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

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In Polygon Northwest, LLC v. Steadfast Insurance Co., 2009 WL 1437565 (W.D.Wash. May 22, 2009) (.pdf), Judge Robert Lasnik of the United States District Court for the Western District of Washington granted in part an insured's discovery motion to compel an insurer to produce certain information and documents about other similar claims. The underlying coverage dispute in the case centers around whether a policy requires the stacking of self-insured retentions (SIR) on a single claim when the underlying construction project spans multiple policy years.

The Court rejected the insured's argument that other claims are discoverable because "the interpretations and intentions of other insureds are relevant to the [alleged ambiguity of the SIR provision." The Court noted that its "determination [of the policy's meaning] is based not on a survey of insured developers but on the policy language itself." However, the Court agreed with the insured that "the manner in which [the insurer] has handled the claims of other insureds with identical policy language is potentially relevant" because any evidence that the insurer" has acted in an inconsistent manner in resolving claims where similar policies were involved 'could undermine defendant['s] position that the language in question is clear and unambiguous'.” (Citing Nestle Foods Corp. v. Aetna Cas. & Sur. Co., 135 F.R.D. 101, 106 (D.N.J.1990)).

Taking into consideration the burden to the insurer, Judge Lasnik ordered the insurer to provide information and non-privileged documents for claims for the preceding five years but authorized the insurer to redact the names of insureds and claimants.
 

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In Bordeaux, Inc. et al. v. American Safety Insurance et al. (July 7, 2008), the Washington Court of Appeals addressed and resolved in favor of an insured real estate developer two issues that often arise with liability policies that contain a self-insured retention (“SIR”). The case arose out of construction defect claims against the insureds for condominiums they had developed. The insured and insurers settled the defect claims but were unable to reach agreement on the allocation of ultimate financial responsibility for the settlements. 

The first issue involved determining whether the insured was entitled to be made whole – i.e. recoup all of the defense costs spent to satisfy its SIR – from the proceeds of its indemnity claims against subcontractors before the insurers could recover these funds. The Court of Appeals rejected the insurer’s argument that an SIR is akin to primary insurance and applied the longstanding rule that an insured is entitled to be made whole before an insurer may exercise its subrogation rights. 

The second issue arose out of a disagreement as to whether the insured satisfied its $100,000 SIR in two different policies with two different insurers by paying initial defense costs of $105,000. One of the insurers took the position that the insured still had to pay an additional $95,000 in order to satisfy the second of the two $100,000 SIRs. The Court of Appeals rejected this argument as well, noting that neither policy contained any language about whether the insured’s SIR obligation is satisfied when it fulfills a similar obligation under another policy. 

Click here for a more detailed discussion of the case and the Court of Appeals' decision.