Rainier Credit Co. v. Western Alliance Corp.

Rainier National Bank (the Bank) required as a condition of advancing certain loans that its borrowers insure the collateral they used to secure their loans. The Bank’s loan agreement provided that the Bank could purchase insurance at the borrower’s expense should the borrower neglect to obtain insurance. Because of the cost involved in determining whether insurance had been provided on each individual loan, the bank purchased a blanket policy to ensure that all collateral in which it had a security interest was insured. This blanket policy, however, had proved increasingly unprofitable to maintain.

Western Alliance Corporation (Westates) contacted Rainier Credit Company (Rainier) and proposed that they create a collateral insurance system for the Bank. Westates and Rainier agreed to set up a computer tracking system that could follow each loan made by the Bank and that would issue an individual policy to each borrower who failed to obtain insurance. The premium for this policy would be added to the borrower’s loan payment to the Bank. Westates located an insurer, Premier Insurance Company (Premier), to write the insurance. Premier appointed Westates as its general agent…