To Avoid Bad Faith In Washington State, Insurers Must Provide A Defense If Any Court Articulates An 'Arguable Legal Interpretation' That A Claim Is 'Conceivably Covered'

On March 18, 2010, the Washington State Supreme Court decided American Best Food, Inc. v. Alea London, Ltd.,1 --- P.3d ----, 2010 WL 963933 (Wash., Mar. 18, 2010), holding that (1) a complaint alleging injuries caused by an assault, and conduct by the insured following the assault, triggers a duty to defend, despite the policy's exclusion for claims "arising out of assault and/or battery," and regardless of whether the post-assault conduct is alleged to have resulted in injury; and (2) an insurer that relied on Washington law and determined there was no coverage acted unreasonably and in bad faith, as a matter of law, because the insured presented an "arguable legal interpretation" that the claim was "conceivably covered."

Under Washington law, the duty to defend is triggered "if the insurance policy conceivably covers allegations in the complaint." In this case, Alea London, Ltd. ("Alea") issued a commercial general liability insurance policy to a nightclub, American Best Food, Inc. d/b/a Café Arizona ("Café Arizona"). That policy contains the following exclusion for claims arising out of assault and/or battery:

This insurance does not apply to any claim arising out of - A. Assault and/or Battery committed by any person whosoever, regardless of degree of culpability or intent and whether the acts are alleged to have been committed by the insured or any officer, agent, servant or employee of the insured or by any other person . . . . A patron of Café Arizona was seriously injured after he was shot nine times. The patron sued Café Arizona, alleging as follows:

As a result of the savage assault, [the patron] suffered serious and life-threatening injuries from which he has sustained serious permanent injuries and disfigurement. Several security guards carried [the patron] into the club, however, the club owner/manager ordered [the] guards to carry [the patron] back outside where the guards dumped him back on the sidewalk. Café Arizona tendered the complaint to Alea, which conducted an investigation and consulted Washington law. Specifically, Alea looked to similar circumstances addressed in McAllister v. Agora Syndicate, Inc., 103 Wn. App. 106, 11 P.3d 859 (2000), which held that an assault and battery exclusion is properly applied to bar coverage for negligence claims "based on" assault and/or battery. As it is well established under Washington law that the term "arising out of" is broader than the term "based on," Alea concluded that there...