No Direct Bad Faith Action for Third Party Liability Claimant in Washington

A judge in the U.S. District Court for the Western District of Washington recently re-affirmed the long-standing principle under Washington law that a third party claimant under a liability insurance policy cannot directly sue the insurance company for bad faith.  The case, which was titled Gebrekidan v USAA Ins Co., 2014 WL 171931, U.S. Dist. Cout, (W.D. Wash. Jan. 15, 2014), concerning a plaintiff that was involved in a motor vehicle accident with a driver that had liability insurance coverage with USAA.  Following the accident, plaintiff filed a claim under the USAA policy believing that the driver was at-fault.  A representative of USAA contacted plaintiff to indicate that USAA would not cover the loss because it had determined the plaintiff was at-fault.  Plaintiff disagreed and filed suit against a number of parties, including USAA.  In the suit, plaintiff asserted a number of claims, including alleging that USAA acted in bad faith when it denied the claim.

USAA moved for summary judgment on plaintiff’s cause of action for insurance bad faith.  The basis of the motion was that plaintiff, who was a third-party claimant under the policy, could not sue USAA directly for insurance bad faith.  Noting that insurance companies generally have a duty to act in good faith, the court cited the long-standing Washington law that third party claimants cannot sue an insurance company for bad faith.  In particular, the court noted that under Washington law the insurance company’s duty to act in good faith arises from the quasi-fiduciary duty between an insurer and its insured, as well as from the duty of good faith inherent in all contracts.  It is well-established in Washington that third party claimants are not intended beneficiaries of liability insurance policies, meaning the third party claimant is owed no direct contractual obligation from the insurance company.  Based upon those principles, Washington does not permit a third party to directly assert a claim for bad faith against an insurance company under a liability policy.

With respect to the matter before the court, it was undisputed that the plaintiff was a third party claimant under the USAA liability insurance policy.  Accordingly, the court granted USAA’s motion for summary judgment on the claim.

The attorneys at MLR are well-versed on insurance coverage issues, including claims for insurance bad faith in Washington and other jurisdictions.  Please feel free to contact us with any questions regarding this case or any other issue you may have seen addressed on the Insurance Coverage Blog.

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