Law School Case Brief
Tank v. State Farm Fire & Cas. Co. - 105 Wash. 2d 381, 715 P.2d 1133 (1986)
The duty of good faith of an insurer requires fair dealing and equal consideration for the insured's interests. The same standard of fair dealing and equal consideration is unquestionably applicable to a reservation of rights defense. The potential conflicts of interest between insurer and insured inherent in this type of defense mandate an even higher standard: an insurance company must fulfill an enhanced obligation to its insured as part of its duty of good faith. Failure to satisfy this enhanced obligation may result in liability of the company, or retained defense counsel, or both.
Tank assaulted Walker in a supermarket parking lot in Clarkston, Washington. Walker sued Tank, alleging intentional tort. When Tank contacted State Farm, his insurer, the company advised Tank that if his acts were intentional, there was a specific policy provision excluding coverage. Tank then retained his own attorney, who tendered to State Farm the defense of the Walker suit. After investigation of the incident, State Farm accepted the defense upon a specific clearly stated reservation of the right to contest coverage. State Farm then retained counsel to represent the insurer's interests and retained separate counsel to represent Tank. No settlement was reached and the case was tried in court. The court found Tank liable to Walker for $ 16,118.67 in damages and $ 305.40 in costs. The insurer, State Farm, however, refused to pay the judgment. Tank then sued State Farm for breach of duty of good faith. His complaint alleged that State Farm failed to make reasonable efforts to settle the Walker claim and that State Farm subordinated Tank's interests to its own interests by structuring a defense which would absolve State Farm of liability under Tank's insurance policy. State Farm moved for summary judgment of dismissal, which the trial court granted. Tank appealed to the Court of Appeals, which reversed as to Tank. State Farm appealed.
Can a third party claimant sue an insurer directly for breach of the insurer's duty of good faith?
The court affirmed the trial court's grant of summary judgment to the first insurer, thereby reversing the judgment of the court of appeals for the insured. The court upheld the court of appeals' judgment affirming the dismissal of the adversary's claim, and affirmed the trial court's dismissal of the accident victim's action. The court held that the duty of good faith of an insurance company defending under a reservation of rights included an enhanced obligation of fairness toward its insured. Potential conflicts between the interests of the insurer and the insured, inherent in a reservation of rights defense, underlay the insurer's enhanced obligation. The court concluded that there was insufficient evidence to support the finding that a question of fact existed on the first insurer's breach of the duty of good faith. As an action for breach of good faith against an insurer was limited to the insured, third party claimants could not sue an insurance company directly for alleged breach of duty of good faith under a liability policy.
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