Washington State Insurance Commissioner’s COVID-19 Letter

As we at Lether Law Group and the rest of Washington State enter our second day of Washington State’s Stay-at-Home Order, we hope all of you are staying safe, practicing social distancing, and doing as well as you can in these tough times. Lether Law Group is keeping busy and we remain open and available to assist you in any way that we can.

It has come to our attention that the Washington State Insurance Commissioner, Mike Kreidler, and the State of Washington Office of the Insurance Commissioner (the “Washington OIC”) has also been busy. Late yesterday, Lether Law Group received a copy of a letter from Mr. Kreidler dated March 25, 2020, which is directed to all Washington State authorized property and casualty insurers.

The letter instructs each insurer to provide the Washington OIC and policyholders with certain information on or before April 1, 2020. Specifically, Mr. Kreidler is requiring that property and casualty insurers operating in Washington State identify business interruption or business income type coverages (including civil authority) that may be available under any of their coverage forms. This is similar to requests we have seen in other states.

The Washington OIC Notice Letter requires each property and casualty insurer to do the following:

Provide the Washington OIC with the volume of business interruption coverage, civil authority coverage, contingent business interruption coverage, and supply chain coverage the insurer wrote that was in effect on March 15, 2020. This volume is to be expressed in amounts of direct written premiums, policy types, and number of policies written of each coverage type;

Examine policies the insurer has issued and explain the coverage the policies offer with respect to COVID-19 – both presently and any potential future coverage. This information should be provided as a clear and concise explanation of benefits such that it is suitable for policy holder review. The insurer should then: 1) send copies of the explanations to its policyholders of each applicable type; and 2) send copies of the explanations to the Washington OIC along with a confirmation that the explanations have been provided to the policy holders.

With respect to the disclosure to policyholders, the Washington OIC Notice letter details what Mr. Kreidler has deemed to be all relevant information including, without limitation, the following:

What type of commercial property insurance or otherwise related insurance policy does the insured hold?

Does the insured’s policy provide “business interruption” or “business income” coverage? If so, provide the “covered perils” under such policy. Please also indicate whether the policy contains a requirement for “physical loss or damage” and explain whether contamination related to a pandemic may constitute “physical loss or damage.” Please describe what type of damage or loss is sufficient for coverage under the policy.

Does the insured’s policy provide “civil authority” coverage? If so, please describe what type of damage or loss is sufficient for coverage under the policy. Please also describe any relevant limitations under the policy. Please explain whether a civil authority prohibiting or impairing the policyholder’s access to its covered property in connection with COVID-19 is sufficient for coverage under the policy.

Does the insured’s policy provide “contingent business interruption” coverage? If so, please describe what type of damage or loss is sufficient for coverage under the policy.

Please provide the “covered perils” under such policy. Please also indicate whether the policy contains a requirement for “physical loss or damage” and explain whether contamination related to a pandemic may constitute “physical loss or damage.”

Does the insured’s policy provide “supply chain” coverage? If so, is such coverage limited to named products or services from a named supplier or company? Please also indicate whether the policy contains a requirement for “physical loss or damage” and explain whether contamination related to a pandemic may constitute “physical loss or damage.”

For each instance of coverage described above, please provide the applicable waiting period under the insured’s policy. Please also indicate whether the amount of time coverage remains in effect once becomes active for a given incident.

March 25, 2020 Washington OIC Notice Letter at 1-2.

As noted above, the information to the Washington OIC and the policyholders needs to be provided on or before April 1, 2020. It is also required that the responses be sent via email to Policy@oic.wa.gov and have “COVID 19 SPECIAL REPORT_NAIC#” as the subject line. Both the response deadline and the subject line are considered part of the submission requirements.

Given the amount of information requested, the likelihood that insurers will have several different coverages provided via endorsement or otherwise under each coverage type, and the very limited amount of time provided for the response, we at Lether Law Group wanted to alert everyone as soon as possible.

To the extent you would like to discuss the Washington OIC Notice or any other issue, or to the extent we can be of service in any way, please contact Lether Law Group at any time.


In the mere days since our last newsletter, the social and economic impacts of the COVID-19 outbreak have undergone several seismic shifts. Lether Law Group is continuing to monitor the situation in order to develop swift and accurate responses to any questions that might arise regarding this unprecedented event. We encourage any clients or friends-of-the-firm who may have any questions or concerns to call or write at any time.

The following is a brief update on some of the issues that we are tracking:

Court Access

Virtually every court in the Pacific Northwest is operated on some measure of restricted access. Here are a couple of specific updates.

The state courts in Oregon have been ordered by the Oregon Supreme Court to move to Level 3 restrictions, which effectively means that all civil trials are indefinitely continued.
The Spokane County Superior Court in Washington has ordered that all hearings will be conducted telephonically. However, at this time there is still not anything on the Court’s website providing further information.
The Los Angeles County Superior Court, the largest court system in the nation, is currently closed entirely and is not scheduled to reopen until Friday, March 20, 2020. It is our understanding that when LA County reopens, it will be on a limited basis.
Again, nearly every court system that we are aware of is experiencing some level of disruption in service. We encourage anyone with a pending matter to review your court’s website or contact the court directed before going to court.

Property Insurance – Business Income Loss

One of the questions that we have been asked to address for several clients is whether there might be Business Income coverage available under first-party property policies to cover losses associated with the widespread closures and disruptions due to governmental directives to close or restrict business.

“Business Income” coverage provided benefits for income that a business loses due to a necessary suspension of operations caused by direct physical damage to the insured premises.

The Washington Courts have addressed this coverage and have held that Business Income benefits are only available if (1) the business actually ceases all operations, and (2) the lost income was directly caused by physical damage to the insured premises. Keetch v. Mut. of Enumclaw Ins. Co., 66 Wn. App. 208, 831 P.2d 784, 1992 Wash. App. LEXIS 266.

As a result, we would not anticipate that there would be too many scenarios in which the Business Income coverage is implicated for lost revenue caused by the COVID-19 outbreak. In situations where a business has decreased revenue due to its efforts to comply with governmental directives or merely due to less customer traffic, the coverage would not apply because there is not a necessary suspension of all operations. Moreover, even where a business is forced to close, whether voluntarily or at governmental direction, that closure will likely not be caused by any direct physical damage to the insured premises.

However, we are aware of one lawsuit that has already been filed seeking Business Income coverage in the context of a restaurant closure. Cajun Conti, LLC v. Certain Underwriters at Lloyd’s, London, et. al., Civil District Court for the Parish of Orleans, Louisiana. In Cajun Conti, the restaurant claims that the property itself is contaminated with the COVID-19 virus. Thus, the restaurant claims that the closure was in fact a necessary suspension of operations due to “physical damage” to the property. This lawsuit was just filed on Monday, March 16, 2020. We will provide updates as information about this lawsuit becomes available.

One other note on this coverage is that modern policy forms may contain a virus or pathogen exclusion that could operate to preclude coverage even where there is a necessary suspension of operations due to physical damage to the property. In addition, many property policy forms will include an exclusion for losses caused by the acts or decisions of a governmental entity.

As always, for any claim the policy should be thoroughly reviewed for any and all terms, conditions, limitations, and exclusions that may be implicated.

Finally, on federal, state, and local levels, there are a number of governmental entities initiating emergency measures to assist businesses that have closed or are otherwise have been affected. We anticipate that a number of jurisdictions will begin requiring insurers to provide relevant governmental agencies with information concerning the availability of Business Interruption coverage even without any claims having been made. The New York Department of Financial Services has already ordered all property/casualty insurers providing insurance in the State of New York to provide the Department with an explanation for the potential coverage relating to COVID-19. Specifically, the NYDFS Order requires the following:

Insurer must provide NYDFS with information regarding the volume of business interruption coverage that the insurer has written, that has not lapsed as of March 10, 2020, including the amounts of direct premiums, policy types, and number of policies for each type.
Examine all policies and “explain the coverage each policy offers in regard to COVID-19.”
Prepare a clear and concise explanation of benefits suitable for policyholder review.
Send the explanation of benefits to all policyholders and to NYDFS with a certification that the explanation has been sent to all insureds.
Again, we expect other states to follow New York’s lead on this issue.

Third-Party Liability Coverage – Lawsuits Against Governmental Bodies

Several of our clients insure governmental bodies, whether directly or by participation in municipal risk pool coverage. We anticipate that the COVID-19 outbreak and the governmental response thereto will result in a substantial number of lawsuits against federal, state, and local governmental entities that individuals or entities may view as culpable for the spread of COVID-19 or for the financial impacts associated with the response to the outbreak.

In times of emergency declaration, the government’s powers are sharply increased and many of these types of lawsuits may be barred by the doctrine of sovereign immunity or by the statutes allowing for expanded governmental power in times of emergency.

From an insurance coverage standpoint, however, these types of claims will present multiple complex issues that may impact the coverage picture. For instance, under a general liability type coverage, would a governmental decree requiring the closure of a business qualify as a covered “occurrence” or “event’ as those terms are defined in the relevant policies? Or might the coverage be more properly addressed under a broad “wrongful acts” type coverage?

For any of our clients or friends that would like to discuss the coverage implications surrounding potential claims against governmental entities, please feel free to contact us at any time.

A Word of Thanks

Lether Law Group is acutely aware of the massive social, financial, and cultural disruption that this outbreak has caused. We truly wish everyone the best in these trying times and we thank all of our friends, colleagues, clients, and acquaintances for all of the support that we have received. We truly cherish all of our relationships.

As always, if there is anything that you would like to discuss about these or any other issues, please feel free to contact Lether Law Group at any time.

Coronavirus (COVID-19) Update

The coronavirus (COVID-19) pandemic has caused a significant health crisis throughout the world. The health concerns and public response to this catastrophe have been overwhelming. The potential economic impact of this crisis has yet to be fully addressed.

At Lether Law Group we are actively reviewing a number of potential legal and insurance related issues which will develop as a result of this ongoing situation. This includes analyzing the impact the virus will have on worldwide financial markets, the local impact on businesses and jobs, and the implication that this situation will have on our insurers and private clients.

Obviously, this is a rapidly changing and developing environment and we are working to stay on the forefront in identifying potential issues and developing a response to emerging issues for our clients. A number of issues have already been identified. For example, what are the potential coverage issues involving claims for business interruption or arising out of acts of decisions of government agencies to shut down transportation, service or public events? Additional issues arise in regard to the potential coverage for business interruption losses arising out of breach of contract claims and other transactual litigation which clearly will develop as a result of businesses and individuals retracting from ongoing financial obligations and business arrangements. Concerns have also arisen regarding potential liability and coverage issues for healthcare professionals and first responders that are on the frontlines of the fight against COVID-19.

We are also assessing the potential liability and coverage issues that might arise from accidental exposure to COVID-19 in the workplace and public at large. Finally, we are also working to address the significant issue involving available health benefits under public and private health insurance plans associated with medical care for COVID-19 infection.

One thing is definitely clear, this health crisis will not be going away any time soon and will continue to impact the economy and the insurance markets for the foreseeable future. In fact, the impacts are already affecting large portions of our society, with the cancellation of nearly every major sporting event, festival, concert, and other public gathering. The crisis is also dramatically impacting our courts. The following is a brief summary of what we know so far:

Pursuant to General Order 01-20, signed by Chief Judge Ricardo Martinez on March 6, 2020, all trials in the United States District Court for the Western District of Washington are continued indefinitely. The Court remains open, but there will be no hearings or trials. The Order will be vacated or amended on or before March 31, 2020. We anticipate that the Order will be extended at that time.

On March 4, 2020, Chief Justice Debra Stephens of the Washington State Supreme Court issued an Emergency Order allowing the Superior Courts and intermediate appellate courts to “adopt, modify, and suspend” the court rules or orders as warranted to address the crisis.

The King County Superior Court has suspended all personal appearances for oral argument on contested motions. We are also advised that although there is no formal Order at this point, there will be no civil trial in King County for a minimum of 2-3 months.

The Pierce County Superior Court will continue to hold trials and hearings, but it appears that decisions on whether to go forward are being placed in the discretion of each judicial department. Practitioners are being encouraged to contact the judicial assistant in their assigned department to inquire as to the status of pending matters.

The Snohomish County Superior Court has adopted an Emergency Order substantially the same as that adopted by Pierce County.

At this time, there are no changes to court operations for the United States District Court for the District of Oregon.

The largest state court in the State of Oregon, the Multnomah County Circuit Court, has ordered that all civil trials are continued for at least 30 days.

The United States District Court for the District of Idaho is maintaining normal operations. However, the Court has barred anyone who has travelled to the following areas in the past 14 days from entering the Court: China, Iran, Japan, South Korea, and “the Seattle/Tacoma area.”

Multiple other courts in the Pacific Northwest, and frankly throughout the United States, have adopted measures urging caution and offering recommendations for dealing with COVID-19. We urge anyone with any pending matter to visit the relevant court website for further information.

Despite any interruptions in the business environment or any court closures, Lether Law Group remains open and available to discuss these or any other issues at any time. If you are interested in discussing the impact of COVID-19 in relationship to economic concerns, insurance, or any other issues, please contact Lether Law Group.

A Washington Court Rejects an Argument for Expansion of “Material Change” Rule Relating to the Obligation of an Insurer to Re-Offer Previously Rejected PIP Coverage

Personal Injury Protection (PIP) coverage is a product of statute in Washington. RCW 48.22.085. The statute requires insurers to offer PIP coverage for any new policy issued in Washington. However, the insured is not required to accept PIP coverage. Regarding rejection, the PIP statute provides as follows:

(2) A named insured may reject, in writing, personal injury protection coverage and the requirements of subsection (1) of this section shall not apply. If a named insured rejects personal injury protection coverage:

(a) the rejection is valid and binding as to all levels of coverage and on all persons who might have otherwise been insured under such coverage; and

(b) the insurer is not required to include PIP protection coverage in any supplemental, renewal, or replacement policy unless a named insured subsequently requests such coverage in writing.

RCW 48.22.085(2).

On February 23, 2017, Progressive issued a personal auto policy to named insured Jesus Mendoza. At the time that he purchased the policy, Mr. Mendoza rejected PIP coverage. When the policy renewed in February of 2018, Mr. Mendoza added his mother, Ms. Esther Madrigal de Mendoza as an insured under the policy and also added her vehicle.

On July 28, 2018 Ms. Madrigal de Mendoza was involved in an automobile accident. She made a claim for PIP benefits under the Progressive policy. Progressive rejected coverage on the basis that PIP had been waived.

Ms. Madrigal de Mendoza issued a Notice of Violation under the Insurance Fair Conduct Act claiming that Progressive had an obligation to re-offer PIP coverage when she and her vehicle were added to the policy upon renewal. Following receipt of the IFCA notice, Progressive filed a Complaint for Declaratory Judgment seeking a judicial determination of its rights and obligations under the subject policy.

The parties later filed Cross-Motions for Summary Judgment on the single coverage issue. Progressive’s position was that the PIP statute was unambiguous and should be enforced as drafted.

Ms. Madrigal de Mendoza argued that the “material change” doctrine adopted by the Washington Courts in the context of the obligation to re-offer underinsured motorist (UIM) coverage, should be adopted by the Court. In those cases, the Washington Courts have held that even if there is not a strict “new policy” purchased, there may be an obligation on the part of the insurer to re-offer UIM coverage if the insured makes a “material change” to the policy. See e.g., Torgerson v. State Farm Mut. Auto. Ins. Co., 91 Wn. App. 952, 958-959, 957 P.2d 1283 (1998).

The District Court analyzed the issue by assuming, but not deciding, that the “material change” doctrine would apply to PIP coverage under Washington law. The Court concluded that if there was not a “material change” as that rule had been applied by the Washington Courts, then Progressive must prevail.

The District Court noted that the statement from the Torgerson Court that “a majority of jurisdictions which have dealt with the question do not find a new policy created when a party replaces a vehicle covered under an existing policy with a new vehicle.” The Court concluded as well that under Washington’s approach to the “material change” rule, adding a new vehicle or a new insured do not constitute “material change” that would require Progressive to re-offer PIP coverage.

The Court concluded that only changes to coverages or levels of coverage would support a conclusion that there had been a material change to the policy. Thus, even if a “material change” rule were to be applied in the PIP context – something that the Court again did not expressly hold – there was no basis for requiring Progressive to re-offer PIP coverage to the Mendozas. Summary Judgment was granted in favor of Progressive.

There are a couple of things that we find particularly instructive about the Mendoza case. First, claims and underwriting personnel should be aware of the “material change” rule, particularly as it concerns UIM coverage. Where there is a waiver of either PIP or UIM coverage, we would encourage claims personnel to ensure that no “material change” had occurred in the coverages before taking a coverage position.

Also, the Mendoza case highlights the importance and effectiveness of bringing a Declaratory Judgment Action once it becomes clear that there is an actual and justiciable controversy on a coverage issue. By bringing the Declaratory Judgment Action, Progressive was able to focus the case on the sole coverage issue without becoming tied up in cumbersome extra-contractual issues.

Tom Lether and Eric Neal were proud to have represented Progressive in the Mendoza matter. Should you wish to discuss this case or any other issue in further detail, please do not hesitate to contact Tom and Eric at any time.

Homeowners Insurance: Commonly Asked Questions and Some Simple Advice

It is not uncommon for people to complain about their insurance company. No one likes paying premiums and rarely does anyone enjoy having to make a claim. However, property insurance policies are products that most, if not all, homeowners and renters have. The following are some commonly asked questions and some simple recommendations.

  • As a Property Owner or Renter What Types of Insurance Should I Have?

 All homeowners and renters should carry property and liability insurance. These policies typically provide similar coverages. Homeowners policies provide coverage for the actual structure or residence, the personal property in the residence, and for additional living expenses which may be incurred if a loss takes place. Such expenses can include the rental for an alternative residence, emergency meals, etc. Renters policies provide the same types of coverage except coverage for the actual building. Finally, owners of condominiums should also procure property insurance. Condominium policies obtained by unit owners typically provide coverage for their personal property, additional living expenses, and improvements and betterments contained within their own individual units.

Homeowners, condominium owners, and renters policies also typically provide liability coverage which protects an insured if a claim or suit is filed against the insured. This coverage provides both for an attorney to defend the insured and for payment of any judgment or settlement up the amounts of the policy limit.

  • What Makes for a Good Insurer?

Premium value is always a concern. However, it is better to spend the money to have the right insurer and coverage’s. Although you may want to shop your insurance premium, find out from your agent or broker what you are actually getting for your money. When it comes to customer service, local insurers are going to typically provide better service. It is better to have a claims agent in your neighborhood or community as opposed to a remote agent who does not understand the Northwest. It is always better to have an insurance claims department that actually has a physical presence in Seattle.

  • How Much Insurance is Enough?

It is best to be fully covered than to save a few dollars on premiums. For example, it is important that you properly assess the value of your personal property. It is even more important to understand that the construction costs for repairing your home may be significantly more than you imagine. Given the construction boom in the Northwest, construction prices have gone up dramatically. Your own insurance company may not even recognize this.

Finally, we live in a litigious world. The value of claims against individuals have skyrocketed. Carrying a $100,000 liability policy limit may seem like a sufficient amount. However, if you are sued for traumatic injury you may find that such a limit is not enough.

  • Is Excess Coverage a Good Idea?

Umbrella, or excess, coverage provides liability coverages over the amount stated in your primary policy. Given the exposures present in the current world, it is always a good idea to make sure you have excess or umbrella coverage providing additional protection.

  • Are There Particular Types of Property Coverage that Insureds Should Have?

There are a number of types of property coverages that an insured should make sure they have. These include Guaranteed Replacement Cost Coverage. This coverage usually provides additional limits to an insured when they repair their residence following a loss. Another example involves building code or upgrade coverage. This provides additional coverage if a building department requires modifications to be made to your home or residence. Finally, if you have particular contents items that are high in value, you should consider scheduling the personal property and obtaining additional coverage. For example, most property policies have limitations on jewelry and antiques. For a small amount you can obtain additional insurance for these items.

  • Is Earthquake Coverage a Good Idea?

Seattle has not suffered a major earthquake since February 28, 2001. However, there is always the potential that an earthquake could happen at any time. Earthquake coverage is more applicable to homeowners as opposed to renters or condominium owners. Depending on the age of your home and type of construction, earthquake insurance may be a valuable thing to have. However, make sure that you are getting the right type of coverage. For example, many earthquake policies have limits on how much will be paid out, have high deductibles, etc.

  • What Do I Do If I Have a Claim?

One of the most important things to do if you suffer a loss is to report the loss promptly. Thereafter, cooperate with the agent and claims representative to make sure the claim is processed in a timely fashion.

  • What Happens if My Insurance Company Does Not Properly Respond to My Claim?

Washington is one of the most consumer-friendly jurisdictions in the country for insureds. The insurance industry is heavily regulated. There are very specific requirements that an insurer must follow in regard to how to handle claims. This includes specific response deadlines for how long an insurer has to resolve claims. There are many options for insureds to pursue claims against insurance companies which improperly treat their insureds. If insurers fail to follow these rules or otherwise act in what is termed “bad faith,” they may be exposed to claims under the Consumer Protection Act, claims under the Insurance Fair Conduct Act, and other common law claims. A good place to obtain additional information or to report an insurer that is not acting properly is the Washington State Office of the Insurance Commissioner.

The above article is an opinion based on various resources such as industry knowledge and is not to be construed as legal advice or to be used as such. If you require legal advice or would like to inquire further about the information contained in this article, please feel free to contact our office directly.

A Claim Too Far: The Dangers of Overreaching and Why Sometimes You Need to Go to Trial

Many insurers are extremely hesitant to allow a jury to consider insurance coverage or extra-contractual claims in Washington. The pro-insured temperament of Washington law and the reactions of juries to these types of claims give insurers every reason to avoid trial. This is particularly true given the treble damage exposures available under Insurance Fair Conduct Act. As a result, many insurers believe a file has to be “perfect” in order to go to trial.
That belief ignores the reality of modern claims-handling. In almost any claim there will be some type of an issue wherein the claim was not handled perfectly. Mistakes, however, do not mean bad faith. Sometimes you have to not be afraid to present your case and let the jury decide.
That is exactly what happened in the matter entitled Gallagher v. Fire Insurance Exchange (Farmers). In the Gallagher case, the insured suffered an accidental residential fire. The fire was small and primarily involved only smoke damage. Following the fire, and during the course of the investigation of the first claim, a secondary water damage event occurred as the result of an alleged frozen pipe. Although the insured was residing in the home at the time of the initial smoke loss, the repairs had not yet been completed for the smoke loss. Farmers extended coverage and issued payments for the dwelling, contents, and additional living expenses. Between the two claims, there were several issues which arose. Although the insured raised several complaints in regard to the claim handling, Farmers paid what it believed it owed on all claims.
Regardless, the insured sued and alleged the standard claims for breach of contract, bad faith, treble damages under IFCA and violations of the Washington Consumer Protection Act. A significant part of the insured’s claim involved allegations surrounding a claim that her home had been contaminated by toxic smoke as part of the losses.
Despite Farmers’ efforts to resolve the claims, the litigation dragged on for years with exhaustive and extensive discovery, motions practice, expert witnesses etc. This all resulted in significant costs to both sides. When a reasonable resolution could not be arrived at, Farmers elected to proceed to have the jury decide the issues.
The insured asked for an award in excess of 12 million dollars. This demand primarily involved extra-contractual claims.  Following an almost three-week trial, the jury returned a complete defense verdict for Farmers on all issues. The jury deliberated for approximately an hour. The primary theme that the jury agreed on was that despite some claims handling issues, Farmers acted reasonably and that the plaintiff herself was overreaching. Farmers also argued that the insured was using the insurance funds to remodel her house.The insured’s claims of toxic smoke conditions were flatly rejected. The below photos illustrated the dispute.
      The bottom line is that trying to resolve claims through a reasonable settlement or mediation is always preferable. However, there are some claims that need to go to trial. Some parties need to have a jury give them an honest assessment of the value of the claim. Even if there are claims-handling issues and exposures, you cannot be afraid to try a case.
Farmers Insurance was represented throughout the course of the claim and at trial by Tom Lether and Eric Neal of Lether & Associates. If you would like to discuss this case or other bad faith claims involving property losses, please contact our offices.