VanPort Homes, a construction consultant, had an insurance claim denied by Truck Insurance Exchange. The Washington Supreme Court ruled that when an insurer wrongfully refuses to defend a policyholder in bad faith, it loses the right to deny coverage later. The court also said that if a court approves a settlement as reasonable, the insurer must accept it as reasonable unless it can prove fraud or collusion occurred. This protects subcontractors and construction companies from insurers who abandon them during disputes.
If your insurer refuses to defend you in a claim, document everything—bad faith refusal can lock them into paying your settlement costs regardless of policy limits or exclusions.
Get court approval for any settlement you negotiate. Once a court approves it as reasonable, your insurer cannot later challenge the settlement amount unless they prove fraud.
Keep detailed records of your insurer's communications and decisions. Refusing to defend without legitimate cause is bad faith and gives you leverage to recover full damages.