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Insurer Could Withdraw its Defense After Defending Insured for 2 Years

Washington courts have often stated than an insurer is required to give the insured the benefit of the doubt, and must continue its defense until it can conclusively establish a claim is not covered by the insurance policy.  “Where the duty to defend is uncertain, an insurer may … provide a defense under a reservation of rights and seek a declaratory judgment it has no duty to defend.”  State Farm Fire & Cas. Co. v. El-Moslimany, 2016 U.S. Dist. LEXIS 51084 (W.D. Wash. April 15, 2016) (unpublished).

In State Farm, the insurer defended the insureds under a reservation of rights for two years.  The defense was provided under a homeowner’s policy.  The lawsuit against the insureds asserted claims for defamation, libel, slander, tortious interference with contractual relations and intention infliction of emotional distress.  Subsequently, State Farm brought an action seeking a declaratory judgment that it owed no duty to defend or indemnify the insureds from any of the claims pleaded in the underlying action.  The court found that there had not been an “occurrence” as defined in the policy; nor had there been any “bodily injury” under the policy terms.  An exclusion for willful and malicious acts also barred coverage.  The insurer had no duty to defend.  The court rejected the plaintiff’s argument that the insurer should not be allowed to withdraw its defense, because it would prejudice the plaintiffs.