Oregon Mut. Ins. Co. v. Barton

• Decision Date: 13 December 2001
• Docket Number: No. 19151-6-III.,19151-6-III.
• Citation: 36 P.3d 1065,109 Wash.App. 405
• Court: Washington Court of Appeals
• Parties: OREGON MUTUAL INSURANCE COMPANY, Respondent, v. George BARTON, Appellant.

36 P.3d 1065

109 Wash.App. 405

OREGON MUTUAL INSURANCE COMPANY, Respondent, v. George BARTON, Appellant.

No. 19151-6-III.

Court of Appeals of Washington, Division 3, Panel Six.

December 13, 2001.

Timothy H. Esser, Nuxoll, Libey, Ensley, et al, Pullman, for Appellant.

Irvin "Buddy" Paul, Brad E. Smith, Huppin, Ewing, Anderson & Morrison, P.S., Spokane, for Respondent.

SWEENEY, J.

An insurance settlement induced by fraudulent misrepresentations is void. But the misrepresentations must be relevant and must predate the settlement. Here, Oregon Mutual Insurance Company accused its insured, George Barton, of arson, but only after it had agreed to a settlement, issued the settlement drafts along with a proof of loss statement, and after Mr. Barton had negotiated the drafts. It then sued to void the settlement agreement and its policy with Mr. Barton. A jury found that Mr. Barton did not commit arson but did misrepresent aspects of his claim—but only after settlement. The dispositive question before us is whether misrepresentations by an insured after settlement, which could not have induced the settlement, voided the insurance policy. We conclude that they did not and therefore reverse the trial court's decision.

FACTS

In late July 1998, Mr. Barton bought a 1990 Freightliner tractor and grain-hauling trailer. He insured both with Oregon Mutual. He planned to pay for the rig with his share of the proceeds of the upcoming harvest from the farm where he was a tenant farmer. But before the harvest, Mr. Barton's landlord evicted him from tenancy of the farm and obtained a $49,000 judgment against him. Mr. Barton's total indebtedness exceeded $200,000. On August 17, 1998, the court entered an order denying Mr. Barton an interest in the harvest.

At two in the morning of August 18, 1998, an arson fire destroyed the tractor. The tractor was parked in front of Mr. Barton's home. He was at home and in bed. The tractor was fully fueled and had been parked for a couple of weeks. A neighbor heard two car doors slam and a vehicle rapidly accelerating away from the scene.

Tom Ishii is Oregon Mutual's claims manager. Mr. Ishii knew that the loss was caused by arson. He knew that Mr. Barton had the opportunity to commit the arson. And he knew that Mr. Barton was in dire financial straits. Mr. Barton and Oregon Mutual nevertheless negotiated a compromise settlement. Oregon Mutual's independent adjuster inspected the rig and did some "nitty-gritty" negotiation with Mr. Barton, after which Mr. Ishii gave the adjuster authority to settle. Report of Proceedings of Jan. 12, 13, 2000(RP) at 31.

On September 11, 1998, Oregon Mutual mailed drafts to Mr. Barton, settling the claim. A box marked "full settlement" (as opposed to "partial payment") was checked. The drafts were accompanied by a letter from Mr. Ishii confirming the settlement. Mr. Barton cashed the drafts on September 14. Mr. Barton immediately closed a sale on a replacement tractor and insured it.

On September 15, a Washington State Patrol trooper told Mr. Ishii that Mr. Barton had not been ruled out as a suspect in the arson. This was confirmed by the Columbia County Fire Marshall and the county sheriff's office. Mr. Ishii stopped payment on the drafts and reopened the investigation. On September 18, Mr. Ishii wrote to Mr. Barton that the company was resuming its investigation, reserving all rights, and that it was understood that Mr. Barton also reserved all rights. Mr. Barton consented to an examination under oath, which took place on October 29.

Meanwhile, on October 8, the sheriff's office notified Mr. Ishii that the arson investigation was complete but the results were inconclusive. On March 21, 1999, Oregon Mutual informed Mr. Barton it was voiding the insurance policy because the company believed he was personally involved in causing the fire. Oregon Mutual also claimed that Mr. Barton had made material misrepresentations about prospective work opportunities for the tractor during his post-settlement statement under oath.

Oregon Mutual sued for a declarative judgment that the policy was void because Mr. Barton had caused the loss and made material misrepresentations. Mr. Barton counterclaimed for enforcement of the settlement agreement. Oregon Mutual replied that the settlement agreement was procured by fraud and misrepresentation.

The matter was tried to a jury. During deliberations, the court responded to a jury question by instructing the jury that material misrepresentations either before or after settlement would void the underlying policy. By special verdict, the jury found that Mr. Barton was not responsible for the arson, but that he did intentionally conceal or misrepresent a material fact at some point during the claims process.

The court entered judgment on the verdict in favor of Oregon Mutual. Mr. Barton moved for judgment notwithstanding the verdict, still contending that, once settlement was reached, the doctrine of accord and satisfaction made his subsequent statements irrelevant. The court denied his motion.

SETTLEMENT AGREEMENT

Mr. Barton concedes that, if he set the fire, the insurance settlement was induced by fraud and should be set aside. But he insists that, since he did not set the fire, material misrepresentations could only be made to Oregon Mutual before the settlement. The trial court, however, agreed with Oregon Mutual that misrepresentations made six weeks after the settlement were material. The court therefore refused either to limit the issues for trial to whether Mr. Barton committed the arson, or to instruct the jury that the claims process ended with settlement. Mr. Barton argues that this was error.

Oregon Mutual responds that after Mutual of Enumclaw Insurance Co. v. Cox¹ the usual rules governing fraud no longer apply to insurance disputes. It argues that the holding of Cox requires that the policy be voided whenever an insured makes any misrepresentation at any time during the claims process. And here, Oregon Mutual contends, the claims process was ongoing when these misrepresentations were made.

Our analysis is in three steps:

(1) Did the settlement agreement constitute an accord and satisfaction?

(2) Does the doctrine of accord and satisfaction apply to insurance contracts?

(3) Is Cox authority for the proposition that even subsequent misrepresentations will void an insurance settlement?

STANDARD OF REVIEW

We review the trial court's decisions de novo.

DENIAL OF PARTIAL SUMMARY JUDGMENT

We review partial summary judgments de novo. Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wash.2d 654, 665, 15 P.3d 115 (2000). This court engages in the same inquiry as the trial court. Folsom v. Burger King, 135 Wash.2d 658, 663, 958 P.2d 301 (1998). We view all facts and reasonable inferences in a light most favorable to the nonmoving party to determine whether there is a genuine issue of any fact upon which the outcome of the litigation depends in whole or in part. CR 56(c); Fancher Cattle Co. v. Cascade Packing, Inc., 26 Wash.App. 407, 408, 613 P.2d 178 (1980).

JURY INSTRUCTIONS

We review the jury instructions here de novo. Instructions must allow each party to argue its theory of the case, not mislead the jury and, when taken as a whole, properly inform the jury of the applicable law. Cox v. Spangler, 141 Wash.2d 431, 442, 5 P.3d 1265 (2000).

DENIAL OF JUDGMENT NOTWITHSTANDING THE VERDICT

In ruling on a motion for judgment notwithstanding the verdict, a trial court exercises no discretion. Therefore, review is de novo. Queen City Farms, Inc. v. Cent. Nat'l Ins. Co. of Omaha, 126 Wash.2d 50, 98, 882 P.2d 703 (1994). The court accepts the truth of the nonmoving party's evidence and draws all reasonable inferences in its favor. The court will grant the motion only if there is no justifiable evidence upon which the jury's verdict might be sustained. Id.

ACCORD AND SATISFACTION

When the debtor tenders a draft in full payment of a debt, acceptance by the creditor creates a settlement contract binding on both parties. Hynes v. Hynes, 28 Wash.2d 660, 672, 184 P.2d 68 (1947). Absent an express reservation of rights, such a settlement constitutes a complete accord and satisfaction of all claims. Mut. of Enumclaw Ins. Co. v. State Farm Mut. Auto. Ins. Co., 37 Wash.App. 690, 694, 682 P.2d 317 (1984); 6 JOHN ALAN APPLEMAN & JEAN APPLEMAN, INSURANCE LAW AND PRACTICE § 3977, at 662 (1972). Here, the original settlement was not subject to any reservation. It was not until a week after the draft and proof of loss were tendered that Mr. Ishii wrote to Mr. Barton informing him that Oregon Mutual was resuming its investigation and reserving all rights.

Compromise settlements are governed by the law of contracts. Settlement contracts are then subject to judicial interpretation in light of their language and the circumstances surrounding their making. Stottlemyre v. Reed, 35 Wash.App. 169, 171, 665 P.2d 1383 (1983).

An accord and satisfaction is a new contract—a contract complete in itself. Evans v. Columbia Int'l Corp., 3 Wash.App. 955, 957, 478 P.2d 785 (1970) (citing 1 AM. JUR.2D Accord and Satisfaction § 12 (1962)). Its enforceability does not depend on the validity of the antecedent claim. Each party's promise in the new agreement is supported by an entirely new consideration—the return promise of the other. N.W. Motors, Ltd. v. James, 118 Wash.2d 294, 305, 822 P.2d 280 (1992) (citing 6 ARTHUR LINTON CORBIN, CORBIN ON CONTRACTS § 1312, at 261 (1962)). And so the accord is enforceable as a contractual agreement in its own right. Perez v. Pappas, 98 Wash.2d 835, 843, 659 P.2d 475 (1983). It cuts off all defenses and arguments based on the underlying contract. N.W. Motors, 118 Wash.2d at 305, 822 P.2d 280.

The court presumes that a general settlement agreement embraces all existing claims arising from the underlying incident. State Farm, 37 Wash.App. at 694, 682 P.2d 317. A strong presumption attaches that the parties...