Washington Court Concludes Umbrella Insurer Has A Duty To Defend Suit Against Insured Even Though Underlying Primary Insurer Similarly Has A Duty To Defend

In a surprising unpublished decision, the Washington State Court of Appeals recently ruled that an umbrella insurer had a duty to defend a suit against its insured despite the fact the underlying primary insurer had also previously been found to have a duty to defend the same parties in the same suit. Nat'l Fire & Marine Ins. v. Liberty Mut. Ins., Nos. 66900-1, 66901- 1 Division One, Washington Court of Appeals (Jul. 16, 2012) (unpublished). In so ruling, the court rejected the reasoning of prior cases finding a duty to defend under umbrella policies only where the underlying primary insurance policy did not provide defense coverage for the claim.

In National Fire, the plaintiff sued the insured, a condominium developer, for construction defects and alleged breaches of fiduciary duty. The insured tendered the suit to its primary insurers for defense and indemnity. Policies in three successive policy periods were potentially implicated; the first two primary policies were issued by Certain Underwriters at Lloyd's, London, and the third was issued by National Fire & Marine Insurance Company. National Fire accepted the defense tender and ultimately paid nearly $1.5 million in defense expenses.

The insured also tendered the suit to Liberty Mutual Insurance Company, which had issued an umbrella policy above the second primary policy. Liberty responded with a reservation of rights that identified possible defenses to indemnity coverage, but did not explicitly address the defense tender.

After the developer settled the underlying suit, Certain Underwriters at Lloyd's, National Fire, and Liberty all contributed to fund the settlement. National Fire then filed suit, seeking contribution under the other policies for the defense expenses. The trial court ruled that the duty to defend was triggered under the first two primary policies. The trial court also granted National Fire's motion for summary judgment regarding Liberty's obligations, concluding that Liberty also had a duty to defend the underlying suit and, therefore, owed contribution to National Fire. The Court of Appeals affirmed the trial court's decision.

In reaching this conclusion, National Fire first referenced the broad interpretation of an insurer's duty to defend under Washington law: "the duty to defend is triggered if the insurance policy conceivably covers the allegations in the complaint, whereas the duty to indemnify exists only if the policy actually covers the insured's...