Washington Court Finds Insurer Complied with Duties to Defend and Indemnify

This week, the Washington Court of Appeals, Division 1, affirmed a Clark County trial court judge’s dismissal on summary judgment of an assigned bad faith claim against an insurance company.  In an unpublished opinion in Water’s Edge Association v. Farmers Ins. Exch., Wash. Ct. of App., No. 71066-4-I (March 3, 2014), the Court of Appeals considered a case in which the owner of a condominium complex and a maintenance company that worked on the complex (collectively, “the insureds”) assigned their right to assert a bad faith claim to the homeowners association that ran the condominium complex.  In a cursory opinion, the Court of Appeals affirmed the trial court’s determination that the insurance company did not breach either its duty to defend the insureds or its duty to indemnify them.

The insurance company assigned a single attorney to defend its insureds.  The homeowners association began to collude with the insureds in an effort to set up a bad faith claim against the insurance company.  The insureds insisted that the assigned attorney had a conflict of interest because the attorney was representing both of them.  The attorney then withdrew from the case, and the insurance company assigned new counsel to defend each insured individually.  The homeowners association and insureds then excluded the insurance company and previously assigned counsel from negotiations on a stipulated settlement agreement.  Ultimately, they agreed that the insureds would be released from liability in exchange for their contribution of $215,000.  The insurance company paid the settlement amount on behalf of its insureds.

The insurance company argued that the bad faith claim must fail because (1) it is undisputed that it fully defended and indemnified the insureds in the underlying suit, and (2) the insureds were not able to prove any damages as a result of the alleged bad faith.  The Court of Appeals agreed with the insurance company.  Calling the case “simple,” the Court summarized that the insurance company satisfied its duties to defend and indemnify their insureds.  The Court also noted that the insurance company assigned new counsel upon the first insinuation that there was a conflict of interest and paid the settlement amount when presented with the agreement.

The attorneys of MLR are experienced in analyzing issues concerning the duty to defend and the duty to indemnify under a variety of insurance policy forms.  Please contact us with any questions concerning the summary of this case or any other matter you see on the website.

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