Northwest Insurance Law Blog : Seattle Insurance Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Washington, Portland

• Email This
• Print
• Comments
• Trackbacks

Last week, in Cedell v. Farmers Insurance Company of Washington, 2010 WL 3003535 (August 3, 2010) (.pdf) the Court of Appeals (Div. II) reversed a Grays Harbor trial court order imposing sanctions and ordering Farmer's Insurance to produce the file of an attorney it had  hired to investigate a first party residential fire loss claim.

Rejecting the insured's argument that "an insurance company does not have any right to attorney-client privilege in a bad faith claim," the Court emphasized that "[t]o qualify for the fraud exception to [the] attorney-client privilege, [an insured] must show fraud, as opposed to just bad faith."  The Court of Appeals concluded that, while Farmer's handling of the claim could support a finding of bad faith,  the trial court had not made any finding of fraud -- such as a misrepresentation of material facts to the insured -- such that it was an abuse of discretion to order an in camera review of the attorney's file.

• Email This
• Print
• Comments
• Trackbacks

Bad faith claims have long been considered to raise questions of fact that normally can be resolved only at trial. 

But in a 5-4 decision issued in American Best Food, Inc., v. Alea London, Ltd. (.pdf) on March 18, 2010, the Washington Supreme Court held an insurer liable for bad faith as a matter of law because it had failed to defend an insured where Washington law was unclear on whether or not there was coverage for the underlying claim.  Although it concluded that the insurer's denial was "unreasonable" as a matter of law, the majority denied that it was finding the insurer's breach of the duty to defend  to constitute per se bad faith. However, four justices dissented from the bad faith ruling, emphasizing that the majority was incorrectly "conflating the duty to defend and the duty of good faith."  (.pdf). 

• Email This
• Print
• Comments
• Trackbacks

In a February 22, 2010 summary judgment ruling in Clarendon Insurance Company v. American States Insurance Company (.pdf), United States District Court Judge Richard Jones addressed an issue that frequently arises between liability insurers for construction site injury claims: To what extent may the liability insurer of an immune subcontractor avoid coverage owed to a general contractor named as an additional insured pursuant to contract provisions and a "blanket" endorsement? T

The general contractor and its insurer Clarendon had settled a personal injury claim filed by a subcontractor's employee.  The subcontractor was insured by American States and its policy included a "blanket" additional insured endorsement.     But American States had refused to participate in the general contractor's defense or settlement and Clarendon filed an equitable contribution claim.

The court rejected all arguments by the American States to avoid coverage based upon the immunity to an employer against liability for employees' workplace injuries. First, the court found that the immunity afforded by the statute (ORS 656.018) does not extend to an insured employer's contractual obligation to procure insurance for another party.

Second, the court declined to apply an exclusion in the "blanket" endorsement, which states:

No coverage will be provided if, in the absence of this endorsement, no liability would be imposed by law on you. Coverage shall be limited to the extent of your negligence or fault according to the applicable principles of comparative fault.

The court did not explain its reasoning. Instead, Judge Jones only mentioned the other insurer’s argument that the second sentence limits the exclusion to comparative fault issues and then indicated that he agreed with Judge Janice Stewart's decision in Richardson v. Howard S. Wright Construction (D. Or. May 18, 2007) to reject application of the exclusion to this circumstance.
 

• Email This
• Print
• Comments
• Trackbacks

Parties in insurance litigation frequently allege Consumer Protection Act (CPA) claims despite the fact that their dispute stems from disagreement over the meaning and application of an insurance policy or other contract. Soundview Insurance Agency, Inc. v. Berjac Portland (.pdf) exemplifies this common litigation strategy. Berjac is a financing company that had financed insurance premiums for insureds identified by Soundview. After Berjac threatened to sue Soundview for unpaid premiums, Soundview asserted CPA violations along with a claim for declaratory relief.

In a short, bluntly worded summary judgment opinion, United States District Court Judge John Coughenour dismissed Soundview’s CPA claim:

This is a dispute over a contract entered into at arms' length by sophisticated commercial parties. The dispute, as countless commercial disputes are, was accompanied by threats of litigation. It is inconceivable that a party might have a claim for unfair or deceptive acts or practices every time an opponent expressed a disagreement over contractual interpretation, or resorted to the courts to settle a dispute. Soundview offers no authority or evidence for the contention that these two commonplace aspects of business negotiation are unfair or deceptive, and has failed to demonstrate a genuine issue of material fact.

• Email This
• Print
• Comments
• Trackbacks

Bad faith claims frequently are based, at least in part, upon the communications between, or the conduct of, attorneys representing an insurer and/or insured. As a result, it is not uncommon in bad faith litigation for one or both sides to threaten, or at least consider,  seeking disqualification of opposing counsel.  But when is disqualification really appropriate?  The Washington Court of Appeals (Division II) addressed this issue recently American States Insurance Company v. Nammathao (December 10, 2009) (.pdf) -- a dispute over UIM coverage. 

Nammathao highlights that, while parties often may be tempted to seek disqualification, it is usually a measure of last resort.  Reversing the trial court's disqualification of the insured's counsel, the Court of Appeals held that the trial court had not made the required findings.  Where an opposing party intends to call an attorney at trial, disqualification is warranted only if the trial court makes each of the following three findings:

1. The attorney will give evidence material to the determination of the issues being litigated;
2. The evidence is unobtainable elsewhere; and
3. The testimony is or may be prejudicial to the testifying attorney's client.

The Nammathao court also indicated that the standard for disqualification is lower where a party intends to call its own attorney at trial.  But the trial court must still make specific findings regarding the importance of the anticipated testimony and whether disqualifying the attorney would be a hardship for the client.  

• Email This
• Print
• Comments
• Trackbacks

Insurers often operate multiple lines of business such that they issue polices through a number of different limited liability entities.  As a result, insureds frequently must ask "who should I sue for coverage?"

USDC Judge Richard Jones addressed this issue in Torvik v. Insurance Company of Pennsylvania (January 10, 2010) (.pdf), a case in which the plaintiff insured had sued both the party issuing the automobile policy underlying the coverage claim and AIG, the parent holding company.  AIG moved for summary judgment based upon declarations from its in house and defense counsel indicating that AIG had played no role in the handling of the plaintiff insured's claim.  After affording the insured additional time to present contrary evidence, Judge Jones dismissed AIG, rejecting the insured's arguments that there was a genuine issue of material fact merely because an AIG claims representative had reportedly attended a prior mediation on behalf of the defendants. 

• Email This
• Print
• Comments
• Trackbacks

Litigants often disagree about where their dispute should be resolved -- Arbitration or court?  And if court, in state court or federal court? 

In McCoy v. Liberty Mutual Insurance Company (December 29, 2009) (.pdf), the insured argued that Liberty Mutual's refusal to arbitrate and subsequent removal of the case to federal court gave rise to claims for bad faith and violations of Washington's Consumer Protection Act and Insurance Fair Conduct Act.   United States District Court Judge Benjamin Settle rejected the argument and dismissed the claims on summary judgment because the policy underlying dispute provided for arbitration only by mutual agreement and there was diversity of citizenship such that the insurer had the right to remove the case from state to federal court.  Judge Settle's decision did not address whether an insured might have a bad faith, CPA and/or IFCA claim when an insurer fails to comply with a mandatory ADR provision or removes a case that is later remanded. 

• Email This
• Print
• Comments
• Trackbacks

Insurance policies typically include provisions that require an insured to cooperate with an insurer's investigation of a claim.  These provisions are generally enforceable, and an insured's failure to cooperate may provide an insurer with an affirmative defense to coverage where such failure prejudices the insurer. 

But a failure to cooperate defense typically raises factual issues that implicate the conduct of the insurer as well as the insured.  This reality is illustrated by the January 5, 2010 summary judgment ruling from Judge Robert Bryan of the United States District Court for the Western District of Washington in Coleman v. American Commerce Insurance Company (.pdf).  American States sought dismissal because the insured had failed to sit for an examination under oath and had not provided medical records to support the emotional injury claim.  But Judge Bryan concluded that there were genuine issues of material fact because, among other things, American Commerce did not request an examination of the insured until several years after the underlying accident and only after the insured had delivered a 20-day notice of intent to sue under Washington's Insurance Fair Conduct Act. 

• Email This
• Print
• Comments
• Trackbacks

The doctrine of uberrimae fidei requires a marine insurance applicant to reveal every fact within his/her knowledge that is material to the risk regardless of whether or not they are asked. In SW Traders, LLC v. United Specialty Insurance Company (December 29, 2009) (.pdf), United States District Court Judge Marsha Pechman applied the doctrine to void, on summary judgment, a hull policy because the insured had not accurately disclosed the registered owner of the vessel. 

Judge Pechman devoted most of her opinion to the parties’ competing recitations of the underlying events such that there appeared to be a factual dispute. But Judge Pechman seemed bothered by the fact that the true vessel owner was a Canadian citizen and had set up a shell company to serve as the nominal vessel owner in order to avoid the longstanding rule that only a U.S. citizen may own a U.S. registered vessel.