Groundbreaking Washington Supreme Court Insurance Law Decision – When public policy and contractors’ commercial general liability insurance (CGL) policies collide.
Thu Sep 1, 2022
By Sydney M. Sullivan
On August 11, 2022, the Washington Supreme Court issued a decision upending the landscape of commercial general liability insurance (CGL) policies for contractors. The Court’s opinion in Preferred Contractors Ins. Co. v. Baker & Son Constr. Inc., No. 100466-4, 2022 WL 3270083 (Wash. Aug. 11, 2022), is a unique decision that is noteworthy in many aspects, the first being that the Court used its inherent authority to “reformulate” the certified question before the Court 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?
For background, CGL policies are generally classified as either: 1) occurrence policies or 2) claims-made policies. For occurrence policies, insurance coverage is provided for damages that occur during the policy period, regardless of when the loss is discovered, so long as the loss is reported within a reasonable time. On the other hand, claims-made policies provide coverage for losses reported within the policy period no matter when the loss took place. Importantly, claims-made policies can be further slated as “nonretroactive”, limiting recovery for damages that arose in a previous policy period but the claim was reported in a later policy period.
The Court’s decision in Preferred Contractors now deems a contractor’s claims-made policy that is nonretroactive is a violation of public policy and unenforceable. The Court, relying on RCW 18.27.140 and RCW 18.27.050 to support its decision, explains:
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 a 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.
In light of this significant legal change regarding CGL policies in Washington, contractors should ensure their policies provide robust coverage for personal injuries. Additionally, contractors must review their CGL policies to ensure the policies do not prevent coverage for personal injury damages that have occurred but were not reported within the same policy year.