WA Case Update: To Defend, or Not to Defend? Trial Court Cannot Delay This Determination

From the desk of Kyle Riley: Can the court delay a ruling on an insurer’s duty to defend and allow discovery to proceed in the coverage lawsuit that is potentially prejudicial to the insured in the underlying lawsuit?

Claims Pointer: No. The trial court must look to the complaint and the insurance policy to determine if the insurer has a duty to defend the insured and may not delay such a ruling for discovery issues. Also, the court may conclude that an insured can withhold documents that are prejudicial to it in the underlying action. Further, all discovery logically related to the underlying claims should also be withheld until such claims are fully adjudicated.

Expedia, Inc. v. Steadfast Ins. Co., 180 Wash2d 793, 329 P3d 59 (2014).

Beginning in 2004, approximately 80 lawsuits were filed against Expedia, Inc. (“Expedia”) by states, counties, and municipalities for allegedly failing to collect the right amount of local occupancy taxes from its hotel customers. Expedia tendered most of the suits to Zurich, although some were tendered late. Zurich refused to defend Expedia on a number of grounds, including late tender and that the underlying suits may be excluded from the policies’ coverage. The policies provide Expedia with coverage for any liability for “damages arising out of a negligent act or negligent omission . . . in the conduct of Travel Agency Operations.” The policies further specify that Zurich has a “duty to defend any Suit against [Expedia] seeking damages.” Finally, the policies require Expedia to notify Zurich as soon as is practicable of an “Occurrence, a negligent omission or an offense.”

In November 2010 Expedia filed suit against Zurich for a declaratory judgment as to Zurich’s duty to defend, insurance bad faith, and a violation of Washington’s Consumer Protection Act. Zurich responded and claimed that no coverage existed and that there is no duty to defend or indemnify Expedia. Zurich also asserted various defenses...

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