I read a lot of coverage cases and insurance policies. You do too. So we’ve all seen some unusual and unique endorsements in our day. But the “Extrinsic Evidence Endorsement,” discussed in Developers Surety & Indemnity Co. v. Alis Homes, LLC, No. C17-0707 (W.D. Wash. Apr. 16, 2018) might be my new high water mark.

The case involves construction defect coverage and the central issue was whether there was compliance with an endorsement that requires the insured to secure such things as additional insured coverage from its subcontractors, as well as a hold harmless agreement from its subs. These endorsements, and coverage decisions addressing them, have become fairly common.

The court held that no coverage was owed, as the insured satisfied none of these subcontractor requirements. And, as the court put it, “the fact that [the insured] was ‘simply . . . unaware of the requirements’ because they ‘were buried in such a long insurance policy’ does not compel a different result.”

But the policy also contained this nugget of an endorsement: In determining whether the insurer owes a duty to defend or indemnify, the insurer “may look to extrinsic evidence outside of the allegations and/or facts pleaded by any claimant” and may “rely on extrinsic evidence to deny the defense and/or indemnity of a ‘suit.’” The endorsement cautions that it changes the policy and instructs the insured to read it carefully.

For various reasons, the court, sadly, was not required to address the enforceability of this endorsement. The court noted that it was an issue of first impression, a novel question and that the endorsement conflicts with Washington law, which does not permit an insurer to look to extrinsic evidence to disclaim a duty to defend.

Would an endorsement that is contrary to Washington Supreme Court precedent, and especially addressing an issue as important as the duty to defend standard, be enforceable? On one hand, there is freedom of contract, which could say yes. And the endorsement notes that it changes the policy.

But therein lies the problem. The endorsement, despite what it says, doesn’t change the policy. The policy obligates an insurer to defend, under certain circumstances, and does not address the role of extrinsic evidence in making that determination. The endorsement changes Washington law. I’m skeptical that the Washington Supreme Court would uphold an endorsement that flies in the face of a broad duty to defend standard that clearly benefits insureds. What do Woo think?