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.
On January 26, 2021, Senate Bill 5351 was introduced during the State of Washington’s 67th Legislature’s 2021 Regular Session. The bill seeks to change the suit limitations period from one year to two years (RCW 48.18.200), and add the provision that:
“Every property insurance policy containing a grant of coverage for direct physical loss of or damage to property shall be construed to include the deprivation of such property and the loss of the ability to use such property.”
(RCW 48.18.520). The bill would also add two new sections, applying these changes retroactively to February 29, 2020, when Governor Inslee issued Proclamation 20-05, and explaining that the act would take effect immediately.
If you have additional questions on this bill, or would like to receive continuing updates, please feel free to reach out to Soha & Lang.
McLaughlin v. Travelers Comm. Ins. Co., Wash. Supreme Court (Dec. 10, 2020).
This case deals with whether the plaintiff, while riding his bicycle at the time of the accident, was a “pedestrian” under his California auto insurance policy’s MedPay coverage. “Pedestrian” was not defined by the policy. RCW 48.22.005(11) defines “pedestrian” for purpose of casualty insurance as “a natural person not occupying a motor vehicle as defined in RCW 46.04.320.” Since McLaughlin’s bicycle did not have a motor, he was deemed a “pedestrian.” The Court discussed the Court of Appeals approach to “harmonize” the definition of “pedestrian” in RCW 48.22.005(11) with RCW 46.04.400. The latter statute expressly excludes bicyclists from the definition of “pedestrian.” RCW 48.22.005(11), applies to casualty insurance, however, and RCW 46.04 has limiting language that definitions in that chapter apply to that chapter, “except where otherwise defined,” so RCW 48.22.005(11) was determined to be the appropriate definition to apply in this case.
The Court discussed that even if the definition of “pedestrian” in RCW 48.22.005(11) was not applied, the term “pedestrian” in the policy is ambiguous, and resolved in favor of the insured.
On May 21, 2020, the Washington Supreme Court unanimously held in Plein v. USAA Cas. Ins. Co., 97563-9, 2020 WL 2568541 (Wash. May 21, 2020), that a former client seeking to disqualify the adverse party’s lawyer has the burden of showing that matters were substantially related, and that a matter is not “substantially related” to representation of the former client if it is not factually related to any representation of the former client.
In this case, the law firm Keller Rohrback LLP (“Keller”) represented homeowners in a lawsuit against USAA Casualty Insurance Company (“USAA”) alleging that USAA refused to pay for expenses after a house fire in bad faith. Keller had previously represented USAA for many years in various cases, including a suit with similar allegations involving a house fire. As part of this former representation, Keller had gained information regarding USAA’s policies and practices, thought processes, and business and litigation philosophies and strategies. Keller’s representation had included matters involving allegations similar to those made by the homeowners. On this basis, USAA alleged a conflict of interest disqualifying Keller under Rule of Professional Conduct 1.9, which states that a lawyer may not represent a new client against a former client “in the same or a substantially related matter in which that person’s interests are materially adverse to the interests of the former client.”
The Washington Supreme Court, siding with the majority of jurisdictions, first determined that the burden for showing that matters are “substantially related” rests with the former client. In that context, the court then concluded that the facts of this case and those of prior USAA cases, including the prior house fire case, were distinct and unrelated. Likewise, the court concluded that the information Keller gained when it represented USAA did not preclude Keller’s representation of the homeowners. As such, the court held that Keller was not disqualified from representing the homeowners against USAA.
Disclaimer: The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
Two recent decisions addressed the application of a Washington statute, RCW 48.18.200, which prohibits arbitration agreements and foreign choice-of-law provisions in insurance issued to Washington insureds. First, the Ninth Circuit held that the Washington statute did not prohibit an arbitration clause in an insurance policy issued to a Washington insured by a risk retention group chartered in Arizona. Allied Professionals Ins. Co. v. Anglesey, 2020 WL 1179772 (9th Cir. Mar. 12, 2020). The Ninth Circuit explained that the arbitration provision was enforceable because the Washington statute was preempted by the Liability Risk Retention Act of 1986, 15 U.S.C. § 3901 et seq. Second, a Washington federal district court held that the Washington statute voided arbitration and New York choice-of-law provisions in a reinsurance contract issued to a Washington risk pool. Washington Cities Ins. Auth. v. Ironshore Indem. Co., 2020 WL 1083715 (W.D. Wash. Mar. 6, 2020). In reaching this result, the court rejected the contention that reinsurance was not insurance subject to the statute.
Please note that 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.
On February 11, 2020, in the matter of CLMS Mgmt. Servs. Ltd. P’ship v. Amwins Brokerage of Georgia, LLC, 3:19-CV-05785-RBL (W.D. Wash. Feb. 11, 2020), the US District Court in the Western District of Washington granted certification pursuant to 28 U.S.C. § 1292(b) of the court’s earlier order of December 26, 2019, in which the court held that the Convention on the Recognition of Foreign Arbitral Award, Art. II, Sec. 3 is “self-executing,” and not subject to preemption under the McCarran-Ferguson Act – and thus not preempted by Washington statute.
The Court’s Order, granting defendant’s motion to enforce an arbitration clause in the policy of insurance at issue, analyzes the interplay between the Federal Arbitration Act (FAA), the McCarran-Ferguson Act, and Art. II, Sec. 3 of the Convention. Although the FAA normally governs the enforceability of arbitration clauses, in the insurance context the McCarran-Ferguson Act, which creates a system of “reverse-preemption” for insurance law, must also be considered. The Court examined decisions by Washington state courts holding that, under the McCarran-Ferguson Act, Wash. Rev. Code 48.18.200 – which prohibits the enforcement of arbitration provisions in insurance contracts – preempts Chapter 1 of the FAA.
However, the Western District of Washington held that the same is not true of Chapter II of the FAA and ruled that Chapter II section 3 is self-executing, and thus not subject to preemption under the McCarran-Ferguson Act. The court found the reasoning of the US District Court for the Central District of California’s reasoning in the matter of Martin v. Certain Underwriters of Lloyd’s, London, to be persuasive. There, the court stated that Section 3’s use of “the verb ‘shall’ . . . expressly directs courts to enforce arbitration agreements” and thus gives Section 3 “automatic effect.”
In granting certification for immediate review, the Western District recognized that federal circuits are split and there is “considerable disagreement between courts around the country about whether and why the Convention preempts state laws like RCW 48.18.200,” and that the Ninth Circuit has not ruled on this issue. Accordingly, this will be a matter of first impression for the Ninth Circuit.
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.