WHEN DOES BREACH OF DUTY TO DEFEND CONSTITUTE BAD FAITH AS A MATTER OF LAW?
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).
