Can Your Insurance Company Change Its Position Regarding Coverage For Your Claim?

Answer: It depends, on several factors, such as:

1. The applicable state law,
2. the insurance company’s prior position, or positions (e.g., did it accept or deny coverage?),
3. how it expressed that position, or positions (e.g., did it accept coverage under a reservation of rights, or did it deny coverage based on a specific ground and reserve its right to assert other grounds for denying coverage?),
4. whether the policyholder detrimentally relied on the company’s prior coverage position,
5. whether the policyholder has been prejudiced by the insurance company’s change in its coverage position or the stated basis for its position, and
6. whether a lawsuit has been filed.

In short, this is an area of insurance law that lacks uniformity across the country. In T-Mobile USA, Inc. v. Selective Insurance Company of America, the Ninth Circuit Court of Appeals may decide the limits of a liability insurance company’s right to change its coverage position, or more specifically, the bases for its coverage position, under Washington law.¹ The Court of Appeals may also decide whether, under Washington law, the content of a Certificate of Insurance prepared by an insurance company’s authorized broker is binding on the company, even if the content of the certificate varies from the terms of the underlying policy. That is another area of law that varies somewhat across the country.

In the underlying case,² the facts of which are relatively complex, T-Mobile USA (“T-Mobile”) was named in a lawsuit in New York. That lawsuit arose out of damage allegedly caused by a cell phone tower owned or constructed by one of T-Mobile’s subsidiaries (which also included T-Mobile as part of its name). T-Mobile attempted to tender the defense of that lawsuit to Selective Insurance Company (“Selective”) under a policy that Selective had issued to one of the subsidiary’s contractors. According to T-Mobile, Selective initially denied coverage for T-Mobile based on an exclusion in the policy, but T-Mobile did not learn of Selective’s initial basis for denying coverage until more than two years after T-Mobile had sent its tender letter to Selective. Six months after T-Mobile learned of the basis for Selective’s initial denial of coverage, Selective denied coverage for a different reason, namely, there was no coverage for T-Mobile under the policy and T-Mobile’s tender of the claim was deficient because it did not identify its subsidiary as tendering the claim.³

Because Selective’s policy was subject to Washington law, T-Mobile filed a lawsuit in Washington seeking an order that Selective was contractually obligated to defend and indemnify T-Mobile in the New York case. T-Mobile contended that Selective’s authorized broker provided T-Mobile an insurance certificate that identified T-Mobile as an additional insured under Selective’s policy. According to T-Mobile, the terms of the certificate should be binding on Selective. T-Mobile also argued that, under Washington law, Selective should be estopped, or barred, from asserting that its tender of the claim was deficient because had Selective promptly raised that issue when T-Mobile initially sent its tender letter, T-Mobile could have corrected its tender by naming its subsidiary.⁴

According to T-Mobile, Selective’s denial of coverage based on the exclusion in the policy lacks merit, and because Selective should be barred from raising its defective tender defense, there is no basis for Selective to refuse to provide coverage for T-Mobile under the policy.⁵
In ruling on the parties’ cross-motions for summary judgment, the District Court noted that “[u]nder Washington law, an insurer may not change the basis for avoiding liability after litigation has begun,”⁶ and “[a]n insurer is charged with the knowledge which it would have obtained had it pursued a reasonably diligent inquiry.”⁷ However, the District Court ruled that the estoppel doctrine can only be invoked if there is coverage under the policy; it could not be used to create coverage when none would otherwise exist.⁸

The District Court also found that, under Washington law, the certificate of insurance was not binding on Selective and as a result, T-Mobile was not an insured party under the policy. Consequently, T-Mobile could not invoke the estoppel doctrine to prevent Selective from raising its coverage defense based on the fact that T-Mobile was not an insured party under the policy.

T-Mobile has appealed those rulings to the Ninth Circuit Court of Appeals. I’ll be watching this case and will keep you updated.
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¹ T-Mobile USA, Inc. v. Selective Ins. Co. of America, No. 17-35932 (9th Cir.).
² T-Mobile USA, Inc. v. Selective Ins. Co.of America, No. 15-1739, 2017 WL 2774070 (W.D. Wash. June 27, 2017).
³ Id. at **1-4.
⁴ Id. at *4.
⁵ Id. at **7-15.
⁶ Id. at *8 (citing Karpenski v. Am. Gen. Life Cos., LLC, 999 F.Supp.2d 1235, 1245 (W.D. Wash. 2014)).
⁷ Id. (citing Bosko v. Pitts & Still, Inc., 454 P.2d 229, 234 (Wash. 1969)).
⁸ Id. at **8-15.