City of Medina v. Transamerica Ins. Co.

• Decision Date: 16 April 1984
• Docket Number: No. 10987-1-I,10987-1-I
• Citation: 680 P.2d 69,37 Wn.App. 360
• Parties: CITY OF MEDINA, a municipal corporation, Appellant, v. TRANSAMERICA INSURANCE COMPANY, a corporation, Respondent.
• Court: Washington Court of Appeals

Page 360

37 Wn.App. 360

680 P.2d 69

CITY OF MEDINA, a municipal corporation, Appellant, v. TRANSAMERICA INSURANCE COMPANY, a corporation, Respondent.

No. 10987-1-I.

Court of Appeals of Washington Division 1.

April 16, 1984.

Review Denied July 24, 1984.

Stafford, Frey & Mertel, A. Richard Dykstra, Seattle, for appellant.

Karr, Tuttle, Koch, Campbell & Morrow, Robert P. Piper, William J. Price, Philip A. Talmadge, Seattle, for respondent.

JOHNSEN, Judge. ^*

The City of Medina appeals from an order granting summary judgment to respondent Transamerica Insurance Company. The undisputed facts are that the owners of two adjacent residential lots in the City of Medina sought to move a house onto one of the lots. After several discussions with city officials regarding compliance with city ordinances, a building permit was issued on March 2, 1979. While the owners were in the process of moving their house on March 8, 1979, a city building inspector issued a stop work order on the ground that the project was not in compliance with Medina City Ordinance 148, § 1-1963. The owners had been specifically advised prior to moving the house that the requirements of the ordinance had been met. A request for a variance was denied on May 8, 1979.

Thereafter, on June 7, 1979, the owners filed suit against the City alleging, inter alia, that the variance had been wrongfully denied. The complaint prayed for a writ of mandamus compelling issuance of the building permit. The complaint also included a claim for damages based in part upon the following allegations:

19. The city created a special duty to the plaintiffs herein when Mr. Strickland and other city officials directly examined Ordinance No. 148, Section 1-1963, and determined that the plaintiffs had complied and issued a building permit.

20. Such duty was breached by the city wrongfully revoking such building permit by misinterpreting the statute at a later date or was breached when the city officials incorrectly advised [the owner] that he had complied with such ordinance and issued the building permit.

21. Subsequent to the issuance of the building permit, [the owner] expended considerable sums of money and effort in moving the house on such property and has been damaged because he is unable to proceed with completion of the project in such sums to be proved at time of trial.

22. By reason of the wrongful actions of the defendants in issuing an invalid building permit or in wrongfully revoking a valid building permit, the plaintiffs have been damaged in the sum of $40,000.00, costs and attorneys' fees, and such other sums to be proved at time of trial.

23. Such damages sustained by the plaintiffs herein were the direct and proximate result of the defendant's breach of [its] duties owed to the plaintiffs.

On June 21, 1979, the City tendered the defense of the suit to its general liability insurer, respondent Transamerica. Transamerica refused the tender and thereafter the trial court, without deciding the claim for damages, ordered that the City issue the building permit. The City appealed from the trial court's ruling. Pending appeal the suit by the owner against the City was settled, the owners agreeing not to move the building on the lot and the City agreeing to pay the owners the sum of $34,289.56.

The City then brought this action against Transamerica alleging that Transamerica breached its insurance contract by wrongfully refusing to defend the suit and pay the settlement amount. Both parties moved for summary judgment. The trial court granted Transamerica's motion and denied the City's motion and this appeal followed. Error is assigned to those two rulings.

An insurer under an indemnity policy is obligated to defend its insured against any lawsuit alleging facts which, if proved, would render the insurer liable under the policy. Seaboard Sur. Co. v. Ralph Williams' N.W. Chrysler Plymouth, 81 Wash.2d 740, 504 P.2d 1139 (1973). Transamerica relies on the following policy provisions in denying its obligation to defend this suit.

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence ...

"Property damage" is defined as

(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.

"Occurrence" is defined as

an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured;

The policy also provides that Transamerica is obligated to defend

any suit against the insured [City of Medina] seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient.

There is a series of cases which discuss the duty of a governmental entity to exercise reasonable care in issuing a building permit culminating in J & B Dev. Co. v. King County, 29 Wash.App. 942, 631 P.2d 1002 (1981), affirmed, 100 Wash.2d 299, 669 P.2d 468 (1983). The court there recognized the existence of a "special relationship" between a county and an applicant for a building permit, and that when an applicant justifiably relies on the validity of that permit and suffers loss due to the negligence...