Tank v. State Farm Fire & Cas. Co.

• Citation: 38 Wn.App. 438,686 P.2d 1127
• Decision Date: 02 August 1984
• Docket Number: No. 5526-III-4,5526-III-4
• Court: Court of Appeals of Washington
• Parties: James D. TANK, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, a Washington Corporation, Respondent, v. Melvin F. WALKER, and the marital community comprised thereof, Appellant.

Page 438

38 Wn.App. 438

686 P.2d 1127

James D. TANK, Appellant, v. STATE FARM FIRE & CASUALTY COMPANY, a Washington

Corporation, Respondent, v. Melvin F. WALKER, and the marital community comprised

thereof, Appellant.

No. 5526-III-4.

Court of Appeals of Washington,

Division 3, Panel Two.

Aug. 2, 1984.

Clinton J. Henderson, Clarkston, for appellant.

Timothy P. Cronin, Mullin, Etter & Cronin, Spokane, for respondent.

GREEN, Judge.

On May 20, 1980, Melvin Walker filed a complaint against James Tank alleging Tank intentionally assaulted him. Tank answered claiming self-defense. He tendered his defense to his insurance carrier, State Farm Fire & Casualty Company. State Farm accepted the tender but reserved its right to refuse to pay any judgment because of a provision in the policy excluding coverage for intentional acts. After a bench trial, Tank was found liable to Walker for $16,118.67 in damages and $305.40 in costs. State Farm refused to pay the judgment.

Tank then brought this action alleging State Farm was liable for the judgment. He asserted State Farm breached its fiduciary duties and violated the Consumer Protection Act by failing to make a meaningful attempt to settle or inform him of settlement offers and subordinating his interest to that of State Farm. Walker intervened as a co-plaintiff. State Farm moved for summary judgment which was granted. Walker and Tank appeal.

The record shows when Tank tendered his defense to State Farm, its attorney, Ronald K. Mullin, responded that the company reserved its rights concerning coverage of the incident based on the following:

a. The civil Complaint alleges that Mr. Tank's [sic ] intentionally assaulted Mr. Walker;

b. The results of State Farm Fire & Casualty's investigation of this case reveals no facts that are at variance with the allegations of the Complaint.

Assuming that the Plaintiff is successful in establishing that he was injured by the intentional assault of Mr. Tank, it is the position of State Farm Fire & Casualty that there is no insurance coverage for such intentional act. State Farm must await the outcome of the civil action before a final determination of coverage can be made. Meanwhile, State Farm Fire & Casualty has agreed to defend, at the expense of State Farm Fire & Casualty, Mr. Tank in the civil action brought by Mr. Walker.

In an earlier letter he had informed Tank:

Because it is doubtful there is coverage under your insurance policy, you may wish to have Mr. Lofland [Tank's personal attorney], or any other counsel of your choice, continue in the preparation of the defense of this lawsuit. If you choose to have Mr. Lofland continue as your counsel, this will be at your own expense.

State Farm employed attorney Mike Geraghty to represent Tank. Geraghty considered both State Farm and Tank to be his clients and sent all relevant information to State Farm. In January 1981 he sent his evaluation of the case to the claims superintendent reciting the facts as he knew them to be after taking the depositions of Walker and Tank. The letter stated the altercation occurred in April 1980 after both parties had been drinking and while they were driving home. Tank passed Walker on the left in an intersection after Walker had signaled for a left turn. Walker then followed Tank to a parking lot where both got out of their cars. After a short discussion, Tank hit Walker and Walker fell to the ground. Walker claimed Tank proceeded to kick him about the face and head, rendering him unconscious. Tank claimed he hit Walker, who was taller than him, because Walker "kept coming forward". He hit Walker again after Walker "wildly started swinging at [him] ..." Tank further claimed he kicked Walker while he was on his knees because "Walker started to get up ..." He did not remember kicking Walker's head.

The letter further stated Walker was hospitalized for 2 days. He claimed he suffered bruises and cuts for which he received stitches. For these losses, he claimed $885.07 in medical expenses and $935 in lost wages. He also claimed as a result of the altercation, he had lost his sense of taste and smell. After reciting these facts, Geraghty concluded:

When all is said and done, I do not think that Judge McCabe will hold that Tank acted in self-defense....

... [A]ssuming that Walker is able to establish he has in fact lost the sense of taste and smell as a result of this incident, I believe the Judge under the circumstances will not be excessive in any award. As indicated above, the specials that have been presented to date amount to $1,820.00. It is my judgment that a low decision range would be from $3500 to $5000. If the Judge sympathizes with Walker, he may award as high as $10,000 to $12,000.

Geraghty stated he informally discussed a settlement range between $3,000 and $5,000 with Walker's attorney, but received a negative response.

After this letter was written, Geraghty interviewed a medical doctor who stated he would testify Walker had, in fact, lost his sense of taste and smell. Geraghty did not obtain an independent examination. He also learned of two eyewitnesses who stated they would testify Walker refused to fight during the incident, was rendered unconscious by Tank's blows and was unconscious when Tank kicked him.

In his deposition, Geraghty stated State Farm told him informally it would contribute $5,000 or less toward settlement; however, he was never specifically authorized to settle. In consultation with Tank, Geraghty concluded Tank did not have sufficient cash to settle; however, he did not evaluate Tank's financial position, inform Tank of State Farm's informal offer, or pursue settlement of any kind after the initial general discussion with Walker's attorney. A letter from Tank's personal attorney to State Farm requesting that they settle appears to have gone unanswered. Walker submitted an affidavit stating he would have "given serious consideration to accepting" an offer of $10,000.

In Tank's affidavit he stated Geraghty never advised him of the potential liability exposure, of possible avenues to settlement, or of the possible $5,000 contribution by State Farm. Nor did he inform Tank he considered State Farm to be his co-client or that he was not representing Tank in relation to questions of coverage.

State Farm was granted summary judgment on the basis no coverage existed by virtue of an exclusion in Tank's policy which states 1. Coverage ... [does] not apply to:

a. bodily injury or property damage which is expected or intended by the insured;

The provision concerning State Farm's obligation to defend Tank states:

If a claim is made or a suit is brought against any insured for damages because of bodily injury or property damage to which this coverage applies, we will:

a. pay up to our limit of liability for the damages for which the insured is legally liable; and

b. provide a defense at our expense by counsel of our choice. We may make any investigation and settle any claim or suit that we decide is appropriate. Our obligation to defend any claim or suit ends when the amount we pay for damages resulting from the occurrence equals our limit of liability.

Based on the exclusion, State Farm contends it had no liability to pay and hence no obligation to defend Walker's claim against Tank. Tank and Walker argue regardless of State Farm's obligation to pay, since it undertook to defend Tank, it had a duty to do so in good faith. This duty, they argue, includes the obligation to make a meaningful attempt to settle the case when the facts indicated liability on Tank's part. They further argue a question of fact was presented whether State Farm met its duty. We agree with Tank and Walker.

It is well established an insurance company who undertakes the defense for its insured may be held liable in damages to the insured for failing to make a good faith attempt to effect a settlement if its investigation discloses liability on the insured's part and its failure to settle is attributable to bad faith or negligence. Hamilton v. State Farm Ins. Co., 83 Wash.2d 787, 523 P.2d 193 (1974); Burnham v. Commercial Cas. Ins. Co., 10 Wash.2d 624, 117 P.2d 644 (1941); Tyler v. Grange Ins. Ass'n, 3 Wash.App. 167, 473 P.2d 193 (1970). State Farm urges this court to find those cases distinguishable because they involve partial coverage whereas here there was no coverage. It is true in those cases the insurer paid up to its policy limits and the insured's damages were the difference between the amounts paid and the judgment. However, the rationale of the cases is equally applicable here: when an insurance company voluntarily undertakes the defense of its insured, it assumes a position of trust and confidence which calls for the exercise of utmost good faith, especially where there is a possibility of a conflict in interest between the insured and insurer.

"It is obligatory upon insurer to exercise reasonable care in defending a suit against the insured, where it, upon receiving notice, assumes such defense, and this applies whether or not the contract requires it to defend, ...

(Italics ours.) Burnham v. Commercial Cas. Ins. Co., supra 10 Wash.2d at 633, 117 P.2d 644.

The typical liability insurance policy contains no express provision requiring the insurer to settle and gives the company control over the defense of the claim and control over the decision...