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Surprise: Contractor Overturns Insurance Claim Denial Regardless Of Whether Coverage Existed

Saturday, October 04, 2008 03:55 pm


Courts rarely grant summary judgment for cries of bad faith against insurers because whether the insurer reasonably handled a claim is a question of fact, a Washington district court recently pointed out. Nevertheless, a contractor succeeded in convincing that court that its claim was warranted -- and that the insurers should cough up coverage.

Aecon Buildings, Inc. (Aecon) acted as general contractor on a casino/hotel construction project for the Quinault Indian Nation (Quinault) in Ocean Shores, Washington. During after-completion dispute resolution, it became clear that Aecon could be held liable for alleged building structure defects attributable to two of its subcontractors, Western Partitions, Inc. (WPI) and Chinook Builders, Inc. (Chinook). Both subcontractors had carried insurance policies for the project that named Aecon as an additional insured. Aecon tendered the Quinault's claims to the two subcontractors and their insurers: a collective made up of Zurich North America, Zurich American Insurance Company and Northern Insurance Company of New York (together, Zurich) for WPI and Hartford Casualty Insurance Company (Hartford) for Chinook. Both Hartford and Zurich denied the tenders. Aecon filed a motion for summary judgment claiming bad faith.

Key: Importantly, Aecon did not allege that the insurers had made unreasonable coverage determinations -- it alleged instead that they had failed to properly investigate the facts when making their determinations. This was the right argument to make because, as the court noted, "[t]he duty to act in good faith includes the duty to reasonably investigate a claim,"even if a claim loss in [...]

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