Northwest Insurance Law Blog : Seattle Insurance Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Washington, Portland

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Many people, insurer’s included, believe or assume that certified mail is better or safer when sending someone an important document because certified mail, unlike plain old first claim mail, provides official written proof of delivery. But people are not always available to sign for certified mail or willing to go pick up that mail at the post office. As a result, certified mail often gets returned to the sender. When this happens in the insurance context, insurers and insureds are left asking whether an insurer’s notice unsuccessfully sent by certified mail constitutes valid notice binding upon its insured.

The Washington Supreme Court addressed this issue on December 18, 2008, in Cornhusker Cas. Ins. Co. v. Kachman. The Court ruled that an insurer who sends a notice of cancellation by certified mail does not satisfy the “mailed” requirement imposed by a Washington statute – in this instance RCW 48.18.290 as it read in 2004 – providing for notice by “actual delivery or mail.” The Supreme Court reasoned that certified mail imposes additional burdens and obligations upon an insured and that, if the Washington legislature had wanted to permit “mailed” notice by certified mail, it could have done so by specifying “certified mail” as it has done in a number of other insurance-related statutes.

While RCW 48.18.290 was amended in 2006 to eliminate the “actual delivery” prong of the statute, the decision remains of potential significance for insurers and insureds. As the Ninth Circuit noted in its decision certifying the question to the Washington Supreme Court, the current statute “still distinguishes between delivering and mailing a notice of cancellation without either defining mail to include certified mail or instead requiring delivery of certified mail” such that “resolving this issue by the Washington State Supreme Court will also clarify the meaning of the word ‘mail’ in the current version of the statute.”

The potential significance of this ruling is illustrated by the dispute underlying the Cornhusker decision. The insured was involved in a fatal motor vehicle accident in October 2004. About a month before the accident, Cornhusker Insurance had sent its insured, by certified mail, a notice of cancellation for non-payment of premiums past due. The notice stated that the insurance would be cancelled effective three days before the accident unless the insured paid the past due premiums. But the insured never received the notice and it delivered payment only after the fatal accident and the insurer’s payment deadline. After receipt of the claim, Cornhusker Insurance filed a declaratory judgment action against its insured and the estate of the individual killed in the accident. While the Washington Supreme Court did not state that Cornhusker’s policy remained in effect and available to satisfy the estate’s claims against Cornhusker’s insured, that appears to be the likely result because the notice that Cornhusker sent by certified mail was never actually delivered to the insured’s last known address. And under the Court’s ruling, certified mail does not constitute “mailed” notice.

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In Australia Unlimited, Inc. v. Hartford Cas. Ins. Co., the Washington Court of Appeals held that Hartford had a duty to defend its insured against a trade dress infringement claim. The umbrella policy at issue provided “personal and advertising injury” which it defined to include “injury arising out of . . . copying in your advertisement [of] a person’s or organization’s advertising idea or style of advertisement.”

In determining that Hartford had a duty to defend the trade dress infringement claim, the court adopted the following three-part analysis used by the United States District Court for the Eastern District of Virginia in a 2002 decision involving Hartford and the same policy language:

(1) whether the insured was engaged in advertising;

(2) whether the insured's alleged conduct was one of the offenses enumerated by the policy as giving rise to an advertising injury, and

(3) whether the injury arose from an offense committed during the policy period and in the course of the advertising activity.

Applying this framework, the Court of Appeals rejected Hartford’s argument that there was no coverage because the insured had copied a product and then merely portrayed that product in its advertisement because “trade dress protection is based on marketing and advertisements.”

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In response to certified questions from the United States District Court for the Western District of Washington, the Washington Supreme Court has held that an insured may have a cause of action against its liability insurer for procedural bad faith and violation of Washington’s Consumer Protection Act (CPA) even if the insurer had no contractual duty to defend, settle, or indemnify the insured. But an insured must show actual harm; damages are not presumed.

The case, St. Paul Fire & Marine Insurance Co. v. Onvia, Inc., involved a class action complaint against Onvia for sending unsolicited advertising, by facsimile in violation of the Telephone Consumer Protection Act of 1991. Onvia’s insurer, St. Paul Fire & Marine, failed to timely respond to a tender of the claim. Onvia later settled the class action, agreeing to entry of a judgment in favor of the class for $17.515 million and an assignment of its claims against St. Paul in exchange for an agreement that the judgment would be enforced only against St. Paul.

St. Paul filed a declaratory judgment action in federal district court to establish that there was no coverage. The class representative counterclaimed for procedural bad faith and violation of the CPA based upon St. Paul’s handling of Onvia’s tender. While the district court agreed that St. Paul had no duty to defend or indemnify, it certified questions regarding the counterclaims to the Washington Supreme Court.

Focusing on an insurer’s duty of good faith, the Supreme Court held that “a third-party insured has a cause of action for bad faith claims handling that is not dependent on the duty to indemnify, settle, or defend .” In doing so, the Court rejected St. Paul’s argument that there can be no liability for violation of Washington’s insurance claims-handling regulations (WAC 284-30-330(2)-(4); WAC 284-30-360(1), (3); WAC 284-30-370). Similarly, the Washington Supreme Court held that “the CPA recognizes a claim for violation of claims-handling regulations that does not depend on a finding of bad faith or the existence of a duty to settle, indemnify, or defend.”

The Court, however, declined to recognize coverage by estoppel in this context. Instead, the Court stated that the insured must provide actual harm and that the insured’s damages are limited to the amounts incurred as a result of the proven bad faith.