Supreme Court Says Occurrence Policies and Non-Retroactive Claims Made and Reported Requirements Don’t Mix
The Washington Supreme Court has held that an occurrence-based policy endorsed with a non-retroactive claims made and reported endorsement issued to a contractor violates Washington’s public policy as expressed in RCW 18.27.050 and 18.27.140. The case arose out of the death of a subcontractor’s employee. The employee’s spouse filed a wrongful death claim against the general contractor. Preferred Contractors, the general contractor’s insurer, filed a declaratory judgment action in federal court seeking a ruling that it had no duty to defend or indemnify because the injury had occurred during one policy period, while the claim was first made during the next policy period.
The general contractor had CGL coverage from Preferred Contractors under sequential policies both at the time of death and at the time the claim was first made. The main policy form was written on an occurrence basis. But it was endorsed with a “Claims Made and Reported Limitation,” which required that the claim be first made and reported during the policy period. The endorsement is described as “non-retroactive” because no single policy ever provides coverage for injury that occurred before the policy period. In contrast, claims made policies that provide retroactive coverage cover injuries after a specified “retroactive date,” often the date that the first policy in a continuous series was purchased. The combination of the main form and the endorsement created coverage that would never apply when the injury occurred and the claim was first made in different policy periods.
The insured contractor challenged the combination of the two types of coverage, occurrence and non-retroactive claims made and reported, as violating Washington public policy. The trial court certified the question to the Washington Supreme Court, which agreed with the general contractor. It found that, by enacting RCW 18.27.050 and 18.27.140, the legislature created a public policy that contractors must be financially responsible for injuries they negligently inflict on the public. The Preferred Contractors policy violated that public policy because, by providing neither prospective nor retrospective coverage, its insureds could not have the kind of continuous coverage necessary to protect the public. The court specifically held that a contractor’s CGL policy that requires the loss to occur and be reported to the insurer in the same period and which fails to provide prospective and retroactive coverage is unenforceable.
Preferred Contractors Ins. Co., Risk Retention Grp., LLC v. Baker & Son Constr., Inc., 200 Wn.2d 128, 514 P.3d 1230 (2022).
Disclaimer: the opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
According to a new opinion out of the U.S. Court for the Eastern District of Washington, insurers have a duty to ensure that adjusters know enough about applicable case law in order to make reasonable coverage and defense decisions. In Security National Ins. Co. v. Construction Associates of Spokane, Inc., 2022 WL 884911 (E.D. Wash. 3/24/2022), the Court suggested that insurance companies could meet this duty by teaching adjusters to run case searches, purchasing subscriptions to legal newsletters, or consulting legal professionals.
The case involved a Certificate of Insurance issued in 2019 in connection with a construction site injury that occurred in 2016. The injured worker, who was employed by a subcontractor, sued the general contractor. The general contractor tendered its defense to the subcontractor’s insurer, Security National.
In preparing the tender, the general contractor searched its records for a Certificate of Insurance that confirmed its status as an additional insured under the subcontractor’s insurance policy. When it was unable to locate a Certificate for 2016, it contacted the subcontractor’s insurance broker and asked it to issue a Certificate confirming that the subcontractor was insured for the policy period during which the accident occurred and that the general contractor was an additional insured.
While Security National was investigating the tender, the Washington Supreme Court issued its opinion in T-Mobile USA, Inc. v. Selective Ins. Co. of Am., 194 Wn.2d 413, 450 P.3d 150 (2019), which held that the insurer was bound by the representation of its authorized agent in a Certificate of Insurance that an organization was an additional insured even though the Certificate said that it could not be used to expand coverage beyond that provided in the insurance policy. Previous cases had held that a Certificate of Insurance could not expand coverage provided by the insurance policy.
Although the adjuster reviewed the Insurance Commissioner’s regulation on Certificates of Insurance, he was not aware of the T-Mobile opinion. He sent a letter denying the tender almost two months after the opinion had been issued. After the general contractor’s attorney called Security National’s attention to the T-Mobile opinion, it reinvestigated the tender, eventually affirming its denial.
Judge Mendoza, Jr. granted the general contractor’s motion for summary judgment, holding that Security National was bound by its authorized agent’s representation in the 2019 Certificate that the general contractor was an additional insured on the date of the accident. He also held that the insurer acted in bad faith as a matter of law when it denied the tender of defense, rejecting Security National’s argument that claims adjusters cannot be expected to know the law and perform legal research, especially when a new case is decided during an investigation. After noting that the file included notes about sending the tender out for review by coverage counsel and making suggestions about training adjusters to know the law, he held that ignorance of the law does not excuse the conduct of adjusters who deny claims for defense or indemnification. “Adjustors must equip themselves or else seek out those with the requisite tools and knowledge.”