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

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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). 

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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.
 

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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.