Oregon Auto. Ins. Co. v. Salzberg

• Citation: 85 Wn.2d 372,535 P.2d 816
• Decision Date: 22 May 1975
• Docket Number: No. 43487,43487
• Parties: OREGON AUTOMOBILE INSURANCE COMPANY, Respondent, v. Harvey SALZBERG, Defendant, Ralph J. Simpson, Petitioner.
• Court: Washington Supreme Court

Page 372

85 Wn.2d 372

535 P.2d 816

OREGON AUTOMOBILE INSURANCE COMPANY, Respondent, v. Harvey SALZBERG, Defendant, Ralph J. Simpson, Petitioner.

No. 43487.

Supreme Court of Washington, En Banc.

May 22, 1975.

Philip L. Burton, Seattle, for petitioner.

David H. Olwell, Seattle, for respondent.

FINLEY, Associate Justice.

This is a declaratory judgment action instituted by respondent Oregon Automobile Insurance Company to secure relief from responsibility under an automobile insurance policy issued by it to its insured. Respondent's insured is Harvey Salzberg who is a defendant in a tort action for damages brought by Ralph Simpson. The tort action has been stayed pending disposition of the instant declaratory judgment action. The trial court granted a summary judgment in favor of respondent, ruling that the insured had breached the cooperation clause, thereby relieving the insurer of any duty to defend Salzberg against Simpson's claim or to pay any judgment entered thereon. The Court of Appeals affirmed, 11 Wash.App. 666, 524 P.2d 461. We reverse and remand for proceedings in the trial court consistent with views expressed herein.

On May 11, 1970, Simpson was a passenger in an automobile driven by Salzberg and was injured when the vehicle left the road. Salzberg apparently became concerned about the possibility of losing his driver's license and automobile insurance policy because of the accident. Therefore, he falsely filed a stolen car report with the sheriff's office and similarly falsely notified his insurer that the vehicle had been stolen. Simpson has denied any knowledge of the filing of these false reports. The wrecked car was later discovered and the insurance company paid Salzberg $1,280 on the stolen car claim. In August, 1970, Simpson's attorney notified the insurance company that a claim for personal injuries was being made against Salzberg arising out of the accident. On September 2, 1970, Salzberg admitted to the insurance company that his earlier claim had been false and he then gave a complete statement of the circumstances surrounding the accident.

The essential issue for our determination is: under what circumstances may an insurance company be relieved of liability and the duty to defend an insured for an alleged breach by the insured of a cooperation clause in the insurance policy. As pertinent to, and controlling this issue, the trial court and the Court of Appeals considered two clauses in the insurance policy. The insurance policy itself is not in the record, and its provisions have accordingly been extracted from the briefs. What is commonly referred to as a 'cooperation clause' provides in part.

'Assistance and Cooperation of the Insured

The insured Shall cooperate with the Company and, upon the Company's request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the insured because of bodily (sic), property damage or loss with respect to which insurance is afforded under this policy. . . .'

(Italics ours.) Respondent's Brief p. 2. In what is apparently a separate section of the insurance policy, the 'no action' clause provides:

'No action shall lie against the Company unless, as a Condition precedent thereto, the insured shall have fully complied with all the terms of this policy nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the Company.'

(Italics ours.) Respondent's Brief p. 2.

The Court of Appeals, and apparently the trial court, construed these two provisions together and concluded that cooperation by the insured was a condition precedent to any liability of the insurer and to its duty to defend the insured.

Prior Washington cases on the subject of cooperation and notice of occurrence clauses are not totally harmonious but, in general, they appear to distinguish between policies in which the insured's cooperation is an express condition precedent and policies in which cooperation is covenanted but is not made an express condition precedent. If cooperation is not made an express condition precedent, then before the insurer may be relieved of its responsibilities under the policy, our cases have usually required, either expressly or implicitly, that the insurer demonstrate Not only a substantial and material breach by the insured, but also that the company Has incurred prejudice by the insured's failure to cooperate. See e.g., Shirley v. American Auto. Ins. Co., 163 Wash. 136, 300 P. 155 (1931); Taxicab Motor Co. v. Pacific Coast Cas. Co., 73 Wash. 631, 132 P. 393 (1913); McGillicuddy v. New Brunswick Fire Ins. Co., 126 Wash. 201, 217 P. 1000 (1923); Lienhard v. Northwestern Mutual Fire Ass'n, 187 Wash. 47, 59 P.2d 916 (1936).

On the other hand, if the policy expressly makes the cooperation or notice of occurrence clause an express condition precedent to the insurer's liability and its duty to defend, then a somewhat different analysis generally has ensued. For the insurer to relieve itself of its responsibilities under the policy, the cases have not required the insurer to show that it has been prejudiced by the insured's actions. Rather, the insurer has been required to demonstrate only that the insured's activities constituted a Substantial and material breach of the cooperation of notice of occurrence clause. See e.g., Sears, Roebuck & Co. v. Hartford Accident & Indem. Co., 50 Wash.2d 443, 313 P.2d 347 (1957); Van Dyke v. White, 55 Wash.2d 601, 349 P.2d 430 (1960); Shafer...