It is conventional wisdom in the insurance coverage bar that there is no bad faith claim available when a liability insurer breaches the duty to defend. This is based on several rather old cases. In more modern times the Oregon Court of Appeals has suggested that the issue may be ripe for re-examination. But in this decision (link below) federal Magistrate Judge Sullivan adopted the conventional wisdom and granted a motion to dismiss the policyholder’s bad faith claim. What is somewhat remarkable here is that this is an environmental contamination coverage claim governed (it appears) under the Oregon Environmental Cleanup Assistance Act. That Act was amended effective June 10, 2013 (a few weeks before this decision came down) to provide for bad faith claims in these kinds of situations (whether the amendments would apply here may be an open question). No objections were filed, so Judge Hernandez adopted Judge Sullivan’s findings without review. This case may be a good illustration of exactly why the amendments (SB 814) adopted this legislative session were so necessary.
Russell v. Liberty Mutual Insurance Company, Dist. Court, D. Oregon 2013 – Google Scholar:
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