Opinion ID: 696235
Heading Depth: 3
Heading Rank: 1

Heading: Express Allocation Clause

Text: 19 Washington law does not prohibit allocation in the present context, despite the absence of an express allocation clause. Under Washington law, allocation is not permitted if an insurer has improperly refused to defend the insured against claims, see Waite v. Aetna Casualty & Sur. Co., 77 Wash.2d 850, 467 P.2d 847, 852 (1970), or has made no attempt to separate out the portion of the settlement amount for which it was liable, see Prudential Property & Casualty Ins. Co. v. Lawrence, 45 Wash.App. 111, 724 P.2d 418, 424 (1986). In addition, allocation is not required when the covered and noncovered claims of a single insured party consist of the same factual core. Public Utility Dist. No. 1 v. International Ins. Co. (PUD), 124 Wash.2d 789, 881 P.2d 1020, 1032 (1994). Yet in the present case, Federal did not refuse to defend and expressly conditioned its consent to the settlement on a later allocation, and the case involves claims against an uninsured party, the corporation. 1 20 Outside of these narrow areas, Washington law permits allocation, even in the absence of an express allocation clause. See Waite, 467 P.2d at 853 (finding that allocation of damages among separate claims was proper); cf. In re Estate of Rendsland, 92 Wash.2d 185, 594 P.2d 1346, 1349 (1979) (finding that a settlement agreement impliedly allocated responsibility to pay inheritance taxes among the beneficiaries of the will). 21 In this instance, the lack of an express allocation clause in the policy should not be dispositive because the policy unambiguously covers only losses which the Insured Person has become legally obligated to pay on account of any claim first made against him during the Policy Period ... for a wrongful Act ... allegedly committed ... by [an] Insured Person. Indeed, this action centers on the question whether any portion of the settlement sum is attributable to acts of the corporate entity, a named defendant in the underlying class action suit, rather than to acts of the named directors and officers. If the factfinder were to conclude that the corporate entity's independent exposure accounts for a portion of the settlement sum, that part of the sum would not constitute a covered loss within the meaning of the policy. Accordingly, allocation would be necessary to reflect properly the terms of coverage under the policy. See Waite, 467 P.2d at 853; Caterpillar Inc. v. Great American Ins. Co., 864 F.Supp. 849, 852 (C.D.Ill.1994) (finding that lack of express allocation clause did not preclude allocation); PepsiCo, 640 F.Supp. at 662; William E. Knepper & Dan A. Bailey, Liability of Corporate Directors and Officers, Sec. 17.06 (4th ed. 1988 & Supp.1992) (Proper allocation ... among the insured and uninsured claims, persons, or entities is a procedure established by law and is a recognized practice of the insurance industry.). Contrary to Nordstrom's assertion, the policy's grant to Federal of subrogation rights against third parties who might be found liable for part of any judgment against the named directors and officers is irrelevant to the allocation issue because subrogation is appropriate only if coverage under the policy is first established. Cf. Sequoia Ins. Co. v. Royal Ins. Co. of America, 971 F.2d 1385, 1394 (9th Cir.1992) (noting that a subrogee is subject to all available theories of defense, including a theory of lack of coverage).