It as been about a year since the Washington Supreme Court adopted the selective tender rule in Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 162 Wn.2d 1019 (2008) (.pdf). In that time, there have been at least two instances in which insurers have called upon the rule in an effort to avoid liability for claims that otherwise might fall within the coverage obligations created by their policies. These efforts have met with varying degrees of success and failure but both provide lessons for insurers and insureds to consider for handling claims in the future.
The Selective Tender Rule, as articulated by the Washington Supreme Court, provides that "where an insured has not tendered a claim to an insurer, that insurer is excused from its duty to contribute to settlement of the claim." In USF Insurance, the Court applied the new rule to dismiss an equitable contribution claim by one insurer against another when the former had defended and settled a claim against their mutual insured and the mutual insured had purposefully elected to tender to the former but not the latter insurer. The Supreme Court, however, limited the new rule to equitable contribution claims and allowed the participating insurer to proceed with its subrogation claim subject to the non-participating insurer's late tender defenses.
In AXIS Insurance Company et al. v. James River Insurance Company (a case that I prosecuted), James River sought dismissal of a contribution action initiated several months prior to the USF decision. In his initial summary judgment ruling (.pdf), Judge Richard Jones acknowledged that the new rule eliminated the two participating insurers' equitable contribution action because there had been no tender by the insured to James River, the non-participating insurer. But Judge Jones allowed the participating insurers to proceed with the action because they had obtained an assignment of the insured's claims against James River and had amended their complaint to assert a direct coverage claim as well as an equitable contribution claim. Judge Jones reiterated this ruling in his decision on a later round of summary judgment cross-motions (.pdf).
More recently, in Weyerhaeuser Co. v. Ins., Co of the State of Penn. (.pdf), Judge Thomas S. Zilly applied the selective tender rule to dismiss a contribution claim by an excess insurer against a primary insurer brought after the excess insurer had settled with the insured, Weyerhaeuser, by reimbursing it for the costs to defend and settle multiple asbestos-exposure personal injury claims. The insured had tendered the claims to the primary insurer but its written tenders seemed to refer to only a single policy year for which the primary insurer had already paid out policy limits. The primary insurer had issued policies to Weyerhaeuser for many years, and the excess insurer sought contribution under the other policies which apparently were unexhausted. Rejecting the claim, Judge Zilly found that the insured had selectively tendered to the primary insurer for only the single year for which coverage had already been exhausted. Interestingly, the decision gives no indication that the excess insurer obtained any assignment of claims from Weyerhaeuser or pursued any claim for subrogation.
These subsequent cases illustrate that the selective tender rule now presents a significant pitfall for both primary and excess insurers doing business in the State of Washington. While the rule is technical in nature and may be avoided by an insurer seeking the participation of other insurers, it requires advance thought and planning.
Most notably, liability insurers participating in the defense of an insured for a multi-year claim may want to consider the following three issues:
1. Upon receipt of a new claim, do you need to request the insured's authority to immediately tender on their behalf to other insurers for prior and subsequent policy years?
2. At or before any settlement of the underlying claim, do you need to request an express written assignment of the insured's rights against their other insurers who have not participated in the defense and settlement but who may have coverage obligations?
3. Does your standard policy language regarding subrogation and the insured's cooperation do enough? Many policies include provisions that require the insured to cooperate in any subsequent subrogation actions. While such language is helpful, it may prove best to have language that automatically assigns the insured's rights against other insurers to the participating insurer upon the payment of defense costs and/or a settlement of the underlying claim.
In two recent but unrelated decisions, the United States District Court for the Western District of Washington granted insurers' motions for summary judgment to enforce policy provisions limiting the time by which an insured may file suit -- 