Insurance Law: Reservation of Rights

Paul J. Triesch, Insurance Law: Reservation of Rights,  23 Gonz. L. Rev. 205 (1988)

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RESERVATION OF RIGHTS

AN ATTORNEY DEFENDING AN INSURED UNDER A RESERVATION OF THE INSURER’S RIGHTS MUST REPRESENT THE INTERESTS OF THE INSURED ALONE AND MUST FULLY INFORM THE INSURED REGARDING POTENTIAL CONFLICTS OF INTEREST BETWEEN THE INSURER AND THE INSURED, ALL INFORMATION RELEVANT TO THE DEFENSE OF THE ACTION, AND ALL SETTLEMENT ACTIVITY. Tank v. State Farm, 105 Wash. 2d 381, 715 P.2d 1133 (1986).

In Tank v. State Farm,” the Washington Supreme Court specifically set forth two distinct criteria to be met by counsel retained by an insurance company to defend its insured under a reservation of  rights. First, counsel undertaking such a defense must understand that he or she represents only the insured, not the carrier. Second, defense counsel owes a duty of full and ongoing disclosure to the insured.

Plaintiff Tank sued his insurer, State Farm, alleging breach of its duty of good faith in defending him under a reservation of rights in a previous action in which Tank was found to be liable for an intentional tort. The summary judgment granted State Farm by the Superior Court for Asotin County was reversed on appeal because there were “unresolved factual issues regarding the insurer’s violation of its duty to exercise good faith in attempting to settle.” The Washington Supreme Court, in holding that State
Farm had satisfied its enhanced duty of good faith in conducting its reservation of rights defense, reversed that portion of the appellate court’s decision and reinstated the trial court judgment…

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David Kazemba J.D. Candidate 2014

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