Daniels v. State Farm Mut. Auto. Ins. Co.
| Decision Date | 16 July 2018 |
| Docket Number | No. 75727-0-I,75727-0-I |
| Court | Washington Court of Appeals |
| Parties | Lazuri DANIELS, individually, and on behalf of all those similarly situated, Appellant, v. STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY, Respondent. |
Matthew James Ide, Ide Law Office, 7900 Se 28th St. Ste. 500, Mercer Island, WA, 98040-6004, for Appellant.
Joseph D. Hampton, Kathryn Naegeli Boling, Betts, Patterson & Mines, P.S., 701 Pike St. Ste. 1400, Seattle, WA, 98101-3927, Frank Falzetta, Jennifer Hoffman, Shephard Mullin Richter & Hampton LLC, 333 South Hope Street 43rd Floor, Los Angeles, CA, 90071, for Respondent.
PUBLISHED OPINION
¶ 1 When interpreting a term or phrase in an insurance contract, we view the term or phrase in the context of the entire contract and not in isolation. We consider the insurance policy as a whole, giving the policy a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance. Where possible, we harmonize provisions of the contract that appear to be in conflict to give effect to all of the contract’s provisions. But we avoid a literal, strained or forced interpretation which could lead to absurd results. In this case, Lazuri Daniels purchased an automobile insurance policy from State Farm Mutual Automobile Insurance Company (State Farm). Under the terms of the policy, State Farm has the right to recover payments it is obligated to make, but it may only exercise that right after Daniels has been fully compensated for damage or loss. The policy also provides that Daniels pay a deductible to cover the first $500 of the loss.
¶ 2 When Daniels’ vehicle was damaged in a collision, she paid the deductible and State Farm paid the remaining amount of the cost to repair her car. When State Farm recovered 70 percent of the amount it paid for the repair from the tortfeasor’s insurance company, it also recovered 70 percent of Daniels’ deductible payment and paid it to her. Daniels contends State Farm violated the policy because it did not pay her the full amount of the deductible. She claims that before State Farm could exercise its right to recover the payments it made, the policy requires that she be "fully compensated" for her loss which she argues includes the full amount of the deductible. State Farm contends that it satisfied the policy’s terms because Daniels was fully compensated when it paid the cost to repair her car. It disputes that, as that term is used in the policy, "fully compensated" includes Daniels’ deductible. The trial court agreed with State Farm and dismissed Daniels’ claims.
¶ 3 We hold that State Farm fully compensated Daniels for her loss when it paid for the repairs of the car and properly exercised its right to recover that payment. We affirm.
¶ 4 Lazuri Daniels’ car was damaged in a three car accident. State Farm insured her vehicle for collision coverage with a $500 deductible. Daniels paid the deductible and State Farm paid the remaining cost to repair the car.
¶ 5 In subrogation, State Farm sought payment for the repairs from Geico, which insured one of the other drivers. Attributing 70 percent fault to its client, Geico agreed to pay 70 percent of the cost to repair Daniels’ car. Pursuant to insurance regulation, State Farm also sought reimbursement for Daniels’ deductible. It returned $350, or 70 percent, of her deductible to Daniels.
¶ 6 Daniels filed a complaint asserting that State Farm violated the insurance policy by failing to fully reimburse her deductible with funds obtained in its subrogation effort against Geico. She pleaded claims for breach of contract, tort of bad faith, and conversion, and she requested class action certification.
¶ 7 State Farm moved to dismiss the complaint. Meanwhile, not satisfied with the reimbursement amount from Geico, State Farm sought arbitration. The arbitrator determined that Geico’s client was 100 percent at fault for the accident. State Farm recovered and gave Daniels the remaining $150 of her deductible.
¶ 8 The trial court granted State Farm’s motion to dismiss. Daniels appeals.
¶ 9 Daniels argues that the trial court erred in dismissing her complaint. She contends that State Farm did not comply with the terms of its policy when it failed to return her full deductible before retaining money it received in subrogation.
¶ 10 We review a CR 12(b)(6) dismissal de novo. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings, Inc., 180 Wash.2d 954, 962, 331 P.3d 29 (2014). Dismissal is warranted if the court concludes beyond a doubt that "the plaintiff cannot prove any set of facts which would justify recovery." Tenore v. AT&T Wireless Services, 136 Wash.2d 322, 330, 962 P.2d 104 (1998).
¶ 11 Interpretation of an insurance contract is a question of law that we also review de novo. Averill v. Farmers Ins. Co. of Wash., 155 Wash. App. 106, 118, 229 P.3d 830 (2010). Because they are generally contracts of adhesion, courts look at insurance contracts in a light most favorable to the insured. Id. ). A contract of insurance should be given a fair, reasonable and sensible construction, consonant with the apparent object and intent of the parties, a construction such as would be given the contract by the average person purchasing insurance. Morgan v. Prudential Ins. Co. of Am., 86 Wash.2d 432, 545 P.2d 1193 (1976) (citing Ames v. Baker, 68 Wash.2d 713, 415 P.2d 74 (1966) ). "Where possible, we harmonize clauses that seem to conflict in order to give effect to all of the contract’s provisions." Kut Suen Lui v. Essex Ins., Co., 185 Wash.2d 703, 710, 375 P.3d 596 (2016). We also give the contract a practical and reasonable rather than a literal, strained or forced interpretation which would lead to an absurd conclusion. Morgan at 434, 545 P.2d 1193. "The insurance contract must be viewed in its entirety; a phrase cannot be interpreted in isolation." Allstate Ins. Co. v. Peasley, 131 Wash.2d 420, 424, 932 P.2d 1244 (1997).
¶ 12 The policy language at issue here states:
Clerk’s Papers at 80. (Emphasis added).
¶ 13 Daniels contends that the policy unambiguously conditions State Farm’s right to recover its payments on Daniel’s full compensation for her property loss, including her full deductible. Daniels argues that in the absence of a conflicting policy definition, the term "loss" can only mean "the total amount of the insured’s damages."1 Appellant’s Reply Br. at 7. Thus, she contends that State Farm has no right to subrogation until she receives full compensation for the total amount of her loss, which would include that part of the loss covered by her deductible.
¶ 14 State Farm argues that "fully compensated" means payment of the insured’s property loss less the deductible. And, because it paid this amount, State Farm contends that under the policy, it is entitled to subrogation of her claims. We agree with State Farm.
¶ 15 Daniels reading of the insurance contract is flawed in a number of respects. First, Daniels asserts that under the contract, State Farm has no right to seek recovery at all, unless and until its insured obtains a full refund of his or her deductible. "Whatever rights State Farm may have to recover its payments, it does not have those rights until after its insured has been fully compensated for the loss." Br. of Appellant at 15. And to the extent State Farm has a right to seek recovery, it "has no such rights until its insured receives full compensation." Id. at 17. But reading the contract to preclude State Farm’s subrogation unless Daniels first obtains a full refund of her deductible leads to absurd results. Under Daniels reading of the contract, before State Farm could assert a subrogation claim against a third party, one of two things would have to occur. First, State Farm would have to refund the deductible that Daniels paid, which would make the provision requiring the payment of the deductible meaningless. Or, second, Daniels would have to obtain reimbursement from the third party on her own. And if she failed to do so for any reason, or simply chose not to, State Farm would be barred from seeking recovery of the payments it made from the responsible third party.
¶ 16 In addition, Daniels’ reading of the contract is inconsistent with WAC 284-30-393, which places the burden of pursuing a refund of the insured’s deductible on the insurer. Under that regulation:
The insurer must include the insured’s deductible, if any, in its subrogation demands. Any recoveries must be allocated first to the insured for any deductible(s) incurred in the loss, less applicable comparable fault. Deductions for expenses must not be made from the deductible recovery unless an outside attorney is retained to collect the recovery. The deduction may then be made only as a pro rata share of the allocated loss adjustment expense....
The regulation recognizes that insureds often lack the resources or incentive to pursue recovery of what is very often a small amount of money. It therefore places the burden of collecting the refund on the insurer. But the regulation assumes that the insurer’s ability to proceed with a...
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Daniels v. State Farm Mut. Auto. Ins. Co.
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