A major property management firm has initiated a high-stakes legal battle against its insurer, alleging the company deliberately misrepresented its policy language to avoid its duty to defend against a tenant class-action lawsuit that spanned nearly a decade. Wasatch Property Management, Inc. filed a lawsuit against Lexington Insurance Company for breach of contract and bad faith, claiming the insurer wrongfully refused to cover the legal defense for a case that ultimately settled for $16.5 million. The core of the accusation is that Lexington, in its initial denial, cited irrelevant policy sections while ignoring the very provisions designed to cover such a scenario. This case brings to the forefront a critical question in corporate liability: what recourse does a policyholder have when it believes its insurer has not only failed to honor its contract but has also used deceptive tactics to justify its denial? The lawsuit, now in federal court, seeks to recover millions in defense costs and damages, putting a spotlight on the insurer’s conduct and interpretation of its contractual obligations.
The Foundation of the Conflict
The legal turmoil began with a class-action lawsuit filed in 2015, known as the Terry Action, which became a protracted and costly legal engagement for Wasatch Property Management. In that case, a group of tenants participating in the Housing Choice Voucher Program alleged that Wasatch had engaged in unlawful business practices. The claims included charging illegal fees that were not permitted under the voucher program and making threats of eviction against tenants who contested these charges. The litigation evolved into a significant financial burden for Wasatch, culminating nearly a decade later in a settlement agreement valued at $16.5 million. This underlying lawsuit and its substantial resolution set the stage for the current dispute, as Wasatch held a commercial general liability policy with Lexington Insurance Company that it believed should have provided a robust legal defense throughout the proceedings. The insurer’s refusal to step in left Wasatch to navigate the expensive litigation on its own, leading to the current allegations of bad faith.
Throughout the Terry Action, Wasatch contended that its insurance policy with Lexington contained explicit language that should have triggered the insurer’s duty to defend. The policy included a “Personal and Advertising Injury” coverage provision, a standard feature in many commercial liability contracts designed to protect against claims other than bodily injury or property damage. Specifically, this provision covered damages arising from incidents of “wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy.” According to Wasatch’s complaint, the allegations made by the tenants—namely, the imposition of improper fees under the threat of eviction—fell squarely within the scope of this coverage. The assertion is that these actions constituted an “invasion of the right of private occupancy.” Wasatch argues that the potential for coverage was clear from the outset, which, under established legal principles, should have obligated Lexington to provide and fund a complete legal defense for the company against the class-action claims.
A Pattern of Alleged Misrepresentation
A central element of Wasatch’s lawsuit is the insurer’s first denial of coverage, issued in 2017. In its complaint, Wasatch alleges that Lexington’s denial letter fundamentally mischaracterized the insurance policy. Instead of addressing the relevant “Personal and Advertising Injury” section, which Wasatch believed was clearly applicable, Lexington allegedly based its refusal on policy provisions related to “bodily injury” and “property damage.” Wasatch asserts that these sections were entirely irrelevant to the claims presented in the Terry Action, which involved economic damages and threats to tenancy rights, not physical harm or damage to property. This act is being framed not as a simple mistake or a difference in interpretation but as an intentional misrepresentation of the policy’s terms. By citing inapplicable clauses, Wasatch claims, Lexington created a false pretext for denying coverage, thereby breaching its contractual duties and acting in bad faith at a critical early stage of the underlying litigation.
Seven years after the initial refusal, Lexington issued a second denial of coverage in 2024, this time offering a different justification. In this later communication, the insurer reportedly shifted its focus to the specific causes of action formally pleaded in the Terry Action. Lexington’s rationale was that the legal labels attached to the tenants’ claims did not align with the policy’s covered offenses. However, Wasatch strongly contests this reasoning, citing California law, which governs the dispute. The company argues that an insurer’s duty to defend is determined not by the technical legal framing of a complaint but by the potential for coverage based on the underlying facts and allegations. Wasatch maintains that the factual circumstances—charging improper fees under threat of losing housing—created a clear potential for a “wrongful eviction” or “invasion of the right of private occupancy” claim, regardless of how the tenants’ lawyers formally titled their legal arguments. This second denial is presented as further evidence of Lexington’s bad-faith effort to avoid its obligations.
The Path Forward in Court
As a result of the repeated coverage denials, Wasatch Property Management has taken decisive legal action in federal court, seeking significant financial restitution from Lexington Insurance Company. The company’s lawsuit demands substantial compensation, reflecting the heavy financial toll of defending the Terry Action without its insurer’s support. The complaint seeks $12 million to cover the policy benefits Wasatch claims it was owed, along with more than $8.6 million in additional damages stemming from the alleged breach of contract and bad faith. Furthermore, Wasatch is pursuing punitive damages, which are intended to punish a defendant for egregious conduct and deter similar behavior in the future. The company is also seeking to recover all attorney’s fees and costs associated with bringing this new lawsuit against its insurer. To date, Lexington Insurance Company has not filed a formal response to the allegations, and the court has not yet made any rulings on the merits of Wasatch’s claims. The case is in its preliminary stages, with future proceedings expected to delve deeply into the policy’s language and the insurer’s conduct.
The outcome of this lawsuit could have significant implications for how insurance contracts are interpreted and how insurers conduct themselves when presented with a claim. At the heart of the matter is the fundamental duty to defend, a principle that requires an insurer to provide a defense for its policyholder against any lawsuit that potentially seeks damages covered by the policy. Wasatch’s legal team is arguing that the insurer’s focus on the formal legal labels in the underlying complaint, rather than the factual allegations, was a misapplication of established law. A favorable ruling would reaffirm that an insurer’s obligation is broad and must be assessed at the earliest stages of a dispute. The case serves as a stark reminder that an insurer’s responsibilities extend beyond a narrow reading of policy language and must encompass a good-faith evaluation of all underlying circumstances.
