Preferred Contractors Ins. Co. v. Baker & Son Constr. Inc.

• Decision Date: 11 August 2022
• Docket Number: 100466-4
• Citation: 514 P.3d 1230
• Parties: Certification From United States District Court for the Western District of Washington in PREFERRED CONTRACTORS INSURANCE COMPANY, Risk Retention Group, LLC, Petitioner-Plaintiff, v. BAKER AND SON CONSTRUCTION INC., a Washington for-profit corporation; Angela Cox, as Personal Representative of the Estate of Ronnie E. Cox, deceased; Angela Cox, individually and as mother of G.C., a minor, Respondents-Defendants.
• Court: Washington Supreme Court

514 P.3d 1230

Certification From United States District Court for the Western District of Washington in PREFERRED CONTRACTORS INSURANCE COMPANY, Risk Retention Group, LLC, Petitioner-Plaintiff,

v.BAKER AND SON CONSTRUCTION INC., a Washington for-profit corporation; Angela Cox, as Personal Representative of the Estate of Ronnie E. Cox, deceased; Angela Cox, individually and as mother of G.C., a minor, Respondents-Defendants.

No. 100466-4

Supreme Court of Washington.

Argued May 17, 2022

Filed August 11, 2022

Daniel L. Syhre, Betts, Patterson & Mines, P.S., 701 Pike St. Ste. 1400, Seattle, WA, 98101-3927, for Petitioner-Plaintiff.

Joseph Scuderi, Jeremey Donn Dobbins, Scuderi Law Offices, P.S., 108 22nd Ave. Sw Ste. 24, Olympia, WA, 98501-2871, Kevin Hochhalter, Olympic Appeals PLLC, 4570 Avery Ln. Se # C-217, Lacey, WA, 98503, Darrell L. Cochran, Kevin Michael Hastings, Christopher Eric Love, Pfau Cochran Vertetis Amala PLLC, 909 A Street, Suite 700, Tacoma, WA, 98402-4413, for Respondents-Defendants.

Amy Bach, United Policyholders, 381 Bush Street, 8th Floor, San Francisco, CA, 94104, Benjamin Blystad Gould, Gabriel Ernest Verdugo, Keller Rohrback LLP, 1201 3rd Ave. Ste. 3200, Seattle, WA, 98101-3052, for Amicus Curiae.

OWENS, J.

¶1 This case asks, via certified question, 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. In light of chapter 18.27 RCW, which regulates the registration of contractors, and specifically RCW 18.27.050, which requires registered contractors to carry at least $100,000 in financial responsibility for bodily injuries, we answer the certified question in the affirmative.

FACTS AND PROCEDURAL HISTORY

¶2 Cox Construction was the general contractor of a project to remodel the Roadway Motel in Long Beach, Washington. Certified Doc. (Doc.) 1, at 9. Cox hired Baker and Son Construction Inc. as a subcontractor. On October 31, 2019, a Baker employee allegedly caused a two-by-four to fall from a railing and strike Ronnie Cox, the owner of Cox Construction, in the head. Mr. Cox died in his sleep later that night. Baker allegedly called an insurance agent¹ to alert them of the incident. The agent told Baker that no action needed to be taken because at that time no claim existed.

¶3 On September 23, 2020, Baker received a notice from an attorney representing Mr. Cox's widow, Angela Cox, that she was pursuing a wrongful death claim against Baker. Baker notified its insurer, Preferred Contractors Insurance Company (PCIC), of the claim on September 25, 2020. PCIC denied coverage of the claim on October 14, 2020, but agreed to defend Baker under a reservation of rights. PCIC denied coverage for several reasons, but the reason relevant to the certified question before us involves the claims-made nature of the policy and the timing of Baker's tender of Ms. Cox's claim.

¶4 There are two common types of CGL policies: occurrence policies and claims-made policies. Am. Cont'l Ins. Co. v. Steen , 151 Wash.2d 512, 517, 91 P.3d 864 (2004) (plurality opinion). Generally, liability attaches in occurrence policies when an insured event happens during the policy period. Safeco Title Ins. Co. v. Gannon , 54 Wash. App. 330, 337-38, 774 P.2d 30 (1989) (quoting Gulf Ins. Co. v. Dolan, Fertig & Curtis , 433 So. 2d 512, 515-16 (Fla. 1983) ). On the other hand, liability usually attaches in a claims-made policy when the claim is reported to the insurer within the policy period. Id .

¶5 PCIC had issued two CGL policies to Baker. The policies were substantively identical, but one had a coverage period of January 5, 2019 to January 5, 2020 (the 2019 policy), and the other had a coverage period of January 5, 2020 to January 5, 2021 (the 2020 policy). Doc. 24, at 41 (Ex. E), 104 (Ex. F). These were claims-made policies. However, the insuring agreement provided coverage with language more similar to an occurrence policy:

b. This insurance applies to "bodily injury" and "property damage" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that first takes place or begins during the "policy period". An "occurrence" is deemed to first take place or begin on the date that the conduct, act or omission, process, condition(s) or circumstance(s) alleged to be the cause of the "bodily injury" or "property damage" first began, first existed, was first committed, or was first set in motion, even though the "occurrence" causing such "bodily injury" or "property damage" may be continuous or repeated exposure to substantially the same general harm;

(2) The "bodily injury" or "property damage" resulting from the "occurrence" first takes place, begins, appears and is first identified during the "policy period". All "bodily injury" or "property damage" shall be deemed to first take place or begin on the date when the "bodily injury" or "property damage" is or is alleged to first become known to any person, in whole or in part, even though the location(s), nature and/or extent of such damage or injury may change and even though the damage or injury may be continuous, progressive, latent, cumulative, changing or evolving.

Id. at 46-47, 109-110.

¶6 The claims-made features of the policies were added in a "claims-made and reported limitation" endorsement, limiting coverage to bodily injuries that occurred and were reported to PCIC within the policy period. Id . at 86, 149. Specifically, the endorsement added another section to the insuring agreement:

d. ... [T]his policy shall apply only to claims first made against the insured and reported to us in writing during the policy period. Coverage under this policy will only apply to claims made against the insured and reported to us on or after the policy inception date and prior to the policy expiration date as shown on the Declarations page(s), subject to the extended reporting period provided below. If prior to the effective date of this policy, any insured had a reasonable basis to believe a claim may arise, then this policy shall not apply to such claim or any related claim.

As a condition precedent to any coverage (defense or indemnity) under this Policy, You must give written notice to the Company of any claim as soon as practicable, but in all events no later than:

(a) the end of the Policy Period; or

(b) 60 days after the end of the Policy Period so long as such "Claim" is made within the last 60 days of such Policy Period.

Id. at 86, 149.

¶7 These endorsements also provided there was no continuous coverage between policies that were renewed, limiting each policy period to one year. Because Mr. Cox's death occurred in October 2019 and Ms. Cox did not notify Baker of her intent to sue until September 2020, the occurrence and reporting dates did not occur in the same policy period. The 2019 policy did not cover the claim because it was not reported within the policy period, and the 2020 policy did not provide coverage because the occurrence the claim arose from happened before the policy period began on January 5, 2020.

¶8 Ms. Cox filed her wrongful death claim in Pacific County Superior Court on November 12, 2020. PCIC filed a declaratory action in the United States District Court for the Western District of Washington on January 7, 2021, seeking a declaration that it had no duty to defend or indemnify Baker for Mr. Cox's death. PCIC filed a motion for summary judgment and Ms. Cox, joined by Baker, filed a motion for certification to this court. The district court denied PCIC's motion and partially granted Ms. Cox and Baker's motion. The certified question in full asks:

Whether a liability insurance policy providing only coverage for "occurrences" and resulting "claims made and reported" that take place within the same one-year policy period, and providing no prospective or retroactive coverage, violates Washington public policy and renders either the "occurrence" or "claims-made and reported" requirement unenforceable.

Doc. 57, at 12.

¶9 In addition to the briefs filed by Cox, Baker, and PCIC, United Policyholders filed an amicus curiae brief in support of Cox and Baker.

CERTIFIED QUESTION PRESENTED

¶10 This court has the inherent authority to reformulate a certified question. Travelers Cas. & Sur. Co. v. Wash. Tr. Bank , 186 Wash.2d 921, 931, 383 P.3d 512 (2016). To clarify the narrow circumstances when a contractor's liability insurance policy may violate our public policy, we reformulate the certified question as follows:

When a contractor's liability insurance policy provides only coverage for "occurrences" and resulting "claims-made and reported" that take place within the same one-year policy period, and provide no prospective or retroactive coverage, do these requirements together violate Washington public policy and render either the "occurrence" or "claims-made and reported" provisions unenforceable?

ANALYSIS

A. Standard of Review

¶11 The United States District Court certified the above question to us pursuant to RCW 2.60.020. Certified questions are questions of law we review de novo. Brady v. Autozone Stores, Inc. , 188 Wash.2d 576, 580, 397 P.3d 120 (2017). In Washington, insurance policies "are to be construed as contracts, and interpretation is a matter of law." State Farm Gen. Ins. Co. v. Emerson , 102 Wash.2d 477, 480, 687 P.2d 1139 (1984).

B. Background on Occurrence and Claims-Made Insurance Policies

¶12 The two main types of liability insurance policies on the market are occurrence and claims-made policies. Steen , 151 Wash.2d at 517, 91 P.3d 864. Occurrence policies generally provide coverage for damages that occur during the policy period, regardless of when the loss is discovered, as long as it is reported within a reasonable time. Id . (citing Gannon , 54 Wash. App. at 337-38, 774 P.2d 30 ). Claims-made policies, which have become more common since the 1980s,...