Several of our recent updates have involved the Washington State Supreme Court’s ruling in Zhaoyun Xia v. ProBuilders Specialty Ins. Co. RRG, 188 Wn.2d 171, 393 P.3d 748 (2017). In Xia, the Supreme Court held that a pollution exclusion did not bar coverage for injuries due to carbon monoxide emissions because the efficient proximate cause of the loss was an underlying act of negligence. The Xiadecision was the first Washington appellate decision applying the efficient proximate cause rule to a third party liability claim. Our updates relating to the Xia decision have expressed concern as to how lower Courts might apply that decision in future matters.
A new decision issued out of the Eastern District of Washington, The Dolsen Companies, et al. v. Bedivere Ins. Co., et al., 1:16-cv-03141 (E.D. Wash. Sept. 11, 2017), sheds light on how Courts may handle the Xia ruling and efficient proximate cause issues going forward.
In Dolsen, several insureds (“The Dolsen Companies”) operated a farming operation that produced large amounts of manure as byproduct. The Dolsen Companies stored the manure in holding ponds and spread it on crops as fertilizer. The holding ponds leaked and caused seepage into the groundwater. In addition, The Dolsen Companies applied far too much manure on their land, which also resulted in seepage.
The Dolsen Companies were sued for the resulting groundwater contamination, and tendered a claim to their insurance carriers (collectively, the “Insurance Carriers”). The Insurance Carriers denied coverage based on their policies’ absolute pollution exclusion, and The Dolsen Companies sued the Insurance Carriers for breach of contract.
On summary judgment, the District Court held that the absolute pollution exclusion barred coverage, and that the Insurance Carriers’ denials were proper. The Court found that the absolute pollution exclusion applied because the seepage of manure into groundwater was a contaminate that met the policies’ definition of “pollution.” Moreover, the manure was “acting as a pollutant” because its contaminating attributes directly polluted the groundwater.
More interesting was the Dolsen Court’s treatment of the efficient proximate cause rule. The Court addressed the rule by applying the following analytical framework:
The distinguishing feature … is the relation between the initial act and the pollutant causing harm—viz., whether the initial peril was the polluting act (i.e., whether the incident involved pollutants in the first place) or whether the initial peril was some other act that incidentally led to a polluting harm. Although subtle, this framework is workable and leads to a clear result in this case: the initial act was intimately tied to the pollutant and thus the initial peril was the polluting act.
Applying this framework, the Dolsen Court found that the absolute pollution exclusion applied because “the initial act giving rise to the peril was an excluded harm and there is no other covered occurrence that otherwise led to the harm.” Specifically, with respect to the excess manure that was applied as fertilizer, only one relevant event led to the contamination; namely, the dispersal of manure directly onto the land. This dispersal was the polluting event and was the sole cause of the harm. Therefore, the pollution exclusion applied.
With respect to the seepage from the holding pond, the Court reasoned that the inadequate storage of the manure directly caused the seepage. The inadequate storage of manure was a polluting event and was the efficient proximate cause of the harm. There was also no other negligent act which preceded this polluting event. In contrast, in Xia the negligent installation of the water heater had preceded the polluting event of carbon monoxide emissions.
The Dolsen case presents an interesting example of how the Courts may handle the Xia decision and apply the efficient proximate cause rule going forward. It will interesting to see if other Courts adopt the analysis set forth in Dolsen when addressing the efficient proximate cause rule in the context of liability insurance coverage analysis.
For additional information regarding this or other insurance coverage issues, please feel free to contact the attorneys at Lether & Associates, PLLC.
For years, Oregon’s primary legislative device for compelling prompt settlement of insurance claims has been the availability of an attorney fee award for insureds who recover more than the amount tendered by an insurer within six months of the proof of loss in a lawsuit seeking coverage under ORS 742.061. Prior to the decision in Long v. Farmers Ins. Co. of Oregon, 360 Or 791 (2017), most believed that an insured had to actually obtain a judgment awarding monetary damages in the suit seeking coverage to be entitled attorney fees. However, in Long, the Oregon Supreme Court identified a new way that an insured can obtain an attorney fee award under ORS 742.061, which can apply even if the insured does not prevail in the suit seeking additional coverage.
In Long, the insured submitted a claim under a homeowner’s policy due to a water leak. Farmers promptly paid about $3,000 to the insured for the actual cash value of the claim. Shortly thereafter, the insured submitted estimates indicating that his ACV claim was worth more than $3,000. However, no further payments were made at that time.
About two years later, the insured filed suit against Farmers seeking additional ACV coverage. Farmers subsequently issued two voluntary ACV claim payments following a court-ordered appraisal. On the eve of trial, the insured submitted a proof of loss for his replacement cost claims. Farmers adjusted and paid the RCV claim three days later.
The verdict rendered by the court after trial found that the insured was owed less for his claim than what he received from Farmers before the suit was filed. Accordingly, judgment in favor of Farmers was entered. Nevertheless, the insured filed a petition seeking an award of attorney fees under ORS 742.061. In that petition, the insured argued that he was entitled to an attorney fee award because he “recovered” more than was timely tendered by Farmers based on the voluntary payments issued after the suit was filed. The trial court denied the insured’s petition because it believed that the insured had to obtain a judgment awarding monetary damages to be entitled to attorney fees under ORS 742.061.
On review, the Oregon Supreme Court decided that the “recovery” which must exceed the amount of any timely tenders made by an insurer does not need to be based on a judgment entered in favor of the insured. Accordingly, the Court held that voluntary payments given during litigation can qualify as a “recovery” which triggers entitlement to an attorney fee award under ORS 742.061.
In this case, the Court held that the insured was entitled to an attorney fee award for the work performed by his attorneys up until the time he received the additional ACV claim payments. However, the Court also ruled that the insured was not entitled to any further attorney fees because Farmers paid the RCV claim just days after that claim was submitted and the insured did not recover any more at trial than was timely tendered by Farmers.
The Long case reiterates the importance of determining and paying the full value of a claim within six months of the claim submission because it establishes that subsequent claim payments made during litigation will result in at least some attorney fee exposure. See also Jones v. Nava, 264 Or App 235, 240-241 (2014) (confirming that tenders must be made within six months of proof of loss to avoid attorney fee exposure, even if untimely tender exceeding ultimate recovery is given prior to filing of action). However, the decision is not completely adverse to insurers because it also confirms that the requirements for an attorney fee award must be separately met for each claim submitted, even if claims arise from the same loss.
If you have any questions about this case or how it may affect any of your pending or future claims, do not hesitate to contact our office.
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.