The correct understanding of effectuating a contract of insurance by an unauthorized insurer is that such a contract is considered voidable. This means that while the contract is technically valid at its inception, it can be challenged or voided due to the circumstances under which it was formed, specifically in violation of regulatory laws governing insurance entities.
In many jurisdictions, including Washington, if an insurer is not authorized or licensed to conduct business within the state, any insurance contract that it issues may be categorized as voidable. This allows the parties involved, particularly the insured, to seek to annul the contract if they choose to do so. The rationale behind this is to protect consumers from potentially unregulated or unscrupulous insurers, ensuring that all insurance business complies with established legal standards.
Therefore, while the contract may initially have legal standing, the unauthorized status of the insurer poses significant risks, and the law provides the insured party with the right to void the contract. This protects consumers by ensuring they engage with licensed and regulated entities that adhere to state laws and provide certain guarantees regarding financial solvency and claims handling.