Washington Court Finds No Duty to Defend or Indemnify an Insured

On January 28, 2014, Division 2 of the Washington Court of Appeals issued an extensive opinion in United Services Auto. Ass’n v. Speed, Wash. Ct. of App., Div. 2, No. 43728-7-II (Jan. 28, 2014) discussing an insurance company’s duties to defend and indemnify an insured under homeowners and automobile insurance policies.  The case concerned a “road rage” altercation between Robert Speed and Dr. Dennis Geyer.  Speed sustained injuries as a result of Geyer’s physical attack, which ultimately resulted in Geyer being criminally convicted by a jury for third degree assault.  At the time of the incident, Geyer had homeowners and automobile insurance policies with United Services Auto. Ass’n (USAA).

Speed’s attorney sent Geyer a letter demanding compensation for the physical injuries resulting from his “intentional” attack of Speed.  Geyer notified USAA of Speed’s claim and requested coverage under his insurance policies.  In response, USAA sent Geyer a reservation of rights letter indicating his claim likely was not covered.  With respect to the homeowners policy, USAA indicated that Geyer’s conduct did not constitute an “occurrence” as that claim was defined in the policy.  Similarly, USAA indicated that the incident did not constitute an “automobile accident” as required under the automobile insurance policy.  In addition, USAA cited the intentional acts exclusion in both policies as a basis for its position.  USAA ultimately rejected the claim for coverage, but admitted that the issue of coverage was “questionable.”  After USAA denied coverage, Geyer and Speed settled their claims for $1.4 million.  Speed agreed to not execute the judgment against Geyer’s personal assets, and Geyer assigned all of his rights under the insurance contracts with USAA.

USAA then filed a declaratory judgment action seeking a determination of its obligations under the insurance policies.  Speed counterclaimed against USAA, alleging that it acted in bad faith by failing to defend and indemnify, failed to properly investigate the claim or explore settlement, and violated the Insurance Fair Conduct Act (IFCA), RCW 48.30, and the Unfair Claims Settlement Practices regulations in WAC 284-30.  In addition, Speed filed a separate lawsuit against Geyer for personal injuries.  However, the only relief sought in the latter action was confirmation that the settlement amount was reasonable.  The two cases were eventually consolidated by the trial court.  The parties filed competing motions for partial summary judgment on the coverage issues.  The trail court granted the motion filed by USAA, and denied Speed’s motion.  Speed appealed the ruling.  The Court of Appeals upheld the trial court ruling.

The Court of Appeals began by addressing USAA’s duty to defend.  Following an in-depth analysis of Washington authority on the broad scope of the duty to defend an insured, the court found that USAA did not have an obligation to defend Geyer in this case.  The court determined that in order to trigger coverage under either the homeowners or automobile policy, Speed’s claims must be considered an “accident” based on the definitions of the terms “occurrence” and “auto accident.”   Accordingly, the Court of Appeals framed the issues as “whether it is conceivable that the incident described in Speed’s demand letter could be construed as an ‘accident.’”  Citing Washington precedent, the court determined that the intentional acts described by Speed could not constitute an accident and, thus, could not trigger USAA’s duties to defend or indemnify Geyer in this matter.  In making its finding, the court relied on Speed’s attorney’s description of Geyer’s acts as “deliberate.”  Because the acts were deliberate, the consequences of the acts—in this case the injuries Speed sustained—were not the result of an accident.

Speed argued to the Court of Appeals that USAA had a duty to defend and indemnify because it admitted its “uncertainty” regarding whether the claim was covered.  In support, Speed cited to USAA’s reservation of rights letter which admitted that coverage under both policies was “questionable.”  The argument was based on the proposition that any uncertainty regarding coverage should be resolved in favor of the insured.  The Court of Appeals rejected the argument citing the Washington rule that insurance coverage cannot be created by equitable estoppel.  Further, the court noted that an insurance company’s subjective uncertainty about coverage cannot trump the court’s legal determination there was no coverage.

The Court of Appeals upheld the trial court’s dismissal of each of Speed’s extra-contractual claims as well.  The court determined that those claims were each based on USAA’s allegedly improper denial of the duties to defend and indemnify.  Based on the court’s ruling on those issues, the extra-contractual claims were not viable.

The attorneys at Maloney Lauersdorf Reiner are well versed in the insurance coverage issues addressed by the Washington Court of Appeals in this case.  Please contact us with any questions or concerns regarding this or any other case you see in MLR’s Insurance Coverage Blog.

UPDATE: Here is another commentary on the Speed v. USAA matter from the Sedgwick Insurance Law Blog.

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