by sohalang | Sep 9, 2010 | Blog News, Uncategorized
The Washington Supreme Court held today in
Holden v. Farmers Ins. Co. that an insured was entitled to recover sales tax under an actual cash value (“ACV”) loss settlement provision in her renter’s insurance policy because of ambiguity regarding whether ACV includes sales tax.
The claim arose out of a fire to Laura Holden’s apartment, which damaged her personal property. Ms. Holden’s policy provided for settlement at ACV, but included an endorsement that would have allowed her to recover at replacement cost if she replaced the property within 180 days of the loss. Ms. Holden elected not to replace the damaged property. The carrier paid Ms. Holden $1,174, based upon the fair market value (“FMV”) of her loss. (This was apparently a rather small fire.) The loss payment, however, did not include sales tax. Ms. Holden argued that the ACV payment should have included an adjustment based upon sales tax even though she did not replace the damaged property.
In its 6 to 3 decision, the Washington Supreme Court held that the following provision was ambiguous regarding whether Ms Holden was entitled to recover sales tax:
Covered loss to property will be settled at actual cash value. Payments will not exceed the amount necessary to repair or replace the damaged property, or the limit of insurance applying to the property, whichever is less.
The policy defined ACV as FMV but did not define FMV. The Supreme Court acknowledged that in another (non-insurance) context FMV “is the amount of money which a well informed buyer, willing but not obliged to buy the property, would pay, and which a well informed seller, willing but not obligated to sell it, would accept.” However, the court held this definition of FMV did not resolve the sales tax issue and that there is nothing intrinsic in the notion of FMV that necessarily includes or excludes sales tax.
In construing the loss settlement provision, the court considered evidence regarding the insurer’s claims handling practices in unrelated claims including that the insurer sometimes determined ACV by applying depreciation to replacement cost value, and sometimes included sales tax in its determination of replacement cost.
The court noted that the policy’s loss settlement provision does not clearly exclude or include sales tax and does not define FMV. The fact that the loss settlement provision references replacement cost, combined with the carrier’s claims handling practices, and the lack of a definition of FMV, according to the majority, created an ambiguity, which must be resolved in favor of the insured.
by sohalang | Aug 3, 2010 | Blog News, Uncategorized
On August 3, 2010, Division II of the Washington Court of Appeals held that allegations that an insurer acted in bad faith are not sufficient to defeat attorney-client privilege. Rather, the plaintiff must show an exception, such as the fraud exception. Moreover, this exception requires a showing of actual fraud, not just bad faith.
Cedell v. Farmers Ins. Co., No. 38921-5-II, __ Wn. App.__, __P.2d__ (2010).
Farmers Insurance Company of Washington (“Farmers”) insured Bruce Cedell. After his home was damaged by fire, Cedell made a first party claim under his Farmers policy. The trial court found that the fire department and the fire cause investigator hired by Farmers determined that the cause of the fire was accidental. However, for reasons not explained in the appellate decision, Farmers considered the claim “suspicious.” At some point, Farmers hired an attorney to provide coverage advice regarding Cedell’s claim.
A year after the fire, Cedell filed an insurance bad faith lawsuit against Farmers. In response to discovery requests, Farmers withheld and redacted information based upon attorney-client privilege and the work product doctrine. Cedell then filed a motion to compel arguing that attorney-client privilege and work product did not apply in bad faith litigation.
The trial court determined that in-camera review of the documents withheld was appropriate because (1) Farmers made a one-time offer of $30,000 with an acceptance period that fell when its coverage counsel was out of town; (2) Farmers threatened to deny Cedell coverage without explanation; and (3) the damage to the house was eventually determined to be far more than Farmers’ $30,000 offer. After conducting in-camera review, the trial court held that attorney-client privilege and work product did not apply, and ordered Farmers to produce all documents withheld and/or redacted based on attorney-client privilege and work product, imposed sanctions, and awarded attorney fees for Farmers’ failure to provide the information.
Division II granted Farmers’ motion for discretionary review. The Court of Appeals held that in the first party context insurance companies are entitled to attorney-client privilege despite allegations of bad faith. In addition, “[a]n insurance company does not lose attorney-client privilege protection simply because its litigation opponent raises an issue where advice of counsel may be relevant.”
Next, the court of appeals noted that “[t]he elements of bad faith and fraud are . . . separate and distinct,” and explained that although Farmers’ conduct may have constituted a violation of insurance regulations, the evidence was not adequate to support a finding of fraud. Accordingly, the court reversed and remanded holding that the trial court had abused its discretion in conducting an in-camera review and that discovery sanctions were inappropriate.
by sohalang | Apr 15, 2010 | Blog News, Uncategorized
In
Certain Underwriters at Lloyd’s London v. Valiant Ins. Co., 2010 WL 1427571, 5 (April 12, 2010) (published) the Washington Court of Appeals held that an anti-stacking provision applied to limit affiliated insurers’ exposures to the limits of one insurance policy.
Two affiliated insurers, Valiant Insurance Company (“Valiant”) and Northern Insurance Company of New York (“Northern”), insured Stratford Construction, LLC (“Stratford”) under three successive primary policies. Valiant and Northern are both Zurich-affiliated companies. Certain Underwriters at Lloyd’s London (“Underwriters”) insured Stratford during two subsequent policy periods, and Great American provided excess coverage for several policy periods. The Valiant and Northern policies limit recovery to one policy limit per “occurrence” when the insured holds two or more policies issued by companies affiliated with Zurich.
GCG Associates, LP (“GCG”), hired Stratford to construct a four-story retirement center in Lynnwood, Washington. Stratford completed construction in 2000. In 2006, GCG filed two suits against Stratford related to the construction, which were later consolidated. Expert reports indicated that water damage resulted from a variety of construction defects including improper installation of roofing or stucco by one subcontractor and improper installation of windows by another.
Stratford settled the consolidated construction defect lawsuit for $5 million. Valiant contributed the $1 million limits of its policy, but Northern did not contribute to the settlement. Underwriters, Great American, and subcontractors apparently made up the difference. Underwriters sued Valiant and Northern for contribution and subrogation.
The Court of Appeals agreed with the trial court’s determination that the continuing water intrusion damage to the building was caused by one “occurrence” even though the damage occurred at different locations and at different times. The Court of Appeals found that the “key to the present case is the Zurich policy definition of ‘occurrence’ as an ‘accident, including continuous and repeated exposure to substantially the same general harmful conditions.’ The continuous and repeated exposure of Chateau Pacific to harmful moisture that gradually intruded through the building envelope over a five year period from different sources fits this definition.” The Court of Appeals also held that the anti-stacking provision did not conflict with the stated policy limits and did not violate public policy. The Court then concluded that “[b]ecause the policies issued by Zurich’s affiliated companies all applied to the same occurrence, the anti-stacking provision limited coverage to the highest applicable policy limit under any one of those policies.”
by sohalang | Mar 19, 2010 | Blog News, Uncategorized
On March 18, 2010, the Washington Supreme Court held that an “assault and battery” exclusion did not apply to allegations that post-assault negligence enhanced a claimant’s injuries.
Am. Best Food, Inc. v. Alea London, Ltd. (Wash. S. Ct., March 18, 2010). Moreover, the insurer’s refusal to defend “based upon an arguable interpretation of its policy was unreasonable and therefore in bad faith.”
American Best Food, Inc. operates Cafe Arizona, a Federal Way nightclub. Michael Dorsey was shot outside the club. After he was shot, the club’s security guards carried him inside. The club owner, however, instructed the security guards to remove Dorsey from the club. Dorsey sued Cafe Arizona alleging that security guards “dumped him on the sidewalk.” In an amended complaint, he contended that they exacerbated his injuries by dumping him on the sidewalk after he was shot.
Cafe Arizona tendered defense to its insurance carrier, Alea London, LTD (“Alea”). Alea declined the tender, citing an exclusion in its policy for injuries or damages “arising out of” assault or battery. Cafe Arizona then sued Alea for breach of contract, bad faith, and violation of the Washington Consumer Protection Act. The trial court dismissed Cafe Arizona’s claims on summary judgment. The Court of Appeals partially reversed, holding that Alea breached its duty to defend and that summary dismissal of the bad faith and indemnification claims was inappropriate. Our Supreme Court accepted review.
After distinguishing Washington precedent regarding the meaning of “arising out of,” and considering out of state authority, the Washington Supreme Court held that “arising out of” did not include the alleged post-assault negligence:
We find persuasive precedent from other states that have found claims that the insured acted negligently after an excluded event are covered. Further, a balanced analysis of the case law should have revealed at least a legal ambiguity as to the application of an “assault and battery” clause with regard to post-assault negligence at the time Cafe Arizona sought the protection of its insurer, and ambiguities in insurance policies are resolved in favor of the insured.
The Washington Supreme Court concluded that Alea had breached its duty to defend. Moreover, by a five-to-four majority, the court held that Alea acted in bad faith as a matter of law when it declined to defend. Writing for the majority, Justice Tom Chambers explained, “if there is any reasonable interpretation of the facts or the law that could result in coverage, the insurer must defend.” Moreover, Alea “put its own interest ahead of its insured when it denied a defense based on an arguable legal interpretation of its own policy.” Accordingly, “Alea’ s failure to defend based upon a questionable interpretation of law was unreasonable and Alea acted in bad faith as a matter of law.”
by sohalang | Dec 28, 2009 | Blog News, Uncategorized
On December 24, 2009, the Washington Supreme Court held that the Washington Condominium Act’s judicial enforcement provision was preempted by the Federal Arbitration Act (“FAA”). Satomi Owners Ass’n v. Satomi, LLC, _Wn.2d_, _P.3d_, 2009 WL 4985689, 1 (2009). In three consolidated construction defect cases brought by homeowners associations, condominium developers sought to enforce arbitration clauses incorporated into unit owner purchase and sale agreements. The court held that the FAA requires it to enforce such arbitration agreements, including the terms providing for binding arbitration.
The court rejected arguments by one of the homeowners associations that it was not bound by the arbitration provision because the unit owners rather than the association had signed the purchase and sale agreements. The court stated that the property in question, the condominium project’s units, common elements, and limited common elements are owned by the unit owners, not the homeowners association.
The court explained that where the arbitration clause provides that disputes regarding the arbitrability of particular claims must be arbitrated, it is for the arbitrator, rather than the courts, to decide whether a particular claim is subject to arbitration. Accordingly, the court did not determine which of the homeowners associations’ claims were subject to arbitration.
by sohalang | Nov 4, 2009 | Blog News, Uncategorized
Association of Unit Owners of Nestani, a Grecian Villa v. State Farm Fire and Casualty Company, District of Or, Dkt No. 6:08-cv-00790-AA, Opinion and Order Dated November 2, 2009, Judge Ann Aiken
The insured Association alleged that the loss was covered under the Policy as a collapse caused by hidden decay of weight-bearing structural members and sought benefits of $5,078,320.25, costs and disbursements, and attorneys’ fees. State Farm denied that the Policy covered the alleged conditions at Nestani and moved for summary judgment on the grounds that the claimed loss did not occur during the Policy period, and that any loss did not arise from a collapse caused by hidden decay as defined in the Policy.
The court reasoned that under Oregon law, the insured had the initial burden of establishing conditions of coverage, then the insurer has the burden of proving that the policy excludes coverage, and finally the burden to show an exception to an exclusion falls back upon the insured. The court found that the Association failed to establish that it met the conditions of coverage under the Policy, or that its loss was covered as an exception to the exclusion for decay.
The court found that the term “commencing” during the policy period in relation to collapse coverage was ambiguous, finding that “”commencing” may be reasonably read to include each identifiable instance of collapse, regardless of whether similar loss occurred prior to the Policy period. However, plaintiff fails to prove that any identifiable loss commenced during the effective Policy period, January 1, 2005 through January 1, 2007. Repeatedly, plaintiff’s experts denied that it was possible to prove when the purported collapse of structural members occurred.”
The court stressed further:
Here, plaintiff has the burden to set forth specific facts to show loss commencing during the Policy period. Plaintiff does not, and, according to its own experts, cannot identify a specific instance of collapse that occurred during the Policy period; thus, I would have to assume, based on speculative probability, that a structural member fell into pieces during the Policy period. The court cannot take such a leap. For the same reasons, plaintiff fails to show that it brought legal action within two years after the date on which the property loss occurred. Under the statutorily mandated language of the Policy, actions brought more than two years after occurrence of the loss are barred. . . . Defendant argues that any loss was caused by severe decay that began decades ago, and that plaintiff cannot prove that the loss occurred after June 4, 2006. Plaintiff again maintains that the inception of loss is each instance of collapse, and that Perrault’s testimony creates a genuine issue of fact that instances of collapse occurred after June 4, 2006. Plaintiff is correct that the inception of loss begins at the point of collapse, not the point of decay, . . . However, Perrault’s speculative deposition testimony does not create a genuine issue of fact for summary judgment. Plaintiff fails to present specific facts showing that an instance of loss occurred after June 4, 2006. Accordingly, plaintiff cannot show that it brought suit within two years after occurrence of the loss to meet that condition of coverage.
The court additionally refused to follow the Malbco case regarding the definition of collapse, but instead looked to the express definition of collapse in the policy requiring “actual falling down.” The court further found that the term “sudden” as used in the policy contained a temporal element and refused to follow the reasoning in McCormick and Baxter in this regard.
