Refusal to divulge policy limits not bad faith

By Aaron V. Rocke

Lliability insurer’s refusal to tell a personal-injury claimant the amount of its policy limits prior to the claimant’s filing suit is not necessarily a violation of its duty of good faith to its insured, the Washington Court of Appeals recently held.

In Smith v. Safeco Ins. Co., no. 26721-7-II (July 2002), Linda Bryce rear-ended a car driven by Janice Smith. Smith hired a lawyer. Nearly two years then passed, and a "claims specialist" in the office of Smith’s lawyer told a Safeco adjuster over the telephone that Smith had suffered a closed head injury, memory loss, almost $20,000 in medical bills, and past and future wage loss. Neither the claims specialist, Smith, nor her lawyer documented any of these assertions to Safeco.

In the several months preceding this conversation, Smith demanded that Safeco disclose Bryce’s liability-policy limits. Safeco declined to do so, at least until Smith or her counsel provided documentation concerning her claim. Safeco asserted that it did not have enough information to believe that the value of the demand exceeded Bryce’s policy limit. Safeco also asserted that it did not know whether Bryce would consent or object to such disclosure.

Smith sued Bryce. Two months later, Smith sent a written description of her claim, including her assertion that her out-of-pocket losses were more than $612,000. Smith demanded Safeco’s "full policy limits" if those limits were less than $1.5 million. Safeco promptly informed Smith that Bryce’s policy limits were $100,000, and two months later Safeco paid Smith those limits.

Soon thereafter, Smith and Bryce settled. Bryce agreed to have partial judgment entered against her in the amount of $100,000 and to assign to Smith any rights she might have against Safeco. Smith agreed not to enforce the judgment against Bryce.

Safeco filed a declaratory-judgment action against Smith and Bryce, alleging that it had withheld policy-limits information because disclosure of limits was often against its insured’s best interests. Smith amended her personal-injury complaint to make claim against Safeco. The trial court consolidated the two actions. Smith and Safeco cross-moved for summary judgment on the issue of whether Safeco’s refusal to divulge the policy limits was bad faith. The trial court agreed with Safeco, and Smith appealed.