Although the excess carrier was given inadequate notice of the underlying arbitration, the trial court determined it shared responsibility with the primary carrier for the arbitration award. Finding disputed issues of fact, the Washington Court of Appeals reversed in Am. States Ins. Co. v. Century Surety Co., 2011 Wash. App. LEXIS 2488 (Wash. Ct. App. Oct. 31, 2011).

   The primary insurer, American States, issued two liability policies to Professional Home Builders (PHB), a siding contractor. The policies were for successive years, 1998-1999 and 1999-2000. Each policy had annual limits of $1 million per occurrence. PHB also had a commercial excess liability policy for 1999-2000 with Century Surety Company.

   PHB was sued by Residential Investment Partners (RIP) for construction defects after moisture entered the building envelope, causing decay and damage. Century's expert determined the decay started before the 1999-2000 policy period.

   RIP and PHB went to arbitration. American States agreed to defend under a reservation of rights. Century was not informed of the arbitration for more than two years. The American States claims handler expected PHB had only a 50-65 percent chance of prevailing on major issues and saw the potential for an award of $1 million. Yet, American States never offer more than $100,000 to settle with PHB.

   The arbitrator eventually awarded $1.9 million against PHB. Century only learned of the award after it was issued. American States, RIP and PHB settled the arbitration award. American States agreed to pay the award to RIP in return for an assignment of PHB's claims against Century.

   American States then sued Century and was awarded summary judgment. The court ordered that Century was liable for all damages in excess of the $1 million limit of the 1999-2000 American States' policy.

   On appeal, Century argued there were questions of fact as to whether the American States' 1998-1999 policy also covered the arbitration award. Century's expert testified that the decay started before September 19, 1999, placing the continuing damage squarely within the 1998-1999 American States' policy period. Further, the settlement American States entered with PHB and RIP did not specify what amount, if any, reflected an obligation owed by Century. American States had the burden of establishing that the payment it made to RIP, or some portion, was not to fulfill its own obligations, but rather to satisfy an obligation owed by Century to PHB. Evidence on whether Century had such an obligation was disputed, however. Therefore, a question of fact existed on whether the American States' 1998-1999 primary policy also covered the arbitration award.

   Finally, the court determined questions of fact also remained as to whether American States breached its duty to pursue settlement given its low offer when it acknowledged PHB could be liable for much more.