American Continental Ins. Co. v. Steen

• Decision Date: 14 May 2004
• Docket Number: No. 73412-7.,73412-7.
• Citation: 151 Wash.2d 512,91 P.3d 864
• Court: Washington Supreme Court
• Parties: AMERICAN CONTINENTAL INSURANCE COMPANY, Appellee, v. Susan STEEN, individually and as the personal representative of the Estate of Steven Steen, Appellant.

91 P.3d 864

151 Wash.2d 512

AMERICAN CONTINENTAL INSURANCE COMPANY, Appellee, v. Susan STEEN, individually and as the personal representative of the Estate of Steven Steen, Appellant.

No. 73412-7.

Supreme Court of Washington, En Banc.

Argued May 6, 2003.

Decided May 14, 2004.

As Amended on Reconsideration July 30, 2004.

Stritmatter Kessler Whelan Whithey, Michael Withey, Reed Schifferman, Seattle, Paul Stritmatter, Garth Jones, Ray Kahler, Hoquiam, for Appellant.

Gordon & Polscer LLP, Joseph Hampton, Jacqueline Bell, Seattle, for Appellee.

Williams Kastner & Gibbs, Mary Spillane, Seattle, for Amicus Curiae (Physicians Insurance).

CHAMBERS, J.

Pursuant to RCW 2.60.020 and RAP 16.16, the United States Court of Appeals for the Ninth Circuit certified to this court two questions concerning the annulment of liability insurance policies. Those questions ask:

(1) Is the early cancellation of a claims-made policy that insures against loss or damage through legal liability for the bodily injury or death by accident of any individual an attempt at a prohibited retroactive "annulment" "after the occurrence of any such injury, death, or damage for which the insured may be liable" under RCW 48.18.320, where the cancellation does not affect claims the insurer already had notice of, but does affect claims the insurer does not yet have notice of involving occurrences that happened prior to the cancellation date while the policy was still in force?

(2) Is such a cancellation by an insured hospital that has filed for bankruptcy against the public policy of the State of Washington when no other insurance policies are held by the hospital to cover such occurrences?

See Order Certifying Questions to the Wash. State Supreme Ct. (Order) at 1-2. While American Continental Insurance Company (ACIC) argues that RCW 48.18.320 does not apply to claims-made insurance policies, Susan Steen maintains the statute covers all insurance contracts regardless of type. Based upon the plain language of the statute, we answer both questions in the affirmative.

FACTS

On September 10, 1998, Steen's husband, Steven Steen, was admitted to Puget Sound Hospital for a gastroenterostomy. Puget Sound Hospital was owned by New American Health Care Corporation (NAHC). On September 15, 1998, Steven was transferred to St. Joseph's Medical Center after developing complications from the surgery. Steven eventually died on October 1, 1998.

Steen alleges that the Puget Sound Hospital administrator was aware that the hospital did not have imaging equipment that would accommodate some of Dr. S. Ross Fox's obese patients, including Steven. Additionally, Steen alleges that the "sequence of events leading up to [her husband's] death demonstrate palpable medical mismanagement." Steen's Excerpts of Record (SER) at 31. After NAHC did not respond to the complaint, the Pierce County Superior Court entered a default judgment against it.

Between Steven's surgery and his death, NAHC was insured against legal liability by ACIC under a primary policy and an excess policy, both of which were renewed on April 1, 1999, and again on April 1, 2000. The policies contained claims-made-and-reported provisions, which meant that the insurer had to receive notice of either a claim or circumstance that could lead to a claim within the policy period to trigger potential coverage.

NAHC filed for bankruptcy after the policies had been renewed for their final year. Then NAHC and ACIC agreed to cancel the insurance policies in exchange for a pro rata refund of the premiums paid. Had NAHC and ACIC not agreed to cancel the policies, coverage would have continued until April 1, 2001. The cancellation of the policies did not affect any claims for which ACIC had received notice of prior to August 1, 2000, the effective date of the cancellation. However, the agreement to cancel the policies nullified, by the terms of the insurance contract, coverage for claims which ACIC had not received notice of by August 1, 2000, even if a covered occurrence happened prior to cancellation. There is no evidence in the record that either NAHC or ACIC attempted to give notice to injured people with potential claims against the insured of their intention to cancel the policies.

Steen filed a wrongful death action against NAHC and Puget Sound Hospital in Pierce County Superior Court on November 1, 2000. ACIC was not named as a defendant in the action. ACIC was made aware of the claim on December 11, 2000. Initially, ACIC provided NAHC with defense counsel pursuant to a reservation of rights. However, ACIC withdrew representation of NAHC after it concluded Steen's claim was not covered due to the cancellation of the policies. The date Steen's claim was filed was within the original policy period, and there is no question that absent the cancellations the policies would have covered Steen's claim.

On June 28, 2001, ACIC filed a declaratory judgment action in the United States District Court for the Western District of Washington in Seattle to resolve the insurance coverage issues pertinent to Steen's claims against NAHC. The Honorable John C. Coughenour granted summary judgment to ACIC concluding that, as a matter of law, ACIC policies did not cover Steen's claims against NAHC. Steen appealed to the United States Court of Appeals for the Ninth Circuit, which certified the two questions above to this court.

ANALYSIS

Occurrence and claims-made policies are fundamentally different, and often there are sound reasons for treating them differently. Cf. Safeco Title Ins. Co. v. Gannon, 54 Wash.App. 330, 337, 774 P.2d 30 (1989)

(discussing differences). Occurrence policies generally provide coverage for damage that occurs during the policy period regardless of when the damage is discovered if notification is made within a reasonable time. Id. at 337-38, 774 P.2d 30. By contrast, claims-made policies generally provide coverage for claims which the insurer receives notice of during the policy period regardless of when the damage occurred. Id. at 338, 774 P.2d 30. While occurrence policies were the dominant form of insurance used in 1947 (when RCW 48.18.320 was adopted), claims-made policies have been more frequently used in the last two decades. JEFFREY W. STEMPEL, INTERPRETATION OF INSURANCE CONTRACTS: LAW AND STRATEGY FOR INSURERS AND POLICYHOLDERS § 31.3.3 (1994). Although we are cognizant of the difference between the two types of policies, our function in answering the certified questions is to determine whether our legislature has chosen to treat the two types of policies differently.

Statutory Interpretation

Our primary objective is to ascertain and give effect to the intent and purpose of the legislature in creating the statute. State v. Watson, 146 Wash.2d 947, 954, 51 P.3d 66 (2002). First, we attempt to derive legislative intent from the language of the statute itself. Id. If the statute is clear on its face, its meaning is to be ascertained from the language of the statute alone. Id. Legislative definitions included in the statute are controlling. Id. However, in the absence of a statutory definition, we give the term its plain and ordinary meaning ascertained from a standard dictionary. Id. A statute is unclear if it can be reasonably interpreted in more than one way. Yet, it is not ambiguous simply because different interpretations are conceivable. Id. at 955, 51 P.3d 66. We are not to search for "an ambiguity by imagining a variety of alternative interpretations." W. Telepage, Inc. v. City of Tacoma, 140 Wash.2d 599, 608, 998 P.2d 884 (2000).

An unambiguous statute is not subject to judicial construction, and we will not add language to an unambiguous statute even if we believe the legislature intended something else but did not adequately express it. Watson, 146 Wash.2d at 955,51 P.3d 66. If a statute is ambiguous, we resort to principles of statutory construction, legislative history, and relevant case law to assist in interpreting it. Id.

The statute in question provides:

No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such annulment attempted shall be void.

RCW 48.18.320 (emphasis added). It is clear on the face of this statute that the legislature intended for it to apply to all insurance policies. By its terms, RCW 48.18.320 is not limited to "occurrence policies," nor are "claims-made policies" excluded by the terms of the statute. Regardless of policy type, the statute forbids and voids any agreement between the insured and the insurer to "retroactively annul[ ]" an insurance policy after the "occurrence" of an event "for which the insured may be liable." RCW 48.18.320. This statute is broad and inclusive. Any modification to exclude claims-made policies must be left to the legislative branch.¹

The legislature has had ample opportunity to amend the statute if it had wanted to do so. RCW 48.18.320 was adopted in 1947. Claims-made policies were introduced in the 1960s. See Queen City Farms, Inc. v. Cent. Nat'l Ins. Co. of Omaha, 64 Wash.App. 838, 877, 827 P.2d 1024 (1992)

(citing 3 ROWLAND H. LONG, LIABILITY INSURANCE APP-30, APP-53 (1976)). While it is unlikely that the legislature had the particularities of claims-made policies squarely in mind in 1947, it has had several decades of opportunity to exclude claims-made policies from RCW 48.18.320 had it desired to do so.

Because the legislature has not chosen to exclude claims-made policies, the statute applies to all policies. Hence, we must next ascertain which agreements between insureds and their insurers the legislature intended to prohibit and void. The words "retroactively annulled" are not defined by the...