An issue that often arises in the context of property insurance is whether a carrier’s delay in adjusting a claim can create a basis for a viable bad faith claim. The law in each state is different and the prudent practice is to consult a practitioner specializing in the law of the state in question. This article focuses on Washington law and discusses two recent cases which illustrate the need to adjust property claims promptly. Failure to do so may expose a carrier to viable bad faith allegations sufficient to survive summary judgment and permit the policyholder to get its case before a jury.
First, in Hays v. State Farm Ins. Co., No. 46679–1–II, 191 Wn. App. 1053, 2015 WL 9435153 (Dec. 23, 2015), Division Two of the Washington Court of Appeals held that a roughly seven-month delay in responding to the insureds’ communications could amount to bad faith under Washington law. The court held this determination was an issue of fact for the jury.
In Hays, a February 2010 accidental fire totally destroyed the insureds’ home. The insurer acknowledged that this was a covered loss, and eventually paid the claim. However, the insurer and insureds had divergent accounts of the facts surrounding claims handling. According to the insureds, they received a check—without further explanation—in May 2010, and between June 2010 and October 2010 made repeated attempts to contact the insurer regarding the status of their claim, but received no response. In late October 2010, the insurer sent a more detailed response—including an updated appraisal of the insureds’ home requested by the insureds—but sent it to the insureds’ old address. It was not until December 2010 that the insureds alleged they actually received the correspondence to their correct address.
On these facts, the court held that issues of fact existed and thus a jury should determine whether the roughly seven-month delay was “unreasonable” and thus in bad faith: “[T]he [insureds] successfully raise an issue of material fact as to whether [the insurer] violated its duty of good faith by unreasonably … delaying their claim.”
Second, in Taladay v. Metro. Grp. Prop. & Cas. Ins. Co., No. C14-1290-JPD, 2016 WL 541398 (W.D. Wash., Feb. 11, 2016), the United States District Court for the Western District of Washington held that a roughly seven-month delay between the conclusion of the insurer’s investigation and its issuance of payment created an issue of fact as to whether the adjustment was “unreasonable” and therefore in bad faith.
Taladay also involved an accidental fire to the policyholder’s home. The insurer acknowledged that this was a covered loss, and eventually paid the claim. The insured’s primary bad faith allegation was that the carrier’s failure to timely pay was “unreasonable.” Specifically, there was a roughly seven-month delay between the conclusion of the carrier’s investigation and the issuance of policy proceeds. The court held that reasonable minds could differ as to whether the insurer’s actions were “reasonable” and therefore a jury would need to determine whether the delay amounted to bad faith.
Taken together, these cases illustrate the need for carriers (1) to communicate promptly with insureds; (2) to “paper your file” with proof of such communications, because insureds may be able to create triable issues of fact by alleging they never received pertinent claims communications; and (3) to promptly issue payment once it becomes clear that a claim is covered.
Finally, note that Washington—unlike some other states—recognizes claims for bad faith even where there is no coverage for the loss. Typically, the damages that may arise in those circumstances are limited, as they need to be a consequence of the “procedural” violation. Further, Washington law does not allow for coverage by estoppel in the first party context; thus, any “procedural” bad faith violations do not reinstate coverage.