Transcontinental Ins. Co. v. Washington Public Utilities Districts' Utility System
| Decision Date | 18 August 1988 |
| Docket Number | No. 54851-0,No. 2,No. 3,No. 1,1,3,2,54851-0 |
| Citation | 111 Wn.2d 452,760 P.2d 337 |
| Court | Washington Supreme Court |
| Parties | TRANSCONTINENTAL INSURANCE CO., a New York corporation, and Columbia Casualty Co., an Illinois corporation, Appellants, v. WASHINGTON PUBLIC UTILITIES DISTRICTS' UTILITY SYSTEM, an unincorporated association; Public Utility Districtof Clallum County; Public Utility Districtof Klickitat County; Public Utility Districtof Lewis County; Public Utility Districtof Mason County; Public Utility Districtof Okanogan County; Public Utility Districtof Pacific County; Public Utility Districtof Skagit County; Public Utility District of Skamania County; Public Utility Districtof Wahkiakum County; Public Utility Districtof Pend Oreille County; Public Utility Districtof Benton County; Public Utility Districtof Clark County; John A. Goldsbury; Donald L. Clayhold; A.E. Fletcher; Phillip K. Jackson; Ed Fisher; Marion C. Babb; Arnold James; Leonard M. Allen; Stanton Cain; Harold A. Norman; John Dunsmoor; Rolf E. Jemtegarrd; Charles F. Emerick; David L. Myers; Frances Longo, Respondents. |
Lee, Smart, Cook, Martin & Patterson, P.S., David L. Martin, Steven J. Jager, Seattle, for appellants.
Gordon, Thomas, Honeywell, Malanca, Peterson & Daheim, Timothy J. Whitters, Thomas L. Palotas, Tacoma, Blair, Schaeffer, Hutchison, Wynne, Rotter & Horton, David C. Hutchison, Vancouver, for respondents.
Transcontinental Insurance Company and Columbia Casualty Company brought this declaratory action to determine whether certain insurance policies issued to the Washington Public Utility Districts' Utility System (WPUDUS) provide coverage for potential liability arising out of the Washington Public Power Supply System's $2.25 billion bond default. The trial court held that under the allegations of the complaints, one policy provided coverage. We affirm that decision, but hold the complaints allege facts which, if proved, would also trigger the coverage of another policy. We therefore affirm in part and reverse in part.
WPUDUS is an unincorporated association of public utility districts (PUDs) that formed a joint powers agreement in December 1976 to self insure. The WPUDUS member PUDs, their officers, directors and employees are defendants in a myriad of lawsuits brought by WPPSS bondholders. The bondholders allege various state and federal securities claims, fraud, negligent misrepresentation and breach of contract. The record contains 13 separate complaints filed by numerous parties for damages arising out of the WPPSS bond default. See Haberman v. WPPSS, 109 Wash.2d 107, 744 P.2d 1032, 750 P.2d 254 (1987); Chemical Bank v. WPPSS, 102 Wash.2d 874, 691 P.2d 524 (1984), cert. denied, 471 U.S. 1065, 105 S.Ct. 2140, 85 L.Ed.2d 497 (1985); Chemical Bank v. WPPSS, 99 Wash.2d 772, 666 P.2d 329 (1983).
The policies at issue here 1 are both "special excess liability policies" meant to provide coverage for losses in excess of the $500,000 covered by the WPUDUS self-insurance agreement. The self-insurance agreement provides the first layer of coverage, and the excess policies provide a second layer of coverage up to the particular policy limit.
Transcontinental policy number SXP 358 41 98 was in effect from January 31, 1981 to January 31, 1982 (81/82 policy). It provided $500,000 in excess coverage. The policy stated that Transcontinental would indemnify WPUDUS for its ultimate net loss in excess of its self insurance that WPUDUS became legally obligated to pay as damages because of personal injury or property damage caused by an occurrence. Endorsement 7 to the policy stated that, subject to the conditions of the policy, Transcontinental would also indemnify WPUDUS for any amount for which an officer, director, or employee became liable while acting in the scope of his duties.
For the next year, 1982-83, Transcontinental issued policy number SXP 358 42 34 (82/83 policy). This policy was similar to the 81/82 policy, but provided excess coverage of $19.5 million. The declarations page, as modified by endorsement, was the same as that in the 81/82 policy except for the coverage limit and a reference to public officials' errors and omissions coverage. Endorsement 13 to this policy contained language similar to endorsement 7 to the 81/82 policy except that it was subject to both terms and conditions of the policy. Both the 81/82 and the 82/83 policies contained the same definitions of "occurrence" and "property damage".
WPUDUS's broker notified Transcontinental of the WPPSS litigation in March 1983, seeking a determination of coverage under the policies for potential liability in excess of the self-insurance agreement limit. Transcontinental took the position that because none of the WPPSS suits involved allegations of personal injury or tangible property damage, no coverage existed under any of its policies. 2 Transcontinental then filed this declaratory action to determine whether any of its policies provided coverage for WPUDUS, its members and their officers, directors and employees for claims made against them in the WPPSS-related litigation. WPUDUS counterclaimed that Transcontinental's and Columbia Casualty's denial of coverage constituted bad faith and violated the Consumer Protection Act.
The trial court held that only the 82/83 policy provided coverage and granted summary judgment accordingly. The court denied WPUDUS's consumer protection claim. The trial court also denied reconsideration.
Transcontinental appealed the trial court's finding of coverage under its 82/83 policy. Defendant WPUDUS cross appealed the trial court's finding of no coverage under the 81/82 policy and its dismissal of the consumer protection claims. We accepted certification from the Court of Appeals.
The interpretation of insurance policies is a question of law. State Farm Gen. Ins. Co. v. Emerson, 102 Wash.2d 477, 480, 687 P.2d 1139 (1984). In construing the language of an insurance policy, the entire contract must be construed together so as to give force and effect to each clause. Morgan v. Prudential Ins. Co., 86 Wash.2d 432, 434, 545 P.2d 1193 (1976). If the language in an insurance contract is clear and unambiguous, the court must enforce it as written and may not modify the contract or create ambiguity where none exists. Morgan, at 435, 545 P.2d 1193; see Greer v. Northwestern Nat'l Ins. Co., 109 Wash.2d 191, 198, 743 P.2d 1244 (1987). However, if a policy provision on its face is fairly susceptible to two different but reasonable interpretations, the policy is ambiguous and the court must attempt to discern and enforce the contract as the parties intended. Morgan, 86 Wash.2d at 435, 545 P.2d 1193; Greer, 109 Wash.2d at 198-200, 743 P.2d 1244.
To determine the parties' intent, the court first will view the contract as a whole, examining its subject matter and objective, the circumstances of its making, the subsequent conduct of the parties, and the reasonableness of their respective interpretations. Greer, at 200, 743 P.2d 1244. If the court determines that the policy remains ambiguous even after its consideration of the extrinsic evidence, the court will apply a meaning and construction most favorable to the insured, even though the insurer may have intended another meaning. Greer, at 201, 743 P.2d 1244; Shotwell v. Transamerica Title Ins. Co., 91 Wash.2d 161, 167-68, 588 P.2d 208 (1978); Morgan, 86 Wash.2d at 435, 545 P.2d 1193.
Overall, a policy should be given a practical and reasonable interpretation rather than a strained or forced construction that leads to an absurd conclusion, or that renders the policy nonsensical or ineffective. Morgan, at 434-35, 545 P.2d 1193; see also McDonald Indus., Inc. v. Rollins Leasing Corp., 95 Wash.2d 909, 913, 631 P.2d 947 (1981).
The 82/83 policy provides:
COMPANY'S LIABILITY:
ITEM 2A. $19,500,000. ULTIMATE NET LOSS AS THE RESULT OF ANY ONE OCCURRENCE BECAUSE OF PERSONAL INJURY OR PROPERTY DAMAGE, OR PUBLIC OFFICIALS ERRORS & OMISSIONS OR ANY COMBINATION THEREOF.
Endorsement 7. The policy defines "occurrence" as
an accident, including injurious exposure to conditions, which results, during the policy period, in personal injury or property damage neither expected nor intended from the standpoint of the Insured ...
"Property damage" is defined as "physical injury to or destruction of tangible property".
The policy also provided by endorsement 13 that:
SUBJECT TO THE TERMS AND CONDITIONS OF THIS POLICY IT IS AGREED THAT THE COMPANY WILL ALSO INDEMNIFY THE INSURED OR ANY OFFICER, DIRECTOR OR EMPLOYEE OF AN INSURED PUBLIC
UTILITIES DISTRICT FOR ANY AMOUNT WHICH ANY OFFICER, DIRECTOR OR EMPLOYEE OF AN INSURED PUBLIC UTILITIES DISTRICT SHALL BECOME LEGALLY OBLIGATED TO PAY WHILE ACTING WITHIN THE SCOPE OF HIS OR HER DUTIES AS AN OFFICER, DIRECTOR OR EMPLOYEE ...
NOTHING HEREIN SHALL SERVE TO INCREASE THE COMPANY'S LIMITS OF LIABILITY.
Transcontinental asserts that the phrase "subject to the terms ... of this policy" limits the coverage of the endorsement to events arising out of an "occurrence" and resulting in tangible "property damage" as defined by the policy. Thus, Transcontinental argues endorsement 13 was meant only to clarify that officers, directors and employees of member PUDs are named insureds under the policy.
Essentially, Transcontinental reads endorsement 13 to say that officers, directors, and employees are covered for any amount they become legally obligated to pay which results from an accident resulting in tangible property damage neither expected nor intended. Transcontinental also contends the reference to "errors and omissions" in the endorsement to the declarations page was unintended. Transcontinental concludes that the policy does not cover any potential liability arising from the WPPSS litigation.
WPUDUS argues that Transcontinental's reading of endorsement 13 renders...
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