Espinoza v. Am. Commerce Ins. Co.

• Decision Date: 23 October 2014
• Docket Number: No. 31569–0–III.,31569–0–III.
• Court: Washington Court of Appeals
• Parties: Gabriel ESPINOZA, and Irma Espinoza, husband and wife, and the marital community composed thereof, Respondents, v. AMERICAN COMMERCE INSURANCE COMPANY, an insurance company, AAA Insurance Agency, a Washington Corporation, and Pamela S. Taylor and John Doe Taylor, husband and wife, and the marital community composed thereof, Appellants.

184 Wash.App. 176

336 P.3d 115

Gabriel ESPINOZA, and Irma Espinoza, husband and wife, and the marital community composed thereof, Respondents

v.AMERICAN COMMERCE INSURANCE COMPANY, an insurance company, AAA Insurance Agency, a Washington Corporation, and Pamela S. Taylor and John Doe Taylor, husband and wife, and the marital community composed thereof, Appellants.

No. 31569–0–III.

Court of Appeals of Washington, Division 3.

Oct. 23, 2014.

Daniel Edward Thenell, Thenell Law Group, P.C., Portland, OR, Jillian M. Hinman, Forsberg & Umlauf, P.S., Thomas Lether, Eric Jay Neal, Lether & Associates, PLLC, Seattle, WA, for Appellant.

Michael Thomas Watkins, Law Offices of Michael T. Watkins, Mountlake Terrace, WA, George Wallace McLean Jr., Law Offices of George W. McLean, Jr., Seattle, WA, Philip Albert Talmadge, Talmadge/Fitzpatrick, Seattle, WA, for Respondent.

Opinion

FEARING, J.

¶ 1 After a fire to their home, Gabriel and Irma Espinoza sued their homeowner's insurance company, American Commerce Insurance Company (ACIC) for recovery on the policy. ACIC denied coverage and rescinded the policy claiming that the Espinozas misrepresented facts when applying for insurance and when seeking recovery for the loss. Gabriel and Irma Espinoza also sued their insurance broker, AAA Insurance Agency (AAA), and insurance agent, Pamela Taylor.

¶ 2 A jury found that Gabriel Espinoza misrepresented material facts during ACIC's investigation of the fire claim but, contrary to jury instructions, apportioned responsibility to ACIC, AAA and Taylor. Because it could not reconcile the inconsistent responses in the jury verdict, the trial court ordered a new trial. AAA and Taylor thereafter settled. ACIC appeals the trial court's new trial order and also seeks this court's review of the trial court's denial of its pretrial motion for summary judgment and trial motion for judgment as a matter of law. We affirm the new trial order and decline to reach the other assigned errors.

FACTS

¶ 3 In February 2009, Gabriel and Irma Espinoza purchased a Wapato home. The Espinozas used electric space heaters to heat most of the home. They heated the bathroom with an electric, hardwired, wall-mounted heater.

¶ 4 On October 11, 2010, Gabriel Espinoza called AAA to obtain homeowner's insurance and spoke with AAA agent Pamela Taylor. Taylor interviewed Gabriel on the telephone and prepared a homeowner insurance policy application. The application asked the applicant to describe the home's primary heat source. Gabriel Espinoza claims he told Pamela Taylor that he heated the home with space heaters, although he is not sure if he mentioned space heaters during this initial conversation. Taylor claims Gabriel stated he heated the home with baseboard heat. In answer to the question, Pamela Taylor wrote “electric” on the insurance application.

¶ 5 On October 12, Irma Espinoza went to Pamela Taylor's office to sign the homeowner's insurance policy application. Taylor reviewed the application with Irma, although Irma testified that she only understands about 60 to 70 percent of the English she reads and hears. Regardless, Irma testified that she confirmed with Taylor that the Espinozas used “electricity” to heat their home. Clerk's Papers (CP) at 177. Irma signed the insurance policy application.

¶ 6 On October 12, Pamela Taylor submitted the Espinozas' insurance policy application to ACIC. ACIC issued a homeowner's insurance policy to the Espinozas the same day. It did not attach a copy of the application to the policy.

¶ 7 On November 30, a fire destroyed the Espinozas' home. Fire officials determined that a space heater too close to combustible material likely caused the fire. After the fire, the Espinozas submitted a claim for insurance benefits to ACIC. They requested payment to repair and rebuild their home.

¶ 8 ACIC retained independent adjusters Crawford & Company to investigate the claim. Crawford assigned Jim Rocha to investigate the fire. Rocha went to the Espinozas' home the day after the fire, took photographs, and assessed the damage. Rocha concluded the home was a total loss.

¶ 9 While examining the fire-ravaged home, Jim Rocha spoke to Gabriel Espinoza. Gabriel told Rocha he used electric space heaters to heat the home. Gabriel omitted the fact that the Espinozas also used an electric, hardwired, wall-mounted heater in the bathroom.

¶ 10 As part of its investigation, ACIC conducted Examinations Under Oath (EUOs) of Gabriel and Irma Espinoza and Pamela Taylor. Their accounts differed. Gabriel Espinoza testified at his EUO that he specifically told Taylor that he heated the home using space heaters. Taylor disagreed. She testified during her EUO that Gabriel told her they used electric baseboards to heat their home. Taylor recalled writing “BB,” referencing baseboard heating, on a parcel detail form as she interviewed Gabriel. CP at 918–19. Pamela Taylor further testified that, if an applicant informs her that a home is heated by space heaters, she ends the application process and informs the applicant he or she will need to purchase insurance elsewhere. Irma Espinoza testified that she told Pamela Taylor the couple used electricity to heat their home.

¶ 11 ACIC declined payment for the fire loss to the Espinozas' home and rescinded the insurance policy. In a March 29, 2011 letter, explaining the reason for denying coverage, ACIC wrote:

Your policy contains the following applicable provisions:

....

This coverage is void if, before or after a loss:

a. “you” or any “insured” has intentionally concealed or misrepresented:

1) a material fact or circumstance that relates to this insurance or the subject thereof; or

2) the “insured's” interest herein;

b. there has been fraud or false swearing by “you” or any other “insured” with regard to a matter that relates to this insurance or the subject thereof.

Your policy provides that there is no coverage for an insured who has intentionally misrepresented a material fact that relates to the insurance before or after a loss. Your policy also provides that there is no coverage for an insured who has falsely sworn to a matter relating to this insurance.

During the application process for your policy, you advised your agent, Pamela Taylor, that your home was heated with baseboard electricity, and you failed to tell her that in heating your home you actually relied solely on space heaters. Had American Commerce Insurance Company known that you used space heaters to heat your home, it would not have underwritten your policy. In going forward with writing your policy, American Commerce Insurance Company relied on your misrepresentation of the heat source in your home; the source of heat for your home was a material fact in the determination of whether a policy would be written for you.

In addition, Mrs. Espinoza, during your examination under oath, you acknowledged that you told Ms. Taylor that the home was heated by electricity. Mr. Espinoza, you, on the other hand, testified that you specifically told Ms. Taylor that you used space heaters in the home. As noted above, had you in fact told Ms. Taylor about the space heaters, American Commerce Insurance Company would not have underwritten your policy.

You have provided false information both during the application process, and the claims process, in an effort to ensure coverage.

For the reasons set forth above, your claim with American Commerce Insurance Company is denied.

CP at 200–03.

PROCEDURE

¶ 12 On June 30, 2011, Gabriel and Irma Espinoza filed suit against ACIC, AAA, and Pamela Taylor. In the complaint, the Espinozas alleged ACIC breached the insurance contract, violated Washington's Administrative Code (WAC) when processing the insurance claim, violated Washington's Insurance Fair Conduct Act (IFCA) Laws OF 2007, ch. 498, § 1, operated in bad faith, and violated Washington's Consumer Protection Act (CPA) chapter 19.86 RCW.

¶ 13 In their complaint, Gabriel and Irma Espinoza alleged Pamela Taylor breached her fiduciary and common law duties by failing to accurately and truthfully convey to ACIC the information they provided her. In addition, they alleged Taylor breached unspecified express and implied warranties. The Espinozas also alleged Taylor's actions are imputed to AAA under vicarious liability.

¶ 14 On August 30, 2012, ACIC moved for partial summary judgment, asking the trial court to conclude that, as a matter of law, it fully complied with the WACs, IFCA, and CPA and did not act in bad faith. The trial court denied ACIC's motion almost entirely. The court concluded issues of material fact precluded summary judgment on the CPA and IFCA claim, but concluded that ACIC's investigation was reasonable as a matter of law.

¶ 15 The Espinozas moved to exclude as evidence at trial their insurance policy application because ACIC failed to attach the application to the policy as required under RCW 48.18.080. On December 21, 2012, the court granted the Espinozas' request to exclude the physical application from trial.

¶ 16 During trial, Gary Williams, an expert on claims adjustment, testified for Gabriel and Irma Espinoza that ACIC violated several of his “universal rules” developed while in the insurance industry since 1968. Violating such rules amounts to bad faith, according to Williams. ACIC's letter denied the Espinozas' claim because, according to ACIC, the Espinozas advised Pamela Taylor that the home “was heated with baseboard electricity, and failed to tell her that in heating [their] home [the Espinozas] actually relied solely on space heaters.” CP at 202. In Gary Williams' opinion, the reasons given for denying the claim make no sense. Williams explained to the jury that “there is absolutely no debate about the fact that the home was heated with a built-in wall heater in the bathroom and a space heater in the living room, so it was not heated solely with space heaters. It ignores the facts.” Report of Proceedings (RP) at 512–13. Gary Williams also noted that space heaters are electric....