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

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Insurer insolvency can have significant impacts for an insured even where a particular claim or loss triggers policies issued by multiple insurers. This point is illustrated by the 9th Circuit's decision earlier this month in California Insurance Company v. Stimson Lumber Co.,2009 WL 1035238 (.pdf) -- a coverage action stemming from Stimson's settlement of a class action lawsuit related to Stimson's Forestex wood siding product. One of Stimson's primary liability insurers, Home Indemnity, was insolvent which raised two coverage issues for Stimson as well as Stimson's other insurers: (1) Whether Stimson was obligated to itself cover Home Indemnity's pro-rata share of defense costs for the class action lawsuit; and (2) Whether an umbrella policy from another insurer "drops down" to fill the gap created by Home Indemnity's insolvency.

The 9th Circuit decided the defense costs issue in favor of Stimson, reasoning "[i]t It is unreasonable to treat Stimson as self-insured, when it sought to limit its liability by purchasing primary insurance."

But the 9th Circuit rejected Stimson's argument for its umbrella insurer to "drop down" as contrary to the umbrella policy language. In connection with this latter ruling, the 9th Circuit noted that the umbrella policy included an other insurance clause that demonstrated that the policy was to be excess over all primary insurance, both scheduled and unscheduled.
 

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Property damage often results from a continuous and ongoing process occurring an extended period of time rather than from a discrete event such as a windstorm or earthquake. Where damage is continuous and ongoing, there are often disagreements and disputes as to when the property damage “occurred” to trigger coverage under a particular insurance policy. Although Washington courts have addressed this issue in the past in cases such as Gruol Construction Company, Inc. v. Insurance Company of North America, 11 Wn. App. 632, 524 P.2d 427 (1974), and American National Fire Insurance Company v. B & L Trucking and Construction Company, 134 Wn.2d 413, 951 P.2d 250 (1998), insurers and insured continue to litigate over whether or not particular continuous damage “occurred” during a particular policy period.

The Washington Court of Appeals (Division III) ruled on another of these disputes earlier this week in Walla Walla College v. Ohio Casualty Insurance Company, ___ P.3d ___, 2009 WL 987405 (April 14, 2009) (.pdf). The case stemmed from the failure of an underground gasoline storage tank in September 2001 at Walla Walla College. The party that sold and installed the tank in 1991 did not properly backfill the soil below the tank which, over a period of years, placed stress on the tank and ultimately led to its failure. The tank seller and installer was insured by Ohio Casualty Insurance Company from 1990 to 1992. After the college filed suit against the tank seller/installer, a declaratory judgment action was initiated to determine whether the Ohio Casualty polices covered the College’s losses.

The College argued that there was coverage because the improper intallation took place during the policy period and the damage to the tank first started immediately after installation. After discussing Gruol and B&L Trucking as well as Villella v. Public Employees Mutual Insurance Company, 106 Wn.2d 806, 725 P.2d 957 (1986), Division III rejected the College’s arguments for coverage because: (1) there had been not been any actual injury at all until long after policy expiration; and (2) even if one were to accept that the stress to the tank occurring during the policy period constitutes property damage, such damage would be excluded from coverage because it would be damage to the insured’s own work. In reaching this conclusion, Division III relied upon the following reasoning from Wellbrock v. Assurance Company of America, 90 Wn. App. 234, 243,951 P.2d 367 (1998):

The coverage-triggering “occurrence” refers to the event causing injury to the complaining party, not the earlier event that created potential for future injury.

Insurers and insured will continue to debate for the foreseeable future what constitutes an injury triggering coverage. 

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Plaintiff McCallum sued Allstate Insurance Company, alleging bad faith and violation of the Washington Consumer Protection Act (“CPA”). Plaintiff theorized that Allstate maintained a national policy to drag out the claims process, making it unnecessarily difficult and expensive for UIM insureds to obtain their benefits.

In an effort to establish her theory, McCallum issued discovery requests seeking Allstate’s claims manual, claims bulletin, Claim Core Process Redesign Implementation Training Manual, and documents related to a third party consultant firm’s efforts to revamp Allstate’s claims procedures in the 1990s. When Allstate resisted disclosure of these documents, McCallum filed a motion to compel, prompting Allstate to seek a protective order.

The court granted Allstate a protective order, based in large part upon declarations from its assistant Vice President and a local claims representative, who asserted that the documents were confidential trade secrets. Under the terms of the order, the documents were only to be used in litigation, and only disclosed to McCallum, her attorneys, and her experts. McCallum’s attorneys then deposed the Vice President and claims representative, who failed to support their prior declarations. In particular, the witnesses: (1) had no knowledge of the amount of time, manpower, or financial resources that had been expended in developing their policies and procedures, and (2) had no knowledge of how their policies and procedures differed from their competitors. McCallum then used those depositions in order to convince the trial court to vacate its existing protective order.

On appeal, the Washington Court of Appeals affirmed vacation of the protective order. The court “begins with a presumption of openness,” and to overcome that presumption in the context of discovery, the party seeking a protective order must establish “good cause.” To establish “good cause,” one must demonstrate specific prejudice or harm that will result if not granted, ideally supported with specific examples.

Allstate asserted that the claims procedures constituted trade secrets, and their disclosure would destroy their inherent value. To constitute trade secrets, claims procedures must: (1) derive independent economic value from not being known or readily ascertainable by others and (2) be subject to reasonable efforts to maintain their privacy. The Washington Court of Appeals found that Allstate had engaged in reasonable efforts to maintain the privacy of their claims procedures by seeking protective orders in this and other prior litigation. However, the deposition testimony from Allstate’s assistant Vice President and claims representative failed to support the proposition that Allstate’s claims procedures were materially different than their competitors, and failed to demonstrate that significant time, money and manpower had been expended to develop the claims procedures. Thus, Allstate failed to prove that the claims procedures derived independent economic value from not being known to others. Accordingly, the Court of Appeals found Allstate’s claims procedures were not trade secrets and affirmed the trial court’s vacation of the protective order.

Mar. 31, 2009 - 36624-0 - Colleen Mccallum, Respondent V. Allstate Ins. Co., Petitioner