The Washington Supreme Court in Department of Transportation v. James River Insurance Company, on January 17, 2013, held that RCW 48.18.200(1)(b) barred arbitration of an insurance coverage dispute.
James River issued two insurance policies to the Contractor on a WSDOT highway project. These policies provided coverage for certain liability relating to the Contractor’s work on the project for WSDOT. The Contractor requested that James River add WSDOT as an insured under the policies, which was done.
A traffic accident occurred at or near Contractor’s highway project. The representatives of those persons killed or injured in the accident filed suit in King County Superior Court against WSDOT. The plaintiffs later amended their Complaint to include the Contractor as a defendant. WSDOT sent a letter to Contractor tendering its request for a defense in response to the suit under the insurance policies. Contractor forwarded the tender to James River. James River accepted WSDOT’s tender under a reservation of all rights under the policies. James River also informed WSDOT that the policies contained a mandatory arbitration provision, and demanded arbitration of the parties’ coverage dispute.
James River attempted to initiate arbitration pursuant to the arbitration provision. WSDOT objected and filed a declaratory judgment action against James River, seeking a declaration that the arbitration provision was void.
The matter came on before the trial court on Cross-Motions for Summary Judgment, and the Court entered an Order granting WSDOT’s Motion that the arbitration provision was barred by RCW 48.18.200, and that the statute was not preempted by the Federal Arbitration Act based on the McCarran-Ferguson Act, a Federal law.
On direct review to the Supreme Court, the Court unanimously affirmed the trial court.
RCW 48.18.200(1)(b) provides:
(1) No insurance contract delivered or issued for delivery in this state and covering subjects located, resident, or to be performed in this state shall contain any condition, stipulation, or agreement…
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(b) depriving the courts of this state of the jurisdiction of action against the insurer…
The Court found that the meaning of this statute was properly determined from looking at the entire phrase: “jurisdiction of action against the insurer.” The court found that this phrase demonstrates the legislature’s intent to protect the right of policyholders to bring an original “action against the insurer” in the courts of this state.
The Supreme Court went on and found that the McCarran-Ferguson Act shields RCW 48.18.200(1)(b) from Federal preemption by the Federal Arbitration Act. The McCarran-Ferguson Act provides in pertinent part:
No act of Congress shall be construed to invalidate, impair, or supersede any law enacted by any State for the purpose of regulating the business of insurance… unless such Act specifically relates to the business of insurance: Provided, That, [the federal anti-trust statutes] shall be applicable to the business of insurance to the extent that such business is not regulated by State law.