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 4^th Street

P. O. Box 1336

Coeur d’Alene , ID 83816-1336

Telephone (208) 664-5818

Fax (208) 664-5884

Did You Know

A contractor who is not properly licensed and bonded cannot bring suit to seek recovery of unpaid contract amounts?    In   Coronado v. Orona, 2007 WL 474310 (Court of Appeals of Washington, Division III) the court affirmed that Coronado, a landscape contractor who was not properly licensed and bonded could not seek recovery of unpaid amounts on a landscaping job by virtue of the fact that he was not properly licensed and bonded at the time that the work was conducted. The courts’ ruling confirmed the 1963 Enactment of the Contractors Registration Act. (RCW 18.27.080) which was designed "to prevent the victimizing of a defenseless public by unreliable, fraudulent and incompetent contractors, many of whom operated a transient business from the relative safety of neighboring states.”

Claim files used as exhibits in court proceedings are no longer considered trade secrets?   In Woo v Firemans Fund docket #56944-9, March 5, 2007 , (Court of Appeals of Washington, Division I) entered a ruling that the Firemans Fund claim procedure manual, which had been entered as an exhibit in trial, was no longer considered a “Trade Secret” and was no longer subject to a confidentiality order that had been in place during the discovery phase of the case. 

Washington Construction Law Change.

The Washington Supreme Court, in the case Davis v.  Baugh Industrial Contractors 159 Wn.2d 413, *; 150 P.3d 545, has struck down the Completed and Accepted doctrine that has been the governing law in constructions cases for over 100 years.   “The court concluded that the completion and acceptance doctrine was outmoded, incorrect, and harmful. Therefore, it abandoned the doctrine. The doctrine did not accord with currently accepted principles of liability because it was grounded in the long abandoned privity rule that a negligent builder or seller of an article was liable to no one but the purchaser. The doctrine was also grounded in the assumption that if owners of land inspect and accept the work, the owner should be responsible for any defects in that accepted work. While this assumption may have been well founded in the mists of history, it could no longer be justified.”

Updated (03/2006) Idaho Cases:

Recent Idaho Insurance Cases

         Greenough v. Farm Bureau Mut. Ins. Co. of Idaho , Idaho Supreme Court, 2006 Opinion No. 20, February 27, 2006.

The Idaho Supreme Court has overruled Brinkman v. Aid Ins. Co., 115, Idaho 346, 766 P.2d 1227 (1988) and the cases that followed it, Schilling v. Allstate Ins. Co., 132 Idaho 927, 980 P.2d 1014 (1999); Emery v. United Pac. Ins. Co., 120 Idaho 244, 815 P.2d 442 (1991); Walton v. Hartford Ins. Co., 120 Idaho 616, 818 P2d 320 (1991).

These cases held that prejudgment interest on amounts due under an insurance contract were due from the time of the accident or occurrence, not from the time that payment was due under the contract, i.e. within 60 days after receipt of the proof of loss.

The new rule states that prejudgment interest on an amount due under an insurance contract becomes due when the contract says it does, not from the date of the occurrence. 

The old rule created an incentive in first party claims under casualty insurance policies for the insured to delay in filing a claim for benefits until near the expiry of the 5 year contract statute of limitations, in order to obtain a significant claim to prejudgment interest.  The new rule will create an incentive for first party claimants promptly to assert their claims. 

The Idaho Supreme Court decision significantly changes the dynamics of the adjustment and settlement of first party claims, particularly uninsured and underinsured motorists’ claims.

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         American Economy Insurance Co. v Acceptance Insurance Co. 2004 WL 108213 ( Idaho First District 2004 ).  On cross-motions for summary judgment a district court reviewed “other insurance” clauses in two policies to determine their priority.  The Court described the three general categories of other insurance clauses: prorate, excess and escape, citing Sloviaczek v Estate of Puckett, 98 Idaho 371, 373, 565 P.2nd 564, 566 (1977).  Both policies contained an identical other insurance clause: however the American Economy policy had a “real estate property management” endorsement, which provided that for real property managed by the insured, the policy was excess.  The Court, holding the American Economy policy to be unambiguous determined that the American Economy policy was excess.  The Court determined that there was no conflict between the ‘real estate property managed’ endorsement and the ‘other insurance’ clause of the Acceptance policy and therefore concludes as a matter of law that the American Economy policy was excess. 

            In AMCO Ins. Co. v Tri-Spur Investment Co., 140 Idaho 733, 101 P.3d 226 (2004), the Idaho Supreme Court evaluated the obligations of an insurer to defend and indemnify the insured upon a claim against the insured for violations of Title 7 of The Civil Rights Act Title VII.  42 USC § 2000e.  The policy of insurance business liability coverage excluded coverage for “bodily injury” to “any person arising out of any federal, state or governmental civil rights violations or alleged violations.”

            The Court restated the relationship under Idaho law between the obligations of an insurer under a policy of liability insurance: the duty to defend and the duty to indemnify.  The duty to defend is far broader than the duty to indemnify.  Where there is doubt as to whether a theory of recovery within the policy coverage has been pleaded in the underlying complaint or which is potentially included in the underlying complaint, the insurer must defend regardless of potential defenses arising under the policy or the substantive law.  In such a situation, the insurer may not refuse to defend and seek a determination of the duty to defend in a declaratory judgment action while the underlying case progresses against the insured.  The proper procedure for the insurer to take is to evaluate the claims and determine whether an arguable potential exists for a claim covered by the policy.  If so, then the insurer must immediately step in and defend the suit.  However, the insurer does not have to look beyond the words of the complaint to determine if a possibility of coverage exists.  Nor does an insurer have to anticipate that a complaint with no covered claims could potentially be amended to include covered claims.  Only because facts behind the pleadings might reveal potential causes of action that would trigger coverage, the insurer is not required to defend if the claims as plead are excluded by coverage.  If the insurance policy unambiguously excludes coverage for bodily injury arising out of civil rights violations, claims for violation of the Civil Rights Act are not covered, even though they may encompass facts that would support claims for common law torts that might trigger coverage.

            In Boll v State Farm Mut. Auto. Ins. Co., 140 Idaho 334, 92 P.3d 1081 (2004), the Court reviewed an insurance bad faith claim arising out of the settlement of the insured’s bodily injury claim against a third party.  Following a jury verdict for the insurer, the District Court awarded the claimant’s attorneys their attorney fees against State Farm’s subrogated interest under the “common fund doctrine.”  The Court affirmed that the doctrine in Windsman v Farmers Ins. Co. of Idaho, 134 Idaho 148, 152, 997 P.2d 609, 613 (2000) that the insurer will be required to pay a proportionate share of the attorney fees out of any money recovered on its behalf even if it declines to participate with the insured’s attorney.  In so ruling the Supreme Court deferred to the trial court’s findings of fact determining whether the common fund doctrine applies.  Under the common fund doctrine the insured may retain out of the fund recovered from the wrongdoer, after the payment of the policy, the cost and reasonable fees incurred in the litigation.  Notice to the insurer that the insured is pursuing an action or settlement that includes the subrogation interest is necessary before the insured may charge the insurer attorney fees for the collection of the subrogated interest.  If the insurer declines to participate in the action, it is on notice that it will be required to pay a proportionate share of the attorney fees out of any money recovered on its behalf.  However, the insurer may participate in the action.  The trial court found that the insured’s attorney did notify the insurer although it did not inform the insurer that it could elect to join in the action, or if not, pay the collection fee.  The trial court also determined that the insured conferred an actual benefit on the insurer, even though the third party’s insurance company had already determined to pay the subrogated interest.

             In Hartman v United Heritage Property & Casualty Co., 141 Idaho 193, 108 P.3d 340 (2005) the Idaho Supreme Court considered the claims of the parents of Ty Hartman, who died at the home of United Heritages insured.  Reportedly, he and the insured’s minor children were consuming illegal drugs.  The United Heritage policy provided $300,000 in coverage for bodily injury but excluded coverage for intentional acts and for claims arising out of the use of illegal drugs.  The insured made a claim under the policy and United Heritage provided an attorney to defend the Hartman’s’ wrongful death action.  Shortly thereafter, United Heritage filed a declaratory judgment action against the insured seeking a determination that there was no coverage under the policy for the claims alleged in the Hartmans’ wrongful death action and that United Heritage had no duty to continue providing a defense in that action.  United Heritage did not join the Hartmans as defendant and did not otherwise notify them of the declaratory judgment action.  The insured retained an attorney to defend the declaratory judgment action, but the attorney withdrew about a month before the hearing on United Heritage’s motion for summary judgment.  Before the hearing, the insured and United Heritage entered into a settlement agreement by which the insured released United Heritage from any liability, including any extra-contractual liability for bad faith.  That agreement was approved under the minors’ compromise statutes and the declaratory judgment action was then dismissed on the merits.  Some time later, the Insured confessed a judgment of $400,000 in the Hartman’s’ wrongful death action and assigned to the Hartmans any claims the insured may have against United Heritage.

             The Idaho Supreme Court determined that United Heritage was not required to join the Hartmans in the declaratory judgment action, even though the Hartmans had a pending claim against United Heritage’s insured.  Citing Temperance Insurance Exchange v Carver, 83 Idaho 487, 490, 365 P2d 824, 826 (1961), the Idaho Supreme Court concluded that injured third parties are proper but not necessary parties to a declaratory judgment action.  The court then held that, even if the Hartmans were necessary parties to the declaratory judgment action, still the declaratory judgment action was not void.  Failing to join an indispensable party does not render a declaratory judgment void; even if it were void, the coverage dispute was resolved by agreement.

As the judgment in the declaratory judgment action did not incorporate any of the terms of the settlement (it merely dismissed the action with prejudice), setting aside the declaratory judgment as void would not affect the validity of the release agreement. 

             The Idaho Supreme Court also determined that the Hartmans as tort claimants did not have a direct action against United Heritage, the insurer of the tortfeasor.  The Court refused once again to acknowledge the right to a direct action against a tortfeasor’s liability insurer, even after the claim has been perfected against the tortfeasor individually.  Thus, the Hartmans could only have their status as assignees of the Insureds’ claims against United Heritage.  The Court upheld the rule of Stonewall Surplus Lines, Inc. Ins. Co. v Farmer’s Ins. Co. of Idaho, 132 Idaho 318, 322, 971 P2d 1142, 1146 (1998) that a third-party may not directly sue an insurance company in an attempt to obtain the coverage allegedly due the insurer’s policy holder.  A person allegedly injured by the insured is not a party to the insurance contract and has no rights under it.  Therefore any rights the Hartman’s acquired as judgment creditors of United Heritages’ insured could be no greater than the rights that United Heritages’ insured would have against United Heritage.  Their status as judgment creditors did not make them additional insureds under the insurance contract.  The release executed by United Heritage’s insured was sufficiently broad to encompass the claims asserted by the Hartmans as assignees of United Heritage’s insured.  Therefore the trial court’s order dismissing the Hartmans’ claim was affirmed.

              In National Union Fire Insurance Company of Pittsburg, Pa. v Dixon, 141 Idaho 537, 112 P3d 825 (2005) the Court considered exclusionary language under an umbrella automobile liability insurance policy.  This policy was NOT the minimum insurance coverage required by Idaho Code § 49-117(18).  Dixon , a long time employee of Anderson & Wood Construction Co. claimed coverage under National Union’s policy for defense and indemnification arising out of Dixon ’s drunk driving accident while operating a company vehicle after Dixon had been steel head fishing and drinking with friends the day before he was to leave for a jobsite in Washington .  The policy covered employees “but only while acting within their duties.”  The Court recognized that the phrase had been construed in Leggett v National Union Fire Insurance Co. of Pittsburg, PA. 844 A2d 575, 577-78 (PA 2004).  In that case, the Pennsylvania Court had used the common ordinary meaning of the terms in the phrase.  Idaho adopted the same construction and acknowledged that in Idaho words in an insurance policy that have a settled legal meaning are not ambiguous merely because the policy does not contain a definition.  Moreover, not every word and phrase in an insurance contract needs to be defined.  Where policy language is clear and unambiguous, coverage must be determined in accordance with the plain meaning of the words used.  The Court found as a matter of law, there was no ambiguity in the phrase “while acting within their duties.’  The Court identified the issue to be whether under these facts Dixon was furthering his employer’s interests. Determining that there was no dispute that he was not furthering his employer’s interests, the Court affirmed the trial court’s decision granting summary judgment.  As a matter of law Dixon was not acting within his duties at the time of the accident.  The Court also determined that the National Union policy was not illusory, in the face of the argument that the policy created an illusion of coverage for employees permissively using company vehicles issued to them on a full time basis as part of their employment.  The Court distinguished Martinez v Idaho Counties Reciprocal Management Program, 134 Idaho 247, 252, 999 P2d 902, 907 (2000).  Determining that the coverage was not illusory Dixon would have been covered under the policy had he been acting within his duties.  The coverage provided that by the policy was not minimal and provided realistic protection to those defined as insured.  Therefore the insurance policy was not illusory.

          In Schaffer v Curtis-Perrin, the Idaho Supreme Court considered an appeal from an order amending a judgment, which reduced the jury award by amounts prepaid by the insurer to the plaintiff under Idaho Code § 41-1840.  This case involved an automobile accident between Curtis-Perrin and Schaffer.  Curtis-Perrin crashed her car into Schaffer’s car and Schaffer was injured.  Both Schaffer and Curtis-Perrin were insured by State Farm.  State Farm paid Schaffer $9,854.97 under her policy for certain of her medical expenses.  Schaffer then filed suit against Curtis-Perrin.  Curtis-Perrin’s claims representative received a subrogation demand from Schaffer’s claims representative.  Later that amount was settled, $7,500.00, which was accepted in full settlement of the subrogation claim.  After the verdict of the jury, Curtis-Perrin moved to reduce the verdict by the amount compromised, $9,954.97.  The trial court agreed and entered amended judgment.  Shafer appealed.  

 The Idaho Supreme Court held that even where the plaintiff’s and defendant’s insurers are the same, and an amount is paid from the defendant’s account to the plaintiff’s account, the defendant is entitled to a credit under Idaho Code § 41-1840.  The Idaho Supreme Court, construing the language of Idaho Code § 41-1840, limited the credit to the “payment or payments” made and limited the credit to the $7,500 paid.

 Certain Underwriters at Lloyds, London v. Wolleson, 2005 WL 1421796 ( Idaho June 20, 2005) revisited the contours of the notorious attorney fee statute Idaho Code § 41-1839 and presented a cautionary tale for the insurer too quick on the draw to bring a declaratory judgment action against its insured.  In Wolleson, the insured was an agricultural pesticide applicator whose application of chemicals allegedly caused damage to a farmer’s property.  The insured gave Lloyds of the potential claim.  An adjuster hired by Lloyds contacted the potential claimant to ascertain the nature and extent of the loss, but received no information.  Lloyds then sued the insured for declaratory judgment claiming that it had no duty to defend or indemnify, because the insured had failed properly to clean his equipment before administering the chemicals, an exclusion from coverage.  The insured answered, counterclaimed and demanded a jury trial.  Lloyds filed a motion for summary judgment on several grounds.  The trial court denied Lloyds summary judgment on the contract claim, finding that the insurance contract was illusory and that Lloyds had a duty to defend and indemnify its insured for any crop loss claim that might arise from the events in issue.  The court granted Lloyds motion on off of the insured’s counterclaims.  The insured asked for attorney fees pursuant to Idaho Code § 41-1839(1).  The trial court denied the application and the insured appealed. 

 Idaho Code § 41-1839(1) provides that any insurer issuing a policy, “which shall fail for a period of thirty (30) days after proof of loss has been furnished * * * to pay the person entitled thereto the amount justly due” under the policy, shall in any action thereafter brought against the insurer for recovery under the terms of the policy pay the plaintiff’s reasonable attorney fees.

 The Idaho Supreme Court determined that whether or not the insured’s notification to Lloyds of the farmer’s claim was a sufficient proof of loss, Lloyds in the context of this case never wrongfully refused to pay an “amount justly due” under the policy and therefore was not obligated to pay the insured’s attorney fees.

 As a caution to the overzealous insurer, the Idaho Supreme Court cautioned that this declaratory judgment action appeared to have been premature, because the insured had to defend the declaratory judgment action by its insurer before the farmer had actually made a claim.  In concurrence, Justice Jones chided the parties for spending three times the amount of the farmer’s estimated loss to fight over coverage in a declaratory judgment action prematurely filed.  Justice Jones noted that paragraph 4 of Idaho Code Section 41-1839 was available to redress this case where a case “was brought, pursued or defended frivolously, unreasonably or without foundation.”  Had such a request for attorney fees been made, the court would likely have granted it. 

Note that Idaho Code § 12-121, the general attorney fee statute, and Idaho Code § 12-120, shifting attorney fees in actions on a contract for goods or services or commercial transaction are inapplicable to insurance companies.  Idaho Code § 41-1839(4); Allstate Ins. Co. v. Mocaby, 133 Idaho 593, 990 P.2d 1204, 1212 (1999).

 In Cascade Auto Glass, Inc. v. Idaho Farm Bureau Ins. Co., 2005 WL 1414482 (June 17, 2005), the Idaho Supreme Court wrestled with a claim by an auto glass jobber against an insurer who promised to pay its insureds for “like kind and quality” replacement glass according to a published schedule prepared by the insurer.  The comprehensive coverage of the policy undertook to pay “[t]he cost of repair or replacement using parts of like kind and quality … The cost of repair or replacement is based on the cost of repair agreed upon by us or an estimate written based upon the prevailing competitive price. * * *”  The auto glass jobber, claiming that it was entitled to the reasonable charge for parts of “like kind and quality,” sent the insurer bills in excess of the insurer’s published rates.  When the insurer refused to pay, the auto glass jobber sued.   

 After resolving the issue of whether the auto glass jobber had standing to sue the insurer, the Idaho Supreme Court held the policy unambiguously limited the insurer’s liability to its scheduled rates or to an estimate written based upon the prevailing competitive price.  The phrase “like kind and quality” was language of limitation preventing the insured from betterment, not a grant of coverage in excess of the insurer’s published rates or an estimate written based upon the prevailing competitive price.

 The Court also rebuffed the auto glass jobber’s assertion that the phrase “cost of repair agreed upon by us” prohibited the insurer from unilaterally setting the price. 

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Submitted by:

Michael E. Ramsden

Ramsden & Lyons

618 North 4^th Street

P. O. Box 1336

Coeur d’Alene , ID 83816-1336

Telephone (208) 664-5818

Fax (208) 664-5884

Idaho Cases:

Treasure Valley Transit v. Philadelphia Indemnity Ins. Co., Docket No. 28854, Idaho Supreme Court, March 25, 2004

Insured tendered its defense to the insurer under a directors and officers policy regarding a Medicaid fraud investigation.  The Idaho Supreme Court af firm ed the trial court’s grant of summary judgment to the insurer, because the Medicaid fraud investigation did not constitute a claim as defined by the insurance policy.  A claim was defined to exclude matters occurring before an administrative agency had concluded its investigation.  The Medicaid fraud investigation was settled before the investigation was completed.  Because there was no claim under the policy the insurer had no duty to defend.

Exterovich v. City of Kellogg , 2003 WL 22723230 (Idaho 2003)

This was a suit against the city for injuries sustained by residents when the city tested the integrity of sewer pipes with a smoke bomb.  The sewer pipes had leaks.   The city tendered its defense to the insurer, which refused to defend based on the pollution exclusion.  The city then stipulated to liability and to the entry of default.  The insurer sought to intervene to determine the amount of the city’s liability, but was refused.  The Idaho Supreme Court ruled that the insurer was entitled to defend on the issue of damages.  Not on appeal was the propriety of the trial court’s decision that the policy did provide coverage and that the city owed a duty to defend.

Murphy v. Midwest Nat’l Life Ins. Co. of Tennessee 2003 WL 22309069 (Idaho 2003) and Lovey v. Regence Blueshield of Idaho , 139 Idaho 37, 72 P.3d 877 (2003).

This pair of cases explores the contours of the arbitration provisions in insurance policies, in this case health care policies.  The Idaho Supreme Court determined that arbitration provisions in these policies would be enforced to include claims for benefits arising under the contracts and were broad enough to encompass related tort claims for insurance bad faith.  The limits of enforceability of an arbitration clause are the same for the enforcement of any contract, however.   When the arbitration provision was limited to claims below $10,000 and required arbitration pursuant to a scheme that would be so expensive that it would deny to the insured the benefit of a recovery it was unenforceable.

Trinity Universal Ins. Co. v. Kirsling, 139 Idaho 89, 73 P.3d 102 (2003).

This case held that the wording of the intentional acts exclusion in a fire policy that barred recovery to any insured under the policy by the intentional arson committed by another insured was contrary to the mandatory language in the New York Standard Fire Policy (1943) required to be issued in Idaho by Idaho Code § 41-2401.  The innocent spouse was therefore entitled to recover for the loss.

Graham v. State Farm Mutual Automobile Ins. Co., 138 Idaho 611, 67 P.3d 90 (2003).

A successful plaintiff brought an action against State Farm’s insured in small claims court.  After an appeal to magistrate court and a trial de novo the plaintiff remained successful.  The plaintiff then brought an action against State Farm for bad faith, saying that State Farm had acted unreasonably in forcing the plaintiff to go through the effort of two trials, when it would have been cheaper for State Farm just to pay the judgment.  The Idaho Supreme Court held that there is no tort of insurance bad faith that may be asserted by a third party claimant, particularly where there is no judgment against the insured in excess of policy limits.

Clark v. Prudential Property and Casualty Ins. Co., 138 Idaho 538, 66 P.3d 242 (2003).

This was an uninsured motorists claim. The trial court granted the insurer summary judgment ruling that the insured’s claim that a pipe fell off of a truck striking the insured in the arm was not caused by an uninsured motorist.  The truck driver had denied that the pipe had come from his vehicle.  The Idaho Supreme Court analyzed the issue from both perspectives.  If the pipe came from the truck it did not come from an uninsured motorist and there was therefore no coverage under the uninsured motorists endorsement.  If the pipe did not come from the truck, but was put into motion by the truck, under the terms of the endorsement it was not the agency of a phantom vehicle.  The truck driver was identified.

Purdey v. Farmers Ins. Co. of Idaho , 138 Idaho 443, 65 P.3d 184 (2003).

This case involved a claim of bad faith against an insurer who provided underinsured motorists coverage.  Beth Purdy, the named insured under the Farmers policy, was injured while a passenger in a car owned and operated by her mother.  While the car was stopped on the road because of a horse on the highway, it was rear ended by a truck, the driver of which was insured by another insurer.  The other insurer’s liability limits were inadequate fully to compensate Beth for her injuries.  The other insured clause of the underinsured motorists endorsement excluded UIM coverage for a vehicle other than “your insured car” unless the owner of that vehicle had no applicable insurance.  Farmers initially denied the claim for UIM benefits, but later paid its UIM limits.  Beth persisted in her bad faith claim, which was dismissed by the trial court on summary judgment.  The Idaho Supreme Court determined that the words “your insured car” were unambiguous and referred to the vehicle described in the declarations.  Because Beth’s mother had insurance, the UIM provision was not applicable.  In a novel argument, Beth then argued that Farmers was collaterally estopped by cases decided in California and Colorado from arguing that the UIM endorsement was not ambiguous.  The Idaho Supreme Court gave this argument serious credence, but determined that these cases were decided under different UIM statutory schemes from Idaho’s and therefore did not meet the element of collateral estoppel requiring the same matter to have been litigated before.  Finally, the Idaho Supreme Court rebuffed Beth’s argument that the other insurance clauses in Beth’s policy and Beth’s mother’s policy were in conflict and should be disregarded.  This would have required Farmers to share in the loss pro-rata with Beth’s mother’s insurer.  The Idaho Supreme Court disagreed.  Beth’s mother’s insurer was primary and Farmers was excess.  There was no conflict and Farmers was not required to share the loss.  Finally, the Idaho Supreme Court reiterated the rule announced in Robinson v. State Farm Mut. Auto. Ins. Co., 137 Idaho 173, 45 P.3d 829 (2002) that if there is no coverage under the Farmers policy, Beth had no claim for bad faith against Farmers.  The court did not discuss whether Farmers payment of its UIM limits estopped it from denying coverage.

Leslie v. J.C. Penney Life Ins. Co., 138 Idaho 305, 62 P.3d 1101 (2003).

This was a claim for recovery under accidental death policies for death of the insured in connection with removal of a nasogastric tube as part of care after an operation and his aspiration of stomach contents.  The case turned on the definition of “bodily in firm ity” in the policies.  The Idaho Supreme Court determined that the jury had been correctly instructed on the definition of “bodily in firm ity” and af firm ed the jury verdict.

Submitted by:

Michael E. Ramsden

Ramsden & Lyons

618 North 4^th Street

P. O. Box 1336

Coeur d’Alene , ID 83816-1336

Telephone (208) 664-5818

Fax (208) 664-5884