemnify, and settle; (2) bad faith breach of the duties to defend, indemnify and settle; and (3) procedural bad faith and violation of the CPA related to St. Paul's handling of the Onvia tender. Because RMS held the assignment of Onvia's claims, Onvia was dismissed from this lawsuit by stipulation of the parties and order of the court.
¶ 11 The parties cross-moved for partial summary judgment on St. Paul's claims and RMS's first two counterclaims. The court granted St. Paul's' motion, holding (1) that St. Paul had no duty to defend, indemnify, or settle the underlying action against Onvia and (2) that St. Paul did not commit bad faith when it refused to defend Onvia.
¶ 12 Thus, the only remaining claims are RMS's counterclaims for common law "procedural" bad faith and violation of the CPA. RMS alleges that St. Paul violated a number of Washington insurance claims-handling regulations in bad faith, including by failing to timely acknowledge and act upon the notice of the claim and tender of defense, and by failing to promptly or reasonably investigate the claim. St. Paul moved for summary judgment, arguing that in the absence of a duty to defend, it could not be liable for procedural missteps in processing Onvia's claim. The district court certified the above questions of law arising from this claim to this court.
¶ 13 Washington's insurance bad faith law derives from statutory and regulatory provisions, and the common law. The insurance code begins with recognition that "[t]he 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." RCW 48.01.030. The insurance code permits the insurance commissioner to promulgate administrative regulations governing the claims-handling process. RCW 48.30.010. To this end, the commissioner has adopted chapter 284-30 WAC. A violation of the insurance code or a regulation promulgated thereunder constitutes an unfair practice under the CPA. See RCW 48.30.010. This court long ago recognized that a single violation of a claims-handling regulation may violate the CPA. Indus. Indem. Co. of the Nw., Inc. v. Kallevig, 114 Wash.2d 907, 921, 792 P.2d 520 (1990).
¶ 14 Liability insurance is third-party coverage and provides policyholders with two main benefits: payment and defense. That is, insurance companies generally owe their insureds a duty to pay and a duty to defend. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wash.2d 903, 914, 169 P.3d 1 (2007). Related to the two main benefits of an insurance contract, liability insurers owe a duty to settle claims against their insureds. See Besel v. Viking Ins. Co. of Wis., 146 Wash.2d 730, 735-36, 49 P.3d 887 (2002).
¶ 15 The duty of good faith is not specific to either of the main benefits of an insurance contract but permeates the insurance arrangement. See Kallevig, 114 Wash.2d at 916, 792 P.2d 520 (citing RCW 48.01.030.) The good faith duty between an insurer and an insured arises from a source akin to a fiduciary duty. Tank v. State Farm Fire & Cas. Co., 105 Wash.2d 381, 385-86, 715 P.2d 1133 (1986). Id. (quoting Tyler v. Grange Ins. Ass'n, 3 Wash.App. 167, 173, 177, 473 P.2d 193 (1970)).3 Both Washington courts and the legislature have consistently imposed a duty of good faith on the insurance industry. Id. at 386, 715 P.2d 1133.
¶ 16 The duty of good faith is applicable to both first-party and third-party coverage. See, e.g., Coventry Assocs. v. Am. States Ins. Co., 136 Wash.2d 269, 961 P.2d 933 (1998) (); Dan Paulson, 161 Wash.2d 903, 169 P.3d 1 ().
¶ 17 "An action for bad faith handling of an insurance claim sounds in tort." Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 389, 823 P.2d 499 (1992). "Claims of insurer bad faith `are analyzed applying the same principles as any other tort: duty, breach of that duty, and damages proximately caused by any breach of duty.'" Dan Paulson, 161 Wash.2d at 916, 169 P.3d 1 (quoting Smith v. Safeco Ins. Co., 150 Wash.2d 478, 485, 78 P.3d 1274 (2003)). "`In order to establish bad faith, an insured is required to show...
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