As many of you likely recall, the Washington Supreme Court affirmed the trial court’s dismissal of the statutory extra-contractual claims asserted against an employee-adjuster on October 3, 2019 in Keodalah v. Allstate, 194 Wn.2d 339, 449 P.3d 1040 (2019). However, as we noted in our newsletter discussing the opinion, the Court seemingly left open the possibility that certain extra-contractual claims could be brought against adjusters based on the common law.
In particular, we noted that the majority opinion did not address whether a common law bad faith claim against an adjuster was legally sustainable in Washington. In fact, the dissent expressed a belief that such a claim should be recognized in Washington. Further, all of the Consumer Protection Act (“CPA”) claims addressed in Keodalah were per se claims based on violations of statutes and regulations applicable to insurers. The Keodalah court did not address so-called traditional common law CPA claims based on the Hangman Ridge elements proscribing any deceptive or unfair act or practice that occurs in trade or commerce, affecting the public interest and proximately causing injury to business or property.
A recent federal court decision has once again addressed the dispute over whether adjusters can be held liable under certain extra-contractual claims post-Keodalah. In Leonard v. First Am. Prop. & Cas. Ins. Co., 2020 U.S. Dist. LEXIS 23680 (W.D. Wash. 2020), Judge Ronald B. Leighton was confronted with a Motion to Remand after First American removed the Leonards’ state court action asserting various extra-contractual claims against First American and its adjuster. The Removal was based on the premise that the claims asserted against the non-diverse adjuster were fraudulently joined and precluded by Keodalah.
In granting the Motion to Remand, Judge Leighton expressly recognized that the Keodalah court left open the possibility that a common law bad faith claim against an insurance adjuster could be a viable cause of action in Washington. He also cited to Panag v. Farmers Ins. Co. of Washington, 166 Wn.2d 27, 41-42 (2009), wherein the Court held that no contractual relationship was necessary to prevail on a CPA claim, to support the proposition that a traditional CPA claim against an insurance adjuster could also be viable. While Judge Leighton recognized that these causes of action might eventually be dismissed or precluded, he ultimately ruled that “it is better to leave such novel questions of Washington State law to Washington State courts.”
Based on Judge Leighton’s analysis in Leonard, it appears that the Supreme Court’s decision in Keodolah may have only been a partial step in addressing the viability of direct causes of action against insurance adjusters in Washington. We will likely not know with certainty what, if any, claims may be brought against adjusters in Washington until common law bad faith claims and common law CPA claims against adjusters are tested in Washington appellate courts.
If you have any questions regarding the effect of the cases discussed herein or any other issues involving Washington insurance law, please do not hesitate to contact our offices.
As we all continue to deal with the social, commercial, and legal fallout from the COVID-19 pandemic, the world continues to turn. Lether Law Group hopes everyone is staying safe, healthy and positive.
New Washington Regulation
In non-coronavirus news, the Washington Office of the Insurance Commissioner has enacted a new Washington Administrative Code trade practice regulation that goes into effect on August 1, 2020. WAC 284-30-770. This new WAC relates to “Adverse Notification Requirements.” Going forward, for any coverage denial, final claim payment if it is less than what the insured claimed, or cancellation, termination, etc., the letter to the insured must contain the following language:
“If you have questions or concerns about the actions of your insurance company or agent, or would like information on your rights to file an appeal, contact the Washington state Office of the Insurance Commissioner’s consumer protection hotline at 1-800-562-6900 or visit www.insurance.wa.gov. The insurance commissioner protects and educates insurance consumers, advances the public interest, and provides fair and efficient regulation of the insurance industry.”
The foregoing language must be in the same font and size of the text of the rest of the letter and must appear either on page 1 or at the end of the letter.
Although the WAC does not go into effect for a couple of months, Lether Law Group is recommending that the above language be added to outgoing adverse claims correspondence immediately.
Also, although technically this WAC would not apply to ROR letters, it may be prudent to add the language to those correspondence as we often find that policyholders will argue that an ROR letter is tantamount to a denial.
New Washington Caselaw
In other developments, on May 7, 2020, the Washington State Supreme Court issued a decision reaffirming its long-held jurisprudence on the duty to defend. Robbins v. Mason County Title Ins. Co., 2020 Wash. LEXIS 288.
In Robbins, the insureds sought defense and indemnity from the title insurance provider on their property in a dispute with a local Native American tribe over the tribe’s claim that it had the right to harvest shellfish on the insureds’ property. The title insurer denied coverage and refused to defend the insureds. The denial was based on the title insurer’s conclusion that the tribe’s claim was an “easement” and that “[a] treaty between the federal government and a Native American Indian tribe is not a record that imparts constructive notice pursuant to Washington law.” Robbins, 2020 Wash. LEXIS 288, *5.
The Robbins’ then sued in Mason County Superior Court alleging breach of contract and bad faith. The Superior Court granted summary judgment in favor of the insurer. The Court of Appeals reversed, finding that not only was there a defense obligation, but also finding that the title insurer had acted in bad faith as a matter of law when it denied the defense. The Supreme Court accepted review of the Court of Appeals decision.
The Supreme Court affirmed, holding that the insurer breached the duty to defend in bad faith. The primary basis for the Supreme Court’s ruling is based on its prior decision in Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 229 P.3d 693, 2010 Wash. LEXIS 250. Where there is uncertainty in Washington law as to whether a defense is required, an insurer may not adopt its own interpretation of Washington law in order to justify denial of a defense. Because the title insurer in Robbins adopted its own interpretation of the law on a subject that the Washington Court’s had not addressed, the insurer placed its interests ahead of those of its insureds and acted in bad faith.
This result is frankly not too surprising. The Washington Supreme Court has been consistent on its stance on the duty to defend for the better part of the past two decades.
“If the insurer is unsure of its obligation to defend in a given instance, it may defend under a reservation of rights while seeking a declaratory judgment that it has no duty to defend. Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 93-94, 776 P.2d 123 (1989). A reservation of rights is a means by which the insurer avoids breaching its duty to defend while seeking to avoid waiver and estoppel. ‘When that course of action is taken, the insured receives the defense promised and, if coverage is found not to exist, the insurer will not be obligated to pay.’ ”
There is, however, one aspect of the Robbins decision that is novel and should be highlighted. The Washington Courts have long held that the duty to defend is triggered by the filing of a Complaint against an insured and the insured’s tender of that lawsuit to its insurer. VanPort, supra., Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 164 P.3d 454, 2007 Wash. LEXIS 555.
The insurer in Robbins argued that it could not have breached the duty to defend because the tribe’s harvest-rights claim had not been filed as a civil action, but merely was set forth in a demand letter to the insureds. The Supreme Court rejected that argument based on the insurer’s policy language, which stated that the insurer would defend any “claim or suit” to which the insurance applies. There has always been some ambiguity in Washington law regarding this issue and now the Supreme Court appears to have firmly resolved the issue. Insurers with “claim or suit” language should be prepared to assign defense counsel even when the claims against their insureds have not been formalized in a lawsuit.
If you would like to discuss these recent developments in Washington law or any other matters, please feel free to contact us at any time.
While we all continue to strive for a sense of normalcy in the midst of the ever-changing COVID-19 crisis, new arguments in support of purported coverage for COVID-19 related Business Interruption claims continue to emerge. One such recent argument is based on the April 13, 2020, ruling by the Supreme Court of Pennsylvania in Friends of Devito v. Wolf, No. 68 MM 2020, 2020 Pa. LEXIS 1987, (Apr. 13, 2020). In Friends of Devito, several businesses and one individual sought extraordinary relief from the Pennsylvania Governor’s Executive Order, which compelled closure of physical operations for non-life-sustaining businesses to reduce the spread of COVID-19.
The Petitioners argued that the order was invalid for a number of reasons including lack of constitutional authority. The Pennsylvania Supreme Court disagreed and found that the Governor did have authority for the Executive Order. In reaching its conclusion, the Court noted that the Governor had authority under the Pennsylvania Emergency Code to protect the public from natural disasters. Under the Emergency Code, the term “natural disaster” is defined to include catastrophes that result in “substantial damage to property, hardship, suffering or possible loss of life.” The Court held that the COVID-19 pandemic qualified as a “natural disaster” and fell within the same general class of disasters as the specifically enumerated “natural disasters” because they all involve “substantial damage to property, hardship, suffering or possible loss of life.”
The Friends of Devito Court went on to note that the Petitioners’ arguments ignored the nature of the virus including the way in which it is transmitted. Because the virus is transmitted by person-to-person contact, has an incubation period of up to fourteen days, can live on surfaces for several days, and carriers can be asymptomatic, the Court concluded that “any location (including Petitioners’ businesses) where two or more people can congregate is within the disaster area.” Thus, the Court rejected the argument that there had “been no disasters in the areas in which [the Petitioners’ businesses] are located.”
Based on Friends of Devito, attorneys are now raising the argument all properties are damaged just by the manner in which COVID-19 spreads. In other words, they are asserting that coverage would exist even in the absence of the actual presence of the disease at a specific location. In the same vein, policy-holder counsel are now arguing that property damage is not a necessary prerequisite to Business Interruption coverage where the policies provide coverage for Business Interruption caused by “direct physical loss of or damage to property.” They argue that businesses that were forced to close due to stay-at-home orders have suffered loss of property, regardless of whether there is actual contamination or other property damage at the business location, because the property is not available for their business use.
On the surface, both arguments are concerning for insurers faced with COVID-19 related Business Interruption claims. However, both arguments appear to conflate “loss of use of property” with “physical loss of” property. As such, they ignore the term “physical.” These types of arguments have already been rejected by several courts. These courts have held that the “physical loss” is not the same as “loss” in general because actual physical change to the condition of the insured property is required to qualify as “physical loss.” See, e.g., Ward Gen. Ins. Servs., Inc. v. Emp’rs Fire Ins. Co., 114 Cal. App. 4th 548, 556-57, 7 Cal. Rptr. 3d 844, 850-51 (2003); MRI Healthcare Ctr. of Glendale, Inc. v. State Farm Gen. Ins. Co., 187 Cal. App. 4th 766, 778-80, 115 Cal. Rptr. 3d 27, 37-38 (2010); Se. Mental Health Ctr., Inc. v. Pac. Ins. Co., 439 F. Supp. 2d 831, 837 (W.D. Tenn. 2006); and Phx. Ins. Co. v. Infogroup, Inc., 147 F. Supp. 3d 815, 825 (S.D. Iowa 2015).
While unpublished, a 2006 Washington State Court of Appeals case is instructive on the flaw in the newest COVID-19 arguments. In Washington Mutual Bank v. Commonwealth Ins. Co., the bank argued that “direct physical loss of” and “damage to” property have two separate meanings and were separated by the word “or”, such that the trial court erred in requiring actual physical damage to trigger coverage. The bank further argued that the term “loss” was broader than the term “physical damage.” The Washington State Court of Appeals rejected that argument and stated:
The language of this clause specifies that the loss must be “direct physical loss.” The clause does not use the word “loss” in the abstract. … When NWPT recommended evacuation, there was no actual physical loss to the property and no actual damage to the property. SeeWolstein v. Yorkshire Ins. Co., 97 Wn. App. 201, 211-12, 985 P.2d 400 (1999) (noting that language in a similar “all risks” policy required the insured property to sustain actual damage or physical loss to invoke coverage).
Wash. Mut. Bank v. Commonwealth Ins. Co., No. 56396-3-I, 2006 Wash. App. LEXIS 1316, at *7-8 (Ct. App. June 26, 2006).
While the actual COVID-19 coverage arguments have largely yet to be formally briefed, it seems likely that courts across the country will continue to apply the well-settled rules of interpretation for insurance policies and apply meaning to each word used in a policy instead of rendering certain language superfluous. We at Lether Law Group will continue to monitor the COVID-19 arguments and cases as they develop.
Lether Law Group is already actively defending insurers in multiple class action lawsuits filed by policyholders seeking Business Interruption coverage. We are open and available to assist in the defense of any individual or class action lawsuits that may be brought seeking this coverage.
If you would like any assistance in navigating the coverage issues involved in COVID-19 related claims, please feel free to contact us for a free discussion regarding your issues and how we can be of assistance.
As the COVID-19 health crisis continues in the United States, a number of insurers have already seen a significant increase in claim activity. This includes not only business interruption claims but also a significant increase in property claims. Unfortunately, one of the effects of any downturn in the economy will always include an increase in suspicious or fraudulent claims. Such claims will include intentionally-caused losses (for example, arson claims) and overstated claims.
Lether Law Group has already been retained in regard to a number of commercial arson fires involving businesses that were shut down due to the health crisis. We also expect that we will see a number of overstated claims in the homeowner and commercial markets.
Tom Lether began his career in 1988 primarily as an arson and insurance fraud lawyer. Over the last 32 years he has taken thousands of Examinations Under Oath, coordinated thousands of investigations, and has successfully tried a number of arson and fraud claims. This includes such claims as the Martin Pang fire loss where four Seattle firefighters were killed (still one of the most significant commercial arson losses in Washington State history), and residential arson and fraud claims such as the Martin Manglona case (the most significant homeowner’s arson fraud claim in Washington State history).
There are a number of techniques and specific skills involved with investigating fraudulent claims. Fortunately for insurers in the Northwest, the case law in the Northwest is very favorable for insurers in regard to these issues.
Lether Law Group expects that we will see a continued increase in the need to conduct Examinations Under Oath, coordinate claims investigations, defend insurers in fraudulent claims, and address any extra-contractual claims which result from claim denials.
If you are an insurer who is seeing an increase in these types of claims, please feel free to contact us for a free discussion in regard to the applicable law involving these claims, as well as some of the tools available to insurers.
As we enter day 29 of the Washington State shutdown order, it appears that the worst of the COVID-19 crisis in Seattle may be behind us. The weather in April has been fantastic. There have been sunny, clear days over the Emerald City. Boats, paddleboards, and kayakers have returned to Lake Union. Joggers, bikers, and walkers have flooded the bike trails in front of Lether Law Group’s office on Westlake.
On the work front, our attorneys, paralegals, and staff have gotten used to a new normal, working from home and continuing to serve our clients. Now that the end of the of the current restrictions appears to be close at hand, Lether Law Group has implemented new guidelines for workplace safety and have begun to bring in employees on a staggered schedule. It has been an entire team effort on behalf of everyone.
Finally, to prove that life can return to normal, we are pleased to announce that our Mama Goose hatched five baby chicks on April 19. Despite all of the sadness and fear in the world, mother nature has taken care of us. Her eggs were laid on March 26, a day after the shutdown order took effect in Seattle. Putting it into perspective, it really does not seem that long for these new lives to have been created and for all of us to have gone through this crisis. As we watched her goslings hatch into the world, we look forward to the new world that we are all entering into as the COVID-19 crisis slows down.
We hope everyone remains healthy and positive as we move forward.