Coverage Analysis
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WASHINGTON
 (9th Circuit)

  ACCIDENTS OR OCCURRENCES

  Until the early 1990s, it appeared that Washington followed an "objective" standard and barred coverage for deliberate acts if the resulting harm was "reasonably foreseeable" to a prudent person.  Lloyd v. First Farwest Life Ins. Co., 54 Wn. App. 299, 302, 773 P.2d 426, review denied, 113 Wn.2d 1017 (1989).  However, the Washington Supreme Court has since adopted a subjective standard. Queen City Farms v. Central National Ins. Co., 124 Wash.2d 536, 882 P.2d 703 (1994).

  Further, such injuries must result from an "accident", which the Washington Supreme Court has described as an unexpected or unforeseen "event or condition, either of a sudden or continuous nature."  Mutual of Enumclaw v. Jerome, 59738-3 (Wash. August 26, 1993).  An "accident" is an unusual, unexpected and unforeseen happening.  Town of Tieton v. General Ins. Co., 61 Wn.2d 716, 721-22, 380 P.2d 127 (1963).   In Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 776 P.2d 123 (1989), the Washington Supreme Court held that "an accident is never present when a deliberate act is performed unless some additional unexpected, independent and unforeseen happening occurs which produces or brings about the result of injury of death.  The means as well as the result must be unforeseen, involuntary, unexpected and unusual."  The issue of whether harm was "expected or intended" is a factual one and therefore generally inappropriate for summary judgment.  Diana v. Western National Assur. Co., 56 Wn. App. 741, 785 P.2d 479 (1990).
  
  Intent will be inferred as a matter of law where the insured's conduct is inherently injurious.  Safeco Ins. Co. v. Butler, 118 Wn.2d 383. 400, 823 P.2d 499 (1992)(insured shot at car, injuring occupant);  New York Underwriters Ins. Co. v. Doty, 794 P.2d 521 (Wash. Ct. App. 1990)(rape); E-Z Loader Boat Trailers v. Travelers Ind. Co., 106 Wn.2d 901, 908, 726 P.2d 439 (1986)(employment discrimination); Rodriguez v. Williams, 107 Wash.2d 381, 729 P.2d 627, 630 (1986)(sexual molestation) and Western National Assur. Co. v. Hecker, 719 P.2d 954 (Wash. Ct. App. 1986)(forcible anal intercourse).

  "Willful and wanton" conduct or other forms of gross negligence are still an "occurrence."  Queen City Farms v. Central National Ins. Co., 824 P.2d 1454 (Wash. App. 1992), aff'd, 124 Wash.2d 536, 882 P.2d 703 (1994).  However, in City of Redmond v. Hartford Acc. & Ind. Co., 943 P.2d 665 (Wash. App. 1997), the Court of Appeals ruled that the insured had expected or intended pollution to occur when it continued to discharge acidic waste that was a thousand times stronger than permitted despite being warned repeatedly that its discharges were in violation of its permit.

  Including a negligence claim is not a guarantee of coverage.  In Western National Assur. Co. v. Hecker, 719 P.2d 954 (Wash. Ct. App. 1986), the Court of Appeals held that intent could be inferred as a matter of law in a case of forcible sexual contact, despite allegations of "negligent assault and battery." 
 
  A capacity to form an intent to injure may not exist if the insured was intoxicated.  Long v. Coates, 806 P.2d 1256, 60 Wash. App. 710 (1990).  Current policy forms sometimes contain exclusions barring coverage for intentional acts, even if the insured was insane.  Such exclusions were held not to be against public policy in Cary v. Allstate Ins. Co., No. 63181-6 (Wash. September 26, 1996).

  Allegations of self-defense do not provide a basis for avoiding an intentional acts exclusion, nor will public policy negate the effect of the exclusion in such cases.  Grange Ins. Co. v. Brosseau, 776 P.2d 123 (Wn. 1989).  

  Property damage claims are not uninsurable merely because they arise from a contractor’s defective job performance.  To the contrary, Division One of the Washington Court of Appeals ruled in Diamaco, Inc v. Aetna Casualty Insurety Company, 983 P.2d 707 (Wash. App. 1999) that such claims are covered unless they are subject to a policy exclusion.
 

  ALLOCATION AND SCOPE ISSUES

  An insurer must bear the entire cost of defense when "there is no reasonable means of prorating the costs of defense between the covered and not-covered items."  National Steel Construction Co. v. National Union Fire Ins. Co., 543 P.2d 642, 644 (Wash. App. 1975).  

  The Washington Supreme Court ruled in B & L Trucking & Construction Co. v. Northern Ins. Co., 134 Wash. 2d 413, 951 P. 2d 250 (1998) that a trial court had erred in pro-rating defense costs, holding instead that the insured was entitled to recover "all sums" from Chubb under a Gruol theory of joint liability.  Three dissenting judges criticized the ruling, noting that it was unfair to permit a policyholder to obtain seven years of benefits when it had only paid for two years of coverage.

  Such principles were given even further extension in a pollution case interpreting Pennsylvania law.   In Alcoa v. Accident & Casualty Insurance Company, 140 Wn2d 517, 998 P.2d 856 (2000) the Washington Supreme Curt ruled that a first party insured could recover in full under DIC property policies, even though the DIC policies lacked “all sums” language.

  Washington courts had also rejected earlier efforts by insurers to allocate defense costs on a "time on the risk" basis in cases such as Puget Sound Power and Light Company v. Aetna Casualty & Surety Co., No. C92-0119C (W.D. Wash. December 8, 1993), aff'd, 51 F.3d 382 (9th Cir. 1995)(Table--full text available at 1995 U.S. App. LEXIS 23646); Kitsap County v. Allstate Ins. Co., No. C93-5574 (W.D. Wash. March 28, 1995); Skinner Corp. v. Firemans Fund Ins. Co., 1996 WL 376657 (W.D. Wash. April 2, 1996)(asbestos claims) and Burlington Environmental, Inc. v. Admiral Ins. Co., King No. 96-2-14633 (Wash. Super. November 8, 1996).

  The Court of Appeals ruled in Pederson's Fryer Farms, Inc. v. Transamerica Ins. Co., 922 P.2d 126 (Wash. App. 1996), review denied (Wash. 1997) that a non-settling insurer was not entitled to a credit for settlement payments that the insured had received from other insurers where it could not prove what portion of the payments related to the same damages that the insured was attempting to recover from it.   Relying on Pederson’s, the Washington Supreme Court later ruled in Weyerhaeuser Company v. Commercial Union Insurance Company, 15 P.3d 115 (Wash.  2000) that an excess carrier was not entitled to an off-set for settlements that the insured had obtained from other insurers in connection with environmental liabilities as it had failed to prove any double recovery on the part of the insured.

  In Port of Seattle v. American National Fire Ins. Co., No. C96-434D (W.D. Wish. January 27, 1998), a U.S. District Court refused to adopt a "horizontal exhaustion" argument by excess insurers.  While agreeing that the law of Washington would probably result in the application of a "continuous trigger" to such claims, the court refused to find that horizontal exhaustion is a necessary corollary to a continuous trigger.  Further, the court noted that it was unlikely that a Washington court would permit the apportionment of damages between the defendants until the total loss and liability are determined. At that point, the insurers would have the burden of apportionment.  
 

  APPELLATE PROCEDURES

  Washington has both an intermediate appellate court and a state Supreme Court.  The Court of Appeals has two different geographic divisions.
 

  BAD FAITH

  Unfair or deceptive consumer practices are proscribed by Wash. Rev. Code Ann. § 19.86.010 (West 1989 & Supp. 1993). Unfair claims handling by insurers is regulated under Wash. Admin. Code R284-30-300 (adopted administratively)

  An insurer's breach of its duty of good faith constitutes an unfair trade practice for which an insured may recover treble damages and attorneys fees.  Mason v. Mortgage America, Inc., 792 P.2d 142 (Wash. 1990) and Keller v. Allstate Ins. Co., 919 P.2d 1140 (Wash. App. 1996).  In order to recover such a claim, the policyholder must show that the insurer's act was unfair or deceptive.  Insurance Company of Pennsylvania v. Highlands Ins. Co., 801 P.2d 284 (Wash. App. 1990).  RCW 48.01.030 requires insurers to deal with their insureds in good faith.

  The tort of bad faith has been defined as a breach of the obligation to deal fairly with an insured, giving equal consideration to the insured’s interests.  Anderson v. State Farm Mutual Automobile Insurance Company, 44597-9-I (Wash. App. June 26, 2000) and Tank v. State Farm Fire & Casualty Company, 715 P.2d 1133 (Wash. 1986).  Proof of fraud is not required to sustain a claim based on RCW 48.01.03.  Industrial Indemnity Company of the Northwest v. Kallevig, 792 P.2d 520 (Wash. 1990)(insurer’s fiduciary duty is broad and may be breached by conduct short of intentional bad faith or fraud).

  Historically, an insurer's failure to investigate a claim and 'to make a good faith attempt to effect settlement' when it appeared the insured would be found liable would constitute bad faith.  Burnham v. Commercial Cas. Ins. Co., 10 Wn.2d 624, 631, 117 P.2d 644 (1941). This general duty of good faith applies in the third party context even where there has been no reservation of rights. See Hamilton v. State Farm Ins. Co., 83 Wn.2d 787, 791-92, 523 P.2d 193 (1974).   

  Provisions of the Washington Administrative Code, Title 284 (WAC), define “specific acts and practices which constitute a breach of an insurer's duty of good faith.” Tank, 105 Wn.2d at 386; see WAC 284-30-330. Moreover,”'{t}his fiduciary duty to act in good faith is fairly broad and may be breached by conduct short of intentional bad faith or fraud.”  Indus. Indem. Co. v. Kallevig, 114 Wn.2d 907, 916-17, 792 P.2d 520, 7 A.L.R.5th 1014 (1990) (citing Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wn.2d 65, 73, 659 P.2d 509 (1983); Whistman v. West Am., 38 Wn. App. 580, 584-85, 686 P.2d 1086 (1984); Safeco Ins. Co. v. JMG Rests., Inc., 37 Wn. App. 1, 11, 680 P.2d 409 (1984)). 

 Other sanctioned conduct include:

–Failing to acknowledge and act reasonably promptly upon communications with respect to claims arising under insurance policies. WAC 284-30-330(2)

--Not attempting in good faith to effectuate prompt, fair and equitable settlements of claims in which liability has become reasonably clear. WAC 284-30-330(6). 

  Two other WAC provisions require an insurer to respond to notification of a claim within 10 working days, WAC 284-30-360(1), and to respond to pertinent communications from a claimant within 10 working days, WAC 284-30- 360(3). Yet another provision requires the insurer to complete investigation of a claim within 30 days of notification unless the investigation cannot be reasonably completed within that time. WAC 284-30- 370.

  More than mere negligence is required to establish bad faith.  “As long as the insurance company acts with honesty, bases its decisions on adequate information, and does not over emphasize its own interests, an insured is not entitled to base a bad faith or CPA claim against its insurer on the basis of a good faith mistake.”  Coventry Associates v.  American States Ins.  Co., 961 P.2d 933 (Wash. 1998). When insurer denies coverage based on a reasonable belief, its conduct is not bad faith even if it is ultimately proved incorrect.  Villella v. Public Employees Mutual Ins. Co., 725 P.2d 957 (Wash. 1986).  An insured may not recover for bad faith where the insurer had a debatable reason for questioning coverage and the denial of coverage was based on a reasonable interpretation of the policy.  Farmers Insurance Company v. Romas, 947 P.2d 754 (Wash. App. 1997), review denied (Wash. 1998).   On the other hand, Washington courts have ruled that n insurer acts in bad faith when it denies coverage without "reasonable justification."  Industrial Indemnity Co. of the North West, Inc. v. Kallevig, 792 P.2d 520 (Wash. 1990).  An insurer acts without reasonable justification "when it denies coverage based on suspicion and conjecture."  

  Unfair or deceptive claims handling practices are prohibited by RCW 19.96.  Liability may arise under RCW 19.96.020 if an insurer can be shown to have committed any of the specific practices forbidden by WAC 284-30-330, which sets forth specific acts by insurers that will be deemed to constitute unfair methods of competition or unfair or deceptive acts or practices.   Even a single violation of WAC 284-30-330 is a per se unfair trade practice.  Industrial Indemnity Co. v. Kallevig, 792 P.2d 520 (Wash. 1990). 

  To establish a claim under the Consumer Protection Act, a claimant must prove (1) an unfair or deceptive act or practice; (2) occurring in trade or commerce; (3) impacting a public interest; (4) injuring in the claimant’s business or property; and (5) caused by the act.

  The Washington Court of Appeals ruled in Heigis v. Cepeda, 71 Wash. App. 626, 862 P.2d 129 (1993) that an insurer has "no enhanced duty of good faith. . . when dealing with its own insured as a third party claimant."  More recently, however, the Washington Supreme Court has declared that the Court of Appeals did not err in holding that a first party insurer has an “enhanced fiduciary obligation” with respect to claims presented by uninsured motorists under a motor vehicle policy.  Although this “enhanced” obligation has previously only been recognized in the context of a liability insurer’s obligations with respect to the defense of third party claims, the Supreme Court declared in Noy v. State Farm Mutual Automobile Insurance Company, 68548-7 (Wash. January 18, 2001) that the Court of Appeals was not breaking new ground and was merely reiterating the previously-established rule that a first party carrier must deal fairly with its policyholder and give “equal consideration” to the insured’s interests.  Although a concurring justice proposed a distinction between first and third party claims, declaring that first party carriers only owe a duty of good faith, the majority noted in a footnote that it did not see any real difference between a “fiduciary” duty and a “duty of good faith” in the insurance context.

  More recently, the Washington Supreme Court has declared that the Court of Appeals did not err in holding that a first party insurer has an “enhanced fiduciary obligation” with respect to claims presented by uninsured motorists under a motor vehicle policy.  Although this “enhanced” obligation has previously only been recognized in the context of a liability insurer’s obligations with respect to the defense of third party claims, the Supreme Court declared in Noy v. State Farm Mutual Automobile Insurance Company, 68548-7 (Wash. January 18, 2001) that the Court of Appeals was not breaking new ground and was merely reiterating the previously-established rule that a first party carrier must deal fairly with its policyholder and give “equal consideration” to the insured’s interests.  Although a concurring justice proposed a distinction between first and third party claims, declaring that first party carriers only owe a duty of good faith, the majority noted in a footnote that it did not see any real difference between a “fiduciary” duty and a “duty of good faith” in the insurance context.

  If an insurer breaches its policy obligations, the insured is free to negotiate an independent settlement of the tort claimant's claim.  However, such a settlement must be reasonable.  In assessing whether a settlement is reasonable in these circumstances, the Washington Court of Appeals declared in Chaussee v. Maryland Casualty Co., 60 Wash. App. 504, 512, 803 P.2d 1339 (1991) that a court should consider "the releasing person's damages; the merits the releasing person's liability theory; the merits of the released person's defense theory; the released person's relative fault; the risk and expenses of continued litigation; the released person's ability to pay; any evidence of bad faith, collusion or fraud; the extent of the releasing person's investigation in preparation of the case and the interest of the parties not being released."  

  Although an insurer may not be held in bad faith for refusing to defend a claim that later proves not to be covered under its policy, the Court of Appeals has ruled that a claim may lie under the Washington Consumer Protection Act based on a failure to investigate.  In Coventry Associates v. American States Insurance Company, 1997 WL 38116 (Wash. App. July 14, 1997), aff’d in part, rev’d in part, 961 P.2d 933 (Wash. 1998) the Court of Appeals ruled that even if a first party claim was not covered, an insurer might be held liable for bad faith if it maintained a pattern or practice of avoid making covering determinations by failing to carry out proper claim investigations.  The court made clear, however, that mere procedural violations of the Washington Consumer Protection Act would not justify a finding of bad faith, declaring that the insured must establish substantive violations to recover.

  The Washington Supreme Court has ruled that an auto carrier acted in bad faith in its handling of a UIM claim when it used the expert that had earlier been retained to help defend its insured  to also help support its own coverage defenses against the insured’s claim.  In Ellwein v. Hartford Acc. &  Ind. Co., No. 68230-5 (Wash. January 11, 2001), the court ruled that Hartford’s assertion of a comparative fault defense to the UIM claim was not bad faith but that it had violated its duties to its policyholder by continuing to use the accident reconstruction expert that had been hired for the defense of its policyholder to also aid its defense of the insured’s UIM claim.  The court found that Hartford clearly understood that the individual in question was the insured’s expert and that the insurer should not have been allowed to manipulate his conclusions or work in a manner adverse to the insured’s interests.

  RCW 48.18.320 provides that an insurer may not retroactively annul an insurance policy after an “occurrence” has already taken place.  Policyholders have contended that RCS 48:18.320 bars the use of policy buy-backs.
 

  "BODILY INJURY"

  Under Washington law, pure emotional distress is not a “bodily injury.”  Daley v.  Allstate Ins. Co.., No.  65644-4 (Wash.  July 16, 1998).  Coverage may be permitted where emotional distress results in physical symptomatology.  Similarly, emotional distress may be covered as damages arising from a bodily injury that causes the emotional distress.  However, where the emotional distress arose a year after an insured’s accident, it was not directly caused by the bodily injury suffered in that accident, the Washington Supreme Court has refused to require coverage.  See also  E.Z. Loader Boat Trailers, Inc. v. Travelers Indemnity Co., 106 Wash.2d 901, 726 P.2d 439 (Wash.  App. 1986)(no coverage for mental distress arising out of employment discrimination).
 

  BREACH OF POLICY CONDITIONS

  An insurer seeking to be relieved of its policy obligations due to a breach of the notice, assistance or cooperation clauses must show that it was prejudiced. Oregon Automobile Ins. Co. v. Salzberg, 535 P.2d 816 (Wash. 1975).  Prejudice is generally a question of fact but may be presumed in extreme cases.  Sears Roebuck & Co. v. Hartford A & I Co., 50 Wn.2d 443 (1957) and Felice v. St. Paul Fire & Marine Ins. Co., 42 Wn. App. 352 (1985)(prejudice presumed where insurer was not notified until liability case had already been tried to an unfavorable conclusion).  See also Baugh Construction Co. v. Mission Ins. Co., 836 F.2d 1164, 1174 (9th Cir. 1988) and Pan Pacific Builders, Ltd. v. Connecticut Ind. Co., 81 F.3d 169 (9th Cir. 1996) (Table) (Unpublished--full text available at 1996 WL 138476).

  Under Washington law, an insurer must do more than merely allege prejudice from an insured's late notice.  It must come forward with material facts proving that its ability to investigate and respond to an insured's claim for coverage has been impaired or cannot be reconstructed through other means.  Olds-Olympic, Inc. v. Commercial Union, 129 Wash.2d 464, 918 P.2d 923 (1996); Canron, Inc. v. Federal Ins. Co., 82 Wash. App. 480, 918 P.2d 937 (1996) and Pederson's Fryer Farms, Inc. v. Transamerica Ins. Co., 922 P.2d 126 (Wash. App. 1996).

  Prejudice is also required to establish a breach of the cooperation clause, including the policy’s prohibition against voluntary payments.    Public Utility District No. 1 v. International Ins. Co., 124 Wash.2d 789 (1994).   Prejudice is ordinarly a question of fact for the jury but may be established as a matter of law in extreme cases.   Pilgrim v. State Farm Fire & Casualty Ins. Co., 1997 Wash. App. LEXIS 1571 (Wash. App. September 22, 1997)(first party claim).  Further, such prejudice may exist where the insured settles a cases before the carrier had a meaningful opportunity to investigate it.  In Northwest Prosthetic & Orthotic Clinic v. Centennial Insurance Company, No. 44254-6-1 (Wash. App. April 24, 2000), the Washington Court of Appeals ruled that Centennial had established that its insured’s settlement deprived it of any opportunity to conduct a meaningful investigation whether or not the insurer could not state exactly what it would have done had it been given earlier notice.

  Where the insured’s delay has resulted in prejudice to the insurer, the insured  was held not to be excused from the consequences of her failure to provide timely notice of an “occurrence” merely because she believed, without any diligent inquiry, that no one had been hurt in the auto accident.  In Benham v. American States Ins. Co., 40654-0-I (Wash. App. March 29, 1999), Division I of the Court of Appeals ruled that a policyholder has an obligation to conduct a reasonable inquiry at the time of the accident as to whether the other party had suffered injury.
 

  BROAD FORM COVERAGES

  On October 1, 1998, the Washington Supreme Court became the first state supreme court in the country to find that claims for trespass and nuisance arising out of pollution discharges are covered under the “personal injury” portions of a CGL policy.  In  Kitsap County v. Allstate Ins. Co., 136 Wash.2d 567, 964 P.2d 1173 (1998), the court held that trespass and nuisance claims by the residents of a mobile home park adjacent to the insured’s landfill were an action for “wrongful entry” as well as for “other invasion of the right of private occupancy.”  the court noted that (1) case law from other jurisdictions was inconclusive; (2) dictionary definitions of “wrongful entry” and “invasion of the right of private occupancy” indicated similarities between these offenses and trespass and nuisance; and (3) that the doctrine of ejusdem generis should not be interpreted to limit the scope of this coverage particularly where it would conflict with the court’s obligation to enforce and apply all terms in a contract.  The court refused to find coverage, however, under certain policies that solely afforded coverage for “wrongful eviction,” noting the absence of any actual eviction or landlord-tenant relationship between the parties

  Earlier cases had generally rejected policyholder efforts to compel coverage for trespass claims.  See Spokane County v. American Re-Ins. Co., No. CS-90-256-RJM (E.D. Wash., April 25, 1991) and Port of Olympia v. Underwriters at Lloyds, Thurston No. 94-2-01637-4 (Wash. Super. March 10, 1995).  
 
  In an unpublished ruling, the Washington Court of Appeals has ruled in CLE Elum Bowl, Inc. v. North Pacific Insurance Company, 1999 Wash. App. LEXIS 1039 (Division 3, June 8, 1999) that damage to a bowling alley from the insured’s failure to remove snow and ice did not trigger the policy’s “personal injury” coverage.  Unlike the facts in Kitsap County, where there were express claims for trespass and nuisance that might deemed to be a “wrongful entry,” the court refused to find coverage here where the claims against the insured were for breach of contract and negligence. 
 

  BURDEN OF PROOF

  Insured has initial burden of showing that its claim is within the scope of coverage.  Waite v. Aetna Cas. & Sur. Co., 467 P.2d 847, 77 Wash.2d 850 (1970); McDonald v. State Farm Fire & Casualty Co., 119 Wash.2d 724, 733, 837 P.2d 1000 (1992).  This burden extends to showing that it did not expect or intent injury to occur. Queen City Farms v. Central National Ins. Co., 124 Wash.2d 536, 882 P.2d 703 (1994), rejecting a policyholder's claim that the insurer had this burden since these terms were "exclusionary" in character.
  Where a prima facie case for coverage exists, the burden shifts to the insurer to demonstrate why its policy does not apply. McDonald, supra; Bosko v. Pitts & Still. Inc., 454 P.2d 229, 75 Wash.2d 856 (1969) and USF&G v. Brannan, 589 P.2d 817, 22 Wash. App. 341 (1979).  Thus, the burden of demonstrating the applicability of policy exclusions is on the insurer.  Long v. Coates, 806 P.2d 1256, 60 Wash. App. 710 (1990). 

  An insured that seeks reimbursement for claims that it has settled need not show that the actual facts are covered, so long as the claims, as alleged, fell within the insurer's policies. Public Utility District No. 1 v. International Ins. Co., 124 Wash.2d 789 (1994).  In PUD, the Supreme Court also ruled that the trial court had properly refused to submit allocation questions to the jury where covered and non-covered claims arose out of the same set of facts and damages.

  An insured has the burden of proving the existence and terms of a missing policy by clear and convincing evidence. B.J. Carney v. Safeco Ins. Co., No. 93-2-01185-1 (Wash. Super. January 3, 1997) and Olds-Olympic, Inc. v. Commercial Union Ins. Co., King No. 92-216329-2, Jury Instruction (Wash. Super. May 27, 1994).  In  B.J. Carney, the court held that certain unearned premium statements might have been probative of the contents of the coverage but were irrelevant as to the issue of whether the contracts themselves had been issued, which the court held must first be established before it considered what the contents of the claimed coverages were.

  A U.S. District Court has ruled that this duty extends to all parts of the policy that control the insured risk, including limits. City of Tacoma v. Great American Ins. Co., No. C93-5729 (W.D. June 15, 1995).  

  Special rules for handling missing policies in environmental coverage disputes were adopted by the Washington Insurance Commissioner effective May 10, 1995 (WSR 95-09-014) that substantially change the ordinary burdens of proof for such claims.  These regulations only pertain to sites in Washington.
 

  CHOICE OF LAWS

  Courts have adopted the significant relationship test of the Restatement (Second) of Conflicts of Laws.  Bush v. O'Connor, 791 P.2d 915, 918 (1990).  Applying the Restatement analysis in Canron, Inc. v. Federal Ins. Co., 82 Wash. App. 480, 918 P.2d 937 (1996), the Court of Appeals ruled that Washington law should apply to claims involving a Washington waste site, even though the policies were issued in Quebec to a Canadian corporation.  The court ruled  that "Washington has a paramount interest in the health and safety of its people" and that the "existence or absence of insurance proceeds can determine whether or not a hazardous waste site is remediated." See also Pendleton Woolen Mills, Inc.  v.  Employers Ins.  Of Wausau, Clark No.  98-2-01168-1 (Wash.  Super. November 9, 1998).  But see Alcoa v. Admiral Ins. Co., King No. 92-2-28065 (Wash. Super. June 10, 1994)(place of contracting favored over law of individual waste sites).
  Washington courts will not give effect to an express choice of law clause if application of the law of the chosen state would be contrary to a fundamental policy of Washington and Washington has a materially greater interest in the determination of the particular issue.  Rutter v. BX of Tri-Cities, Inc., 60 Wash. App. 743, 806 P.2d 1266 (1991); O'Brien v, Shearson Hayden Stone, Inc., 90 Wash.2d 680, 586 P.2d 830 (1978).
 

  CONCURRENT CAUSATION

  Coverage required where "efficient proximate cause" (ie. the peril that sets other perils or events in motion) is not an excluded peril.  Kish v. INA, 883 P.2d 308 (Wash. 1994)(water damage from flood of sewage lagoons was set in motion by rain, a non-excluded peril). However, where the perils are separate and distinct, coverage will not be required.  See Eide v. State Farm, 901 P.2d 1090 (Wash. App. 1995)(even though rainfall caused groundwater to rise, it was not proximate cause of landslide). 
 

  CONFLICTS OF INTEREST

  Where a conflict of interest exists, the insurer may still retain the right to select counsel to defend its policyholder but has an enhanced duty of good faith as a result.  Further, the insurer may not rely upon the doctrine of collateral estoppel from the outcome of the suit in any subsequent coverage litigation.  Tank v. State Farm Fire & Casualty Co., 715 P.2d 1133 (Wash. 1986).  

  An insurer that defends a claim under a reservation of rights must take care not too place its interests above those of its insured.  Butler v. Safeco Ins. Co., 118 Wn. 383, 823 P.2d 499 (1992).  Thus, Washington courts have stipulated that the same file handlers may not be responsible for both coverage and defense matters.  Tank v. State Farm, 105 Wn.2d 381, 715 P.2d 1133 (1986).

  There is no requirement under Washington law that an insurer pay the fees of the insured's personal attorney absent a clear conflict of interest.  Johnson v. Continental Cas. Co., 57 Wash. App. 359, 788 P.2d 598 (1990)(rejecting insured's contention that a conflict of interest was automatically created anytime that the insurer defended under a reservation of rights).
 

  "DAMAGES"

  The Washington Supreme Court has defined the parameters of "damages" in environmental liability cases in three cases decided since 1990.  In the seminal case of Boeing Corp. v. Aetna Cas. & Surety Co., 113 Wn.2d 869, 784 P.2d 507 (1990), the court rejected the insurers' blanket assertion that CERCLA "response costs" can never be damages, while noting that purely prophylactic measures would not be covered.  Subsequently, in Weyerhaeuser Corp. v. Aetna Cas. & Sur. Co., 123 Wash.2d 891, 874 P.2d 142 (1994), the Washington Supreme Court held that a property owner was entitled to recover for the cost of complying with its statutory obligation to clean up pollution on its property even in cases where no clean up demand had been received from the U.S. EPA or any other third party.  The court ruled that the availability of coverage for clean up costs did not depend on whether the work was being undertaken pursuant to a third-party claim, noting that the insured should not be forced to stop its clean up activities and wait to be sued in order to obtain coverage.  As the court declared:

In Boeing v. Aetna, we illustrated costs that are not incurred "because of" property damage by citing the following example: Petitioners have two underground storage tanks for toxic wastes.  Tank #1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment.  Tank #2 has not leaked, but government inspectors discover that it does not comply with regulatory requirements, and could eventually leak unless corrective measures are taken.  Response costs associated with Tank #1 will be covered as damages, because pollution has occurred.  Tank #2 would not be covered.  Likewise, the expense of capital improvements to prevent pollution in an area of a facility where there is none, or improvements or safety paraphernalia required by government regulation and not causally related to property damage, would not be covered as ‘damages’.  918 P.2d at 930 (citations omitted).  

  The court amplified these rulings in its recent decision in Olds-Olympic, Inc. v. Commercial Union, 129 Wash.2d 464, 918 P.2d 923 (1996) but noted that the costs must relate to work which the insured is legally obligated to perform.  In Olds-Olympic, the court set aside a jury finding that the insured's clean up of property that was contaminated below WDOE action levels was not covered, noting that the jury instruction was insufficiently specific as to what it was that the insured was "legally obligated" to carry out under the Model Toxics Control Act (MTCA). 

  More recently, the Supreme Court ruled in Weyerhaeuser Company v. Commercial Union Insurance Company, 15 P.3d 115 (Wash.  2000) that  “the payment of funds for the cost of complying with a consent decree is the functional equivalent of a settlement” properly payable against an insurer’s indemnity limits.  

  An insured’s internal costs were held not to be “damages” in Puget Sound Power & Light Co.  v.  Aetna Casualty & Surety Co., No.  C95-1376C (W.D. Wash.  May 19, 1998).

   Earlier cases had held that suits seeking to impose purely equitable or injunctive relief did not seek "damages."  Felice v. St. Paul Fire & Marine Ins. Co., 711 P.2d 1066 (Wash. App. 1985)(removal of guardian) and Seaboard Surety Co. v. Ralph Williams Northwest Chrysler-Plymouth, Inc., 81 Wash.2d 740, 504 P.2d 1139 (1973)(consumer protection act violations).  These rulings were held not to preclude coverage for a case in which an out of state court allowed initial fact finding prior to the filing of a suit for “damages.”   

  Analyzing a novel pleading procedure in Florida, whereby a plaintiff may file a “Bill of Discovery” seeking facts to support a claim preparatory to actually suing for damages, the Washington Court of Appeals has ruled that this preliminary proceeding is nonetheless a suit for “damages.”  In APA Engineered Wood Association v.  Glen Falls Ins.  Co., 22737-1-II (Wash.  App.  March 12, 1999), the court held that even though the Bill of Discovery did not itself seek damages, it would exalt form over substance to suggest that this was not a “suit” with a potential for coverage as it was only the initial phase of litigation that would likely ultimately develop into a claim for damages.   
 

  DECLARATORY JUDGMENT ACTIONS

  Although a criminal conviction will collaterally estop an insured from claiming otherwise in a later coverage case, the same is not true of a guilty plea.  See also, Safeco Insurance Company of America v. McGrath, 708 P.2d 657, 660 (Wash. App. 1985).  A plea of guilty is admissible in a subsequent civil action on the independent ground that it is an admission but, while evidence of intent, is not conclusive on the issue.

  Washington has a six year statute of limitations for contract claims.  However, Washington courts have upheld shorter limitations period in insurance policies.  The Washington Court of Appeals has found that RCW 48.18.200(1)(c) allows property insurers to limit the period in which policyholders can sue them under insurance policies, so long as the limitation period is not less than one year from the date of loss. Aluminum Co. of Am. v. Aetna Cas. & Sur. Co., 140 Wn.2d 517, 548, 998 P.2d 856 (2000); Simms v. Allstate Ins. Co., 27 Wn. App. 872, 874-75, 621 P.2d 155 (1980); cf. Schwindt v. Commonwealth Ins. Co., 140 Wn.2d 348, 355-58, 997 P.2d 353 (2000) (absent an express suit limitations provision, the statutory limitations period for contracts applies). A general statute of limitations cannot enlarge the time in which to bring a lawsuit when an insurance policy has already fixed the limitations period. Wothers v. Farmers Ins. Co. of Wash., 101 Wn. App. 75, 79-80, 5 P.3d 719 (2000); Ashburn v. Safeco Ins. Co. of Am., 42 Wn. App. 692, 696, 713 P.2d 742 (1986).

  Insureds are entitled to recover their fees if they succeed in a DJ. The Washington Supreme Court has ruled that Olympic Steamship, the case that permits insureds to recover fees in coverage litigation, does not violate the equal protection and due process protection guaranteed under the United States Constitution.  Gossett v. Farmers Ins. Co. of Washington, 1997 Wash. LEXIS 825 (Wash. December 24, 1997).  A concurring justice also questioned whether the insurer had the right to present a constitutional challenge to a common law rule. 

  The Supreme Court ruled in Weyerhaeuser Company v. Commercial Union Insurance Company, 15 P.3d 115 (Wash.  2000)  that an insured was entitled to pre-judgment interest on a polluter’s claim for clean up costs,  rejecting the insurer’s contention that these various coverage disputes transformed the action into a claim for unliquidated damages.  On the other hand, the court adopted the majority view that Weyerhaeuser was not entitled to pre-judgment interest on its own attorney’s fees, rejecting the insured’s contention that such a finding would be “in the spirit of Olympic Steamship.”  

  The Washington Supreme Court has ruled a general liability insurer that wrongfully refused to defend must reimburse an insured for fees incurred in pursuing the coverage claim, even though the  ultimate beneficiary of the fees would be the professional liability insurer that had defended the insured and funded the DJ.  The court held in McRory v. Northern Insurance of New York, 67544-9 (Wash. July 22, 1999) that the rationale underlying Olympic Steamship had equal application here where Wausau had been forced to pay due to Northern’s position. 

  The Washington Court of Appeals has ruled in Peterson v. Safeco Ins. Co. of Illinois, 17208-2-III (Wash. App. April 20, 1999), that a policyholder was not entitled to recover Olympic Steamship fees where his dispute involved the value of his insurer’s subrogation interest in a personal injury recovery and was not based upon a coverage dispute per se.

  In Public Utility District No. 1 v. International Ins. Co., 124 Wash.2d 789 (1994), the Washington Supreme Court ruled that Olympic Steamship did not apply where the insured was seeking reimbursement for settlements that it had entered into without notice to its insurers, in violation of the cooperation clause.  More recently, however, the Washington Supreme Court has ruled that a policyholder was entitled to attorney’s fees for a dispute arising out of the validity of a policy provision permitting a judicial challenge to an arbitration panel’s award of damages (but not liability).   Godfrey v. Hartford Casualty Insurance Company, No. 69454-1 (Wash. January 25, 2001).
 

  DISCOVERY ISSUES

   --Claims Manuals

  Such discovery has been held to have no probative value in determining the mutual intent of the parties as reflected in the insurance contracts. Joseph Simon & Sons, Inc. v. Aetna Fire Underwriters Ins. Co.. No. 90-2-14568-9 (Wash. Super. Feb. 18, 1992).

  Claims manuals were held discoverable in a bad faith action.  Tastad v. Allstate Ins. Co., No. 40549-7-1 (Wash. App. July 28, 1997).
 

   --Drafting History
 

   --Other Policyholder Claims
  In Boeing Co. v. Aetna Cas. & Sur. Co., No. C-86-352WD (W.D. Wash. April 19, 1990), Judge Dwyer ruled that evidence of claims handling and investigation performed by the insurers concerning other policyholders was inadmissible, noting that the purported relevance of such evidence "was outweighed by the risk of prejudice, confusion and waste of time."

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  Generally, an insurer's duty to defend arises where a complaint alleges facts which, if proven, would be within the scope of its coverage.  Greer v. Northwestern National Ins. Co., 109 Wn.2d 191, 197, 743 P.2d 1244 (1987) and State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 486, 687 P.2d 1139 (1984).  

  Washington courts have recognized that insurers have an independent obligation to investigate claims to determine whether facts exist that might support coverage.  E-Z Loader Boat Trailers v. Travelers Ind. Co., 106 Wn.2d 901, 908, 726 P.2d 439 (1986).  However, an insurer should only look beyond the allegation of the complaint if (1) the allegations are in conflict with facts that are already known or readily ascertainable by the insurer or (2) the allegations are ambiguous or inadequate to determine the availability of coverage.  Globe Indem. Co. v. First American State Bank, 720 F.Supp. 853, 858 (W.D. Wash. 1989); accord, Federal Ins. Co. v. Microsoft Corp., No. C92-610D (W.D. Wash. April 14, 1993).  Thus, in State Farm Fire & Cas. Co. v. Thomas, 51 Wn. App. 591 (1988), an interrogatory answer was the source of the insurer's defense obligation.  
 
  Addressing an issue of first impression in Washington, the Court of Appeals has ruled that an insurer's fiduciary and defense obligations extend to the cost of appealing an excess verdict.  In Truck Ins. Exchange v. Century Indemnity Group, 76 Wn. App. 527, 887 P.2d 455, 459 (1995), the Third Division ruled that there were at least questions of fact as to whether the primary insurer's failure to pursue an appeal of an excess verdict breached the duty of care that it owed to the excess insurer as the policyholder's subrogee such that the excess insurer's equitable subrogation claim should not have been dismissed.  The court refused to recognize a direct duty between the primary and excess carrier, however. 

  Where an insured has settled a third party’s claim, it is not required to establish its liability in order to obtain indemnification for reimbursement from its liability insurer.  Public Utility District One v. International Insurance Company, 881 P.2d 1020 (Wash. 1994).  The insured need only prove that the underlying allegations fell within the scope of the policy.  Id.  On the other hand, the insurer is liable only for the amount of a settlement that is reasonable and paid in good faith.  Chausse v. Maryland Casualty Company, 803 P.2d 1339 (Wash. App. 1991).
  Several Washington courts have ruled that a governmental claim letter is a "suit" in the environmental context. Boeing Corp. v. Aetna Cas. & Sur. Co., No. C86-352WD (W.D. Wash. April 16, 1990); Associated Grocers, Inc. v. TIG Ins. Co., King No. 98-2-00208 (Wash. Super. March 20, 1998) and Cascade Pole Co. v. Reliance Ins. Co., Thurston No. 88-2-2136-3 (Wash. Super. March 20, 1992).  However, while relying on Boeing, Judge Rothstein's ruling in Time Oil Co. v. CIGNA Property and Cas. Co., 743 F. Supp. 1400, 1420 (W.D. Wash. 1990) relied on the date that EPA issued an Administrative Order, not the issuance of a PRP letter two years earlier.

  The District Court stated in Time Oil Co. v. CIGNA Property and Cas. Co., 743 F. Supp. 1400, 1420 (W.D. Wash. 1990) that the duty to defend does not arise until a claim for a defense is actually tendered to an insurer.  However, the court allowed the insured to recover pre-tender fees absent proof of prejudice.  
 

  ESTOPPEL AND WAIVER

  In general, the doctrines of waiver and estoppel may not be relied upon to expand the scope of coverage. “The general rule is that, while an insurer may be estopped, by its conduct or its knowledge or by statute, from insisting upon forfeiture of a policy, yet under no conditions can the coverage or restrictions on the coverage be extended by the doctrine of waiver or estoppel.”  Estate of Hall v.  HAPO Federal Credit Union, 869 P.2d 116, 118 (Wash.  App. 1994).  

  Washington courts have recognized an exception to this general rule for cases in which the insurer attempts to raise a coverage defense after defending.Thus, an insurer that defended for ten months without issuing a reservation of rights was estopped to dispute coverage later in Transamerica Ins. Co. v. Chubb & Son, Inc., 554 P.2d 1080 (Wash. App. 1986).  Whether the exception applies or not depends on the length or reasons for the delay.  A short or justified delay will not create an estoppel.   R.A. Hanson Co. v. Aetna Cas. & Sur. Co., 550 N.W.2d 701 (Wash. App. 1976)(no presumption of prejudice created by two and a half month delay in issuing reservation). Accord, Underwriters at Lloyds v. Denali Seafoods, 927 F.2d 459 (9th Cir. 1991)(no estoppel from four month delay).

  If an insurer refuses to defend in bad faith, it will be deemed estopped to claim that it has no indemnity obligation.  Kirk v. Mt. Airy Ins. Co., 951 P.2d 1124 (Wash. 1998).  The court extended its earlier holding in Safeco Ins. Co. v. Butler, 823 P.2d 499 (Wash. 1992), which had found that an insurer could be bound to indemnify its insured, even in the absence of any contractual duty to do so, if the insurer mishandled the defense of the underlying suit.  Even though the insurer in Kirk had not undertaken the defense, the court ruled that the same rationale applied.

  This same rationale has not been applied to first party claims.  In Coventry Associates v.  American States Ins.  Co., No.  65850-1 (Wash.  September 3, 1998), the Washington Supreme Court ruled en banc that an insurer could be held liable for the consequences of a bad faith claims investigation even if a more through investigation ultimately established that there was, in fact, no basis for coverage.  However, the court declared that injury would not be presumed nor would an insurer be estopped to contest its contractual obligation to pay the covered loss by its bad faith claims handling.  Rather, the insurer’s obligation is solely to reimburse the insured for all damages specifically attributable to its inadequate investigation, such as the costs of investigation that the insured itself is forced to carry out because of the insurer’s breach.
 

  EXCESS INSURERS

       "Drop down" arguments were rejected by the U.S. District Court in Port of Seattle v. American National Fire Ins. Co., No. C96-434D (W.D. Wash. January 27, 1998).
 

  KNOWN LOSS

  In Hillhaven Properties, Ltd. v. Aetna Ins. Co., No. 64669-4 (Wash. November 26, 1997), the Supreme Court of Washington ruled that the "known loss" doctrine only applies to situations in which the insured, at the time of contracting, already knows that a loss will occur or knows that there is a "substantial probability" that the loss will occur.  The court declared that it did not defeat coverage merely because related water problems in the insured's building had manifested prior to Aetna's policy period where the insured had made good faith efforts to correct the leakage and denied any reason to know that the loss would recurt.

 The “known loss” doctrine will not apply if there are questions of fact as to whether the insured had reason to believe that it faced pollution liabilities.  In Jerry Overton v. Consolidated Insurance Company, 18681-4III (Wash. App. August 1, 2000), Division III of the Court of Appeals declared that a subsequent suit by a property owner for the cost of cleaning up pollution caused by the insured’s transformer manufacturing operations was not uninsurable merely becaused the insured had been contacted by the WDOE before the policies were issued. Inasmuch as the WDOE had not made any formal claim against the insured, nor haqd it ever pursued any action against Overton, the court ruled that the claims were not a “known loss.”

  Applying Pennsylvania law, the Washington Supreme Court ruled in Alcoa v. Accident & Casualty Insurance Company, 140 Wn2d 517, 998 P.2d 856 (2000) that “fortuity is, in effect, an exclusion, and it logically should be the burden of the insurer to plead and prove the exclusion.”

  The court had earlier recognized the "known loss" doctrine in a liability case, Public Utility District No. 1 v. International Ins. Co., 124 Wash.2d 789 (1994), but limited its applicability in the liability context to cases where the insured's liability was "substantially probable." the court ruled that the insured's general knowledge of the risk that it might be sued was not the same as knowing that it was likely to incur the specific types of liability for which claims were eventually brought.  Accord, City of Okanogan v. Cities Ins. Assoc. of Washington, 865 P.2d 576 (Wash. App. 1994)(no coverage under liability policy issued after property losses had already resulted in suit against insured).

  "Known loss" arguments were also sustained by the Ninth Circuit in its unpublished decision in Baugh v. Continental Cas. Co., 972 F.2d 1336 (9th Cir. 1992)(Table)(no coverage where insured was sued prior to policy period for acts and damages that were already manifest; fact that additional types of injury occurred during policy period did not trigger coverage, since the claims against the insured "were no longer continent--potential liability had passed from a risk to a certainty."  Similarly, in Spokane County v. American Re-Ins. Co., No. CS-90-256-RJM (E.D. Wash., April 25, 1991), the federal district found that even though insured may not realized the full extent of its liability by the time policies were issued, it cannot secure coverage where it was aware of the overall pollution problem and its claimed liability.  Accord, Northwest Steel Rolling Mills, Inc. v. Firemans Fund Ins. Co., No. C86-376C (W.D. Wash., April 17, 1987)(where insured's liability for clean-up was already known prior to issuance of policy, loss was "certain" and not insurable under liability policy).  Earlier, in Town of Tieton v. General Ins. Co. of America, 61 Wash.2d 716, 380 P.2d 127 (1963), the Supreme Court had barred coverage under an "accident" policy where insured was aware there was a substantial probability that harm would occur from its actions before policy.

 
  NUMBER OF OCCURRENCES

  The leading case on number of "occurrences" is Transcontinental Ins. Co. v. Washington Public Utilities Districts' Utility System, 111 Wash.2d 452, 760 P.2d 337 (1988), in which a utility district sought coverage for liability arising out of the $2.5 billion WPPS default on bonds issued for the construction of power plants.  The Supreme Court of Washington held that coverage arose under both of Transcontinental's policies, notwithstanding the fact that some of the causes and elements of damage had occurred prior to the inception of coverage.  The court rejected Transcontinental's argument that the insured utility district's decision to participate in WPPS was the sole cause of the ensuing loss, finding instead that each of the thirteen bond issues were separate "occurrences." 

  In Spokane County v. American Re-Ins. Co., No. CS-90-256 (E.D. Wash. May 12, 1993), the court ruled that pollution at a landfill arose from "the same general condition" and therefore could not be considered as more than one "occurrence."  Similarly, in Skinner Corp. v. Firemans Fund Ins. Co., No. C95-995WD (W.D. Wash. April 2, 1996), Judge Dwyer ruled that all asbestos claims involving a single vessel were one event in determining the obligation of the insured to pay a policy deductible.

  Multiple, successive collisions were held to arise out of a single "accident" in Truck Ins. Co. v. Rhode, 303 P.2d 659 (Wash. 1956).
 

  POLLUTION EXCLUSION

  Special rules for handling environmental coverage disputes were adopted by the Washington Insurance Commissioner effective May 10, 1995 (WSR 95-09-014) that substantially change the ordinary burdens of proof and procedures for such claims.

  A narrowly divided Washington Supreme Court ruled in September 1994 that the pollution exclusion precludes coverage for intentional discharges but that "sudden" is ambiguous. While rejecting the "active polluter" analysis that had been proposed by the Court of Appeals in 1983 in Van's Westlake, the court nonetheless reached a similar result under the guise of a "secondary discharge" analysis in Queen City Farms v. Aetna Cas. & Surety Co., 124 Wash.2d 536, 882 P.2d 703 (1994) and Key Tronic Corporation v. Aetna, 124 Wash.2d 618, 881 P.2d 201 (1994).  The court held that the regulatory history and conflicting judicial interpretations of "sudden" did not mandate ambiguity but evidenced the reasonableness of the insured's contention that only "expected and intended" discharges should be excluded.  Absent evidence that the insured had understood at the time that the exclusion barred coverage for gradual discharges, the court ruled that "sudden" can only mean "expected."  However, the court overruled an earlier case in which the Court of Appeals had ruled that the exclusion was no more than a reiteration of the "occurrence" requirement and agreed with insurers that the applicability of the exclusion was not dependent on whether the claimant was an "active polluter" or not.  While agreeing that intentional discharges would not ordinarily be "accidental," the court reached a similar result by finding that the "polluting event" to which the exclusion was directed was the point in time at which pollutants escaped the landfill, not when they were originally dumped. 

  Further, the Court of Appeals has ruled that the intentional discharge must be of the same pollutant giving rise to the insured's liability in order for the exclusion to apply.  B & L Trucking & Construction Co. v. Northern Ins. Co., 82 Wash. App. 646, 920 P.2d 192 (1996), aff'd on other grounds, 134 Wash. 2d 413, 951 P. 2d 250 (1998).

  Applying California law, a federal judge in Seattle has ruled that an insured's discharge of PCB-contaminated process water from its paper mill was not "sudden" since, even though the individual releases were sporadic, the resulting pollution was the cumulative result of an on-going process that occurred over an extended period of time.  In Simpson Paper Co. v. Central Nat. Ins. Co. of Omaha, Case No. C92-1352C (W.D. Wash. January 20, 1994), the District Court further ruled that the discharges were not "accidental" since the insured was aware that its mill effluent contained PCBs.  

  Applying Oregon law, Judge Alsdorf granted summary judgment to various insurers on the basis of the exclusion and rejected the insured's regulatory estoppel claims in Georgia-Pacific Corp. v. Aetna Casualty & Surety, King No. 92-2-212950-6 (Wash. Super February 14, 1995).  Also, the court rejected the insured's contention that the issue of whether these discharges were "accidental" should be viewed from the standpoint of the current claimant, not the original insured.  Judge Alsdorf also ruled on February 28, 1995 that the pollution exclusion barred coverage for certain other sites under Georgia law based on overwhelming evidence that the insured's discharges of mercury into the environment were expect or intended and therefore not "sudden" or "accidental." 

  The Washington Supreme Court ruled in  Kent Farms, Inc.  v.  Zurich Ins.  Co., 985 P.2d 292 (Wash. 2000), that absolute and total exclusions are only meant to apply to environmental injuries and do not preclude coverage merely because a “pollutant” is involved if the substance in question has not caused “pollution.”  The court therefore affirmed the Court of Appeals, which had ruled 2-1 that the exclusion did not preclude coverage for personal injuries suffered by a fuel oil delivery man when he was doused with fuel that flowed back from the underground tank into which the diesel fuel was being pumped.

  Interesting the Supreme Court’s ruling in Kent Farms made no mention of an opinion of the Court of Appeals, in which Division I had applied the exclusion to sick building claims resulting from contractor's negligent use of a sealant too near the building's HVAC system.  In Cook v. American States Ins. Co., 89 Wash. App. 149, 920 P.2d 1223 (1st Div. 1996), the First Division refused to limit the scope of the exclusion to "traditional environmental pollution," holding instead that the sealant was clearly a pollutant that the insured had brought on the premises in connection with operations that it was performing there.  Further, the court refused to consider the claimed drafting history of the exclusion.  The exclusion was also upheld in Travelers Indemnity Co. v. Engstrom, No. C90-1097(WD)C (W.D. Wash. May 28, 1991) and Wolf Bros., supra.  
  
  The Supreme Court has already considered the exclusion once before.  In  American Star Ins. Co. v. Grice, 121 Wn.2d 869, 854 P.2d 622 (1993), the court found that private tort claims resulting from a chemical fire on the insured's property fellll within the grant back of coverage for "hostile fires” if they occurred on owned sites that are used for waste disposal activity, even though the “hostile fire” exception does not make reference to the separate portion of the exclusion involving waste disposal sites.
 

  PROPERTY DAMAGE

  Losses involving lost rights or injury to intangible interests are not covered claims for “physical injury to tangible property.”  For instance, the WashingtonCourt of Appeals has ruled that allegations that the plaintiff’s restaurant lost its liquor license and considerable profits as a consequence of the insured security company’s failure to keep minors off the premises did not set forth a claim for injury to “tangible property.”  In Scottsdale Insurance Company v. International Protective Agency, Inc., 2001 Wash. App. LEXIS 191 (Wash. App. March 23, 2001), Division II ruled that a liquor license is merely representative of a privilege granted by a state and, as such, is “intangible property.”  
 

  PUBLIC POLICY

  Absent an expression of public policy from either the legislature or an earlier court decision, an Appellate Court will not invoke public policy to override an otherwise proper insurance contract even if its terms may be harsh and its necessity doubtful.  Cary v. Allstate Ins. Co., 922 P.2d 1335 (Wn. 1996).  

  Policy provisions will only be void as against public policy if they are prohibited by statute, condemned by judicial decision or contrary to the public morals.  Brown v. Snohomish County Physicians Corp., 120 Wash.2d 747, 753, 845 P.2d 334 (1993).  As a practical matter, Washington courts have limited such challenges to two well-defined areas:  uninsured motorists coverage and the Financial Responsibility Act.  But see American Home Assur. Co. v. Cohen, 124 Wash.2d 865, 881 P.2d 1001, 1006 (1994)(ruling that public policy did not bar application of $25,000 policy sublimit to damages for sexual misconduct but did make it unenforceable insofar as it purported to similarly limit the insurer's overall exposure for claims that also alleged non-sexual misconduct).  Similarly, in Cary v. Allstate Ins. Co., 922 P.2d 1395 (Wash. 1996), the Washington Supreme Court ruled that an "insanity exclusion" in a homeowner's policy barring coverage for intentional acts even where the insured had a diminished mental capacity was not against public policy.

 The Supreme Court ruled in Godfrey v. Hartford Casualty Insurance Company, No. 69454-1 (Wash. January 25, 2001) that a clause in an auto policy allowing de novo review of any portion of an arbitration panel’s award violated the public policy of Washington favoring the finality of arbitrated disputes.  Although an insurer may restrict the scope of the issues to be arbitrated in the first instance, once a matter is submitted to arbitration, discrete portions of the arbitration panel’s findings cannot then be litigated.
 

  PUNITIVE DAMAGES

  The Washington Court of Appeals has ruled in Fluke Corporation v. Hartford Accident and Indemnity Company, No. 44349-6-I (Wash. App. August 28, 2000) that an award of punitive and compensatory damages arising out of a malicious prosecution claim by a business competitor was covered under Hartford’s general liability policy notwithstanding Hartford’s contention that public policy would preclude coverage for punitive damages.  Division I found that, in the absence of a punitive damages exclusion in Coverage B, coverage was required.  The Court of Appeals rejected the insured’s contention that such damages are not compensatory and are therefore not paid “because of” a covered injury holding that the grant of coverage for “damages” extends to both compensatory and punitive awards.  Finally, unlike the rule in California, the court refused to find that such damages are uninsurable as being against public policy.
 

  STANDARDS FOR POLICY INTERPRETATION

  Washington follows a three part test.  First, the court will looks to the policy to determine whether the language is plain on its face.  If not, it may consider extrinsic evidence of contracting intent to resolve any ambiguity.  Only if the ambiguity still remains after extrinsic evidence has been considered will the court apply the rule of contra proferentum to find coverage.  Transcontinental Ins. Co. v. Washington Public Utilities District, 111 Wash.2d 452, 456-57, 760 P.2d 337 (1988) and Wolf Bros. v. ISLIC, 718 F.Supp. 839, 841 (W.D. Wash. 1989).  Washington courts have declined to adopt relaxed standards for "sophisticated insureds" unless the insured participated in the drafting of the policy provisions at issue.  Boeing, 113 Wn.2d 869, 882 (1990).

  The Washington Court of Appeals has modified existing precedent concerning the use of extrinsic evidence to interpret insurance policies, holding in Denny's Restaurants, Inc. v. Security Union Title Ins. Co., 859 P.2d 619 (Wash. App. 1993) that the parol evidence rule does not preclude an insured from proving additional "terms" of its agreement that are not expressed or otherwise integrated into their written contract.  As more recently clarified by the Supreme Court in Queen City Farms v. Aetna Cas. & Sur. Co., however, such evidence is admissible to clarify the meaning of language that a court has already found to be ambiguous but may not be used to create an ambiguity in the first instance.  Queen City Farms, 126 Wash.2d at 87.  See also  Cook v. American States, 920 P.2d 1223 (Wash. App. 1996).  

  Courts interpret insurance policies as a whole and give them a fair, reasonable, and sensible construction as an average person purchasing insurance would understand them. Capelouto v. Valley Forge Ins. Co., 98 Wn. App. 7, 13, 990 P.2d 414 (1999). A clause in an insurance policy is ambiguous when it is reasonably susceptible to two different interpretations on its face.   Graingrowers Warehouse Co. v. Central Nat. Ins. Co. of Omaha, Neb., 711 F.Supp. 1040, 1044 (E.D. Wash. 1989). Generally, courts construe ambiguous exclusionary or limitation clauses in insurance policies strictly against the insurer. Id. at 1044. But, a court should not rewrite the contract or give a strained or forced construction that goes beyond its terms.
 

  THEORIES OF ALTERNATIVE LIABILITY

  In general, the Washington Supreme Court has refused to adopt alternative theories of liability, having rejected a "market share" theory for asbestos claims in Lockwood v. AC&S, Inc., 109 Wash.2d 235, 744 P.2d 605 (1987) and Wheatman v. Raymark (1988) and theories of alternative liability, concert of action and enterprise liability for DES claims in Martin v. Abbott Laboratories, 689 P.2d 368 (Wash. 1984). However, the court did agree in Martin to apply a modified version of the Sindell market share approach if the plaintiffs could make a threshold showing that their mothers had taken DES and that the defendant negligently produced or marketed the type of DES taken by the plaintiff's mother.  The defendants may then exculpate themselves by establishing that they did not produce or market (1) this particular type of DES; (2) in this geographic area or (3) at this time.
 

  TRIGGER OF COVERAGE

  The leading "trigger" case in Washington is Gruol Constr. Co. v. INA, 11 Wash. App. 632, 524 P.2d 427 (1974), in which the Washington Court of Appeals held that "dry rot" claims against a  contractor should trigger all policies in effect from the date of the allegedly negligent backfilling up to the date that the problem was discovered.  The court held that the "occurrence" was a continuous process -not a single, isolated event - and therefore concluded that the insurers were jointly and severally liable for the damage.  See also  Castle & Cooke, Inc. v. Great American Ins. Co., 711 P.2d 1108 (Wash. App. 1986)(race discrimination claims triggered coverage on date that individual employees were injured, even though discrimination practice had begun years before policy and persisted for decades) and Transcontinental Ins. Co.  v. Washington Public Utilities Districts' Utility System, 111 Wash.2d 452, 760 P.2d 337 (1988)(continuing economic injury from default on utility bonds).  It similarly appears that Washington does not follow the doctrine of "loss in progress."  Coverage is not automatically triggered from the date of the insured's negligent conduct, however. In Villella v. Public Employers Mutual Ins. Co., 106 Wash.2d 806, 725 P.2d 957 (1986), the Supreme Court of Washington held that the insured must show that some damage occurred during each policy in order to trigger coverage.  Absent any evidence that the earth movement, which subsequently damaged the insured home, had begun during the policy period, the coverage claim was dismissed.  See also Fujii v. State Farm, 71 Wash. App. 248, 857 P.2d 1011 (1993).

  In Skinner Corp. v. Firemans Fund Ins. Co., No. C95-995WD (W.D. Wash. April 2, 1996), Judge Dwyer ruled that a continuous trigger should be applied to the subject P&I policies; that each insurer was jointly and severally liable for the insured's liabilities up to its limits but that Skinner need only pay a single policy deductible based upon the court's finding that there had only been a single "catastrophe or accident" for all claims arising out of the presence of asbestos on board any individual vessel.

  The Washington Supreme Court has ruled in Weyerhaeuser Company v. Commercial Union Insurance Company, 15 P.3d 115 (Wash.  2000)  that an insurer’s coverage obligations should be coextensive with the joint and several nature of liability under CERCLA and therefore must extend to property damage pre-dating the insured’s first involvement at a waste site.

  Prior to Weyerhaeuser, Washington courts had differed with respect to whether an insured can recover for liabilities pre-dating its personal involvement in a matter.   In the Boeing litigation, Judge Dwyer ruled on October 16, 1991 that the insured could recover under policies issued by Hartford because its pollution liabilities arose out of "operations"  (the operative term in the insuring agreement) during the policy period.   Another federal district court took an expansive view of Boeing, ruling in Puget Sound Power & Light Co.  v.  Aetna Casualty & Surety Co., No.  C95-1376C (W.D. Wash.  May 19, 1998) that even though the insured’s first shipment of transformers did not occur until November 1973, it could recover under earlier policies insofar as its CERCLA liability was based on seepage that occurred during Aetna’s pre-1973 policy period.  Even though the insured’s liability had been calculated on the basis of a consent decree reflecting each insured’s shipment of waste, the court ruled that the consent decree had not abrogated the parties’ joint and several liability nor was it clear that the insured’s portion had been increased to compensate  the shortfalls involving other periods of time.  Accordingly, the court found questions of fact and declined to grant summary judgement for Aetna on this basis.  By contrast, a state court ruled in 1995 that a corporation may not recover under "pre-acquisition" policies for entities acquired after the termination date of the policy or for liabilities arising out of operations commenced by the insured after the termination date of the policies, whether or not pollution caused by other entities occurred during the policy period.  Georgia-Pacific Corp. v. Aetna Casualty & Surety, King No. 92-2-212950-6 (Wash. Super. January 9, 1995).  

  A federal district court has ruled that a successor corporation is entitled to claim coverage under policies issued to its predecessor for occurrences that took place before the date of acquisition.  In BSB Diversified Co. v. American Motorists Ins. Co., 947 F.Supp. 1476 (W.D. Wash. 1996), the court held that the new company received an assigned interest as a matter of law, rejecting the carriers' contention that any such assignment was barred by the policies.

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