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

> Washington Supreme Court · August 11, 2022

URL: https://www.frixlaw.com/law-library/cases/11264618

## Case

- **Court:** Washington Supreme Court
- **Decided:** August 11, 2022
- **Precedential status:** Published
- **Opinion:** Opinion of the court
- **Cited by:** 0 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/11264618

## Opinion text

NOTICE: SLIP OPINION
(not the court’s final written decision)

The opinion that begins on the next page is a slip opinion. Slip opinions are the
written opinions that are originally filed by the court.
A slip opinion is not necessarily the court’s final written decision. Slip opinions
can be changed by subsequent court orders. For example, a court may issue an
order making substantive changes to a slip opinion or publishing for precedential
purposes a previously “unpublished” opinion. Additionally, nonsubstantive edits
(for style, grammar, citation, format, punctuation, etc.) are made before the
opinions that have precedential value are published in the official reports of court
decisions: the Washington Reports 2d and the Washington Appellate Reports. An
opinion in the official reports replaces the slip opinion as the official opinion of
the court.
The slip opinion that begins on the next page is for a published opinion, and it
has since been revised for publication in the printed official reports. The official
text of the court’s opinion is found in the advance sheets and the bound volumes
of the official reports. Also, an electronic version (intended to mirror the
language found in the official reports) of the revised opinion can be found, free of
charge, at this website: https://www.lexisnexis.com/clients/wareports.
For more information about precedential (published) opinions, nonprecedential
(unpublished) opinions, slip opinions, and the official reports, see
https://www.courts.wa.gov/opinions and the information that is linked there.
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
FILE THIS OPINION WAS FILED
FOR RECORD AT 8 A.M. ON
IN CLERK’S OFFICE AUGUST 11, 2022
SUPREME COURT, STATE OF WASHINGTON
AUGUST 11, 2022
ERIN L. LENNON
SUPREME COURT CLERK

IN THE SUPREME COURT OF THE STATE OF WASHINGTON

CERTIFICATION FROM UNITED STATES )
DISTRICT COURT FOR THE WESTERN )
DISTRICT OF WASHINGTON IN )
) No. 100466-4
PREFERRED CONTRACTORS INSUR- )
ANCE COMPANY, RISK RETENTION )
GROUP, LLC, ) En Banc
)
Petitioner-Plaintiff, ) Filed: August 11, 2022
_____________
)
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. )
)

OWENS, J. ― 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
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

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

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.

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

1
The parties contest whether this person was an agent of Preferred Contractors Insurance
Company (PCIC). However, as the insurance policies in this case require notification of claims
in writing, whether or not this agent represented PCIC is irrelevant. The phone call would not
have satisfied the notice requirement.
2
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

involves the claims-made nature of the policy and the timing of Baker’s tender of

Ms. Cox’s claim.

There are two common types of CGL policies: occurrence policies and claims-

made policies. Am. Cont’l Ins. Co. v. Steen, 151 Wn.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

Wn. 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.

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)

3
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

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.

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.

4
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

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.

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.

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

5
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

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.

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

This court has the inherent authority to reformulate a certified question.

Travelers Cas. & Sur. Co. v. Wash. Tr. Bank, 186 Wn.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?

6
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

ANALYSIS

A. Standard of Review

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 Wn.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 Wn.2d 477, 480, 687 P.2d 1139

(1984).

B. Background on Occurrence and Claims-Made Insurance Policies
The two main types of liability insurance policies on the market are occurrence

and claims-made policies. Steen, 151 Wn.2d at 517. 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 Wn. App. at 337-38). Claims-made policies, which have become more

common since the 1980s, generally provide coverage for losses reported within the

policy period regardless of when the loss occurred. Id. “Unlike occurrence policies,

where the insurer contracts to cover risk that is by its very nature open-ended,

claims-made policies attempt to define the risk so that it is ascertainable at the end of

the policy period.” Gannon, 54 Wn. App. at 337.

However, it would be an oversimplification to say all claims-made or all

occurrence policies are the same. See Bob Works, Excusing Nonoccurrence of
7
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

Insurance Policy Conditions in Order to Avoid Disproportionate Forfeiture: Claims-

Made Formats as a Test Case, 5 CONN. INS. L.J. 505, 518-19 (1999). Most claims-

made policies are effective from a set “retroactive date.” Carolyn M. Frame, “Claims-

Made” Liability Insurance: Closing the Gaps with Retroactive Coverage, 60 TEMP.

L.Q. 165, 173 (1987). The retroactive date can be set for before the policy period to

prevent a gap in coverage when the insured switches between insurers or from an

occurrence policy to a claims-made policy. Id. However, it is more common to set

the retroactive date as the first day of the claims-made policy period and retain that

retroactive date across policy renewals to prevent gaps in coverage. Id. at 183-84.

Claims-made policies that reset the retroactive date to the start of each new

policy period are called nonretroactive claims-made policies. See Br. of Amicus

Curiae United Policyholders at 4; Frame, supra at 184. In a nonretroactive claims-

made policy, “no one policy renewal ever responds to conduct which occurred before

its policy period.” Br. of Amicus Curiae United Policyholders at 4. The policies

issued by PCIC are nonretroactive claims-made policies.

C. Public Policy

1. Chapter 18.27 RCW Provides a Statutory Basis for Washington Public
Policy to Promote Contractors’ Financial Responsibility for Bodily Injuries
Insurance policies are private contracts, and parties are ordinarily free to

exercise their freedom of contract to limit the liability covered in the policy. Mut. of

Enumclaw Ins. Co. v. Wiscomb, 97 Wn.2d 203, 210, 643 P.2d 441 (1982), adhering to

8
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

95 Wn.2d 373, 622 P.2d 1234 (1980). However, this court will refuse to enforce an

insurance provision if it is contrary to public policy. Emerson, 102 Wn.2d at 481.

This is a power courts rarely invoke. Am. Home Assur. Co. v. Cohen, 124 Wn.2d 865,

873, 881 P.2d 1001 (1994). “Public policy is generally determined by the Legislature

and established through statutory provisions. The proper starting place for

determining public policy, then, is applicable legislation.” Cary v. Allstate Ins. Co.,

130 Wn.2d 335, 340, 922 P.2d 1335 (1996) (footnote omitted).

Ms. Cox and Baker rely on chapter 18.27 RCW to establish a public policy of

ensuring contractors are financially responsible, primarily through insurance, for

losses caused by their negligence. RCW 18.27.050(1) requires contractors to have

insurance or financial responsibility to cover $100,000 “for injury or damage

including death to any one person” to obtain registration with the state. This chapter

also states an explicit purpose: “to afford protection to the public including all

persons, firms, and corporations furnishing labor, materials, or equipment to a

contractor from unreliable, fraudulent, financially irresponsible, or incompetent

contractors.” RCW 18.27.140.

To determine if these statutory provisions articulate a public policy to protect

the public from the negligence of contractors, it is helpful to look at past cases

deciding public policy claims in the insurance context. In Wiscomb, this court held

the family or household exclusion clause in automobile policies was unenforceable

9
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

because it violated the public policy articulated in chapter 46.29 RCW, the financial

responsibility act (FRA). 97 Wn.2d at 205-06. The FRA required drivers to provide

proof that they were able to be financially responsible for losses incurred after a

collision by “(1) filing a certificate of insurance; (2) posting a bond; (3) depositing

securities in the amount of $60,000; or (4) providing a certificate of self-insurance.”

Id. at 207 (citing RCW 46.29.450). The exclusion at issue in Wiscomb excluded

coverage for injuries to family or household members of the insured. Id. at 205, n.1.

We held the FRA “create[d] a strong public policy in favor of assuring monetary

protection and compensation to those persons who suffer injuries through the

negligent use of public highways by others” while not actually mandating insurance

coverage. Id. at 206. The court concluded the family or household exclusion violated

public policy because it was “directed at a class of innocent victims who have no

control over the vehicle’s operation and who cannot be said to increase the nature of

the insurer’s risk.” Id. at 209.

This court has refused to invalidate insurance exclusions on the basis of public

policy when there is insufficient statutory foundation. In Emerson, the court upheld a

family or household member exclusion in a homeowners’ insurance policy. 102

Wn.2d at 483. Unlike Wiscomb, there was no statute regulating homeownership

financial responsibility to dictate a public policy. Id. at 481. Although the family or

household member exclusion was “harsh and its necessity doubtful,” the court refused

10
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

to invoke public policy absent a statute or prior court decision. Id. at 483. Similarly,

the court refused to override a professional liability insurance policy’s provision that

excluded losses arising from a psychologist’s sexual misconduct. Cohen, 124 Wn.2d

at 871. Because there was no statute that expressly required psychologists to be

financially responsible for victims of their sexual misconduct nor even for

psychologists to carry malpractice insurance, the court held there was no public policy

for the contested exclusion to violate. Id. at 875.

The statute insureds rely on for public policy exceptions must also clearly

indicate the legislature’s intent for private parties to compensate those they injure. In

Cary, the insurer, relying on an exclusion for acts committed while insane, refused to

defend or indemnify its insured after he stabbed a friend to death during a psychotic

episode. 130 Wn.2d at 338-39. The victim’s wife argued this exclusion violated

public policy under the victim’s compensation act (VCA), chapter 7.68 RCW, because

the VCA represented a concern “that victims of violent crimes receive adequate

compensation for their injuries.” Id. at 341. This court held the VCA did not

“represent a public policy against insanity exclusions in homeowners’ insurance

contracts” because the VCA created a public source of compensation for crime

victims and did not compel private insurers to make their private sources of

compensation available. Id. at 342-43.

11
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

In this case, the registration of contractors act clearly states a registered

contractor must be financially responsible for at least $100,000 of a person’s bodily

injury or death. RCW 18.27.050. The legislature explicitly says the purpose of the

chapter is to “afford protection to the public” from “unreliable . . . or incompetent

contractors.” RCW 18.27.140. Although RCW 18.27.050 is not an explicit insurance

mandate, we do not require a mandate in order to find a statutory basis for public

policy. See Wiscomb, 97 Wn.2d at 207 (“[T]o the greatest extent possible without

requiring mandatory insurance coverage, the Legislature has demonstrated its

intended policy of providing adequate compensation to those injured through the

negligent use of this state’s highways.”). Although the statutory scheme in Wiscomb

allowed a deposit of $60,000 in order to satisfy the mandate of financial

responsibility, we recognized that “[a]s a practical matter, [insurance is] the only way

most people can comply” with the statute.” Id.

Like the statutory scheme in Wiscomb, RCW 18.27.050 heavily incentivizes

contractors to get insurance rather than creating an assigned account held by the

Department of Labor and Industries, the only alternative form of financial

responsibility. For example, registered contractors using an assigned account must

keep the total amount of money mandated by statute ($100,000) in the account and

notify every person they contract with or submit a bid to that they do not have

insurance and a claimant must file a lawsuit to reach the assigned account’s funds.

12
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

RCW 18.27.050(3)(a), (c). As we recognized in Wiscomb, this means most

contractors will have to secure insurance to comply with the registration requirements.

As a result, these statutes articulate a public policy that contractors must provide

financial compensation, preferably in the form of insurance, to the members of the

public they injure.

PCIC urges us to follow Harman v. Pierce County Building Department, 106

Wn.2d 32, 720 P.2d 433 (1986), and decline to find a public policy in favor of

insurance coverage in chapter 18.27 RCW. Harman enforced an insurance exclusion

that prevented the contractor’s client from collecting damages for the negligent

renovation of a garage. Id. at 34. The court held RCW 18.27.050 protected only

“those not in privity with the contractor who might be harmed by his operations.” Id.

at 37. Because the client was in privity with the contractor to renovate the garage, the

bond requirement of RCW 18.27.040 applied, not RCW 18.27.050’s insurance

provision. Id. As Mr. Cox was in privity with Baker through the general contractor-

subcontractor relationship, PCIC argues RCW 18.27.050 does not create a public

policy to void any portion of the insurance contract. However, PCIC fails to account

for the whole Harman opinion in its analysis. Harman also held the bond provision

protected only “(1) labor, (2) breach by a party to a construction contract, (3)

materialmen, (4) taxes, and (5) if entitled, plaintiff's court costs, interest, and fees.”

Id. at 37-38. Those are breach of contract claims. Here, Ms. Cox is alleging wrongful

13
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

death, so it is irrelevant that Mr. Cox and Baker were in privity with each other

because the negligence claim is not covered by the bond provision.

RCW 18.27.050 and RCW 18.27.140 articulate the legislature’s intent to create

a public policy of ensuring contractors are financially responsible for injuries caused

to members of the public by their negligence. The bond provision relied on in

Harman is limited to breach of contract actions. Because chapter 18.27 RCW has

established a public policy holding contractors financially responsible to members of

the public, we must determine if the insurance provisions at issue violates this policy.

2. Nonretroactive Claims-Made Policies That Provide No Prospective or
Retroactive Coverage Violate Public Policy

Having established that Washington has a public policy requiring contractors to

be financially responsible to members of the public injured by their negligence, we

next turn to the specific insurance provisions at issue in this case. Baker applied for a

claims-made policy. The declarations page of both policies state:

CLAIMS MADE AND REPORTED: THIS POLICY
PROVIDES COVERAGE ONLY FOR CLAIMS
MADE AGAINST THE MEMBER/INSURED AND
REPORTED TO PCIC IN WRITING DURING THE
POLICY PERIOD (See Endorsement Form . . . .)

Doc. 24, at 41, 104.

The policy specifies it applies only if the “‘bodily injury’ or ‘property damage’

is caused by an ‘occurrence’ that first takes place or begins during the ‘policy

period’.” Id. at 109. This is language typical of an occurrence policy. Coverage is

14
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

further subject to the claims-made and reported limitation endorsement, which states

the policy does not provide continuous coverage between renewed policies and

additionally applies only to claims first made and reported within the policy period.

Id. at 149. Read together, these provisions unambiguously state the PCIC policies

provide coverage only for losses that occur and are reported to PCIC within the

applicable one-year policy period.

Claims-made policies, while fundamentally different from traditional

occurrence policies, generally do not violate public policy. Gannon, 54 Wn. App. at

340. However, the policies in this case are not pure claims-made policies because

they do not provide retroactive coverage, not even for losses that occur during one

policy period and are reported during a subsequent policy period. No court in this

state has decided the enforceability of nonretroactive claims-made policies, and few

other courts across the country have addressed the issue.

One court that has addressed nonretroactive claims-made policies is the New

Jersey Supreme Court. In Sparks v. St. Paul Insurance Co., the New Jersey Supreme

Court observed that nonretroactive claims-made policies “combine[] the worst

features of ‘occurrence’ and ‘claims made’ policies and the best of neither” by

providing neither retroactive nor prospective coverage found in those policies. 100

N.J. 325, 339, 495 A.2d 406 (1985). At the same time, the court noted the nature of

liability reporting is such “that it would be the rare instance in which an error occurred

15
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

and was discovered with sufficient time to report it to the insurance company, all

within a twelve-month period.” Id. The New Jersey Supreme Court concluded the

provisions in the nonretroactive policy limiting recovery to those claims occurring and

reported within the policy period to be unenforceable. Id. at 341. The court made this

decision on a few grounds, including some contract interpretation doctrines

Washington does not follow, but also on the basis of public policy. Id. at 339.

PCIC argues Sparks is an outlier and the majority of states enforce

nonretroactive claims-made policies. The cases PCIC rely on are not persuasive.

First, PCIC argues Washington courts have enforced insurance policies with

retroactive dates limited to the policy’s inception date before. See Br. of Pl. at 12-13

(citing MSO Wash., Inc. v. RSUI Grp., Inc., No. C12-6090 RJB, 2013 WL 1914482

(W.D. Wash., May 8, 2013) (unpublished)). But the case PCIC cites is

distinguishable. Unlike the policies issued by PCIC, the retroactive date of the

policies in MSO was the inception date of the earliest policy, thereby providing

continuous coverage on the policy’s renewal and some form of retroactive coverage as

to the second policy. Id.

Second, PCIC argues we should not follow Sparks because it rested part of its

analysis on the “reasonable expectations” test for interpreting insurance contracts.

PCIC correctly observes that Washington courts do not follow the reasonable

expectations test. See Emerson, 102 Wn.2d at 485. However, the issue before us is

16
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

not interpreting an ambiguous insurance provision but determining if an unambiguous

provision violates public policy. Sparks is helpful in explaining why New Jersey

found a similar insurance provision to violate its public policy. But Sparks does not

inform how we interpret public policy because Washington’s public policy analysis is

different.

We are mindful that parties to insurance contracts generally should have the

freedom to contract. But when the legislature orders contractors to bear financial

responsibility for the injuries their negligence may cause and dictates insurance is the

preferable method to comply with this mandate, we cannot enforce insurance

provisions that render coverage so narrow it is illusory. While RCW 18.27.050 does

not require insurers to issue occurrence policies or provide retroactive coverage to

contractors switching from an occurrence to a claims-made policy, see HB Dev., LLC

v. W. Pac. Mut. Ins., 86 F. Supp. 3d 1164, 1181-82 (E.D. Wash. 2015), insurers

should not issue policies that essentially cause contractors to default on their

statutorily mandated financial responsibility. The insurance policies PCIC issued to

Baker fail to provide prospective or retroactive coverage and create limited one-year

windows for claims to occur and be reported to qualify for coverage. Such restrictive

coverage violates Washington’s public policy. Therefore, we answer the certified

question in the affirmative.

17
For the current opinion, go to https://www.lexisnexis.com/clients/wareports/.
Preferred Contractors Ins. Co. v. Baker & Son Construction, Inc.
No. 100466-4

CONCLUSION

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.

We answer the certified question in the affirmative.

WE CONCUR:

Siddoway, J.P.T.

18

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/11264618. Public record. Not legal advice.