Unanimous State Supreme Court Rules Non-Retroactive Claims-Based Insurance Policies Unenforceable

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Addressing a first impression question posed in a certified question from the U.S. District Court for the Western District of Washington, the Washington State Supreme Court ruled that a contractor’s commercial liability insurance policy was unenforceable because it did not provide prospective or retroactive coverage.

In a Notice of August 11the high court unanimously ruled that the insurance policy issued to Baker and Sons Construction Inc. by Preferred Contractors Insurance Company violated Washington public policy because it did not provide prospective or retroactive coverage and created windows limited to one year for claims to occur and be reported.

In September 2020, Angela Cox filed a wrongful death lawsuit against Baker after her husband, Ronnie Cox, died in his sleep the night after being struck by a two-by-four piece of wood. The dispute landed in the U.S. District Court for the Western District of Washington after it denied PCIC summary judgment and granted Cox and Baker’s motion for Supreme Court certification regarding the policy.

Solicitor Joseph Scuderi, of the Scuderi law firm in Olympia, represents Baker and said the PCIC had a “very unusual” policy which made it appear as though the contractor had appropriate insurance coverage.

The court accepted Cox and Baker’s argument that Chapter 18.27 RCW establishes a public policy ensuring that contractors are financially responsible, primarily through insurance, for losses caused by their negligence. The law requires contractors to have insurance or financial liability to cover $100,000 “for injury or damage, including death to any person” to obtain registration with the state.

Although RCW 18.27.050 does not require occurrence policies or retroactive coverage for contractors, the Supreme Court said insurers should not issue policies that essentially cause contractors to default on their financial responsibility prescribed by the law.

PLIC had issued two similar non-retroactive policies to Baker from January 5, 2019 to January 5, 2020, known as Policy 2019, and from January 5, 2020 to January 5, 2021, known as Policy 2020.

The court said the parties’ insurance agreement was more like an event insurance policy, as coverage only extended to bodily injury and property damage if they occurred during the policy period. planned.

The policy’s claims features were added later and applied only to claims “first made against the insured and reported to [PCIC] in writing during the period of insurance.

Given that Mr. Cox’s death occurred in October 2019 and Cox did not notify Baker of his intention to sue until September 2020, the dates of the event and report have not been determined. take place during the same period of insurance. PLIC denied coverage for the claim initially in October 2020, but agreed to defend Baker on a reservation of rights.

The 2019 policy did not cover the claim because it was not reported during the policy period, and the 2020 policy did not provide coverage because the event giving rise to the claim occurred before the beginning of the insurance period on January 5, 2020, according to the opinion.

Although no Washington state court has determined the enforceability of non-retroactive claims policies, the High Court took inspiration from a 1985 New Jersey Supreme Court decision in Sparks v. St. Paul Insurance Co.

The New Jersey High Court said non-retroactive claims-based policies “combine[] the worst features of the “occurence” and “claims made” policies and the best of both” by providing neither retroactive nor prospective coverage found in these policies and noted that the nature of the error and the reporting period would have sufficient time to file a complaint.

The New Jersey Supreme Court found that the provisions of the non-retroactive policy limiting recovery to claims arising and reported during the policy period were unenforceable on the basis of public order, similar to the ultimate conclusion of the Washington Supreme Court.

Scuderi said that since the policy was found to be unenforceable, the case will now go to federal court to determine how to deal with Cox’s wrongful death claim.

“The insurance policies issued by the PCIC to Baker do not provide prospective or retroactive coverage and create limited one-year windows for claims to occur and be declared eligible for coverage,” Judge Susan Owens wrote. for the panel. “Such restrictive coverage violates Washington public policy. Accordingly, we answer the certified question in the affirmative.

Attorneys Jeremey Donn Dobbins, Kevin Hochhalter, Darrell L. Cochran, Kevin Michael Hastings and Christopher Eric Love also represented the defendants.

Attorney Daniel L. Syhre, of Betts, Patterson & Mines in Seattle, represented PCIC and did not return a request for comment.

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