Getting Something for Nothing: When is an Insurance Company Bound by Its Agent’s Written Representations?

Getting Something for Nothing: When is an Insurance Company Bound by Its Agent’s Written Representations?

The Ninth Circuit certified the following question to the Supreme Court of the State of Washington:

Is an insurance company is bound by its agent’s written representations that a particular corporation is an additional insured under a given policy?  In a 7-2 decision, published on October 10, 2019, the Washington State Justices found that an insurance company is bound by the representation of its agent when the agent acted with apparent authority, even though the agent’s representation was inconsistent with the policy that included language disclaiming the ability to “amend, extend or alter coverage.”

It is important to know that this suit involved two distinct T-Mobile entities; T-Mobile USA and T-Mobile NE.  T-Mobile NE sought to construct a cell phone tower on a rooftop in New York City.  It hired a contractor to construct the tower and required the contractor to obtain insurance coverage and name T-Mobile NE as an additional insured.  T-Mobile USA was not part of this contract for services.  The contractor complied with the terms obtaining a claims made insurance policy from Selective Insurance Company of America.  T-Mobile NE became an additional insured by virtue of the contract.  T-Mobile USA did not.

However, over the course of the relationship between T-Mobile NE and the contractor, Selective’s agent began issuing a series of certificates of insurance to “T-Mobile USA, Inc., its Subsidiaries and Affiliates” as additional insureds.  Selective did no raise any issue with this inclusion.  As such, the Ninth Circuit found that the agent acted with apparent authority in issuing the certificates at issue.  The Ninth Circuit did not determine if the agent acted with “actual” authority.  What is also important is that the certificate issued by the agent included the following language:

  • Issues as a matter of information only and confers no rights upon the certificate holder;
  • Does not affirmatively or negatively amend, extend or alter the coverage afforded by the policy;
  • Does not constitute a contract between the issuing insurer, authorized representative or producer and the certificate holder; and,
  • If the certificate holder is an ADDITIONAL INSURED, the policies must be endorsed, without it no rights are conferred.

The matter would not be remarkable but for the fact that the building owner sued the contractor and T-Mobile USA.  The building owner alleged that the cell tower damaged its building.  T-Mobile USA and the contractor tendered to Selective.  Selective in turn denied coverage to T-Mobile USA, but accepted coverage for the contractor.  T-Mobile USA filed a motion for summary judgment, which caused the building owner amending its Complaint to name T-Mobile NE as a defendant.  T-Mobile USA incurred costs and fees defending, so it filed suit against Selective in King County Superior Court, Washington asserting bad faith and breach of contract claims.  T-Mobile USA asserted Selective failed to defenda it pursuant to its additional insured status.

The case was moved to Federal Court.  Selective obtained a dismissal through its dispositive motion, arguing that the certificate of insurance did not confer coverage.  T-Mobile USA appealed.  The Ninth Circuit certified the following very straightforward question to the Washington State Supreme Court:

Under Washington law, is an insurer bound by representations made by its authorized agent in a certificate of insurance with respect to a party’s status as an additional insured under a policy issued by the insurer, when the certificate includes language disclaiming its authority and ability to expand coverage?

In analyzing this issue, the Justices noted the general rule in Washington, set forth in Pagni v. N.Y. Life Ins. Co., 173 Wash. 322, 349-50, 23 P.2d 6 (1933), that the insurance company is bound by the acts of its agents that are within the agent’s real or apparent authority when the person dealing with the agent, acting in good faith, has neither actual nor constructive knowledge of a limitation in the authority.  Selective argued that it was unreasonable for T-Mobile USA to rely on the representation since it was never a party to the work contracts.  In fact, the contracts explicitly noted that T-Mobile USA was not a party thereto.  But, once the Ninth Circuit found that Selective’s agent acted with apparent authority it concluded that T-Mobile USA’s reliance was “objectively reasonable.”

The next analysis was of the contradictory language in the policy and the certificate, i.e., whether or not T-Mobile USA was an additional insured.  Selective pointed out that the certificate stated it was for “information only.”  T-Mobile USA argued the disclaimers were general boilerplate and, thus, ineffective.  The Washington Supreme Court agreed with T-Mobile USA holding that specific terms prevail over general.  And because the preprinted disclaimers relied on by Selective were general in nature and the written-in additional insured was specific, the latter should reasonably prevail.

Previously, the Washington Supreme Court found that “the purpose of issuing a certificate of insurance is to inform the recipient thereof that insurance has been obtained; the certificate itself, however, is not the equivalent of an insurance policy.”  Postlewait Constr., Inc. v. Great Am. Ins. Co., 106 Wn.25 96, 720 P.2d 805 (1986).  This holding resulted in some uncertainty on the party of the Ninth Circuit. The Washington Supreme Court addressed this issue by finding that Postlewait was not applicable to the facts of this matter, because an agent’s representations were not at issue in the earler transaction. The dissent to this opinion disagreed.  It argued that certificates of insurance cannot supplant a policy that does not award coverage: “[certificates] are informational document only.”

So, the Nineth Circuits answer to the question presented was:

An insurance company’s agent who makes an authoritative representation binds the insurance company, even when that specific representation is transmitted via a certificate of insurance and accompanied by general disclaimers.

With this ruling Washington State stays true to form: It is not a great venue for insurers.

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