Under Idaho Code § 41-1329, “ committing or performing. . . acts or omissions intentionally, or with such frequency as to indicate a general business practice shall be deemed to be an unfair method of competition or an unfair or deceptive act or practice in the business of insurance: (6) [n]ot attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear; (7) [c]ompelling insureds to institute litigation to recover amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in actions brought by such insureds; . . . (11) [m]aking known to insureds or claimants a policy of appealing from arbitration awards in favor of insureds or claimants for the purpose of compelling them to accept settlements or compromises less than the amount awarded in arbitration; . . . and (14) [f]ailing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.”
Idaho courts have held that there is a common law duty on the parts of the insurers to their insureds to settle first party claims in good faith and that a breach of this duty will give rise to an action in tort. White v. Unigard Mut. Ins. Co., 112 Idaho 94 (1986). Idaho courts have also indicated that § 41-1329 does not give rise to a private right of action whereby an insured can sue the insurer for statutory violations committed in connection with the settlement of the insured’s claim. Id.
With respect to third-party claims, the Supreme Court of Idaho in Hettwer v. Farmers Ins. Co., 118 Idaho 373 (1990), adopted the holding of the Court of Appeals of Maryland in Bean v. Allstate Ins. Co., 285 Md. 572 (1979). In Bean, the Court of Appeals of Maryland held that a claimant has no cause of action against an insurer directly for sums in excess of the policy limits in the absence of explicit authorization to that effect.
An insurer is under a duty to exercise good faith in considering efforts to compromise an injured party’s claim against the insured for an amount within the insured’s policy limits. Truck Ins. Exch. v. Bishara, 128 Idaho 550 (1996) (citing to Openshaw v. Allstate Ins. Co., 94 Idaho 192 (1971)). Idaho courts have adopted an “equality of consideration” standard which requires insurers to give equal consideration to the interests of its insured in deciding whether to accept an offer of settlement. Id. In order to avoid liability for bad faith when the insured’s potential liability is in excess of the policy limits, the insurer, at a minimum, should make a diligent effort to ascertain the facts, communicate the results of such investigation to the insured and must inform the insured of any settlement that may affect the insured, so that the insured may take proper steps to protect its interest. McKinley v. Guaranty Nat'l Ins. Co., 144 Idaho 247 (2007) (citing to Bishara, 916 P.2d at 1280).
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.