Greer v. Northwestern Nat. Ins. Co.
| Decision Date | 08 October 1987 |
| Docket Number | No. 52645-1,50285-4,52645-1 |
| Parties | John H. GREER, Petitioner, v. NORTHWESTERN NATIONAL INSURANCE COMPANY, a foreign corporation, Respondent, Lynda Peterson Greer, Petitioner. Lynda PETERSON, Respondent, v. John H. GREER, Respondent, Northwestern National Insurance Company, Petitioner. |
| Court | Washington Supreme Court |
Karr, Tuttle, Koch, Campbell, Mawer, Morrow & Sax, Mark R. Johnsen, Robert P. Karr, Philip A. Talmadge, Seattle, for respondent.
Davies & Pearson, Edward S. Winskill, Tacoma, for Greer.
Schweinler, Lowenberg & Lopez, Timothy J. Lowenberg, Tacoma, for Peterson.
We have before us two consolidated cases, a personal injury action and a related action over insurance coverage. In Peterson v. Greer ("personal injury action"), a passenger on a motorcycle sued the motorcycle's driver for personal injuries suffered in an accident. After the driver's insurance company refused to defend him, a default judgment was entered against the driver. The insurance company later moved to intervene to set aside the default judgment, but a trial judge denied the motion. The insurance company has appealed. In Greer v. Northwestern ("insurance action"), the same driver sued the insurance company for its refusal to defend him in the personal injury action. A different trial judge held that the insurance company's refusal to defend constituted a breach of contract. He then awarded damages in excess of the policy limits based on his finding that the insurance company acted in bad faith. All parties have appealed. In the insurance action, we affirm the trial judge's holding that the insurance company breached its contract. However, we reverse on the issue of damages, holding that the recovery cannot exceed the policy limits. Due to our holding in the insurance action, we are not called upon to reach the intervention issues raised in the personal injury action.
On May 28, 1979, John Greer lost control of his motorcycle and crashed while negotiating a freeway off-ramp. The accident caused severe injuries to Greer's passenger, Lynda Peterson. 1 At the time of the accident, Greer's motorcycle was insured with Northwestern National Insurance Company (Northwestern).
Greer's policy contains an exclusion that is crucial to the outcome of this case. This exclusion, entitled the "Guest Liability Exclusion", reads as follows: At the time when Greer purchased his policy, his insurance agent told him that under the Guest Liability Exclusion, he would not have coverage for claims brought against him by a passenger.
On January 15, 1980, Peterson served Greer with a summons and complaint alleging that he was negligent in causing her injuries. 2 The complaint was filed 2 days later. On January 18, Greer met with Northwestern's claims adjuster and showed him the summons and complaint. After reading the documents, the claims adjuster refused to defend Greer, based on the Guest Liability Exclusion.
In February 1980, Peterson signed a "covenant not to execute on judgment" in exchange for Greer's payment of $10. By so signing, Peterson agreed not to seek to collect against Greer's property any judgment recovered against him. Greer also agreed to cooperate with her in any subsequent action against Northwestern.
On March 11, 1980, a default order was entered against Greer. On July 18, the parties presented formal proof before Pierce County Superior Court Judge Worswick for entry of final judgment. At that hearing, Greer described how he caused the accident and Peterson testified as to the extent of her injuries. On October 17, Judge Worswick entered a final default judgment for Peterson in the amount of $555,297.86.
On December 11, 1980, Greer initiated the insurance action against Northwestern for its refusal to defend him. 3 The complaint in the insurance action provided Northwestern with its first knowledge that a default judgment had been entered against its insured. On March 5, 1981, Northwestern moved to intervene in the personal injury action and to vacate the default judgment, alleging that Greer and Peterson obtained the judgment through collusion and fraud. Judge Worswick denied these motions and Northwestern appealed.
Greer's complaint in the insurance action sought the following items of damage: the amount of the underlying default judgment, Greer's attorney fees in defending that underlying action, damages for infliction of emotional harm, punitive damages, and attorney fees under the Consumer Protection Act. Judge Brown of the Pierce County Superior Court entered summary judgment dismissing Greer's cause of action because his policy did not provide him with coverage. If there was no coverage, then Northwestern had no contractual duty to defend.
Greer appealed this decision to the Court of Appeals. Northwestern also had appealed the denial of its motions to intervene and vacate in the personal injury action. The two appeals were consolidated. The Court of Appeals concluded that there was no coverage under Greer's policy, and accordingly affirmed the summary judgment dismissal in the insurance action. By so holding, it did not have to decide the intervention and vacation issues of the personal injury action. Greer v. Northwestern Nat'l Ins. Co., 36 Wash.App. 330, 674 P.2d 1257 (1984). All parties sought review in this court.
While the petitions were pending, new evidence came to light. A deputy insurance commissioner, his curiosity triggered by reading the Court of Appeals opinion, discovered a letter in his files in which Northwestern officially adopted a position contradictory to its position in the Greer litigation. In that letter, a senior research analyst for Northwestern, Cecelia Clow, responded to the deputy insurance commissioner's interpretation of Northwestern's Guest Liability Exclusion. The deputy insurance commissioner had expressed to Northwestern his conclusion that the exclusion served only to deny coverage for claims brought by third parties against the passenger, and that there was still coverage for claims brought by a passenger against the insured operator. After the deputy insurance commissioner requested that Northwestern respond to this interpretation, Clow sent a letter agreeing with the deputy's analysis. This statement flatly contradicted the position Northwestern was taking in the Greer litigation, i.e., that claims brought by a passenger were excluded from coverage.
Upon receipt of this new evidence, Greer and Peterson moved in the superior court and this court to vacate the summary judgment entered in the insurance action. That judgment was vacated on August 3, 1984. 4 Northwestern's petition for review in the personal injury action was left pending in this court, subject to the resolution of the insurance action.
After further discovery, both parties again moved for summary judgment in the insurance action. Greer and Peterson argued that the Clow letter bound Northwestern on the issue of Greer's coverage and, therefore, Northwestern should be liable for the full $550,000 default judgment entered in the personal injury action. Northwestern argued that there was no coverage under Greer's policy, and that even if there was coverage, Northwestern would only be liable up to the limits of Greer's policy, $15,000. Judge Brown held that the policy covered Peterson's injuries because Clow's letter bound Northwestern. As to damages, however, Judge Brown took a middle road. He held that Greer and Peterson could recover beyond the $15,000 policy limits, but that they were not necessarily entitled to the full $550,000 amount of the default judgment. Rather, he held that Greer and Peterson could not recover anything until Peterson proved at trial: (1) Greer's liability to Peterson, (2) the extent of Peterson's damages, with the amount of the default judgment not being binding on the jury, and (3) the proximate causation of the default judgment by Northwestern's negligence. In effect, Judge Brown's ruling required Peterson and Greer to relitigate the personal injury action in order to determine damages in the insurance action. Judge Brown also held as a matter of law that Northwestern had acted in bad faith in its handling of the insurance action.
Northwestern now challenges the conclusions that it breached its contract and acted in bad faith, as well as the awarding of damages beyond its $15,000 policy limits. Greer and Peterson challenge the trial court's refusal to award them as damages the full amount of the underlying default judgment. Finally, if this court affirms the awarding of damages beyond the policy limits, Northwestern also seeks review of the denial of its motions to intervene in the personal injury action.
This court has already established certain principles for determining when an insurance company's refusal to defend its insured constitutes a breach of contract:
The general rule is that insurers who have reserved the right and duty to defend are obliged to defend any suit which alleges facts wherein, if proven, would render the insurer liable. However, alleged claims which are clearly not covered by the policy relieve the insurer of its right and duty to defend.
(Citations omitted.) State Farm Gen. Ins. Co. v. Emerson, 102 Wash.2d 477, 486, 687 P.2d 1139 (1984).
Northwestern included a provision in Greer's insurance policy in which it assumed the duty to defend him. Therefore, its refusal to defend represented a breach of its contract unless Peterson's claim was clearly not covered by Greer's policy.
A basic rule of construing insurance policies is that a court first looks to determine the parties' intent as expressed in their writing. 2 G. Couch, Insurance § 15:10 (rev. 2d ed. 1984); Tsapralis v. Public Employees...
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