Policy Language is Construed Strictly Against an Insurer

The Court of Appeals has again made it clear that in Washington, policy language will be construed literally where an insurer attempts to exclude or limit coverage, but liberally where the policy describes coverage.

In Patriot General Insurance Co. v. Gutierrez, a Spanish-speaking resident of Walla Walla County applied for car insurance for his family of four, relying on the insurer’s representative to translate for him. Although he recalled disclosing his teenaged children to the agent, he signed a certification that he had listed all persons over 14 years old who lived with him and all persons who drove the vehicles to be insured. However, the application only listed himself and his wife.

The insurer issued a policy, naming the applicant and his wife as covered persons. It included an underinsured motorist insuring agreement, which would cover the named insured, the spouse, and any “relative,” defined as “a person living in your household related to you by blood, marriage, or adoption.” The policy stated that any relative over the age of 14 needed to be identified in the application prior to a loss. The policy also provided that it had been issued in reliance upon the statements in the application, and that if any of the statements were false, the policy may not provide coverage.

The policyholder’s 19-year-old son was then involved in a single-car rollover accident, and the driver of the car was underinsured. The policyholder tendered the claim to the insurer under the underinsured motorist coverage. The insurer denied the claim because the policyholder had failed to disclose his son in the application. The insurer then initiated a declaratory judgment action, seeking a declaration that it would not have a duty to pay the underinsured motorist claim.

The insurer moved for summary judgment contending the failure to disclose the son in the application precluded underinsured motorist coverage. The policyholder countered that (a) the policy did not expressly exclude any family member over 14 not listed in the application; and (b) the more inclusive statutory definition of “insured” under RCW 48.22.005 should replace the “insured person” definition in the policy. The trial court granted summary judgment to the non-moving party, the policyholder, based on the undisputed facts.

The Court of Appeals, Division III, affirmed summary judgment based on the language in the policy. The analysis began with “familiar principles of insurance policy construction.” These include the complimentary rules that, on the one hand, the insuring agreement is read broadly to find coverage whenever possible, while on the other hand, exclusionary language is strictly construed and applied.

The Court of Appeals pointed out that the insurer could have, but did not, draft the policy to expressly exclude from coverage members of the household that had not been disclosed in the application. Additionally, the insurer could have, but did not, include mandatory language in the provision regarding false statements in the application and loss of coverage.

The Court of Appeals also found it significant that the insurer had no evidence to support a determination that the policyholder made a knowingly false statement in the application, and no evidence that including the two children in the application would have changed the premium. The Court declined to reach the argument that any statutory language should be read into the policy to replace existing language.

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