Washington
2005 Cases:
Holly Mountain Resources Ltd. v. Westport Ins. Corp., 104 P.3d 725 (Wn.App.,
Div. 2, 2005).
In this case, the insured logging company sued its general
comprehensive liability insurer, alleging breach of contract and bad faith
arising from the insurer’s failure to defend the insured against an
underlying breach of contract and timber trespass suit.
The trial court entered summary judgment for the insured and the
insurer appealed. The Court of
Appeals held that where the complaint alleged damages for breach of
contract and for intentional timber trespass by harvesting trees outside
the scope of the management plan executed by the insured and the land
owner, there was no coverage and therefore no duty to defend.
The insurance policy excluded liability for breach of contract and
bodily injury or property damage expected or intended from the standpoint
of the insured, but covered unexpected or unintended timber trespass.
The Court of Appeals noted that the insurer had denied a defense
based on the complaint but shortly thereafter reviewed a copy of the
harvest agreement between the insured and the land owner.
In a telephone conversation with the insurer before the insured had
received the insurer’s letter disclaiming coverage, the insured’s
representative admitted that he did not believe there would be insurance
coverage for the lawsuit. The
insurer closed its disclaimer letter with the following language, “In
addition, if you have any information which you feel would change our
opinion on coverage and/or duty to defend, please immediately forward the
documentation to us for review.” Thereafter,
the insured did not communicate with the insurer for almost two years.
The insured did not communicate to the insurer that the landowner
had changed its position and purported to claim for “property damage”
and to seek recovery for negligent timber trespass.
When the insured notified the insurer of the existence of the
potential for these covered claims, it was after the insured had sued the
insurer for breach of the insurance contract, bad faith, and violations of
the consumer protection act. Relatively
promptly after the communications from the insured the insurer notified
the insured that in light of the “newly alleged” timber trespass and
property damage claims, it would provide the insured with a defense
subject to a reservation of rights.
The Court of Appeals reviewed
Washington
law on the duty to defend stating,
An insurer's
duty to defend arises when an action is first brought;
and it is based on the potential for liability.
Truck Ins. Exch. v. Vanport
Homes, Inc., 147 Wn.2d 751, 760, 58 P.3d 276 (2002).
An insurer has a duty to defend "when a complaint against the
insured, construed liberally, alleges facts which could, if proven, impose
liability upon the insured within the policy's coverage."
Truck, 147 Wn.2d at 760, 58 P.3d 276 (quoting Unigard Ins. Co. v. Leven, 97 Wn.App. 417, 425, 983 P.2d 1155
(1999), review denied, 140 Wn.2d
1009, 999 P.2d 1263 (2000)). If
the complaint is ambiguous, insurers should construe it liberally, in
favor of the insured. Truck, 147 Wn.2d at 760, 58 P.3d 276.
Conversely, if the alleged claims are clearly outside the policy's
coverage, then the insurer has no duty to defend.
Truck, 147 Wn.2d at 760, 58 P.3d 276.
Two exceptions
to the general rule of referencing only the complaint favor the insured.
Truck, 147 Wn.2d at 761,
58 P.3d 276. First, if
coverage is not clear from the face of the complaint but may nonetheless
exist, the insurer must investigate the claim and give the insured the
benefit of the doubt in determining whether the insurer has a duty to
defend. Truck,
147 Wn.2d at 761, 58 P.3d 276. Second,
the insurer may consider facts outside the complaint if "(a) the
allegations are in conflict with facts known to or readily ascertainable
by the insurer or (b) the allegations of the complaint are ambiguous or
inadequate." Truck, 147 Wn.2d at 761, 58 P.3d 276 (quoting E-Z Loader Boat Trailers, Inc. v. Travelers Indem.
Co.
, 106 Wn.2d 901, 908, 726 P.2d 439 (1986)).
Neither exception applies here, however, because it is clear from
the face of AID's complaint against
Holly
Mountain
that there was no coverage under the
Westport
insurance policy.
104 P.3d at 731-732.
It was “clear” from the face of the complaint against the
insured that there was no coverage under the insurance policy.
The policy specifically excluded from coverage contractual
liability and expected and intended injuries.
The complaint unambiguously alleged breaches of contract and
intentional torts. It alleged
no occurrence, i.e. an accident or property damage as defined by the
insurance policy. Rather the
damages alleged arose exclusively from the alleged breach of contract
which the policy did not cover. The
Court held that because the claims were clearly outside of the policy
coverage, the insurer had no duty to investigate or to look outside the
complaint for additional information.
The Court did give the insurer credit for reviewing the timber
harvest agreement.
Turning to the question of insurance bad faith, the Court again
reviewed the applicable
Washington
law.
An insurer may be liable in
damages for the tort of bad faith if it fails to follow the terms of its
insurance contract. Safeco Ins. Co. of Am. v.
Butler
, 118 Wn.2d 383, 393-94, 823 P.2d 499 (1992).
In order to establish bad faith, an insured must show the insurer
committed a breach that was unreasonable, frivolous, or unfounded.
Kirk v. Mt. Airy Ins. Co.,
134 Wn.2d 558, 560, 951 P.2d 1124 (1998).
The insured does not establish bad faith, however, when, as here,
the insurer denies coverage or fails to provide a defense based upon a
reasonable interpretation of the insurance policy.
Kirk, 134 Wn.2d at 560,
951 P.2d 1124 (citing Transcon.
Ins. Co. v.
Wash.
Pub. Utils. Dists.' Util. Sys.,
111 Wn.2d 452, 470, 760 P.2d 337 (1988)).
If the insured fails to show the insurer acted in bad faith, then
there is no presumption of harm or coverage by estoppel.
Holly
Mountain
argues that Truck, 147 Wn.2d
751, 58 P.3d 276, is controlling. But
Truck is factually
distinguishable. VanPort,
Truck's insured, was a construction company sued by several of its
customers for violations of the Consumer Protection Act, the Consumer
Credit Protection Act, misrepresentation, usury, breach of contract, and
negligence. Truck,
147 Wn.2d at 756, 58 P.3d 276. VanPort
tendered the lawsuits to Truck, which denied coverage approximately one
year later. Truck,
147 Wn.2d at 757, 58 P.3d 276. The
Supreme Court held that Truck had denied coverage in bad faith.
Although Truck's letter denying coverage quoted extensively from
the policy language, the letter (1) provided no analysis or explanation of
how the policy language excluded Vanport's claim; and (2) falsely stated
the insurer had conducted a thorough investigation.
Truck, 147 Wn.2d at 757,
58 P.3d 276. When
VanPort requested a meeting with the insurer to discuss the denial, Truck
never responded. Truck, 147 Wn.2d at 757, 58 P.3d 276.
In fact, Truck did not explain its denial of coverage until nearly
two years later when it filed for declaratory judgment.
Truck, 147 Wn.2d at 757, 58 P.3d 276.
None of these facts used by the Court to find bad faith in Truck
are present here. Therefore, Truck does not control.
104 P.3d at 733 (footnote
omitted). The Court of Appeals
held that the insurer had demonstrated good faith by looking beyond the
confines of the insurance policy and reviewing the timber harvest contract
before finally concluding that the complaint alleged non-covered breach of
contract claims. The insurer
also communicated with the insured by telephone and explained why the
insurer was denying coverage. The
insurer’s letter to the insured denying coverage (1) explained the
reasons for the denial, citing the pertinent policy language; and (2)
offered to reconsider its decision if the insured provided additional
pleadings or information which the insured failed to provide for nearly
two years. The Court concluded
that the insurer’s rejection of the insured’s tendered defense was
consistent with the insured’s expectations, exemplified by the
insured’s admission that he did not expect the policy to cover the
claim. Finally after receiving
notice of the land owner’s allegations of potentially negligent or
reckless timber trespass and other property damage, which the insurer
still deemed contractual in nature and outside the policy’s coverage,
the insurer nevertheless hired counsel to defend the insured under a
reservation of rights.
Colorado Structures, Inc. v. Insurance Co. of the West, 125 Wn.App.
907, 106 P.3d 815 (Div. 2, 2005)
This case involved the judicial construction of a subcontractor’s
performance bond and whether the surety’s liability was conditioned upon
the general contractor having declared the subcontractor in default under
the subcontract before the subcontractor substantially completed the work.
This case involved a project to erect a Wal-Mart store in
Vancouver
,
Washington
. CSI, the general contractor,
entered into a subcontract with Action to perform outside services,
including the installation of a sewer hook-up.
As part of the subcontract, Action obtained a performance and
payment bond from ICW. At
issue in this case was the performance bond.
CSI under its contract with Wal-Mart stood to suffer severe
penalties if it did not finish the construction on time.
Action fell seriously behind schedule on its part of the contract.
CSI decided not to terminate Action’s contract but instead helped
Action perform by supplementing Action’s crews and taking other steps
intended to minimize expense and delay.
Action continued performing and substantially completed its work on
the due date. The City of
Vancouver
however required CSI put money into escrow to insure that defects in
Action’s work would be repaired. CSI
ultimately paid an additional $417,172.00 to complete and repair
Action’s off-site work. CSI
notified ICW that although Action would finish on time it would leave many
defective and incomplete items. CSI
notified ICW on the expected completion date that the City had rejected
some of Action’s work and CSI was still supplementing Action’s crews
and that CSI would be looking to ICW for compensation for the costs which
exceed Action’s subcontract agreement and change order.
Later, CSI notified ICW that the cost of supplementing Action’s
performance would exceed the remaining balance on the off-site subcontract
and that CSI would be asking ICW to pay the difference.
After the completion of the work and the on-time opening of the
Wal-Mart, CSI declared that Action was in default and demanded that ICW
pay as provided in the performance bond.
ICW refused to pay because CSI had not formally declared Action to
be in default before Action had substantially completed the work.
CSI sued ICW, Action and Action’s owner.
ICW answered and denied liability.
Action and its owner defaulted.
At the bench trial the trial court declared that Action was in
material breach of the outside subcontract, that CSI was not required to
formally declare a default, that CSI had given ICW adequate notice of
Action’s problems, that CSI had not unreasonably impaired ICW’s
collateral, that CSI had incurred damages of $417,172.00 and that CSI
could not claim pre-judgment interest because its damages had not been
liquidated until trial. The
trial court granted reasonable attorney fees to CSI under the subcontract,
which the bond incorporated, but ruled that the combination of damages and
fees could not exceed the amount of the bond.
The trial court denied CSI’s claim for attorney fees under
Olympic Steamship. ICW
appealed and CSI cross-appealed.
The Court of Appeals construed the language of the bond, “the
condition of this obligation is such that if [the] Principal [Action]
shall promptly and faithfully perform such subcontract, then this
obligation shall be null and void; otherwise it shall remain in full force
and effect.” The Court of
Appeals concluded that this language made the only condition subsequent to
the surety’s performance the prompt and faithful performance of the
subcontract. Otherwise, the
surety was obligated to indemnify the subcontractor.
Because Action materially breached the contract the material breach
was a default. Under the law
of construction contracts, the general contractor CSI was permitted but
not required to terminate the subcontract and was permitted to continue
Action’s performance and seek damages at the end.
Because the law of construction contracts permits but does not
require the non breaching promisee under the bond to declare a default and
terminate the subcontract the law gives the general contractor the option
to declare a default and sue for damages or alternately to continue the
contract in effect and sue for damages incurred when performance was
finished. Therefore by failing
to declare a default CSI did not breach a promise made in the subcontract
or in the bond. On the
question of the attorney fees, the Court held that Olympic Steamship applied because ICW had contested the meaning of
its contract as well as the amount of damages it should pay.
Generally, Olympic Steamship requires an award of fees when insurer or similar
obligor unsuccessfully disputes “coverage”, but not when it
unsuccessfully disputes “the value of the claim presented under the
policy.” Therefore CSI was
entitled to attorney fees under Olympic
Steamship. Deciding the
last question whether a combined total of damages and attorney fees could
exceed the amount of the bond, the Court cited McGreevy
v
Oregon
Mut. Ins. Co. for the proposition that the attorney fees incurred at
trial and appeal could be awarded under Olympic
Steamship without regard to the amount of the bond.
Wetmore v Unigard Ins. Co., 125 Wn.App. 938, 107 P.3d 123 (Div. 1
2005)
In this case the Court of Appeals held that the coinsurance
provisions in a casualty insurance policy covering a fire loss were not
ambiguous, did not violate the over insurance provision of RCW 48.27.010
and were enforceable.
LRS Electric Controls, Inc. v Hamrey Const., Inc. 153 Wn.2d 731, 107
P.3d 721 (2005)
This case concerned whether pre-claim notice requirements,
generally necessary to recover on a materials claim against either a
contractors’ bond (RCW 39.08.065) or a retained percentage (RCW
60.28.015), applied to second tier subcontractors supplying both materials
and labor to a public works project. The
Supreme Court reversed the Court of Appeals and af
firm
ed the trial court’s conclusion that (1) the pre-claim notice
requirements apply to second tier subcontractors, (2) the second tier
subcontractor’s materials claim is barred in this case for failure to
provide notice, and (3) there can be no pro rata application of payments
to a barred materials claim.
Johnson v Allstate Ins. Co., 126 Wn.App. 510, 108 P.3d 1273 (Div. 2
2005)
This case involved a fire loss under a homeowner’s policy.
After the fire Allstate paid the ACV for the structure loss and
related damages and paid an advance on a personal property claim.
Allstate asked the insureds to submit to an examination under oath
and following the examination under oath declined to pay the personal
property claim asserting that insureds had concealed or misrepresented
material facts or circumstances relating to the loss.
The insureds then sued Allstate.
At trial, the jury returned a verdict finding that the insureds had
intentionally misrepresented or concealed any material fact to
Allstate concerning their claim under the insurance contract.
Allstate had filed a counterclaim for repayment of all of
the sums paid by them during the adjustment of the claim and the trial
court granted Allstate its relief after denying the insureds’ claims.
The Court of Appeals rejected the insureds’ claim that they were
entitled to a tender back of their premium payments.
The Court distinguished Gosset
v Farmers Ins. Co., 82 Wn.App. 375, 386, 917 P.2d 1124 (1996),
reversed in part by Gosset v Farmers
Ins. Co., 133 Wn.2d 954, 974, 948 P.2d 1264 (1997).
Gosset had held that an
insurer must tender back the premium to would-be insurer when the policy
“was never effected due to fraud or misrepresentation.”
The Court noted that Farmers was not seeking to rescind the
contract and therefore was not required to tender back the premium
payments. The Court
distinguished Gosset because there the fraud occurred in the formation of a
contract leaving the would-be insured without coverage.
Here the concealment and misrepresentation occurred during the loss
reporting period. A valid
contract was therefore entered but later voided by the insureds’
actions. The Court concluded
that Allstate was not required to tender back the premium payments.
The Court of Appeals also held that the insureds were obligated to
reimburse Allstate for the entirety of the claim payments made.
The material misrepresentation and concealment exclusions applied
to all of the insured property. A
material concealment and misrepresentation voids the entire policy when
the policy cannot be severed by its plain language.
Mut. of Enumclaw Ins. Co. v Cox, 110 Wn.2d 643, 649, 757 P. 2d 499
(1988). Therefore the
insureds were obligated to reimburse Allstate for all of the claims
payments made.
Lake
v State Farm Mut. Auto. Ins. Co., 127 Wn.App. 114, 110 P.3d 806
(2005).
This was a claim for underinsured motorist coverage arising from
the injury to the plaintiff, a passenger on a four-wheeled ATV.
The State Farm policy excluded UIM coverage for bodily injury to an
insured or property damage while an insured is operating or occupying “a
motorcycle or motor driven cycle.” The
Court of Appeals held that a four-wheel ATV was a “motor driven cycle”
and that the ATV was excluded from State Farm’s UIM coverage.
The Quadrant Corp. v American States Ins. Co., 154 Wn.2d 165, 110 P.3d 733 (2005).
In a five-four decision the Washington Supreme Court upheld the
absolute pollution exclusion of comprehensive general liability policies
issued by
American
States
and State Farm Fire and Cas.
Co.
In this case, a tenant in an
apartment building was overcome by fumes and became ill after a
restoration company applied sealant to a nearby deck.
Both the restoration company and the building owners settled.
The building owners sued for coverage claiming that their business
liability insurance should cover the loss.
The Supreme Court adhered to the rule of the construction that
insurance contracts would be enforced as written where the policy language
was clear and unambiguous. The
Court distinguished the prior decision in
Kent
Farms v Zurich Insurance Co., 140 Wn.2d 396, 998 P.2d 292 (2000). The
Court held that the policy language, despite the implication that Kent
Farms required the Court to conclude that the absolute pollution
exclusion was ambiguous, was not ambiguous with regard to the facts of
this case. The Court
distinguished Kent Farms on its facts and limited
Kent
Farms’ language limiting the
absolute pollution exclusion to “traditional environmental harms” to
the facts of that case. The
Court rebuffed the owner’s argument that the pollution exclusion
rendered the insurance contract illusory, noting that the restoration
company (as to whom the coverage had the potential to be illusory) had not
appealed. The contract was not
illusory as to the owners, because the policy covered claims such as for
slip and fall.
Higgins v Scottsdale Ins. Co., 127 Wn.App. 486, 111 P.3d 893 (Div.3,
2005)
In this case, the insured’s mortgagees brought an action
against the homeowners’ insurer for declaratory judgment that the policy
was in effect at the time of the fire, because the insurer had failed to
give the mortgagee notice of cancellation by the premium finance company.
The Court of Appeals held that the cancellation of a homeowners’
policy by a premium finance company pursuant to a power of attorney
executed by the insured is a cancellation by the insured.
The insurance policy provided that
Scottsdale
would give notice to the mortgagees only if it cancelled the
policy. The Court held that
Washington
statutory law and regulations governed only cancellations by the insurer
or otherwise did not apply to surplus lines policies secured under title
48 chapter 15 RCW.
Red Oaks Condominium Owners Ass’n v Sundquist Holdings, Inc., 116
P.3d 404 (Div. 1, 2005)
This case involved a suit by condominium owners against their
developer for damages stemming from construction defects.
The developer’s insurer had been notified of the homeowner’s
claims and had defended the developer under a reservation of rights.
The parties entered into tolling agreements to conduct settlement
negotiations. Ultimately the
insurer, Mutual of Enumclaw, filed a declaratory judgment action against
the developer disputing coverage for the homeowner’s claims.
The homeowners and the developer agreed to the amount of damages in
mediation, but Mutual of Enumclaw refused to pay, blowing up the
settlement. Shortly
thereafter, the homeowners sued the developer and two days later
stipulated to a judgment of $1,948,000.00.
The developer assigned to the condominium owners its rights against
Mutual of Enumclaw in exchange for a covenant not to execute. The
agreement was contingent on the court finding the settlement reasonable.
The homeowners requested a reasonableness hearing and delivered a
copy of the motion to Mutual of Enumclaw 6 days before the hearing.
Mutual of Enumclaw did not receive a copy of the settlement
agreement until 3 days before the hearing.
Mutual of Enumclaw moved to intervene and requested a continuance
in order to prepare and conduct discovery.
The trial court allowed Mutual of Enumclaw to intervene but denied
its request for a continuance. Against
a due process challenge, the Court of Appeals held that the notice to
Mutual of Enumclaw was adequate to allow Mutual of Enumclaw to appear and
protect its interests to interpret the settlement agreement and to
determine whether to appear at the reasonableness hearing.
Boag v Farmers Ins. Co. of Washington, 128 Wn.App. 333, 115 P.3d 363
(Div.2, 2005)
This is an underinsured motorists claim.
Farmers insured, settled her claim against an underinsured motorist
for his policy limits. She
also sought personal injury protection and underinsured motorist benefits
from Farmers. Farmers paid her
$74,883.16 in PIP benefits. Through
arbitration she received a $137,095.11 award.
The trial court offset $62,788.05 of Farmers PIP payments against
her UIM award. The Court of
Appeals af
firm
ed. Farmers agreed that the
offset clause in Boag’s insurance policy did not apply because
Farmer’s did not obtain her written agreement.
Farmers argued that under its subrogation or right to recover
clause it may offset the payment it made.
Because an insurer stands in the shoes of the tortfeasor for
purposes of UIM coverage payments made by the UIM carrier are treated as
if made by the tortfeasor. Therefore
UIM carriers may offset the amount of any tortfeasor recovery from the
amounts owed to an insured under a UIM policy.
Ham v State Farm Mut. Auto. Ins. Co., 151 Wn.2d 303, 308, 88 P.3d
395 (2004). Additionally where
the insured receives a full recovery, the PIP carrier may seek
reimbursement for the PIP benefits it previously paid.
The Court distinguished a footnote in Keenan
v Ind. Ind. Ins. Co., 108
Wn.2d 314, 317-18, n. 1., 738 P.2d 270 (1987).
The Court noted that Keenan
never discussed whether an insurer’s PIP offset would be limited to the
amount that the insured recovered from the tortfeasor and, because the
facts differed and because the insured had been fully compensated, Keenan was not applicable. According
to the Court, Keenan simply
means that an offset for PIP benefits should be allowed only when an
insured’s recovery from a tortfeasor is for the same type of damages
that PIP benefits are meant to cover and not as a limit on the amount of
PIP payment offset. Finally,
the Court engaged in a construction of the policy under “a fair,
reasonable, and sensible construction as would be given to the contract by
the average person purchasing insurance.” Wood
v Mut. of Enumclaw Ins. Co., 97 Wn.App. 721, 723-24, 986 P.2d 833
(1999) and quoting
Kitsap
County
v Allstate Ins. Co., 136 Wn.2d
567, 575, 964 P.2d 1173 (1988). The
Court construed the right to recover clause in the insurance policy to
state that where the insured had been fully compensated, Farmers retained
the right to recover an offset for any PIP payment it had made to her
where she recovered payment from another.
Werlinger v Clarendon Nat. Ins. Co., 129 Wn.App. 804, 120 P.3d 593
(Div. 1, 2005).
This case involved an automobile accident between Werlinger, who
died at the scene, and Warner. Werlinger’s
estate sued Warner for wrongful death.
Warner was protected from personal liability due to a discharge in
bankruptcy. Werlinger obtained
relief from the stay to pursue Warner’s $25,000.00 limits with
Clarendon. Clarendon defended
Warner under a reservation of rights and filed a declaratory judgment
action. After the court
granted Werlinger’s cross motion for summary judgment finding coverage
for Warner under the Clarendon policy, Clarendon tendered its policy
limits of $25,000.00. Werlinger
rejected the tender and proceeded with the litigation in the wrongful
death action. The Warners and
the Werlingers then settled the Werlinger’s wrongful death claim for $5
million, agreeing not to hold the Werlingers personally liable.
The parties agreed to a judicial determination of whether the
settlement was reasonable. The
trial court concluded that the settlement was unreasonable because the
Warners were not exposed to any personal liability due to their discharge
in bankruptcy. This decision
was af
firm
ed on appeal. Werlinger v Warner, 126 Wn.App. 342, 344, 109 P.3d 22 (2005).
The Werlingers, as Warners assignees, then filed suit against
Clarendon alleging bad faith and violation of the CPA.
Trial court granted Clarendon’s motion for summary judgment
because there was no injury to Mike Warner, deceased, or his marital
community. On appeal, the
Court of Appeals set forth the well recognized standard for sustaining a
bad faith claim in
Washington
.
“To
succeed on a bad faith claim, the policyholder must show the insurer’s
breach of the insurance contract was ‘unreasonable, frivolous or
unfounded.’” The insured may not base a bad faith or CPA claim on an
insurer’s good faith mistake, which occurs when the insurer acts
honestly, bases its decision on adequate information, and does not
overemphasize its own interest. Just
as any other tort, the insured must prove duty, breach of duty, and
damages proximately caused by any breach of duty.
Harm to the Insured is an essential element of every bad faith or
CPA claim.
120 P.3d at 595 (footnotes
omitted).
The Court
of Appeals af
firm
ed the trial court’s decision that because of Warner’s bankruptcy
status, he was not subjected to greater liability because of Clarendon’s
alleged delay in resolving the issue of coverage.
The Court did not reach the issue of whether Clarendon acted in bad
faith but noted that it was reasonable for Clarendon to dispute coverage
based on the policy definitions and exclusions and that Clarendon
fulfilled its duty to defend Warner under a reservation of rights and
sought a timely coverage resolution. Therefore,
no presumption of harm arose. There
is a presumption of harm once an insured establishes that the insurer
acted in bad faith. This
presumption is rebuttable. Safeco
Insurance Co. of America v Butler, 118 Wn.2d 383, 391, 823 P.2d 499
(1992).
Summers v Great Southern Life Ins. Co., 122 P.3d 195 (Wn.App., Div.
2, 2005)
This case involved a claim for disability insurance coverage by a
commercial airline pilot who had suffered the revocation of his medical
certificate after losing consciousness while sky diving.
The policy provided a twelve month waiting period before benefits
were paid and required that the insured be disabled, meaning “the
permanent inability to perform the material duties of a commercial pilot
as the result of any sickness or accidental bodily injury.”
The case turned on the question of whether the word permanent was
ambiguous. The Court of
Appeals concluded that it was not. Because
the insured was expected to regain his medical certificate and return to
work his disability was not permanent and summery judgment for the insurer
was af
firm
ed. The Court did distinguish
other cases where courts have held that where an insurance policy
contemplates an end to an insured’s disability or that the condition
will be presumed permanent upon the expiration of a certain period of
time, “permanent” does not always mean “permanent unalterable or
unchanging not does it mean that the disability must absolutely continue
for the duration of the insured’s life.”
However, this policy unambiguously required permanency of the
disability which was ambiguous. The
Court also declined to consider memos from the insurer that discussed
claims by other individuals with the same insurance taking the
interpretation that permanency would be presumed upon the expiration of
the waiting period. It would
refuse to consider them because the policy language was unambiguous.
Topliff v Chicago Ins. Co., 122 P.3d 922 (Wn.App., Div. 3, 2005).
This case involved every foreign insurer’s nightmare.
Topliff, a lawyer, had malpractice insurance with
Chicago
. Topliff was sued for an
alleged securities act violation.
Chicago
denied coverage. Topliff
settled with the plaintiff and sued
Chicago
for bad faith, breach of contract and CPA violations.
Topliff served
Chicago
by delivering a copy of the summons and complaint to the insurance
commissioner as provided by statute. The
insurance commissioner failed to send a copy of the pleadings to
Chicago
as required by statute. Topliff
then moved for a default order and obtained a default judgment against
Chicago
for $2,186,863.19. Over a year
later, the commissioner’s office sent
Chicago
a corrected certificate of service. This
was the first time
Chicago
knew about the lawsuit.
Chicago
promptly moved to vacate the default judgment pursuant to CR 60(b)(11).
The trial court vacated the default judgment and Topliff appealed.
The Court of Appeals held that the insurance commissioner’s
failure to notify
Chicago
of the lawsuit denied
Chicago
due process, that is, notice and opportunity to be heard, even though the
insurance commissioner was irrevocably appointed as
Chicago
’s agent for service of process.
Homchick v.
Allstate Ins. Co., 2005 WL 2671359, 2005 WL 2898305, 2005 WL 3132215 (W.D.
Wash.)
These decisions are a cautionary tale about just how
wrong the investigation, adjustment and disposition of a UIM claim can go.
Homchick was involved in an accident with an
uninsured motorist on
December 16, 1995
. He first sought medical
treatment for back, neck and shoulder pain in January 1996.
Homchick had UIM coverage with Allstate, whose company slogan is
"You're in good hands with Allstate."
Allstate opened a UIM claim after the accident but closed it in
1997. Allstate reopened the
claim when Homchick contacted Allstate in 1999 to report that he was
experiencing shoulder pain and intended to undergo surgery as recommended
by his orthopedic surgeon. On
December 14, 1999
, Allstate offered Homchick $7,500 to settle his claim.
Homchick rejected the offer and demanded arbitration.
After the arbitration hearing held
October 10, 2002
, during which Allstate characterized Homchick as an
"opportunist," the arbitration panel found causation and awarded
Homchick $695,000. Allstate
paid its limits of $100,000 along with a release and hold harmless
agreement. Homchick objected
to the release and hold harmless. Homchick
filed motions for confirmation of the arbitration award and sought
judgment against Allstate for the full arbitration award, on the basis
that Allstate's actions constituted bad faith.
After some negotiations Homchick and Allstate agreed that the
judgment against Allstate could be entered for $100,000 provided that it
reserved to Homchick the right to pursue his claims for bad faith.
The judgment recited, "The entry of this judgment does not
include any claims plaintiff may have against Allstate, either contractual
or in tort, or any other claims."
Allstate's lawyer did not object to this language.
Ultimately after Allstate appealed, the parties agreed that this
language only allowed Homchick to pursue his bad faith related claims.
Homchick sued for bad faith and CPA violations (including
violations of the unfair claims practices act).
The court first took up the question whether Allstate's slogan was
a CPA violation. The court
denied Allstate's motion because the allegation that Allstate failed to
live up to its slogan was not a separable claim.
The court declined to rule on the question whether Allstate's
slogan, standing alone, was a CPA violation.
The court likewise declined to determine whether calling Homchick
an "opportunist" at the arbitration hearing was a claim that
could be disposed of on summary judgment.
The court did say that such evidence would be relevant to whether
Allstate acted unlawfully. The
court determined that Allstate's transmittal of a release with the
$100,000 check was a fact that the jury could consider in the context of
the other factual allegations to determine the bad faith and CPA
questions. The court
determined that the propriety of Allstate's appeal was also a question of
fact whether Allstate committed bad faith.
In a second decision, the court determined that questions of fact
existed on the promptness of Allstate's investigation and the fairness of
Allstate's prearbitration offer.
Between the date Allstate reopened Homchick's UIM claim and the
date of the $7,500 offer, Allstate had obtained a medical authorization
and requested medical records. Allstate
had run a computer evaluation ("Colossus"), and come up with a
settlement range from $8,460 to $10,800.
The court determined that a reasonable jury could find that
Allstate's failure to contact Homchick's doctors or to determine whether
his injury was caused by the accident before offering him over $1,000 less
than the low end of the computer evaluation constituted a failure to
conduct a reasonable investigation.
Between the date of the settlement offer and Homchick's surgery,
Allstate made two requests for records, which went unanswered.
The court determined that there was a genuine issue whether this
was a reasonable and prompt investigation of the claim.
After the surgery, Allstate again requested records and received
them. Allstate asked
Homchick's treating doctor whether he would have permanent disability,
deposed Homchick and obtained a records review by another doctor.
This doctor did not testify at the arbitration.
The court determined that a reasonable jury could conclude that
Allstate's actions in this period were unreasonable and frivolous and in
bad faith.
Because Allstate did not obtain evidence questioning causation, the
medical records or the records review before the $7,500 settlement offer
was made, and could offer no explanation why it offered less than the
lower end of the Colossus settlement range, there were issues of fact
whether Allstate effectuated a prompt, fair and equitable settlement.
Phillips Oral
Healthcare, Inc. v. Federal Ins. Co., 2005 WL 3020014 (W.D.Wash.)
This case involved a motion for Olympic Steamship attorney fees.
The parties did not dispute that Phillips was entitled to attorney
fees, but disputed some of the fees because they fell outside the scope of
the
OSS
doctrine.
The court, applying
Washington
law, distinguished between fees incurred by the insured in litigating the
issue of coverage, for which fees are recoverable, versus those incurred
solely as a result of litigating the value of a particular claim, for
which they are not. The court
reviewed the line of
Washington
cases drawing the contours of the distinction, and awarded Phillips some
of its fees, and denied others.
For example, a dispute whether the court would
require Phillips to allocate its settlement damages between covered and
uncovered losses was not just a dispute over the extent of the benefit
provided by the insurance contract but also involved the fundamental issue
of the nature and extent of coverage.
Thus, the court awarded
OSS
fees on this issue.
Likewise litigation over whether Phillips should be estopped to
change its arguments on the scope of indemnifiable advertising as part of
the settlement was part of the coverage dispute and subject to
OSS
fees.
However fees expended for evaluation of Philips counterclaim
against Gillette was outside the scope of the
OSS
doctrine.
North Pacific
Ins. Co. v. Pysher, 2005 WL 3299831 (W.D.Wash.)
This case involved a declaratory judgment by the
insurer and a counterclaim for bad faith by the insured.
The court had previously granted the insurer's motion for summary
judgment on the duty to defend and indemnify.
This opinion involved the insurer's motion for summary judgment on
the bad faith counterclaim. The
insured was pursuing a bad faith claim under the homeowner's policy,
contending that the campground, at which the plaintiff's minor son was
injured, was the insured's temporary residence.
Because the court had already determined that there were no facts
to support the claim that the insured was temporarily residing in the
park, the insurer's interpretation of the policy was not unreasonable and
no bad faith claim could lie.
Pacific Ins.
Co. v. Catholic Bishop of
Spokane
, 2005 WL 3576965 (E.D.Wash.)
This case involved a motion for summary judgment brought by the
Washington State Guaranty Association (WIGA), and is important because the
court determined that WIGA might be subject to
OSS
fees,
because the legislature had not limited that liability.
WIGA steps into the shoes of the insolvent insurer and "shall
have all rights, duties and obligations of the insolvent insurer as if the
insurer had not become insolvent."
RCW 48.32.060(1)(b).
Submitted by:
Michael E.
Ramsden
Ramsden &
Lyons
618 North 4th Street
P. O. Box
1336
Coeur d’Alene
,
ID
83816-1336
Telephone
(208) 664-5818
Fax (208)
664-5884
E-mail firm@ramsdenlyons.com
