Lindsay (Taft) Watkins
Last month, AGC of Washington, with other trade associations such as the National Utility Contractors Association, signed on to an amicus curiae (“friend of the Court”) brief to the Washington Supreme Court supporting a Petition for Review aimed at protecting the duty to defend in Washington.
Most insurance policies, regardless of whether it’s a CGL or homeowners’ policy, include at least two liability-related promises by the insurer. The first promise, which is commonly referred to as the duty to indemnify, is the insurer’s agreement to pay for the insured’s legal liability up to the stated policy limits. The second promise, which is broader than the first promise, is referred to as the duty to defend, and it means that the insurer agrees to hire legal counsel to defend the insured against a covered suit. The duty to defend also includes a promise to cover all legal fees and costs. Therefore, if a policyholder is faced with a covered third-party claim, the insurer has a duty to defend against the claim, in addition to a duty to pay any monetary award entered against the insured for covered claims.
Washington Courts have repeatedly recognized this second promise—the duty to defend—as a critically important and time sensitive benefit that policyholders pay for as part of their insurance and expect to receive. There are also significant penalties for insurers who fail to meet this obligation.
The recent Court of Appeals’ decision at issue, National Surety Corp. v. Immunex Corp (Jan 29, 2018), however, provides for an opportunity for insurers to escape these penalties even if they wrongfully refuse to defend the insured. Essentially, if the insurer merely states that it will provide a reservation of rights defense pending outcome of the litigation, even if it does nothing to actually defend the insured during this period, the insurer is protected from additional penalties and does not need to tender payment to the insured until the reasonableness of the defense costs are resolved by a jury (i.e., until well after the defense costs are incurred). This is especially concerning to AGC of Washington members who rely on the duty to defend and expect this coverage as it has the potential to disincentive insurers to provide a timely defense (providing an easy out to promise to do so without fear of penalties), and, more importantly, policyholders, despite having a covered claim, may be forced to fund their own defense, which can be extremely costly and for some, including small businesses and individuals, a significant burden, if possible at all. Ultimately, insurance companies should not be able to enjoy the benefit that comes with defending under a reservation of rights without actually providing the ongoing defense to the insured.
In response to this decision, Immunex has filed a Petition for Review by the Supreme Court. The Supreme Court does not review every decision, and thus, Immunex has approached AGC of Washington and others, requesting AGC of Washington’s support. AGC of Washington is supporting the Petition by signing onto the amicus brief. We will keep you updated as to whether the Petition for Review is granted.
Lindsay Watkins is an associate at Ahlers Cressman & Sleight. She is Chair of AGC’s Legal Affairs Committee.