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Washington Law Review

Abstract

P, the insured under a public liability insurance policy with D, had been sued by an injured party; one of the grounds alleged for recovery was expressly excepted by the terms of the policy. D insisted on its policy right to control the defense and also to withdraw and disclaim all liability if at the trial the loss was found to be outside the policy coverage. P objected to the reservation of rights by D, pointing out that it would be to D's interest at the trial to allow proof of the loss on grounds outside the policy coverage and thus escape all liability. D then offered to allow P's counsel to assist in the defense and P accepted. P, subject to potential liability in excess of the policy's limits, negotiated a settlement within the policy's limits, to which D refused to contribute. P paid the settlement and and seeks to recover from D, alleging breach of contract in insisting upon a conditional defense, and bad faith in not cooperating in settlement. As an affirmative defense D pleaded the policy clause that "no action" shall be maintained against the insurer until the amount of loss was determined by judgment against the insured or by written consent of insurer, insured, and claimant. Trial court found D guilty of breach of contract and bad faith as alleged and gave P judgment for the amount of the settlement plus attorney's fees. Appeal. Held. Affirmed. When an insurer has been guilty of bad faith in failing to cooperate toward a settlement, the insured may make a fair settlement and recover the same within the policy limits, from the insurer. Further, since the bad faith of the insurer in not performing his contract obligations sounds in tort, the "no action" contract clause is inapplicable as a defense. Evans v. Continental Casualty Co., 40 Wn. 2d 614, 245 P. 2d 470 (1952).

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