Gossett v. Farmers Ins. Co. of Washington

• Decision Date: 24 December 1997
• Docket Number: No. 64368-7
• Citation: Gossett v. Farmers Ins. Co. of Washington, 948 P.2d 1264, 133 Wn.2d 954 (Wash. 1997)
• Court: Washington Supreme Court
• Parties: Richard C. GOSSETT and Margaret D. Gossett, husband and wife, Respondents, v. FARMERS INSURANCE COMPANY OF WASHINGTON, a domestic insurer, Petitioner.

Page 954

133 Wn.2d 954

948 P.2d 1264

Richard C. GOSSETT and Margaret D. Gossett, husband and wife, Respondents, v.FARMERS INSURANCE COMPANY OF WASHINGTON, a domesticinsurerPetitioner.

No. 64368-7.

Supreme Court of Washington En Banc.

Argued May 13, 1997.

Decided Dec. 24, 1997.

Clarke, Bovingdon & Cole, Mark Cole, Mark Mills, Seattle, Andrea Vingo, Montesano, for Petitioners.

Williams Law Office, Gary Williams, Port Angeles, for Respondents.

Bryan Harnetiaux, Debra Stephens, Spokane, amicus curiae for Washington State Trial Lawyers Association.

MADSEN, Justice.

In this action for homeowners insurance benefits the parties dispute the nature and extent of the insurable interest which Richard and Margaret Gossett had in an unfinished house destroyed by fire, as well as the constitutionality and propriety of attorney fees awarded under Olympic S.S. Co. v. Centennial Ins. Co., 117 Wash.2d 37, 811 P.2d 673(1991).We affirm the trial court's holding that the Gossetts had an insurable interest in the property only to the extent of improvements they made prior to the fire, and accordingly reverse the Court of Appeals' decision.We uphold the constitutionality of an attorney fees award under Olympic S.S. Co.

FACTS

In 1990, the Gossetts found an unfinished house in Tacoma which they wished to buy, complete, and sell at a profit.They offered $90,000 and estimated they would need another $60,000 to $70,000 to finish the house.Their offer was accepted by the owner, Mr. Gunns, after two previous offers expired.The Gossetts signed an earnest money agreement and had 30 days to arrange financing.They were unable to acquire conventional financing ¹ and, therefore, attempted to obtain a loan through a broker specializing in hard to place loans, Trusty Deed Services.They signed a fee agreement with Trusty Deed providing that in exchange for Trusty Deed obtaining financing on a best-effort basis, the Gossetts would pay a fee of five percent of the loan amount.Trusty Deed was unable to locate financing in the full amount desired by the Gossetts.Instead, it was able to obtain financing for the purchase price only.Further, the investor-lender providing the funds, Ms. Crennell, was willing to provide only temporary financing.In order to carry out their plans to purchase the house, therefore, the Gossetts had to obtain long-term financing.

In late August, the Gossetts spoke with a Farmers Insurance Company agent about insurance on the home.Mr. Gossett represented to the agent that the Gossetts would be the legal owners of the property.A policy was issued with the Gossetts as the named insureds and Trusty Deed as the mortgagee.According to the agent, the policy would not have been issued in the Gossetts' names had he known that the Gossetts were not legal owners.

On August 30, 1990, the Gossetts assigned all their interest in the purchase and sale agreement to Trusty Deed.They also signed an addendum to the purchase and sale agreement providing "Title to be taken in the name of Trusty Deed...."Clerk's Papers(CP)at 88.When the sale closed on September 5, 1990, title was placed in Trusty Deed, and Trusty Deed was listed as the buyer in the closing documents.There is evidence that Trusty Deed did not intend to buy or become record owner of the property.There is also evidence that title was placed in Trusty Deed because the Gossetts feared losing the sale to a back-up purchaser, as well as evidence that Ms. Crennell required title to be placed in Trusty Deed.Paul Anderson, who acted on behalf of Trusty Deed, stated that the Gossetts were to repay the money loaned by Ms. Crennell by October 4, 1990.However, the only promissory note in the record obligates Trusty Deed to repay Ms. Crennell for the loan.As events developed, the money was not repaid in a timely fashion.Ms. Crennell sued Trusty Deed on the promissory note and obtained a judgment against Trusty Deed.

The record contains no evidence of any written agreement obligating the Gossetts to repay any money loaned for purchase of the property or of any written agreement under which the Gossetts could purchase the property from Trusty Deed.

The Gossetts began to work on the house in early September.Mr. Gossett testified that on November 18, 1990, he was working on the house when he fell and knocked over a kerosene heater, causing a fire that destroyed the house.At the time, the Gossetts were storing some of their belongings in the unfinished house and their sons stayed in the house at least some of the time to watch over things.The Gossetts had been staying at a motel and planned to move into the house the next day.

At the time of the fire, the Gossetts still had not obtained long-term financing.Although Mr. Gossett testified he had obtained long-term financing, the evidence is equivocal at best as to whether the Gossetts had in fact found a source of long-term financing.The record does not show any commitment for such financing other than Mr. Gossett's claim that such financing had been secured.Although a letter from a Mr. Moore to Trusty Deed mentions "processing a loan" for the Gossetts, Mr. Moore declared that if there had been a commitment to provide financing, there would have been documentation to that effect; he had none, and the fact that he had no such documentation "confirms that no such agreement was ever made."CPat 231, 314.Also, although Mr. Gossett testified he had a commitment for long-term financing, he conceded there was nothing in writing.

After the fire, Trusty Deed was not able to pay Ms. Crennell in full and therefore transferred its rights in the property to her.

The Gossetts filed a claim with Farmers.Farmers paid the Gossetts for the loss of personal property destroyed in the fire and issued a check for $114, 818 payable to Ms Crennell, Trusty Deed, and the Gossetts.Nearly a year after the fire, the parties entered into a settlement agreement under which the Gossetts added $5,000 to the amount of the Farmers check, and Trusty Deed was paid $4,000 and Ms. Crennell was paid $115,818.Also as part of the settlement, the judgment Ms. Crennell had obtained against Trusty Deed was satisfied, and both Trusty Deed and Ms. Crennell quit-claimed the property to the Gossetts.

In October 1991, the Gossetts sued Farmers, claiming they were entitled to benefits for damage to the house and for loss of use.Farmers maintained the Gossetts had no insurable interest in the house, or, in the alternative, had only a limited interest.Farmers also maintained the policy was issued under a mistake of fact as to ownership of the house.Both sides moved for summary judgment on the issue of insurable interest.The trial court granted the Gossetts' motion, but ruled that their insurable interest was limited to the improvements they made prior to the fire.The parties then settled all claims, with the Gossetts reserving the right to appeal the issue of insurable interest.The trial court awarded the Gossetts $25, 912.50 in attorney fees.

Farmers appealed, and the Gossetts cross-appealed.The Court of Appeals partially reversed the judgment.Gossett v. Farmers Ins. Co., 82 Wash.App. 375, 917 P.2d 1124, review granted, 130 Wash.2d 1016, 928 P.2d 414(1996).The court held that an issue of fact remained as to whether and to what extent the Gossetts had an insurable interest in the house other than the improvements they made.The court expressly entertained the possibility of an insurable interest in profits the Gossetts expected from sale of the house once it was finished.The Court of Appeals affirmed the award of attorney fees and awarded the Gossetts attorney fees on appeal.We granted Farmers' petition for discretionary review.

ANALYSIS

On review of summary judgment, the appellate court engages in the same inquiry as the trial court.Honey v. Davis, 131 Wash.2d 212, 217, 930 P.2d 908, 937 P.2d 1052(1997).The facts and inferences therefrom are viewed in the light most favorable to the nonmoving party, and summary judgment may be granted when there are no material issues of disputed fact and the moving party is entitled to judgment as a matter of law.Id.;CR56(c).

Insurable Interest

The Farmers policy provides: "Even if more than one person has an insurable interest in the covered property, we shall not pay more than: (1) an amount equal to the insured's interest, or (b) the applicable limit of insurance."CPat 15.Pursuant to RCW 48.18.040(2), an "insurable interest" is "any lawful and substantial economic interest in the safety or preservation of the subject of the insurance free from loss, destruction, or pecuniary damage."As Farmers concedes, under this definition legal title to property is not dispositive of whether one has an insurable interest in property.Thus, the fact that Trusty Deed held title to the property at the time of the fire does not preclude the Gossetts from having an insurable interest in it.Farmers maintains, however, that the Gossetts had only a speculative, expectation interest in the property at the time of the fire.We agree that on the facts of this case, the Gossetts did not have an insurable interest in the property beyond the improvements they made.

The record shows that the Gossetts intended to purchase the property from Mr. Gunns.However, at the time the fire broke out, they had been unable to carry out that intent because of problems securing long-term financing for the purchase price and construction costs to finish the house.They clearly did not purchase the property.Instead, they assigned "all interest" in their purchase and sale agreement to Trusty Deed.CPat 86.All the closing documents list Trusty Deed as the buyer, and title was placed in Trusty Deed.The fact that the Gossetts did not purchase the property is further borne out by Mr. Gossett's own testimony.When Mr. Gossett was deposed, he testified about his attempt to secure long-term financing, and testified that h...