by Benjamin Helford | Jan 8, 2024 | Blog News
On December 29, 2023, the Oregon Supreme Court held in Moody v. Or. Cmty. Credit Union, 371 Or 692 (2023) that a first-party life insurer may be sued for negligent infliction of emotional distress by the spouse and beneficiary of the decedent. The decedent was accidentally shot and killed by a friend during a camping trip. The life insurer initially denied the claim based an exclusion for deaths “caused by or resulting from . . . being under the influence of any narcotic” because the decedent had had marijuana in his system. The decedent’s wife sued for breach of contract and negligence, arguing that the insurer negligently failed to perform a reasonable investigation before denying the claim, and that this negligence “increased emotional distress and anxiety caused by having fewer financial resources to navigate the loss of a bread-winning spouse.” The plaintiff had won in the trial court on the breach of contract claim, but the trial court dismissed the tort claims. The Oregon Court of Appeals overruled the trial court, and held that the plaintiff could bring the negligence action against the insurer under a negligence per se theory. The Oregon Supreme Court overruled the Oregon Court of Appeals on the negligence per se grounds, but held the plaintiff could still sue for negligent infliction of emotional distress.
The Oregon Supreme Court analyzed whether the plaintiff had pled sufficient facts to survive a dismissal of her negligent infliction of emotional distress claim. The Oregon Supreme Court noted that in order to allow a plaintiff to sue for emotional distress, there must be a limiting factor beyond mere foreseeability. Thus, the Oregon Supreme Court found the question of whether the plaintiff may sue for emotional distress was whether the plaintiff had a cognizable interest “as the surviving spouse of a deceased breadwinner, in having the insurance company with which she and her husband had contracted for life insurance benefits conduct a reasonable investigation of, and promptly pay, her claim for the promised benefits.”
The plaintiff argued that ORS 746.230(1), which outlines unfair claim settlement practices, was evidence of a legally protected interest. As the defendant pointed out, the Oregon Supreme Court had previously ruled in Farris v. US Fidelity and Guaranty Co., 284 Or 453 (1978) that ORS 746.230 was not intended to create a private cause of action. However, the Oregon Supreme Court noted that in Burnette v. Wahl, 284 Or 705 (1978), a statute may support a common-law claim if “it is necessary and desirable to further vindicate the right or to further enforce the duty created by statute.”
The Oregon Supreme Court notes that an insurance relationship is not merely one of payment of funds between parties, but one that provides the insured with peace of mind. In that way, the parties between an insurance contract are in “mutual expectation of service and reliance,” which is akin to doctor/patient relationship or a contractual relationship to purchase a burial plot for a loved one, both of which Oregon courts had allowed for the basis of negligent infliction of emotional distress.
The Oregon Supreme Court also held that allowing a cause of action “when a surviving spouse incurs serious emotional distress as a result of violation” of ORS 746.230 supports the purposes of that statute. In this case, the Oregon Supreme Court found that the plaintiff, having pled severe emotional distress caused by the life insurer’s negligent failure to reasonably investigate and promptly pay the policy of her breadwinning spouse, had pled sufficient facts to defeat the dismissal of negligent infliction of emotional distress.
Disclaimer: the opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
by Benjamin Helford | Jun 26, 2023 | Blog News
On June 6, 2023, in Gold Creek Condominium-Phase I Assn. of Apartment Owners v. State Farm Fire and Cas. Co., Ninth Circuit Case No. 22-35606, Soha & Lang, PS attorneys Paul Rosner, Sarah Davenport, and Jillian Henderson filed an amici brief on behalf of the American Property Casualty Insurance Association and the National Association of Mutual Insurance Companies. The brief addressed the trigger of coverage in a first-party property insurance claim when there are hidden damages and the policy covers loss “commencing during the policy period.” It asked the Ninth Circuit to adopt an injury-in-fact trigger theory, which would provide clarity for cases involving hidden rainwater damage – a common hazard for property in Washington.
The brief argued that, while a continuous trigger theory has been adopted by Washington courts in the context of third-party insurance, such a theory is inconsistent with the language and policies involved in first-party property claims. Unlike in third-party insurance, the brief explained, “[a] property owner’s potential loss is capped at the value of the insured property.”
The brief also argued the term “commence” is not ambiguous under Washington law, and an injury-in-fact theory is consistent with both the policy language and Washington law, as “no reasonable policyholder would answer that the loss ‘commenced’ 55 times in a single year.”
Finally, the brief offered the alternative argument for a manifestation trigger, where coverage is determined when damage becomes apparent. Such a trigger “provides a bright-line rule that creates certainty for both insureds and insurers.”
Disclaimer: the opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
by Jennifer Dinning | Jan 9, 2023 | Blog News
On December 19, 2022, in The Gardens Condo. v. Farmers Ins. Exch., 83678-1-I, the Washington Court of Appeals, Division One, held that the ensuing loss provision contained in an exclusion for faulty design and construction preserved coverage for resulting losses that are caused by a covered cause of loss, reversing the trial court’s summary judgment ruling in favor of Farmers and remanding for further proceedings.
The insured, Gardens Condominium, is a 26-unit condominium building in Shoreline. In 2004, Gardens had roof repairs performed to correct inadequate ventilation. In 2019, Gardens discovered the 2004 repairs were defective, and that water vapor emitted from inside the units continued to be trapped in the roof joist cavities, allowing condensation to form during cool weather and overnight temperature drops. That repeated exposure to moisture damaged the sheathing, fireboard, joists, and sleepers.
Gardens held an all-risk insurance policy from Farmers, which covered all “direct physical loss or damage” to the building not specifically excluded by the policy. The policy excludes coverage for damage caused by faulty design or repair, but the exclusion contains an ensuing loss provision, which states: “But if loss or damage by a Covered Cause of Loss results, we will pay for that resulting loss or damage.”
Farmers denied coverage because faulty construction “initiated a sequence of events resulting in the loss or damage.” Gardens objected to Farmers’ denial of coverage, contending that the resulting loss clause narrowed the faulty workmanship exclusion, preserving coverage for damage caused by a resulting covered peril, and that the policy covers the perils of humidity and condensation.
Gardens sued Farmers for breach of contract and declaratory relief. Gardens and Farmers cross-moved for summary judgment. The parties stipulated to key facts, including that the damage to the roofing assembly “was caused by condensation and/or excess humidity resulting from inadequate ventilation of the roof assembly due to the faulty, inadequate, or defective construction, repairs, and/or redesign.”
The trial court granted summary judgment for Farmers, concluding that the policy excludes coverage because faulty construction began a sequence of events that resulted in the damage, and the resulting loss clause exception did not “somehow resurrect[ ]” coverage. The Court of Appeals reversed on de novo review, finding that the trial court misinterpreted the ensuing loss provision.
Citing Vision One, 174 Wn.2d 501, 276 P.3d 300 (2012), the Court of Appeals found that the ensuing loss provision contained in the Farmers policy preserved coverage for resulting damage caused by a covered cause of loss. Thus, if the policy covers the perils of condensation and excess humidity, it covers the loss or damage from those perils. The Court of Appeals also noted that, although an ensuing loss otherwise covered by the policy remained covered, the uncovered event – in this case faulty construction – is never covered.
Relying on citing Vision One, Farmers argued that the Court should apply an “efficient proximate cause” analysis to the ensuing loss to determine whether the damage at issue flows from an excluded event, preventing coverage. The Court of appeals rejected this argument, noting that Farmers’ reference to the term “inverse efficient proximate cause” in Vision One was taken out of context and misapplied.
Farmers also argued that the ensuing loss provision should be interpreted to apply to losses from “only unforeseen covered events, occurring independent of the excluded peril”, citing TMW Enterprises, Inc. v. Federal Insurance Co., 619 F.3d 574 (6th Cir. 2010). Farmers argued that failure to do so would allow the ensuing loss provisions to “swallow the faulty workmanship exclusion whole.” The Court of Appeals rejected this argument as inconsistent with Washington law, citing Vision One, 174 Wn.2d 501, 276 P.3d 300 (2012) and Sprague v. Safeco Ins. Co. of Am., 174 Wn.2d 524, 529, 276 P.3d 1270 (2012). The Court of Appeals also noted that Farmers’ interpretation would render the ensuing loss provision superfluous.
Finally, Farmers’ argued that Gardens was not seeking coverage for an “ensuing loss”, but just for “the loss”, citing Sprague, 174 Wn.2d at 527, 276 P.3d 1270 (2012). The Court of Appeals rejected this argument, stating that, in Sprague, all the causes of the loss at issue were subject to exclusions, and thus the policy did not provide coverage under the ensuing loss provision in question. Here, the parties stipulated that the perils of condensation and excess humidity caused the roof damage, but they dispute whether Farmers’ policy covers those perils.
The Court of Appeals remanded the case for further proceedings consistent with its ruling that the ensuing loss provision contained in the exclusion for faulty design and construction preserved coverage for resulting losses that are caused by a covered cause of loss.
The Gardens Condo. v. Farmers Ins. Exch., ____ P.3d _____ (Wash. Ct. App. Dec. 19, 2022).
Disclaimer: the opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
by J. William Ashbaugh | Sep 27, 2022 | Blog News
In a unanimous decision, the Washington Supreme Court held in Seattle Tunnel Partners, et al v. Great Lakes Reinsurance (UK) PLC, et al. No. 100168-1 (September 15, 2022) that under the Builders Risk Policy naming both Seattle Tunnel Partners (“STP”) and the Washington Department of Transportation (“WSDOT”) as insureds that: (1) the Policy’s Mechanical Breakdown Exclusion (“MBE”) excluded coverage for property damage to the Tunnel Boring Machine (“TBM”) caused by any alleged design defects; (2) the Policy did not afford coverage for losses due to project delays; and (3) the loss of use or functionality of the tunnel did not constitute “direct physical loss, damage or destruction” covered under the Policy.
The case arose out of a major construction project in Seattle to replace the Alaskan Way Viaduct in Seattle. STP contracted with WSDOT to construct a tunnel replacing the viaduct and as part of the agreement obtained a builder’s risk all-risk insurance policy from Great Lakes Reinsurance (UK) PLC and other underwriters. The Policy had two sections, insuring two types of insured property: (Section 1) damage to the “tunneling works” defined as “the tunnel itself during the course of construction, and property being used or intended for use in the construction of the tunnel (except for the TBM); and (Section 2) Damage to the TBM.
In December 2013, after the TBM had been excavating part of the tunnel, the machine stopped working, and did not resume excavation until December 2015. The delay in tunneling was caused by the need to extract the TBM and perform repairs. STP and WSDOT tendered insurance claims to Great Lakes, which denied the claims, and this suit followed. The Supreme Court’s decision affirmed the trial court’s rulings on the parties’ motions for partial summary judgment.
The first issue addressed by the Court was whether in the event the factfinder found that a design defect in the TBM caused the TBM to stop working, the MBE applied. The MBE read: “[The insurers] will not indemnify the Insured [for] [l]oss or or [d]amage in respect of any item by its own explosion mechanical or electrical breakdown, failure breakage or derangement.” The Court first rejected STP’s argument that the MBE was ambiguous, noting that STP did not explain how any missing word or punctuation made it fairly susceptible to two different but reasonable interpretations. The Court next held that the phrase “by its own” in the MBE meant that coverage for damage to the TBM from inherent or internal causes was excluded. Finally, after a lengthy discussion of case law both inside and outside of Washington, the Court concluded that the MBE excluded coverage for machinery breakdowns resulting from an internal cause, which includes a defective design. In so concluding, the Court rejected the application of Washington’s efficient proximate cause rule because any design defect would be the initial event –an uncovered peril under the MBE.
The Court next addressed whether STP could recover its project delay losses arising out the damage to the TBM. Relying on its decision in Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 276 P.3d 300 (2012), the Court rejected STP’s argument that because its delay losses would not have occurred but for the physical damage to the TBM, such losses had to be covered under an all-risk policy. Like in Vision One, the Court held that the Policy’s coverage grant for “direct physical loss, damage, or destruction” extended only to “physical” losses to covered property and that delay losses were nonphysical losses.
The Court finally addressed WSDOT’s argument that it should recover under Section 1 of the Policy for its loss of use of the tunneling works while the TBM was being repaired. WSDOT alleged that the tunneling works suffered direct physical loss or damage because the tunnel was “physically incapable of performing its essential function”: completing construction of the tunnel. The Court agreed that physical loss or damage may under certain circumstances include the physical loss of use of insured property, but that this case did not present those circumstances. Again, the Court looked to the applicable Policy language, “direct physical loss, damage or destruction,” and relying on the standard dictionary definitions of “Loss,” “Damage,” and “Physical,” the Court held that “direct physical loss [or] damage” refers to the deprivation or dispossession of or injury to the insured property and that the deprivation, dispossession, or injury must be physical, meaning that the loss must have a material existence, be tangible, or be perceptible by the senses. Because WSDOT did not allege that the tunneling works itself suffered any loss or damage that was physical, i.e. perceptible, material, or tangible, but rather that WSDOT was deprived of its use of the tunneling works due to the physical blockage of the TBM.
Disclaimer: the opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.
by Rachel Rubin | Sep 7, 2022 | Blog News
In a unanimous decision, the Washington Supreme Court held in Hill and Stout, PLLC v. Mutual of Enumclaw Insurance Company, No. 100211-4 (August 25, 2022) that the phrase “direct physical loss of . . . property” in a property insurance policy does not include constructive loss of intended use of property, as such a loss is not “physical.” The Court also held that the virus exclusion applied to preclude coverage and that the efficient proximate cause rule did not mandate coverage.
The Plaintiff, Hill and Stout PLLC, commenced this action against its insurer alleging that its property insurance policy covered business income lost due to “direct physical loss of or damage to” the insured property. The policy also included a virus exclusion. Plaintiff alleged it was unable to use its offices for nonemergency dental practice due to gubernatorial proclamations issued by Governor Inslee. The trial court granted the insurer’s motion for summary judgment, finding that “direct physical loss of or damage to property” is not ambiguous and does not cover constructive loss of property under the Proclamation. The trial court also held that the virus exclusion applied, and that the efficient proximate cause rule did not apply in this case. Plaintiff appealed directly to the Washington Supreme Court.
The primary issue was the interpretation of the phrase “direct physical loss of or damage to Covered Property.” Plaintiff argued that “direct physical loss of” property can reasonably be interpreted to include the loss of the ability to use property. Mutual of Enumclaw argued that coverage requires that something physically happen to covered property, and that there was no coverage because Plaintiff admitted that nothing happened to its property. Hill and Stout argued it sustained a physical deprivation of property because it was physically deprived of the use of its business property as an immediate result of Governor Inslee’s proclamations, and urged the Court to apply a “loss of functionality” test instead of requiring that there be a physical alteration to the property. However, the Court found Plaintiffs loss to be more akin to an abstract or intangible loss than a “physical” one.
While the Court agreed that there are likely cases in which there is no physical alteration to the property but there is a direct physical loss under a theory of loss of functionality (such as contamination with a problematic substance), the Court found this was not such a case because Plaintiffs property continued to be functional. In so finding, the Court stated even under a loss of functionality test there must be some physical effect on the property. Furthermore, the Court found its interpretation of “direct physical loss” consistent with other policy provisions including the “period of restoration” during which business income coverage for the suspensions of operation applies. Thus, the Court held that deprivation of the full intended use of property is not sufficient to trigger coverage under the phrase “direct physical loss of or damage to” property where nothing “physical” has happened to the covered property.
Although the Court did not need to examine the issue of efficient proximate cause and the virus exclusion, the Court did so given that the issue was fully briefed and is likely to repeat in other cases regarding the interpretation of similar insurance policies. The Court found that the causal chain in this case was clear and that an excluded peril (the COVID-19 virus) initiated the sequence of events, causing the governor to issue the proclamations. As the causal chain was initiated by an excluded peril, the Court held that the efficient proximate cause rule did not apply to mandate coverage. The Court further held that the virus exclusion applied.
Disclaimer: The opinions expressed in this blog are those of the author and do not necessarily reflect those of Soha and Lang, P.S. or its clients.
by Cristin Cavanaugh | Apr 22, 2022 | Blog News
Whether the term “actual damages” as used in RCW 48.30.015 includes noneconomic damages is an issue of first impression under Washington law. On April 19, 2022, the Court of Appeals, in Beasley v. GEICO General Insurance Company, et al., 2022 WL 1151426 (Wash. Ct. App. 2022), held that the legislative history demonstrates that noneconomic damages are “actual damages” under RCW 48.30.015 and reversed the trial court.
In this underinsured motorist (UIM) case, when instructing the jury on the elements of the IFCA claim, the trial court included the following language: “The Court has determined that [GEICO] unreasonably denied the payment of benefits by failing to pay the undisputed $10,000 offer of UIM benefits made on October 23, 2015.” However, the trial court refused to provide the jury with Beasley’s proposed instruction on damages under IFCA that included noneconomic damages based on the trial court’s ruling that the IFCA claim did not include noneconomic damages because the claim sounded in negligence rather than intentional tort. The jury found that Beasley had proven his IFCA claim and that Beasley’s IFCA-related damages were $84,000. The jury further found that Beasley had proved his insurance bad faith claim and that he had incurred $400,000 in noneconomic damages related to that claim. Beasley appealed the trial court’s ruling that IFCA does not include noneconomic damages.
The Court of Appeals determined that the legislature intended “actual damages” to include noneconomic damages under IFCA because this legislation was intended to protect insureds from an insurer’s unreasonable actions and remanded the matter to the trial court for a new trial on noneconomic damages related to the IFCA claim.
The Court of Appeals held that merely tripling the bad faith noneconomic damages was not an appropriate remedy. Rather, the Court held that the “proper remedy is based on an understanding that although not all bad faith conduct constitutes an IFCA violation, we can presume under the facts of this case that GEICO’s IFCA violations also constituted bad faith” and that “[b]ecause a violation of IFCA also would constitute bad faith under the facts of this case, any IFCA noneconomic damages necessarily would have been included in the $400,000 the jury awarded in bad faith damages.” The Court remanded for a new trial on the issue of IFCA noneconomic damages only, noting that the “IFCA noneconomic damages may be less than the bad faith damages because the bad faith cause of action is much broader.” The Court of Appeals further noted that Beasley is not automatically entitled to treble damages. RCW 48.30.015(2). The Court also ruled that Beasley is not entitled to double recovery.
