Brown v. State Farm Fire & Cas. Co., 11314-1-III

• Decision Date: 02 July 1992
• Docket Number: No. 11314-1-III,11314-1-III
• Citation: 831 P.2d 1122,66 Wn.App. 273
• Court: Washington Court of Appeals
• Parties: , 18 UCC Rep.Serv.2d 435 James A. BROWN and Myrna H. Brown, husband and wife, Respondents, v. STATE FARM FIRE & CASUALTY COMPANY, an Illinois corporation, State Farm Mutual Automobile Insurance Company, an Illinois corporation, Appellant.

Page 273

66 Wn.App. 273

831 P.2d 1122, 18 UCC Rep.Serv.2d 435

James A. BROWN and Myrna H. Brown, husband and wife, Respondents, v. STATE FARM FIRE & CASUALTY COMPANY, an Illinois corporation,

State Farm Mutual Automobile Insurance Company, an

Illinois corporation, Appellant.

No. 11314-1-III.

Court of Appeals of Washington,

Division 3, Panel Three.

July 2, 1992.

William R. Hickman, Reed, McClure, Moceri, Thonn & Moriarty, Seattle, Richard C. Feltman, Feltman, Gebhardt, Eymann & Jones Law Firm, Spokane, for appellant.

Dennis P. Hession, Richter, Wimberley, Sonja L. Peterson, Spokane, for respondents.

THOMPSON, Judge.

State Farm Mutual Automobile Insurance Company appeals a judgment of $80,616.29 entered in favor of its insureds, James and Myrna Brown, in their action for declaratory relief. The Superior Court held the Browns were the owners of a motor home which was stolen after they paid for it and after it was delivered to the dealer's lot, but before they took actual physical possession. Thus, the loss was covered by the Browns' State Farm policy, which provided for automatic coverage for newly acquired vehicles. The Superior Court also ordered State Farm to pay attorney fees the Browns incurred recovering the stolen motor home. We affirm.

On October 2, 1982, the Browns executed a retail order for the purchase of a 1983 Legend Mini-Home from R.V. Kingdom, Inc. Shortly thereafter, the Browns questioned the wisdom of their decision and attempted to withdraw their order. However, R.V. Kingdom, Inc., indicated it would hold the Browns to their agreement to purchase. On October 28, 1982, the Browns paid the full purchase price of $35,475.07 for the motor home, which included taxes and licensing fees.

On January 20, 1983, the motor home was delivered to R.V. Kingdom, Inc., by the manufacturer, along with title documents. On January 21, Peter Stout, one of the principals of R.V. Kingdom, Inc., executed a note and security agreement by which R.V. Kingdom, Inc., borrowed $24,626 from the Bank of Spokane and granted the Bank a security interest in the motor home. Sometime after January 21, the Browns went to R.V. Kingdom, Inc., inspected the vehicle, and accepted it as conforming to their contract. At that time, the Browns asked R.V. Kingdom, Inc., to keep the motor home on its lot and attempt to resell it. Pursuant to the advice of Kenneth Hutchinson, the other principal of R.V. Kingdom, Inc., the Browns did not have the Department of Licensing change title. Mr. Hutchinson also told the Browns R.V. Kingdom, Inc., had insurance that would cover the motor home while it sat on the lot.

Within 30 days, Mrs. Brown called their State Farm agent Robert Nebergall. The Browns had existing automobile insurance through State Farm. Mrs. Brown told Mr. Nebergall of their arrangement with R.V. Kingdom, Inc., for the resale of the motor home. He indicated they did not need to buy insurance until they removed the vehicle from the dealer's lot.

During the next year, the Browns kept in regular contact with R.V. Kingdom, Inc. On February 6, 1984, they decided to take the motor home from the lot. When they went to R.V. Kingdom, Inc., they learned the corporation and its principals had filed for bankruptcy in January 1984, and that the Bank of Spokane had repossessed their motor home. The Bank refused to concede the Browns had a superior interest in the vehicle, so the Browns filed suit to determine title in bankruptcy court on May 30, 1984. Mr. Hutchinson and Mr. Stout, the principals of R.V. Kingdom, Inc., were charged and convicted of criminal theft in connection with their pledging the Browns' motor home to the Bank.

On November 8, 1984, the Browns filed a claim for the loss of their motor home under their existing automobile insurance policy with State Farm. The insurance policy provided automatic coverage for thefts of newly acquired vehicles owned by the insureds. ¹ When State Farm questioned the application of the policy provision to these facts, the Browns filed this action for declaratory relief. State Farm subsequently denied coverage and told the Browns: "We suggest that you take whatever measures you deem necessary to protect your interests in this matter."

The Browns determined that continuing their litigation in bankruptcy court with the Bank of Spokane was necessary to protect their interest in the motor home. On December 9, 1985, the bankruptcy court awarded them the home; the decision was reversed in District Court on October 2, 1986, then reinstated by the Ninth Circuit Court of Appeals on February 1, 1988. When the Browns finally obtained possession of the motor home in April 1988, its fair market value was only $17,000. They had incurred $33,772.71 in attorney fees.

After trial, the court concluded the Browns acquired a property interest in the motor home no later than January 20, 1983, when it was delivered to the R.V. Kingdom, Inc., lot. As of that date, the vehicle was "newly acquired" within the meaning of the Browns' insurance policy. It was therefore insured by State Farm when R.V. Kingdom, Inc., gave the Bank a security interest in it on January 21. The court held State Farm breached its contract with the Browns by denying coverage, and the Browns were entitled to recover as damages: $35,475.07, the value of the vehicle on the date of the theft; $33,772.71, the attorney fees and costs incurred in the recovery of the vehicle; $1,776.51, the cost of repair; and $480, the cost of storage. The judgment was then reduced by $17,000, the value of the vehicle when recovered. With prejudgment interest of $25,652 and statutory costs and attorney fees, the judgment totaled $80,616.29.

The first question is whether the motor home was "owned" by the Browns at the time of the theft, as that term is used in the "newly acquired vehicle" provision of the insurance contract. State Farm contends the Browns did not own the vehicle until the dealer physically delivered it to them, which occurred after the Bank obtained the security interest. On the other hand, the Browns contend physical possession is but one indicia of ownership and that under the facts present here, they owned the vehicle from the time it arrived on the R.V. Kingdom, Inc., lot.

State Farm relies upon RCW 62A.2-401, which reads:

Insofar as situations are not covered by the other provisions of this Article and matters concerning title become material the following rules apply:

....

(2) Unless otherwise explicitly agreed title passes to the buyer at the time and place at which the seller completes his performance with reference to the physical delivery of the goods, despite any reservation of a security interest and even though a document of title is to be delivered at a different time or place (Italics ours.) According to State Farm, passage of title upon delivery of the vehicle under U.C.C. § 2-401(2) is equivalent to ownership. It cites cases from other jurisdictions which have quoted this section in determining whether a seller's insurance continued to provide coverage after delivery of a vehicle to a buyer. Pekin Ins. Co. v. Charlie Rowe Chevrolet, Inc., 556 N.E.2d 1367 (Ind.Ct.App.1990); Smith v. Nationwide Mut. Ins. Co., 37 Ohio St.3d 150, 524 N.E.2d 507 (1988); Motors Ins. Corp. v. Safeco Ins. Co. of Am., 412 S.W.2d 584 (Ky.1967).

The cited cases are distinguishable. The holdings do not support State Farm's assertion that a buyer can acquire ownership of personal property only upon the seller's physical delivery of the goods in question. While U.C.C. § 2-401(2) is relevant to the question of when a seller's ownership of goods terminates, other provisions of article 2 specifically address when a buyer's ownership commences.

The Washington comments to RCW 62A.2-401 state that "[t]he rules as to location of title provided by this section are intended as a supplement to" other provisions of article 2. U.C.C. § 2-401 covers residual situations, such as questions involving the seller's ownership of goods, for which there is no specific code solution for a problem influenced by title concepts. 67 Am.Jur.2d § 387, at 654-55 (1985). In declaring the Browns were the owners of the motor home and automatically covered under the terms of their policy, the trial court relied upon the specific language of RCW 62A.2-501(1), which provides:

The buyer obtains a special property and an insurable interest in goods by identification of existing goods as goods to which the contract refers even though the goods so identified are non-conforming and he has an option to return or reject them.

(Italics ours.) The quoted section indicates that the term "ownership", when used in reference to a buyer, is broader than "title" and does not require the buyer be in actual receipt of the goods. See 6C W. Willier & F. Hart, Uniform Commercial Code Reporter Digest § 2-501, at 2-464.2 (1984). ²

RCW 62A.2-501(1) accords with common law concepts of ownership. One commentator has defined that term, for purposes of the "newly acquired vehicle" clause, as "such ownership as an ordinary man ascribes to his own, the property right which he holds as owner, the right of user, and interest in its protection which goes with a sense of ownership." 12 R. Anderson, Couch on Insurance § 45:187, at 468 (2d ed. 1981). This definition incorporates the general rule of construction that language in insurance policies is to be interpreted in the manner in which it would be understood by the average person, and not in a technical sense. E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wash.2d 901, 907, 726 P.2d 439 (1986). See also Gingrich v. Unigard Sec. Ins. Co., 57 Wash.App. 424, 430-32, 788 P.2d 1096 (1990), which relied upon the intent of the parties and the nature of the transaction in holding that a person other than the one in possession owned the vehicle even though the person in possession was the registered title holder.

Based upon RCW 62A.2-501(1), and...