Lui v. Essex Ins. Co.

• Decision Date: 09 June 2016
• Docket Number: No. 91777–9,91777–9
• Citation: 185 Wash.2d 703,375 P.3d 596
• Parties: Kut Suen Lui and May Far Lui, Petitioners, v. Essex Insurance Company, Respondent.
• Court: Washington Supreme Court

185 Wash.2d 703

375 P.3d 596

Kut Suen Lui and May Far Lui, Petitioners

v.Essex Insurance Company, Respondent.

No. 91777–9

Supreme Court of Washington, En Banc.

Argued March 10, 2016

Filed June 9, 2016

As Amended on Denial of Reconsideration August 15, 2016

Jose Dino Vasquez, Thomas Dean Adams, Jacque Elizabeth St. Romain, Karr Tuttle

Campbell, 701 5th Ave., Ste. 3300, Seattle, WA, 98104–7055, for Petitioners.

Michael K. McCormack, Bullivant Houser Bailey, 1700 7th Ave., Ste. 1810, Seattle, WA, 98101–1397, for Respondent.

WIGGINS

, J.

Kut Suen Lui and May Far Lui (the Luis) owned a building that sustained water damage after a pipe burst while the building was vacant. The Luis' insurance policy for the building limited coverage for water damage in two ways based on vacancy: coverage was suspended if the building remained vacant for 60 consecutive days and, effective at the beginning of any vacancy, there was no coverage for certain specified losses, including water damage. The Luis argue that the policy is ambiguous and should be interpreted in the Luis' favor to mean that the exclusion of coverage for water damage would commence only after a 60–day vacancy. We reject the Luis' arguments and find that the policy unambiguously excluded coverage for water damage immediately upon vacancy. We reverse the trial court's contrary holding and affirm the Court of Appeals.

FACTS AND PROCEDURAL HISTORY

¶ 2 The Luis owned a building containing tenant space. The building's last tenant, the Agape Foundation Inc., left the building in the first week of December 2010 after being evicted by the Luis for failure to pay rent. At the time of the incidents giving rise to this claim, the Luis were not renting the building to a tenant.

¶ 3 On or about January 1, 2011, less than 60 days after the Agape Foundation Inc. moved out of the building, a frozen sprinkler pipe broke in the building and caused substantial water damage to the building. Upon discovering the water damage, the Luis notified their insurance provider, Essex Insurance Company, and filed a claim. Essex began investigating the Luis' claim and paid the Luis a total of $293,598.05 for property damage during the course of its investigation.

¶ 4 After paying this sum, Essex discovered that the property was vacant at the time of the water damage. Essex then denied the Luis' claim and refused to pay any more money. In denying the Luis' claim, Essex sent their attorney a letter explaining that the endorsement in the Luis' insurance policy excluded coverage for the water damage because it occurred while the building was vacant. The letter explained Essex's reasoning as follows:

This letter explains the reasons why Essex must deny your clients' claim based on the investigation to date.

First, the policy contains a Change of Conditions Endorsement, which I copy here at Appendix A. This Endorsement was specifically endorsed to the policy over the past few years. As you will see, that Endorsement states:

Effective at the inception of any vacancy or unoccupancy, the Causes of Loss provided by this policy are limited to Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion, unless prior approval has been obtained from the Company.

In this situation, the subject building was vacant and unoccupied at the time of the loss. The insurance company was never notified of the vacancy until after the loss, and hence never approved coverage beyond the named perils listed in the Endorsement. The cause of the January 1, 2011 loss was not one of the perils named in the Change of Conditions Endorsement. Therefore, the insurance company cannot provide coverage for the claimed loss.

In addition, the letter stated that Essex would refrain from seeking reimbursement for the money that Essex had already paid to the Luis on condition that the Luis would not pursue their claim any further.

¶ 5 The Luis sued Essex, claiming total damages in the amount of $758,863.31. Both the Luis and Essex filed cross motions for summary judgment. Essex argued that the unambiguous language of the “Change in Condition Endorsement” (the endorsement) in the Luis' insurance policy immediately suspends coverage at the inception of any vacancy for all but specifically named causes of loss. Because the property was vacant and water damage was not one of the named causes of loss, Essex argued that the court should rule that the Luis were not entitled to coverage as a matter of law. The Luis argued that coverage restrictions from their policy's “Vacancy Provisions” become effective if the property is vacant for a period of 60 consecutive days. Further, the Luis sought summary judgment on the grounds that (1) Essex was estopped from denying coverage, (2) Essex waived its right to deny coverage, and (3) Essex denied the coverage in bad faith.

¶ 6 The trial court denied Essex's motion for summary judgment and granted partial summary judgment in favor of the Luis solely on its conclusion that the endorsement was internally ambiguous and, therefore, had to be construed as providing coverage for the water damage. Specifically, the trial court stated, “The court finds there is a conflict in the two paragraphs of the change of conditions endorsement.” The court resolved the conflict in favor of the Luis, holding that the word “inception” from the endorsement “does not suspend coverage automatically.” The court acknowledged that it was ruling only on the “narrow issue” that there was “a conflict in the language” of the endorsement. Thus, the court declined to grant summary judgment on the Luis' waiver, estoppel, and bad faith claims, stating that there are questions of material fact that govern those issues.¹

¶ 7 Essex moved for reconsideration and asked in the alternative that the court certify the ruling for appeal under RAP 2.3(b)(4)

. The court denied Essex's motion for reconsideration but did certify its ruling for review. In certifying its ruling for review, the court also ordered “that all further action in this Court involving the Luis' claims against Essex are severed and stayed pending resolution of Essex' appeal to the Court of Appeals.”

¶ 8 The Court of Appeals accepted review on the certified issue of whether the provisions within the endorsement were ambiguous. In an unpublished opinion, the Court of Appeals reversed the trial court's order granting summary judgment in favor of the Luis. The Court of Appeals ruled that the plain language of the endorsement unambiguously limited coverage to only the enumerated causes of loss at the moment the building became vacant, not after 60 days as the Luis argued. The Luis then filed a petition for review with this court, which we granted.

ANALYSIS

I. Standard of Review

¶ 9 “This court reviews summary judgment determinations de novo, engaging in the same inquiry as the trial court.” Durland v. San Juan County , 182 Wash.2d 55, 69, 340 P.3d 191 (2014)

. “Summary judgment is proper where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law.” Id. Courts interpret language in an insurance policy as a matter of law, and we review de novo. Expedia, Inc. v. Steadfast Ins. Co. , 180 Wash.2d 793, 802, 329 P.3d 59 (2014).

II. The Luis' Insurance Policy Did Not Cover the Water Damage

¶ 10 We construe insurance policies as contracts. Weyerhaeuser Co. v. Commercial Union Ins. Co. , 142 Wash.2d 654, 665, 15 P.3d 115 (2000)

. When we interpret an insurance policy, we consider the insurance policy as a whole, giving the policy “ ‘a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance.’ ” Key Tronic Corp. v. Aetna (CIGNA) Fire Underwriters Ins. Co. , 124 Wash.2d 618, 627, 881 P.2d 201 (1994) (quoting Queen City Farms, Inc. v. Cent. Nat'l Ins. Co. of Omaha , 126 Wash.2d 50, 65, 882 P.2d 703, 891 P.2d 718 (1994)). Where possible, we harmonize clauses that seem to conflict in order to give effect to all of the contract's provisions. Realm, Inc. v. City of Olympia , 168 Wash.App. 1, 5, 277 P.3d 679 (2012). “Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy, and as amplified, extended, or modified by any rider, endorsement, or application attached to and made a part of the policy.” RCW 48.18.520

.

¶ 11 In this case, the language of the Luis' insurance policy; including the endorsement, is plain—it did not cover water damage. Specifically, reading the endorsement, the average insured would understand by the policy's plain language that (1) the endorsement's terms supersede the terms of the underlying policy, (2) the endorsement's first paragraph excluded all coverage after 60 days of vacancy, and (3) the endorsement's second paragraph provided only limited coverage from when the building first became vacant up until 60 days of that vacancy. Because the language of the policy is plain, we enforce that language.

A. Description of the endorsement

The endorsement to the Luis' insurance policy stated in relevant part:

CHANGE IN CONDITIONS ENDORSEMENT

Please read carefully as this changes coverage under your policy.

VACANCY OR UNOCCUPANCY

Coverage under this policy is suspended while a described building, whether intended for occupancy by owner or tenant, is vacant or unoccupied beyond a period of sixty consecutive days, unless permission for such vacancy or unoccupancy is granted hereon in writing and an additional premium is paid for such vacancy or unoccupancy.

Effective at the inception of any vacancy or unoccupancy, the Causes of Loss provided by this policy are limited to Fire, Lightning, Explosion, Windstorm or Hail, Smoke, Aircraft or Vehicles, Riot or Civil Commotion, unless prior approval has been obtained from the Company.

¶ 12 This endorsement superseded the original terms of the underlying insurance policy. Insurance policies may be “amplified, extended, or modified by any ......