The federal district court found that the insurer acted in bad faith when the claim was denied based on the adjuster’s lack of knowledge of recent case law in Washington. Sec. Nat’l Ins. Co. v. Constr. Assocs. of Spokane, 2022 U.S. Dist. LEXIS 53533 (E.D. Wash. March 24, 2022).
Construction Associates of Spokane was a general contractor hired for a project at the Paulsen Building in Spokane. Construction Association hired a subcontractor, Merit Electric, for whom Mark Wilson worked. Wilson was seriously injured on August 20, 2016. He sued the Construction Associates along with other defendants three years later.
Construction Associates tendered to Merit Electric’s broker, Alliant Insurance Services, Inc. Alliant forward the tender to Security National. The tender letter included a certificate of insurance issued by Alliant to Contractor Associates on September 3, 2019 and the subcontract with Merit. The subcontract required Merit to maintain CGL coverage with limits of $1 million. Further, the subcontractor was to issue certificate of insurance to the Contractor.
Merit’s policy for the 2016-17 period included an “Additional Insured” endorsement that conferred additional insured status to “any person for whom you are performing operations when you and such person have agreed that such person be added as an additional insured on your policy.”
Contractor Associates requested from Merit’s broker the certificate of insurance for April 2, 2016 to April 2, 2017. Alliant provided a certificate, but it was issued for another project that Merit was working on. Alliant also provided a certificate of insurance for 2019 which was not project specific and purported to reflect blanket additional insured status for the period during which Wilson was injured.
Claim notes reflected that the adjuster felt it was necessary to consult with claims counsel to determine if the 2019 certificate of insurance would provide coverage for the Wilson accident, but this was not done. Instead, the claim was denied because no Additional Insured endorsement for the 2016 policy was found. The adjuster noted a Washington statute provided that “A certificate of insurance does not confer new or additional rights beyond what the referenced policy of insurance provides.”
Counsel for Construction Associates spoke and emailed the adjuster to inform him of a recent decision issued by the Washington Supreme Court, T-Mobile USA Inc. v. Selective Ins. Co. of Am., 450 P.3d 150 (Wash. 2019). The decision held that an insurer was bound by the representations of its agent, such as when issuing a certificate of insurance.
Security National then conducted a second investigation four months after the initial tender. A second denial was issued by Security National when it stated that Alliant had no authority to issue any certificate of insurance after the policy expired. Security National then filed a declaratory judgment action against Construction Associate and moved for partial summary judgment regarding the 2019 certificate of insurance. Construction Associates filed a motion for summary judgment on bad faith.
The federal district court first relied on T- Mobile USA and found that the certificate of insured issued by Merit, Security National’s agent, provided coverage to Construction Associates for the Wilson accident.
The court then turned to Construction Associates’ motion. The court found that Security National acted in bad faith as a matter of law because its denial and determination that it neither had the duty to defend nor indemnify was based, initially, on an inadequate investigation and, later, on arguable readings of the policy and questionable interpretations of Washington law. The adjuster did little to no investigation regarding why the 2019 certificate of insurance was issued. Instead, the adjuster was content to rely on his own (erroneous) knowledge of the applicable law concerning certificates of insurance. Second, Security National filed to look for and account for published case law directly on point, which was especially troubling given the notations in the file that coverage counsel may be required.
An adjuster was not excused from having at least a baseline understanding of the relevant state’s law necessary to carry out their duties. Insurers were obligated to undertake the reasonably small steps to ensure adjustors were equipped to make reasonable coverage and defense determinations. Adjustors had to equip themselves or seek out those with the requisite tools and knowledge.
Therefore, Construction Associates’ motion for partial summary judgment was granted.