Facts

Plaintiffs ACN Construction Inc., William Martin, Mayer Beverly Park Limited Partnership, and OP Property Management LP, filed suit against defendants United National Insurance Co., American Insurance Adjustment Agency Inc., Global Indemnity Group Inc., American Insurance Service Inc., Diamond State Insurance Co., United National Specialty Insurance Co., United National Casualty Insurance Co., and Penn-America Insurance Co., claiming breach of duty to defend.

PLAINTIFF'S CONTENTIONS:
Plaintiff contended that defendants failed to defend contractor ACN in an action brought by landowner and apartment operator manager Mayer Beverly Park LP, which resulted in an uncontested judgment against ACN in amount of $939,577. Plaintiffs sought to collect judgment for bad faith.

Plaintiffs contended that there was the potential for coverage in the underlying case and defendants owed ACN, its insured, a duty to defend. Mayer Beverly sued as the judgment creditor and the assignee of ACN's bad faith claim.

DEFENDANT'S CONTENTIONS:
Defendants contended United owed no duty to defend because of the faulty-workmanship exclusions and the lack of completed operations. Defendants alternatively contended that no contract damages were due because other insurers had paid all of ACN's defense costs throughout. As to bad faith, defendants contended that United's conduct was reasonable and followed advice of outside counsel. As to the claim for collection of the uncontested judgment, defendants contended that it awarded no covered damages and plaintiffs could not satisfy their burden to prove that ACN was unable to defend itself in that ACN received defense from other insurers. Defendants further contended that the settlement between ACN and Mayer Beverly Park LP was collusive in that Mayer Beverly Park LP and ACN permitted knowingly presented and acquiesced in false claims of damages to the arbitrator.

Settlement Discussions

Plaintiffs demanded $4.5 million. Defendants offered $25,000.

Damages

Plaintiffs ACN Construction Inc. and William Martin sought damages for attorney fees and costs in connection with the defense of the underlying matter. The attorney fees and costs incurred were $18,476 in fees and $4,225 in costs. ACN was not able to pay its attorney fees. Per the settlement agreement, ACN assigned its rights to assert bad faith failure to defend to Mayer Beverly in return for a covenant not to execute. Thereafter, the underlying matter against ACN was arbitrated and Mayer Beverly awarded $939,577 in damages.

Result

The case settled for $700,000 as to all defendants.

Other Information

Defendants separately moved for summary judgment/adjudication on plaintiffs' theories of alter ego, of breach of contract, and for bad faith. All were denied, except American Insurance Adjustment Agency's motion on its argument and United's agreement that all of AIAA's conduct was undertaken within the course and scope of its agency for United. According to defense, the settlement occurred after five years of litigation and shortly after the trial court found that plaintiffs had waived the attorney-client privilege by tendering their underlying defense attorney to testify about his claimed inability to defend ACN. FILING DATE: June 10, 2010.