Reliable Credit Ass'n, Inc. v. Progressive Direct Ins. Co.

• Decision Date: 30 October 2012
• Docket Number: No. 42360–0–II.,42360–0–II.
• Citation: 171 Wash.App. 630,287 P.3d 698
• Court: Washington Court of Appeals
• Parties: RELIABLE CREDIT ASSOCIATION, INC. (WA), a Washington Corporation, Appellant, v. PROGRESSIVE DIRECT INSURANCE COMPANY, an Ohio Corporation, Respondent.

171 Wash.App. 630

287 P.3d 698

RELIABLE CREDIT ASSOCIATION, INC. (WA), a Washington Corporation, Appellant,

v.PROGRESSIVE DIRECT INSURANCE COMPANY, an Ohio Corporation, Respondent.

No. 42360–0–II.

Court of Appeals of Washington,

Division 2.

Oct. 30, 2012.

Andrew T. Reilly, Black Helterline LLP, Portland, OR, for Appellant.

Douglas Fredrick Foley, Douglas Foley & Associates, PLLC, Vancouver, WA, Vernon Scott Finley, Attorney at Law, Portland, OR, for Respondent.

VAN DEREN, J.

[171 Wash.App. 632]¶ 1 Reliable Credit Association Inc., appeals the trial court's order denying its motion for partial summary judgment and granting summary judgment to Progressive Direct Insurance Company. Progressive denied Reliable's claim as a secured lienholder under Chad Grauel's vehicle insurance policy after he intentionally destroyed the vehicle securing Reliable's loan to Grauel. The trial court held that Reliable was not entitled to payment under Progressive's vehicle policy provision excluding coverage for a lienholder based on a policyholder's “conversion,” “embezzlement,” or “secretion” of the insured vehicle. Reliable argues that the trial court erred by granting summary judgment to Progressive because the terms “conversion” and “ secretion” in its exclusionary clause are ambiguous, thus entitling it to recovery.

¶ 2 Because the terms “conversion” and “secretion” in the vehicle insurance policy language mandated by statute and the insurance commissioner are subject to more than one reasonable interpretation, we hold that the policy language is ambiguous and construe it against Progressive and in favor of coverage for Reliable. We reverse the trial court's summary judgment order denying coverage, remand for entry of summary judgment for Reliable, and award fees for trial and appeal to Reliable under Olympic Steamship.¹

FACTS

¶ 3 The material facts are undisputed.² In August 2009, Chad Grauel purchased a 2000 BMW 328 CI, valued in excess of $12,000, using a combination of his funds and a $10,729.82 loan from Reliable. Progressive issued an insurance policy to Grauel naming Reliable as lienholder and additional insured/loss payee.

¶ 4 On or about November 16, 2009, Grauel's vehicle was destroyed by fire. In response to a report of a fire on a vacant lot, firefighters from the Vancouver Fire Department discovered the burned vehicle, abandoned and stripped of parts. The following day, Grauel reported to police that the vehicle had been stolen. He stated that he parked the vehicle at a friend's apartment complex several days before the theft to allow his friend to use it and that he placed the key in a magnetic box underneath the vehicle. Grauel's friend later reported to police that he did not know why Grauel had left him the vehicle, and another witness reported that Grauel had never placed the key under the car, explaining it as a “ruse related to a pre-planned fraudulent insurance claim.” Clerk's Papers (CP) at 86.

¶ 5 On April 8, 2010, the State charged Grauel with second degree arson; willful destruction, injury, or secretion of insured property; and making a false insurance claim. On September 2, 2010, Grauel pleaded guilty to first degree reckless burning ³ and to filing a false insurance claim or proof of loss exceeding $1,500.⁴

¶ 6 Grauel's insurance policy with Progressive provided comprehensive coverage for damage to the vehicle,⁵ but it specifically excluded coverage to the policyholder for damagecaused by the policyholder's own criminal activity. ⁶ Progressive's “Lienholder Agreement” under the policy protected the lienholder's ability to recover as a loss payee if the policyholder damaged the insured vehicle, except in cases of “conversion, embezzlement or secretion” of the vehicle by the policyholder. CP at 21.

¶ 7 The “Lienholder Agreement” provides:

1. Loss or damage, if any, under this policy will be payable first to the loss payee or mortgagee (hereinafter called “secured party”), and second, to you as the interests of each may appear; PROVIDED, that, upon demand for separate settlement by the secured party, the amount of said loss will be paid directly to the secured party to the extent of its interest.

2. This insurance as to the interest of the secured party will not be invalidated by any act or neglect of you or your ⁷ agents, employees or representatives, nor by any change in the title or ownership of your covered auto; PROVIDED, HOWEVER, that the conversion, embezzlement or secretion by you or your agents, employees or representatives is not covered under said policy unless specifically insured against and premiums paid therefor.

CP at 21 (emphasis added) (boldface in original). Washington law requires insurers to include the above provisions in their policies,⁸ but the statutes do not define the terms “conversion,” “embezzlement,” or “secretion.” RCW 48.18.125; WAC 284–21–010; WAC 284–21–990. Progressive's insurance policy also fails to define any of these terms.

¶ 8 Shortly after the vehicle's destruction, Reliable tendered a claim to Progressive under Grauel's policy. Progressive denied Reliable's claim in a letter dated February 17, 2010. The letter concluded that “[b]ased on our investigation, we do not believe that this incident was a sudden, direct, and accidental loss. Therefore, Progressive Direct Insurance Co. will not make any payments on this claim.” CP at 27–28. The letter purportedly referenced a “Loss Payable Clause” in the policy that stated, “[P]rotection under this clause does not apply in any cause of conversion, embezzlement, secretion or willful damaging or destruction, of the covered auto by or at the direction of you, a relative, or the owner of the covered auto.” CP at 27 (emphasis added). But the quoted language does not actually appear within the policy; accordingly, Progressive later clarified that denial of coverage was based on the Lienholder Agreement's exclusion for “conversion,” “embezzlement,” or “secretion.”

¶ 9 Reliable sued for declaratory judgment, alleging breach of insurance contract, bad faith, and Consumer Protection Act ⁹ violations. Reliable moved for partial summary judgment asserting that Progressive improperly denied Reliable's claim as a matter of law because Grauel's acts did not constitute “conversion,” “embezzlement,” or “secretion” as provided in the policy. Progressive also moved for summary judgment. The trial court denied Reliable's motion and granted Progressive's. Reliable appeals.

ANALYSIS

I. Standard of Review

A. Summary Judgment

¶ 10 We review a trial court's summary judgment ruling de novo, engaging in the same inquiry as the trial court. Quadrant Corp. v. Am. States Ins. Co., 154 Wash.2d 165, 171, 110 P.3d 733 (2005). Summary judgment is proper when the pleadings, depositions, and admissions on file—together with the affidavits, if any—show there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. SeeCR 56(c). In determining whether summary judgment was proper, we “must consider the facts submitted and all reasonable inferences from those facts in the light most favorable to the nonmoving party.” Humleker v. Gallagher Bassett Servs. Inc., 159 Wash.App. 667, 674, 246 P.3d 249,review denied,171 Wash.2d 1023, 257 P.3d 662 (2011). “Summary judgment is proper only if, from all the evidence, reasonable persons could reach but one conclusion.” Humleker, 159 Wash.App. at 674, 246 P.3d 249. Because the parties agree that there are no issues of material fact, we need only determine whether Reliable is entitled to judgment as a matter of law.

B. Insurance Policy Interpretation

¶ 11 “Interpretation of an insurance policy is a question of law, which we review de novo.” Hall v. State Farm Mut. Auto. Ins. Co., 133 Wash.App. 394, 399, 135 P.3d 941 (2006). Insurance policies are contracts; thus, rules of contract interpretation apply to our analysis. Hall, 133 Wash.App. at 399, 135 P.3d 941. When interpreting an insurance policy, we consider the policy as a whole and arrive at a “ ‘fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance.’ ” Quadrant, 154 Wash.2d at 171, 110 P.3d 733 (internal quotation marks omitted) (quoting Weyerhaeuser Co. v. Comm'l Union Ins. Co., 142 Wash.2d 654, 666, 15 P.3d 115(2000)).

¶ 12 If the language in an insurance policy is unambiguous, “we must enforce it as written; we may not modify it or create ambiguity where none exists.” Quadrant, 154 Wash.2d at 171, 110 P.3d 733. Upon determining that a provision is ambiguous,

we may rely on extrinsic evidence of the intent of the parties to resolve the ambiguity. [Weyerhaeuser, 142 Wash.2d at 666, 15 P.3d 115]. Any ambiguity remaining after examination of the applicable extrinsic evidence is resolved against the insurer and in favor of the insured. [Weyerhaeuser, 142 Wash.2d at 666, 15 P.3d 115]. But while exclusions should be strictly construed against the drafter, a strict application should not trump the plain, clear language of an exclusion such that a strained or forced construction results. [Weyerhaeuser, 142 Wash.2d at 666, 15 P.3d 115].

Quadrant, 154 Wash.2d at 172, 110 P.3d 733.

¶ 13 “ ‘[E]xclusionary clauses are to be most strictly construed against the insurer.’ ” Am. Best Food, Inc. v. Alea London, Ltd., 168 Wash.2d 398, 406, 229 P.3d 693 (2010) (alteration in original) (quoting Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wash.2d 65, 68, 659 P.2d 509 (1983)). Where there is room for two constructions of an exclusionary clause, one favorable to the insured and one favorable to the insurer, courts must adopt the construction favorable to the insured. Murray v. W. Pac. Ins. Co., 2 Wash.App. 985, 992, 472 P.2d 611 (1970).

¶ 14 Progressive argues initially that we must ignore the normal standards of interpretation of insurance policies because “the language in the endorsement is required by statute and administrative rule.” Br. of...