Hayden v. Mutual of Enumclaw Ins. Co.
| Decision Date | 15 June 2000 |
| Docket Number | No. 68096-5.,68096-5. |
| Citation | 1 P.3d 1167,141 Wash.2d 55 |
| Court | Washington Supreme Court |
| Parties | Dennis HAYDEN, Randy Hayden, and Cosmas St. Hilaire, d/b/a Hayden Farms, Petitioner, v. MUTUAL OF ENUMCLAW INSURANCE CO., a Washington corporation, Respondent. |
Velikanje, Moore & Shore, John Jay Carroll, Yakima, for Petitioner.
Murray, Dunham & Murray, Jeffory Emerson Adams, Ronald Lewis Unger, Seattle, for Respondent.
Gordon & Polscer, Joseph D. Hampton, Keating Bucklin & McCormack, Stewart Andrew Estes, Seattle, David A. Kulisch, Spokane, for Amicus Curiae on behalf of Washington Defense Trial Lawyers.
Bryan P. Harnetiaux, Debra Stephens, Spokane, for Amicus Curiae on behalf of Washington State Trial Lawyers Association.
Pamela A. Okano, Seattle, for Amicus Curiae on behalf of National Association of Independent Insurers and Allstate Insurance Company.
Hayden Farms seeks review of the summary judgment dismissal of its suit against the Mutual of Enumclaw Insurance Company (MOE) for recovery of insurance benefits and breach of the duty to defend. We hold that the duty to defend was properly denied based on the policy's "loss of use" exclusion; thus, the Court of Appeals' decision is affirmed.
Hayden Farms planted rootstock in the spring of 1988 intending to graft scion wood (a tree branch with several buds from a particular species of fruit tree) onto the stock to create a variety of fruit trees. Clerk's Papers (CP) at 92.1 In November, Hayden Farms hired James Krause, a self-proclaimed grafting expert, to perform the grafting in the spring of 1989. Both Krause and Hayden Farms provided the scion wood to be used.
The grafting was postponed until September 1989, however, because the buds were damaged while in Krause's care. New scion wood was provided by both Krause and Hayden Farms. When Krause finally performed the grafting, less than 10 percent of the grafts were successful. Krause accepted the blame, attributing the failure to a new type of tape he used. Krause agreed to try grafting again in the spring of 1990. Again, both Krause and Hayden Farms provided new scion wood. The grafting was again postponed, however, because Krause improperly stored the scion wood. Notably, the rootstock remained undamaged.
Fed up, Hayden Farms hired someone else to perform the grafting in the fall of 1990; this time nearly all of the new grafts were successful. Hayden Farms subsequently sued Krause for breach of contract and negligence.
The relevant portion of Hayden Farms' complaint states:
In the spring of 1988, [Hayden Farms] planted approximately 22 acres of Julian rootstocks for the purpose of budding and/or grafting over onto such trees or rootstocks certain highly desirable varieties of plums, peaches and nectarines. [Hayden Farms] contacted defendant James Krause for the purpose of having him perform the necessary budding or grafting;.... In the spring of 1989, the bud wood to be used apparently froze, and Mr. Krause stated he could bud in August. Mr. Krause did not do the work until the end of September, 1989, and, in doing so, either improperly performed the budding or used improper materials or both. The buds loosened without fault on the part of plaintiffs, and did not take. Mr. Krause then advised he would collect additional scion wood and perform grafting to the trees in the spring of 1990. Although [Hayden Farms] attempted to get Mr. Krause to do the grafting work, he failed to comply, asserting that the graft wood did not store, that it was his fault, and he would do the work in the fall of 1990. [Hayden Farms], having sustained a substantial crop loss by reason of the delays occasioned by the default on the part of defendant Krause, and having reason to believe that Mr. Krause will not satisfactorily perform or respond in damages to [Hayden Farms], have determined that other procedures will be followed.
CP at 239-40 (emphasis added). The complaint further states that CP at 240.
Krause tendered defense of the suit to MOE through which Krause had a comprehensive general liability (CGL) policy. Under the policy, MOE agreed to indemnify Krause for all damages that he becomes legally obligated to pay because of "PROPERTY DAMAGE to which this insurance applies, caused by an OCCURRENCE." CP at 122.
Under the policy, "property damage" and "occurrence" are defined as follows:
CP at 262 (emphasis added). "Accident" is not defined in the policy. MOE declined Krause's tender of defense citing exclusions (g)(6) and (7). These exclusions, better known as the "insured's work/product" exclusions, exclude "property damage" that is limited to the insured's own work or product. See CP at 122.
In a subsequent settlement agreement between Hayden Farms and Krause, Krause assigned his rights against MOE to Hayden Farms. When MOE refused to pay the settlement amount, nearly $500,000, Hayden Farms sued for declaration of coverage and damages for MOE's breach of its duty to defend. MOE counter-claimed for declaration of no coverage and a finding that the settlement agreement was unreasonable. Both sides moved for summary judgment.
CP at 280. The trial court granted MOE's motion and dismissed the suit.
On appeal, Hayden Farms claimed that, in an action alleging breach of an insurer's duty to defend, insurance regulation WAC 284-30-380 precludes an insurer from relying on grounds not stated in its initial denial letter. Br. of Appellants at 15. The Court of Appeals, however, rejected this argument finding that WAC 284-30-380 was not violated and that preclusion is improper absent prejudice. The Court of Appeals further found that the "loss of use" exclusion clearly supported MOE's denial of its duty to defend, relying partly on a portion of Hayden Farm's deposition testimony admitting that the rootstock was not damaged, and that its claims were merely economic and based only on the delays in production caused by Krause's poor work. Hayden Farms v. Mutual of Enumclaw Ins. Co., 95 Wash.App. 563, 567-68, 977 P.2d 608 (1999). In its petition to this court, Hayden Farms argues that the Court of Appeals, among other things, erred in relying upon the deposition testimony to find that MOE properly refused to defend Krause.
The key issues in this case are (1) whether WAC 284-30-380 precludes an insurer from raising additional grounds for avoiding its duty to defend beyond those raised in its initial denial letter; (2) whether the complaint's allegations clearly fell within the policy's general coverage provisions and/or were unambiguously barred by any exclusions; and (3) whether an insurer may rely on extrinsic facts to avoid its duty to defend. We hold that MOE was not precluded from raising additional defenses and that, even without relying on extrinsic evidence, the "loss of use" exclusion clearly supported MOE's denial of its duty to defend.
Hayden Farms argues that WAC 284-30-380,2 which requires insurers to specify the grounds for denying a claim in their written denial, precluded MOE from raising additional grounds for denial beyond those cited in its initial letter. Br. of Appellants at 15. Hayden Farms asserts that WAC 284-30-380's preclusive effect applies regardless of whether there was prejudice to the insurer or whether the insured acted in bad faith. See Suppl. Br. of Pet'r at 9-13.
The Court of Appeals disagreed finding that the regulation was not violated based on subsection (2) and that preclusion was inappropriate absent prejudice. See Hayden, 95 Wash.App. at 567-68, 977 P.2d 608. We agree with the Court of Appeals, but only in so far as we find that WAC 284-30-380 does not have a preclusive effect and that preclusion or estoppel is inappropriate absent either prejudice or bad faith.
Under the Consumer Protection Act (CPA), individuals are vested with a private cause of action against insurers for unfair or deceptive practices. Industrial Indem. Co. of the N.W., Inc. v. Kallevig, 114 Wash.2d 907, 920, 792 P.2d 520, 7 A.L.R.5th 1014 (1990) (citing RCW 19.86.090). Individuals bringing such actions must show (1) an unfair or deceptive act or practice; (2) in trade or commerce; (3) that impacts the public interest; (4) which...
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