"Under District of Columbia law, every contract contains within it an implied covenant of both parties to act in good faith and damages may be recovered for its breach as part of a contract action." Choharis v. State Farm Fire and Cas. Co., 961 A.2d 1080, 1087 (D.C. 2008). A party to a contract breaches its duty of good faith and fair dealing if it "evades the spirit of the contract, willfully renders imperfect performance, or interferes with performance by the other party." Allworth v. Howard Univ., 890 A.2d 194, 201 (D.C. 2006). However, the District of Columbia courts have yet to recognize a common law action for failure to settle within a policy’s limits.
The District of Columbia does not recognize an action sounding in tort for bad faith breach of an insurance contract. Fireman's Fund Ins. Co. v. CTIA, 480 F. Supp. 2d 7, 9, 2007 U.S. Dist. LEXIS 18958, *7. Choharis v. State Farm Fire & Cas. Co., 961 A.2d 1080, 1087, 2008 D.C. App. LEXIS 483, *14-15.
The courts have made it clear there is no bad faith when an insurer denied coverage, it is less clear if the District of Columbia will at some point recognize a claim for bad faith failure to settle a claim. The court in Choharis specifically recognized the possibility of a tort claims existing independent from the duty flowing from a contract. This is significant because the District of Columbia considers Maryland a “sister jurisdiction” and often will consider the decisions from the Maryland courts. Maryland recognizes and independent tort for failure to settle within the policy limits which only arises when the insured accepts coverage. However, the court in Choharis also suggests that if damages stemming from an insurance contract should exceed normal contract principles, such a determination should be made by the legislative body. As such, there is no cause of action for bad faith failure to settle within the limits of an insurance policy.
D.C. does have prohibitions against unfair claims practices, including a failure to pay a claim for a reason that is arbitrary or capricious based on all available information, D.C. Code §31-2231.17, this provision specifically does not “create or imply a private cause of action for a violation of this chapter.” D.C. Code §31-2231.02(a).
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.