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

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Washington law has long provided that "[a]n insured may not avoid an exclusion merely by affixing a specific label or characterization to the act or event causing the loss." Thomas V. Harris, Washington Insurance Law, § 6.10, fn. 179. That rule was recently put to the test before Seattle Federal District Court Judge Ricardo Martinez in Johnson v. Allstate Ins. Co., a coverage dispute over a waterfront home damaged during a winter storm. The home was knocked off its foundation by waves crashing against it, and the homeowners alleged that there were logs in the water that caused the damage. Allstate denied coverage, asserting that the loss was not covered because of policy exclusions for "water", "waves" and "weather conditions." The homeowners filed suit seeking coverage, claiming that "water-borne debris is a non-excluded peril."

In a January 10, 2012 order denying Allstate's motion to dismiss, Judge Martinez concluded that the policy's exclusions for "water", "waves" and "weather conditions" do not exclude coverage for logs propelled by waves. Judge Martinez declined to follow Kish v. Ins. Co. of N. Am., 125 Wn.2d 164 (1994), a case in which the Washington Supreme Court held that these exclusions eliminated coverage for similar damage because "flood" and "rain-induced flood" are not distinct perils. Judge Martinez reasoned that Allstate's policy was, at best, ambiguous because it made no mention of destructive material propelled by waves. He also found that an average insurance purchaser would distinguish between waves and destructive material propelled by waves and, to illustrate the point offered what seemed to be a far-fetched analogy to an instance in which waves carry an unexploded World War II mine.

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Construction defect plaintiffs in Washington continue to use covenant judgments in an effort to force large settlements with developers' insurers. If the developer's insurer is unwilling to fund a settlement, the plaintiff and defendant developer stipulate to entry of a monetary judgment and the plaintiff agrees that it may not enforce the judgment against any assets other than the insurer's liability insurance. In order for the stipulated judgment amount to serve as the presumptive measure of damages against the insurer, the plaintiff must first obtain a ruling from the trial court that the stipulated amount is reasonable. Washington law provides for trial courts to evaluate such stipulated judgments under a nine factor standard, but many insurers feel that, in practical terms, this standard often amounts to nothing more than a rubber stamp. But there seems to be a growing trend for trial judges to take a closer look at these stipulated judgments.

The latest example comes from United States District Judge John Coughenour in Aspen Grove Owners Assoc. v. Park Promenade Apartments, LLC. On January 9, 2012, Judge Coughenour ruled on the plaintiff condominium owners association's motion for a determination that its stipulated judgment settlement of $5.75 million is reasonable. Judge Coughenour analyzed the settlement from two perspectives -- first, he analyzed the estimated costs of repair submitted by the plaintiff association and the defendant developer; and second, he scrutinized the merits of the association's claims. In doing so, he reduced the plaintiff's total damages from $5.75 million to $4.27 million, and then applied a 55% discount to account for weaknesses in the plaintiff's liability theories. This reduced the approved damages to $1.92 million. But in recognition of the fact that the insurance policy involved only covered liability for breach of fiduciary duty for the developer's representatives who had served on the association's board of directors, Judge Coughenour allocated only $300,000 to the breach of fiduciary duty claim.

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Washington's claims handling regulations include short deadlines for responding to an insured's tender of a claim for defense and indemnity: 10 working days to acknowledge a tender (WAC 284-30-360(1)), and 30 days to complete its investigation of a claim unless the investigation cannot reasonably be completed within that time (WAC 284-30-370). When insurers fail to meet these deadlines, Washington insureds often assert claims for violation of Washington's Insurance Fair Conduct and Consumer Protection Acts as well as for bad faith and/or negligence.

But should insurers face such claims where their only alleged wrongdoing is a short delay in responding to an insured? United District Court Judge Robert Bryan recently addressed this issue in Cardenas v. Navigators Insurance Co., (December 16, 2011), a case in which the liability insurer had agreed to defend its insured against a claim, had paid all pre- and post-tender defense costs, but had not accepted the defense within 30 days of tender. Granting the insurer's motion for summary judgment, Judge Bryan ruled that "[v]iolations . . . of the 10 and 30 day time periods for acknowledging a claim and completing an investigation are simple technical violations and standing alone, do not evidence any unreasonable conduct on the part of [an insurer] in promptly responding to the tender."