Refusal to divulge policy limits not bad faith

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Smith argued that Safeco owed her, as claimant, a duty of good faith. The Court of Appeals summarily rejected this assertion, following Washington case law that such third-party claimants have no right to claim bad faith in their own right.

Smith next argued that Safeco breached its duty of good faith to Bryce, who had suffered damages as a result. Smith asserted this in her role not as claimant but as assignee of Bryce’s claims.

The Smith court noted that neither party cited a statute or rule specifying whether disclosure of policy limits was required, and the court had found none.

But the Smith court rejected Smith’s claim that Safeco had violated its duty of good faith to Bryce. The court noted, "Smith fails to distinguish benefit to a third-party claimant from benefit to the insured. Although compliance [with a claimant’s demand for disclosure of policy limits] may always benefit the third-party claimant, it may or may not benefit the insured," depending on the circumstances. For instance, if disclosure would cause the claimant to increase her settlement demand, it might be better for the insured to withhold that information.

The court declined to hold that a liability insurer always may withhold policy-limits information. Instead, "the insurer must disclose the insured’s policy limits if a reasonable person in the same or similar circumstances would believe that disclosure is in the insured’s" best interests. The insurer need not disclose if a reasonable person would believe that disclosure would harm the insured’s interests or would not have enough information to determine that disclosure would serve those interests.

The Smith court’s decision was made easier by the failure of Smith and her counsel to document her claim until after Safeco had divulged the policy limits.

The Lee Smart Quarterly is a publication of the law offices of Lee, Smart, Cook, Martin & Patterson, P.S., Inc. for clients and others. It is intended as general information only and is not to be construed as legal advice. You should consult an attorney if you have any specific legal questions.

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