In Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 (W.D. Wash. December 17, 2012) the Court was faced with a General Contractor which was denied a Defense under an Additional Insured Endorsement. The General Contractor sued for a Declaration of Insurance Coverage and for Bad Faith Damages. In our first article posted regarding this decision, we explored the background of the case and the Federal Court's grant of Summary Judgment to the General Contractor on Coverage, i.e., that Burlington owes TRC, the G.C., a Defense under an Additional Insured Endorsement. "Contrary to Burlington's assertion, it is clear to the Court that Burlington has a duty to defend TRC against the 2011 Complaint." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *6 (W.D. Wash. December 17, 2012). [Emphasis added.]
Having determined the Coverage Claim in favor of the General Contractor, the Court turned its attention to both the Bad Faith Claims in this case, and TRC's Claims based on several Model Unfair Claim Practices Act provisions which are enacted into the Washington State Insurance Fair Conduct Act. The underscored language in the quotation immediately above, gives a clear indication of how the Court was going to rule on the Bad Faith Claims. "An insurer acts in bad faith if its breach of the duty to defend was unreasonable, frivolous, or unfounded." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
Since Burlington's breach of its Duty to Defend in this case was based on its "unreasonable" interpretation of its own Additional Insured Endorsement, the Court granted TRC's Motion for Summary Judgment on TRC's Bad Faith Claim based on Burlington's Denial of its Duty to Defend TRC.
TRC also based its lawsuit on two provisions of the Revised Code of Washington State and the Washington Administrative Code, which are typical provisions found in many State Unfair Claim Practices Acts. TRC contended that Burlington violated these two provisions, and the Federal Court granted TRC's Motion for Summary Judgment against Burlington as to both of them.
(1) No insurer shall fail to fully disclose to first party claimants all pertinent benefits, coverages or other provisions of an insurance policy or insurance contract under which a claim is presented.
It will be noted that by its terms this provision applies with regard to disclosure "to first party claimants". A review of the Washington Administrative Code and of the Revised Code of Washington gives no reason to believe that the term, "first party claimants," means anything different in the quoted provision than it means generally in other United States jurisdictions, which is a Policyholder or other Insured which claims Policy Benefits directly under her, his or its own Insurance Policy for a loss claimed by the Insured due to damage suffered or incurred by the Insured.
Without ever explicitly conferring the status of "first party claimant" upon TRC which claimed a defense from Burlington under a Comprehensive General Liability Policy in this case, the Federal Court held that Burlington's apparently uncontested failure to disclose "the existence of the new additional insured endorsement in the 2010-11 Burlington Policy, much less coverage available" under it, coupled with Burlington's apparently belated assertion that its Additional Insured Endorsement is somehow limited "temporally," led to the Federal Court's entry of Summary Judgment in favor of TRC on its claim that Burlington violated this provision of Washington State law. Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
(13) Failing to promptly provide a reasonable explanation of the basis in the insurance policy in relation to the facts or applicable law for denial of a claim or for the offer of a compromise settlement.
The Federal District Court granted TRC's Motion for Summary Judgment on this claim, too. "Burlington may have been prompt" in denying a Defense, the Court allowed, but "Burlington did not provide a reasonable explanation of the basis for their denial. Summary judgment on this issue is granted." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *7 (W.D. Wash. December 17, 2012).
The Court then held TRC entitled to "an award of attorneys fees," Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *8 (W.D. Wash. December 17, 2012), presumably referring to the fees incurred by TRC in its defense of the Underlying Case against it.
The Federal Court reserved ruling, however, on TRC's claim for statutory treble damages; the Court reserved "ruling on the total award of damages until the time the underlying lawsuit is resolved." Tim Ryan Construction, Inc. v. Burlington Insurance Co., 2012 WL 6567586 *8 (W.D. Wash. December 17, 2012).
For the parties, the Insurance Company's denial of all Coverage including any Duty to Defend is perhaps the central issue. For observers standing outside of this lawsuit, however, a major question raised by this ruling is how an Insured under a Commercial General Liability Policy, particularly one which (successfully) claims a Defense under that Policy, can ever be seen as a "first party claimant" for purposes of the Carrier's exposure to extracontractual damages.
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