Washington’s Strong Policy in Favor of Environmental Cleanup Leads Court to Void Insurance Settlements

Washington law generally bars insurers and policyholders from agreeing to cancel liability insurance retroactively after a claim. Liability insurance covers the policyholder for claims another person brings against them. The insurance company defends the policyholder against the third party in court and pays any judgment up to the policy limits.

The Washington Court of Appeals recently applied this rule in the context of Washington’s interest in environmental cleanup to void agreements settling insurance coverage for lumber mill pollution.

In Pope Resources v. Certain Underwriters at Lloyd’s, London, the Washington Court of Appeals considered ten different insurance policies covering a sawmill in Port Gamble, Washington. The mill operated since 1853 and was covered by numerous liability insurance policies. The mill was shut down due to severe environmental contamination in 1995. It is listed as a hazardous waste site by the Washington State Department of Ecology with an estimated $22 million price tag to clean up.

In 1997, the mill’s owner, Pope Resources, signed a contract with its corporate affiliate, Pope & Talbot, stating that Pope & Talbot would take responsibility for cleaning up the contamination. Pope & Talbot then filed suit against ten different insurance companies who had provided liability insurance for the mill, asking the court to find that the insurers had to cover the cleanup. The case resulted in ten different settlement agreements between Pope & Talbot and the ten insurance companies.

In 2015, Pope Resources filed its own lawsuit asking for cleanup costs from Pope & Talbot and the ten insurers. The lower court decided that the settlement agreements between Pope & Talbot and the insurance companies was void because the settlements retroactively canceled the liability insurance coverage that was supposed to cover claims against Pope & Talbot for the environmental damage.

The Court of Appeals found this decision was correct and affirmed the ruling. It first emphasized Washington’s significant interest in making sure that the contaminated sawmill was cleaned up. The state’s interested in fixing environmental contamination is “paramount” according to the court.

The court first found that this interest was critical to the insurance policies at issue because liability insurance often provides money to pay for the agonizingly expensive cleanup of industrial contamination.

Next, the court determined that the settlement agreements between Pope & Talbot and the ten insurance companies improperly let the insurers off the hook for the environmental contamination they had agreed to cover. This was true even though some settlement agreements only applied to the Port Gamble mill and did not nullify Pope & Talbot’s entire insurance policy. The court emphasized that the insurers were free to cancel or buy out Pope & Talbot’s coverage for future environmental damage. But they could not do so retroactively for contamination that had already happened.

The case is interesting because of its application of the strong public policy favoring environmental contamination. The ruling suggests that absent the prospect of leaving no funds to remediate the contaminated sawmill (i.e., leaving the residents of Port Gamble holding the bag) the result might have been different.

WA Supreme Court Confirms Insurers Must Follow Their Agents’ Promises

Let’s say you go to an insurance agent to buy an insurance policy. You tell the agent you want coverage for something specific, for example, fire damage to your boat. The agent sells you a policy the agent tells you covers fire damage to your boat. The agent gives you some documents summarizing the policy that say fire damage to your boat is covered. Then your boat catches fire and you make a claim, but the insurer denies coverage. The insurer says the policy fine print excludes fire damage, even though the agent said it was covered.

Can they do that?

The answer is no, according to the Washington Supreme Court. On October 10, 2019, the Washington Supreme Court decided T-Mobile v. Selective Insurance Company. The decision confirms insurance companies may be bound by statements their agents make when selling insurance policies.

In this case, T-Mobile hired a contractor to build a cell phone tower. T-Mobile required the contractor to obtain insurance coverage protecting T-Mobile. The contractor’s insurance policy only covered a small T-Mobile subsidiary, not T-Mobile itself. But the insurance company’s agent issued a series of insurance certificates stating that T-Mobile itself was covered in addition to the subsidiary.

T-Mobile was sued over the cell tower construction project and made a claim under the policy. The insurer denied coverage on the basis the policy did not name T-Mobile as an insured. 

In the resulting lawsuit, the insurance company argued T-Mobile should not have relied on the insurance agent’s representations that T-Mobile was covered. The insurer said T-Mobile should have read the policy and seen that T-Mobile was not covered.

The Washington Supreme Court disagreed. The Court determined T-Mobile was justified in believing that the insurance company’s agent was authorized to speak on behalf of the insurer.  The court found the agent’s specific statements that T-Mobile was covered overcame boilerplate disclaimers the insurer had made.

The court also emphasized the importance of holding insurers to their agents’ promises. Without that rule, the court noted, insurers would have no incentive to make sure their agents’ statements to people buying insurance were true. The court observed that allowing insurance companies to ignore their agents’ statements was important because “Otherwise, an insurance company’s representations would be meaningless and it could mislead without consequence.”

This ruling is important. Many folks buy insurance after discussing with their agent, reading brochures, or browsing the internet. They rarely read the policy fine print. Even T-Mobile, a huge corporation presumably represented by a team of insurance lawyers, relied on the insurance agent’s representations without noticing the policy fine print. If insurance companies could let their agents sell policies promising coverage that didn’t exist, consumers would pay for coverage they never received and would have little recourse.