Recently, the Washington State Supreme Court confronted a problem it created a dozen years ago. At issue in Expedia v. Steadfast Insurance is whether a court, in deciding duty to defend cases, can consider evidence outside the “eight corners” of (1) the complaint against the insured and (2) the insurance policy. Many courts and respected commentators, such as Allan Windt, recognize exceptions to the extrinsic evidence rule involving facts that determine coverage but do not affect the underlying case. In contrast, the Washington Supreme Court has repeatedly said that an insurer cannot rely on extrinsic evidence. But in most cases, these statements were boilerplate dictum masquerading as duty to defend rules. Truck Insurance v. Van Port Homes from 2002 is the only case where discussion of extrinsic evidence can be found, and even then, there is little discussion concerning it. So, the Court has never analyzed facts outside the complaint before ruling that doing so should be prohibited. Expedia v. Steadfast presented the Court with an opportunity to choose if it wants to join the movement to allow flexibility or consecrate its boilerplate dictum as a rule of law.
At oral argument on March 13, counsel for the insured Expedia repeated the sacred incantation that extrinsic evidence cannot be considered, but counsel for Steadfast recognized the proverbial elephant in the room. His argument clearly posited the proposition that an insurer should be permitted to consider evidence that bears upon a discrete coverage issue but not upon the complaint’s allegations. He effectively used a hypothetical where an uninsured driver has an accident, becomes insured two weeks later, and when he’s sued he tenders to the insurer because the complaint does not state the date of the accident. In Expedia, the insured Expedia had apparently set aside reserves for the suits it knew would be coming, before it bought the insurance policy, so Steadfast argued the suits that inevitably came were not covered, under doctrines best explained by the phrase “you can’t buy insurance on a burning building.”
Well of course the insurer ought to be able to consider such evidence. Various courts around the country have so ruled, and commentator Allan Windt agrees. In the hypothetical, the insurer should be entitled to show that the driver was not an insured on the date of the accident. Similarly, some insurance policies’ coverage grants or exclusions cannot be properly applied absent use of extrinsic evidence. For example, without extrinsic evidence, an insurer cannot show that a claim was not “first made” against the insured during the policy period. Yet a claim first made during the period is the very basis of most claims-made coverage. So now, with Expedia v. Steadfast, the court can establish a reasonable exception to a rule which, in its current form, permits insureds to argue for absurd results, such having liability insurance for an accident that occurred before the policy was bought. We hope the court takes this opportunity to add a reasonable limit to an unqualified rule. A decision is probably several months away, at the soonest.
Kudos to Randy Evans of Atlanta, who argued for Steadfast, and to our local friends Matt Adams and Mike Hooks at Forsberg & Umlauf, with Randy on the briefs.
The oral argument can be viewed at http://www.tvw.org/index.php?option=com_tvwsearch&year=2014&contentCode=D. The briefs can be found by searching for case number 88673-3, at http://www.courts.wa.gov/appellate_trial_courts/coaBriefs/index.cfm?fa=coaBriefs.ScHome&courtId=A08
~Joe Hampton and Mark Mills
