By Sally Kim and Kyle Silk-Eglit on December 17, 2019
The Washington courts have historically found that the purpose of a certificate of insurance is to advise others as to the existence of insurance, but that a certificate is not the equivalent of an insurance policy. However, the Washington State Supreme Court recently held that, under certain circumstances, an insurer may be bound by the representations that its insurance agent makes in a certificate of insurance as to the additional insured (“AI”) status of a third party. Specifically, in T-Mobile USA, Inc. v. Selective Ins. Co. of America, the Supreme Court found that where an insurance agent had erroneously indicated in a certificate of insurance that an entity was an AI under a liability policy, that entity would be considered as an AI based upon the agent’s apparent authority, despite boilerplate disclaimer language contained in the certificate. T-Mobile USA, Inc. v. Selective Ins. Co. of America, Slip. Op. No. 96500-5, 2019 WL 5076647 (Wash. Oct. 10, 2019).
In this case, Selective Insurance Company of America (“Selective”) issued a liability policy to a contractor who had been retained by T-Mobile Northeast (“T-Mobile NE”) to construct a cell tower. The policy conferred AI status to a third party if the insured-contractor had agreed in a written contract to add the third party as an AI to the policy. Under the terms of the subject construction contract, the contractor was required to name T-Mobile NE as an AI under the policy. T-Mobile NE was therefore properly considered as an AI because the contractor was required to provide AI coverage to T-Mobile NE under the terms of their contract.
However, over the course of approximately seven years, Selective’s own insurance agent issued a series of certificates of insurance that erroneously identified a different company, “T-Mobile USA”, as an AI under the policy. This was in error because there was no contractual requirement that T-Mobile USA be added as an AI. Nonetheless, the certificates stated that T-Mobile USA was an AI, and they were signed by the agent as Selective’s “authorized representative.”
In the ensuing coverage action, a question arose as to whether T-Mobile USA could be considered as an AI given the representations in the certificates. Significantly, the Washington State Supreme Court heard the matter pursuant to a certified question from the Ninth Circuit Court of Appeals, which had previously made several important findings that guided the Supreme Court’s treatment of the case. Chief among them, the Ninth Circuit had already concluded that Selective’s “agent [had] acted with apparent authority in issuing the certificate at issue[.]”
Based upon that predicate, the Supreme Court found that Selective was bound by the representations made by its authorized insurance agent in the certificate of insurance. The Supreme Court noted the general rule in Washington that an “insurance company is bound by all acts, contracts or representations of its agent … which are within the scope of [the agent’s] real or apparent authority[.]” Because the Ninth Circuit had already found that Selective’s insurance “agent acted with apparent authority when it issued the certificate to T-Mobile USA,” pursuant to this general rule in Washington, the Supreme Court concluded that “Selective [was] bound by the representations its agent made in the certificate of insurance.”
Selective sought to argue that T-Mobile USA’s reliance on the agent’s representations was unreasonable because T-Mobile USA knew it was not a party to the construction contract, and therefore knew it was not an AI. However, the Supreme Court found this argument was foreclosed by the fact that the Ninth Circuit had already “rul[ed] that the agent acted with apparent authority[.]” As a result, the Supreme Court reasoned that “the Ninth Circuit necessarily decided that T-Mobile USA’s belief that the agent was authorized to issue a certificate naming it as an additional insured was ‘objectively reasonable’ … [and thus] its reliance on that certificate [was] reasonable.”
The Supreme Court also rejected Selective’s argument that boilerplate disclaimer language in the certificate negated the grant of AI coverage to T-Mobile USA. For example, the boilerplate language stated that the certificate “confers no rights” and “does not affirmatively or negatively amend, extend or alter the coverage afforded by the [policy].” The Supreme Court noted, however, that these disclaimers conflicted with the apparent grant of AI coverage to T-Mobile USA, which had been specifically written into the certificate by the insurer’s agent. Applying a canon of contract interpretation, the Supreme Court held that, in this instance, the “specific written-in additional insured statement [in the certificate] … prevails over the preprinted general disclaimers.”
It is questionable whether this finding can be applied more broadly. The Supreme Court was careful to note that “we do not hold that all disclaimers are ineffective. We hold that the disclaimers at issue here are ineffective because they completely and absolutely contradict the other, more specific promises in that same certificate.” Had the disclaimers not been so directly contradicted by the specific representations in the certificates, or if the Ninth Circuit had not previously held that Selective’s agent acted with apparent authority, this case may have been decided differently.
In any event, the T-Mobile USA case is a stark reminder of the significance that representations by an insurer’s authorized agents may have on coverage issues.