Oak Harbor Freight Lines, Inc. v. Xl Insurance America, Inc.
75147-6
| Wash. Ct. App. | Jul 3, 2017Background
- From 2006–2010 Oak Harbor purchased workers’ compensation policies from XL; Oak Harbor had a $350,000 per-claim deductible and contractual reimbursement obligations.
- XL required Oak Harbor to sign an Insurance Program Agreement (IPA) effective the same date as the policies and to post a $3.2 million letter of credit as collateral under the IPA.
- The IPA incorporated the policies by reference, adopted policy definitions, set collateral details and remedies, and stated arbitration in New York was the sole remedy for disputes "under this Agreement or any other agreement between them."
- In 2010 U.S. Bank could not reissue the Frontier Bank letter of credit; XL drew down the collateral and later refused to return excess amounts; Oak Harbor stopped paying premiums and XL ceased coverage in 2011.
- Oak Harbor sued in King County (bad faith, conversion, consumer protection, etc.); XL moved to compel arbitration in New York under the IPA; the superior court denied the motion, holding the IPA was "part and parcel" of the insurance contract and arbitration was unenforceable under RCW 48.18.200(1)(b).
- On appeal the Court of Appeals affirmed, finding the IPA and policies were interdependent (not truly separate integrated contracts), so the statutory prohibition on arbitration in insurance contracts applied.
Issues
| Issue | Plaintiff's Argument (Oak Harbor) | Defendant's Argument (XL) | Held |
|---|---|---|---|
| Whether the IPA's arbitration clause is enforceable given RCW 48.18.200(1)(b) | IPA is part of the insurance contract so arbitration is void under RCW 48.18.200(1)(b) | IPA is a fully integrated, separate agreement unrelated to the policies; arbitration therefore outside statute | Court held IPA and policies are interdependent; arbitration clause is unenforceable under RCW 48.18.200(1)(b) |
| Whether the IPA and policies should be treated as a single integrated insurance contract | IPA and policies were executed together, reference each other, and are mutually dependent; they form a unified contract | Integration clauses make IPA a separate fully integrated document | Court found objective manifestations (cross-references, remedies, definitions, collateral obligations) show interdependence; integration clauses inoperative |
| Whether XL may rely on boilerplate integration clauses to defeat statute | Boilerplate cannot override the factual interdependence of the documents | Integration clause establishes final agreement | Court held boilerplate integration clauses are not dispositive where facts show the clause is premised on incorrect assumptions |
| Entitlement to attorney fees on appeal | Oak Harbor seeks fees under indemnity in IPA covering attorney fees for liabilities attributable to XL | XL opposes compelling fees where arbitration would control (but did not prevail) | Court awarded Oak Harbor appellate attorney fees under the IPA indemnity clause |
Key Cases Cited
- Department of Transportation v. James River Ins. Co., 176 Wn.2d 390 (Wash. 2013) (RCW 48.18.200 protects insureds’ right to sue in Washington courts and renders arbitration provisions in insurance contracts void)
- Hearst Commc’ns, Inc. v. Seattle Times Co., 154 Wn.2d 493 (Wash. 2005) (objective manifestation theory governs contract interpretation)
- Saleemi v. Doctor’s Assocs., Inc., 176 Wn.2d 368 (Wash. 2013) (standard of review for motions to compel arbitration is de novo)
- Durland v. San Juan County, 182 Wn.2d 55 (Wash. 2014) (attorney fees may be awarded when authorized by contract, statute, or equity)