Northwest Insurance Law Blog : Seattle Insurance Lawyer & Attorney : Williams Kastner Law Firm : Tacoma, Washington, Portland

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Earlier this week, two Washington courts rejected extra-contractual claims against first party property insurers that had paid out benefits and followed the appraisal provisions in their policies. 

In Pinney v. American Fam. Mut. Ins. Co. 2012 U.S. Dist. LEXIS 22328 (Feb. 22, 2012), United States District Court Judge Marsha Pechman granted summary judgment in favor of a property insurer that had paid to a homeowner, on a fire loss claim, consistent with the amounts awarded at appraisal.  Rejecting most of the homeowner's IFCA claim, Judge Pechman followed other recent decisions holding that alleged "violation of the enumerated WAC provisions alone is not sufficient to sustain a cause of action."  Judge Pechman allowed the insured to proceed on their extra-contractual claims to the extent that they were based upon the insurer's alleged failure to advise the insured of the alternative living expense benefits available under the policy.  

In Lloyd v. Allstate Ins. Co., 2012 Wash. App. LEXIS 340 (Feb. 21, 2012), the Court of Appeals (Div. II) affirmed the trial court's summary judgment ruling in favor of an automobile insurer who had paid the totaled value of a vehicle consistent with an appraisal award.  Rejecting the insured's bad faith claim, Division II concluded that, as a matter of law, the insurer had acted reasonably in its handling of the claim.   The appraisal award amount was nearly the same as the settlement amount that the insurer had offered before the insured demanded appraisal. 

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In a 7-1 decision in Matsuyak v State Farm & Casualty Co., handed down on February 9, 2012, the Washington Supreme Court extended the common fund rule adopted in Mahler v. Szucs, 135 Wn.2d 398 (1998) to circumstances where an automobile insurer pays personal injury protection (PIP) benefits to an injured passenger and later pays the passenger again to settle their tort claim against the insured driver.

In Mahler, the court held that a PIP insurer must pay a pro rata share of the insured's attorney's fees incurred to recover from an at-fault driver insured by another insurance company. In that instance, the PIP insurer benefited from the recovery because it received reimbursement for the PIP benefits it had previously paid out to the insured. Relying upon the premise that PIP coverage and liability coverage are two separate policies (even though they are in fact part of a single automobile insurance policy), the Supreme Court reasoned that the PIP insurer benefits from the passenger recovering from the liability insurer such that the PIP insurer must pay a pro rata share of the passenger's attorney's fees even though there is actually no common fund generated from a second insurer.

The majority also held that, contrary to Mahler, the injured passenger was entitled to recover her attorney's fees under the Olympic Steamship doctrine because the lawsuit was necessary for the passenger, as an insured, to obtain the benefits of the insurance contract, and was not merely a dispute over the amount of damages that the insurer should pay.

In dissent, Chief Justice Madsen strongly criticized the majority and questioned the rationale for both aspects of the decision.

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When a business applies for insurance, it is important to pay attention to details.  Among other things, an insured needs to list all of the entities for which the business needs coverage.  The Court of Appeals' recent decision in West Coast Pizza Co., Inc. v. United Nat. Ins. Co. (Div. I December 12, 2011) makes this point abundantly clear.

The coverage dispute stemmed from a car accident involving a delivery driver from a Mad Pizza restaurant.  The business owners also operated about 20 Domino's franchises through a separate corporation, West Cost Pizza, Inc. and, when they had purchased insurance for their businesses, they listed only West Coast Pizza as an entity to be insured.  Consistent with the application, the insurer, United National Insurance Company, issued a policy that listed West Coast Pizza as the only insured.   

After United National denied coverage for the Mad Pizza accident, the owners sued through West Coast Pizza, and argued that they had intended to obtain coverage for all of their pizza restaurants as evidenced by the the fact that their insurance application estimated the number of drivers employed across all of their outlets.  

The trial court and Division I both found that the insurer was entitled to summary judgment.  Division I reasoned that the policy unambiguously limited coverage to West Coast Pizza.  Division I also rejected the owners' mutual mistake theory, finding that their was no evidence that United National had intended to insure both entities.  In particular, the court pointed out that the application provided no information from which United National could have determined that the applicant had intended to insure their Mad Pizza restaurants as well as their Domino's franchises.