On January 28, 2014, the Washington Court of Appeals
ruled that USAA did not act in bad faith when it declined to defend its
insured, Dennis Geyer, under his homeowners and auto insurance policies for
claims arising out of an assault at traffic light. United
States Auto. Assoc. v. Speed, No 43728-7-II.
In March 2009, Geyer assaulted Robert Speed at a
traffic signal. Apparently, Geyer was
angry over something Speed had done while driving in front of him. In an August 2009 letter, Speed’s attorney
demanded Geyer pay $650,000 to compensate Speed for his injuries. The letter alleged that Geyer followed Speed,
pulled him out of his vehicle at a stop light, beat him, and then drove away
leaving Speed bleeding and unconscious in the street. The demand letter stated that if this were a
negligence case that was covered by insurance, Speed’s attorneys would have
sought seven-figures.
Geyer tendered under his USAA homeowners and auto
insurance policies. Unlike most standard
policies, the USAA policies provided that USAA’s duty to defend arose not only
when a “suit” was brought against the insured, but also when any “claim” was
made for damages arising from acts covered under the policies. After investigating the claim, USAA reserved
rights as to whether the incident involved an “occurrence” under Geyer’s
homeowner’s policy, an accident under his auto policy, and whether the claims
fell within the policies’ intentional acts exclusions. USAA continued to monitor the claim, but did
not retain counsel to defend Geyer.
Geyer and Speed later stipulated to a $1.4 million
covenant judgment, which included an assignment to Speed of Geyer’s potential
contractual and bad faith claims against USAA.
USAA then filed a complaint for declaratory relief against Speed. USAA moved for summary judgment asking the
trial court to declare as a matter of law that (1) there was no coverage under
either policy, (2) USAA had no duty to defend Geyer, (3) USAA’s failure to defend
was not in bad faith, and (4) USAA was not estopped from denying coverage. The trial court granted USAA’s motion and a
second
(unopposed)
motion to dismiss Speed’s statutory and regulatory bad faith claims. Speed
appealed.
In affirming the trial court’s finding that USAA had
no duty to defend as a matter of law, the Speed
Court explained that unlike cases where standard policy language regarding the
duty to defend is determined by allegations in the complaint, non-standard
language of the USAA policies, discussed above, required that the duty to
defend depend upon the allegations in the demand letter. Then, noting that Washington courts have
repeatedly held that an insured’s deliberate conduct does not constitute an
accident, the Speed Court held that
“[e]ven interpreting the allegations liberally and resolving doubts in favor of
a duty to defend,” the USAA policies did not conceivably cover the claims
alleged in Speed’s demand letter.
In reaching its holding, the Court of Appeals rejected
Speed’s argument that USAA was obligated to defend because USAA expressed
uncertainty regarding coverage. (For
example, USAA had advised Geyer that coverage was “questionable" and that “[
c]overage may be precluded.”) The Speed Court held: “What the insurer
believes about the duty to defend or policy coverage is immaterial to the court’s
duty to defend determination.” Further, “to
allow an insurer’s conduct to give rise to the duty to defend would conflict with
the rule that insurance coverage cannot be created by equitable estoppel.”
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