Moeller v. Farmers Ins. Co. of Washington

• Decision Date: 22 December 2011
• Docket Number: No. 84500–0.,84500–0.
• Citation: 173 Wash.2d 264,267 P.3d 998
• Court: Washington Supreme Court
• Parties: David MOELLER, Respondent, v. FARMERS INSURANCE COMPANY OF WASHINGTON and Farmers Insurance Exchange, Petitioners.

173 Wash.2d 264

267 P.3d 998

David MOELLER, Respondent,

v.FARMERS INSURANCE COMPANY OF WASHINGTON and Farmers Insurance Exchange, Petitioners.

No. 84500–0.

Supreme Court of Washington, En Banc.

Argued March 8, 2011.Decided Dec. 22, 2011.

Jill Diane Bowman, Stevan David Phillips, Stoel Rives LLP, Seattle, WA, for Petitioners.

Stephen Michael Hansen, Law Offices of Stephen M. Hansen, PS, Tacoma, WA, Elizabeth Cabraser, Scott P. Nealey, Lieff Cabraser Heimann & Bernstein, San Francisco, CA, Kenneth Wendell Masters, Shelby R Frost Lemmel, Masters Law Group PLLC, Bainbridge Island, WA, for Respondent.

James Elliot Lobsenz, Carney Badley Spellman, Seattle, WA, amicus counsel for American Insurance Association and Property Casualty Insurers Association of America.Andrea Holburn Bernarding, Law Office of Andrea Holburn Bernarding, Seattle, WA, Michael Nelson, Kymberly Kochis, Jason M. Kurtz, Nelson, Levine, de Luca & Horst, LLC, New York, NY, amicus counsel for National Association of Mutual Insurance CompaniesSTEPHENS, J.

[173 Wash.2d 267] ¶ 1 In this class action against Farmers Insurance Company of Washington and Farmers Insurance Exchange (Farmers), we must decide if a contract between an auto insurer and its insured provides coverage for the diminished value of a postaccident, repaired car. This case also requires us to consider whether the class here was properly certified. We affirm the Court of Appeals and hold that the policy language at issue allows recovery for diminution in value and that the class was properly certified.

FACTS AND PROCEDURAL HISTORY

¶ 2 In November 1998, David Moeller's 1996 Honda Civic CRX was damaged in a collision. Moeller had an insurance policy through Farmers. The parties cite the following portions of the insurance contract as relevant:

DEFINITIONS

....

Accident or occurrence means a sudden event, including continuous or repeated exposure to the same conditions, resulting in bodily injury or property damage neither expected nor intended by the Insured person.

....

Damages are the cost of compensating those who suffer bodily injury or property damage from an accident.

.... Property damage means physical injury to or destruction of tangible property, including loss of its use.

....

PART IV—DAMAGE TO YOUR CAR

....

Coverage G—Collision

We will pay for loss to your Insured car caused by collision less any applicable deductibles.

....

Additional Definitions Used in This Part Only

....

2. Loss means direct and accidental loss of or damage to your Insured car, including its equipment.

....

Limits of Liability

Our limits of liability for loss shall not exceed:

1. The amount which it would cost to repair or replace damaged or stolen property with other of like kind and quality, or with new property less an adjustment for physical deterioration and/or depreciation.

....

Payment of Loss

We may pay the loss in money or repair or replace damaged or stolen property.

Suppl. Br. of Resp't at 3; see also Pet. for Discretionary Review at 2.

[173 Wash.2d 269] ¶ 3 Farmers chose to repair Moeller's damaged car. Moeller authorized the repair and did not request an appraisal of his loss.¹ Moeller acknowledged that the repairs were complete and acceptable. Farmers paid the repair cost, less Moeller's $500 deductible.

¶ 4 In May 1999, Moeller brought suit on behalf of himself and other similarly situated Farmers policy holders in Washington State. He asserted a breach of contract claim on the grounds that Farmers failed to restore his vehicle to its “pre-loss condition through payment of the difference in the value between the vehicle's pre-loss value and its value after it was damaged, properly repaired and returned.” Clerk's Papers (CP) at 435.²

¶ 5 In September 2002, following a hearing that extended over four days, the trial court granted Moeller's motion for class certification. The court noted that one factor, the likelihood of difficulty in managing the class action as proposed, was “heavily disputed,” CP at 1597, but found certification appropriate. The Court of Appeals denied discretionary review of the certification order.

¶ 6 Several months later, Farmers successfully moved for summary judgment, arguing that Moeller's diminished value claim was precluded by the language of the insurance policy. Moeller appealed, and Farmers cross-appealed the class certification. The Court of Appeals reversed the trial court's grant of summary judgment and affirmed its class certification. Moeller v. Farmers Ins. Co., 155 Wash.App. 133, 229 P.3d 857 (2010). Farmers filed a petition for review with this court, which was granted. Moeller v. Farmers Ins. Co., 169 Wash.2d 1001, 234 P.3d 1172 (2010).

ANALYSIS

¶ 7 This case concerns coverage for the diminished value of a repaired vehicle after a collision. In the past decade, many courts and state legislatures have considered this issue, with varying results. See Janet L. Kaminski, Insurance Claim for Car's Diminished Resale Value, State of Conn. Gen. Assembly Office of Legislative Research Report (Jan. 3, 2007) at 2, http:// www. cga. ct. gov/2007/rpt/2007–R–0011.htm. The question boils down to what it means to pay for loss to an insured's car, i.e., whether it means just restoring the vehicle to usable condition or also encompasses lost value.

¶ 8 As the Court of Appeals recognized, courts have split on this issue, though the split must be viewed in light of the specific policy language at issue and how the issue was framed in a particular case. Moeller, 155 Wash.App. at 144 n. 10, 229 P.3d 857. The Court of Appeals found persuasive the view of courts such as those in Oregon and Georgia, which have held that diminished value is a covered loss and is not excluded by limits of liability or payment of loss provisions similar to the provisions found in the contract here. Id. at 144 n. 10, 145 n. 11, 229 P.3d 857. For the reasons explained below, we agree with the Court of Appeals, though we find the question closer than the Court of Appeals did. It appeared to hold the Farmers policy unambiguously provided diminished value coverage. We instead find the limiting language in the policy ambiguous and accordingly construe it most favorably to the insured. We also affirm the class certification.

A. Does Farmers' insurance policy provide coverage for diminished value following postaccident repairs?

¶ 9 As noted, the question presented requires us to determine whether Moeller's insurance policy requires Farmers to repair a car so that it is in substantially the same functional condition it was preaccident, or if instead the policy requires Farmers to repair a car so that it has the same value it had preaccident. Because the concept of value is integral to the analysis here, the Court of Appeals understandably began with a discussion of the difference between diminished value and stigma damages. Moeller, 155 Wash.App. at 142, 229 P.3d 857.

A vehicle suffers “diminished value” when it sustains physical damage in an accident, but due to the nature of the damage, it cannot be fully restored to its preloss condition. Weakened metal that cannot be repaired is one such example. In contrast, “stigma damages” occur when the vehicle has been fully restored to its preloss condition, but it carries an intangible taint due to its having been involved in an accident.

Id. Stigma damages are generally disfavored, and Moeller claims he is not seeking stigma damages. See Suppl. Br. of Resp't at 12; see also Br. of Appellant at 5–7 (setting forth evidence that the type of damage sustained by Moeller's car could never be repaired so that a car was returned to its preaccident condition). Farmers disagrees, noting that the proof Moeller would offer includes figures showing the decreased auction value of cars that have been in an accident and that this is nothing more than a repackaging of stigma damages. See Pet'r's Suppl. Br. at 13. While the parties dispute the nature of Moeller's claim in this respect, this debate has little bearing on the plain language of the policy at issue, which is the focus here. Undoubtedly, the nature of the damages Moeller claims and how they can be proved will be explored by the trial court should this case proceed to trial.

Standard of Review and Rules of Construction

¶ 10 Our review of a trial court's summary judgment order is de novo. In addition, the interpretation of language in an insurance policy is a matter of law. Allstate Ins. Co. v. Peasley, 131 Wash.2d 420, 423–24, 932 P.2d 1244 (1997). We view an insurance contract in its entirety and cannot interpret a phrase in isolation. Id. at 424, 932 P.2d 1244. “When construing the policy, the court should attempt to give effect to each provision in the policy.” Id. A determination of coverage involves two steps: first, “[t]he insured must show the loss falls within the scope of the policy's insured losses.” McDonald v. State Farm Fire & Cas. Co., 119 Wash.2d 724, 731, 837 P.2d 1000 (1992). Then, in order to avoid coverage, the insurer must “show the loss is excluded by specific policy language.” Id.; see also State Farm Fire & Cas. Co. v. Ham & Rye, LLC, 142 Wash.App. 6, 13, 174 P.3d 1175 (2007).

¶ 11 The legislature has declared that the “business of insurance is one affected by the public interest.” RCW 48.01.030. “Exclusions from insurance coverage are contrary to the fundamental protective purpose of insurance, and we will not extend them beyond their clear and unequivocal meaning.” Ham & Rye, 142 Wash.App. at 13, 174 P.3d 1175 (citing Stuart v. Am. States Ins. Co., 134 Wash.2d 814, 818–19, 953 P.2d 462 (1998)). Thus, ambiguity is resolved in the favor of the policyholder, and exclusionary clauses are construed strictly against the insurer. Eurick v. Pemco Ins. Co., 108 Wash.2d 338, 340, 738 P.2d 251 (1987).

¶ 12 Undefined terms in an insurance policy are given their ordinary and common meaning, not their legal, technical meaning. Peasley, 131 Wash.2d at 424, 932 P.2d 1244. Likewise, the...