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Insurer Bound By Agent’s Representation In Certificate of Insurance

The Washington Supreme Court issued a decision on October 10, 2019 in the matter of T-Mobile USA, Inc. v. Selective Ins. Co. of Am., No. 96500-5 (2019), finding that an insurance company is bound by its agent’s representations made on a certificate of insurance, despite the disclaimer language contained in the certificate of insurance, even when those representations add new insureds to the policy or otherwise alter its terms.

The matter came to the Washington Supreme Court on certification from the Ninth Circuit, which presented the following question: “Under Washington law, is an insurer bound by representations made by its authorized agent in a certificate of insurance with respect to a party’s status as an additional insured under a policy issued by the insurer, when the certificate includes language disclaiming its authority and ability to expand coverage?” The Washington Supreme Court answered the question in the affirmative, holding that “an insurance company is bound by the representation of its agent in those circumstances.”

The Court cited to the rule of textual interpretation that the specific prevails over the general, and thus found that the general disclaimers in the certificates of insurance are ineffective and are superseded by the specific information written on the certificate. The Court also found that public policy supports enforcing the representations of an insurance company’s agents.

The Court distinguished this decision from its ruling in Postlewait Constr., Inc. v. Great Am. Ins. Co., 106 Wn.2d 96, 100-01 & n.7, 720 P.2d 805 (1986), in which the Court stated that “[T]he purpose of issuing a certificate of insurance is to inform the recipient thereof that insurance has been obtained; the certificate itself, however, is not the equivalent of an insurance policy” on the grounds that the broker in Postlewait was not the agent of the insurance company, and that the certificate of insurance at issue did not represent that the purported additional insured was in fact an additional insured.

Two justices dissented. While accepting the possibility that equitable estoppel could apply in some circumstances, that was not the case here where the entity seeking coverage, T-Mobile USA, was a sophisticated business entity and there was never any agreement that the insurance would cover it.

        Disclaimer: Any opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.

        Inverse Proximate Cause Language Applied by Washington Federal District Court

        In the matter of Belmain Place Condominium Owners Association v. American Insurance Company, 2:19-cv-00156-MJP (W.D. Wash., September 4, 2019) the Washington federal district court denied an insured/plaintiff’s motion for summary judgment on coverage related to water damage to a condominium. Based on the “inverse proximate cause” language found in the “Washington Changes — Excluded Causes of Loss” form, the Court rejected the insured’s argument that if water intrusion damage is not specifically excluded, it is always covered under an ensuing loss provision.

        The Court explained that the Washington Supreme Court expressly allowed for “inverse proximate cause” language in Vision One, LLC v. Phila. Indemn. Ins. Co., 174 Wn.2d 501 (2012) and distinguished this matter from another Western federal district court decision that addressed different policy language.

        Notably, the decision also states that “Plaintiff’s position has the potential to swallow the exclusions in an all-risk policy whole.”

        Defense Cost Reimbursement Provision Upheld by Washington Federal District Court

        In the matter of Massachusetts Bay Ins. Co. v. Walflor Industries, Inc. et al, 2:18-cv-00791-JLR (W.D. Wash., April 17, 2019), the Washington federal district court upheld a defense cost reimbursement provision, rejecting the argument that such provisions are void as a matter of public policy.

        The provision, contained in a separate endorsement titled “WASHINGTON CHANGES – DEFENSE COSTS,” provides:

          The following applies to any provision in this Policy, or in any endorsement attached to this Policy that sets forth a duty to defend:

          If we initially defend an insured or pay for an insured’s defense but later determine that none of the claims, for which we provided a defense or defense costs, are covered under this insurance, we have the right to reimbursement for the defense costs we have incurred.

          The right to reimbursement under this provision will only apply to the costs we have incurred after we notify you in writing that there may not be coverage and that we are reserving our rights to terminate the defense or payment of defense costs and to seek reimbursement for defense costs.

        The court found support for the reimbursement provision in Nat’l Sur. Corp. v. Immunex Corp., 176 Wn.2d 872, 297 P.3d 688 (2013), noting that the Immunex Court stated that to “allow[] recoupment to be claimed in a reservation of rights letter would allow the insurer to impose a condition on its defense that was not bargained for.”

        The court found no basis for invalidating the endorsement on public policy grounds and held that Massachusetts Bay is entitled to recoup the defense costs it paid in the underlying lawsuit pursuant to the endorsement.

        Washington Federal Court Upholds Sexual Abuse Exclusion; Rejects Proximate Cause Argument

        In Safeco Ins. Co. of America v. Wolk, Cause No. C18-5368 RBL, 2018 WL 5295250, at *1 (W.D. Wash. Oct. 25, 2018) the federal district court analyzed the duty to defend a suit against Safeco’s insureds, Ben and Michelle Wolk. The underlying suit alleged sexual abuse by Ben and negligent supervision by Michelle. Safeco denied coverage for Ben, but defended Michelle under a reservation of rights, and brought a declaratory judgment action to determine its obligations, if any, to Michelle.

         

        Safeco brought a motion for summary judgment, asserting that the suit did not allege an occurrence under the policy and that several exclusions bar coverage. The court performed a proximate cause analysis pursuant to Xia v. ProBuilders Specialty Ins. CoRRG, 188 Wn.2d 171 (2017), and found in Safeco’s favor in all respects, holding that three separate grounds barred coverage.

         

        First, the court held that negligent supervision cannot be efficient proximate cause of sexual abuse, noting that no case discussing efficient proximate cause supports the assertion that negligence or negligent supervision can be the efficient proximate cause of an intentional act. Further, on a factual basis “[i]t is not possible that the efficient proximate cause of the sexual abuse was Michelle’s knowledge that it was happening and her failure to stop it.” Accordingly, the suit against the insureds does not allege an occurrence under the policy, and no duty to defend exists.

         

        Second, the intentional act exclusion contained in the policy, which excludes injury “which is expected or intended by any insured or which is the foreseeable result of an act or omission intended by any insured” (emphasis added) applied to exclude coverage for Michelle where Ben committed sexual abuse.

         

        Third, the sexual abuse exclusion, which excludes coverage for bodily injury “arising out of physical or mental abuse, sexual molestation, or sexual harassment” applied to the claim of negligent supervision against insured Michelle Wolk. The court held that the negligent supervision claim necessarily arises out of the sexual abuse.

        United States District Court for the Western District Washington Imputes Material Misrepresentations of “Public Adjuster” to Insured, Declares Policy Void

        In Reverse Now VII, LLC v. Oregon Mutual Insurance Company, Case No. C16-209-MJP, 2018 WL 4510071 (W.D Wash. Sep. 18, 2018), the federal district court found that the insurance policy at issue was void as a matter of law due to material misrepresentation and concealment by the insured and its purported public adjuster.

        The insurance claim underlying this litigation arose from a fire in an apartment unit in the building owned by the insured. The fire damaged the unit’s interior and approximately 2% of the building’s exterior cladding. The parties engaged in appraisal pursuant to the policy terms to determine the extent of the loss to the building’s exterior. The insured filed suit against Oregon Mutual before the appraisal was complete.

        Through the course of litigation, Oregon Mutual learned that the insured’s purported public adjuster had applied for a public adjuster’s license, but failed to complete his application. Nonetheless, he held himself out as a public adjuster and performed the responsibilities of a public adjuster on behalf of the insured for more than two and a half years in violation of RCW 48.17.060.

        Oregon Mutual also learned that the appraiser named by the insured was not impartial, but instead that the appraiser had been best friends with the purported public adjuster for decades and that the two were former business partners who had often worked on claims together.

        On Oregon Mutual’s motion for summary judgment, the Court found that these misrepresentations were material as a matter of law. The Court rejected the insured’s argument that public adjuster licensing was an administrative issue that was irrelevant to the investigation of the insurance claim. The Court also found that the failure to disclose the long-term relationship between the purported public adjuster and the appraiser was material as a matter of law. The Court rejected the insureds’ argument that misrepresentations made by its agents could not be imputed to it.

        On the basis of the insured’s material misrepresentations, the Court found the policy was void, and dismissed all claims, both contractual and extra contractual, against Oregon Mutual. Soha & Lang, P.S., represented Oregon Mutual in this matter.