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RULE OF EQUAL CONSIDERATION: INSURER MUST GIVE EQUAL CONSIDERATION TO INTERESTS OF ITS INSUREDS
By Mike Abourezk and Marialee Neighbours
In South Dakota, an insurance company acts in bad faith when it fails to give equal consideration to the interests of its insured. It is also a basic principle of insurance bad faith law is that an "insured's interests must be given 'equal consideration' with those of the insurer, or as it is often expressed 'at least equal consideration.'" Kunkel v. United Security Ins. Co. of New Jersey, 168 N.W.2d 723, 726 (S.D. 1969). See also Helmbolt v. LeMars Mut. Ins. Co., 404 N.W.2d 55, 58 (S.D. 1987)(An insurer can not "ignore its duty of good faith for the purpose of protecting its own interests.")
Other Jurisdictions
Other jurisdictions agree. Explaining that insurance companies owe their policyholders a duty of equal consideration, the California Supreme Court held:
For the insurer to fulfill its obligation not to impair the right of the insured to receive the benefits of the agreement, it again must give at least as much consideration to the latter's interests as it does its own.
Egan v. Mutual of Omaha Ins. Co., 24 Cal.3d 809,169 Cal. Rptr. 691, 695, 620 P.2d 141(1979) (citations omitted).
In another California bad faith case, the court concluded that an insurer's conduct is unreasonable if inconsistent with placing the insured's interests above those of the company:
An insurer's conduct is judged based, on whether, given the circumstances, the insurer unreasonably withheld benefits due under a policy. That conduct is unreasonable if inconsistent with placing the insured's interests above those of the insurance company and its stockholders.
McCormick v. Sentinel Life Ins. Co., 200 Cal. Rptr. 732, 739 (Cal. App. 2 Dist. 1984). See also Mariscal v. Old Republic Life Ins. Co., 50 Cal. Rptr.2d. 224 (Cal. App. 2 Dist. 1996).
The Washington Supreme Court, noting that an insurer must give the insurer's interests equal consideration in all matters, said:
Thus, an insurance company's duty of good faith rises to an even higher level than that of honesty and lawfulness of purpose towards its policyholders: an insurer must deal fairly with an insured, giving equal consideration in all matters to the insured's interests.
Tank v. State Farm Fire and Casualty Co., 105 Wash.2d 381, 386, 715 P.2d 1133, 1136 (1986).
Joining other state supreme courts, the Arizona Supreme Court emphasized that insurance companies must give policyholder's legitimate interests equal consideration with those of insurer:
...the evidence supports the conclusion that for its own profit Farmers breached its duty to play fairly with its insureds and to give their legitimate interests equal consideration. Those legitimate interests of the insureds arose out of the very event against which Farmers sold protection.
Rawlings v. Apodoca, 726 P.2d 565, 573 (Ariz.1986).
In that case, the court aptly noted: "It does, however, entitle the insured to insist that, to serve its own interests, the insurer not provide the promised protection with one hand while destroying the very objects of the relationship with the other." Id. at 571.
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