In T-Mobile USA Inc. v. Selective Insurance Company of America, 908 F.3d 581 (9th Cir. 2018), the United States Court of Appeals for the Ninth Circuit certified the following question to the Washington 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-?”
T-Mobile Northeast, a subsidiary of telecom giant T-Mobile USA, retained Innovative Engineering, Inc. to build and install cellular antennae in the Bronx, New York.
The agreement between Innovative Engineering and T-Mobile Northeast required Innovative Engineering maintain general liability insurance naming T-Mobile Northeast as an additional insured, and provide a Certificate of Insurance (“COI”) to memorialize the policy.
Innovative Engineering sought coverage from Selective Insurance Company of America (“Selective”), purchased through Selective’s authorized broker, Van Dyk Group. The underlying policy included a provision which automatically extended coverage to any entity whom Innovative Engineering had a contractual obligation to add as an additional insured. Since Innovative Engineering entered into agreement with T-Mobile Northeast, T-Mobile Northeast automatically became an additional insured pursuant to Selective’s Policy.
However, things become muddy when Selective’s authorized broker, Van Dyk, issues the COI. Van Dyk’s COI confers additional insured status to T-Mobile USA—not to T-Mobile Northeast as delineated in Selective’s Policy. Nevertheless, the COI contains express language limiting its authority to extend coverage obligations beyond that which is determined by the Policy. Noting it is “issued as a matter of information only and confers no rights upon the certificate holder” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by” the Policy.
In 2013, Virginia Properties, Inc. claimed Innovative Engineering caused property damage to the roof of a building while installing an antenna. Virginia Properties brought suit against T-Mobile Northeast, Innovative Engineering, and others. T-Mobile Northeast made a claim with Selective, but was replaced in the action by T-Mobile USA shortly after the suit was filed. Selective initially denied T-Mobile Northeast’s claim under a Policy exclusion barring coverage for “professional architecture” or “engineering” services, but agreed to defend Innovative Engineering.
Nearly two years later, T-Mobile’s request for a defense went unanswered until T-Mobile sent a letter of intent to file suit against Selective. It was at this point that Selective indicated the denial of coverage occurred because additional insured status extended only to the subsidiary, T-Mobile Northeast, not to T-Mobile USA.
T-Mobile USA claims Van Dyk group had apparent authority to grant additional insured status to T-Mobile USA even in light of the express disclaimer on Van Dyk’s COI. Under Agency Law, apparent authority is the power of an agent (Here, Van Dyk) to act on behalf of a principal (Here, Selective), even though not expressly or impliedly granted. This power arises only if a third party (here, T-Mobile USA) reasonably infers, from the principal’s conduct, that the principal granted such power to the agent.
Under current Washington law, an insurance company is bound by representations made by its authorized agents. Simultaneously, Washington law precludes a COI from extending or exceeding the scope of coverage delineated by the Policy. Therein lies the problem, which is one of first impression in Washington. T-Mobile claims the COI granting additional insured status is a representation made by Selective’s authorized agent, thereby binding Selective—an apt argument under current Washington law. Conversely, Selective argues the COI cannot grant additional insured status where none exists within the policy—also, an apt argument under current Washington law.
Due to the current impasse, the Court of Appeals for the Ninth Circuit has requested the Washington Supreme Court certify how they intend to rule. Moreover, T-Mobile sets forth other, admittedly less interesting, arguments under the doctrine of equitable estoppel. T-Mobile claims Washington law estops an insurer from changing the basis for denial of coverage if the dilatory denial prejudices the insured. In the instant action, Selective did not claim the denial was due to T-Mobile USA’s lack of additional insured status until nearly two years after the original denial based upon the “professional services” exclusion under the Policy. Accordingly, T-Mobile claims it could have easily amended its tender for coverage had it known of the true reason for denial in 2013.
Again, the validity of the argument rests on whether T-Mobile is actually an additional insured pursuant to Washington law. The Washington District Court determined that although an insurer generally cannot later change its reason for denying coverage, estoppel applies only where the insured is entitled to coverage under the Policy. Estoppel cannot be invoked to grant coverage where none existed otherwise.
Regardless of the outcome at the Washington Supreme Court, insurers should, as a matter of best practice, take care to maintain ongoing lines of open communications with their authorized brokers. To that end, some coverage disputes may be mitigated with relative ease by managing the expectations of clients and non-clients alike. Further, insurers should outline their coverage obligations in a manner that is self-contained within the Policy, instead of referring to outside documents and third-party contracts which may require extensive later interpretation. Finally, although denial of a tender may seem obvious under one or two exclusions in the Policy, insurers have an obligation to investigation and outline all potential grounds for denial to prevent being later estopped from asserting a denial based on an exclusion which was easily discoverable. As with many issues, a little extra work upfront can prevent years of costly, protracted litigation.