On September 13, 2016, Soha & Lang, P.S. attorney Jennifer Dinning took and passed her first CPCU exam, CPCU 500 Foundations of Risk Management and Insurance. Jennifer is one of three Soha & Lang, P.S. attorneys on the path to obtaining the CPCU designation. In addition, one of our shareholders, Paul Rosner, J.D., CPCU, is active in the Pacific Northwest Chapter and nationally. Soha & Lang, P.S. attorneys are also frequent speakers at chapter meetings and All-Industry Days of the Pacific Northwest (Western Washington), Spokane and Oregon chapters of the CPCU Society.
On November 4, 2015, Soha & Lang Shareholder Paul Rosner, J.D., CPCU was awarded the 2014-2015 Ralph Boden Award for Excellence by the Pacific Northwest Chapter of the CPCU Society. The award was created to honor Ralph Boden’s long term commitment to the CPCU society and its mission of promoting excellence through ethical behavior and continuing education. The award, which was presented during the chapter’s All Industry Day, recognizes Paul’s continuing commitment to insurance education both locally and nationally.
No Duty to Defend an Insured’s Remediation of Contaminated Property Where the Insured Did Not Face the Functional Equivalent of a Suit
On June 2, 2013, the Washington Court of Appeals held that there is no duty to defend an insured’s remediation of contaminated property when the insured does not face the “functional equivalent” of a lawsuit. In Gull Industries, Inc. v. State Farm Fire and Casualty Company, et al, No. 69569-0-1 (Wash. App. 2014), the insured, Gull Industries (“Gull”), notified Washington State Department of Ecology (“DOE”) that there had been a release of petroleum product at its gas station. DOE sent Gull a letter acknowledging Gull’s notice of the suspected contamination. Gull tendered defense and indemnity of the cleanup to its insurers, including State Farm and Transamerica Insurance Group (“TIG”), both of whom denied the tender. Gull sued various insurers, including State Farm and TIG. The policies in question provided a duty to defend for “any suit.” Gull contended that the insurers had a duty defend because it faced strict liability under the Model Toxics Control Act (“MTCA”, chapter 70.105D RCW, thus satisfying the “any suit” requirement of the policies. The Court of Appeals rejected Gull’s argument. Instead, the court held that the duty to defend may incept where the insured faces the functional equivalent of a suit, following Ryan v. Royal Ins. Co. of Am., 916 F.2d 731, 741 (1st Cir. 1990). The court concluded that Gull failed to make this showing:
We conclude that the undefined term “suit” is ambiguous in the environmental liability context and may include administrative enforcement acts that are the functional equivalent of a suit….
We do not agree with Gull’s contention that liability under the MTCA alone, without any direct enforcement action by DOE, is the functional equivalent of a suit for the purposes of the duty to defend. Instead, we adopt the analysis outlined in Ryan and hold that an agency action must be adversarial or coercive in nature in order to qualify as the functional equivalent of a “suit.”
Here, the only communication Gull received was a letter from DOE acknowledging receipt of Gull’s notice that the property was contaminated and that it intended to pursue an independent voluntary cleanup. DOE gave notice to Gull that Gull’s report reveals the soil and groundwater are above the MTCA “Method A Cleanup levels” and that DOE placed the property on the leaking underground storage tank list with an “Awaiting Cleanup” status. The letter also advised Gull to “be aware that there are requirements in state law which must be adhered to” but did not advise of any consequences that might attach to the failure to adhere to those requirements. The letter expressly indicated DOE has not determined that Gull is a PLP and does not imply that DOE “has formally reviewed and approved of the remedial action” planned by Gull…. The letter did not present an express or implied threat of immediate and severe consequences by reason of the contamination. Therefore, consistent with Ryan, Gull has not met its burden on summary judgment to establish there is the functional equivalent of a “suit” here, triggering the duty to defend.
Slip op. at 13-14 (footnotes omitted).
Soha and Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.
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.
Washington Supreme Court erodes insurer’s right to attorney-client privilege when insurer is sued for bad faith handling of a first-party claim
In another controversial 5-4 decision, the Washington Supreme Court on 2/21/13 substantially eroded the attorney-client privilege for first party insurers being sued for bad faith claims handling. See Cedell v. Farmers Ins. Co. of Wash., Wash. Supreme Court No. 85366-5 (en banc, Feb. 21, 2013). First, the court held that in cases in which an insured is claiming bad faith in the handling and processing of first-party claims, other than UIM claims, there is a presumption of no attorney-client privilege. Second, the court held that when an insured is suing an insurer for bad-faith handling of a first-party claim, the “civil fraud” exception to attorney-client privilege does not require the insured to show actual fraud. Rather, if after in camera review of the claimed privileged materials the court finds “there is a foundation to permit a claim of bad faith to proceed, the attorney-client privilege shall be deemed to be waived.” The Supreme Court added that an insured’s ability to pierce an insurer’s attorney-client privilege through the assertion of civil fraud in this manner applies to bad faith cases arising from UIM as well as all other first-party claims.
The Cedell case involved a first-party claim on a homeowner’s policy for a house fire, and an allegation that the insurer had violated its duty of good faith claims handling of the fire-loss claim. The insurer retained coverage counsel during the claims process, and that attorney examined witnesses under oath, directly interacted with the insured during the claims process, issued a coverage position letter on behalf of the insurer and made a time-limited settlement offer to the insured. Although Washington courts have long held that normal claims handling functions cannot be shielded with attorney-client privilege by retaining an attorney to perform them, the Cedell court went much further today in creating a “presumption” of no attorney-client privilege whenever an insurer is sued for bad faith handling of a first-party claim (the court excepted UIM claims from this newly created presumption). The insurer may overcome the presumption upon a showing in camera that the attorney was providing legal counsel to the insurer (e.g., a coverage opinion) and was not engaged in the insurer’s quasi-fiduciary functions, such as investigating and evaluating the claim.
The second holding of the Cedell opinion is a more significant departure from prior law and seriously erodes the first-party insurer’s right to protect confidential communications with its counsel. The attorney-client privilege historically has not protected communications in which an attorney and client are actively discussing how to commit fraud—this is known as the “civil fraud exception” to attorney-client privilege. But for first-party insurers (including UIM insurers), the Washington Supreme Court now says fraud need not be established to pierce the insurer’s attorney-client privilege. If the civil fraud exception to attorney-client privilege is asserted, the court must engage in a newly created two-step process. First, upon a showing that “a reasonable person would have a reasonable belief that an act of bad faith has occurred,” the trial court will perform an in camera review of the claimed privileged materials. Second, after in camera review and upon a finding there is “a foundation to permit a claim of bad faith to proceed,” the insurer’s attorney-client privilege “shall be deemed to be waived.” In sum, the Washington Supreme Court has turned the “civil fraud exception” to attorney-client privilege into a “bad faith” exception for first-party insurers.
Soha & Lang attorneys are available to assist insurer clients in understanding and addressing the impact of this decision both during the claims handling process and after an allegation of bad faith claims handling has been made.
In Wright v. Turner, 2012 WL 5286179 (Or App Oct. 24, 2012), the insured was a passenger in a truck that was in a motor vehicle accident. The truck was hit successively by two vehicles. The insured made a claim under her underinsured motorist (“UIM”) coverage, which had $500,000 “each accident” limits. The insured contended that she was entitled to two “each accident” limits because two vehicles were involved, thus constituting two “accidents” for the purpose of the UIM coverage. The Court of Appeals rejected her argument. As a threshold matter, the court noted that both parties agreed that the question of the number of accidents was one of law rather than one of fact. Next, the court held that the insured, in seeking coverage, had the burden of proof on the issue. Turning to the issue at hand, the court held that the insured had failed to satisfy here burden of demonstrating causation:
And plaintiff, as the party with the burden of presentation and persuasion with respect to establishing the availability of coverage for two accidents instead of one, was obligated at least to adduce prima facie evidence that the second collision was not merely proximately derivative of the causation of the first.
Plaintiff failed to meet that prima facie burden. That is so because the record is completely devoid of any evidence regarding the cause of the second collision…
Id. at 12.