Supreme Court makes it easier to prove insurer bad faith
(Continued - Page 2)

The Supreme Court considered the standard of proof of insurer bad faith under Ellwein v. Hartford Acc. & Indem. Co., 142 Wn.2d 766 (2001). The Ellwein Court seemed to authorize dismissal of a bad-faith claim on summary judgment whenever a reasonable dispute exists as to "coverage-determining facts." Some Washington courts interpreted this language from Ellwein to mean that, if the insurer can raise a fact dispute as to the reasonableness of its conduct, there cannot be bad faith. Thus either bad faith occurred as a matter of law, or not at all.

The Smith Court disagreed. "Ellwein did not create a special burden for policyholders, nor did it create special standards of summary judgment to benefit insurers accused of bad faith," the Smith Court ruled. The insurer is entitled to summary judgment only "if reasonable minds could not differ that its denial of coverage was appropriate." On the other hand, "the insured may present evidence that the insurer's alleged reasonable basis was not the actual basis for its action, or that other factors outweighed the reasonable basis. To the extent that Ellwein is inconsistent with these principles, it is overruled."

In Symes, American States issued a fire policy for a restaurant that later filed for bankruptcy. The restaurant burned, and BATF concluded that the fire was arson. American States declined the bankruptcy trustee's fire-insurance claim, citing a fraudulent proof of loss, failure to cooperate with the insurer, and harm that the insured intentionally caused. American States sued for declaratory judgment. The bankruptcy trustee counterclaimed for bad faith. Both parties moved for summary judgment, but the trial court denied both motions. The Court of Appeals held that the insured had failed to prove bad faith and reversed in part. The Supreme Court accepted review, followed its ruling in Smith, reversed the dismissal of the bad-faith claims, and remanded.

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