Western District of Washington: Insured That Violated Duties of Notice and Cooperation Could Not Make Out Claim for Bad Faith Based on Insurer’s Lengthy Investigation

by Saul Ewing Arnstein & Lehr LLP
Contact

Granite State Ins. Co. v. Integrity Structures, LLC, No. C14-5085BHS, 2015 WL 136006 (W.D. Wash. Jan. 9, 2015).

The U.S. District Court for the Western District of Washington held that an insurer did not act in bad faith where the insured assigned its rights against the insurer to the underlying plaintiff before it provided notice to the insurer, and then provided minimal information in response to the insurer’s requests for nearly a year. 

In 2006, Integrity Structures, LLC (“Integrity”) contracted with a developer to serve as general contractor for the construction of a 30-unit condominium project in Westport, Washington.  When construction deficiencies with the condos emerged, the condominium homeowners’ association (the “Association”) sued the developer and Integrity in Washington state court.  Integrity had several insurance policies covering the relevant period.  One of  Integrity’s insurers, Gemini Insurance Company (“Gemini”), appointed defense counsel.

In September 2012, Integrity entered into a contingent settlement with the Association. Among other things, the agreement called for Integrity to tender its defense to its three remaining primary general liability insurers, including Granite State Insurance Company (“Granite State”).  If neither Granite State nor Integrity’s other two insurers (other than Gemini) agreed to defend Integrity within 60 days of the tender, Integrity agreed to consent to judgment in favor of the Association for $4.1 million and assign all claims it had against the insurers (other than Gemini) to the Association.  In turn, the Association agreed not to execute on the consent judgment.

Granite State received Integrity’s tender requesting a defense on November 29, 2012.  The tender included the most recent version of the Association’s complaint but not the contingent settlement agreement.  On December 7, 2012, Granite State wrote to Integrity’s lawyer and requested several categories of information in order to evaluate the coverage claim. The lawyer for Integrity referred Granite State to counsel for the Association. Between late December 2012 and November 2013, Granite State repeatedly sought information from Integrity and the Association but received no substantive response. 

On September 30, 2013, a stipulated consent judgment for $4.1 million was entered against Integrity in the state court action.  Two months later, on November 20, 2013, Integrity finally disclosed to Granite State the contingent settlement agreement and the consent judgment.

In January 2014, Granite State filed suit against Integrity in the U.S. District Court for the Western District of Washington, seeking a declaratory judgment that it had no duty to defend Integrity or provide coverage for the $4.1 million consent judgment.  Integrity filed counterclaims for breach of contract and bad faith, as did the Association when it intervened in the case in June 2014.  The parties filed cross-motions for summary judgment.

The court ruled that although Granite State did have a duty to defend Integrity, because the allegations in the state court lawsuit were “conceivably” covered by the policy, Integrity and the Association had failed to make out a bad faith claim.  The court stated that an insurer acts in bad faith if its breach of the duty to defend “was unreasonable, frivolous, or unfounded.”  Further, a Washington statute provides that an insurer must complete its investigation within 30 days if doing so is reasonably possible, and violation of that statute would also signal bad faith.  While Granite State’s investigation took far longer, the court noted that Granite State’s prompt and repeated attempts to gather information from its insured were met with “virtual silence.”  Thus, Granite State did not act in bad faith.

Further, the court held that Integrity and the Association had violated their duties of notice and cooperation under the Granite State policy by failing to provide Granite State with notice of the state court lawsuit for 15 months and keeping silent about their settlement until even more time had passed.  Stating that Granite State may in the future be able to show that it had been prejudiced by Integrity’s lack of cooperation (and more than likely collusion), the court denied Granite State’s motion for a declaration that Integrity had forfeited its coverage, but did so without prejudice, noting that fact issues remained as to whether Granite State had been “actually and substantially prejudiced.”

Written by:

Saul Ewing Arnstein & Lehr LLP
Contact
more
less

Saul Ewing Arnstein & Lehr LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.