Fire destroyed Bruce’s home. Bruce’s insurance company, Farmers, was unresponsive for seven months, then threatened to deny coverage and made a one-time take-it-or-leave-it offer for only one-fourth of what the claim was worth. Bruce sued his insurance company for bad faith.
Bruce’s attorney sought the insurance company’s file. The insurance company sought a protective order. The trial court ordered Farmers Insurance to release the file to Bruce’s attorney, and ordered the insurance company to pay attorney fees to Bruce and sanctions to the court.
The trial court found that:
(1) Bruce was not home at the time of the fire,
(2) both the fire department and Farmers’ own fire investigator had concluded the fire was accidental,
(3) Farmers knew the fire had left Bruce homeless,
(4) a Farmers adjuster appraised the damage to the house at $56,498.84,
(5) another adjustor estimated the damage at $70,000 for the house and $35,000 for its contents,
(6) Farmers made a one-time offer of only $30,000 with an acceptance period that fell when the attorney advising Farmers on coverage issues was out of town,
(7) Farmers threatened to deny Bruce coverage and claimed without explanation that he misrepresented material information, and
(8) the damage to the house was eventually valued at over $115,000 and more than $16,000 in code updates.
The Washington Supreme Court found that Bruce as an insured is presumed to be entitled to his own insurance company’s file.1
Bad faith claims by insureds against their own insurance company are unique and founded upon two important public policy pillars: that an insurance company has a quasi-fiduciary duty to its policy-holder, and that insurance contracts, practices, and procedures are highly regulated and of substantial public interest.
There are numerous actions for bad faith claims against insurance companies under medical, homeowner, automobile, and other insurers in which the insured must have access to the claims file in order to prove the claim. For example, there are bad faith investigations, untimely investigations, failure to inform the insured of available benefits, and making unreasonably low offers. To permit a blanket attorney-client privilege in insurance bad faith claims because of the participation of lawyers hired or employed by an insurance company would unreasonably obstruct discovery of meritorious claims, and allow insurance companies to conceal bad faith practices.
Washington courts follow a two-step process to limit attorney-client privileges in insurance bad faith cases:
First, the court determines whether there is a factual showing adequate to support a good faith belief by a reasonable person that wrongful conduct sufficient to evoke the fraud exception has occurred. Second, if so, the court subjects the documents to an in camera inspection to determine whether there is a foundation in fact for the charge of civil fraud. The in camera inspection is a matter of trial court discretion.
If you believe your insurance company is handling your claim in bad faith you should seek a free case evaluation from an attorney.
By attorney Travis Scott Eller
1 Cedell v. Farmers Ins. Co. of Wash., 176 Wn.2d 686 (2013).