The West Virginia Supreme Court holds that when the insurance company is fulfilling its duty to defend, courts had no jurisdiction to adjudicate the bad faith claim.
In State ex rel. Universal Underwriters Ins. Co. v. Wilson, 801 S.E.2d 216 (W.V. 217) the Supreme Court of West Virginia granted a writ of prohibition which restrained the trial court from proceeding in a bad faith cause of action because the court had no jurisdiction. At the time, Zurich was defending its insured under a primary liability policy but had determined that there was no coverage under its excess liability policy. Given the excess denial of coverage, the insured sued Zurich while the underlying lawsuit was still pending for bad faith, alleging that Zurich was not providing an adequate defense. The insured also alleged that Zurich had engaged in improper litigation conduct.
The West Virginia Supreme Court determined that, under West Virginia law, the court had no authority to support a proposition that the insured had a bad faith cause of action against Zurich when Zurich had not declined to defend the insured and was, in fact, defending the insured while simultaneously being involved in the declaratory judgment action/bad faith action. The declaratory judgment/bad faith action did not involve a refusal to defend.