Agency Budget Corp. v. Washington Ins. Guaranty Ass'n, 45978

• Decision Date: 01 May 1980
• Docket Number: No. 45978,45978
• Citation: 610 P.2d 361,93 Wn.2d 416
• Parties: AGENCY BUDGET CORPORATION, a Washington Corporation, Respondent, v. WASHINGTON INSURANCE GUARANTY ASSOCIATION, a nonprofit unincorporated legal entity, Appellant. PREMIUM ADVANCE COMPANY, a Foreign Corporation, Respondent, v. WASHINGTON INSURANCE GUARANTY ASSOCIATION, a nonprofit unincorporated legal entity, Appellant.
• Court: Washington Supreme Court

Page 416

93 Wn.2d 416

610 P.2d 361

AGENCY BUDGET CORPORATION, a Washington Corporation, Respondent, v. WASHINGTON INSURANCE GUARANTY ASSOCIATION, a nonprofit

unincorporated legal entity, Appellant.

PREMIUM ADVANCE COMPANY, a Foreign Corporation, Respondent, v. WASHINGTON INSURANCE GUARANTY ASSOCIATION, a nonprofit

unincorporated legal entity, Appellant.

No. 45978.

Supreme Court of Washington, En Banc.

May 1, 1980.

Carney, Stephenson, Siqueland, Badley, Smith, Mueller, Basil Badley, Timothy Parker, Seattle, for appellant.

Schweppe, Doolittle, Krug, Tausend & Beezer, Fredric Tausend, James Street, Seattle, for respondent.

WILLIAMS, Judge.

This is a direct appeal from a trial court order granting a partial summary judgment in favor of respondent Agency Budget Corporation and subsequent summary judgments in favor of both respondents. At issue in this declaratory judgment action is the meaning and applicability of a " 'covered claim' ", as that term is used in the Washington Insurance Guaranty Association Act, RCW 48.32.030(4) (Laws of 1975, 2nd Ex.Sess., ch. 109, § 3, p. 371).

Appellant Washington Insurance Guaranty Association (association) is a nonprofit unincorporated legal entity created by and existing pursuant to the Washington Insurance Guaranty Association Act (act), RCW 48.32. One purpose of the act is to provide a mechanism for the expeditious payment of claims asserted by Washington policyholders against insolvent insurers. The association accumulates funds resulting from assessments levied on member insurers and uses these funds to pay claims as they arise. RCW 48.32.010, 48.32.060, 48.32.070. All foreign and domestic insurance companies which write direct insurance as specified in RCW 48.32.020 are required to be members of the association as a condition of transacting business in Washington. RCW 48.32.040.

Plaintiffs and respondents Agency Budget Corporation and Premium Advance Company are in the business of financing insurance premiums for purchasers of insurance policies. Respondents pay a policyholder's full premium to an insurer and collect a downpayment and periodic installments from the insured. In addition, respondents receive an assignment of each insured's claim to the return of unearned premiums which would become due to an insured from an insurer in the event of a policy cancellation prior to term.

Medallion Insurance Company (Medallion), a Missouri corporation, was in the business of providing automobile liability insurance. On September 12, 1975, a Missouri court issued an order of insolvency against Medallion cancelling all of its policies then in force. As a result, unearned premiums became due to respondents, assignees of claims of Washington residents who had been insured by Medallion.

Both respondents filed claims in the Missouri conservatorship proceeding and in the Washington proceeding against the Washington State Insurance Commissioner. In addition, in October 1976, respondents filed claims for unearned premiums with the association, pursuant to the act.

The association denied the claims on the ground that they were not "covered claims" within the meaning of RCW 48.32.030(4). Under the act, as originally enacted in 1971, claims for unearned premiums were excluded from coverage. ¹ The act was amended in 1976, however, to permit payment of unearned premiums to claimants subject to a $100 deduction from each claim. ² RCW 48.32.030(4); RCW 48.32.060(1)(a). The amendment took effect on June 25, 1976, after the adjudication of Medallion's insolvency, but before respondents filed their claims with the association.

After the denial of their claims, respondents brought separate actions against the association in King County Superior Court. Each sought a declaratory judgment that its claim was a "covered claim" within the meaning of the statute and an order that the claims be paid. The court consolidated the two actions on stipulation by all parties that the legal issues and factual setting giving rise to the controversy were identical.

The court granted Agency Budget Corporation's motion for partial summary judgment, on the grounds that the legislature clearly intended that the 1976 amendment cover claims for unearned premiums associated with insolvencies adjudicated prior to the effective date of the amendment. The court further found that retroactive application of the amendment would not impair any vested rights of the association or its members, nor would the association suffer any injuries of constitutional proportions.

We granted the association's motion to transfer the case from the Court of Appeals, because it presented an issue of broad public import under RAP 4.2(a) (4); RAP 4.3. Of the two respondents below, only Agency Budget Corporation (corporation) has filed an appellate brief in response to the appeal. The questions we must decide are whether the association is liable for the corporation's claims under a prospective application of the 1976 amendment to RCW 48.32.030(4), and, if not, whether the amendment may be applied retroactively against the association.

I.

The association argues that it is not liable to the corporation for unearned premiums if the 1976 amendment to the act is given prospective effect only. Relying on this court's decision in Aetna Life Ins. Co. v. Washington Life and Disability Ins. Guar. Ass'n, 83 Wash.2d 523, 520 P.2d 162 (1974), the association contends that it is liable under the statute only upon an adjudication of insolvency against a member insurance company. Since Medallion was ordered dissolved many months before the effective date of the amendment, the association cannot be liable for the claims arising from the unearned premiums associated with Medallion's insolvency.

In Aetna, appellants were member insurers of the Washington Life and Disability Insurance Guaranty Association, a nonprofit legal entity created pursuant to RCW 48.32A, to assure the performance of contractual obligations of insurers to policyholders of life and disability insurance when an insurer becomes insolvent. The appellants resisted assessments imposed on them by the Life and Disability Guaranty Association upon an insurer's insolvency. Aetna, at 534, 520 P.2d 162. They argued that assessments based on premiums issued before the effective date of the act, May 21, 1971, required a retroactive application of the act and were therefore unconstitutional. Aetna, at 534-35, 520 P.2d 162. We rejected that argument, holding that the "precipitating event" to appellants' liability was the adjudication of insolvency, which occurred after the legislation took effect. Aetna, at 535, 520 P.2d 162.

We agree with the association that the precipitating event in this case is likewise the adjudication of insolvency. The express purpose of the act is to impose obligations on the association and its member insurers when an insurer becomes insolvent. See RCW 48.32.060(1)(a), 48.32.060(1)(c). This was our conclusion in Aetna, at 535, 520 P.2d 162, and we see no reason to alter it when interpreting this act. The two acts are substantially the same in their intended effect, namely, to protect policyholders from the unfavorable effects of insurer insolvency.

The corporation argues that Aetna is distinguishable, because unlike any of the provisions of RCW 48.32A, RCW 48.32.030(4) contains a timely filing proviso. In order to constitute a "covered claim" within the meaning of RCW 48.32.030(4), a claim must be filed before "the final date set by the court for the filing of claims against the liquidator or receiver of an insolvent insurer." Since a claim must be timely filed for a claimant to recover, the corporation contends that there is no liability to the association until a claim is filed against it. In other words, the precipitating event is the filing of the claim, not the order of liquidation. Since the corporation concededly filed its claim after the date the 1976 amendment took effect, it concludes that the association is liable for unearned premiums under the amendment.

A timely filing requirement is not a substantive element of a right of action, but is merely a procedural step necessary to enforce a claimant's right to recover. Wheaton v. Department of Labor and Indus., 40 Wash.2d 56, 58, 240 P.2d 567 (1952); RCW 51.28.050. A right may be created upon the happening of some precipitating event, but failure to file a timely claim is no more than a limitation on the enforcement of that right. Wheaton, at 58, 240 P.2d 567. In this case, the right to claim unearned premiums is created by the adjudication of insolvency. Aetna, at 535, 520 P.2d 162. That same event determines the liability of the association to pay those claims. Failure to file a claim by the date set by the court in its order of insolvency merely extinguishes an existing right; timely filing does not create it. It follows that since the order of insolvency the precipitating event occurred on September 12, 1975, many months before the date of the amendment creating a right to unearned premiums, the association cannot be liable unless the amendment is applied retroactively.

Moreover, assuming respondent is correct in stating that timely filing of a claim is the precipitating event, the express terms of the act would exempt the association from liability in this case:

(1) The association shall:

(a) Be obligated to the extent of the covered claims existing prior to the order of liquidation and arising within thirty days after the order of liquidation, or before the policy expiration date if less than thirty days after the order of liquidation, or before the insured replaces the policy or on request effects cancellation, if he does so within thirty days of the order of liquidation, . . . .

(Italics ours.) RCW 48.32.060(1)(a). If liability does not arise until the claim is timely filed, as the corporation asserts, then the association could not be liable until October 28, 1976, the date responde...