INSURANCE-RELATED COURT CASES
Digested from case reports published online
and public policy
Cox Construction was the general contractor of a project to remodel the Roadway Motel in Long Beach, Washington. Cox hired Baker and Son Construction Inc. as a subcontractor. On October 31, 2019, a Baker employee allegedly caused a two-by-four to fall from a railing and strike Ronnie Cox, the owner of Cox Construction, in the head. Cox died in his sleep later that night. Baker allegedly called an insurance agent to alert him/her of the incident. The agent told Baker that no action needed to be taken because at that time no claim existed.
On September 23, 2020, Baker received a notice from an attorney representing Mr. Cox’s widow, Angela Cox, that she was pursuing a wrongful death claim against Baker. Baker notified its insurer, Preferred Contractors Insurance Company (PCIC), of the claim on September 25, 2020. PCIC denied coverage of the claim on October 14, 2020, but agreed to defend Baker under a reservation of rights. PCIC denied coverage for several reasons, chief of which involved the claims-made nature of the policy and the timing of Baker’s tender of Ms. Cox’s claim.
PCIC had issued two CGL policies to Baker. The policies were substantively identical, but one had a coverage period of January 5, 2019, to January 5, 2020 (the 2019 policy), and the other had a coverage period of January 5, 2020, to January 5, 2021 (the 2020 policy). These were claims-made policies. The insuring agreement, however, provided coverage with language more similar to that in an occurrence policy.
The claims-made features of the policies were added in a “claims-made and reported limitation” endorsement, limiting coverage to bodily injuries that occurred and were reported to PCIC within the policy period.
These endorsements also provided there was no continuous coverage between policies that were renewed, limiting each policy period to one year. Because Cox’s death occurred in October 2019 and Ms. Cox did not notify Baker of her intent to sue until September 2020, the occurrence and reporting dates did not occur in the same policy period. The 2019 policy did not cover the claim because it was not reported within the policy period, and the 2020 policy did not provide coverage because the occurrence the claim arose from happened before the policy period began on January 5, 2020.
Ms. Cox filed her wrongful death claim in Pacific County Superior Court on November 12, 2020. PCIC filed a declaratory action in the United States District Court for the Western District of Washington on January 7, 2021, seeking a declaration that it had no duty to defend or indemnify Baker for Cox’s death. PCIC filed a motion for summary judgment, and Ms. Cox, joined by Baker, filed a motion for certification to the state supreme court. The district court denied PCIC’s motion and partially granted Ms. Cox and Baker’s motion.
The certified question asked:
Whether a liability insurance policy providing only coverage for “occurrences” and resulting “claims made and reported” that take place within the same one-year policy period, and providing no prospective or retroactive coverage, violates Washington public policy and renders either the “occurrence” or “claims-made and reported” requirement unenforceable.
The court reformulated the certified question:
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 provides 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?
Most claims-made policies are effective from a set “retroactive date.” The retroactive date can be set for before the policy period to prevent a gap in coverage when the insured switches between insurers or from an occurrence policy to a claims-made policy. It is more common, however, to set the retroactive date as the first day of the claims-made policy period and retain that retroactive date across policy renewals to prevent gaps in coverage.
Claims-made policies that reset the retroactive date to the start of each new policy period are called nonretroactive claims-made policies. In a nonretroactive claims-made policy, “no one policy renewal ever responds to conduct which occurred before its policy period.” The policies issued by PCIC are nonretroactive claims-made policies.
Ms. Cox and Baker relied on a statutory provision to establish a public policy of ensuring that contractors are financially responsible, primarily through insurance, for losses caused by their negligence. The statute re-quires 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 statute also states an explicit purpose: “to afford protection to the public including all persons, firms, and corporations furnishing labor, materials, or equipment to a contractor from un-reliable, fraudulent, financially irresponsible, or incompetent contractors.”
The statute that insureds rely on for public policy exceptions also must clearly indicate the legislature’s intent for private parties to compensate those they injure.
The court was 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 that insurance is the preferable method to comply with this mandate, the court said it could not enforce insurance pro-visions that render coverage so narrow that it is illusory.
While the statute does not require insurers to issue occurrence policies or provide retroactive coverage to contractors who are switching from an occurrence to a claims-made policy, the court said insurers should not issue policies that essentially cause contractors to default on their statutorily mandated financial responsibility. The policies PCIC issued to Baker failed to provide prospective or retroactive coverage and created limited one-year windows for claims to occur and be reported to qualify for coverage. Such restrictive coverage violates Washington’s public policy. Therefore, the court answered the certified question in the affirmative.
Preferred Contractors Insurance Company v. Baker and Son Construction, Inc.—Supreme Court of the State of Washington—No. 100466-4—August 11, 2022.