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Tuesday, August 2, 2011

Oregon Statute Limits Contractual Waiver of Subrogation

New law in Oregon would void any provision in a construction contract that waives a party or an insurer's right of subrogation.  The prohibition only applies where subrogation is waived for death, bodily injury, or property damage, and it must be caused in whole, or in part, by the negligence of another person.  Notably, public contracts and proceeds of property policies are excluded from this prohibition.

The waiver of subrogation can be a valuable tool for all parties involved in a construction contract, and it remains to be seen how this provision will affect those parties.  Among other things, waivers of subrogation frequently help parties settle disputes by bringing finality to a settlement, ensuring that no third parties or their insurers will come back to seek further reimbursement for the same loss in the future.  The waiver of subrogation occurs where parties to a contract waive claims against each other, but only to the extent those claims are covered by insurance.  Frequently, a party to a construction contract will also waive claims against an architect, owner, or general contractor, even where those entities are not a party to the agreement.

The benefits of the law are not entirely clear.  Although the bill was initially introduced in a dramatically different form and touted as an equalizer for subcontractors bargaining with powerful general contractors, the final bill underwent numerous revisions and appears to benefit insurance companies most of all.

Friday, July 29, 2011

Insurance Briefs: Insurer Owes Defense Until It Doesn't

Nat'l Surety Corp. v. Immunex Corp.
(Wn. App. Div. 1)
Immunex and others were sued in several cases alleging that certain drug manufacturers artificially inflated their wholesale prices.  Immunex notified its umbrella and excess insurer, National Surety, of related issues, but did not notify National of the lawsuits or provide copies of the complaints until approximately five years after the complaints were filed.  National filed a declaratory judgment action, seeking a ruling to determine whether National had a duty to defend Immunex.  The trial court (Judge Steven Gonzalez) held that National had a duty to defend until the trial court ruled that there was no coverage, unless National could prove that Immunex's late notice of the lawsuits actually prejudiced National.  Division 1, in an opinion authored by Judge Appelwick, affirmed.  The ruling was based on the court's reasoning that the duty to defend was broader than the duty to indemnify; therefore, where the allegations of the complaint triggered a duty to defend, that duty to defend remained in effect until the court issued its final declaration of no coverage. 

Thursday, July 14, 2011

Insurance Bad Faith: SOL Begins to Run Upon Final Judgment Against Insured

Earlier this week, I tweeted a Washington Court of Appeals opinion in the case Moratti v. Farmers Insurance Company of Washington, et al.  That case held that the statue of limitations against an insurer begins to run when the underlying judgment against the insured becomes final.  In Washington, the three-year statute of limitations for torts applies to a bad faith claim against an insurer.  In other words, a bad faith claim against an insurer must be filed within three years of the date the claim accrues.

But when does the claim accrue?  This was the question addressed in Moratti.  There, a girl sued her landlord after she was injured in a fire in 2002.  Her injuries were due, at least in part, to the fact that the home did not have adequate, working smoke detectors.  The girl (Moratti) sued the landlord in 2003, and the landlord tendered suit to his insurer, Farmers.  Farmers accepted defense, and at first reserved only $5,000 to settle the claims, knowing that Moratti's medical expenses alone totaled almost $800,000.  Approximately a year later, a new adjustor was assigned to the case, and the landlord was advised for the first time that his liability could exceed his policy limits.  Despite this, Farmers offered only $100,000.  Finally, in 2004, Farmers offered to tender its policy limits to settle the claim, but this offer was rejected.

Facing significant personal exposure, the landlord confessed judgment for $17 million in 2007.  $600,000 of this judgment was paid out of the landlord's own pocket; the rest was as of yet unfunded.  In exchange, Moratti agreed not to execute on the judgment against the landlord personally, and took an assignment of the landlord's rights against Farmers.  A reasonableness hearing was held, and Farmers appeared but did not contest the judgment amount.

The following year, in 2008, Moratti filed suit against Farmers as the assignee of the landlord's bad faith and CPA claims.  After a four-week jury trial, the jury returned a verdict in favor of Moratti.  The trial court set aside the jury verdict, holding that the bad faith claim against Farmers was barred by the statute of limitations.  Alternatively, the court held that even if the claim was not barred, Farmers was entitled to a new trial.

On appeal, Farmers argued that the bad faith occurred in 2002, when the claim was denied without investigation.  Farmers further argued that the claim could not have accrued after 2004, because in 2004 Farmers offered its policy limits, thereby correcting any bad faith.

The court, in an opinion authored by Judge Grosse and joined by Judge Becker and Judge Spearman, disagreed.  An insurer's duties to defend and indemnify "are continuing duties that do not stop merely because the insurer offers the policy limits two years after it left the insured with the belief that there was no liability."  The court continued to hold that the claims were timely, and not barred by the statute of limitations.

This case will no doubt have lasting impact for bad faith claims going forward.

Wednesday, July 13, 2011

Insurance Briefs: Berschauer Phillips v. Mutual of Enumclaw (Unpublished Opinion)

Berschauer Phillips Constr. Co. v. Mut. of Enumclaw Ins. Co.
(Div. 1) (Unpublished Opinion)
This case arose when Berschauer Phillips filed suit against one of its subcontractors, an entity no longer in existence, and received a judgment.  Berschauer then filed an action to execute on the sub's rights against its insurer, Mutual of Enumclaw (rather than executing against the policy directly), and others.   The execution was not yet complete when Berschauer filed suit against MOE, such that Berschauer did not yet own the rights against MOE.  MOE moved to dismiss, and the trial court merely stayed the action until the execution action was completed.  Division I, in an unpublished opinion authored by Judge Appelwick and joined by Presiding Chief Judge Schindler and Judge Grosse, held that this was error.  The court held that, because Berschauer did not yet own the claims against MOE, it had no standing to sue MOE, and the case was reversed for dismissal.

Friday, July 8, 2011

Insurance Briefs

As an active practitioner and litigator, I regularly spend some time each week reviewing new case law regarding insurance coverage issues.  Here is the recent news regarding what's been happening on the insurance front in Washington courts:

Now I lay me down to sleep.
Mid-Continent Cas. Co. v. Titan Construction Corp.
(9th Cir.) (Unpublished Opinion)
This saga may sound familiar to you.  Back in 2008, the Ninth Circuit published an opinion in this matter reversing trial Judge Pechman's decision.  The Ninth Circuit held that substandard construction could constitute an "occurrence" triggering insurance coverage under Washington law.  The Ninth Circuit also held that the policy's exclusions for "Your Product" and "Your Work" did not apply. The case was remanded for further proceedings, and summary judgment was entered in favor of the contractor, Titan, after Judge Pechman determined that Mid-Continent failed to present evidence establishing that any of the other policy exclusions applied.  In a brief opinion, the Ninth Circuit affirmed.


Be careful what you ask for.
Continental Western Ins. Co. v. Costco Wholesale Corp. 
(W.D. Wash.) (No. C10-1987 RAJ)
Judge Jones recently granted summary judgment in favor of Costco against a supplier's insurer, Continental Western. In that case, an independent contractor salesperson for one of Costco's suppliers slipped and fell outside a Costco store while delivering a purchase order.  The individual sued Costco, and Costco tendered to Continental Western as an additional insured under the supplier's policy, but the additional insured coverage only applied to liability "arising out of" the supplier's products.  Interpreting this phrase broadly, Judge Jones granted summary judgment in favor of Costco.  In so ruling, Judge Jones acknowledged that there was "a weak causal connection" between the supplier's products and the liability, but that so long as there was a causal link, coverage applied.  Interestingly, where both parties moved for summary judgment on the duty to defend and the duty to indemnify, Judge Jones also held that there was a duty to indemnify, even though no liability had yet been incurred.


Monday, April 4, 2011

New Website and Blog!

Today, we're pleased to announce that our firm has a new name: Heffernan Law Group PLLC. Our new name is accompanied by a new website, which can be found at www.heffernanlawgroup.com.

One of the great resources at this new website is a news feed containing our insurance law articles, as well as other useful and insightful posts.  Going forward, you can find additional insurance information there.  Thank you for your readership, and I look forward to posting here and at www.heffernanlawgroup.com

Thursday, March 10, 2011

How Much Time Does My Insurance Company Have to Pay My Claim?

In Washington, there are certain laws and regulations in place that prevent an insurer from “sitting on” a claim.  In other words, when you submit a claim to your insurer, the insurer must timely complete its investigation and respond to the claim (generally by paying or denying) within certain time periods.  This article will outline some important deadlines that insurers must follow.

First, an insurance company is required to “acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies.”  WAC 284-30-330(2).[1]    Specifically, for individual insurance policies, an insurer must acknowledge receipt of a claim within ten working days of receiving the notification of claim.  WAC 284-30-360(1).   Once an insurer receives a claim, it must “affirm or deny coverage…within a reasonable time” after proper claim documentation is submitted.  WAC 284-30-330(5).  Sometimes further communication between the insured and the insurer is necessary, in which case the insurer must provide an appropriate reply within ten working days.  WAC 284-30-260(3).

In general, an insurer must complete its investigation of a claim within 30 days of receiving notification of the claim.  WAC 284-30-370.  However, the statute does acknowledge that, in some situations, an insurer’s investigation cannot reasonably be completed within that timeframe.  Id.  If this is the case, then within 15 working days after receiving fully completed proofs of loss, the insurer must notify the insured whether the claim has been accepted or denied.  WAC 284-30-380(1).  If the insurer needs more time to determine whether the claim should be accepted or denied, the insurer must notify the insured within 15 working days that more time is needed, and set forth the reasons that additional time is necessary.  WAC 284-30-380(3).  Going forward, additional notice must be provided every 30 days after that date explaining why the claim remains unresolved.  WAC 284-30-380(3).  However, the insurer cannot unreasonably delay resolution of the claim.

Once the obligation to pay has been established, the insurer is required to follow standards designed to get payment to the insured within fifteen days of submitting properly executed releases or settlement documents.  WAC 284-30-330(16).  Moreover, there are certain excuses that an insurer is expressly prohibited from using to avoid paying a claim timely.  For example, WAC 284-30-330(6) provides that, where two insurers are potentially liable for a claim, they must pay, even if the insurers haven’t yet determined between themselves which insurer is responsible for what portion of the loss. See also WAC 284-30-380(4) (an insurer cannot refuse to pay a claim on the basis that a third party is primarily responsible, absent specific language in the policy).  Similarly, an insurer cannot delay payment by requiring the insured to submit multiple claim reports containing substantially the same information.  WAC 284-30-330(11).  Likewise, an insurer cannot refuse to pay claims under certain policy coverages in order to influence settlement of claims under other coverage provisions.  WAC 284-30-330(12).

An insurer cannot compel its insured to commence litigation to obtain the benefits of its policy.  WAC 284-30-330(7).  When an insured does have to sue its insurer to obtain coverage and wins, the insured is also entitled to receive not only the amount due under the policy, but also attorney fees incurred in the coverage suit.  Olympic Steamship Co., Inc. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991).

In short, Washington regulations are designed to ensure that insurance claims are generally paid out within a month or two.  If extenuating circumstances apply, the laws and regulations aim to ensure that insurers continue to communicate with their insureds during any delay, and do not delay claims unreasonably.  Failure to follow the time requirements of Washington law could increase an insurer’s liability for a claim.  For example, breaches of the time periods set forth above could constitute breaches of Washington’s Consumer Protection Act, which allows treble (triple) damages of up to $10,000, or Washington’s Insurance Fair Conduct Act, which also allows treble damages without any limitation.


[1] To this end, an insurance company must also “adopt and implement reasonable standards for the prompt investigation of [insurance] claims.”  WAC 284-30-330(3).

Thursday, March 3, 2011

Bushnell v. Medico Insurance Company: Each Renewal Creates A New Policy

The recent Washington State Court of Appeals decision in Bushnell v. Medico Insurance Company, ___ Wn. App. ___, ___ P.3d ___, 2011 WL 479961 (2011), affirmed a rule established almost 50 years ago in Tebb v. Continental Casualty Co., 72 Wn.2d 710, 712, 430 P.2d 597 (1967), and held that an insurance policy renewal is a new contract, and it incorporates laws enacted after the initial policy was issued. 

In Bushnell, the insured purchased a long-term care insurance policy beginning in 1987.  The policy was for a period of one year, but was subject to mandatory renewals so long as the insured continued to pay the renewal premium. The insured timely paid the renewal premiums for more than 20 years.
Effective in 1988, the year after the policy was issued, Washington enacted the Long-Term Care Insurance Act, RCW 48.84.  Among other things, the Act prohibited long-term care insurance policies from requiring an initial hospital stay as a condition of coverage.  The original policy and each of the renewal policies issued by the insurer contained provisions requiring a three-day hospital stay as a condition of coverage.

On February 1, 2007, the insured paid the renewal premium for the period January 1 – February 28, 2007.  On February 21, it was determined that the insured had suffered a stroke several months prior and required long-term care.  The insured’s attorney-in-fact submitted a claim under the long-term care policy, which the insurer denied because the hospital stay prerequisite was not satisfied.

The Court of Appeals held that the insurer had unreasonably denied coverage. The insurer argued that the Long-Term Insurance Care Act did not apply to the renewals, since the original policy was issued prior to the Act’s effective date.  The court disagreed, holding that although the initial policy was issued prior to the effective date of the Act, the renewal policies were all issued after the effective date of the Act; therefore, even though the hospitalization requirement in the initial policy may have been effective, the Act rendered the hospitalization requirement in each of the renewal policies ineffective.  In so holding, the court relied on precedent almost 50 years old in Tebb v. Continental Casualty Company, 72 Wn.2d at 712, holding that a renewal of an insurance policy creates a separate and independent contract.

The effects of the rule established in Tebb and followed here in Bushnell will apply to each policy differently, depending on the precise language of the policy at issue.  However, policyholders should keep in mind that each insurance policy renewal is a new contract, and not all provisions of the policy necessarily remain enforceable upon renewal.

Tuesday, March 1, 2011

Now Read Us On Your Mobile Device!

Just a quick note to let you know that you can now check out our insurance law blog on your mobile device!  We've updated our layouts to include a mobile-friendly view that will automatically display when you're on the go.  Let us know what you think.

Thursday, February 24, 2011

Defective Chinese-Manufactured Drywall Held Covered “Physical Loss” Under Homeowner Policies

Over the past few years, news about extensive damage in homes caused by defective drywall manufactured in China has made headlines.  Now, a federal court in Louisiana has held that damage caused by that drywall is a “physical loss” covered by a homeowner’s all-risks property policy.  In re Chinese Manufactured Drywall Products Liability Litigation, ___ F. Supp. 2d ___, 2010 WL 5288032 (E.D.La. Dec. 16, 2010).

In re Chinese Manufactured Drywall Products is a consolidated matter involving lawsuits by homeowners against the manufacturers, distributors, sellers, and installers of Chinese drywall, as well as claims against the homeowner’s property insurers.  Each of the plaintiffs in the consolidated action had Chinese drywall installed in their homes, and they alleged that the drywall emits foul odors and also damages metal (such as plumbing and metal framing) and electronic elements and devices in their homes.  A number of the homeowners’ property insurers filed motions against the homeowners, claiming that there was no allegation in the complaint that the damage was covered under their policies.

Physical Loss.  The insurers argued that there was no basis for coverage because the drywall was installed in an unsatisfactory state, and the damage it caused was not “physical loss” under the policies.  The court disagreed, holding that the insured homes had suffered “physical loss” within the meaning of the insurance policies.  Where the drywall had caused a “distinct, demonstrable, physical alteration” of the insured homes, in the form of corrosion and odorous gases, a “physical loss” had occurred. Moreover, the court observed, the policies included “loss of use” as a kind of physical loss under the policies; therefore, because the homeowners were prevented from fully using and enjoying their homes, that loss of use also brought the damage within the meaning of the policies.

Direct, Accidental, and Sudden.  Some of the insurance policies at issue also required the loss to be “direct,” “accidental,” and/or “sudden.”  The court held that the damage was “direct” where the drywall was the sole cause of the damage to the homes.  The court also held that the damage was accidental, where it was unusual and unexpected.  Finally, the damage was also “sudden,” because courts have defined “sudden” as either abrupt or unexpected, and the damage caused by the drywall was unexpected.  Therefore, the drywall damage was covered under the policies, even though the policies limited coverage to losses that were “direct,” “accidental,” and/or “sudden.”

Ultimately, the Louisiana federal court held that the damage was not covered due to policy exclusions for faulty materials and corrosion.  However, the court’s holdings regarding the occurrence of “physical loss” and regarding “direct,” “accidental,” and/or “sudden” damage is an important development for policy holders in that jurisdiction.  Washington State has long recognized that covered losses may result from construction defects, and homeowners suffering from damage due to defective Chinese-manufactured drywall or similar circumstances should consult a policyholder attorney to determine if coverage may apply.