More bad news for insurers on consent judgments
By Jeffrey P. Downer

An agreed judgment between a claimant and a policyholder is presumed to be reasonable and enforceable against the policyholder’s liability insurer where the insurer has acted in bad faith, the Washington Supreme Court has held.

In Truck Ins. Exchange v. VanPort Homes, no. 70747-2 (Nov. 2002), the policyholder, VanPort, provided consulting services for customers who wanted to build their own homes. VanPort would assist with budgets, schedules, and compliance with government requirements.

Several of VanPort’s customers sued it, alleging construction defects and that VanPort negligently failed to detect those defects when inspecting subcontractors’ work. In July through October 1992, VanPort tendered defense of the lawsuits to Truck, its comprehensive general liability (CGL) insurer.

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.