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Vol. 11 - Issue 4

August 15, 2022


Just Decided: Washington High Court: Insurer’s CGL Policy Violates Public Policy


“Occurrence” policies and “claims made” policies have well-defined distinctions.  In general, under today’s commonly used forms, an “occurrence” policy is triggered for an “occurrence” that could have happened at any time – even ages ago – so long as the “bodily injury” or “property damage” occurred during the policy period.  A “claims made” policy is triggered for a wrongful act that occurs on or after the retroactive date and before the end of the policy period and a claim [likely defined] was first made against the insured and reported to the insurer during the same policy period.  

The policy at issue before the Washington Supreme Court, in Preferred Contractors Ins. Co. Risk Retention Grp., LLC v. Baker & Son Constr., Inc., No. 100466-4 (Wash. Aug. 11, 2022) was a combination of the two -- and then some -- and the court did not take kindly to it, declaring that it violated the state’s public policy.

In general, insurers that issue policies to contractors, in states with a mandatory minimum insurance requirement [and I do not know how many that is], would be well-served to review the decision and consider if any policy limitations, such as an amended/narrowing insuring agreement, or certain exclusions, run the risk of falling afoul of any such statutes.

The case is all about the insuring agreement, so I’ll set it out here verbatim:

This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” or “property damage” is caused by an “occurrence” that first takes place or begins during the “policy period”. An “occurrence” is deemed to first take place or begin on the date that the conduct, act or omission, process, condition(s) or circumstance(s) alleged to be the cause of the “bodily injury” or “property damage” first began, first existed, was first committed, or was first set in motion, even though the “occurrence” causing such “bodily injury” or “property damage” may be continuous or repeated exposure to substantially the same general harm;

(2) The “bodily injury” or “property damage” resulting from the “occurrence” first takes place, begins, appears and is first identified during the “policy period”. All “bodily injury” or “property damage” shall be deemed to first take place or begin on the date when the “bodily injury” or “property damage” is or is alleged to first become known to any person, in whole or in part, even though the location(s), nature and/or extent of such damage or injury may change and even though the damage or injury may be continuous, progressive, latent, cumulative, changing or evolving.”

Then, the policy added a “claims made” endorsement, which set out additional provisions that needed to be satisfied.  In general, the policy applied only to claims first made against the insured and reported during the policy period.

Basically, to trigger coverage, everything had to absolutely first take place during the policy period – the “occurrence” and “bodily injury” or “property damage” – and then the claim made and being reported. 

All things considered, that’s a very narrow needle for a claim to thread for an insured to get coverage.   

The Washington Supreme Court addressed the following certified question from the Washington District Court:

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 went through a tutorial on “occurrence” and “claims made” policies and noted that “insurance policies are private contracts, and parties are ordinarily free to exercise their freedom of contract to limit the liability covered in the policy. . . . However, this court will refuse to enforce an insurance provision if it is contrary to public policy.”

What led the court to conclude that the policy at issue violated public policy was chapter 18.27 of the Washington Code, designed to ensure that contractors are financially responsible, primarily through insurance, for losses caused by their negligence. The Code requires contractors to have insurance or financial responsibility to cover $100,000 “for injury or damage including death to any one person” to obtain registration with the state.

The opinion is very lengthy and detailed. But, in general, the court held that the policy at issue violated public policy as the coverage was so narrow as to not provide what was required for contractors under the Washington Code.  The court explained:

“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.  While RCW 18.27.050 does not require insurers to issue occurrence policies or provide retroactive coverage to contractors switching from an occurrence to a claims-made policy, insurers should not issue policies that essentially cause contractors to default on their statutorily mandated financial responsibility. The insurance policies PCIC issued to Baker fail to provide prospective or retroactive coverage and create limited one-year windows for claims to occur and be reported to qualify for coverage. Such restrictive coverage violates Washington’s public policy. Therefore, we answer the certified question in the affirmative.” 




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