United States: The fourth circuit confirms that the excess insurer did not act in bad faith while the insured would not be required to pay
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The United States Fourth Circuit Court of Appeals upheld a district court ruling that a surplus insurer did not act in bad faith in denying coverage for a construction fault claim because the The insured was a dissolved company and would never be able to pay the judgment. Contravest Inc. v. Mt. Hawley Ins. Co., No. 20-1915, 2021 US App. LEXIS 30545, 2021 WL 4782687 (4th Cir. 13 Oct. 2021).
The underlying dispute centered around a claim for construction failure in a South Carolina state court brought by a homeowners association against a construction company. The construction company asked its excess insurer to provide coverage for the lawsuit, but the excess insurer concluded that it had no obligation to defend itself. Subsequently, and without the participation of the insurer, the insured reached an amicable agreement and ceded to the association of owners his rights to recovery from the insurer.
The owners’ association then brought an action in bad faith against the insurer for lack of defense. The district court granted summary judgment to the insurer. The court determined that the construction company was required to show that it had suffered damage as a result of the insurer’s failure to defend or indemnify it in the underlying lawsuit. The court noted that due to the dissolution of the construction company, she was never able to pay the settlement amount and had not presented damages. Affirming the decision of the District Court, the Fourth Circuit emphasized that the alleged damages were a loss without prejudice as the insured would never be liable for the damages since its dissolution, and as such, the award of a judgment summary to the insurer was appropriate.
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