Academic journal article Journal of Risk and Insurance

Recent Court Decisions

Academic journal article Journal of Risk and Insurance

Recent Court Decisions

Article excerpt

ALL NAMED INSUREDS MUST RECEIVE ADEQUATE NOTICE OF CANCELLATION OR POLICY REMAINS IN EFFECT

Olivine Corporation v. United Capitol Insurance Co., 52 P.3d 494 (Washington Supreme Court--August 22,2002)

Olivine Corporation owned and operated a waste incineration site. In 1997, it executed a lease-purchase agreement with Clearwater Resource Recovery, Inc. Under the arrangement, Clearwater was to lease the facility and eventually acquire it as an owner-operator. The lease agreement also required Clearwater to obtain pollution liability coverage. Clearwater purchased a one-year claims-made policy from United Capitol with an effective date of October 27,1997. Initially, Olivine was an "additional named insured," but in early 1998, the policy language was changed to make both Clearwater and Olivine "named insureds." See 52 P.3d at 495-496.

Clearwater paid for the policy through a premium financing arrangement with TEPCO Premium Finance, LLC. As part of this process, TEPCO obtained a power of attorney from Clearwater that permitted TEPCO to cancel the policy should Clearwater fail to make payments on the premium financed. TEPCO had no similar arrangement with Olivine, the other named insured and the owner of the property covered under the policy. See 52 P.3d at 496.

Sure enough, Clearwater defaulted on its payments to TEPCO, which acted to cancel the policy, sending notice of intent to cancel to Clearwater-but not to Olivine. Clearwater did not respond to the notice (and did not pay the amount claimed). Clearwater cancelled the policy effective February 17, 1998, without notifying Olivine. See 52 P.3d at 496.

Less than a month later, Olivine was notified by the County Health Department that it would be required to clean up hazardous waste and toxic substances at the facility. Apparently, Clearwater was no more proficient at pollution control than it had been at premium payment and had "allowed the leachate tanks to fill and overflow, and had left ash and tires piled at the site." See 52 P.3d at 496.

The news got progressively worse for Olivine. Clearwater had also dumped the incinerator ash on a disallowed site, causing an inspection by the Washington State Department of Ecology Because of Clearwater's operation incinerator, Olivine's solid waste handling permit was eventually revoked. Olivine notified United Capitol of the health department's claim and requested that United Capitol pay for the cleanup costs. When United Capitol initially indicated that the claim was covered, Olivine began arranging to have the site cleaned up in early April. However, on May 19,1998, United Capitol informed Olivine the policy had been canceled effective February 17, 1998. 52 P.3d at 496.

Olivine responded by suing for coverage--and won, eventually obtaining $434,300 in damages (presumably the cleanup costs it paid) and $40,000 in counsel fees incurred in prosecuting the coverage action (although it had claimed actual attorney fees of $144,000). The Court of Appeals affirmed, as did the Washington Supreme Court.

The Supreme Court recognized that premium financier TEPCO had a valid power of attorney vis-a-vis Clearwater. However, TEPCO had no such prerogative regarding Olivine. Thus, United Capitol as pollution liability insurer was required to give notice of cancellation to Olivine as a named insured under the policy. See 52 P.3d at 497-499. However, where there is a single policyholder, the Court suggested that the premium finance company's power of attorney would be sufficient to support its cancellation prerogatives, a result in keeping with other cases in which there was only one policyholder. See 52 P.3d at 499-501 (citing cases).

STATE EMPLOYER'S ACCEPTANCE OF LATE ENROLLMENT OF EMPLOYEE WITH CATASTROPHIC LOSS SITUATION NOT A BREACH OF GOOD FAITH AND DOES NOT ENTITLE GROUP HEALTH INSURER TO RESCISSION

Primary Health Network v. State of Idaho Department of Administration, 137 Idaho 663, 52 P. …

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