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State statute applied to preclude cancellation of policy absent satisfaction of required grounds and observance of statutory procedure.

American Continental Ins. Co. v. Steen, 91 P. 3d 864, 2004 Wash. LEXIS 362 (Washington Supreme Court--May 14, 2004)

Substantive state insurance law generally limits the grounds on which an insurer may cancel a personal lines insurance policy. Commonly accepted grounds are nonpayment of premium, fraud or material misrepresentation, increase of risk, or loss of reinsurance. State law may provide additional statutory protections against even cancellation by mutual agreement as this may defeat the public policy goal of assuring that victims of tort-feasors be compensated. For example, Washington has a statute that provides
 No insurance contract insuring against loss or damage through legal
 liability for the bodily injury or death by accident of any
 individual, or for damage to the property of any person, shall be
 retroactively annulled by any agreement between the insurer and
 insured after the occurrence of any such injury, death, or damage
 for which the insured may be liable, and any such annulment
 attempted shall be void.

See Rev. Code of Wash. 48.18.320.

The Washington Supreme Court recently held that this "nonannulment" statute applies to both occurrence basis and claims-made liability policies and restricts cancellation accordingly. See American Continental Ins. Co. v. Steen, 91 P. 3d 864, 2004 Wash. LEXIS 362 (Wash. 2004). Cancellation and annulment are often treated as synonyms. The Washington Supreme Court, however, has found some distinction in the terms, finding that the term "cancellation" applies to prospective termination of a policy in the absence of a pending claim while "annulment" includes both prospective cancellation and rescission of a policy ab initio. See Id. at *11, n. 2.

Regardless of the nomenclatural distinction, statutes such as the one quoted above are designed to prevent claimants from being left in the lurch by cooperative cancellation between insurer and policyholder. "The statute voids agreements between insurer and insured to cancel or rescind policies if, and only if, the agreement is made after the occurrence of a potentially covered injury, death, or damage." See at *14-*15.

A dissenting Justice disagreed to the extent a canceled claims-made policy did not involve a risk that had attached, stressing the traditional distinction between a prospective cancellation and a retroactive rescission. In the dissent's view, however, the language of the statute and its purpose did not forbid a claims-made insurer from rescinding a policy ab initio if there is proper ground or canceling the policy if a claim has not been made and "no notice has been received by the insurer." See Id. at *23, *35-*36 (Bridge, J., dissenting).

Jeffrey W. Stempel

University of Nevada, Las Vegas
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Title Annotation:Recent Court Decisions
Author:Stempel, Jeffrey W.
Publication:Journal of Risk and Insurance
Geographic Code:1USA
Date:Sep 1, 2004
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