Superior Court of Clark County. Superior Court Docket No. 93-2-03343-9. Date Filed In Superior Court: July 20, 1994. Superior Court Judge Signing: Barbara Johnson.
Written By: Turner, J., Concurred In By: Morgan, J., Bridgewater, J.
TURNER, J. -- Neigel appeals the dismissal of his suit against Harrell and Allstate. He alleges that Allstate's failure to promptly pay his damage claim breaches a regulation that requires insurers to make good faith attempts "to effectuate prompt payment of property damage claims to innocent third parties." The issue is whether a third party can recover from an insurer that fails to promptly pay the claim when its insured damaged the third party's property. Our Supreme Court in Tank v. State Farm said no; an insurance company's duty is to the insured, not to third-party claimants of the insured. We affirm the dismissal.
On September 11, 1992, Paul Neigel purchased a used 1986 Jeep Cherokee for $7,995. On September 29, 1992, the Jeep was rendered a total loss because of an accident caused by the negligence of Allstate insured Larry Harrell.*fn1 Allstate undertook to adjust Neigel's property damage claim, and paid for a temporary rental vehicle for Neigel. About one month later, Allstate offered Neigel a settlement of $6,710, and indicated that it was ceasing car rental payments. Neigel was reluctant to accept anything less than an amount equal to the price he had paid for the used Jeep just 18 days before the accident. Therefore, he decided to turn the matter over to his own automobile insurer, State Farm. Under collision coverage provisions of Neigel's policy, State Farm paid Neigel the full purchase price, adjusted for taxes and the amount of his deductible. Allstate later paid this amount in full to State Farm in subrogation.
Neigel claims that Allstate violated its duty of good faith by offering him an amount substantially lower than what it ultimately paid State Farm. He sued for $1,183.02 in rental car expenses incurred from the time Allstate ceased car rental payments, until State Farm paid his claim. He also asked for an award of treble damages and attorney fees as permitted under the Consumer Protection Act (CPA), RCW 19.86.
The trial court granted Allstate's CR 12(b)(6) motion to dismiss for failure to state a claim upon which relief could be granted, but denied its motion for CR 11 sanctions. On appeal, Neigel seeks reversal of the trial court's dismissal. Allstate cross-appeals the denial of its motion for CR 11 sanctions, and requests attorney fees for responding to a frivolous appeal.
We review a dismissal under CR 12(b)(6) de novo. Courts properly dismiss a claim under that rule if it appears beyond a reasonable doubt that no facts exist that would justify recovery, or if the plaintiff's allegations reveal an insurmountable bar to relief. Cutler v. Phillips Petroleum Co., 124 Wash. 2d 749, 755, 881 P.2d 216 (1994), cert. denied, 132 L. Ed. 2d 873, 115 S. Ct. 2634 (1995) (citation omitted).
An insured may establish an unfair trade practice under the Consumer Protection Act based upon a violation of WAC 284-30-330. Industrial Indem. Co. of the NW, Inc. v. Kallevig, 114 Wash. 2d 907, 922, 792 P.2d 520 (1990). Neigel claims that because Allstate failed to make a good faith attempt to pay his claim against its insured, it violated WAC 284-30-330(6). The Supreme Court in Tank v. State Farm Fire & Cas. Co., 105 Wash. 2d 381, 715 P.2d 1133 (1986), explains, however, that an insurer's duty to act in good faith is owed to its insured; and "third party claimants may not sue an insurance company directly for alleged breach of duty of good faith under a liability policy." Tank, 105 Wash. 2d at 391 (emphasis added).
Tank's holding clearly and squarely addresses the issues raised by Neigel. In Tank, two cases involving third party suits against auto liability insurers for alleged bad faith violations of the CPA were consolidated. In one, the claimant was injured in a traffic-oriented altercation and obtained a judgment against the insured, which the insurer refused to pay. In the other, the claimant sustained injuries in an accident with an insured, but the insurer questioned the extent and cause of the injuries, and refused to advance medical expenses. The Tank court carefully weighed and considered alternative holdings but held that nothing in the language of WAC 284-30-300 et seq. specifically gives third party claimants the right to enforce this regulation:
In ruling that a third party claimant has no right of action against an insurance company for breach of duty of good faith, we are not unmindful that a handful of other jurisdictions recognize such a cause of action. . . . We do not, however, choose to follow those few.
One Court of Appeals decision, Green v. Holm, 28 Wash. App. 135, 622 P.2d 869 (1981), would appear to be contrary to our ruling. . . . However, the court did not make a determination whether a first party or third party claimant could sue to enforce WAC 284-30-300 et. seq.. . . An assumption that a third party claimant has such a cause of action, after our holding today, would not be valid.
In foreclosing the right of third party claimants to sue insurers for breach of their statutory duty of good faith, we are persuaded that the public as a whole would not benefit from allowing such suits. [ Tank, 105 Wash. 2d at 393-95 (emphasis is original)].
Neigel contends that because the Insurance Commissioner amended WAC 284-30-330(6) after Tank, a cause of action was created in third parties. The regulation, captioned "Specific unfair claims settlement practices defined," was amended in 1987 to add the following underlined passage:
Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. In particular, this includes an obligation to effectuate prompt payment of property damage claims to innocent third parties in clear liability situations. If two or more insurers are involved, they should arrange to ...