Statutory Procedures Are to be Followed, or Else...

Posted on January 3, 2009 by Grace Healy

When I was in law school I clerked for a managing attorney who made his clerks – to our occasional frustration -- obey every procedural rule to the letter.  A case, Cornhusker Casualty Ins. v. Kachman,
handed down by the Washington Supreme Court last month shows that there is merit to strict compliance, even if you think that taking the rule one step further seems more effective.

The question presented by the case was whether a commercial auto insurance policy was effectively cancelled.  The Washington statute required actual delivery or mailing to the insured at its last known address.  Here, the insurer sent the notice of cancellation by certified mail. The letter was not received.  The cancellation was not effective – because the statute uses the term “mailed” not “certified mail”. 

One might argue that certified mail has a better chance of being received than first class mail.  (And, give the sender the comfort of a signed receipt in the file.) But, the court finds that certified mail places a duty on the recipient to either be at home or go to the post office, and is more relevant to the actual delivery option that was set forth in the statute. The bottom line is that the statute required mailing or receipt, neither one was present, and the policy was not effectively cancelled.

Since 2006 the statute has required the insurer to “deliver or mail,” and the court does not state if the change would affect its reasoning.  However, the case illustrates the fact that statutory procedures are to be followed; substituting your idea of an improvement is not a great idea.  


 

Tags: , , , , , , ,

Procedural Bad Faith Exists Separately From Insurance Coverage

Posted on December 3, 2008 by Grace Healy

Last week, the Washington Supreme Court ruled in St. Paul Fire and Marine Ins. Co. v. Onvia, Inc.  that an insured may have bad faith and Washington Consumer Protection Act claims against its insurance carrier even though the carrier did not have to defend or indemnify -- if the carrier made procedural missteps in deciding that there was no coverage. 

That is correct – the insurer did not have an obligation to defend or indemnify, and the insured still may have a claim for damages.  But, harm and damages must be proven. 

Here, it appears that there was a delay of almost nine months between tender and denial of coverage, during which time the insured defended itself in the litigation and entered settlement negotiations.  Because the duty of good faith toward an insured applies to the handling of the claim, if the claim was handled badly, there may be a claim for procedural bad faith. As for the Consumer Protection Act cause of action, a violation of the investigative requirements of the Washington Administrative Code automatically establishes the first element of a claim under the Consumer Protection Act.  Under the Washington Administrative Code, an insurer has a duty to act promptly in communication and investigation after a claim is tendered.

The message for insureds is to keep track of the efforts made in connection with tender of a claim so that you can prove damages, if necessary.  For carriers, the clock is ticking on handling that tender of claim.
 

Tags: , , , , ,

Give Notice Under All Insurance Policies - Primary and Excess

Posted on October 23, 2008 by Grace Healy

This week, in Sorbara Construction Corp. v. AIU Ins. Co., the New York Court of Appeals confirmed the importance of giving notice to every insurance carrier for each and every policy that may cover a claim if a policy requires that notice of an occurrence be given “as soon as practicable.” If the notice isn’t given in a “reasonable” period of time, there will be no coverage.  The carrier doesn’t have to show prejudice. 

This is the rule even if the insured gave notice to the same carrier under a different policy, such as workers’ compensation, or an additional insured gave notice to the carrier under another policy.  This applies to primary and excess policies. (The Appellate Division opinion in this matter states that AIU is an excess carrier.) 

The Sorbara carrier didn't receive notice for five-and-a-half years.  Given the circumstances, there was no coverage as a matter of law.



 

Tags: , , ,