Refusal to Award Damages for Bad Faith and Consumer Protection Act Violations Upheld on Appeal

Ledcor Industries v. Mutual of Enumclaw Insurance Co. (Wash. Ct. App. Div. 1, May 4, 2009)

Where an insurer failed to investigate a claim, waited 14 months to respond to a tender of defense, and failed to contribute to defense costs, the trial court concluded that the insurer acted in bad faith and violated the Consumer Protection Act, but awarded as damages only the insurer’s share of defenses costs, plus interest. The court of appeals affirmed.

Ledcor Industries, general contractor for a condominium development, subcontracted with Zanetti Custom Exteriors to install siding and required Zanetti to include Ledcor as an additional insured on its commercial general liability (CGL) policy. Zanetti’s CGL carrier was Mutual of Enumclaw (MOE).

The condominium owners association sued Ledcor after “serious problems” arose with many aspects of the project, including Zanetti’s work. After tendering its defense to its own carriers, Ledcor tendered the defense to Zanetti, which forwarded the tender to MOE. MOE immediately requested details about Zanetti’s work but did nothing more to investigate. Fourteen months later, MOE accepted Ledcor’s tender subject to a reservation of rights. MOE stated it would appoint a lawyer or share in the defense costs, but Ledcor did not respond.

Ledcor eventually negotiated a settlement with the homeowners association that was funded by Ledcor and its own insurers. Ledcor sued Zanetti for contribution. MOE defended Zanetti and funded a settlement with Ledcor. Ledcor then sued MOE (as an insured of MOE). The trial court found that MOE acted in bad faith, breached its duty to defend, and violated the Consumer Protection Act, chapter 19.86 RCW. The court awarded Ledcor more than $100,000 plus prejudgment interest to cover MOE’s share of the defense costs. The court awarded no damages for bad faith. The court initially awarded damages under the Consumer Protection Act but vacated that award after concluding that Ledcor suffered no harm as a result of MOE’s actions.

On appeal, Ledcor argued it was entitled to damages for MOE’s bad faith and CPA violations. MOE cross-appealed the finding of bad faith. The court of appeals rejected both parties’ appeals.

The court first addressed MOE’s cross appeal. MOE argued that it met the elements of its enhanced obligation of good faith under Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381 (1986), “either … directly or in conjunction with Ledcor’s own insurers.” The court rejected this argument, reasoning that “[t]he fact that Ledcor’s other insurers were actively defending Ledcor’s interests does not relieve MOE of its duties, under Tank and its own contract, to investigate and defend.”

Turning to Ledcor’s appeal, the court found that Ledcor suffered no harm. Ledcor contended that bad faith creates a presumption of harm, that MOE was estopped to deny coverage, and that MOE must indemnify Ledcor against all of its liabilities, including the entire settlement of the underlying action and all defense costs. The court rejected this contention, reasoning that bad faith results in a forfeiture of defenses only as to the claim tendered and handled in bad faith, and the claim arising from Zanetti’s work was only one of many in the underlying litigation. The court concluded that Ledcor “received what the policy entitled it to, and therefore suffered no harm due to MOE’s failure to timely accept tender and defend.” The court similarly found no harm to support an award of damages or attorney’s fees under the Consumer Protection Act.