Washington State Insurance Law Blog

Washington Supreme Court Finds No Duty to Defend under Title Insurance Policy

noreply@blogger.com (Jason W. Anderson) — Mon, 22 Jun 2009 21:43:00 +0000

Campbell v. Ticor Title Insurance Co. (Wash. S. Ct. 2009).

In a unanimous decision, the Washington Supreme Court upheld the denial of a defense under a title insurance policy.

The underlying lawsuit arose from a dispute over a pedestrian easement recorded as part of a three-parcel subdivision. Lots A and B were lakefront lots with existing houses, while Lot C was an upland lot. The purpose of the easement was to provide access from Lot C to the lake. It was to burden Lot B and run adjacent to the boundary between lots A and B. The Campbells purchased Lot A. A subsequent purchaser of Lot C discovered that the house on Lot B was built up to the property line, such that the pedestrian easement ran through the house. He sued the Campbells and others seeking reformation of the parties’ deeds so that the easement would cross Lot A.

The Campbells tendered defense of the suit to their title insurer, Ticor Title Insurance Company. Ticor denied coverage and refused to defend, asserting exclusions for title encumbrances (1) not contained in public records or (2) created after issuance of the policy. The Campbells brought a declaratory judgment action against Ticor. The trial court ruled in Ticor’s favor on cross motions for summary judgment, and the supreme court affirmed.

Citing Woo v. Fireman’s Fund Insurance Co., 161 Wn.2d 43 (2007), the supreme court noted that, in Washington, the duty to defend is triggered if the insurance policy “conceivably covers” the allegations in the complaint. If there is uncertainty, the insurer may defend under a reservation of rights while bringing a declaratory judgment action to determine coverage. But in this case, Ticor denied a defense outright.

The court held that the allegations against the Campbells were not conceivably covered under the Ticor policy due to the exclusions relied on by Ticor. As to the first exclusion, the Campbells pointed out that the easement was disclosed by public records. But the court held that the exclusion nonetheless applied because the easement “never affected lot A, nor was it intended to do so.” The court reasoned that it would be “unreasonable to interpret the policy’s language as covering any easement disclosed by public record, even those that do not affect the title at issue.” The court noted that, if the reformation suit were successful, it would be because a court determined that the original intent in granting the easement was best effectuated by burdening the Campbell’s land, not because the original grant of easement disclosed a burden on the Campbells’ land. The court held that the second exclusion applied as well because the easement dispute arose after issuance of the policy.

Refusal to Award Damages for Bad Faith and Consumer Protection Act Violations Upheld on Appeal

noreply@blogger.com (Jason W. Anderson) — Mon, 11 May 2009 22:19:00 +0000

Ledcor Industries v. Mutual of Enumclaw Insurance Co. (Wash. Ct. App. Div. 1, May 4, 2009)

Where an insurer failed to investigate a claim, waited 14 months to respond to a tender of defense, and failed to contribute to defense costs, the trial court concluded that the insurer acted in bad faith and violated the Consumer Protection Act, but awarded as damages only the insurer’s share of defenses costs, plus interest. The court of appeals affirmed.

Ledcor Industries, general contractor for a condominium development, subcontracted with Zanetti Custom Exteriors to install siding and required Zanetti to include Ledcor as an additional insured on its commercial general liability (CGL) policy. Zanetti’s CGL carrier was Mutual of Enumclaw (MOE).

The condominium owners association sued Ledcor after “serious problems” arose with many aspects of the project, including Zanetti’s work. After tendering its defense to its own carriers, Ledcor tendered the defense to Zanetti, which forwarded the tender to MOE. MOE immediately requested details about Zanetti’s work but did nothing more to investigate. Fourteen months later, MOE accepted Ledcor’s tender subject to a reservation of rights. MOE stated it would appoint a lawyer or share in the defense costs, but Ledcor did not respond.

Ledcor eventually negotiated a settlement with the homeowners association that was funded by Ledcor and its own insurers. Ledcor sued Zanetti for contribution. MOE defended Zanetti and funded a settlement with Ledcor. Ledcor then sued MOE (as an insured of MOE). The trial court found that MOE acted in bad faith, breached its duty to defend, and violated the Consumer Protection Act, chapter 19.86 RCW. The court awarded Ledcor more than $100,000 plus prejudgment interest to cover MOE’s share of the defense costs. The court awarded no damages for bad faith. The court initially awarded damages under the Consumer Protection Act but vacated that award after concluding that Ledcor suffered no harm as a result of MOE’s actions.

On appeal, Ledcor argued it was entitled to damages for MOE’s bad faith and CPA violations. MOE cross-appealed the finding of bad faith. The court of appeals rejected both parties’ appeals.

The court first addressed MOE’s cross appeal. MOE argued that it met the elements of its enhanced obligation of good faith under Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381 (1986), “either … directly or in conjunction with Ledcor’s own insurers.” The court rejected this argument, reasoning that “[t]he fact that Ledcor’s other insurers were actively defending Ledcor’s interests does not relieve MOE of its duties, under Tank and its own contract, to investigate and defend.”

Turning to Ledcor’s appeal, the court found that Ledcor suffered no harm. Ledcor contended that bad faith creates a presumption of harm, that MOE was estopped to deny coverage, and that MOE must indemnify Ledcor against all of its liabilities, including the entire settlement of the underlying action and all defense costs. The court rejected this contention, reasoning that bad faith results in a forfeiture of defenses only as to the claim tendered and handled in bad faith, and the claim arising from Zanetti’s work was only one of many in the underlying litigation. The court concluded that Ledcor “received what the policy entitled it to, and therefore suffered no harm due to MOE’s failure to timely accept tender and defend.” The court similarly found no harm to support an award of damages or attorney’s fees under the Consumer Protection Act.

Study Finds Substantial Increase in Homeowners Insurance Claim Costs Due to the Insurance Fair Conduct Act

noreply@blogger.com (Jason W. Anderson) — Wed, 15 Apr 2009 00:56:00 +0000

The Insurance Research Council (IRC), an independent research organization supported by property and casualty insurance companies and associations, released its interim findings earlier this month on the impact of Washington’s Insurance Fair Conduct Act (IFCA) on insurance claim costs.

Focusing on homeowners insurance, the IRC compared Washington claim cost data with data from three states lacking a statutory private cause of action for first-party bad faith (Arizona, Minnesota, and Utah). While stressing the preliminary nature of its findings, the IRC estimated that IFCA resulted in a 12.8 percent increase in average claim cost per insured home—or about $58 million in additional losses—in the first three quarters of 2008 as compared with 2007. Catastrophic losses such as those resulting from the January 2008 winter storm were excluded from the analysis.

Although the main focus of the IRC’s report is homeowners insurance, the IRC believes IFCA has also affected private passenger auto insurance claim severity. The IRC observed that 33 percent of the claim notices filed by individual (non-commercial) claimants involved uninsured or underinsured motorist (UM or UIM) claims, 21 percent involved personal injury protection (PIP) claims, and 2 percent involved both UM/UIM and PIP. Approximately 81 percent of all claim notices were filed by individual (non-commercial) claimants.

Click here to read the IRC report.

Low Settlements Top Insurance Complaint in 2008

noreply@blogger.com (Jason W. Anderson) — Wed, 11 Mar 2009 15:33:00 +0000

The Office of the Insurance Commissioner of the State of Washington issued the following "news release" yesterday:

Olympia, Wash. — The top three reasons consumers filed formal complaints against their insurance companies in 2008 were unsatisfactory settlement offers, claims denials, and delays, according to Insurance Commissioner Mike Kreidler. And auto insurance was the most frequent topic of dissatisfaction.

“People frequently disagree with their insurers about what their car is worth, particularly if it is totaled in an accident,” said Kreidler. “If they can’t reach an agreement, we’ll step in to make sure the consumer is treated fairly.”

The Insurance Commissioner’s Office received 5,341 formal complaints last year. Below is a breakout of the top three by reason and by type of coverage.

Top reasons for complaints in 2008:
Unsatisfactory settlement/offer - 24.5%
Denial of claim - 23.8%
Delays - 22.1%

Top complaints by type of coverage in 2008:
Auto - 42.1%
Accident and health - 30.1%
Homeowners - 13.1%

People who are having problems with their insurance can call the Insurance Consumer Hotline at 1-800-562-6900 for help. They also can file complaints online at http://www.insurance.wa.gov/.

“Consumer protection is my top priority,” said Kreidler. “Whether you need us to investigate a complaint, act as a mediator, explain your rights or just answer a question, my office is here to help.”

The office investigates consumer problems regarding canceled coverage or with claims that have been denied or delayed.

"We also are an excellent resource for information on health insurance options," Kreidler added.

The Insurance Commissioner’s Office recovered more than $10.5 million for consumers in 2008.

Oregon Legislature Considering Insurance Triple Damages Law

noreply@blogger.com (Jason W. Anderson) — Tue, 03 Mar 2009 17:38:00 +0000

A bill has been introduced in the Oregon Legislature that would allow "any person" suffering injury or loss as a result of a practice prohibited under Oregon’s unfair claim settlement practices statute to sue for triple damages plus attorney’s fees. Oregon law currently does not provide a private right of action for a violation of the unfair claim settlement practices statute.

Under Washington's Insurance Fair Conduct Act, an unfair claims settlement practice can provide a basis for trebling damages and awarding attorney's fees and costs but is not itself a basis for a private action. The right of action under the Washington statute is limited to a "first party claimant."

View the Oregon bill here.
View Oregon's unfair claim settlement practices statute here (scroll down to ORS 746.230).

Stipulated Findings and Conclusions Not Binding on Insurer at Reasonableness Hearing

noreply@blogger.com (Jason W. Anderson) — Tue, 27 Jan 2009 18:07:00 +0000

Green v. City of Wenatchee (Wash. App. Div. III, January 20, 2009)

A lawyer was sued for legal malpractice by four claimants he had represented as criminal defendants. All four cases were subject to a $500,000 insurance policy limit, including defense costs. When approximately $150,000 to $190,000 remained, the insured instructed defense counsel to reject a global settlement offer of $325,000. Defense counsel withdrew after the policy limit was consumed by four years of litigation costs. The insured negotiated settlements directly with the claimants, including entry of a $1 million covenant judgment in favor of one claimant, Doris Green, and assignment of the insured's rights against his insurer, Westport Insurance Corp.

Ms. Green sought a determination that the insured’s settlement with her was reasonable. She presented stipulated findings of fact and conclusions of law to the effect that the insured had incompetently represented Ms. Green and had referred her to another lawyer the insured should have known was incompetent to handle her case. Westport was allowed to intervene and conduct discovery. Westport submitted evidence that the judgment amount was unreasonably high because the insured had viable defenses to the action. Westport contended that Ms. Green could not prove her actual innocence, her claims lacked substantive merit and were barred by statutes of limitations, the judgment amount was grossly disproportionate to amounts she accepted from other defendants, and the consent judgment was the product of collusion.

The trial court ruled that the settlement was reasonable and that Westport was bound by the stipulated findings of fact and conclusions of law and the covenant judgment, relying on Fisher v. Allstate Insurance Co., 136 Wash.2d 240 (1998). In Fisher, the Washington Supreme Court held that an insurer is bound by the findings, conclusions, and judgment entered in the action against its insured when the insurer had notice and an opportunity to intervene in that action.

The court of appeals reversed the determination of reasonableness. The court held that, although the insured and Ms. Green were free to resolve their liability issues, Westport had no standing to challenge their agreement. “The very purpose of a reasonableness hearing is to determine whether the settlement of the underlying liability case is reasonable[.]” The court distinguished a recent decision of the Washington Supreme Court, Mutual of Enumclaw Insurance Co. v. T & G Construction, Inc., in its application of the Fisher rule based on the trial court’s review of the merits of the underlying action in finding the settlement reasonable. The court of appeals observed, “Critically, in contrast to T & G Construction, the court bound Westport to [the insured’s] liability stipulation without making particular reasonableness findings addressing [his] defenses[.]”

The court of appeals remanded for a new reasonableness hearing in which the trial court must address the merits of Ms. Green’s claims and the insured’s defenses in determining whether the settlement is reasonable, giving no deference to the stipulated findings and conclusions.

Court Clarifies Rule on Segregation of Damages Caused by Intentional Tortfeasors

noreply@blogger.com (Jason W. Anderson) — Thu, 22 Jan 2009 19:26:00 +0000

Rollins v. King County Metro Transit (Wash. Ct. App. Div. I, January 20, 2009)

The Washington Court of Appeals held this week that, in cases involving only defendants against whom negligence is alleged, the jury should not be instructed to determine and segregate damages caused by intentional tortfeasors.

In this case, two teenagers were attacked by unknown assailants on and near a bus operated by King County Metro. They sued Metro, alleging it negligently failed to protect them. The trial judge instructed the jury to award only damages proximately caused by Metro’s negligence and not to award damages caused solely by the unknown assailants. Metro unsuccessfully argued that under Tegman v. Accident & Medical Investigations, Inc., the jury must determine the claimants’ total damages and then segregate damages caused by intentional conduct from damages caused by negligence. The jury returned a verdict for the plaintiffs.

The court of appeals affirmed. Acknowledging “considerable confusion” in this area, the court determined the Tegman holding was inapplicable because it “is about joint and several liability.” Tegman involved multiple defendants whose conduct was negligent, intentional, or both, and the Washington Supreme Court held that “negligent defendants are jointly and severally liable only for the damages resulting from their negligence . . . [not] for damages caused by the intentional acts of others.” Distinguishing Tegman, the court of appeals observed: “Here, Metro is the only defendant and negligence is the plaintiffs’ only theory. To recover at all, plaintiffs had to prove their injuries were proximately caused by Metro’s negligence. There is no issue of joint and several liability in this case.”

This new decision limits the holding of Tegman to the circumstances in that case and removes the issue of damages caused by intentional conduct from any case where the intentional tortfeasor is not joined.

Presumption of Receipt Held Inapplicable to Notice of Cancellation Sent by Certified Mail

noreply@blogger.com (Jason W. Anderson) — Tue, 13 Jan 2009 17:45:00 +0000

Cornhusker Casualty Insurance Co. v. Kachman (Wash. S. Ct., December 18, 2008).

In Washington, certified mail is not “mail,” at least not if you are an insurance company sending a notice of cancellation.

In this case, Rockeries, Inc., failed to pay its premiums on time on eleven occasions in four years, and Cornhusker Casualty sent a notice of cancellation each time. The letter in question was sent via certified mail on September 29, 2004, and stated that the policy would be cancelled if payment was not received by October 19, 2004.

On October 22, 2004, Leanne Samples was killed in an automobile accident caused by a Rockeries employee. Cornhusker received the overdue premium installment on October 28, 2004. It returned the payment to the insured and denied coverage for the accident. On November 1, 2004, the undelivered notice of cancellation was returned to Cornhusker.

RCW 48.18.290 establishes a presumption that a notice of cancellation “mailed” to the insured is received. In a declaratory judgment action by Cornhusker, the United States Court of Appeals for the Ninth Circuit certified the following question to the Washington Supreme Court:

Does sending notice of cancellation by certified mail satisfy the “mailed” requirement of RCW 48.18.290 (1997) and give sufficient notice of cancellation to comply with RCW 48.18.290, even if there is no proof that the cancellation letter was received by the insured?

The court responded in the negative. Cornhusker and amicus contended that certified mail is consistent with the statutory procedure for “mailing” a notice of cancellation and is authorized for providing notice in other contexts. The court observed that the statute does not specifically authorize certified mail and found “practical differences between regular mail and certified mail.” The court held that certified mail places a greater duty on the insured than imposed by statute in that it requires the insured to be at home to receive the letter or to pick it up at the post office.

In light of this decision, an insurer sending a notice of cancellation in Washington should use regular mail instead of, or in addition to, certified mail.

Liability Insured May Claim Bad Faith Even in the Absence of Any Contractual Duty, but Harm Will Not Be Presumed

noreply@blogger.com (Jason W. Anderson) — Tue, 02 Dec 2008 15:20:00 +0000

St. Paul Fire & Marine Insurance Co. v. Onvia, Inc. (Wash. S. Ct., November 26, 2008).

The Washington Supreme Court held that an insured under a third-party liability policy may have a cause of action against the insurer for bad faith and violation of the Washington Consumer Protection Act (CPA) even if the insurer had no contractual duty to defend, settle, or indemnify the insured. But harm will not be presumed, and damages must be proven.

In this case, the insured, Onvia, Inc., was served with a class action complaint alleging that it sent unsolicited faxes in violation of the Telephone Consumer Protection Act, which provides for an award of civil penalties in the amount of $500 to $1,500 per facsimile, depending on whether the sender acted willfully. The plaintiff, RMS, alleged that it received one of Onvia’s faxes.

Onvia’s insurance broker allegedly tendered the class action complaint to Onvia’s insurer, St. Paul Fire & Marine, via facsimile in February 2005, but St. Paul had no record of receiving the fax and did not respond. The tender allegedly was resubmitted in August 2005 and, at some point, Onvia sent a copy of an amended complaint that was filed in September 2005. St. Paul sent Onvia a letter in November 2005 denying coverage and defense.

In April 2006, while a motion for class certification was pending, Onvia and RMS stipulated to class certification and entry of a judgment in the amount of $17.515 million. Onvia assigned its rights against St. Paul to RMS, which agreed to execute the judgment only against St. Paul. The trial court approved the settlement as reasonable.

Meanwhile, St. Paul filed suit in federal district court seeking a declaratory judgment that it had no duty to defend, settle, or indemnify. RMS, as Onvia’s assignee, alleged counterclaims including “procedural” bad faith and violation of the CPA related to St. Paul’s handling of Onvia’s tender.

The district court ruled that St. Paul properly denied a defense and coverage and did not act in bad faith in doing so. On whether the “procedural” bad faith and CPA claims were viable, the district court certified questions to the Washington Supreme Court.

The supreme court was guided by its decision in Coventry Associates v. American States Insurance Co. that an insured under a first-party insurance policy may claim bad faith even though coverage was properly denied. The court reasoned, “Although Coventry involved a first-party claim and here we have a third-party claim, there is no appreciable difference between this case and Coventry with respect to whether bad faith claims mishandling remains actionable in the absence of coverage.” Absent a duty to defend, however, coverage by estoppel is not an available remedy for bad faith, and harm will not be presumed. The court held, “As in Coventry, RMS must prove actual harm, and its ‘damages are limited to the amounts it has incurred as a result of the bad faith . . . as well as general tort damages.’”

As for the CPA claim, the court held that a liability insurer can be held liable for violating the CPA—even in the absence of a duty to defend or indemnify—based on violations of the claims-handling regulations in chapter 284-30 Washington Administrative Code. The remedies for such a claim are “the statutory remedies available to any successful CPA claimant.”

Under this decision, RMS might recover actual damages suffered by Onvia, if any, and “general tort damages” if it can prove that St. Paul handled Onvia’s tender in bad faith. If St. Paul violated WAC 284-30 and the CPA, RMS might recover actual damages—potentially trebled up to $10,000—plus attorney’s fees. But St. Paul won’t be stuck with the $17.515 million judgment.

Insurance Fair Conduct Notices

noreply@blogger.com (Jason W. Anderson) — Mon, 17 Nov 2008 21:56:00 +0000

(click graph to enlarge)

The Office of the Insurance Commissioner (OIC) has received about 880 Insurance Fair Conduct Notices since May 2007, when the legislature passed the Insurance Fair Conduct Act (IFCA). The volume of notices received by the OIC spiked immediately after IFCA became effective in December 2007 following its approval by voters, but has decreased since then.

Click the link in the sidebar to the right to see the updated list of notices.

New Class Actions Allege Failure to Pay Winters Fees

noreply@blogger.com (Jason W. Anderson) — Mon, 17 Nov 2008 15:36:00 +0000

A Seattle law firm recently filed similar class action lawsuits against two insurance companies. Each suit alleges that the insurer failed to pay its share of the legal expense incurred by the insured in recovering amounts paid by the insurer as personal injury protection (PIP) benefits from a third party who was insured by the same insurer. In both cases, the plaintiff was a passenger in the insured vehicle and therefore was an "insured" under the driver's policy for PIP purposes. The passenger sued the driver and received a settlement, from which the insurer took an offset of its PIP payments without deducting a proportionate share of the plaintiff's legal expense. This practice allegedly violated the Washington Consumer Protection Act. Bad faith, conversion, and breach of contract are also alleged. As a general rule, an insurer that receives reimbursement for medical payments is obligated to pay a pro rata share of the legal expenses incurred by the insured. See Winters v. State Farm Mutual Automobile Ins. Co., 144 Wn.2d 869 (2001).

Court-Approved Settlement Establishes Liability and Presumptive Damages for Coverage Purposes

noreply@blogger.com (Jason W. Anderson) — Wed, 05 Nov 2008 17:55:00 +0000

Mutual of Enumclaw Insurance Co. v. T&G Construction, Inc. (Wash. S. Ct., October 23, 2008).

T&G Construction, the siding subcontractor for a condominium development, installed the flashing and building paper incorrectly. The paper was “reverse lapped” and there were gaps, holes, and tears. Within a few years, water intrusion had caused rot, decay, and elevated moisture levels. The homeowners association sued the general contractor, which brought T&G into the litigation. T&G’s insurer, Mutual of Enumclaw (MOE), defended T&G under a reservation of rights.

While the litigation was pending, T&G’s attorney discovered that T&G had been administratively dissolved by the secretary of state more than two years before suit was filed. T&G moved for summary judgment based on a two-year statute of limitations for claims against a dissolved corporation. The trial court denied summary judgment because T&G did not notify the homeowners of the dissolution and there was evidence that T&G had notice of the defects before dissolution. Thus, application of the statute was an issue for the trier of fact.

MOE declined to participate in mediation, which resulted in T&G settling the claims against it for $3.3 million and assigning its rights against MOE. The parties sought a reasonableness determination from the trial court. MOE appeared and argued that the settlement was not reasonable because (1) the trier of fact was likely to find the statute of limitations applicable and (2) the siding problems could be corrected with “spot” or “surgical” repairs costing about $300,000. The trial court rejected those arguments and found the settlement was reasonable. On reconsideration, however, the judge reduced the settlement to $3 million.

Meanwhile, MOE had brought a declaratory judgment action against T&G on the issue of coverage. MOE alleged that T&G was not liable because the statute of limitations had run, that T&G breached the cooperation clause, and that the damages were not covered. The trial court in the coverage action ruled against MOE on all these issues. The court of appeals reversed, and the supreme court accepted review.

MOE contended that the liability suit did not resolve whether its insured was legally obligated to pay damages because there was no final decision as to statute of limitations. MOE conceded that an insurer ordinarily cannot relitigate liability defenses that belonged to its insured in the underlying action, but argued that the statute of limitations was different because it affected the court’s jurisdiction. The supreme court disagreed. The court held that a court has personal jurisdiction over a dissolved corporation by statute, and the statute of limitations does not affect subject matter jurisdiction. Further, the court held that, when the insurer had an opportunity to be involved in a settlement and the settlement is judged reasonable, “it is appropriate to use the fact of the settlement to establish liability and the amount of the settlement as the presumptive damage award for purposes of coverage.”

The supreme court found the allegation that T&G failed to cooperate to be “completely without merit” because MOE had notice of the settlement and had an opportunity to intervene in the reasonableness proceedings. Further, MOE did intervene and persuaded the judge to reduce the reasonable value of the settlement by $300,000.

Finally, MOE argued that the siding was not damaged, so the damages were not “property damage” covered by the policy, and that the “impaired property” and “your work” exclusions should apply. The supreme court held, “Removing and repairing the siding is simply part of the cost of repairing the damage to the interior walls and was properly treated as property damage by the trial court.” The court held that the exclusions were inapplicable if substantially all of the subsurfaces or interior walls were impaired. Unable to determine from the record if the trial court so found, the court remanded for further proceedings in the trial court.

Insurance Fair Conduct Notices

noreply@blogger.com (Jason W. Anderson) — Tue, 28 Oct 2008 17:55:00 +0000

The Office of the Insurance Commissioner has received more than 800 Insurance Fair Conduct Notices since May 2007.

You may now find a link to the Insurance Fair Conduct Notice Log in the sidebar to the right. The list, which is maintained by the Office of the Insurance Commissioner, will be updated on this site approximately bi-monthly.

Liberty Mutual Completes Acquisition of Safeco

noreply@blogger.com (Jason W. Anderson) — Tue, 23 Sep 2008 03:25:00 +0000

Liberty Mutual Group completed its $6.2 billion acquisition of Safeco today, becoming the fifth-largest property and casualty insurer in the United States. Liberty Mutual was previously the sixth largest property and casualty insurer in the U.S. based on the company’s 2007 direct written premium of $20.2 billion, while Safeco had 2007 direct written premium of $5.9 billion.

Liberty Mutual recently obtained approval for the transaction from the Office of the Insurance Commissioner of the State of Washington. Liberty Mutual was represented in the regulatory proceeding by Carney Badley Spellman P.S.

Selective Tender Rule Bars Contribution, Late Tender Rule Allows Subrogation

noreply@blogger.com (Jason W. Anderson) — Mon, 15 Sep 2008 15:08:00 +0000

Mutual of Enumclaw Ins. Co. v. U.S.F. Ins. Co. (Wash. S. Ct., September 4, 2008).

The Washington Supreme Court decided that an insurer to which the insured did not tender its claim was not subject to contribution claims by other insurers, adopting the selective tender rule, but was subject to subrogation claims by those insurers, which obtained assignment of the insured’s rights, under the late tender rule.

A condominium homeowners’ association brought construction defect claims against developer Dally Homes in the spring of 2000. Dally tendered the claims to at least two of its insurers, Mutual of Enumclaw (MOE) and Commercial Underwriters Insurance Company (CUIC). Dally intentionally did not tender the claims to USF. MOE and CUIC agreed to fund a settlement with the homeowners’ association in January 2002. As part of the settlement, Dally assigned its rights against its other insurers to MOE and CUIC.

In February 2004, after completing contribution litigation against other insurers, MOE and CUIC discovered Dally’s USF policy. MOE and CUIC sued USF claiming subrogation and equitable contribution. Without distinguishing between the subrogation and contribution claims, the trial court granted summary judgment to USF under the “selective tender” rule, which states that, where an insured has not tendered a claim to an insurer, that insurer is excused from its duty to perform under the policy or to contribute to a settlement of the claim.

Like the trial court, the court of appeals did not distinguish between the subrogation and contribution claims. But the court of appeals reversed the trial court and held that the selective tender rule was incompatible with Washington’s “late tender” rule. The late tender rule states that, even where an insured fails to give an insurer timely notice of a claim, the insurer is not relieved of its obligations under the policy unless it can show actual and substantial prejudice. The court reasoned that the selective tender rule did not bar any of MOE and CUIC’s claims where they obtained assignment of the insured’s rights and could invoke the late tender rule.

Finding the distinction between the subrogation and contribution claims to be “critical,” the supreme court affirmed the court of appeals as to the subrogation claims but reversed as to the contribution claims.

First analyzing the equitable contribution claims, the court observed that contribution “is a right of the insurer and is independent of the rights of the insured.” The court adopted the selective tender rule, reasoning that it preserves the insured’s right not to tender to a particular insurer. An insured might exercise that right for various reasons, such as to avoid a premium increase or to preserve its policy limits for other claims. Distinguishing the late tender rule, the court held that “[t]he ‘late tender’ rule, which allows an insured to tender at any time (subject to prejudice analysis) is of no help to an insurer, who never had the right to tender at all.” (Emphasis in original.)

The court held that the late tender rule did apply to MOE and CUIC’s subrogation claims. Because MOE and CUIC obtained assignment of Dally’s rights, they could invoke the late tender rule in seeking subrogation against USF. USF argued that the late tender rule did not apply because it was prejudiced as a matter of law, but the court disagreed and stated that USF had “not shown how [the] delay specifically deprived it of the ability to put forth defenses to coverage or to contest the value of the damages, etc.”

Indemnitor’s Comparative Fault Held Not Pertinent to Reasonableness of Indemnitee's Settlement of Underlying Claims

noreply@blogger.com (Jason W. Anderson) — Wed, 16 Jul 2008 14:43:00 +0000

The Heights at Issaquah Ridge Owners Association v. Derus Wakefield I, LLC (Div. I, July 7, 2008).

A condominium owners association sued the condominium developer, Derus, alleging construction defects. Derus filed a third-party action for contractual indemnity against the general contractor, Sacotte. Derus’ insurer, Steadfast, acknowledged coverage under one of two policies. After the trial court entered summary judgment on liability against Derus, Derus settled with the association and assigned its rights to the association, which then negotiated a settlement with Sacotte. Derus and Sacotte each stipulated to separate judgments against them in the amount of $8,344,993.

Steadfast intervened at the reasonableness hearings and argued that the settlements were not reasonable. The trial court disagreed and entered the stipulated judgments. The association, as Derus’ assignee, then sued Steadfast to recover the amount of the stipulated judgment against Derus. Steadfast appealed the ruling that the Derus’ settlement with the association was reasonable.

On appeal, Steadfast argued that the trial court abused its discretion in not considering two of the six “Glover factors” that govern whether a settlement is reasonable: (1) the relative fault of the settling parties and (2) the interests of a party not released by the settlement (i.e., Steadfast). The court of appeals disagreed and affirmed.

Steadfast argued that relative fault should have been considered because Derus and Sacotte had equal culpability, yet each settled for the full amount of stipulated damages. The court of appeals held that relative fault was not pertinent to the reasonableness of Derus’ settlement with the association. The association had no claim against Sacotte, which was a party only because Derus sued for indemnity. The court stated, “Construction defect cases . . . implicate contractual liability, rather than tort liability. . . . [C]omparative fault has no role in construction defect cases which involve contractual obligations to indemnify.”

As to the second factor, the court of appeals held that Steadfast’s only interest with regard to the settlement was the possibility of bad faith, collusion, or fraud by the settling parties, which was one of the Glover factors properly considered by the trial court.

Anderson Obtains Reversal of OIC Order in Superior Court

noreply@blogger.com (Jason W. Anderson) — Mon, 09 Jun 2008 15:55:00 +0000

On June 6, 2008, Jason W. Anderson of Carney Badley Spellman, P.S., obtained reversal of an administrative order entered by the Hearings Unit of the Office of the Insurance Commissioner (OIC) against a long-term care and life insurance company.

In the course of an OIC financial examination of the insurer pursuant to chapter 48.03 RCW, an OIC actuary concluded that the insurer’s reserves were inadequate. The OIC required the insurer to increase its reserves, which reduced the insurer’s capital and surplus below the statutory minimum. The OIC required the insurer to cure this deficiency, as well as to file a risk-based capital (RBC) plan pursuant to chapter 48.05 RCW.

The insurer requested a hearing to contest the reserve adjustments and sought discovery of the OIC actuary’s work papers. The OIC refused to produce them, citing a privilege in RCW 48.02.065(6) that protects work papers and other materials “produced by, obtained by, or disclosed to the commissioner” from disclosure “unless cited by the commissioner in connection with an agency action.” The insurer unsuccessfully argued that this privilege was not meant to shield materials from an insurer in a contested hearing, that the OIC “cited” its actuary’s work papers in connection with an agency action, and that due process required disclosure. The OIC hearing officer ruled against the insurer and affirmed the reserve adjustments after a hearing on the merits.

The insurer appealed to King County Superior Court, and Judge Richard D. Eadie reversed the hearing officer’s order. The court held that the hearing officer’s ruling that the OIC was not required to produce its actuary’s work papers was an erroneous application of RCW 48.02.065(6), that OIC actuary work papers are “cited by the commissioner in connection with an agency action” when the OIC relies on them in a contested hearing, and that the insurer was denied due process. The court further held that the hearing officer’s order was not supported by substantial evidence because the OIC actuary’s conclusions were inadmissible. The court held that the actuary’s conclusions lacked adequate foundation because they could not be understood without reference to his work papers.

OIC Recieves Over 520 Insurance Fair Conduct Notices in One Year

noreply@blogger.com (Jason W. Anderson) — Thu, 29 May 2008 15:34:00 +0000

The Insurance Fair Conduct Act (IFCA) requires a first-party claimant intending to file suit under the Act to provide 20 days written notice to the insurer and the Office of the Insurance Commissioner (OIC). Although IFCA did not take effect until December 6, 2007, following voter approval, the OIC has been receiving and tracking IFCA notices since May 22, 2007, shortly after the legislature and governor approved the law.

From May 22, 2007, to May 23, 2008, the OIC recieved over 520 IFCA notices. It is unknown how many resulted in litigation.

The Problem of an Excess Insurer’s Liability When the Primary Insurer Is Insolvent

noreply@blogger.com (Jason W. Anderson) — Thu, 17 Apr 2008 14:35:00 +0000

Polygon Northwest Co. v. American Nat’l Fire Ins. Co. (Div. I, April 7, 2008).

The homeowners association of a condominium development sued the builder, Polygon Northwest, for construction defects arising before 1996 and continuing through 2000. Polygon had primary and excess liability insurance with various carriers during the relevant policy periods. United Capitol Insurance Company, which issued $2 million of primary coverage for 1998-2000, became insolvent in 2000. Great American Insurance Company was the excess insurer for the years when United Capitol was the primary insurer. Assurance Company of America and Commercial Underwriters Insurance Company provided primary coverage in other years, and Assurance and Ohio Casualty Insurance Company provided excess coverage in those years.

Polygon settled with the homeowners association for $7.8 million -- $6,314,000 for damages and $1,486,000 for litigation costs. Each insurer except Great American participated in funding the settlement. Assurance and Ohio Casualty sought equitable contribution from Great American.

Great American argued that someone had to actually pay the full limits of United Capitol’s policies before Great American’s excess coverage became available. Otherwise, it argued, it would be forced to “drop down” and cover United Capitol’s obligations. The trial court ruled that Great American was required to contribute to the settlement, but allocated liability for the $2 million “gap” in coverage created by United Capitol’s insolvency equally among the three excess insurers.

The court of appeals upheld Great American’s obligation to contribute to the settlement, reasoning, “Nothing in Great American’s policies stated that Great American’s liability was contingent on the actual payment of the limits of its underlying insurance.” The court distinguished Rees v. Viking Insurance Co., 77 Wn. App. 716 (1995), where the excess insurer was not liable after the plaintiffs released the primary insurer for less than its policy limit but purported to agree that the plaintiffs could seek additional funds from the excess insurer. The court observed that, unlike the settlement in Rees, the Polygon settlement was “substantially greater” than the limits of United Capitol’s primary policies.

The court of appeals reversed the trial court’s equal allocation of the settlement obligations among the excess insurers. The court held that Great American would not be required to “drop down” to cover United Capitol’s obligations. Great American’s policy addressed the insolvency of a primary insurer by providing that the excess coverage would apply as if the primary coverage were “valid and collectible.” The court reasoned, "Washington law does not, in fact, force insurers to pay for losses that they have not contracted to insure." The court observed that the trial court's role was "not to distribute among the various excess insurers the 'gap' in coverage created by United Capitol's insolvency but, rather, was to define each insurer's liability for the covered loss according to the terms of its policy or policies."

Among other things, the court also held that attorney’s fees were not payable under a supplementary payments provision that covered “costs taxed against the insured” and that the Olympic Steamship rule for attorney’s fees did not extend to equitable contribution claims between insurers.

Two More Federal District Court Judges Hold IFCA Is Not Retroactive

noreply@blogger.com (Jason W. Anderson) — Mon, 07 Apr 2008 19:18:00 +0000

This blog previously reported on Magistrate Judge James P. Donohue’s decision in ESS Enterprises, LLC v. AMCO Insurance Co. (W.D. Wash. 2008) that the Insurance Fair Conduct Act (IFCA) does not apply to conduct predating the effective date of the Act, December 6, 2007. Two federal district court judges have recently followed suit.

1. Malbco Holdings, LLC v. AMCO Insurance Co. (E.D. Wash. 2008)

On March 11, 2008, Chief Judge Robert H. Whaley of the United States District Court for the Eastern District of Washington denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct occurring before the effective date of the Act.

In 2004, a hotel owner filed an insurance claim with two insurers for water damage to the hotel. The insurers denied the claims. In 2005, the hotel began to collapse from the water damage, which led the hotel owner to re-tender the claims in 2006. Both insurers again denied the claims in March and September 2007. The hotel owner filed suit in October 2007.

In January 2008, the hotel owner moved to amend its complaint to add claims under IFCA. The court ruled, “It is apparent from the language of the IFCA that the Legislature did not provide for retroactivity, it is not curative, and it is not remedial. The Washington Legislature has not expressed an intent to apply the IFCA retroactively, and indeed the statute is worded in present and future tenses.” The court noted that the property damage, insurance claims, and denials “all occurred well before the enactment of the IFCA,” and further that resubmitting claims after IFCA became effective does not constitute a new or continuing violation because this “would allow an end run around the Legislature’s intent.”

Update: The Malbco ruling has been selected for publication in F. Supp. 2d.

2. Aecon Buildings, Inc. v. Zurich North America (W.D. Wash. 2008)

On March 28, 2008, Judge Marsha Pechman of the United States District Court for the Western District of Washington similarly denied an insured’s motion to amend its complaint to allege an IFCA claim based on conduct that occurred before the effective date of the Act.

Aecon Buildings, Inc., a general contractor, settled an owner’s claims against Aecon and then tendered a request for indemnification to certain subcontractors’ insurers in 2006. Aecon filed suit against the insurers in April 2007.

In February 2008, Aecon moved to amend its complaint to add an IFCA claim. Aecon contended that IFCA is retroactive because it is “remedial.” The court ruled, “Although [IFCA] relates to remedies -- it provides for actual and treble damages, costs, and attorneys’ fees -- it also affects substantive rights by creating an entirely new right of action for first party insurance claimants unreasonably denied their claims.” The court also reasoned that IFCA cannot be applied retroactively because it provides for recovery of a penalty and “is couched in forward-looking language.”

The Malbco and Aecon rulings, like HSS Enterprises, are not binding on state courts in Washington. However, they represent a clear rejection of retroactivity arguments in federal court, and their reasoning is likely to be followed in state court.

Looking Ahead: Insurance Law Cases in the Washington Supreme Court

noreply@blogger.com (Jason W. Anderson) — Tue, 01 Apr 2008 18:29:00 +0000

At least three cases involving insurance law issues are pending in the Washington Supreme Court:

1. St. Paul Fire & Marine Insurance Co. v. Onvia, Inc. The issue is whether an insured has a cause of action against its liability insurer for bad faith based on violation of claims handling regulations or the Consumer Protection Act even though a court has held that the insurer has no contractual duty to defend, settle, or indemnify the insured. The court will answer a certified question from the United States Court of Appeals for the Ninth Circuit. Oral arguments in this case were heard on February 28, 2008.

2. Mutual of Enumclaw Insurance Co. v. U.S.F. Insurance Co. The issue is whether insurers who settled with an insured on a liability claim and were assigned the insured’s rights may make a late tender of the claim to a nonsettling coinsurer and receive the benefit of the late tender rule to maintain an action for contribution against the nonsettling insurer. The court is reviewing a decision by the Washington State Court of Appeals, Division One. Oral arguments in this case were heard on March 20, 2008.

3. Cornhusker Casualty Insurance Co. v. Brooks Samples. The issue is whether notice of an insurance policy cancellation sent by certified mail satisfied the “mailed” requirement of former RCW 48.18.290 (1997) where the insured did not receive the notice. The court will answer a certified question from the United States Court of Appeals for the Ninth Circuit. The date for oral arguments in this case has not been set.

The Washington State Insurance Law Blog will report on the court’s decisions in these cases once they are filed.

Insurance Fair Conduct Act Held Not Retroactive

noreply@blogger.com (Jason W. Anderson) — Fri, 22 Feb 2008 18:59:00 +0000

HSS Enters. v. AMCO Ins. Co. (W.D. Wash. 2008)

On February 1, 2008, a United States Magistrate Judge held that the Insurance Fair Conduct Act (IFCA) does not apply retroactively.

The plaintiff submitted a claim to the defendant insurer after its building was damaged in a fire. The plaintiff filed suit in September 2006 alleging that the insurer had made only partial payment for the loss and failed to pay for the “vast majority” of the claimed loss. Washington voters approved the IFCA in November 2006, and it became effective on December 6, 2007. After providing the required notice to the Office of the Insurance Commissioner and the insurer, the plaintiff moved for leave to amend its complaint to add a claim for relief under the IFCA.

The plaintiff contended that the IFCA applies retroactively and, even if it does not, the plaintiff should be permitted to assert claims arising from the insurer’s post-December 6, 2007, conduct.

The court ruled that the IFCA does not apply retroactively. Applying a presumption of non-retroactivity, the court reasoned that the legislature “has not expressed an intent to apply [the IFCA] retroactively, and plaintiff offers no authority suggesting otherwise. Furthermore, the statute is couched in present and future tenses.” The court rejected the plaintiff’s argument that the IFCA is a “remedial” statute and therefore retroactive, stating, “The IFCA concerns more than ‘procedure or forms of remedies,’ and does more than create a ‘supplemental remedy for enforcement of a preexisting right.’” The court further concluded that the IFCA would not be retroactive even if it were remedial because the statute creates a new cause of action and imposes a penalty. The court stated, “The fact that plaintiff’s IFCA claim might arise out of the same factual scenario as his other claims is of no moment.”

The court ruled that the plaintiff could not allege claims based on the insurer’s conduct after the IFCA effective date. The court reasoned that such claims would necessarily be based on “pre-IFCA enactment conduct as grounds for a present -- and allegedly a continuing -- IFCA violation.” The court ruled, “Such an argument not only raises serious continuing tort and statute of limitations concerns, but it also invokes the same retroactivity position the Court has already rejected.”

This decision most likely will not be the last word on the retroactivity of the IFCA. The federal court decision is not binding on state courts in Washington. However, they are likely to reach similar conclusions for similar reasons.

House Passes Bill that Would Allow More to Sue for Wrongful Death

noreply@blogger.com (Jason W. Anderson) — Fri, 22 Feb 2008 18:55:00 +0000

Last week, the Washington State House of Representatives passed E3SHB 1873, a bill that would amend Washington's wrongful death and survival statutes. The most significant change would be to expand the class of persons who may recover in a wrongful death action.

Under present law, there are two tiers of potential beneficiaries of a wrongful death action. In the first tier are the decedent's spouse or domestic partner and any children. In the second tier are parents and siblings. Second tier beneficiaries may recover only if they are U.S. residents, they were substantially dependent on the decedent for financial support, and there are no first-tier beneficiaries. In addition, a parent may sue for the wrongful injury or death of a minor child if the parent regularly contributed to the child's financial support or an adult child if the parent was substantially dependent on the child for financial support.

E3SHB 1873 would expand the second tier beneficiaries to include the parents of an adult child not only if they were financially dependent upon the child but if they had "significant involvement in the adult child's life." Second tier beneficiaries would also include "an individual who is the sole beneficiary of the decedent's life insurance and has had significant involvement in the decedent's life." "Significant involvement" would be defined as "support of an emotional, psychological, of financial nature within the relationship at or reasonably near the time of death, or at or reasonably near the time of the incident causing death."

The bill has faced significant opposition from groups such as the Washington Defense Trial Lawyers, the Association of Washington Cities, the Association of Washington Counties, the Office of the Attorney General, the Washington State Medical Association, and the Washington Society of Healthcare. Nevertheless, several proposed amendments to the bill that would have narrowed the scope of the changes failed.

Next for E3SHB 1873 are hearings in the Senate. A similar bill passed in the House last year but failed in the Senate Judiciary Committee when too few committee members would sign the committee report. E3SHB 1873 has been referred instead to the Senate Government Operations and Elections Committee. Click here for the bill as it passed the House. Click here to view the history, bill reports, and other information.

Update: This bill failed after the Senate amended it significantly and the House declined to approve the amendments.

“Actual Cash Value” of Unreplaced Property Does Not Include Sales Tax

noreply@blogger.com (Jason W. Anderson) — Wed, 30 Jan 2008 22:46:00 +0000

Holden v. Farmers Ins. Co. (Div. I, Jan. 22, 2008)

The court of appeals held that coverage in a homeowner’s policy for the “actual cash value” of a property loss indemnifies the insured against actual loss and thus does not cover sales tax unless the insured actually replaces the property, incurring the sales tax.

Laura Holden’s homeowner’s policy included property loss coverage based on “actual cash value” as well as coverage for replacement cost. The policy defined “actual cash value” as the “fair market value of the property at the time of the loss.”

Holden filed a claim under the actual cash value provision for property destroyed in a fire, but did not replace the property. Farmers paid the fair market value not including sales tax. When Holden requested inclusion of sales tax, Farmers responded that she could claim the replacement cost, including sales tax, if she submitted a receipt reflecting the cost of replacement. Holden sued Farmers.

The trial court ruled that Farmers’ definition of actual cash value was ambiguous because Farmers does pay sales tax under the actual cash value coverage provision if the insured replaces the property and the policy does not include separate replacement cost coverage. The court construed the policy against Farmers as the drafter and entered summary judgment for Holden.

The court of appeals reversed. The court held that because actual cash value coverage indemnifies the insured for the actual loss sustained, sales tax is covered only if incurred by the insured. The court held that Farmers’ payment of sales tax under the actual cash value coverage in some circumstances did not render the clause ambiguous but was “a consistent application of the principles of indemnification.”

State Insurance Regulators Ask Insurers to Extend Deadlines Following Storm

noreply@blogger.com (Jason W. Anderson) — Thu, 20 Dec 2007 21:43:00 +0000

On December 3, 2007, a major storm caused flooding, mudslides, and other problems across Western Washington and Oregon. Insurance regulators in Washington and Oregon have responded with efforts to ease the burden on affected insurance consumers.

Yesterday, December 19, 2007, Washington Insurance Commissioner Mike Kreidler issued a notice asking that "all regulated entities issuing a contract of insurance in the affected areas voluntarily extend any time limit placed on an insured to perform any act or transmit information or funds to January 10, 2008." The "affected areas" include Grays Harbor, Lewis, Mason, Pacific, and Thurston counties, which were recently declared federal disaster areas by FEMA. Kreidler specifically requested that insurers "withdraw and reissue any notice or cancellation mailed one week prior to December 3, 2007 and not issue any new policy cancellations or non-renewals" in these counties.

Update: In response to requests for clarification from the industry, the OIC has narrowed its request to specific zip codes in the "affected areas." The following additional counties are included: Clallam, Jefferson, King, Kitsap, Skagit, Snohomish, and Wahkiakum.

In a press release by the Office of the Insurance Commissioner (OIC), Kreidler was quoted as saying, “I believe that this will help provide some small measure of comfort and peace of mind during the early recovery process, and help ensure that these winter storm victims do not lose insurance coverage during the time they need it most.” Kreidler cited concerns about "widespread disruption of mail, energy, transportation and basic communication services."

The OIC press release explains that "[t]he Insurance Commissioner's plea is a call for voluntary cooperation since he has no authority to order such relief." Oregon's insurance regulator, the Insurance Division of the Department of Consumer and Business Services, does not construe its authority so narrowly.

On December 7, 2007, the Insurance Division entered a mandatory emergency order that provides (among other things, and with certain exceptions), "As to any policy provision, notice, correspondence, or law that imposed a time limit upon an insured to perform any act or to transmit information or funds with respect to a contract of insurance, which act was to have been performed on or after December 3, 2007, the time limit shall be extended to January 3, 2008." The order prohibits insurers from canceling or not renewing policies until January 3, 2008, and from canceling or not renewing a policy solely because of a claim resulting form the storm. Insurers must withdraw and reissue any notices of cancellation issued or mailed the week preceding December 3, 2007.

The Oregon order applies to insurance contracts "issued, delivered, or covering a risk located in the areas within Lincoln, Tillamook, Clatsop, Columbia and Yamhill Counties that have been affected by the severe winter storm." The areas covered by the order are further narrowed by zip code.

Like Commissioner Kreidler, the Oregon Insurance Division cited concerns about disruption of electricity and mails. A press release by the Insurance Division quoted its acting administrator, Carl Lundberg, as stating, "The storm has disrupted the lives of many Oregonians, and, as a result, many of them nay not receive a cancellation notice or not be able to pay their insurance premiums on time. We want to ensure no one loses insurance coverage because of the storm."