Steps to reproduce:
Run a test list which with the following conditions:
     i) At least 2 tests, recycle browser setting is on
     ii) First test needs to contain both a step which is expected to fail (eg. a bad verification) and a 'handle dialog' step located anywhere after the aformentioned failing step
     iii) Second test also requires a 'handle dialog' step (anywhere)

Expected Result:
First test fails (this is an 'expected' failure to demonstrate issue). Second test should then begin, handle the expected dialog and pass. 

Actual Result:
First test fails (this is an 'expected' failure to demonstrate issue). Second test begins and fails at dialog handler step due to timeout, however the actual dialog is handled as expected, the step/test fails anyway.

*NOTE: Problem can be worked around by placing the dialog handling step (and click which triggers it) in its own test as as step.