Posts Tagged ‘Washington’

Slow Down, WA Court Taps the Brakes on Insurer’s Duty to Defend

Thursday, January 30th, 2014

By Eliot M. Harris, Sedgwick Seattle

On January 28, 2014, the Washington Court of Appeals held that an insurer had no duty to defend a motorist under either his homeowners or auto insurance policies when the unambiguous allegations made against the insured motorist established that the claim was not an “accident” as defined under the policies.

The case is United States Auto. Assoc. v. Speed, No 43728-7-II, arises from a deliberate assault at a traffic stop during a road rage incident.  The claimant, aptly named Robert Speed, and the insured motorist were involved in an altercation at a stop light after they had been driving aggressively towards each other for a period of time.  According to witnesses, the insured motorist got out of his vehicle, opened the door of claimant’s car and beat him with his fists and a metal thermos, pulling the claimant from his vehicle before driving away leaving the claimant bleeding and unconscious in the street.  The State later charged the insured motorist with second degree assault with a deadly weapon.  The insured motorist was convicted of third degree assault after he testified at his criminal trial that he intentionally hit the claimant, but claimed self-defense.

The claimant’s attorney later sent a demand letter to the insured motorist seeking compensation for injuries caused by the “intentional conduct.”  The attorney pointed out that, “were this a case of negligence that was covered by insurance,” the settlement demand would be much higher.  The insured motorist tendered the claim to his homeowners and auto insurer, USAA, which investigated the claim but later denied coverage because the claimant’s injuries were not caused by an accident or an auto accident, and the policies excluded coverage for an intentional or purposeful act.  Subsequently, the claimant and insured motorist agreed to a stipulated judgment of $1.4 million and an assignment of rights and covenant not to execute.

USAA filed a complaint for declaratory judgment and moved for summary judgment on coverage under both policies, as well as the claimant’s extra-contractual claims for bad faith.  The Court granted USAA’s summary judgment motion.

On appeal, the Washington Court of Appeals affirmed the trial court’s finding that USAA did not owe a duty to defend as a matter of law.  Despite recent rulings from Washington courts finding a broad duty to defend even if it appears that the claim may not be covered the court in Speed found that USAA owed no duty to defend under the circumstances.  The Speed court noted that, “insurers do not have an unlimited duty to defend” under Washington law, and the duty to defend “is not triggered by claims that clearly fall outside the policy.”  The court went on to note that, because Washington courts repeatedly have held that an insured’s deliberate conduct does not constitute an accident, and the demand letter unambiguously described the insured’s motorists’ actions as “deliberate,” there could be no coverage for the claim even after interpreting the allegations liberally and  resolving all doubts in favor of a duty to defend.

This is a significant ruling out of Washington, whose courts rarely find no duty to defend as a matter of law.  Although this case does not signal a dramatic shift by Washington courts to narrow the scope of the duty to defend, it does indicate a willingness to set limits on this duty.

Washington Insurers May Be Liable for Agent’s Unlawful Solicitation

Monday, August 12th, 2013

By Luke W. Panzar, Sedgwick San Francisco

In Chicago Title Insurance Co. v. Washington State Office of the Insurance Commissioner, ___ P.3d ___, 2013 WL 3946060 (Wash. Aug. 1, 2013), the Supreme Court of Washington held that Chicago Title Insurance Company was liable for regulatory violations committed by its agent, Land Title Insurance Company.

Land Title was a duly appointed agent of Chicago Title in Washington for the purpose of selling Chicago Title’s title insurance policies.  Pursuant to a contract between Land Title and Chicago Title, Land Title was authorized to sign, countersign, and issue Chicago Title’s title assurances in certain designated counties in Washington.

After an investigation by Washington’s Office of the Insurance Commissioner, Land Title was found to have violated anti-inducement statutes by offering favors to real estate agents, builders, and mortgage lenders, in the form of meals, golf outings, auction purchases, and tickets to sporting events.  Chicago Title refused to sign and pay a proposed consent following the investigation, arguing that it was not liable for Land Title’s violations.  Litigation commenced shortly thereafter.  An Insurance Commission review judge and the trial court held for the Insurance Commissioner, but the Washington Court of Appeals reversed, holding that Chicago Title was not vicariously liable for Land Title’s statutory violations.

The Supreme Court of Washington disagreed, finding that Land Title’s violations of the anti-inducement statutes were a form of solicitation for which Chicago Title was liable as principal.  The court noted that, under the Washington Insurance Code, an agent has a statutory duty to solicit policies for its principal.  The court explained, “Land Title is doing what [Chicago Title] appointed it to do pursuant to the statute.  When Land Title solicits in an unlawful way, [Chicago Title] is responsible.

The court rejected Chicago Title’s argument that Land Title was a “limited” agent with no authority to market for Chicago Title, explaining that “authority to solicit necessarily includes the authority to market.”  The court noted that it is well established that an agent has implied authority to perform acts necessary toward achieving the principal’s objective or which are customary for agents performing the work.  Thus, Land Title was Chicago Title’s general agent under common law and had implied authority to solicit applications, as this was customary for insurance agents.

Washington Federal Judge Presumes that Liability Insurer May Not Assert Attorney-Client Privilege or Work Product Protection in Bad-Faith Suit

Friday, April 19th, 2013

On April 12, 2013, Judge Richard Jones of the U.S. District Court for the Western District of Washington ruled that in a bad-faith lawsuit against a liability insurer, the judge would presume that the insurer has no attorney-client privilege or work-product protection. Judge Jones’ ruling thereby materially extended the holding of the Washington Supreme Court’s recent decision in Cedell v. Farmers Insurance, in which a 5-4 majority presumed that a first-party insurer may not assert the attorney-client privilege or work-product protection in a bad-faith lawsuit. 

Click here for the Insurance Law Blog’s previous coverage of Cedell.

 

Supreme Court of Washington Holds that Insurers Are Not Entitled to Reimbursement of Non-Covered Defense Costs

Thursday, April 4th, 2013

By Eryk R. Gettell, Sedgwick San Francisco

In a 5-4 decision, the Washington Supreme Court held that an insurer may not recover defense costs incurred under a reservation of rights while the insurer’s duty to defend is undetermined.  National Sur. Corp. v. Immunex Corp., No. 86535-3 (Wash. Mar. 7, 2013).  Although not addressed by the court, the ruling likely only applies to duty to defend policies, as opposed to policies that require the insurer to reimburse defense costs.  The decision is also important because the court confirmed that insureds under duty to defend policies may recover their pre-tender defense costs, unless the insured’s late tender prejudiced the insurer.

National Surety Corporation issued excess and umbrella liability insurance policies to Immunex Corporation for the period from 1998 to 2002.  In August 2001, Immunex notified National Surety that it was under government investigation concerning its wholesale drug pricing.  Beginning in 2001, Immunex was sued in more than twenty actions for claims regarding its alleged price fixing of wholesale drugs.  In October 2006, Immunex tendered its defense of the lawsuits to National Surety.

National Surety issued its reservation of rights letter to Immunex in March 2008.  National Surety advised that, while it did not believe the litigation was covered, it still needed to complete its coverage investigation.  National Surety agreed to defend Immunex until it could obtain a judicial declaration regarding whether the litigation was covered.  National Surety advised that it would reimburse Immunex’s post-tender defense costs, but also reserved the right to recoup any defense costs if it was later determined that there was no coverage, and that National Surety was entitled to reimbursement.

In March 2008, National Surety filed a declaratory judgment action against Immunex in state court.  The trial court ruled that National Surety did not have a duty to defend, but also that National Surety was still responsible for Immunex’s defense costs through the court’s coverage ruling, subject to a set-off if the insured’s late tender was prejudicial.  Both parties appealed, and the Court of Appeals affirmed the trial court’s decision.  National Surety then appealed to the Washington Supreme Court.

The court’s analysis began with a discussion of Washington’s duty to defend principles, as well as the public policy concerns that are implicated by duty to defend policies.  The majority emphasized that, because the duty to defend is broader than the duty to indemnify, an insurer must defend its insured if a reasonable interpretation of the facts or law could result in coverage.  If the insurer is uncertain as to its duty to defend, it may defend under a reservation of rights, and seek a declaratory judgment relieving the insurer of its duty to defend.  The majority stressed that by doing so, the insurer benefits because it avoids breaching its duty to defend, as well as other potential downsides such as a bad faith finding, waiver, and estoppel.

After considering how other jurisdictions have ruled on this issue, the court sided with the minority of jurisdictions, and explained that “[disallowing reimbursement is most consistent with Washington cases regarding the duty to defend, which have squarely placed the defense decision on the insurer’s shoulders.”  The court held that an insurer cannot receive protection from bad faith claims or breach of contract without any responsibility for defense costs if there is a later determination of no duty to defend because, “[t]his ‘all reward, no risk’ proposition renders the defense portion of the reservation of rights defense illusory,” and the insured would “receive no greater benefit than if its insurer had refused to defend out right.”

The court also addressed two related issues: (1) whether National Surety was required to reimburse Immunex’s pre-tender defense costs; and (2) whether Immunex’s late tender prejudiced National Surety, such that it was relieved of any responsibility for defense costs.  With respect to the pre-tender defense costs issue, the court held that an insured under a duty to defend policy is entitled to recover its pre-tender defense costs, except where the late tender has prejudiced the insurer.  However, the court ruled that summary judgment on the issue of prejudice was inappropriate because there were disputed facts as to this issue.

The dissent criticized the majority’s sweeping determination that insurers may never recover defense costs under a reservation of rights.  The dissent argued that the court should follow the approach used by the majority of jurisdictions which looks to whether the insurer’s payment of the insured’s defense costs would unjustly enrich the insured.  The dissent also disagreed with the majority’s view that the unjust enrichment issue was “simply irrelevant,” because National Surety did not receive any “benefit” simply by complying with its duties under the law.

The Immunex decision is a significant departure from the majority of jurisdictions which allow insurers to recoup their defense costs based on equitable considerations when there is a finding of no coverage.  It is important to note, however, that the court’s decision was largely influenced by Washington’s rules concerning duty defend to defend policies.  If the policy at issue had a duty to reimburse defense costs (in which the insured controls its own defense), the court likely would have permitted the insurer to recoup its defense costs incurred under the reservation of rights.

This case is just one of a few recent Washington decisions that the Insurance Law Blog has reported on. Please click here to see posts about other recent Washington decisions impacting insurers.

Washington Supreme Court Presumes that First-Party Insurers May Not Assert Attorney-Client Privilege or Work Product Protection in Bad Faith Actions

Tuesday, March 5th, 2013

By Robert A. Meyers, Sedgwick Seattle

In Cedell v. Farmers Ins. Co. of Washington, No. 85366-5 (Wash. February 21, 2013), a 5-4 majority of the Washington Supreme Court established a new framework for evaluating attorney-client privilege and work-product issues in bad-faith lawsuits against first-party insurers. The framework does not apply to bad-faith lawsuits involving underinsured motorist (“UIM”) coverage.

First, the Court declared that it will presume that a first-party insurer may not assert the attorney-client privilege or work-product protection in a bad faith lawsuit.

Second, the Court held that an insurer may seek to rebut that presumption by demonstrating that the insurer’s attorney “was not engaged in the quasi-fiduciary tasks of investigating and evaluating or processing the claim, but instead providing the insurer with counsel as to its own potential liability; for example, whether or not coverage exists under the law.” If the insurer can satisfy that burden, it should be entitled to an in camera review of the disputed information and the redaction of privileged and protected information.

Third, the Court held that, even if the insurer successfully rebuts the presumption, the insured may seek to pierce the attorney-client privilege by demonstrating that “a reasonable person would have a reasonable belief that an act of bad faith has occurred.” In that event, the trial court would conduct an in camera review of the privileged materials, and if the trial court determines that “there is a foundation to permit a claim of bad faith to proceed,” it will declare that the insurer has waived its attorney-client privilege.

Following the Court’s ruling, in future bad-faith lawsuits relating to first-party insurance claims one can reasonably anticipate some confusion and disagreement about whether the insurer’s attorney’s conduct constituted “counsel as to [the first-party insurer’s] liability” which would be subject to the attorney-client privilege, or a “quasi-fiduciary task” that would not be subject to the privilege. Moreover, a first-party insurer should be keenly aware that if its attorney undertakes tasks that could be construed to be quasi-fiduciary tasks such as investigating, evaluating, or processing the first-party claim, [1] the insurer’s communications with its attorney relating to those tasks might not be privileged and [2] the attorney’s work product relating to those tasks might not be protected. Because of that, if a first-party insurer’s attorney undertakes such quasi-fiduciary tasks, it might behoove the insurer and its attorney to establish separate files that relate to those tasks.

Opinion:
http://www.courts.wa.gov/opinions/?fa=opinions.disp&filename=853665MAJ

Dissent:
http://www.courts.wa.gov/opinions/?fa=opinions.disp&filename=853665Di1

 

State of Washington v. James River Insurance Company – What Impact on Bermuda Insurers?

Friday, February 1st, 2013

By Richard J. Geddes, Sedgwick Chicago

The short answer is – none.

State of Washington, Dept. of Transportation v. James River Insurance Company, – P.3d –, 2013 WL 258877 (Wash. January 24, 2013), a January 2013 decision of the Washington State Supreme Court, upheld a Washington statute prohibiting insurance contracts from depriving Washington policyholders from access to state courts, due to the insurer’s contract provisions calling for arbitration to resolve contract disputes. [The Insurance Law Blog reported on the decision shortly after the court ruled on January 17th.]

James River represents a purely U.S.-domestic dispute. All parties to the dispute were U.S. residents, such that the NY Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“the NY Convention”), which is the source of enforcement of international arbitration agreements, did not apply. The NY Convention applies to arbitration agreements between parties of different nations, each of which is signatory to the NY Convention, and requires those nations to enforce the arbitration agreements between those parties.

The law in the U.S. dealing with conflicts between international arbitration agreements and state insurance law is not uniform, but if a trend is apparent, it is to recognize the primacy of these international contractual agreements via the NY Convention over contrary state law. The question: whether the McCarron Ferguson Act, granting the states the right to regulate insurance except in cases where Congress has expressed a contrary intent, would be trumped by Federal law recognizing the enforceability of international arbitration agreements. The issues controlling these decisions are complex, and require consideration beyond the space available here. However, of the three Circuit Courts that have considered this question, two,¹ and importantly, the most recent two, have found in favor of enforcing the arbitration agreement, while only one,² the earliest, has not.

The lesson here is that U.S. state court decisions about purely domestic disputes say nothing about the enforceability of international arbitration agreements as are typically included in Bermuda form policies. The U.S. federal courts have generally favored the enforcement of these agreements. Equally important to Bermuda insurers is the fact that Bermuda and U.K. courts have routinely been receptive to applications to issue anti-suit injunctions to bar lawsuits filed in contravention of arbitration agreements. In short, Bermuda insurers may continue to rely on the enforceability of their chosen Bermuda- or London-based arbitration selection. 

 


¹ Safety National Casualty Corp. v. Certain Underwriters at Lloyds, 587 F.3d 714 (5th Cir. 2009); ESAB Group v. Zurich Insurance PLC, 685 F.3d 376 (4th Cir. 2012).

² Stephens v. American International Ins. Co., 66 F.3d 41 (2d. Cir. 1995).

 

Washington Supreme Court Articulates New Analysis of EUO Conditions

Thursday, January 24th, 2013

By Robert A. Meyers, Sedgwick Seattle

In an effort to protect insurers against fraudulent claims, many insurance policies include a condition that requires a policyholder to submit to an examination under oath (“EUO”) at the insurer’s request. In Staples v. Allstate Ins. Co., No. 86413 (Wash. January 24, 2013), an 8-1 majority of the Washington Supreme Court articulated a new analysis of insurers’ and policyholders’ respective rights and obligations under EUO conditions.

First, the Court held that an insurer may only demand an EUO if the EUO is “material to the investigation or handling of a claim.”  By so ruling, the Court expressly disapproved of the Washington Court of Appeals’ decision in Downie v. State Farm Fire & Cas. Co., 84 Wn. App. 577, 582-83, 929 P.2d 484 (1997), in which the Court of Appeals had declared that insurers have an “absolute right to at least one EUO.”

Second, the Court held that an EUO condition is a form of “cooperation clause.” As such, the Court held that a policyholder need only “substantially comply” with an EUO condition, and an insurer must demonstrate that it was actually prejudiced by any breach of an EUO condition. By so ruling, the Court again disapproved of the Washington Court of Appeals’ ruling in Downie, in which the Court of Appeals had declared that an insurer need not demonstrate that it was prejudiced by a breach of an EUO condition.

Turning to the facts of the case, the Court then reversed an order granting summary judgment in favor of Allstate under Allstate’s EUO condition. Although Allstate’s policyholder had failed to submit to an EUO after repeated requests spanning four months, the Court held that there were genuine issues of material fact with respect to whether (1) an EUO was material to Allstate’s investigation, (2) the policyholder substantially complied with Allstate’s requests for an EUO, and (3) Allstate was prejudiced by any breach of the policy’s EUO condition. Therefore, the Court held that a jury must resolve the issues.

In view of the Court’s ruling, it likely will be more difficult for an insurer to obtain relief via summary judgment because of a Washington policyholder’s breach of an EUO condition.  Indeed, in Staples, the dissenting justice even gloomily opined, “Today’s decision invites insureds to put minimal effort into complying with the terms of their insurance policies, expecting the company to pay.”

The Court’s majority and dissenting opinions can be found here and here, respectively.

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

Wednesday, January 23rd, 2013

By Robert 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.

Sedgwick Speaks
Sedgwick’s insurance attorneys regularly present to clients and other industry professionals on a wide range of topics. Click here to see a list of upcoming Sedgwick events and scheduled speaking engagements of our attorneys and here to see prior speaking engagements of our attorneys.

Our Firm
Sedgwick provides trial, appellate, litigation management, counseling, risk management and transactional legal services to the world’s leading companies. With more than 370 attorneys in offices throughout North America and Europe, Sedgwick's collective experience spans the globe and virtually every industry. more >

Search
Subscribe
Subscribe via RSS Feed
Receive email updates: