American Best Food, Inc. operates Cafe Arizona, a Federal Way nightclub. Michael Dorsey was shot outside the club. After he was shot, the club’s security guards carried him inside. The club owner, however, instructed the security guards to remove Dorsey from the club. Dorsey sued Cafe Arizona alleging that security guards “dumped him on the sidewalk.” In an amended complaint, he contended that they exacerbated his injuries by dumping him on the sidewalk after he was shot.
Cafe Arizona tendered defense to its insurance carrier, Alea London, LTD (“Alea”). Alea declined the tender, citing an exclusion in its policy for injuries or damages “arising out of” assault or battery. Cafe Arizona then sued Alea for breach of contract, bad faith, and violation of the Washington Consumer Protection Act. The trial court dismissed Cafe Arizona’s claims on summary judgment. The Court of Appeals partially reversed, holding that Alea breached its duty to defend and that summary dismissal of the bad faith and indemnification claims was inappropriate. Our Supreme Court accepted review.
After distinguishing Washington precedent regarding the meaning of “arising out of,” and considering out of state authority, the Washington Supreme Court held that “arising out of” did not include the alleged post-assault negligence:
We find persuasive precedent from other states that have found claims that the insured acted negligently after an excluded event are covered. Further, a balanced analysis of the case law should have revealed at least a legal ambiguity as to the application of an “assault and battery” clause with regard to post-assault negligence at the time Cafe Arizona sought the protection of its insurer, and ambiguities in insurance policies are resolved in favor of the insured.
The Washington Supreme Court concluded that Alea had breached its duty to defend. Moreover, by a five-to-four majority, the court held that Alea acted in bad faith as a matter of law when it declined to defend. Writing for the majority, Justice Tom Chambers explained, “if there is any reasonable interpretation of the facts or the law that could result in coverage, the insurer must defend.” Moreover, Alea “put its own interest ahead of its insured when it denied a defense based on an arguable legal interpretation of its own policy.” Accordingly, “Alea’ s failure to defend based upon a questionable interpretation of law was unreasonable and Alea acted in bad faith as a matter of law.”