This is the first in what I anticipate will be a series of blog entries asking the Washington Office of the Insurance Commissioner to propose, and the Washington Legislature to adopt, some changes to Washington insurance law. Most people who pay attention to the development of Washington case law know that insurers have not fared well in our courts, particularly in the Washington Supreme Court, for the past two decades. When one takes an objective view, it is difficult not to conclude that many recent decisions are poorly reasoned, can only be explained by pro-insured bias, or both. So, when my turns to blog come around, I will be pointing out where insurance law ought to be moderated, to make it fairer. And, since the courts are unlikely to do so, my target audience is those who propose and enact statutes.
Policyholders’ counsel will dismiss my comments as having come from a “shill for the insurance industry.” True, I represent insurers. But I will say this — moderating the law is likely to reduce the amount of insurance litigation (particularly bad faith litigation) and consequently reduce my business; how many of you have ever advocated for anything that would adversely affect your bottom line? So here’s memo number one. Thanks for reading.
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For two decades, Washington insureds who successfully sue their insurers to establish coverage have been entitled to an award of reasonable attorney’s fees. This right was first established by Olympic Steamship Co. v. Centennial Ins. Co., 811 P.2d 673 (Wash. 1992). But this is not a two-way street — when the insurer wins the coverage case, the insurer is not entitled to an award of fees. State Farm Mut. Auto. Ins. Co. v. Johnson, 871 P.2d 1066, 1074-5 (Wash. App. 1994). The right to Olympic Steamship fees is not dependent upon proof of any insurer unreasonableness or misconduct; it just “is.” In a subsequent case, the dissent correctly pointed out that the Olympic Steamship fee ruling was ill-advised, as judicially legislating the abrogation of two hundred years of the “American Rule” denying such fees in the absence of contract, statute, or recognized ground of equity. Estate of Jordan v. Hartford Acc. & Indem. Co., 844 P.2d 403 (Wash. 1993)(Andersen, J., dissenting).
From the beginning, the Court has said (and repeated often) that at least one reason for this rule is the “disparity in bargaining power” between the insurer and the insured. Olympic Steamship, 811 P.2d at 681; see also, Matsyuk v. State Farm Fire & Cas. Co., 272 P.3d 802, 811 (2012). The disparity argument most often stems from three generally-true propositions of fact: (1) the insurer has more money, (2) the insurer is more sophisticated in the insurance market, and (3) the insurer presents the policy on a “take it or leave it” basis. See, e.g. McGreevy v. Oregon Mut. Ins. Co., 904 P.2d 731 (Wash. 1995)(disparity greatest where policy terms are not negotiated). There can be little dispute that all three of these propositions are generally true where personal lines of insurance are concerned, but they are highly questionable beyond the case of the “average purchaser of insurance” as our courts usually call him or her. Here, I am calling out the courts for mechanistically applying the Olympic Steamship rule to commercial insureds.
Over the past two decades, our Supreme Court has entertained coverage suits involving some of the titans of Northwest industry and commerce, including Boeing, Weyerhaeuser, Microsoft and recently, Immunex. See National Surety Corp. v. Immunex Corp., 297 P.3d 688 (Wash. 2013). None of those entities could be called “the average purchaser of insurance.” Certainly, the law will retain this average person’s understanding of words’ meanings as a standard for interpretation of policies. But in none of the disparity tests stated above are today’s corporate entities comparable to this average purchaser. Since Immunex is the most recent corporate giant before the court, let us consider its bargaining prospects, in comparison to the personal lines purchaser. First, Amgen (successor to Immunex), at number 154 on the Fortune 500 list, is not at an economic disadvantage in dealing with prospective insurers. Second, Amgen, if it is not itself sophisticated in the insurance market, would certainly have its pick of sophisticated brokers to help it negotiate for its best insurance deal. Third, Amgen and its brokers can surely negotiate the terms of its insurance policies because of its economic power and sophistication. These undeniable facts make dubious the courts’ repeated incantation of “disparate bargaining power” as the rationale for awarding Olympic Steamship fees.
Questioning the mechanical award of these fees is no novel idea. In Colorado Structures, Inc. v. Insurance Co. of the West, 167 P.3d 1125 (Wash. 2007), a plurality of the state’s high court upheld the Court of Appeals’ award of Olympic Steamship fees in the context of a dispute over a surety bond. Then-Chief Justice Gerry Alexander, in partial dissent, objected to the essentially knee-jerk extension of the right to fees. He pointed out that there was no evidence of unequal bargaining power between contractors and bonding companies. In fact, Chief Justice Alexander cited the Supreme Court of California for its extensive discussion of the issue and conclusion that contractors buying bonds actually do have comparable bargaining power, and do indeed negotiate terms. Id. at 1142-3, citing Cates Constr., Inc. v. Talbot Partners, 980 P.2d 407, 422 (Cal. 1999). All the lead opinion could do to meet the chief’s argument there was no unequal bargaining power was this: “We disagree with this factual premise.” Id. at 1137. That default speaks volumes. But aside from whether there actually is or is not unequal bargaining power, the salient point in the chief’s dissent is that we ought not assume unequal bargaining position, simply because one party to a contract is an insurer or undertakes a contractual obligation that some could find analogous to one undertaken by an insurer.
The law should not presume that every insured is a commercial pushover. Instead of simply taking for granted that businesses such as Boeing, Weyerhaeuser, Microsoft and Amgen are at a bargaining disadvantage vis-à-vis their property and casualty insurers, courts should make the determination based upon evidence, and then, determine whether it would be equitable to award Olympic Steamship fees based upon that determination and any other relevant factors. Where a rule has its justification in a presumption of fact, but that presumed fact is actually false, there is no reason to apply the rule. If Gerry Alexander could not persuade his fellow justices of the sense of this proposition, then no litigant is likely to, either; hence the title of this article, and my request that the OIC and the Legislature get to work. Our laws ought to be based upon facts and fairness, not convenient myths.
