108 Wash. App. 133 | Wash. Ct. App. | 2001
Subject to policy-based defenses, an insurer is liable for fees and costs incurred before the insured tenders defense of a covered claim. We therefore reverse summary judgment for the insurer. Because questions of fact exist on bad faith and Consumer Protection Act claims, we also reverse summary judgment dismissal of those claims.
FACTS
L. Dennis and Marilyn Griffin reside on a farm of some 40 acres in Ravensdale, Washington. They purchased homeowners insurance from Allstate Insurance Company. After the Griffins cleared and graded a field for pasture and improved a horse track, their neighbors, the Andersons, brought suit, alleging the Griffins’ activities deposited fill in a stream and obstructed its natural flow, rendering the Andersons’ property unsuitable for certain purposes and threatening the Andersons’ domestic water supply. The Griffins hired a lawyer, who obtained a stipulation and order of dismissal because service was defective.
The Andersons refiled their suit, alleging the same facts
On summary judgment, the trial court ruled the Griffins were entitled to a defense, and that Allstate was required to indemnify them for their costs in defending the Anderson suit. Allstate does not appeal that ruling. The trial court limited its award of defense fees and costs to those incurred after the Griffins tendered defense to Allstate. On Allstate’s summary judgment motion, the court dismissed the bad faith and CPA claims. The Griffins appeal.
DISCUSSION
We conduct de novo review of summary judgment, viewing the facts and all reasonable inferences in the light most favorable to the nonmoving party, to determine whether any genuine issue of material fact is in dispute preventing the moving party from obtaining judgment as a matter of law.
Scope of the Duty to Defend
Allstate assumed a broad duty to defend the Griffins in a suit for covered damages:
Losses We Cover Under Coverage X. Subject to the terms, conditions and limitations of this policy, Allstate will pay*138 damages which an insured person becomes legally obligated to pay because of bodily injury or property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.
We may investigate or settle any claim or suit for covered damages against an insured person. If an insured person is sued for these damages, we will provide a defense with counsel of our choice, even if the allegations are groundless, false or fraudulent.[5 ]
The duty to defend is “one of the main benefits of the insurance contract.”
Allstate urges us to adopt a bright-line rule that pre-tender fees
In Washington, the duty to defend arises upon the filing of a covered complaint, and the duty is not excused by late notice unless the insurer is prejudiced. Unigard Insurance Co. v. Leven
We first stated the general rule: “In Washington, an insurer’s duty to defend an action brought against its insured arises when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy’s coverage.”
We then turned to whether Unigard owed Leven reimbursement of his defense costs. In Washington, an insured’s breach will excuse the insurer’s performance only where the insurer can demonstrate prejudice: “But even when án insured breaches an insurance contract, the insurer is not relieved of its duty to defend unless it can prove that the late notice resulted in actual and substantial prejudice.”
Certainly breach of the duty to defend cannot occur before tender. The scope of a duty however, is defined not by its breach, but by the contract. Allstate undertook a broad duty to defend.
This is not to say that insureds may freely conduct their own litigation and then seek reimbursement. Allstate’s promise is to defend through counsel of its own choosing. Prejudice to the insurer may follow from an insured’s retention of counsel who may charge higher rates or fail to
Allstate’s duty is limited by policy-based defenses. Allstate asserts only the “voluntary payment” provision:
Section II Conditions
1. What You Must Do After an Accidental Loss
In the event of bodily injury or property damage, you must do the following:
Any insured person will not voluntarily pay any money, assume any obligations or incur any expense, other than for first aid to others at the time of the loss as provided for in this policy.[25 ]
The purpose of a voluntary payment provision is to “ ‘obviate the risk of a covinous or collusive combination between the assured and the injured third party and to restrain the assured from voluntary action materially prejudicial to the insurers contractual rights.’ ”
The Griffins contend their defense expenses were not voluntarily incurred, and that the voluntary payments clause is aimed at settlements, not defense costs. But even assuming Allstate could prove breach of the voluntary payment provision, Allstate must also prove actual prejudice.
The court erred in failing to award reasonable pre-tender defense expenses. The Griffins have requested and are
Bad Faith and CPA
The Griffins claimed Allstate acted in bad faith in failing to conduct a reasonable investigation and failing to defend, and violated the CPA. The trial court dismissed these claims on summary judgment, on grounds the Griffins could establish no damages.
Insurers have a statutory and common law duty to act in good faith toward an insured.
Reasonableness of Allstate’s Actions
To establish the tort of bad faith breach of contract, an insured must show the insurer’s action was unreasonable, frivolous, or unfounded.
At oral argument of this matter, Allstate’s counsel contended that the Supreme Court’s recent decision in Ellwein v. Hartford Accident & Indemnity Co.
In its discussion of bad faith, the court noted the rules set forth above.
“If reasonable minds could not differ on the coverage-determining facts, a verdict should be directed or summary judgment rendered on coverage. If that cannot be done, it ordinarily must follow that the insurer had reasonable grounds to dispute the facts, precluding any possibility of bad faith.”[
Applying the bad faith standard in the summary judgment context, an insurer is ordinarily entitled to summary judgment dismissal of a bad faith claim unless the insured shows there was no reasonable basis for the insurer’s actions. Stated another way, where there is no real dispute that an insurer had a reasonable basis for its actions, dismissal of the bad faith claim on summary judgment is appropriate.[42 ]
The court’s first sentence suggests that an insured cannot survive summary judgment unless the insured can prove a negative by establishing the absence of a jury question as to reasonableness. Such a burden would contravene longstanding case law.
In Ellwein, there was no real dispute as to the basis for the insurer’s actions in settlement negotiations. All relevant facts were known to both parties. Because Hartford had a legitimate factual and legal basis for asserting Ellwein’s comparative fault, the court held the insurer’s
Ellwein concerns the test of bad faith in the UIM context, for which it stated a new rule. We do not read Ellwein as intending a change in the law of summary judgment.
Here, questions exist as to Allstate’s prior knowledge of and postclaim investigation into the activities of the insured, as well as the relationship of those activities to the coverage determination. For example, Allstate invoked the business pursuits exclusion, asserting that the activities leading to the Anderson suit, as described by Mr. Griffin during Allstate’s investigation, were excluded business activities. The Griffins respond that Allstate always knew the insured property was a working farm, and that Mr. Griffin’s statements revealed nothing more. As evidence of Allstate’s prior knowledge, the Griffins point out that Allstate increased coverage limits on the property to cover the outbuildings, barn, loafing sheds for the horses, and the tractor; and that later, its agent toured the property following a windstorm. The Griffins also assert Allstate’s investigation of their claim was inadequate. Failure to conduct a
The court below ruled on summary judgment that the Griffins were entitled to a defense, and Allstate does not appeal that ruling. There is thus no question of fact about Allstate’s obligation to defend. Under these circumstances, this court cannot decide as a matter of law that Allstate’s investigation was reasonable or that its refusal to defend was reasonably justified.
Evidence of Damages
One element of every bad faith or CPA claim is resulting harm.
The Griffins claim their damages include the loss of use of funds paid for defense costs, and the cost of retaining an expert to review Allstate’s file and testify about Allstate’s handling of their claim.
The record establishes that Coventry incurred certain expenses as a result of American States’ bad faith investigation. For example, Coventry hired geotechnical and civil engineers*148 to review the facts and circumstances surrounding the incident causing damage to the construction site. Coventry also hired insurance experts to determine if coverage was denied in bad faith. To the extent Coventry can establish it incurred expenses as a direct result of American States’ breach of contract and bad faith actions, it was harmed.[51 ]
The parties dispute the effect of this passage. Allstate argues that fees only for coverage experts are awardable, not fees for experts on claims handling. But as the Griffins point out, the Coventry court’s language contains no such limitation; experts there included both coverage experts (engineers) and insurance experts. The test enunciated in Coventry is simply whether the expenses were incurred as a “direct result” of the breach of contract or bad faith. In Coventry, this involved issues of fact. The same is true here.
As to damages under the CPA,
A loss of use of property which is causally related to an unfair or deceptive act or practice is sufficient injury to constitute the fourth element of a Consumer Protection Act violation. The injury element will be met if the consumer’s property interest or money is diminished because of the unlawful conduct even if*149 the expenses caused, by the statutory violation are minimal[55 ]
The Griffins’ loss of use of their own money constitutes damages under the CPA.
The trial court erred in dismissing the Griffins’ bad faith and CPA claims, because issues of fact exist regarding the reasonableness of Allstate’s actions, and the Griffins incurred at least loss-of-use damages.
CONCLUSION
The trial court erred in denying pre-tender defense costs and dismissing claims of bad faith and claims under the CPA. We reverse and remand for further proceedings.
Webster and Cox, JJ., concur.
After modification, further reconsideration denied October 10, 2001.
Review denied at 146 Wn.2d 1005 (2002).
The only difference between the complaints appears to be the addition of codefendants, who are not parties to this appeal.
Ch. 19.86 RCW.
Jack v. Paul Revere Life Ins. Co., 97 Wn. App. 314, 318, 982 P.2d 1228 (1999), review denied, 140 Wn.2d 1019 (2000).
Capelouto v. Valley Forge Ins. Co., 98 Wn. App. 7, 13, 990 P.2d 414 (1999).
Clerk’s Papers at 56.
Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 392, 823 P.2d 499 (1992).
Greer v. N. W. Nat’l Ins. Co., 109 Wn.2d 191, 197, 743 P.2d 1244 (1987) (quoting State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 486, 687 P.2d 1139 (1984)); Viking Ins. Co. v. Hill, 57 Wn. App. 341, 346, 787 P.2d 1385 (1990).
Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 561, 951 P.2d 1124 (1998) (quoting Farmers Ins. Co. v. Romas, 88 Wn. App. 801, 808, 947 P.2d 754 (1997)) (first alteration added). See also Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 64, 1 P.3d 1167 (2000); Unigard Ins. Co. v. Leven, 97 Wn. App. 417, 425, 983 P.2d 1155 (1999) (“[A]n insurer’s duty to defend an action brought against its insured arises when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy’s coverage.”), review denied, 140 Wn.2d 1009 (2000).
Greer, 109 Wn.2d at 202-03.
Kirk, 134 Wn.2d at 561.
Allstate contends the issue is not reviewable because Griffins’ notice of appeal is from the summary judgment dismissing the bad faith and CPA claims, not the earlier order on fees. The fees issue is Griffins’ first assigned error, however, and was fully briefed by Allstate. Therefore, the technical violation does not preclude review. See RAP 1.2(a); State v. Olson, 126 Wn.2d 315, 320-21, 893 P.2d 629 (1995) (technical violation such as failure to cite order in notice of appeal or assign error in opening brief will normally be overlooked, particularly where no prejudice results to other party).
See Aerojet-Gen. Corp. v. Trans. Indent. Co., 17 Cal. 4th 38, 948 P.2d 909, 920 (1997) (holding insurer must incur site investigation costs as part of fulfilling duty to defend).
See Lafarge Corp. v. Hartford Cas. Ins. Co., 61 F.3d 389, 394, 399 n.19 (5th Cir. 1995) (under Texas law, breach of “voluntary payment” provision precludes liability for pre-tender defense costs), overruled on other grounds by Federated Mut. Ins. Co. v. Grapevine Excavation, Inc., 241 F.3d 396, 398 n.3 (5th Cir. 2001); Faust v. The Travelers, 55 F.3d 471, 472 (9th Cir. 1995) (same, under California law); N. Ins. Co. of N.Y. v. Allied Mut. Ins. Co., 955 F.2d 1353, 1360-61 (9th Cir. 1992) (same, under California law); Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis. 2d 260, 548 N.W.2d 64 (1996) (tender is condition precedent to duty to defend).
For a discussion of the various approaches courts have taken to this question, see Stephen A. Klein, Insurance Recovery of Prenotice Defense Costs, 34 Tort & Ins. L.J. 1103 (1999).
97 Wn. App. 417, 983 P.2d 1155 (1999), review denied, 140 Wn.2d 1009 (2000).
Leven, 97 Wn. App. at 425.
Leven, 97 Wn. App. at 427. While couched in part in language echoing the frequent “arises upon tender” statement of the duty, our discussion in Leven involved the question of breach, not a determination of the scope of the duty.
Leven, 97 Wn. App. at 427.
Leven, 97 Wn. App. at 431.
The parties dispute the effect of two other cases, neither of which is helpful here. In Prudential Property & Casualty Insurance Co. v. Lawrence, 45 Wn. App. 111, 724 P.2d 418 (1986), the court applied the rule that when there is no reasonable means of prorating costs of defending covered claims and uncovered claims, the insurer is liable for the entire cost of defense; pre-tender fees were denied because “there was no way to segregate the covered claims and associated costs from any uncovered claims.” Prudential, 45 Wn. App. at 121 (citing Nat’l
See Pub. Util. Dist. No. 1 v. Int’l Ins. Co., 124 Wn.2d 789, 803-04, 881 P.2d 1020 (1994).
See Leven, 97 Wn. App. at 427; Am. Econ. Ins. Co. v. Lyford, 94 Wn. App. 347, 355, 971 P.2d 964 (1999). Whether tender is a condition precedent or an implied covenant is not relevant. The distinction has been held a ‘legalistic conundrum” in the context of insurance policies; either way, a showing of actual prejudice is required before an insurer will be released from its duty to defend. See Or. Auto. Ins. Co. v. Salzberg, 85 Wn.2d 372, 376-77, 535 P.2d 816 (1975); see also Sherwood Brands, Inc. v. Hartford Accident & Indent. Co., 347 Md. 32, 698 A.2d 1078 (1997).
Pub. Util. Dist. No. 1, 124 Wn.2d at 804 (except in extreme cases, the insurer bears the burden of showing actual prejudice).
For example, an order to show cause may require an immediate defense, or those responsible for the affairs of a disabled insured may be initially unaware of coverage.
Clerk’s Papers at 61.
Roberts Oil Co. v. Transom. Ins. Co., 113 N.M. 745, 833 P.2d 222, 229 (1992) (internal quotation marks omitted).
Pub. Util. Dist. No. 1, 124 Wn.2d at 804 (prejudice requirement applies to the voluntary payment provision).
Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991).
RCW 48.01.030; Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 386, 715 P.2d 1133 (1986).
Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 281, 961 P.2d 933 (1998).
Indus. Indem. Co. of the N.W. v. Kallevig, 114 Wn.2d 907, 916-17, 792 P.2d 520 (1990).
Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 389, 393-94, 823 P.2d 499 (1992).
Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 560, 951 P.2d 1124 (1998).
Kallevig, 114 Wn.2d at 920.
Coventry, 136 Wn.2d at 280 (emphasis added).
142 Wn.2d 766, 15 P.3d 640 (2001).
Ellwein, 142 Wn.2d at 778.
Ellwein, 142 Wn.2d at 779 (citing Fisher v. Allstate Ins. Co., 136 Wn.2d 240, 249, 961 P.2d 350 (1998)).
Ellwein, 142 Wn.2d at 780-81.
Ellwein, 142 Wn.2d at 775-76.
Ellwein, 142 Wn.2d at 777 (quoting William T. Barker & Paul E.B. Glad, Use of Summary Judgment in Defense of Bad Faith Actions Involving First Party Insurance, 30 Tort & Ins. L.J. 49, 56 (1994)); see also Douglas G. Houser, Good Faith as a Matter of Law: The Insurance Company’s Right to Be Wrong, 27 Tdrt & Ins. L.J. 665, 665-70 (1992)). Judging from the Ellwein court’s footnote, the “fairly
Ellwein, 142 Wn.2d at 776 (citing Keller v. Allstate Ins. Co., 81 Wn. App. 624, 633, 915 P.2d 1140 (1996) (second emphasis added)). We note that these two sentences are not equivalent statements of the same proposition. While the first sentence would place a burden of proving a negative on the insured, the second sentence is a simple statement of the usual summary judgment standard.
See, e.g., Kallevig, 114 Wn.2d at 917, cited with approval by Ellwein, 142 Wn.2d at 776); see also Our Lady of Lourdes Hosp. v. Franklin County, 120 Wn.2d 439, 452, 842 P.2d 956 (1993).
See, e.g., Capelouto v. Valley Forge Ins. Co., 98 Wn. App. 7, 22, 990 P.2d 414 (1999).
We note that one week after its decision in Ellwein, the court decided Van Noy v. State Farm Mut. Auto. Ins. Co., 142 Wn.2d 784, 16 P.3d 574 (2001). Without mentioning Ellwein, the Van Noy court reiterated that the insurer has a quasi-fiduciary obligation to the insured, relied upon traditional bad faith cases that apply the reasonable justification analysis, and stated the summary judgment standard on Van Noy’s breach of contract claim thusly: “The contractual issue, therefore, revolves around the reasonableness of State Farm’s action in handling the claims that were presented to it. As the Court of Appeals correctly observed, that issue should be resolved by a trier of fact.” Van Noy, 142 Wn.2d at 796.
Coventry, 136 Wn.2d at 279.
See Coventry, 136 Wn.2d at 276.
Coventry, 136 Wn.2d at 281.
The expert was asked “to review materials in connection with Allstate’s investigation and denial of coverage” of the Anderson claim. Clerk’s Papers at 311. His declaration discusses whether Allstate followed good claims-handling practices.
136 Wn.2d 269, 961 P.2d 933 (1998).
Coventry, 136 Wn.2d at 283.
Allstate argues the Griffins failed to assign error to dismissal of the CPA claim, so this court should decline to reach the issue. The CPA claims are derivative of the bad faith claims, and the issues section of the Griffins’ brief clearly addresses these claims. We therefore reach the issue. See State v. Olson, 126 Wn.2d 315, 323, 893 P.2d 629 (1995) (this court does not abuse its discretion by considering the merits of appeal where appellant’s challenge is clear but technically flawed).
Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 792, 719 P.2d 531 (1986).
RCW 19.86.090; Mason v. Mortgage Am., Inc., 114 Wn.2d 842, 855-56, 792 P.2d 142 (1990).
Mason, 114 Wn.2d at 854 (citations omitted).