Automated Summary
Key Facts
A subcontractor (Baker and Son Construction Inc.) allegedly caused a two-by-four to fall and strike Ronnie Cox, the owner of Cox Construction, on October 31, 2019. Cox died later that night. Baker reported the claim to their insurer (Preferred Contractors Insurance Company, PCIC) on September 25, 2020, outside the 2019 policy period (Jan 5, 2019–Jan 5, 2020) and before the 2020 policy period (Jan 5, 2020–Jan 5, 2021). PCIC's claims-made policy required both the occurrence and claim reporting to occur within the same policy year. The policy provided no retroactive or prospective coverage between periods, leaving the claim uncovered. The case was certified to determine if such a policy violates Washington public policy under RCW 18.27, which mandates contractors maintain $100,000 in financial responsibility for bodily injuries.
Transaction Type
Commercial General Liability (CGL) Insurance Policy
Issues
Whether a contractor's commercial general liability (CGL) insurance policy that requires the loss to occur and be reported within the same policy year and provides neither prospective nor retroactive coverage violates Washington's public policy. The analysis focuses on RCW 18.27.050 and RCW 18.27.140, which mandate contractors to carry financial responsibility for bodily injuries and protect the public from unreliable contractors. The court concluded such restrictive nonretroactive claims-made policies create illusory coverage and are unenforceable under Washington's public policy.
Holdings
Through RCW 18.27.050 and RCW 18.27.140, the legislature has created a public policy wherein contractors must be financially responsible for the injuries they negligently inflict on the public. A contractor's CGL policy that requires the loss to occur and be reported to the insurer in the same policy year and fails to provide prospective or retroactive coverage is unenforceable.
Legal Principles
The court held that a nonretroactive claims-made insurance policy requiring both the loss to occur and be reported within the same policy year, without providing retroactive or prospective coverage, violates Washington's public policy. This policy's restrictive terms rendered coverage illusory, conflicting with the statutory purpose in chapter 18.27 RCW to ensure contractors are financially responsible for injuries caused to the public by their negligence.
Precedent Name
- Harman v. Pierce County Building Department
- Am. Home Assur. Co. v. Cohen
- MSO Wash., Inc. v. RSUI Grp., Inc.
- Mut. of Enumclaw Ins. Co. v. Wiscomb
- Sparks v. St. Paul Insurance Co.
- Am. Cont'l Ins. Co. v. Steen
- Cary v. Allstate Ins. Co.
Key Disputed Contract Clauses
The disputed clause in the commercial general liability (CGL) policy mandates that coverage applies only to claims first made and reported to the insurer during the same policy period. This 'claims-made and reported limitation' endorsement explicitly states there is no continuous coverage between renewed policy periods, creating a one-year window for both the occurrence and reporting of claims. The court determined this clause violates Washington's public policy under RCW 18.27 by rendering coverage illusory for injuries caused by contractors' negligence.
Cited Statute
- Washington Certified Questions Act
- Washington State Contractor Registration Act
Judge Name
- Owens
- Madsen
- Johnson
- Stephens
- González
- Yu
- Gordon McCloud
- Whitener
- Siddoway
Passage Text
- Such restrictive coverage violates Washington's public policy. Therefore, we answer the certified question in the affirmative.
- In Sparks v. St. Paul Insurance Co., the New Jersey Supreme Court observed that nonretroactive claims-made policies 'combine the worst features of 'occurrence' and 'claims made' policies and the best of neither' by providing neither retroactive nor prospective coverage found in those policies. [...] The court made this decision on a few grounds, including some contract interpretation doctrines Washington does not follow, but also on the basis of public policy.
- Through RCW 18.27.050 and RCW 18.27.140, the legislature has created a public policy wherein contractors must be financially responsible for the injuries they negligently inflict on the public. With such public policy established, a contractor's CGL policy that requires the loss to occur and be reported to the insurer in the same policy year and fails to provide prospective or retroactive coverage is unenforceable.
Damages / Relief Type
Declaratory relief was granted, ruling that the nonretroactive claims-made policy's requirements violate Washington public policy.