The insurer's unreasonable denial of a defense and indemnity to a lessor/additional insured was found to be in bad faith. Seaway Props. v. Fireman's Fund Ins. Co., 2014 U.S. Dist. LEXIS 55998 (W.D. Wash. April 22, 2014).
Seaway leased restaurant space to Ciao Bella Food, LLC. In January 10, 2010, the underlying plaintiff was on her way to the restaurant when she attempted to step down from a concrete platform between the building parking lot and the entrance to the restaurant. Seaway's lease gave Ciao Bella the right to use the common areas, including the parking lot, but did not grant Ciao Bella exclusive control over the common areas. The plaintiff suffered injuries and claimed both Ciao Bella and Seaway were liable.
Seaway's lease required Ciao Bella to maintain a CGL policy and to name Seaway as an additional insured. Ciao Bella did so by securing a policy with Fireman's Fund. Fireman's Fund had notice of the plaintiff's claim by November 2010. Seaway demanded in March 2012 that Fireman's Fund indemnify and defend it. In September 2012, two years after it first learned of the plaintiff's injury, Fireman's Fund denied coverage, asserting that Seaway was not an insured under the policy.
Seaway and Ciao Bella settled with the underlying plaintiff. Seaway then sued Fireman's Fund for breach of the policy, bad faith, and violation of the Washington Consumer Protection Act. Fireman's Fund moved for summary judgment, contending Seaway was not an insured under the policy.
The policy's "Blanket Additional Insured" endorsement amended the "Who Is An Insured" clause to include:
f. Any person or organization that you are required by a written insured contract to include as an insured, subject to all of the following provisions:
(1) Coverage is limited to [the additional insured's] liability arising out of:
(a) the ownership, maintenance or use of that part of the premises owned by you, rented to, or leased to you. . .
Fireman's Fund contended the Blanket Additional Insured clause gave additional insured status only to entities who met the preliminary requirements stated in the phrase in the "Who Is An Insured" clause," stating "as well as the additional limits on coverage.
The court disagreed. The Blanket Additional Insured clause required only that a lessor like Seaway demonstrate both that it is a lessor to a named insured and that the lease requires the named insured to name the lessor as an additional insured. The provisions following the phrase "subject to all of the following provisions" were merely limitations on coverage afforded to a named insured. Each of the "provisions" that followed the phrase stated limits on "coverage," not on who was an insured. Therefore, Seaway was an additional insured.
Fireman's Fund next argued that the accident did not "arise out of " the "use of that portion of the premises, or land owned by, rented to, or leased to" Ciao Bella. Washington law gave a broad scope to the phrase "arising out of" in an insurance policy. The underlying plaintiff was on her way to the restaurant. She therefore intended to use the part of the premises leased to Ciao Bella. Further, the Ninth Circuit had recently held in a case with similar facts that where a customer was on her way to a salon, it was enough to show that her injuries arose out of the use of the salon. Am. Economy Ins. Co. v.Zurich Am. Ins. Co., 534 Fed. Appx. 645 (9th Cir. 2013). This ruling dictated that the policy covered Seaway and that Fireman's Fund breached its duty to defend and indemnify.
Because Fireman's Fund interpretation of Seaway's status as an additional insured was unreasonable it was in bad faith. Fireman's Fund also violated Washington's Consumer Protection Act by failing to promptly respond to Seaway's tenders, to complete its investigation of a claim within thirty days, not providing a reasonable explanation of the basis for denying the claim. Most of these provisions under the Washington Consumer Protection Act are also found in the Hawaii Unfair Claim Settlmeent Practices Act, Haw. Rev. Stat. sec. 431:13-103 (a) (11).
