Washington Supreme Court Declares that Binding Arbitration Provisions in Insurance Policies are Unenforceable

By Bob A. Meyers

In State, Dept. of Transp. v. James River Ins. Co., — P.3d — , 2013 WL 174111 (Wash. January 17, 2013), an en banc panel of the Washington Supreme Court unanimously declared that binding arbitration provisions in insurance policies are void and unenforceable. The Court observed that a century-old Washington statute provides:

No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state, shall contain any condition, stipulation, or agreement . . . depriving the courts of this state of the jurisdiction of action against the insurer. . . . Any such condition, stipulation, or agreement in violation of this section shall be void. . . .

RCW 48.18.200(1)(b), (2). Interpreting and applying that statute, the Court reasoned that binding arbitration provisions in insurance policies ostensibly deprive the courts of jurisdiction to review the full substance of disputes between insureds and their insurers, and thereby undermine the legislature’s intent to preserve insureds’ ability to seek recourse against their insurers in court. So, the Court held that binding arbitration provisions in insurance policies that are delivered in Washington State and that serve to cover risks in Washington State are void and unenforceable. The Court also held that the Federal Arbitration Act does not preempt RCW 48.18.200, and noted that its ruling will help to “assure the protection of Washington law to Washington insureds.”

In light of the Washington Supreme Court’s ruling, if an insurer has delivered an insurance policy in Washington State that serves to cover risks in Washington State, and if that policy includes a binding arbitration provision, a Washington court will unlikely enforce a demand for arbitration under the policy.

The Court’s opinion can be found here.

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