Yesterday, a 5-4 majority of the Washington Supreme Court held that certain auto insurance policies issued by Farmers Insurance Company of Washington required the company to pay for post-accident diminished value of repaired vehicles. The case arose out of a November 1998 automobile accident in which David Moeller’s Honda Civic CRX was damaged. Farmers paid the cost to repair the vehicle. Moeller acknowledged that the repairs were complete and acceptable. However, in May 1999, Moeller brought a class action breach of contract lawsuit against Farmers for failing to pay for the vehicle’s diminished value.
Our Supreme Court acknowledged that a majority of other jurisdictions have previously denied coverage for diminished value because an automobile policy’s reference to “repair or replace” unambiguously encompasses only a concept of tangible, physical value. Nevertheless, the Supreme Court disagreed with this view, noting that “the majority view’s framework ignores important presumptions in favor of the insurance consumer that are inherent in the rules of construction regarding insurance contracts.”
The court explained that the policy must be construed as the average person would read it. Through this lens, the majority held, a reasonable consumer looking at the relevant policy language would expect to be placed in the same position he/she was in prior to the accident.
The court also held the class was properly certified despite the difficulty of determining damages.
On July 5, 2011, Division 1 of the Court of Appeals of Washington held there was sufficient evidence for a jury to find that an insurer’s pre-suit claims handling constituted bad faith despite the fact that the insurer subsequently tendered policy limits after the plaintiff filed suit. Moratti v. Farmers Ins. Co. of Washington, 2011 WL 2611763 (2011).
The Insurance Research Counsel (“IRC”), a division of the American Institute for CPCU, which is an independent, nonprofit organization dedicated to providing educational programs, reports that the Washington Insurance Fair Conduct Act (“IFCA”) may have caused an increase in homeowners insurance claims cost in the state by as much as $190 million. The IRC report is available at http://www.ircweb.org/News/IRCWABadFaith_033011.pdf
On April 6, 2011, the Oregon Court of Appeals ruled that American Family Mutual Insurance Company (“American Family”) had no duty to defend its insured where the underlying complaint alleged only damage to the insured’s work and did not allege resulting property damage, such as water damage to other building components, that would have been covered by the policy. State Farm Fire and Cas. Co. v. Am. Family Mut. Ins. Co., 2011 WL 1262760, 4 (Or App, 2011). The opinion acknowledged that water damage to other components or contents could have been a natural result of the insured’s alleged negligent performance of the work identified in the complaint. However, the court considered only the policy and the allegations in the complaint in evaluating American Family’s duty to defend:
[T]he allegations in the [underlying] complaint are unambiguous. None of the allegations … allege damage to property other than the EIFS system identified in the particular specification, and none of the identified allegations allege water damage to other components or contents of the residence. Although water damage to other components or contents could have been a natural result from [the insured’s] alleged negligent performance of the work identified in the [underlying] complaint, such damage was not a necessary result of [the insured’s] … alleged negligence. Because that water damage was not a necessary result of [the insured’s] alleged negligence and was collateral in nature, the [underlying plaintiffs] were required to specially plead allegations of such water damage before evidence of it could be properly admitted. It follows that defendant had no duty to defend against the [underlying] negligence claim because the allegations of their complaint did not allege injury to property covered by defendant’s policy. Thus, the trial court erred in granting summary judgment for plaintiff and denying defendant’s motion for summary judgment.
Newmont USA Limited v. All American Home Assurance Co., United States District Court for the Eastern District of Washington, Cause No. CV-09-0033-JLQ, March 3, 2011 Order on PIL Motion for Partial Summary Judgment
The insurer sought a declaration by the court that the scope of the personal injury liability coverage did not encompass Newmont and Dawn’s liability declared in a CERCLA cost recovery action brought by the United States, which only included claims under CERCLA and no common law claims for trespass or nuisance. The court disagreed and ruled, “the claims filed against the Plaintiffs herein by the United States are analogous to trespass, nuisance, and interference with the use of private occupancy and encompassed with the stated Coverage P for claims of “wrongful entry” or “invasion of the right of private occupancy.”
Despite the fact the underlying case was resolved at the trial court level and is on appeal, the court found that there was an issue of fact regarding “whether the Plaintiffs in fact committed covered offenses for which [the insurer] is obligated to provide indemnity.”