In a recent decision, the Washington State Supreme Court certified a question from the Western District of Washington in Preferred Contractors Insurance Company, Risk Retention Group, LLC v. Baker and Son Construction, Inc. The Court was asked whether a contractor’s liability insurance policy violated Washington public policy. The certified question was as follows:
When a contractor’s liability insurance policy provides only coverage for “occurrences” and resulting “claims-made and reported” that take place within the same one-year policy period, and provide no prospective or retroactive coverage, do these requirements together violate Washington public policy and render either the “occurrence” or “claims-made and reported” provisions unenforceable?
The Court answered the question in the affirmative, finding that the particular insurance policies at issue violated public policy.
In the case at hand, the insured was a contractor renovating a hotel. There was a serious injury on the site which resulted in death. The incident occurred on October 31, 2019, during the first policy period. Notice of a potential wrongful death claim was given to the insured on September 23, 2020. The insured notified its carrier on September 25, 2020, during the second policy period.
The carrier denied coverage, at least in part because the occurrence and reporting dates did not occur during the same policy year. The policies at issue provided there was no continuous coverage between renewed policies. The policies were non-retroactive, meaning the retroactive date was set to the first day of each policy.
The Court relied upon RCW 18.27 to outline the public policy at issue. This statute, in part, requires a contractor to either have insurance or the ability to cover $100,000 for injuries or damage. This is a prerequisite for registration with the state, Here, the Court found that the state had an interest in ensuring that contractors are financially responsible for losses caused by negligence, and that insurance is the primary means for ensuring this financial responsibility. In the eyes of the Court, this interest outweighed the parties freedom to contract. Specifically, the Court stated as follows:
We are mindful that parties to insurance contracts generally should have the freedom to contract. But when the legislature orders contractors to bear financial responsibility for the injuries their negligence may cause and dictates insurance is the preferable method to comply with this mandate, we cannot enforce insurance provisions that render coverage so narrow it is illusory. …insurers should not issue policies that essentially cause contractors to default on their statutorily mandated financial responsibility.
This ruling is limited to narrow, claims made policies. However, insurance carriers will need to be mindful if they are issuing policies with coverages that may fall short of the financial responsibility laws in a particular state.
Lether Law Group currently represents multiple insurers in coverage litigation in state and federal courts in a number of states and has experience navigating complex issues such as the one presented here. If you have questions about the implications of this case or general questions in regard to pending insurance claims, please feel free to contact our office.
Founder & Managing Shareholder
Thomas Lether is a graduate of the University of Puget Sound and the University of Puget Sound Law School. He has been involved in insurance and commercial litigation since 1988. Mr. Lether’s primary clients include numerous National and International insurance companies, several smaller insurers and independent adjusting firms. He also represents a number of contractors, property owners, and business owners. His practice predominantly involves the representation of insurance companies and individuals in the investigation, adjustment and defense of complex coverage matters.