No Bad Faith in Denying Coverage Under Such a CGL Where Coverage Does Not Exist, Washington Court Holds.
Delays have always been a problem in construction projects. Judging by the development of specialized Insurance products recently, it is a growing drag on General Contractors' profits.
In the case of Wellman & Zuck, Inc. v. Hartford Fire Insurance Co., 285 P.3d 892 (Wash. App. Ct. September 17, 2012), a General Contractor obtained "specialized" Insurance. The Court called the Defendant Insurance Company a "specialized Owners and Contractors Protective (OCP) Insurer". The "OCP Insurer" in that case was sued for breach of contract and 'Bad Faith' after it denied all Coverage including a Defense to an underlying lawsuit filed against the G.C. In the underlying lawsuit, damages were claimed against the G.C. involving alleged construction delays.
The G.C. defended on the basis that a Sub caused the delays. The G.C. sought Coverage under its OCP Policy and assigned all its rights against the OCP Insurer.
On appeal, the Washington Appellate Court held that the OCP Policy simply does not provide any Coverage, including a Defense, against damages claims based on alleged construction delays. Furthermore, since the OCP Insurer in that case did not wrongfully deny a Defense, in Washington State as in most U.S. jurisdictions the OCP Insurer could not be held liable for consequential damages and other 'Bad Faith' damages as a result. See Wellman & Zuck, Inc. v. Hartford Fire Insurance Co., 285 P.3d 892, 900 ¶¶ 29-30 (Wash. App. Ct. September 17, 2012),
In sum, the case presents something old, something new. The 'something old' is the holding that 'where there is no Coverage, there is no Bad Faith,' is another holding representing the majority view on the subject, although there is significant authority to the contrary. The 'something new' is that even the development and purchase of "specialized Owners and Contractors Protective (OCP) Insurance" will not afford Coverage for damages claimed from construction delays.
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