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Insurer’s acts in other states not
proof of bad faith
(Continued - Page 3)
More than a year passed before Truck issued a letter
declining coverage. Although the letter quoted extensively from
the policy, it did not explain Truck’s coverage analysis.
Truck’s letter said that it based its coverage decision on
a "thorough investigation." In fact, an internal memo
showed that Truck had refused the tender of defense without beginning
to investigate the liability issues.
In an April 1994 letter, VanPort asked Truck to explain
its coverage denial. Truck never responded. In February 1996, Truck
filed a declaratory-judgment action seeking a declaration that it
had no duty to defend VanPort. VanPort counterclaimed for bad faith
and other claims. VanPort and the claimants later agreed to a settlement
of about $489,000. VanPort assigned most of its counterclaims to
the claimants, who agreed to collect only against VanPort’s
insurer and not against VanPort itself.
The trial court then decided on cross-motions for
summary judgment that Truck did have a duty to defend, which it
breached in bad faith. The Court of Appeals affirmed most of the
trial court’s rulings, and the Supreme Court then accepted
review.
Truck contended that because a CGL policy is not a
performance bond, its denial of coverage was correct; the claimants
alleged only that VanPort had failed in its contract obligations,
not that it caused any resultant property damage. Truck also asserted
a policy exclusion for damage to realty on which the insured or
contractors working on its behalf are performing operations.
The Supreme Court disagreed. The claimants sued in
tort, not just in contract, so that the claims were within the terms
of the insuring agreement. The Court also found that the exclusion
might or might not apply depending on unresolved facts, so that
Truck owed at least a duty to defend. The VanPort Court also concluded
that Truck committed bad faith based on its tardy and inadequate
response to the insured’s tender of the claims and its failure
to investigate before rejecting that tender.
The Court therefore held that this settlement was
fully enforceable against Truck if it was reasonable, based on its
recent decision in a similar case, Besel v. Viking Ins. Co., 146
Wn.2d 730 (2002). If the trial court finds the settlement to be
reasonable, it is presumptively reasonable, and the burden then
shifts to the insurer to show that the settlement resulted from
fraud or collusion. Overcoming this presumption could prove difficult
for insurers.
| The Lee
Smart Quarterly is a publication of the law offices of Lee, Smart, Cook,
Martin & Patterson, P.S., Inc. for clients and others. It is intended
as general information only and is not to be construed as legal advice.
You should consult an attorney if you have any specific legal questions.
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| Editor:
Jeffrey P. Downer |
Eml:
jpd@leesmart.com
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| Phone:
206.621.3482 |
Toll
Free: 877.624.7990 |
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