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

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Neighbor disputes over disputed boundary lines, access paths, shared driveways, etc. often raise questions about whether there is coverage under residential homeowner's policies. In his August 13, 2010 summary judgment ruling (.pdf) Federal District Court Judge Richard Jones addressed a common coverage issue in these disputes: whether allegations of trespass into the disputed portion of the properties may constitute "property damage" such that there is a duty to defend. Judge Jones acknowledged the liberal standard that applies to the duty to defend. But he concluded that there was no defense obligation in this instance because "a bare allegation of trespass, with no factual allegations suggesting physical damage or destruction to tangible property, does not trigger coverage under the 'property damage' provision."

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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.