The Court of Appeals of the State of Oregon issued a decision on May 10, 2017 in the matter titled Hunters Ridge Condominium Assoc. v. Sherwood Cross, LLC, et al. that could potentially impact future Construction Defect cases in Oregon.
The Hunters Ridge appeal arose out of construction defect lawsuit. The Plaintiff Condo Association filed suit against the developer and general contractor. The general contractor then filed third-party claims against several subcontractors.
One subcontractor, Walter George Construction (“WGC”), was insured by American Family (“AmFam”). WGC tendered the claim to AmFam, who denied coverage based upon a Multi-Unit New Residential Construction Exclusion. Thereafter, WGC failed to appear or answer the Complaint.
Default Judgments were entered against WGC by the developer and general contractor, which included damages, attorneys’ fees, and costs. The remaining parties settled. The developer and general contractor, as part of their settlements, assigned claims against WGC to the Plaintiff Condo Association.
A Garnishment Proceeding followed, during which the Condo Association sought to obtain the proceeds of the applicable AmFam policy. Several Motions for Summary Judgment were filed. Those orders formed the basis of the appeal.
The Trial Court had granted AmFam’s Motion for Summary Judgment on the application of the Multi-Unit New Residential Construction Exclusion. On appeal, the Condo Association argued the exclusion was ambiguous and therefore could not be construed in favor of coverage.
The subject condo was mixed use – each of the three buildings had dedicated commercial space on the ground floor with residential units above them. The exclusion defined “multi-unit residential building” as “a condominium, townhouse, apartment or similar structure, each of which was greater than eight units built or used for the purpose of residential occupancy.”
AmFam argued that the condos, which contained more than eight residential units, were subject to the exclusion. On appeal, the Condo Association argued the exclusion was unenforceable for ambiguity. It claimed the exclusion could be read to either include or exclude multi-purpose buildings. The Court of Appeals agreed. Specifically, the Court determined the term “residential building” could be interpreted as either a multi-use building, or one that is purely residential. In light of the ambiguity, the Court reversed the Trial Court’s grant of summary judgment on that issue.
The Court of Appeals also reviewed the Trial Court’s denial of AmFam’s Motion which argued there was no coverage for attorneys’ fees and costs awarded in the underlying judgments.
The awards of fees were based upon the contractual indemnity provisions in the subcontracts, which obligated WGC to indemnify both developer and general contractor. The Trial Court held that the term “costs taxed against the insured” was ambiguous with respect to whether it included attorneys’ fees. AmFam appealed.
The Court of Appeals reviewed the fees in two ways. First, whether the fees were part of the “obligation to pay damages because of ‘property damage’ which the insurance applie[d].” Second, whether the fees constitute “costs” under the “Supplementary Payments” provision.
The Court determined that attorneys’ fees and costs can potentially constitute covered damages. The Court recognized that, under Oregon common law, when attorneys’ fees are claimed as consequential damages as a result of tortious or wrongful conduct by a defendant which causes a plaintiff to litigate with a third party, the standard American Rule does not apply.
The Court found that since the claims against the developer and general contractor arose in part from the WGC’s defective work, the insured was therefore liable for some portion of the fees incurred in defending those claims by the Condo Association. The Court concluded that such fees could qualify as consequential damages recoverable against the insured, even in the absence of a contractual indemnity provision. As consequential damages, the Court reasons, they could be considered “damages because of property damage” within the meaning of the policy.
The Court notes, however, that fees incurred by the developer and general contractor in litigating claims directly against the insured would not qualify as such “damages.” Such fees are not subject to the third-party litigation rule set forth above.
The Court did, however, determine that the fees incurred by the developer and general contractor in pursuing the insured directly may qualify as “costs” under the “Supplementary Payments” provision. The Court reasoned that since “costs” was not defined, it was required to interpret that term with the use of dictionary definitions. The Court found that the common definitions of the term “costs” could be construed to either include or exclude attorneys’ fees. Therefore, the Court held that the term was ambiguous, and ruled in favor of coverage. As a result, the term “costs” was construed to include attorneys’ fees, as well as expert expends, and the Trial Court’s denial of AFM’s Motion for Summary Judgment was upheld.
In addition the issues discussed above, the Court of Appeals reviewed the constitutionality of denying an insurer the right to a jury trial in the context of a Garnishment Proceeding. ORS 18.782 provides that, in a contested garnishment hearing at which the garnishee’s liability is determined, “[t]he proceedings against a garnishee shall be tried by the court as upon the trial of an issue of law between a plaintiff and defendant.” AmFam contended that this statute violated its constitutional right to a jury trial, pursuant to Article 1, Section 17 of the Oregon Constitution.
The Court agreed, and held that the insurer must be given the right to a jury trial as part of a full opportunity to litigate any coverage issues. As a result, the Court found that ORS 18.782 is unconstitutional to the extent it compels parties to a garnishment action to litigate coverage issues to the Court without the ability to elect a jury trial.
This decision obviously impacts several areas of law concerning insurance in the State of Oregon. If you have any questions or concerns about how this decision may impact any pending or future claims, please feel free to contact our office at any time.
A reasonable denial of coverage. Based on the weight of legal authority, insurers might wonder if such a thing even exists in Washington. A new decision from the Western District of Washington demonstrates that insurers will not always find themselves in peril after a denial. In Trofimovich v. Progressive Direct Insurance Company, 2017 U.S. Dist. LEXIS 125328 (W.D. Wa.), Honorable John Coughenour ruled that Progressive’s denial of an auto physical damage claim based on an exclusion for operation of the vehicle for hire was reasonable. The Court dismissed all contractual and extra-contractual causes of action based on that finding.
Trofimovich involved an accident occurring on June 17, 2016. After the accident, the insured contacted Progressive and gave a recorded statement. During that statement, the insured stated that he was working for Lyft, a ride share company, and that he had a passenger at the time of the accident. The insured further declined Progressive’s offer to arrange towing services based on his belief that Lyft would provide a tow.
The next day, the insured gave a second statement. In this statement, the insured indicated that the passenger in his vehicle at the time of the loss was not a paying customer. He claimed that he had given that passenger a ride earlier in the day, but that the ride at issue was being given for free due to a financial hardship on the part of the passenger.
On June 30, 2016, Progressive issued a letter denying coverage based on an exclusion that precluded coverage for damage occurring while operating the vehicle to transport passengers for a fee.
In July, the insured retained counsel, who issued an Insurance Fair Conduct Act Notice alleging that the denial was in violation of the statute. On July 29, 2016, without amending its coverage position, Progressive agreed to pay the claim. On August 26, 2016, the insured filed suit alleging breach of contract, bad faith, and violations of IFCA and the Washington Consumer Protection Act.
On Cross-Motions for Summary Judgment on all causes of action, the Court ruled that Progressive’s interpretation of the insured’s initial statement was reasonable. The Court further held as follows:
Progressive made the choice to reject one of two apparently conflicting statements, something that cannot be uncommon in claims adjusting. This alone does not render Progressive’s denial unreasonable. . .
Thus, the Court concludes as a matter of law that Progressive’s initial denial of coverage was reasonable.
2017 U.S. Dist. LEXIS 125328 at 7-8.
Based on this finding, the Court proceeded to grant Summary Judgment in favor of Progressive dismissing the insured’s causes of action for breach of contract, bad faith, violation of the Consumer Protection Act, and violation of the Washington Insurance Fair Conduct Act.
The Court’s decision in Trofimovich demonstrates that insurers can secure good results in Washington when they play by the rules and act reasonably, basing their decisions on sound reasoning and a straight-forward assessment of the facts.
Lether & Associates proudly represented Progressive in the Trofimovichcase. A copy of the decision is attached. If you would like to discuss the case, or any other matter, in further detail, please feel free to contact us at any time.
Washington Supreme Court Addresses the Insurance Fair Conduct Act
Perez-Crisantos v. State Farm et al., Wash. Sup. Ct., No. 92267-5, (February 2, 2017), is perhaps the most favorable ruling for insurers from the Washington Supreme Court in the past several years. The Perez-Crisantos Court was asked to decide whether, in the absence of an unreasonable denial of coverage or benefits, the Insurance Fair Conduct Act (IFCA) creates an independent and private cause of action for an alleged violation of Washington’s Unfair Claims Settlement Practices Regulations. Definitively, the Court held that it does not.
In Perez-Crisantos, the insured was involved in car accident and sustained injuries. The insured was not at-fault and ultimately settled with the at-fault party’s insurance carrier for its policy limits. The insured then tendered a claim for underinsured motorist (UIM) benefits to his insurance carrier, State Farm. State Farm paid its personal injury protection (PIP) limit of $10,000 in medical benefits and $400 in lost wages, but did not pay benefits under the UIM policy, taking the position that the insured had already been made whole. Arguing that State Farm unreasonably denied benefits, the insured sued State Farm alleging violations of IFCA, the Consumer Protection Act (CPA), chapter 19.86 RCW, bad faith and negligence. This lawsuit was stayed while the UIM claim was sent to arbitration.
The arbitrator found that the insured’s damages from the accident totaled $51,000. After adjusting for settlement with the at-fault party, PIP payments, and attorneys’ fees, the insured received $24,000 of new money from State Farm. The stay in the bad faith lawsuit was then lifted. State Farm moved for summary judgment arguing that it had acted reasonably and that the parties had simply had a reasonable disagreement about the value of the claim. The insured moved for partial-summary judgment arguing that State Farm had violated WAC 284-30-330(7)’s prohibition of forcing first party claimants to litigation to recover “amounts due under an insurance policy by offering substantially less than the amounts ultimately recovered in such actions.” The Spokane County Superior Court ruled in State Farm’s favor, finding no evidence that State Farm’s actions were unreasonable, and dismissed the case with prejudice.
The insured appealed directly to the Washington Supreme Court, seeking a determination as to whether IFCA creates an independent and private cause of action for an insurer’s technical violation of the Unfair Claims Settlement Practices Regulations in the absence of an unreasonable denial of coverage or benefits.
Like many of the federal courts before it, the Washington Supreme Court struggled with the interplay of paragraphs 2, 3, and 5 of the statute, and ultimately found that the statute was ambiguous. The Court further admitted that the result of an isolated regulatory violation was not clear.
[G]iven that the trier of fact must find that an insurer acted unreasonably under subsection (1), and that such a finding mandates attorneys’ fees under subsection (3) and gives the trial court discretion to award treble damages under subsection (2), it is not clear what a finding of a regulatory violation accomplishes. (emphasis added).
. . .
IFCA explicitly creates a cause of action for first party insureds who were “unreasonably denied a claim for coverage or payment of benefits.” IFCA does not state it creates a cause of action for first party insureds who were unreasonably denied a claim for coverage or payment of benefits or “whose claims were processed in violation of the insurance regulations listed in (5),” which strongly suggests that IFCA was not meant to create a cause of action for regulatory violations.” (Internal citations omitted) (emphasis added).
In finding IFCA ambiguous, the Court then analyzed IFCA’s official ballot title and determined that it was not the legislature’s intent to create a private cause of action for mere technical violations.
This language does not suggest an intent to create a private cause of action for regulatory violations. Quite the opposite: it suggests that IFCA creates a case of action for unreasonable denials of coverage and also permits treble damages in some circumstances. On balance, we conclude that the legislative history suggests that IFCA does not create a cause of action for regulatory violations. (emphasis added).
The Washington Supreme Court then advised that Washington’s current pattern jury instruction on IFCA is a misstatement of the law. The current pattern instruction concludes that IFCA creates a cause of action if an insurer “unreasonably denied a claim for coverage” or “unreasonably denied payment of benefits,” or “violated a statute or regulation governing the business of insurance claims handling.” Based on the foregoing, this instruction is clearly incorrect.
The Perez-Crisantos decision is a rare win for insurers in what has become a very difficult jurisdiction. This decision should prove extremely important as IFCA claims, and IFCA claims premised solely on technical violations of Washington’s insurance regulations, are becoming more and more prominent. To the extent that you have detailed questions about this case or how it may affect any of your pending or future claims or litigation, do not hesitate to contact our office.
Crowthers v. Travelers: The Federal Court Gets It Right Again on IFCA
The Washington State Insurance Fair Conduct Act, commonly referred to as “IFCA”, continues to cause significant concern among insurers conducting business in the State of Washington. The lack of any decisions from the Washington State Appellate Courts interpreting or applying the statute has further compounded the uncertainty relating to IFCA.
The Federal Courts, however, have continued to issue rulings on the application of IFCA in a number of scenarios. The trend of these decisions indicates that the Federal Courts are obtaining a better grasp on how IFCA is to be applied. These decisions provide better direction to all insurers and insureds in regard to these claims.
The most recent decision from the Federal Courts is Crowthers v. The Travelers Indemnity Company, United States District Court for the Western District of Washington, 2:16-cv-00606-RSL. In Crowthers, the Honorable Robert S. Lasnik again held that a technical violation of a regulatory provision under the Washington Administrative does not necessarily constitute an IFCA violation. In issuing this holding, the Court referenced the same result reached by Judge Robart in Schreib v. American Family Mut. Ins. Co., 2015 U.S. Dist. LEXIS 118189 (W.D. Wa.). As a result, it appears that the trend in at least the Western District is that an IFCA violation requires an actual unreasonable denial benefits or of coverage, and not simply a technical violation of the regulations.
Judge Lasnik then went on to address the fact that the Plaintiff in the Crowthers case had failed to establish any “actual damages” under IFCA, as well as a lack of any damage claims asserted as to the remaining extra-contractual claims asserted by Plaintiff. The Court held that a failure to establish actual damages as to these extra-contractual causes of action also warranted dismissal of the claims on a summary judgment motion. This decision again underscores the fact that in order to prosecute an IFCA claim, a party must prove actual damages or injuries. This ruling is again consistent with the ruling in Schreib.
The Crowthers case provides excellent legal precedent for insurers to utilize in defending IFCA claims. In fact, at least one court in King County, Washington (Seattle) utilized the Crowthers decision in dismissing an IFCA claim in a separate, highly contested consent judgment case arising from an underlying commercial construction defect matter.
Lether & Associates proudly represented Travelers in the Crowthers matter. If you have any questions in regard to this case, please let us know. In the meantime, a copy of this decision is attached.
On a different note, Lether & Associates is proud to add three new attorneys to the office. Congratulations to Nicole Morrow, Matt Erickson and Ben Miller. Each of our new rising stars brings a great attitude and experience to our team. This includes adjusting experience and defense experience. Our recent growth also means we have added an attorney licensed in the State of California to better service our California client base. Welcome aboard, everyone.