Washington Case Law Update: Policy Limit Settlement Exposes Insurer to Bad Faith Claim
From the desk of Ashley Nagrodski: Insurance policies are commonly structured to limit the insurer’s duty to defend up to the point when policy limits are exhausted. But when there are multiple claimants and the insurer settles the largest claim for policy limits, can the insurer be subject to bad faith for refusing to defend from subsequent claimants because the policy is exhausted? Read on to find out.
Claims Pointer: In this case, arising out of a 16-vehicle traffic accident and ultimately resulting in more than one claim, the insurer declined to arrange a settlement where the insured would contribute $1,000 towards a $1 million settlement to avoid exhausting policy limits. The insured alleged bad faith after the insurer refused to defend subsequent claims on the basis that policy limits had been exhausted. The Washington Court of Appeals held that the insurer was subject to bad faith by placing its own interests above the insured’s interests when the insurer settled the largest claim for policy limits and then denied a defense for subsequent claims. This case serves as a reminder of the importance of carefully structuring and negotiating settlement agreements involving more than one claim when policy limits are at play. Settlement negotiations should involve consideration of whether there could be future, subsequent claims before the policy limit is exhausted.
AP Transport v. Zurich Am. Ins. Co., No. 76479-9-I, Washington Court of Appeals Div. I (August 13, 2018) (unpublished).
On July 20, 2011, Joginder Singh dba AP Transport’s (“Plaintiff”) employee caused a 16-vehicle traffic accident while operating Plaintiff’s semi-truck. The employee approached traffic at full speed and, at the last moment, swerved onto the adjacent lane, colliding with a logging truck. The impact caused both trucks, their trailers, and cargo to strike other vehicles,...