Under Alaska Stat. § 21.36.125 (a), “[a] person may not commit any of the following acts or practices: . . . (6) fail to attempt in good faith to make prompt and equitable settlement of claims in which liability is reasonably clear; (7) engage in a pattern or practice of compelling insureds to litigate for recovery of amounts due under insurance policies by offering substantially less than the amounts ultimately recovered in actions brought by those insureds; and (8) compel an insured or third-party claimant in a case in which liability is clear to litigate for recovery of an amount due under an insurance policy by offering an amount that does not have an objectively reasonable basis in law and fact and that has not been documented in the insurer’s file.” It should be noted that the provisions of this section do not create or imply a private cause of action for a violation of this section. § 21.36.125 (b).
The Supreme Court of Alaska has held that in the first-party context, an insured’s cause of action against an insurer for breach of the duty of good faith and fair dealing lies in tort. State Farm Fire & Cas. Co. v. Nicholson, 777 P.2d 1152 (Alaska 1989). The Nicholson court indicated that this result was justified given the special relationship between the insured and the insurer. Id. The court rejected the idea that Alaska’s statutory scheme provided to sufficient incentive to insurers and reasoned that the availability of a tort action for breach of the duty of good faith and fair dealing would provide this much needed incentive to insurer’s to honor their implied covenant to insureds. Id.
Alaskan courts have declined, however, to recognize a common law tort of good faith and fair dealing in other contexts. In O.K. Lumber Co. v.Providence Washington Ins. Co., 759 P.2d 523 (Alaska 1988), an injured claimant attempted to sue a third-party tortfeasor’s liability insurer for failure to promptly settle a claim. The court held that since a contractual relationship did not exist between the insurer and the injured claimant, the insurer did not have a common law duty of good faith and fair dealing to the injured claimant, and as such, the injured claimant had no cause of action against the insurer. Id.
In circumstances where the plaintiff makes a policy limits demand and there exists a substantial likelihood that a verdict will be rendered against the insured in excess of the coverage provided by the insurance policy, the insurer has a duty to tender as settlement of the claim, the maximum limits of insurance coverage. Schultz v. Travelers Indem. Co., 754 P.2d 265 (Alaska 1988). This duty is grounded in the insurer’s duty to act in good faith and to protect the interests of its insureds. Id. Moreover, an insurance company has the duty to determine the amount of a money judgment that might be rendered against its insured, and to tender in settlement the amount of that portion of the money judgment which it has contractually agreed to pay. Id.
Chartwell Law represents the interests of insurers and employers, as such, we continue to continue to monitor the legal landscape. If you have any questions about issues associated with right of action for bad faith claims, our attorneys are available to help. Please contact your Chartwell Law attorney.