(Article from Insurance Law Alert, March 2020)
For more information, please visit the Insurance Law Alert Resource Center.
Reversing a lower court decision, a Washington appellate court ruled that a property insurer acted in bad faith in refusing to defend a lawsuit alleging that the homeowners shot guns onto neighboring property, finding that the alleged conduct constituted a covered occurrence. Webb v. USAA Casualty Ins. Co., 2020 WL 812137 (Wash. Ct. App. Feb. 19, 2020).
A lawsuit against the Webbs alleged that they and others carelessly and recklessly shot multiple rounds of ammunition onto neighboring property. The complaint alleged that the Webbs were advised about the dangers of this conduct, but nevertheless continued to engage in this “ultra-hazardous activity.” Plaintiffs asserted seven causes of action, including trespass, assault, negligent and intentional infliction of emotional distress, nuisance and violation of county penal regulations. When USAA denied coverage, the Webbs sued USAA for breach of contract, bad faith, and violation of the Insurance Fair Conduct Act (“IFCA”) and the Consumer Protection Act (“CPA”). A Washington trial court granted USAA’s summary judgment motion, finding that the underlying claims arose from intentional acts outside the scope of policy coverage. The appellate court reversed.
The appellate court ruled that USAA had a duty to defend the suit because it alleged covered “personal injury,” defined to include “wrongful entry.” The court reasoned that allegations of trespass and nuisance constituted claims for wrongful entry. In addition, the court ruled that the complaint alleged an “occurrence,” defined as an “accident” or “an event or series of events . . . proximately caused by an act or omission of any ‘insured,’ which results, during the policy period, in ‘personal injury,’ neither expected nor intended from the standpoint of the insured.” The court deemed it irrelevant that the complaint did not allege an “accident,” finding that the occurrence requirement is satisfied if the Webbs’ actions resulted in injury that was unexpected or unintended from their own subjective perspective. The court stated:
the complaint alleged that the target shooters acted carelessly and recklessly, but not that they actually knew that bullets were entering the [adjoining] property. . . . Although the shooting was deliberate, the Webbs must have expected or intended the personal injury—here trespass and/or nuisance—to negate the existence of an occurrence.
The court also ruled that coverage was not barred by a clause excluding conduct that is “malicious or criminal in nature.” Although the complaint alleged violations of the local penal code, the court held that (1) the complaint was ambiguous as to whether the Webbs’ actions constituted actual violations of those statutes, and (2) even if they did, criminal act exclusions “apply only to serious crimes involving some malicious or wrongful mental state.” The court therefore granted the Webbs’ summary judgment motion as to the duty to defend.
Finally, the court ruled in the Webbs’ favor on their bad faith, IFCA and CPA claims. The court concluded that USAA’s defense denial was “unreasonable, frivolous, or unfounded” because its positions on the “occurrence” and “expected or intended” issue were contradicted by controlling law, based on a “questionable interpretation of policy language,” and/or unsupported by the allegations in the complaint.