Earlier this summer, a federal district court in Washington certified questions to the Supreme Court of Washington concerning whether an insured can maintain a procedural bad faith claim despite the fact that coverage was properly denied.  The case, entitled St. Paul Fire and Marine Ins. Co. v. Onvia, Inc., Docket No. C06-1056RSL (W.D. Wash.)(see here), involved a claim based on a class action involving the insured’s practice of distributing advertisements via fax.  The insured sought coverage for the action under its insurance policy, which provided advertising injury coverage.  The insurer, however, denied coverage on the basis that the type of advertising “injury” alleged in the lawsuit was not covered under the insured’s policy. 

 

When the insurer brought a declaratory judgment action in state court, the insured countersued, alleging several varieties of bad faith.  The state court granted summary judgment in the insurer’s favor on its declaratory judgment count, and rejected all of the insured’s claims, excepting one claim of procedural bad faith.  The bad faith alleged was for violation of a number of Washington insurance claims handling regulations relating to timely acknowledgment of claims and tender of defenses, the conducting of investigations, and the regular reporting of developments to the insured. The federal court then asked the Washington Supreme Court to determine whether the procedural bad faith claim could be maintained despite the fact that the court has already determined that coverage was properly denied.  Even if the Washington Supreme Court rules that the bad faith claim can proceed, however, the district court must still decide whether the insured must show actual harm in order to recover.