## Facts

- Consumers Indemnity Company, an automobile insurer, issued coverage tied to extended warranty contracts administered through its agent, Northwest Underwriters, Inc.
- Consumers and Northwest were owned by Cimoch, Inc., controlled by Norman Cimoch and Mary Ann Cimoch; Mary Ann served as an officer and director.
- Beginning around June 1987, Norman implemented the “Northwest Dealer Reserve Program,” diverting large portions of dealer premium payments away from Consumers.
- Under the contracts, Consumers should have received roughly $300 per contract but allegedly received only about $20, contributing to major shortfalls.
- Consumers became insolvent and entered statutory receivership; the receiver (the Insurance Commissioner) investigated and sued multiple defendants, including Mary Ann, alleging breach of directors’ statutory fiduciary duties under RCW 48.05.370.
- Mary Ann contended she lacked knowledge of the diversion and was not involved in day-to-day management.

## Issues

1. Whether RCW 48.05.370 imposes on an insurer’s director an affirmative duty to stay informed and to take reasonable steps to stop another director’s fraudulent conduct, such that “ignorance” is not a defense.
2. Whether, on summary judgment, Mary Ann’s failure to fulfill those duties could be found a proximate cause of Consumers’ losses as a matter of law, supporting personal liability.

## Decision

- The Court of Appeals of Washington, Division One, affirmed partial summary judgment holding Mary Ann personally liable for losses exceeding $12 million.
- The court held Mary Ann breached RCW 48.05.370 by failing to remain informed about the insurer’s affairs and by failing to take reasonable steps to stop Norman’s diversion of funds.
- The court held the breach was a proximate cause of Consumers’ losses as a matter of law on the summary judgment record.

## Legal Principles

- Under RCW 48.05.370, an insurer’s director owes a statutory fiduciary duty to exercise the diligence, care, and skill of an ordinarily prudent person in a similar position.
- The duty is affirmative: an insurer’s director must stay informed of the corporation’s affairs and cannot function as a figurehead.
- A director may be liable for another director’s fraud or malfeasance that the director reasonably should have known about; ignorance of corporate affairs does not immunize the director from liability.
- An insurer’s director has a duty to take reasonable steps to stop the fraudulent conduct of another director.
- A director is liable for losses proximately caused by breach of the RCW 48.05.370 fiduciary duty; proximate cause includes cause in fact (“but for” causation) and legal causation (policy and common-sense limits on responsibility).
- Summary judgment is proper when, viewing evidence and reasonable inferences under Washington standards, reasonable persons could reach only one conclusion on breach and causation.

## Conclusion

The court held that directors of Washington insurance corporations have an affirmative statutory duty under RCW 48.05.370 to remain informed and to act to stop fraud within the insurer, and that a director’s failure to do so can support personal liability when the inaction is a proximate cause of the insurer’s losses.


Senn v. Nw. Underwriters, Inc., 74 Wash. App. 408, 875 P.2d 637 (Wash. Ct. App. 1994)