Coventry v. American States Ins. Co.

Coventry v. American States Ins. Co.

Opinion

 [*273]  En Banc.  [**934]  Johnson, J. -- The main issue presented in this appeal is whether an insured may bring a bad faith or Consumer Protection Act (CPA) claim against its insurer when the insurer conducted a bad faith investigation [***3]  of the insured's claim but the denial of coverage was ultimately determined to be correct. American States Insurance Company (American States) denied Coventry Associates' (Coventry) claim after a mud slide damaged an apartment complex Coventry was constructing in Renton, Washington. Coventry filed suit against American States, alleging breach of contract, [**935]  bad faith, and CPA violations. The trial court granted American States' motion for partial summary judgment on the coverage issue and dismissed Coventry's remaining [*274]  claims. Coventry appealed to the Court of Appeals, which affirmed. Coventry Assocs. v. American States Ins. Co., 86 Wn. App. 845, 939 P.2d 1245 (1997). We granted Coventry's petition for review and reverse and remand the case for trial.

FACTS

In 1990, Coventry was constructing an apartment complex in Renton, Washington; the construction project was located on the side of a hill. Coventry built a retaining wall to stabilize the hillside during construction but unusually heavy rainfall in the area caused mud to slide into the retaining wall. The retaining wall collapsed and mud and water flowed into the main construction site, damaging the property. Coventry [***4]  ceased work on the project.

Coventry submitted a claim to American States, its insurer on the construction project. An American States adjuster briefly investigated the project site, determined the damage was to the retaining wall, and denied the claim because Coventry's policy had an exclusion for damage to that structure. The adjuster did not investigate the cause of the damage or any loss of business coverage because he did not believe that Coventry had a claim for business loss. The adjuster did not investigate damage to the construction project other than that to the retaining wall. The adjuster admitted he looked only at two of the six forms comprising Coventry's policy before he denied coverage. The adjuster later testified he never considered whether Coventry had a business loss claim even though it had some business loss coverage.

Coventry filed suit against American States alleging breach of the insurance contract, bad faith, and CPA violations. The parties agreed the damage was not solely to the retaining wall, the project was seriously damaged by the mud slide, and weather was the proximate cause of the damage. American States argued the loss was not [***5]  covered because Coventry's policy contained a contingent "weather  [*275]  conditions" exclusion precluding coverage from damage resulting from a landslide caused by rainfall.

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