American Continental Insurance v. Steen

91 P.3d 864, 151 Wash. 2d 512

• Court: Washington Supreme Court
• Decided: May 14, 2004
• Docket: No. 73412-7
• Status: Published

Opinions

Chambers, J.

Pursuant to RCW 2.60.020 and RAP 16.16, the United States Court of Appeals for the Ninth Circuit certified to this court two questions concerning the annulment of liability insurance policies. Those questions ask:

(1) Is the early cancellation of a claims-made policy that insures against loss or damage through legal liability for the bodily injury or death by accident of any individual an attempt at a prohibited retroactive “annulment” “after the occurrence of any such injury, death, or damage for which the insured may be liable” under RCW 48.18.320, where the cancellation does not affect claims the insurer already had notice of, but does affect claims the insurer does not yet have notice of involving occurrences that happened prior to the cancellation date while the policy was still in force?

(2) Is such a cancellation by an insured hospital that has filed for bankruptcy against the public policy of the State of Washington when no other insurance policies are held by the hospital to cover such occurrences?

See Order Certifying Questions to the Wash. State Supreme Ct. (Order) at 1-2. While American Continental Insurance Company (ACIC) argues that RCW 48.18.320 does not apply to claims-made insurance policies, Susan Steen maintains the statute covers all insurance contracts regardless of type. Based upon the plain language of the statute, we answer both questions in the affirmative.

FACTS

On September 10, 1998, Steen’s husband, Steven Steen, was admitted to Puget Sound Hospital for a gastroenterostomy. Puget Sound Hospital was owned by New American Health Care Corporation (NAHC). On September 15, 1998, Steven was transferred to St. Joseph’s Medical Center after developing complications from the surgery. Steven eventually died on October 1, 1998.

Steen alleges that the Puget Sound Hospital administrator was aware that the hospital did not have imaging equipment that would accommodate some of Dr. S. Ross Fox’s obese patients, including Steven. Additionally, Steen alleges that the “sequence of events leading up to [her husband’s] death demonstrates palpable medical mismanagement.” Steen’s Excerpts of Record (SER) at 31. After NAHC did not respond to the complaint, the Pierce County Superior Court entered a default judgment against it.

Between Steven’s surgery and his death, NAHC was insured against legal liability by ACIC under a primary policy and an excess policy, both of which were renewed on April 1, 1999, and again on April 1, 2000. The policies contained claims-made-and-reported provisions, which meant that the insurer had to receive notice of either a claim or circumstance that could lead to a claim within the policy period to trigger potential coverage.

NAHC filed for bankruptcy after the policies had been renewed for their final year. Then NAHC and ACIC agreed to cancel the insurance policies in exchange for a pro rata refund of the premiums paid.¹ Had NAHC and ACIC not agreed to cancel the policies, coverage would have continued until April 1, 2001. The cancellation of the policies did not affect any claims for which ACIC had received notice of prior to August 1, 2000, the effective date of the cancellation. However, the agreement to cancel the policies nullified, by the terms of the insurance contract, coverage for claims which ACIC had not received notice of by August 1, 2000, even if a covered occurrence happened prior to cancellation. There is no evidence in the record that either NAHC or ACIC attempted to give notice to injured people with potential claims against the insured of their intention to cancel the policies.

Steen filed a wrongful death action against NAHC and Puget Sound Hospital in Pierce County Superior Court on November 1, 2000. ACIC was not named as a defendant in the action. ACIC was made aware of the claim on December 11, 2000. Initially, ACIC provided NAHC with defense counsel pursuant to a reservation of rights. However, ACIC withdrew representation of NAHC after it concluded Steen’s claim was not covered due to the cancellation of the policies. The date Steen’s claim was filed was within the original policy period, and there is no question that absent the cancellations the policies would have covered Steen’s claim.

On June 28, 2001, ACIC filed a declaratory judgment action in the United States District Court for the Western District of Washington in Seattle to resolve the insurance coverage issues pertinent to Steen’s claims against NAHC. The Honorable John C. Coughenour granted summary judgment to ACIC concluding that, as a matter of law, ACIC policies did not cover Steen’s claims against NAHC. Steen appealed to the United States Court of Appeals for the Ninth Circuit, which certified the two questions above to this court.

ANALYSIS

Occurrence and claims-made policies are fundamentally different, and often there are sound reasons for treating them differently. Cf. Safeco Title Ins. Co. v. Gannon, 54 Wn. App. 330, 337, 774 P.2d 30 (1989) (discussing differences). Occurrence policies generally provide coverage for damage that occurs during the policy period regardless of when the damage is discovered if notification is made within a reasonable time. Id. at 337-38. By contrast, claims-made policies generally provide coverage for claims which the insurer receives notice of during the policy period regardless of when the damage occurred. Id. at 338. While occurrence policies were the dominant form of insurance used in 1947 (when RCW 48.18.32Ó was adopted), claims-made policies have been more frequently used in the last two decades. Jeffrey W. Stempel, Interpretation of Insurance Contracts: Law and Strategy for Insurers and Policyholders § 31.3.3 (1994). Although we are cognizant of the difference between the two types of policies, our function in answering the certified questions is to determine whether our legislature has chosen to treat the two types of policies differently.

Statutory Interpretation

Our primary objective is to ascertain and give effect to the intent and purpose of the legislature in creating the statute. State v. Watson, 146 Wn.2d 947, 954, 51 P.3d 66 (2002). First, we attempt to derive legislative intent from the language of the statute itself. Id. If the statute is clear on its face, its meaning is to be ascertained from the language of the statute alone. Id. Legislative definitions included in the statute are controlling. Id. However, in the absence of a statutory definition, we give the term its plain and ordinary meaning ascertained from a standard dictionary. Id. A statute is unclear if it can be reasonably interpreted in more than one way. Yet, it is not ambiguous simply because different interpretations are conceivable. Id. at 955. We are not to search for “an ambiguity by imagining a variety of alternative interpretations.” W. Telepage, Inc. v. City of Tacoma, 140 Wn.2d 599, 608, 998 P.2d 884 (2000).

An unambiguous statute is not subject to judicial construction, and we will not add language to an unambiguous statute even if we believe the legislature intended something else but did not adequately express it. Watson, 146 Wn.2d at 955. If a statute is ambiguous, we resort to principles of statutory construction, legislative history, and relevant case law to assist in interpreting it. Id.

The statute in question provides:

No insurance contract insuring against loss or damage through legal liability for the bodily injury or death by accident of any individual, or for damage to the property of any person, shall be retroactively annulled by any agreement between the insurer and insured after the occurrence of any such injury, death, or damage for which the insured may be liable, and any such annulment attempted shall be void.

RCW 48.18.320 (emphasis added). It is clear on the face of this statute that the legislature intended for it to apply to all insurance policies. By its terms, RCW 48.18.320 is not limited to “occurrence policies,” nor are “claims-made policies” excluded by the terms of the statute. Regardless of policy type, the statute forbids and voids any agreement between the insured and the insurer to “retroactively annul[]” an insurance policy after the “occurrence” of an event “for which the insured may be liable.” RCW 48.18.320. This statute is broad and inclusive. Any modification to exclude claims-made policies must be left to the legislative branch.²

The legislature has had ample opportunity to amend the statute if it had wanted to do so. RCW 48.18.320 was adopted in 1947. Claims-made policies were introduced in the 1960s. See Queen City Farms, Inc. v. Cent. Nat’l Ins. Co. of Omaha, 64 Wn. App. 838, 877, 827 P.2d 1024 (1992) (citing 3 Rowland H. Long, The Law of Liability Insurance App-30, App-53 (1976)). While it is unlikely that the legislature had the particularities of claims-made policies squarely in mind in 1947, it has had several decades of opportunity to exclude claims-made policies from RCW 48.18.320 had it desired to do so.

Because the legislature has not chosen to exclude claims-made policies, the statute applies to all policies. Hence, we must next ascertain which agreements between insureds and their insurers the legislature intended to prohibit and void. The words “retroactively annulled” are not defined by the legislature; therefore, we look to a dictionary in use at the time the statute was adopted to give them their plain and ordinary meanings. See Watson, 146 Wn.2d at 954. Black’s Law Dictionary defines “annul” as:

To cancel; make void; destroy. To abrogate, nullify, or abolish. To annul a judgment or judicial proceeding is to deprive it of all force and operation, either ab initio or prospectively as to future transactions.

Black’s Law Dictionary 115 (3d ed. 1933). Black’s specifically noted, “[annul] is not a technical word and there is nothing which prevents the idea from being expressed in equivalent words.” Id.

The very first definition of “annul,” as it was ordinarily used in 1947, is “to cancel.” The illustrative example given applies both ab initio and prospectively as to future transactions. Similarly, Black’s defines “cancel” as “[t]o obliterate; to strike or cross out; to destroy the effect of an instrument.” Black’s, supra, at 270. A contemporary Webster’s New International Dictionary also lists “cancel” as a synonym for “annul.” 1 Webster’s New International Dictionary 108 (2d ed. 1947). Bringing the term full circle, Webster’s second definition of “cancel” is “to annul.” Id. at 389. Thus, when the statute in question was adopted, the words “annul” and “cancel” were often synonymous and used interchangeably. Further, “annul” was used to mean both to cancel prospectively and to rescind ab initio.³

Black’s defines “retroactive,” the root of the adverb “retroactively,” as “[having] the same meaning as ‘retrospective.’ ” Black’s, supra, at 1551. In turn, “retrospective” is defined as “[Hooking back; contemplating what is past.” Id. Webster’s second definition of “retrospective” is “[Retroactive; affecting things past. Cf. ex post facto.” 2 Webster’s New International Dictionary 2130 (2d ed. 1947). Further, Webster’s first definition of “retroactive” is “[h]aving relation or reference to, or efficacy in, a prior time.” Id. at 2129.

Words have meaning, and words in a statute are not superfluous. City of Bellevue v. Lorang, 140 Wn.2d 19, 24, 992 P.2d 496 (2000). The words “retroactively annulled” must be read together; each given a separate meaning. See Lorang, 140 Wn.2d at 24-25. “Annul” meant both prospective cancellation and ab initio rescission, and it is modified by “retroactively,” which meant looking back or affecting things past. Thus, when the statute was adopted the legislature intended to prohibit and void any agreement between insureds and their insurers, which, while looking back or affecting things past, prospectively cancels or rescinds ab initio an insurance contract “after the occurrence of [an event] for which the insured may be liable.” RCW 48.18.320.

The term “occurrence” has a general meaning in the context of insurance law well known to legislators. Generally, an “occurrence” is an event that gives rise to the legal liability of the insured for which the insurance contract provides coverage. See, e.g., Queen City Farms, Inc. v. Cent. Nat’l Ins. Co. of Omaha, 126 Wn.2d 50, 75, 882 P.2d 703, 891 P.2d 718 (1994). The addition of the words “for which the insured may be liable” broadens the scope of events after which agreements to cancel or rescind will be prohibited and void. RCW 48.18.320 (emphasis added). Therefore, both events that do give rise to legal liability covered by the policy and events that could give rise to legal liability covered by the policy are used by our legislature to mark the point in time after which agreements retroactively annulling insurance coverage are prohibited and void.

The term “void” means “[n]ull; ineffectual; nugatory; having no legal force or binding effect.” Black’s Law Dictionary 1822 (3d ed. 1933). Additionally, Black’s notes that “ ‘[v]oid’ seldom implies entire nullity; but is, in a legal sense, subject to large qualifications.” Id. The legislature qualified “void” in this statute by limiting its application to agreements that (1) are made after the occurrence of an event for which the insured may be liable and (2) retroactively annul coverage of that event. The statute does not void agreements that are made before the occurrence of any injury, death, or damage for which the insured may be liable. Thus, the legal force and binding effect of an agreement to cancel any insurance policy is (1) limited to circumstances when the agreement is made before the occurrence of a potentially covered event and (2) ineffectual when the agreement is made after the occurrence of the potentially covered event. The legislature did not intend to prohibit the cancellation of insurance contracts. Rather, the legislative intent expressed in RCW 48.18.320 is to ensure that cancellation does not adversely impact any person who was injured or damaged by an occurrence before such cancellation.

The statute is clear on its face and applicable to all insurance contracts. This includes claims-made policies. Accordingly, we hold RCW 48.18.320 prohibits and voids any agreement between an insured and insurer to retroactively cancel or rescind an insurance policy to the extent that it is made after the occurrence of the peril insured against. We hasten to add that an insurer may cancel a policy for nonpayment of fees, and an insured may cancel a policy in accordance with RCW 48.18.300.⁴ The statute voids agreements between an insurer and insured to cancel or rescind policies if, and only if, the agreement is made after the occurrence of a potentially covered injury, death, or damage.

We now turn to the specific questions certified to determine whether (1) the agreement between NAHC and ACIC was “an attempt at a prohibited retroactive ‘annulment,’ ” and (2) the cancellation of the insurance coverage was “against the public policy of the State of Washington.” Order at 2.

Application to Steen

ACIC argues that under a claims-made policy the statutory “occurrence” does not occur until notice of loss has been given to the insurer. While that may be a fair reading of the insurance contract, it is irreconcilable with the language of the statute. The plain language of the statute focuses on events for which the insured is legally liable; it says nothing about events for which the insurer is contractually liable. The statute forbids retroactive annulment after the occurrence of the peril insured against. We have no grounds to suspend operation of the statute until after the contractual trigger of the insurer’s obligations. Cf. 2 Lee R. Russ & Thomas P. Segalla, Couch on Insurance § 30:8 (3d ed. 1995); Safeco Ins. Co. of Am. v. Hirschmann, 112 Wn.2d 621, 627, 773 P.2d 413 (1989).

As this court has long held, “[w]hen the words in a statute are clear and unequivocal, this court must apply the statute as written.” State v. Michielli, 132 Wn.2d 229, 237, 937 P.2d 587 (1997); see also State v. Carey, 4 Wash. 424, 428-29, 30 P. 729 (1892) (citing Thomas M. Cooley, A Treatise on the Constitutional Limitations Which Rest Upon the Legislative Power of the States of the American Union 745 (5th ed. 1883)). The insurer raises arguments that application of the statute may confound the use of claims-made insurance policies. However, if special treatment of claims-made policies is desirous, the required action is legislative, not judicial. “[W]e must enforce the statute as written.” Duke v. Boyd, 133 Wn.2d 80, 88, 942 P.2d 351 (1997).

Here, the alleged acts of negligence committed by the hospital occurred between September 10,1998 and October 1, 1998, and were occurrences within the coverage of the ACIC policies for claims made between April 30, 2000 and April 30, 2001.⁵ Moreover, no one argues the insured, NAHC, may not be liable. The insured and insurer came together and agreed to cancel the policies effective August 1, 2000, which is after the occurrences allegedly leading to Steven Steen’s death. Therefore, the agreement to cancel the policies in this instance is a prohibited retroactive annulment and void as to perils insured against that occurred before the cancellation agreement was made under RCW 48.18.320.⁶ Accordingly, we answer the first certified question in the affirmative.

Public Policy

Because we conclude above that the cancellation of an insurance policy under such circumstances violates RCW 48.18.320, it follows that it is also against the public policy expressed in that statute. Consequently, we answer the second certified question in the affirmative as well.⁷

CONCLUSION

The purpose of RCW 48.18.320 is not the protection of either the insured or the insurer. Its purpose is to protect the injured and damaged by preventing insureds and insurers from coming together and canceling or rescinding insurance contracts after a potentially covered injury, death, or damage has occurred. By the plain and ordinary meaning of its language, RCW 48.18.320 effectuates our legislature’s purpose by prohibiting insureds and insurers from agreeing to retroactively annul a liability policy after the occurrence of a covered event for which the insured may be liable and by voiding the effect of any such agreement under these circumstances. Here, NAHC and ACIC did just that in violation of the statute. As a result, we answer both questions certified to us from the United States Court of Appeals for the Ninth Circuit in the affirmative.

Alexander, C.J., and Sanders and Ireland, JJ., concur.

1 For ROW 48.18.320 to apply, there must be an agreement between the insured and insurer to cancel an insurance policy. For purposes of answering these certified questions, we rely upon the Ninth Circuit’s statement of facts and assume such an agreement exists, while leaving it in the able hands of the federal court to resolve the factual question. Certification Order at 4 (“[T]he hospital filed for bankruptcy and entered into an agreement with the insurer to cancel the two policies, in exchange for a pro-rata refund of the premiums.” (emphasis added)); but see District Court Order at 10 (“[The hospital] unilaterally initiated the cancellation of the policies.”) (granting summary judgment to American Cont’l. Ins. Co.).

2 The dissent contends that we need to consider “when risk attaches to create liability” in order to answer the first certified question. Dissent at 530. Our objective is far less ambitious. Instead, it is merely to ascertain legislative intent from the language of the statute. See Watson, 146 Wn.2d at 954. The dissent’s proposed analysis, while perhaps appropriate when interpreting the contract, takes us far afield from the statute. Nothing in the statute can fairly be read as limiting its application to situations “when risk attaches to create [insurer] liability.” Instead, this statute unambiguously applies to all insurance contracts. Its plain language requires only that the insured’s risk of liability be implicated; it is silent about the insurer’s risk of liability. It is the province of the legislature, not this court, to make the policy decision whether to change the focus of this statute from the insured’s risk of liability to the insurer’s risk of liability. See Duke v. Boyd, 133 Wn.2d 80, 88, 942 P.2d 351 (1997).

3 The dissent correctly notes that “ ‘[w]here the Legislature uses certain statutory language in one instance, and different language in another, there is a difference in legislative intent.’ ” Dissent at 532 (quoting United Parcel Serv., Inc. v. Dep’t of Revenue, 102 Wn.2d 355, 362, 687 P.2d 186 (1984)). We do not ignore this rule. To the contrary, we observe the rule by recognizing the term “annul” has a different meaning than the term “cancellation” found elsewhere in the chapter. While “cancellation” is used only for prospective actions, “annul” is used to include both prospective cancellations and ab initio rescissions. See Black’s Law Dictionasy 115 (3d ed. 1933).

4 Cancellation by an insured under RCW 48.18.300 is not a nullity as asserted by the dissent. Contra dissent at 532 n.12. RCW 48.18.320 does not prohibit insureds from properly canceling insurance policies. Rather it prohibits and voids agreements between insureds and insurers to retroactively annul a policy after a potentially covered event has occurred. It is an important difference the legislature has declared law.

5 The policy uses the term “incident” where historically the term “occurrence” would have been used. See SER at 63. During oral argument, we were advised by counsel for ACIC that the policy uses the term “incident” instead of “occurrence” to describe an event for which coverage exists. These terms are interchangeable for our purposes.

6 The dissent correctly observes that “RCW 48.18.320 does not prohibit the prospective cancellation of a policy for which injury, death, or damage has yet to occur.” Dissent at 530 (emphasis added). RCW 48.18.320 applies in this instance precisely because the death for which NAHC may be liable occurred prior to NAHC’s agreement with ACIC to cancel the policy.

7 The second certified question specifically asks whether the cancellation described in the first question is against the public policy of Washington State when no other insurance policies for coverage of claims are held by a hospital that has filed for bankruptcy. As conjectured by the concurrence/dissent, it is possible the Ninth Circuit asked the second question under an assumption that the statute would not apply to the cancellation described in the first question. Concurrence/ dissent at 525-26. However, we find it unwise to speculate about possible assumptions the Ninth Circuit might have made but chose not to articulate in the certified question.f