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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over the general, and thus found that the general disclaimers in the certificates of insurance are ineffective and are superseded by the specific information written on the certificate.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.

        Washington Supreme Court: Employee Adjusters Not Personally Liable for Insurance Bad Faith

        We won! On October 3, 2019, in a 5 to 4 decision, the Washington Supreme Court held in Keodalah v. Allstate Insurance Company, No. 95867-0 that “employee adjusters are not subject to personal liability for insurance bad faith or per se claims under the CPA [Consumer Protection Act].” The decision, which has been closely monitored across the nation, protects claims professionals, insurance agents, experts, and lawyers who represent insurers from being drawn into disputes between insureds and insurers as parties.

        The insured, Moun Keodalah, was injured in an accident where a motorcyclist struck his truck while crossing an intersection. The facts uncovered by the Seattle Police Department (“SPD”) investigation, Allstate’s witness interviews, and the accident reconstruction firm hired by Allstate to analyze the collision all suggested that the motorcyclist was at fault and that his “excessive speed” caused the collision. Keodalah made a claim under his underinsured motorist (“UIM”) coverage and requested that Allstate pay him the $25,000 limit. Allstate refused, finding Keodalah to be 70 percent at fault, and made a series of offers to settle the claim.

        Keodalah filed suit asserting a UIM claim. During discovery, an adjuster employee of Allstate was designated as Allstate’s corporate representative for a Civil Rule 30(b)(6) deposition. The adjuster contradicted the conclusions reached by the SPD and Allstate’s accident reconstruction analysis by testifying, for example, that Keodalah had run the stop sign and had been on his cell phone at the time of the accident. At trial, Allstate continued to contend that Keodalah was 70 percent at fault. The jury determined that the motorcyclist was 100 percent at fault and awarded Keodalah $108,868.20 for his injuries, lost wages and medical expenses.

        Keodalah then filed a second lawsuit against Allstate that included claims against the adjuster for bad faith and CPA violations. Allstate moved to dismiss the claims on the pleadings under CR 12(b)(6). The trial court dismissed the claims against the adjuster and certified the issue for interlocutory appeal. The Court of Appeals disagreed with the trial court and concluded that the bad faith and CPA claims against the adjuster could proceed. The Court of Appeals found that a Washington statute, RCW 48.18.030, imposes a duty of good faith on an individual adjuster, not just the insurance company, and applies equally both to individuals and to corporations acting as insurance adjusters. The Court of Appeals similarly found that the adjuster could be liable for a CPA violation even absent a contractual relationship between them.

        The Washington Supreme Court reversed the Court of Appeals and reinstated the trial court’s dismissal of claims against the adjuster. In its analysis, the Court applied Washington’s three-pronged test for an implied statutory right of action under Bennett v. Hardy, 113 Wn.2d 912, 784 P.2d 1258 (1990) to determine whether RCW 48.01.030 includes an implied cause of action against an adjuster for bad faith. The Court held:

          [A]pplication of the Bennett factors does not support the imposition of an implied cause of action here. In light of RCW 48.01.030’s plain language, indicating that the statute is intended to benefit the general public, and the broader statutory and historical context in which the statute appears, we hold that RCW 48.01.030 does not create an implied cause of action for insurance bad faith.

        Next, the Court held that an insured cannot sue an adjuster under the CPA. The Court explained that Keodalah’s CPA claim based on RCW 48.01.030 failed because CPA claims based upon a breach of the statutory duty of good faith are limited to the context of the insurer-insured relationship. Thus, although Keodalah may sue his insurer under the CPA, he cannot sue the adjuster:

          Because Keodalah claims a breach of the duty of good faith by someone outside the quasi-fiduciary relationship, his CPA claim based on RCW 48.01.030 was properly dismissed.
          The majority decision will prevent plaintiffs from bringing specious claims against insurance adjusters and other insurance professionals for purposes of intimidation and to destroy diversity jurisdiction.

        Soha & Lang, P. S. attorneys Paul Rosner and Geoff Bedell co-authored an amicus brief on behalf of Washington Defense Trial Lawyers (WDTL). Based upon questions by the court during oral argument, the WDTL brief appears to have helped sway the Washington Supreme Court to make the right decision.

        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.”

        Washington’s Made Whole Doctrine Applies to Deductible in Subrogation Action

        In Lazuri Daniels v. State Farm Mutual, No. 96185-9 (July 3, 2019), an en banc Washington Supreme Court decided that an insurer which has sought and obtained subrogation proceeds from a third party is required to reimburse its fault-free insured for the full amount of their deductible before allocating any portion to its subrogated interest.

        The insured was involved in an auto accident. The insurer, State Farm, paid its insured the portion of the repair costs that exceeded the insured’s deductible and then sought to recover its payment from the at-fault driver’s insurer, Geico. Geico contended that it’s insured was 70% at fault for the collision and offered State Farm 70% of its insured’s total damages. State Farm accepted the offer and then reimbursed its insured for 70% of her deductible. State Farm’s insured then filed suit against State Farm alleging that under its own insurance policy and Washington law, State Farm was entitled to settlement proceeds only after fully compensating its insured for her losses, including the full deductible. The trial court dismissed the claims against State Farm via summary judgment which was affirmed by the Court of Appeals.

        The Washington Supreme Court reversed and remanded. The Supreme Court held that the application of the Made Whole Doctrine is not limited to situations where the insured recovers directly from a third-party, and instead applies whenever an insurer seeks “an offset, subrogation, or reimbursement” for benefits already paid. It followed its reasoning in Thiringer v. American Motors Insurance Co. and Sherry v. Financial Indemnity Co., stating that “the proceeds from any recovery from a third-party tortfeasor, whether in a subrogation action or otherwise, must be allocated in such a way as to first make the insured whole.” The Court also determined that this policy is supported by the insurance regulations and State Farm’s own insurance policy language.
        If you have any questions regarding this case, please do not hesitate to contact us.

        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.

        Insurer Not Entitled to Contribution Where Its Insured Did Not Assume Contingent Liabilities

        Allianz Global Risks v. ACE Property & Casualty Ins. Co., 297 Or App 434 (2019) involved a contribution action brought by the plaintiff insurers against several defendant insurers. The defendant insurers had issued insurance to the same insured, Con-way, prior to 1981. These policies included Con-way’s subsidiary as an insured. In 1981, Con-way sold the subsidiary to Daimler, which was insured by plaintiffs. After defending and indemnifying Daimler, as successor to the subsidiary, in three Superfund claims and more than 1,500 asbestos personal injury claims, the plaintiffs sued the defendant insurers seeking contribution. The Oregon Court of Appeals addressed whether the plaintiffs’ insured, Daimler, had assumed the subsidiary’s contingent liabilities with the 1981 sale. It found that a letter written at the time of the sale clarified that Daimler had not assumed the contingent liabilities: “The letter states explicitly that its purpose is to clarify the terms of the [sale] agreement. It is signed by the parties and unequivocally and unambiguously states that [the subsidiary] has not transferred, and Daimler has not assumed, [the subsidiary’s] contingent liabilities.” Id. at 444. Because Daimler had not assumed the continent liabilities, the court held that the plaintiffs could not seek contribution from the defendant insurers. Soha & Lang, P.S., represented one of the insurer defendants in the action.

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

        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.