by Soha Lang | May 18, 2012 | Blog News, Uncategorized
In Sauter v. Houston Casualty Co., No. 66809–9–I (Wash. App. May 14, 2012), the insurer issued a directors’ and officers’ liability policy to named insured S-J Management, LLC (“SJM”). SJM’s directors and officers were also insureds “while acting in [their] capacity … as such on behalf of the Insured Organization.” Michael Sauter (“Sauter”) was SJM’s CEO and manager. Sauter was the guarantor on a line of credit to SJM and secured his guaranty with real property that he personally owned. When SJM defaulted on the line of credit, the bank demanded payment from Sauter, who also failed to pay. SJM’s board agreed to indemnify Sauter but, because it was insolvent, SJM could not do so. SJM’s counsel then tendered to the insurer claiming that Sauter’s guaranty obligation was covered. The insurer denied coverage.
Sauter filed suit against the insurer. Sauter contended that he had executed the guaranty in his capacity as CEO and manager of SJM and that his failure to satisfy the obligation was a “Wrongful Act” under the policy. The trial court granted summary judgment in favor of the insurer.
The Court of Appeals affirmed and held that the insurer had no duty to indemnify. It reasoned that Sauter had acted in his personal capacity, rather than in his capacity as an officer or director of SJM, because (1) he signed the guaranty in his own name rather than as an officer of SJM, (2) he personally owned the real estate that was the collateral and (3) as a legal matter, SJM could not be the guarantor of its own obligation. The court also reasoned that, if Sauter had executed the guaranty as SJM’s officer/director, then SJM, and not he, would have been liable.
The Court of Appeals then addressed whether Sauter’s assumption of the guaranty was a “loss” under the policy. It noted that other jurisdictions have rejected the contention, as here, that a voluntary contractual obligation can be a “loss.” However, the court did not resolve this issue because Sauter’s contention failed on another ground. Under the policy, the “loss” must result from a claim for a “Wrongful Act.” Here, the purported loss did not result from a “Wrongful Act” because the purported loss was Sauter’s assumption of the guaranty agreement and not his failure to satisfy his obligation under the guaranty.
by Soha Lang | Feb 13, 2012 | Blog News, Uncategorized
In Matsyuk v. State Farm Fire & Cas. Co., 2012 WL 402050, the Washington Supreme Court addressed the pro rata fee sharing rule announced in Mahler v. Szucs, 135 Wn.2d 398 (1998). The Mahler rule provides an “equitable” exception to the American rule on attorney fees (that litigants must bear their own legal expenses) by requiring a personal injury protection (PIP) insurer to share in the legal costs incurred by its injured insured in obtaining a recovery from the responsible tortfeasor or the tortfeasor’s insurer. The underlying theory is that the PIP insurer is benefited by its insured’s recovery because it creates a “common fund” from which the reimbursement of PIP benefits is paid. Mahler has subsequently been applied to a range of PIP reimbursement scenarios, including where the injured insured collected PIP and uninsured/underinsured motorist benefits from the same carrier.
This case adds one additional scenario to which the Mahler rule applies: where the injured party is insured under a PIP policy held by the tortfeasor and also recovers under the tortfeasor’s liability policy. In holding that Mahler applies, the Court expressly “disapproved” of a Court of Appeals case, Young v. Teti, 104 Wn. App. 721 (2001), which had concluded that Mahler rule is inappropriate where an injured, faultless third person recovers only from the insured tortfeasor, rather than also from the injured party’s own PIP insurer.
In addition, the majority allowed one of the plaintiffs to recover Olympic Steamship fees for litigating this matter, reasoning that the situation is properly characterized as a coverage dispute. Even though the majority had earlier held that the pro rata fee sharing of legal expenses is based on equitable principles and not on specific policy language, the majority stated that Olympic Steamship fees were appropriate because “[t]he question is a legal one involving interpretation of the insurance policy.” Finally, the majority reinstated the plaintiff’s bad faith claim that the insurer refused to effectuate the liability settlement until the plaintiff released her PIP claims against the same insurer.
by Soha Lang | Sep 23, 2011 | Blog News, Uncategorized
On September 20, 2011, the Washington Court of Appeals held that the insurer of a condominium association could not subrogate against a tenant of a unit owner to recover funds paid for a fire loss. Community Ass’n Underwriters of America, Inc. v. Kalles, 2011 WL 4357763 (Wash. App. 2011). The court reasoned that the tenant was presumed to be a coinsured of the landlord absent an express agreement to the contrary. In reaching this result, the court rejected the insurer’s argument that the presumption of coinsured status should not attach because the insurer issued its policy to the owners association and not to the unit owner that was in privity with the tenant. The Court of Appeals also held that the tenant was entitled to recovery of the attorney fees it had incurred in defending the lawsuit under Olympic Steamship v. Centennial Insurance Co.
Insurance Coverage and Ligitagation
by Soha Lang | Jun 10, 2011 | Blog News, Uncategorized
In Stuart v. Pittman, 2011 WL 2162919 (Or 2011), the insured was a homeowner who contracted with a builder to construct a house at his farm. The insurer’s agent orally agreed to bind first-party course of construction insurance for the insured in August 2003; the policy itself was not delivered until March 2004. In the meantime, the house was damaged: It was framed but not enclosed, and snow and ice built up inside of it, causing the interior sheathing to split, the accumulation of water in the crawl space, and a large amount of mold. The insured had relied on the agent’s oral assurance of coverage and as a result did not require the builder to carry a performance bond or liability insurance. The insured sued the builder for faulty workmanship and obtained a judgment; however, because the builder was insolvent, the insured was unable to collect on the judgment. The insured then sued his own insurer and the insurer’s agent. The insured claimed that the insurer’s agent had issued an oral binder for a course of construction policy that eliminated the usual provisions such as, for example, exclusions for damage caused by mold and by faulty workmanship. The Court of Appeals reversed a verdict in favor of the insured, finding that the insured had failed to prove that the usual policy terms of a course of construction policy were superseded by the “clear and express” terms of the binder as required under ORS 742.043. On further review, the Oregon Supreme Court reversed the Court of Appeals and reinstated the verdict. The Oregon Supreme Court reasoned that the terms of the binder could supersede the usual policy terms under the statute and that the insured had met the statute’s “clear and express” requirement. Separately, the Oregon Supreme Court also held that that the insured could obtain attorney fees under ORS 742.061 based on an oral binder.
by Soha Lang | May 25, 2011 | Blog News, Uncategorized
In Strawn v. Farmers Ins. Co. of Oregon, S057520 (May 19, 2011), the Oregon Supreme Court reinstated an $8 million punitive damages judgment that the Oregon Court of Appeals had overturned.
In this case, the insurer used cost-containment software to evaluate its insureds’ medical expenses for personal injury protection (PIP) claims. If the insurer determined that the charge submitted by an insured’s provider exceeded a set percentage of the normal range, the insurer refused to pay the excess on the ground that it was “unreasonable.” Plaintiff filed a class action as the representative of a class who alleged that the insurer’s review process set an arbitrarily low percentage (initially, 80 percent) that resulted in the denial of claims for reasonable medical expenses. Following a jury trial, the trial court entered a judgment against the insurer for approximately $900,000 in compensatory damages and $8 million in punitive damages. The Court of Appeals reduced the punitive damages award, holding that it violated Due Process. The Supreme Court then accepted review.
Before the Supreme Court, the insurer contended that the trial court had court “cut off” its ability to rebut the reasonableness of the plaintiff’s medical expenses by excluding evidence that it, e.g., reimbursed plaintiffs in an amount that represented their reasonable medical expenses. The Supreme Court declined to reach the merits of the argument, holding that the insurer had failed to raise it below. Next, the insurer contended that it was entitled to a directed verdict on the plaintiffs’ fraud claim, contending that the plaintiffs had failed to offer direct proof of individualized reliance. The Supreme Court rejected the argument, holding that, on the facts presented, reliance could be inferred from circumstantial evidence. In particular, reliance could be inferred because the claims were based on a uniform provision in motor vehicle insurance required for drivers under Oregon’s financial responsibility laws. Finally, the Supreme Court reversed the Court of Appeals and reinstated the $8 million punitive damages claim, holding that the insurer had failed to properly preserve error. Following the verdict, the insurer had moved for a remittitur and for new trial. The trial court declined to reduce the punitive damages award on both procedural grounds (because the insurer’s motions were insufficient to challenge the verdict) and substantive grounds. The Supreme Court held that while the insurer had properly appealed the substantive basis for the trial court’s ruling, the insurer had failed to appeal from the trial court’s procedural basis and, therefore, had had waived any error.
Justice Balmer dissented.
