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News & Developments
Washington Supreme Court Finds Insurer Acted in Bad Faith through Subpoena
Mealey’s™ Insurance Bad Faith E-mail Bulletin (Oct. 11, 2007)
OLYMPIA, WA – The Washington Supreme Court found on October 11 that Mutual of Enumclaw Insurance Co. (MOE) acted in bad faith through its subpoena and ex parte communications to an arbitrator, reversing the Division I Washington Court of Appeals and remanding to the trial court (Mutual of Enumclaw Insurance Co. v. Dan Paulson Construction Inc., et al., No. 79027-2, Wash. Sup.).
Sitting en banc, the high court also concluded that MOE did not rebut the resulting presumption of harm to its insured, Dan Paulson Construction Inc., and that MOE has not raised a genuine issue of material fact regarding whether the $1.3 million settlement amount is reasonable.
Karen and Joseph Martinelli brought an arbitration claim against Dan Paulson Construction for alleged construction defects in their home. Paulson’s commercial liability insurer, MOE, agreed to defend it under a reservation of rights. Before arbitration, MOE filed a declaratory judgment action in the San Juan County Superior Court. The insurer issued a subpoena to the arbitrator for information regarding which parts of any arbitration award would be insured and which would not.
Paulson entered into an award for $1.3 million, whereby it assigned the Martinellis its coverage and bad faith claims against MOE. The insurer dismissed its initial action, refiling in the Superior Court for a determination of coverage issues.
Judge Vickie I. Churchill ruled in favor of the Martinellis, finding that MOE’s subpoena to the arbitrator constituted bad faith and that the insurer was estopped from denying coverage. The appeals court reversed, holding that MOE did not act in bad faith and that there was sufficient evidence to rebut any presumption that the insured was harmed.
