Washington Supreme Court Weighs in on the Cooperation Clause

by | Feb 6, 2013 | Blog News, Uncategorized

Staples v. Allstate Insurance Co., __ Wn.2d __, __P.3d ___,  2013 WL 25887 (January 24, 2013)

The insured, whose insurance claim was denied for failure to cooperate, brought action against his homeowners’ insurer, alleging breach of contract, bad faith, and violation of the Insurance Fair Conduct Act (IFCA).  In the trial court, summary judgment was entered for the insurer, and the insured appealed. The Court of Appeals affirmed, and appeal was taken to the Washington Supreme court who then reversed.

The insured, John Staples (“Staples”) had his van stolen from a parking lot.  In the van, Staples had stored a large collection of tools.  When staples reported the theft to the police, he stated that the tools were worth approximately $15,000, and that his van was a “work truck” that was absically a “mobile workshop” for his business.  Two weeks later, Staples submitted a claim for the theft loss under his homeowner’s policy issued by Allstate.  Staples told Allstate that the tools were worth between $20,000 and $25,000 and were for his personal use although they could be used for work.

Based on Staples’ inconsistent statements to the police and the insurer, Allstate transferred staples claim tot he special investigation unit, which in turn requested that Staples provide information proving ownership of the tools, a sworn proof of loss and other documents.  Allstate also recorded two statements from staples, neither of which was under oath.  Over the next couple of months Staples failed to provide the requested information  despite repeated written requests from Allstate.  Three months later, Staples submitted a sworn proof of loss, and in response, Allstate requested an examination under oath (“EUO”) and further documents.  When the documents were not provided, Allstate cancelled the EUO and stated that it would reschedule the EUO and requested that Staples contact Allstate to reschedule the EUO.

Staples hired an attorney that began making allegations of IFCA violations and accusing Allstate of making burdensome and vexatious requests.  Staples did not attempt to reschedule his EUO or provide the documents that Allstate had requested.  After giving Staples several extensions in which to comply with the EUO and document demands, and staples failure to do so, Allstate denied the claim.  Staples instituted coverage litigation and Allstate moved for summary judgment based on Staples’ failure to cooperate.

The Washington Supreme Court reiterated that most insurance policies contain cooperation clauses requiring the insured to cooperate with the insurer’s handling of claims. Id. at *6, citing Thomas V. Harris, Washington Insurance Law § 13.02, at 13–11, 13–12 (3d ed.2010). Typically, an insured that “substantially and materially” breaches a cooperation clause is contractually barred from bringing suit under the policy if the insurer can show it has been actually prejudiced. Id.  The burden of proving noncooperation is on the insurer. Oregon Auto. Ins. Co. v. Salzberg, 85 Wn.2d 372, 375–76, 535 P.2d 816 (1975). 

Staples‘ homeowner’s policy with Allstate provided specific, enumerated cooperation duties including the requirement that Staples submit to an EUO:

3. What You Must Do After A Loss
In the event of a loss to any property that may be covered by this policy, you must:
….
d) give us all accounting records, bills, invoices and other vouchers, or certified copies, which we may reasonably request to examine and permit us to make copies.
….
       f) as often as we reasonably require:
….
2) at our request, submit to examinations under oath, separately and apart from any other person defined as you or insured person and sign a transcript of the same.

 

The Court found that this language did not give Allstate an absolute right to conduct an EUO, but rather, “[g]iven the quasi-fiduciary nature of the insurance relationship, . . . . if an EUO is not material to the investigation or handling of a claim, an insurer cannot demand it.”  Id. at *7.   While the Court found that under the facts of the case it appeared that Allstate would have been justified in requesting an EUO, it found that genuine issues of material fact may have precluded summary judgment in this regard, but declined to decide the issue, and instead resolved the case on the following two issues.
The Court instead found that genuine issues of material fact precluded summary judgment because there was an issue of fact regarding whether  (1) Staples substantially complied with Allstate’s request for an EUO; and (2) Allstate was actually prejudiced by Staples failure to cooperate.  The Court reiterated that whether there has been a breach of the cooperation clause in measured by the yardstick of  “substantial compliance” and further found that an insurer must supply affirmative proof that it was prejudiced by an insured’s non-cooperation in order to deny coverage based on a  failure to cooperate.  Finding issues of fact in these regards, the Court reversed and remanded to the trial court.

Washington Law Prohibits Binding Arbitration Provisions in Insurance Policies

by | Jan 18, 2013 | Blog News, Uncategorized

In a unanimous decision, The Washington Supreme Court held that Washington law prohibits binding arbitration clauses in insurance contracts. Dep’t of Transp. v. James River Ins. Co., __Wn.2d. __, _P.3d.__ (2013).

RCW 48.18.200(1)(b) prohibits insurance contracts from “depriving the courts of this state of the jurisdiction of action against the insurer.” The court found that this statue prohibits binding arbitration agreements in insurance contracts. The court also held that the statue was not preempted by the Federal Arbitration Act because of an exception in the act for state law regulating the business of insurance.

Oregon Federal District Court Addresses Insured Status and Owned Property Exclusion

by | Jan 4, 2013 | Blog News, Uncategorized

Clarendon America Insurance Company v. State Farm Fire and Casualty Company,  Oregon District Court Cause No. 3:11-CV-01344-BR, Order on Cross-Motions for Summary Judgment (Dkt. No. 34), January 3, 2013 
This coverage action arises out of an underlying construction defect case.  Plaintiff Clarendon issued an insurance policy to its named insured, Curtom, who was a defendant in the construction defect case.   Curtom also tendered a defense to State Farm under an Apartment Policy issued to a different entity.  State Farm denied defense on the basis that Curtom did not qualify as an insured under the Apartment Policy (because the complaint did not allege that Curtom was  a real estate manager or partner of the named insured — the two provisions of the Who Is An Insured Section at issue in the case).  Clarendon sued State Farm for defense costs.  On summary judgment, State Farm additionally argued that the owned property exclusion precluded coverage, whether or not Curtom qualified as an insured.
As to the “insured status” question, the district court narrowly construed the extrinsic evidence “exception” for insured status questions as laid out in Fred Shearer (237 Or App 468), and found, “[t]he court in Fred Shearer merely carved out an exception to the general rule announced in Ledford to apply only in the particular circumstances that occurred in Fred Shearer; i.e., the insurer specifically alleged it was impossible to determine Fred Shearer’s status from the face of the complaint, and the court agreed. Accordingly, the court concluded a limited exception to [the 8 corners rule in] Ledford is permissible in instances when courts are attempting to determine whether an organization or individual was an insured under a policy.”  The court found that the rule in Fred Shearer, that an insurer can consider extrinsic evidence on the threshold issue of insured status, did not apply, when from the face of the Complaint and the policy, there is no question that the alleged insured does not qualify as an insured.
As to the “real estate manager” issue, the court found that because the term “real estate manager” was not defined in the policy, it must be given its plain meaning.   The court stressed,  “Although there is not any Oregon authority specifically on point, the Court notes courts in other jurisdictions have addressed this issue. For example, in Savoy v. Action Products Company the court held “a ‘real estate
manager’ is simply one who manages real estate for another. A manager is one who ‘conducts, directs or supervises something.’ He is a person who has the conduct or direction of a thing.” 324 So.2d 921, 923 (La. App. 1975). Similarly, in Insurance Company of North America v. Hilton Hotels the court adopted the reasoning of Savoy and “join[ed] several other courts in finding that the term ‘real estate manager’ is not ambiguous. Accordingly, the Court will consider the term in its usual and ordinary meaning.” 908 F. Supp. 809, 815 (D. Nev. 1995)(citations omitted).” The Court concluded, “the analysis in Savoy, Hilton Hotels, and City of Portland is helpful and, applying it here, concludes “real estate manager” has a plain meaning: One who conducts, directs or supervises another’s real estate as distinct from a construction manager who conducts, directs, or supervises another’s construction.”
The court thus concluded that allegations in the Complaint alleging that Curtom was the “construction manager” were insufficient to find that Curtom qualified as an insured as a real estate manager under the State Farm policy.  The court also found persuasive that the third party complaint differentiated between the terms construction manager and real estate manager.
As to the owned property exclusion, the court rejected Clarendon’s invitation to apply the exclusion as if the alleged insured was the “you,” who owned the property, rather than the named insured as the “you,” as provided by the policy definitions.  The court found that the term “you” was not ambiguous as to whether it applied to an entity that qualified as an insured, but was not a named insured (or additional insured). The court adopted the reasoning of Baumann (152 Or App 181) and rejected the reasoning in Triad (2007 WL 2713842 (D. Or. 2007)).

Washington Insurers Denied Right To Jury Trial

by | Nov 7, 2012 | Blog News, Uncategorized

On October 25, 2012, the Washington Supreme Court ruled that an insurer was not entitled to have the reasonableness of “covenant judgment” determined by a jury. Bird v. Best Plumbing Group, LLC, 86109-9, 2012 WL 5269734 (Wash. Oct. 25, 2012).
  
The insured was a plumbing company that was sued for severing a sewage line on the claimant’s property. When the claimant sued for damages, the insurer defended the insured without a reservation of rights. The claimant made a $2 million policy-limits demand. The demand was rejected. The insured then settled with the claimant for $3.75 million subject to a covenant not to execute against the insured and an assignment of rights to the claimant. The trial court found the $3.75 settlement amount reasonable after a four-day hearing, in part due to a treble-damages provision in Washington’s trespass statute that was never pled.
On appeal, the insurer contended that the reasonableness hearing violated its right to jury trial under Article I, Section 21 of the Washington State Constitution because the hearing set the presumptive damages for the claimant’s soon-to-follow bad faith lawsuit against the insurer. The Court of Appeals rejected the argument, reasoning that the reasonableness hearing was an equitable proceeding with no right to trial by jury. The Court of Appeals then affirmed the trial court’s finding of reasonableness. The insurer appealed to the Washington Supreme Court.
In a six to three opinion, the Washington Supreme Court affirmed the decisions of the trial court and Court of Appeals. The Washington Supreme Court:
  •   Approved the application of RCW 4.22.060 reasonableness hearings to settlements involving a covenant judgment (i.e. a settlement between an insured defendant and a plaintiff where the plaintiff agrees to seek recovery only from a specific asset—the proceeds of the defendant’s insurance policy and the rights owed by the insurer to the insured, but do not release the insured from liability);
  • Held that determining the reasonableness of a covenant judgment under RCW 4.22.060 is an equitable proceeding to which no jury trial right is afforded;
  • Held that the due process rights of the insurer were not violated where the insurer was afforded notice of the reasonableness hearing, allowed to intervene, and given the opportunity to participate in a lengthy and highly contested hearing on the issue of the reasonableness; and
  •  Held that the trial court did not abuse its discretion in holding the $3.5 million covenant judgment was reasonable.
The opinions expressed in in this blog are those of the author and do not necessarily reflect those of Soha & Lang, P.S. or its clients.

Oregon Court of Appeals Holds that A Single “Each Accident” Limit Applied To Insured’s UIM Claim

by | Nov 5, 2012 | Blog News, Uncategorized

In Wright v. Turner, 2012 WL 5286179 (Or App Oct. 24, 2012), the insured was a passenger in a truck that was in a motor vehicle accident. The truck was hit successively by two vehicles. The insured made a claim under her underinsured motorist (“UIM”) coverage, which had $500,000 “each accident” limits. The insured contended that she was entitled to two “each accident” limits because two vehicles were involved, thus constituting two “accidents” for the purpose of the UIM coverage. The Court of Appeals rejected her argument. As a threshold matter, the court noted that both parties agreed that the question of the number of accidents was one of law rather than one of fact. Next, the court held that the insured, in seeking coverage, had the burden of proof on the issue. Turning to the issue at hand, the court held that the insured had failed to satisfy here burden of demonstrating causation:

And plaintiff, as the party with the burden of presentation and persuasion with respect to establishing the availability of coverage for two accidents instead of one, was obligated at least to adduce prima facie evidence that the second collision was not merely proximately derivative of the causation of the first.

Plaintiff failed to meet that prima facie burden. That is so because the record is completely devoid of any evidence regarding the cause of the second collision…

Id. at 12.

District Court Finds Policy Language Ambiguous; Rules for Insured

by | Oct 23, 2012 | Blog News, Uncategorized

 Intransit Inc. v. Travelers Property and Casualty Company of America, District Court of Oregon Cause no. 1:11-cv-03146-CL, Order on Motion for Summary Judgment (Dkt. No. 37) (October 22, 2012)
This case involves whether an insurer’s Inland Marine liability policy covering loss of property during transit, covers theft by a fraudulent or imposter carrier.  Finding the policy language ambiguous, the court construed it in favor of coverage and found for the insured. 
In October 2010, Travelers sold plaintiff inland marine insurance, providing up to $300,000 in coverage for property being transported from one location to another. The policy covered loss of the “property of others … [f]or which [the insured] arranged transportation with a ‘carrier’ of the type described in the Declarations … ”  The declarations defined “carrier” as any railroad company, motor transportation company, or air freight company.  The policy also contained an exclusion that barred any coverage for losses resulting from “dishonest or criminal acts” by the insured’s employees, carriers, and others with “interest in, or entrusted with, the property.”  The endorsement, however, provided limited coverage up to $50,000 for property losses resulting from dishonest acts by a carrier.
The insured hired a third-party carrier to transport a shipment of LCD monitors.  An individual who represented himself as an employee of the transporter picked up the load of LCD monitors, but the load never made it to its destination.  A subsequent criminal investigation found that an imposter had posed as a driver of the transporter and had stolen the cargo.
The insured filed a proof of loss with Travelers.  Travelers took the position that the fraudulent or imposter carrier was still a “carrier” under the policy and paid the $50,000 limits for dishonest acts by a carrier.  The insured disputed Traveler’s coverage determination, arguing that the policy fully covered theft by fraudulent or imposter carriers and that it should be awarded $300,000 under the general coverage grant.
The policy language at issue provides:
I. Coverage grant.
The policy in the coverage grant provides as follows:
COVERAGE
We cover “loss” to Covered Property from any of the Covered Causes of”Loss.”
1. Covered Property, as used in this Coverage Form, means property of others:
(a) For which you have arranged transportation with a “carrier” of the type
described in the Declarations; and
(b) That you have agreed to insure.
We cover such property while in the due course of transportation.
DEFINITIONS
1. “Carrier” means any
a. Railroad company;
b. Motor transportation company; or
c. Air freight company.
II. Exclusions.
The policy in the exclusion section provides as follows:
We will not pay for “loss” caused by or resulting from any of the following:
a. Delay, loss of use, loss of market, loss of income, interruption of business or
any other consequential loss.
b. Dishonest or criminal acts by any of the following whether or not acting alone
or in collusion with other persons or occurring during the hours of
employment:
(1)   You, your employees or authorized representatives;
(2) The “carrier” or its employees or authorized representatives; or
(3) Anyone else with an interest in, or entrusted with, the property.
But this exclusion does not apply to coverage provided by the “carrier”
Dishonesty Additional Coverage.
III. Endorsement.
The endorsement in the exclusion section provides as follows:
“Carrier” Dishonesty
We will pay up to $50,000 in any one occurrence for loss of or damage to
Covered Property caused by or resulting from any fraudulent, dishonest, or
criminal act committed by a “carrier.” But this Additional Coverage does not
apply to any fraudulent, dishonest, or criminal act committed by you.
In their motions for summary judgment to the district court, the insured and Travelers offered competing interpretations of two terms in the insurance policy: “carrier” and “entrustment.”  Travelers argued that the term “carrier” means “legitimate carrier,” and thus the coverage grant only covers property loss when the carrier transporting the load is legitimate. Travelers further contended that because its loss was the result of a transportation arrangement with a fraudulent or imposter carrier, the insured cannot recover anything under the policy’s general coverage grant. In response, the insured contended it “arranged transportation with a carrier” or at a minimum the meaning of “carrier” is ambiguous, and thus should be construed in plaintiffs favor to include “fraudulent or legitimate carrier” and cover plaintiffs loss up to $300,000.
Finding that the term “carrier” remained ambiguous after a Hoffman analysis, the court interpreted it against the drafter and in favor of the insured. Hoffman, 313 Or. 464 at 469. Accordingly, the court concluded, the “term “carrier” in the coverage grant is construed in favor of plaintiff to include fraudulent or imposter carriers, including the fraudulent or imposter representative of C&A.; Defendant could have easily clarified the coverage grant by defining “carrier” to only include “authorized,” “legitimate,” or “licensed” carriers.”
The court further found that the term “entrust” was ambiguous regarding whether an insured could actually “entrust” property to an imposter and thus found that exclusion (b)(3) did not apply to preclude coverage despite the fact that Travelers argued that the insured had entrusted its shipment to the imposter carrier.  “The court’s finding that Exclusion (b)(3) is ambiguous and thus should be construed in favor of plaintiff is bolstered by the fact that defendant could have avoided ambiguity by drafting the policy to specifically exclude coverage for “theft by fraud, false pretense or trickery by imposters.””