Surety Duty To Investigate Triggered After Filing Of Bond Claim

• Published date: 13 April 2022
• Subject Matter: Consumer Protection, Insurance, Litigation, Mediation & Arbitration, Insurance Laws and Products, Trials & Appeals & Compensation, Dodd-Frank, Consumer Protection Act
• Law Firm: Wood, Smith, Henning & Berman LLP
• Author: Colin J. Troy

Although surety companies are generally not liable for tort damages to a third party, Washington's legislature has carved out a limited exception for the setting up and sitting of mobile homes. The Revised Code of Washington (RCW) establishes a per se violation of the Consumer Protection Act in situations where a bonding company does not perform a reasonable investigation to resolve the claims of third parties who have sustained injuries or other damages as a result of a faulty set-up of a mobile home. However, to access this exception, the injured party must make a claim against the bond by filing a lawsuit in superior court. A surety's duty to investigate and resolve the claim is not triggered until such suit is filed.

Background Facts

Joann Caskey purchased a mobile home and hired a bonded contractor, Bud & Doug's Mobile Home Service, to install it on her property in Kettle Falls. The contractor was registered with the Department of Labor & Industries and bonded through Old Republic Surety Co. Caskey claimed that the install work was done incorrectly, resulting in damages. Due to the contractor's faulty installation of the mobile home, it failed review and she was denied occupancy. The contractor offered to complete repairs in exchange for further payment, but Caskey hired an alternate contractor to finish the installation. At no time did Caskey file a lawsuit against Bud & Doug's.

Approximately one year after the contractor stopped work on the home, Caskey's attorney sent a demand letter to Old Republic ' the surety company that issued the contractor's licensing bond ' requesting the bond proceeds. Old Republic responded by stating that any claims against the bond must be brought by lawsuit filed in the superior court pursuant to RCW 18.27.040. Caskey did not file a lawsuit in superior court against either the contractor or the bond. Instead two and a half years after the contractor had stopped work at her home, she filed a claim against Old Republic alleging violations of the Washington Insurance Fair Conduct Act (IFCA), RCW 48.30.010-.015, and the Consumer Protection Act (CPA). She claimed to be the obligor of the surety as a first party claimant. The superior court dismissed all of Caskey's claims on summary judgment. The Court of Appeals affirmed that decision.

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