Court Rules Delay in Accepting Defense Constitutes Bad Faith

Author: Brian Johnson

January 7, 2019 9:00am

Summary of the Ruling

A federal district court in Washington ruled a general contractor’s insurer acted in bad faith when it waited for more than one year to agree to defend it in an underlying construction defect action. In Rushforth Construction Co. v. Wesco Insurance Co. et al., Case No. 17-cv-1063, (W.D. Wash. Apr. 3, 2018), Judge John Coughenour for the Western District of Washington said reasonable minds could not disagree that the delay on the part of the insurer was “frivolous and unfounded.”  The Seattle judge granted partial summary judgement in favor of the general contractor, Rushforth.

Background Leading to Bad Faith Finding

Rushforth Construction Co. acted as the general contractor on the Lake Hills Village Project. A subcontractor, Sound Glass Sales Inc., named Rushforth as an additional insured under its Wesco Insurance Co. policy. In October of 2015, Lake Hills sued Rushforth alleging construction defect claims. On July 1, 2016, Rushforth tendered its defense to Wesco. Thereafter, Rushforth wrote to Wesco four times asking the insurer to take a position on its request for a defense under the Sound Glass policy. During this time, the insurer neither issued a reservation-of-rights letter nor replied to the contractor’s correspondence.

Rushforth’s Bad Faith Lawsuit

Just over a year later, on July 13, 2017, Rushforth Sued Wesco. Rushforth alleged claims for bad faith, breach of contract, negligence, declaratory relief, and violations of the Washington’s consumer protection law. Two weeks later, Wesco sent Rushforth a reservation-of-rights letter, agreeing to defend the contractor under the subcontractor’s policy. Rushforth defined Weco’s offer of defense over the insurer’s protests that it had a right to defend the general contractor in claims potentially implicating its policy.

Rushforth then filed a motion for partial summary judgment on the issues of (a) whether the insurer breached its duty to defend, (b) thereby, acting in bad faith, and (c) whether the yearlong delay in agreeing to provide a defense can be cured by the later offer to defend.

The Court’s Ruling

Judge Coughenour granted summary judgment on all three issues in Rushforth’s favor. In so ruling, he found that Wesco owed Rushforth a duty to defend and failed to provide a “prompt and proper defense.” The court further determined that Wesco owed Rushforth a duty to defend “no later than June 20, 2016, when the amended complaint was filed in the underlying action.” Wesco did not offer to defend [Rushforth] until July 26, 2017—over a year later and after [Rushforth] brought suit.” Wesco both owed and breached its duty to defend the general contractor. Judge Cougenour went on to explain, “Wesco cannot cure its breach by forcing [Rushforth] to accept a belated defense.” Wesco failed to convince the district court that “an insurer’s continuing duty to defend after a material breach gives it the right to defend.”

Ruling on the bad faith claim, the court rejected the insurer’s argument that its delay resulted from a “technical mistake.” The court’s ruling was based on the insurer’s failure to provide any justification for the claimed “technical” mistake. By ignoring Rushforth’s tender and letters following up on the request for a defense, Judge Cougenour explained “Wesco overemphasized its own interest . . .” and “[e]ven if unintentional, Wesco’s unjustified actions were in bad faith.”

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