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.