On 4 September 2008, the Washington Supreme Court issued its decision in Mutual of Enumclaw Ins. Co. v. USF Ins. Co., concerning the distinction between contribution and subrogation claims between insurers and the rules of tender that apply to each, and clarifying the standard for demonstrating “actual prejudice” prong of the “late notice” defense.

The Facts

This case arose out of a 2000 claim for construction defects against builder and developer Dally Homes, Inc. Dally tendered the claim to Mutual of Enumclaw (“MOE”) and Commercial Underwriters Insurance Company (“CUIC”), but not to USF Insurance Company (“USF”). In 2002, MOE and CUIC settled the claims against Dally, and received an assignment of rights against any non-participating insurers from Dally. In 2004, MOE and CUIC first learned of USF’s coverage for the first time. The letter from MOE and CUIC demanding reimbursement of defense and indemnity costs was USF’s first notice of the claim. MOE and CUIC then filed suit for contribution and subrogation. The trial court granted summary judgment without distinguishing between the two claims. The Court of Appeals reversed, holding that Washington’s “late tender” rule was incompatible with the “selective tender” rule. MOE and CUIC appealed.

Tender Rules for Contribution and Subrogation Claims

The Washington Supreme Court noted that different tender rules apply to claims for subrogation – based on the assignment of an insured’s rights to an insurer and a contribution action by one insurer against a nonparticipating insurer whose policy covers the claim against the insured. The Court first addressed contribution, noting that “the insurer who seeks contribution does not sit in the place of the insured and cannot tender a claim to the other insurer,” and holding that “if the insured has not tendered a claim to an insurer prior to settlement or the end of trial, the other insurers cannot recover in equitable contribution against that insurer.”