Cumming v. United Services Automobile Association
| Decision Date | 08 December 2020 |
| Docket Number | 52913-1-II |
| Court | Washington Court of Appeals |
| Parties | NATHANIEL D. CUMMING AND JENNIFER CUMMING, and the marital community comprised thereof, Appellants, v. UNITED SERVICES AUTOMOBILE ASSOCIATION, a Texas Reciprocal Inter-Insurance Exchange and Unincorporated Association, doing business in Washington; Respondents, and BRIGHTON ENTERPRISES, INC., a Washington Corporation; and ROSS KOLDITZ, an individual, Defendants. |
UNPUBLISHED OPINION
Nathaniel and Jennifer Cumming appeal from the trial court's ruling vacating the order of default entered in favor of their rental property insurance provider, United Services Automobile Association (USAA). The Cummings also appeal from the order granting summary judgment in favor of USAA and dismissing their breach of contract, bad faith, Insurance Fair Conduct Act (IFCA), and Consumer Protection Act (CPA) claims.
The Cummings argue that (1) the trial court abused its discretion in vacating the order of default because USAA's failure to timely respond to their summons and complaint was not the product of excusable neglect. The Cummings request that this court reinstate the order of default and remand the case for further proceedings consistent with that order.
If this court affirms the order vacating default and reaches the summary judgment issue, the Cummings argue that their breach of contract claim should not have been dismissed because (2) USAA was equitably estopped from raising new grounds for denying coverage in its motion for summary judgment. If this court disagrees and considers USAA's new grounds, the Cummings argue that a material issue of fact remains regarding (3) whether they intentionally misrepresented the use of the property and (4) whether the loss would have been covered based on the level of methamphetamine residue detected. The Cummings maintain that their breach of contract claim should not have been dismissed because a (5) genuine issue of material fact remains regarding whether their claim was covered under the vandalism provision of their policy. Finally, the Cummings argue that (6) a material issue of fact remains, precluding summary judgment dismissal of their bad faith, IFCA, and CPA claims because USAA failed to conduct a reasonable investigation prior to denying coverage. The Cummings request that this court reverse the order granting summary judgment in favor of USAA and remand the case for further proceedings.
We hold that (1) the trial court did not abuse its discretion in vacating the order of default. We further hold that the trial court erred in dismissing the Cummings' breach of contract claim because (2) USAA was equitably estopped from arguing that the Cummings' claim was not covered based on their alleged material misrepresentation and the level of methamphetamine contamination. In addition, we hold that the Cummings' breach of contract claim withstands summary judgment because (5) an issue of material fact remains regarding whether their loss was covered under the vandalism provision of the policy. Finally, we hold that (6) the trial court improperly dismissed the Cummings' bad faith, CPA and IFCA claims because a material fact remains regarding whether USAA reasonably denied their claim.
Accordingly we affirm the trial court's ruling vacating the order of default, but we reverse the trial court's order granting summary judgment, remanding for further proceedings as to the Cummings' breach of contract claim, bad faith, CPA, and IFCA claims.
The Cummings own a house in Lacey, Washington that they use as a rental property. Nathaniel Cumming is a Captain in the U.S Army on active duty, and he and his family are stationed out of state.
In 2013, a tenant contaminated the property with methamphetamine. The Cummings remediated the damage installed new flooring and drywall, and painted the interior walls. Subsequent testing did not detect the presence of methamphetamine following these efforts.
On September 29, 2015, the Cummings requested a quote for rental property insurance from USAA. According to USAA, at that time, the Cummings confirmed that the property was not used for farming, business, or commercial purposes. USAA issued a rental policy to the Cummings on October 13, 2015. This policy "insure[d] against 'sudden and accidental' direct physical loss to tangible property . unless excluded" elsewhere within the insurance contract. Clerk's Papers (CP) at 268.
On October 1, 2015, the Cummings entered into a contract with Vanguard Realty, designating Vanguard as the exclusive leasing agent for their rental property. In addition to leasing the property, Vanguard agreed to "furnish all services required for the management of property." Id. at 301. For example, Vanguard was authorized to make any needed repairs or alterations required for maintenance.
Vanguard leased the Cummings' property to Ross Kolditz for a term of two years, ending on October 31, 2017. Kolditz used the property as an assisted living facility for his company, Brighton Enterprises. However, the lease agreement stated that the "Property is rented as a private residence for . . . Ross Kolditz, Jeffrey Dean." Id. at 306. There was no information within the lease agreement indicating that the property would be used for anything other than a private residence for the two listed occupants. Kolditz was the only tenant to lease the property following the Cummings' remediation of the prior methamphetamine damage.
After the lease term ended, the Cummings asked a friend to assist them in conducting a walk-through inspection of the property. The friend discovered damage to the flooring and walls, including bleach stains on the carpets. The Cummings were planning on selling the home, and real estate agents showing the property to prospective buyers reported "an odd smell in the house that was negatively affecting their ability to sell it." Id. at 124. Because of their prior experience in 2013, the Cummings suspected that the residents of the assisted living facility or one of the employees may have produced methamphetamine inside the home.
The Cummings filed a claim with USAA on November 13, 2017. According to the USAA claim notes dated November 14, 2017, the Cummings had reported to USAA that their prior tenant used the home as an assisted living facility for disabled adults. The Cummings informed USAA that they suspected either the residents or an employee may have produced methamphetamine inside the home. The Cummings had also advised USAA that their former property manager was "ineffective" and that "getting the move out inspection was a lengthy task that involved the [Better Business Bureau]." Id. at 204.
USAA hired Bio Clean Inc. to conduct testing of the home for methamphetamine residue. Bio Clean conducted the testing and confirmed that their swabs detected the presence of methamphetamine residue inside the home, but that the levels were below the Washington guidelines for required remediation. The Cummings discussed the test results with USAA but maintained that they wanted to remediate the property because they would be required to disclose the presence of methamphetamine to any potential buyers.
On December 18, after Bio Clean had completed its full report, USAA discussed the results with the Cummings and confirmed that remediation was not necessary. However, the Cummings nevertheless wanted to proceed with remediation. The Cummings explained that the home had a smell and that there were bleach stains on the carpet, and they requested coverage for the cost of "removal of all drywall, all finishing products, carpets flooring, duct systems [etc]." Id. at 229. Aside from the testing done by Bio Clean, USAA did not conduct any inspection of the property or otherwise investigate the reported damage to the floors or attempt to identify the source of the smell.
On December 20, 2017, USAA sent the Cummings a letter denying their claim. USAA denied the claim because the requested repairs were "due to pollutants in [the] rental property." Id. at 160. USAA explained that the Cummings' policy expressly excludes coverage for "remediation or repair of damages caused by the discharge, dispersal, seepage, migration, release or escape of pollutants." Id. at 160. The policy provisions USAA identified in their denial letter included the pollutants exclusion and the provision regarding diminution in value, "meaning any reduction in value that would remain after damaged property is repaired or replaced." Id. at 74. No other provisions of the policy were identified as the reason for denial. The denial letter likewise did not separately address the claims regarding damage to flooring or the smell.
The Cummings retained an attorney who submitted an IFCA 20-day notice[1] on January 30, 2018 to both USAA and to the Office of the Insurance Commissioner by certified mail. USAA acknowledged receipt of the notice on February 26, 2018 and stated that it will address the claim on receipt of the complaint. USAA did not provide any additional response to the IFCA 20-day notice.
The Cummings filed their complaint on March 6, 2018. In their complaint, the Cummings acknowledged that their tenant Kolditz, leased the property for use by Brighton Enterprises as an assisted living facility. The Cummings alleged that USAA unreasonably denied their claim, breached its obligations under their contract, breached its duty of good faith and fair dealing, and violated IFCA and the CPA. The Cummings also filed claims against Kolditz and Brighton Enterprises.[2] The Cummings served the complaint on the Office of the Insurance Commissioner as required by RCW 48.05.200(1), and service was accepted on March 9, 2018. ...
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