Industrial Indem. Co. of the Northwest, Inc. v. Kallevig

• Citation: 792 P.2d 520,114 Wn.2d 907
• Decision Date: 14 June 1990
• Docket Number: No. 56389-6,56389-6
• Parties: , 7 A.L.R.5th 1014 INDUSTRIAL INDEMNITY COMPANY OF THE NORTHWEST, INC., a Washington corporation, Petitioner, v. David E. KALLEVIG and Judith L. Kallevig, husband and wife, dba the Peach Tree Restaurant; Robert B. Kraft and Joan C. Kraft, Respondents, v. PEOPLES NATIONAL BANK, Third Party Defendant. En Banc
• Court: United States State Supreme Court of Washington

Page 907

114 Wn.2d 907

792 P.2d 520, 7 A.L.R.5th 1014

INDUSTRIAL INDEMNITY COMPANY OF THE NORTHWEST, INC., a Washington corporation, Petitioner, v. David E. KALLEVIG and Judith L. Kallevig, husband and wife, dba the Peach Tree Restaurant; Robert B. Kraft and Joan C. Kraft, Respondents, v. PEOPLES NATIONAL BANK, Third Party Defendant.

No. 56389-6.

Supreme Court of Washington,

En Banc.

June 14, 1990.

Bullivant, Houser, Bailey, Pendergrass & Hoffman, R. Daniel Lindahl, Portland, Or., for petitioner

Velikanje, Moore & Shore, Inc., P.S., Richard R. Johnson, Yakima, for respondents.

Reed, McClure, Moceri, Thonn & Moriarty, William R. Hickman, Neil G. Dorfman, Pamela A. Okano, Seattle, amici curiae for petitioner on behalf of Pemco, Safeco, State Farm Fire and Cas., Mut. of Enumclaw, Grange and Unigard Group Ins. Companies.

Bryan P. Harnetiaux, Winston & Cashatt, Robert H. Whaley, Mary Ellen Gaffney-Brown, Spokane, amici curiae for respondents on behalf of Washington State Trial Lawyers Ass'n.

DURHAM, Justice.

Industrial Indemnity Company of the Northwest, Inc. (Industrial Indemnity) appeals a decision of the Court of Appeals which affirmed a jury verdict against Industrial Indemnity for breach of insurance contract and violations of the Consumer Protection Act (CPA), RCW ch. 19.86. Finding no error, we affirm.

This case originated with Industrial Indemnity's complaint for declaratory judgment that David E. Kallevig intentionally caused a fire which destroyed the Peach Tree Restaurant in Yakima, Washington. The restaurant was owned and operated by David and Judith L. Kallevig and insured under a policy issued by Industrial Indemnity. ¹

On the night of January 27, 1986, the Peach Tree Restaurant was destroyed by fire. At 8 p.m. that evening, employees Chuck Smith and Diana Kay Smiley closed the restaurant. Both Smith and Smiley testified that they were certain that Smith turned off the two switches in the food preparation area when they closed the restaurant. One switch powered a light above the dishwasher. The other switch powered both a fluorescent light located above the food preparation table and a wall outlet box. The wall outlet box was located about 6 inches above the food preparation table. ² There was testimony that the employees occasionally noticed that the wall outlet box would be hot.

Smith testified that the restaurant occasionally used a hot plate. When in use, the hot plate would be placed on the food preparation table and plugged into the wall outlet box. When not in use, the hot plate was stored under the table on a shelf. Smith provided contradictory testimony as to whether he believed the hot plate had been used on the day of the fire. He also testified that occasionally he would forget to turn off the hot plate when he closed the restaurant.

At approximately 8:10 to 8:15 p.m., David Kallevig arrived at the restaurant. He counted the money, put it into the floor safe, and left the restaurant at approximately At approximately 9:05 p.m., the Yakima Fire Department received a report that the Peach Tree Restaurant was on fire. The fire crew searched for the fire for 1 to 1 1/2 minutes with no success. Initially, the fire fighters saw only white, wispy smoke rising from the roof of the building. However, after the roof and the south wall of the building were vented, heavy black smoke developed. Once the fire was located, it was extinguished within 4 to 5 minutes.

8:30 p.m. This was his usual practice. He testified that he did not go into the food preparation room or start any fires.

Lieutenant Steven Scott investigated the fire for the Yakima Fire Department. Scott concluded that the fire had begun in the food preparation area in the back of the restaurant. Scott further pinpointed the origin as being immediately below the food preparation table. Scott found a hot plate near the point of origin. At trial, Scott testified that he found no evidence of an incendiary device, accelerants, trailers, multiple ignition points, or other evidence usually associated with arson.

As part of his investigation, Scott, who has no experience in the area of electricity or wiring, took both the hot plate and the outlet box to George Picatti, an electrical expert, who examined them. Although he was not allowed to take the outlet box completely apart, Picatti concluded that it did not malfunction. Picatti also concluded that the hot plate was on during the fire. ³ Picatti tested the hot plate and found no malfunction.

During his investigation, Scott discerned that the restaurant may have been facing financial difficulty. Scott found a late notice from Pacific Power and Light in a restaurant garbage can and also discovered that the Department of Labor and Industries had filed a lien against Kallevig on the day of the fire.

Based upon his investigation, Scott's opinion was that David Kallevig intentionally caused the fire which Chief claims representative John Fabian was the person ultimately responsible for the acceptance or denial of the Kallevigs' claim. Fabian learned of the fire on the morning of January 28, 1986. He determined that he needed an independent fire investigator. Accordingly, on January 29, 1986, Industrial Indemnity retained Gerald Anderson of INS Investigations Bureau, Inc. to investigate the fire. ⁴

destroyed the restaurant. Scott believed David Kallevig was the last person in the restaurant and had an opportunity to cause the fire. He believed the motive to be financial. He believed that the wall switches were turned off when Kallevig arrived, but that Kallevig[792 P.2d 524] turned the wall switch which controlled the outlet box on when he left.

Anderson determined that the fire was not caused by an electrical malfunction; rather it was intentionally set. On February 4, 1986, Anderson informed Fabian that the fire was suspicious. On February 10, 1986 Anderson told him that the fire was intentionally caused. On February 5, Scott also informed Fabian that the fire was suspicious.

On February 4, 1986, Fabian contacted accountant Henry Smilowicz to examine the restaurant's financial records. Smilowicz's examination revealed that at the time of the fire, the Peach Tree's liabilities exceeded its assets.

On February 18, 1986, David Kallevig submitted a proof of loss, which Fabian received on February 21, 1986. On February 19, 1986, Fabian received the Industrial Indemnity underwriter's report of serious loss. In the report, the Industrial Indemnity claims examiner who worked on this case, stated that the cause of fire "may be the result of faulty workmanship of an electrical contractor" and that Industrial Indemnity expected subrogation against the electrical contractor. Despite this information On March 20, 1986, Industrial Indemnity requested that David Kallevig appear for an examination under oath. The Yakima Fire Department had previously requested that David Kallevig, Chuck Smith, and Diana Smiley submit to a polygraph examination. Although Smith and Smiley agreed to submit to the examination, they were never tested. Kallevig, however, refused to submit to a polygraph examination.

Industrial Indemnity did not retain an electrical expert to check out the possibility of faulty workmanship of an electrical contractor as a cause for the fire. On February 28, 1986, Industrial Indemnity canceled the policy because of "underwriting-poor risk".

On May 2, 1986, Fabian denied the claim. Industrial Indemnity determined that David Kallevig had intentionally caused the fire. Industrial Indemnity then filed a declaratory judgment action to confirm that it was not obligated to pay for the fire loss. The Kallevigs counterclaimed seeking policy benefits and damages for bad faith denial of coverage, based upon violation of the Consumer Protection Act, contending that Industrial Indemnity had failed to adequately investigate the fire and had denied the claim based upon speculation and conjecture.

After Industrial Indemnity filed suit, the Kallevigs carried out their own investigation of the cause and origin of the fire. They conducted tests that demonstrated the hot plate could not start the fire by itself. Moreover, their tests indicated that even if combustibles (paper and cardboard) were placed on the hot plate, the wall would not ignite.

The Kallevigs focused on an electrical malfunction as a potential cause of the fire. They hired John Philbin, a fire protection consultant who served with Seattle Fire Department for 28 years, to examine the fire scene with a particular emphasis toward the electrical aspect. Philbin identified the food preparation room as the origin of the fire. More specifically, he located a point in the center of the wall where the outlet box had been located. He concluded that the origin of the fire was a faulty outlet box which started a "smoldering fire" within the wall space of the food preparation room. Philbin also identified a burn pattern located Philbin also testified that the fire pattern, the concealed nature of the fire, and the observations of the ten fire fighters who stated that the fire was not visible when they arrived, indicated that the fire was not an intentional fire. Philbin believed that the fire started before 8 p.m. Based upon his investigation, Philbin's opinion was that the fire was not an intentional fire.

under where the food preparation table had been. He attributed this burn pattern to the intensity of the flame from burning plastic [792 P.2d 525] dishwashing trays and plastic glasses. In addition, Philbin discovered that the breaker had been tripped, and that Scott's investigation was inadequate because he did not investigate whether the breaker had been tripped.

Philbin contacted Richard Becker, an electrical engineer, to investigate the electrical aspect of the fire. Based upon his investigation, Becker concluded that an "electrical event took place in the outlet box" before 8 p.m., which caused the breaker switch to trip and...