Schwindt v. Commonwealth Ins. Co.

• Citation: 997 P.2d 353,140 Wash.2d 348
• Decision Date: 20 April 2000
• Docket Number: No. 67905-3.,67905-3.
• Court: United States State Supreme Court of Washington
• Parties: Joan SCHWINDT, as assignee of interest of Pan Pacific Builders, Ltd., a Washington Corporation, Petitioner, v. COMMONWEALTH INSURANCE COMPANY, Respondent.

997 P.2d 353

140 Wash.2d 348

Joan SCHWINDT, as assignee of interest of Pan Pacific Builders, Ltd., a Washington Corporation, Petitioner, v. COMMONWEALTH INSURANCE COMPANY, Respondent.

No. 67905-3.

Supreme Court of Washington, En Banc.

Argued January 13, 2000.

Decided April 20, 2000.

Gordon, Murray, Tilden, Charles Gordon, James R. Murray, Jeffrey I. Tilden, Seattle, for Amicus Curiae on Behalf of Avista Utilities, the Boeing Company, Costco Companies, Puget Sound Energy, Weyerhaeuser Company and Risk & Insurance Management Society.

Cutler & Nylander, Thomas W. Hayton, Robert G. Nylander, Seattle, for Petitioner.

Hight, Green & Yalowitz, Scott D. Fletcher, William P. Hight, Seattle, for Respondent.

IRELAND, J.

A building contractor, through its assignee, claims that its breach of contract action against its insurance company did not accrue until the insurance company rejected its claim for coverage. We agree and reverse summary judgment.

FACTS

Pan Pacific Builders Ltd. (Pan Pacific) purchased a business risk insurance policy from Commonwealth Insurance Company (Commonwealth) to insure Pan Pacific during its construction of the Bellingham Surgery Center (Center). The policy insured against physical losses to property occurring between December 20, 1984, and January 31, 1986, the anticipated period of construction.

The policy specifically excluded from coverage the "[c]ost of making good faulty or defective workmanship, material, construction or design," but the policy did cover "damage resulting from such faulty or defective workmanship, material, construction or design." Clerk's Papers (CP) at 153. The parties agree that the policy covers "radiating" damage only if it occurred during the policy period. Pan Pacific abandoned construction prior to completing the tenant improvement work. In December 1991, the Center's owners, Joan Schwindt and Richard Jones, sued Pan Pacific alleging breach of contract, fraudulent mismanagement of corporate accounts and breach of fiduciary duties. As relevant to Pan Pacific's subsequent coverage claim against Commonwealth, the owners alleged only that "[c]ertain equipment and material, particularly mechanical equipment, doors and door hardware supplied by Pan Pacific" were "defective and below the standards required by the Contract." CP at 19-20.

Nearly two years later, in October 1993, Pan Pacific first notified Commonwealth that it intended to seek indemnification for this claim by the owners and urged Commonwealth to appear pursuant to a reservation of rights. In November, Commonwealth acknowledged receipt of Pan Pacific's notice and informed Pan Pacific that, although the policy did not require it to defend Pan Pacific in litigation, Commonwealth would undertake an investigation to determine if the policy provided coverage.

On January 20, 1994, when Commonwealth had failed to appear in the owners' action against Pan Pacific and had failed to acknowledge coverage, Pan Pacific filed this breach of contract action. Three months later the owners signed a settlement agreement with Pan Pacific, in which Pan Pacific assigned to the owners its rights under the pending lawsuit against Commonwealth.¹ IN NOVEMBER 1996, Commonwealth filed its answer formally denying coverage.

In October 1997, the trial court granted Commonwealth's motion for summary judgment concluding that Pan Pacific's action was barred by the six-year contract statute of limitations. Pan Pacific appealed contending that its cause of action did not accrue until Commonwealth rejected its claim for indemnification.

The court of appeals held that the cause of action accrued when the damage occurred. Schwindt v. Commonwealth Ins. Co., 94 Wash.App. 504, 508-09, 972 P.2d 570 (1999)

. The court of appeals relied upon cases holding that, for property insurance coverage purposes, the time of an "occurrence" is the date the property sustains damage. See Schwindt, 94 Wash.App. at 508 n. 7,

972 P.2d 570 (citing inter alia, Villella v. Public Employees Mut. Ins. Co., 106 Wash.2d 806, 811, 725 P.2d 957 (1986) and Cope Constr. Co. v. American Home Assurance Co., 28 Wash. App. 38, 44, 622 P.2d 395 (1980)).

ISSUES

We are asked to decide (1) whether Pan Pacific's cause of action against Commonwealth accrued more than six years before Pan Pacific filed suit; and (2) if Pan Pacific's cause of action were timely, whether summary judgment dismissal would have been proper on the grounds of estoppel.

I. ACCRUAL

Pan Pacific contends that an insured's cause of action against its insurer for failure to provide coverage does not accrue until the insurer improperly denies coverage. Appellant's Br. at 10-12 (citing Safeco Ins. Co. v. Barcom, 112 Wash.2d 575, 773 P.2d 56 (1989) and Bush v. Safeco Ins. Co. of Am., 23 Wash. App. 327, 596 P.2d 1357 (1979)). Commonwealth contends that, in the context of first party property insurance, the limitations period begins to run on the date the loss occurs. Resp't's Br. at 7, 9 (citing Simms v. Allstate Ins. Co., 27 Wash.App. 872, 875, 621 P.2d 155 (1980)); Resp't's Supplemental Br. at 1, 8-11 (citing RCW 48.18.200(1)(c); RCW 48.18.120(1); WAC 284-20-010(3)).

Commonwealth further contends that the Simms holding is consistent with the general rule that a party cannot unilaterally and indefinitely extend a limitations period by delaying satisfaction of a precondition to filing suit. Resp't's Br. at 9-12 (citing Edison Oyster Co. v. Pioneer Oyster Co., 22 Wash.2d 616, 626-27, 157 P.2d 302 (1945) and Young v. City of Seattle, 30 Wash.2d 357, 363, 191 P.2d 273 3 A.L.R.2d 704 (1948)). In response, Pan Pacific contends that courts adequately protect insurers from tardy coverage claims by applying equitable principles rather than the statute of limitations. For this purpose, Pan Pacific acknowledges that the date the insured discovers its loss is relevant, but claims that there are disputed issues of material fact regarding when Pan Pacific discovered "radiating" damage.

Amici² claim that the court of appeals failed to recognize the distinctions between occurrence policies like the one involved here, and claims-made policies, and, thus, its ruling transforms all occurrence policies into claims-made policies with six-year reporting periods.³

The parties agree that the six-year contract statute of limitations is the proper limitations period. See RCW 4.16.040 (an action upon a written contract must be commenced within six years). Thus, the central issue in this case is: what event triggers the running of this six-year period?

This Court has previously found that the contract statute of limitations begins to run against an insured on the date the insurer breaches the contract of insurance. Barcom, 112 Wash.2d at 583, 773 P.2d 56; see also Denny's Restaurants, Inc. v. Security Union Title Ins. Co., 71 Wash.App. 194, 215, 859 P.2d 619 (1993)

(a cause of action generally accrues when wrongful act takes place); Bush, 23 Wash.App. at 329,

596 P.2d 1357 (a cause of action generally accrues for statute of limitations purposes when a party has a right to apply to court for relief). No justiciable controversy exists under a contract until a breach occurs. Barcom, 112 Wash.2d at 583,

773 P.2d 56.

Here, assuming Commonwealth's policy provides coverage for the damages claimed by Pan Pacific, Commonwealth breached the insurance contract when it denied coverage. Thus, the statute of limitations began to run when Commonwealth wrongfully denied coverage; until such time, Commonwealth had not committed a wrongful act. See Barcom, 112 Wash.2d at 583,

773 P.2d 56; Denny's,

71 Wash.App. at 215,

859 P.2d 619.

The denial of coverage here happened either in November 1993, when Commonwealth acknowledged receipt of Pan Pacific's claim but did not acknowledge coverage, or in November 1996, when Commonwealth formally denied coverage. Even if we assume the limitations period began running on the earlier date and, therefore, expired in November 1999, Pan Pacific's action was timely because it was filed over five years earlier in January 1994.

Although Commonwealth admits that language in Barcom supports Pan Pacific's position, it claims that Barcom does not apply because (1) the Barcom insurer, unlike Commonwealth, caused the statute of limitations to lapse through its own inaction; (2) Barcom involved the Uninsured Motorist (UIM) provisions of automobile liability policies rather than a first party builder's risk policy; and (3) the Barcom insureds notified their insurers promptly after their losses occurred.

The major issue in Barcom was whether the tort or contract statute of limitations applied to the insureds' claims for benefits. Barcom, 112 Wash.2d at 579, 773 P.2d 56. The policies stated that, to be entitled to UIM coverage, the insured must first be "legally entitled to recover" from the actual tortfeasor. Barcom, 112 Wash.2d at 580, 773 P.2d 56.

The Barcom court found that the insurer's obligation to its insured stemmed from the contract terms and that the "legally entitled" language did not operate to displace the six-year statute of limitations otherwise applicable to all written contracts. 112 Wash.2d at 579,773 P.2d 56. Then, applying the six-year contract statute of limitations, which accrued in one case when the insurer refused to arbitrate, and in the other case when the insurer denied coverage, the Barcom court found that neither of the insureds' claims were time barred. 112 Wash.2d at 583-84,773 P.2d 56. Thus, contrary to Commonwealth's assertion, the Barcom insurer did not cause the statute of limitations to lapse through its own inaction.

Nothing in Barcom supports Commonwealth's position that the triggering event for the accrual of an insured's breach of contract action against its insurer differs depending upon whether the policy involved is "first party" or "third party" insurance. Contrary to Commonwealth's position, this Court has characterized the insurance involved in Barcom as "first part...