Subcontractors on construction projects are commonly required to provide “additional insured” liability coverage to the general contractor. The coverage is available to the extent that the general is liable because of the subcontractor’s negligence – which is the case most of the time. In Oregon it is rare for a subcontractor’s carrier to actually agree to defend a general contractor because of a lack of bad faith exposure. However, in Washington it is much more common, thanks to Washington’s pro-policyholder coverage law. That makes it much more expensive for the subcontractor’s carrier, who has to defend two entities. In this case the carrier for the subcontractor, Lloyd’s, tried to terminate its obligation to defend the general contractor by paying for the subcontractor to settle with the underlying claimant, and including language in the settlement agreement “stipulating” that the subcontractor actually had no liability (obviously a subterfuge, because if that were true Lloyd’s would not have settled the case). Then Lloyd’s stopped paying to defend the general contractor. In a coverage action between the general’s carrier (Zurich) and Lloyd’s, Judge Bryan saw clear through Lloyd’s breach of its duties to its additional insured, the general, denying summary judgment to Lloyd’s for breaching a contractual duty to defend, and suggested that there may be a claim for bad faith in there as well.
We see these kinds of aggressive carrier tactics every day. It is nice to see a judge calling a carrier out on it.
ZURICH AMERICAN INSURANCE COMPANY v. CERTAIN UNDERWRITERS AT LLOYD’S LONDON, Dist. Court, WD Washington 2013 – Google Scholar:
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