Washington Supreme Court Clarifies the Application of the Selective Tender and Late Tender Rules

By:  Aaron C. Denton

Fall 2008


The Supreme Court of Washington recently differentiated between contribution and subrogation claims in the context of Washington’s “selective tender” and “late tender” rules in an allocation action between insurers.  Mut. of Enumclaw v. USF Insurance Co., 191 P.3d 866 (Wash. 2008).  This case is significant for Oregon practitioners because it explains the frequently confused differences between these alternative theories.  Because no Oregon appellate cases explain these differences, this case could be relied upon by insurers in Oregon courts.

Under Washington’s selective tender rule, an insurer’s obligation for a loss cannot arise before tender, and an insured may choose to tender to less than all potentially obligated insurers.  Under Washington’s late tender rule, late notice relieves an insurer of its coverage obligations only upon a showing of actual and substantial prejudice.

The Mut. of Enumclaw case arose out of a construction defect lawsuit by condominium owners against general contractor Dally Homes, Inc. (“Dally”).  Dally asked two of its insurers to provide a defense:  Mutual of Enumclaw Insurance Company (“MOE”) and Commercial Underwriters Insurance Company (“CUIC”).  MOE and CUIC defended Dally and settled the owners’ claims.  As part of the settlement, Dally assigned its rights against its other insurers to MOE and CUIC.

After settling, MOE and CUIC learned that Dally had not tendered to another of its insurers, USF Insurance Company (“USF”).  MOE and CUIC then brought an allocation action against USF, alleging claims of both contribution and subrogation.  The Supreme Court first held that MOE and CUIC did not have contribution rights against USF.  The Court noted that contribution allows one insurer to recover from another only if both insurers are obligated for the same loss.  The Court reasoned that, because Dally had not tendered to USF, USF never became liable for the underlying loss, and hence had no common liability for the loss.  Accordingly, USF could not be liable to MOE and CUIC under a contribution theory.

In its second holding, the Supreme Court stated that, because of Dally’s assignment, MOE and CUIC held all of Dally’s rights under its insurance policy with USF, and could assert a conventional subrogation claim.  In addition, because MOE and CUIC were stepping into Dally’s shoes pursuant to the assignment, they could make a late tender to USF.  The court held that whether USF had been prejudiced as a result of the late tender was a fact issue for the trial court to address on remand.

In light of this decision, it may be prudent for insurers in allocation actions to allege claims of both contribution and subrogation.  Also, it may be prudent for an insurer to insist that its insured notify all potentially obligated insurers, and if appropriate, independently notify the insurers.

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