State Farm Fire & Cas. Co. v. Ham & Rye

• Decision Date: 16 October 2007
• Docket Number: No. 36256-2-II.,36256-2-II.
• Citation: 142 Wash.App. 6,174 P.3d 1175
• Court: Washington Court of Appeals
• Parties: STATE FARM FIRE & CASUALTY CO., an Illinois corporation, Respondent, v. HAM & RYE, L.L.C., a Washington limited liability company; and Retail Services, Inc., d/b/a Aldrich's Market, a Washington corporation, Appellants, and Chanel Chadwick, a single woman, Defendant.

174 P.3d 1175

142 Wash.App. 6

STATE FARM FIRE & CASUALTY CO., an Illinois corporation, Respondent, v. HAM & RYE, L.L.C., a Washington limited liability company; and Retail Services, Inc., d/b/a Aldrich's Market, a Washington corporation, Appellants, and Chanel Chadwick, a single woman, Defendant.

No. 36256-2-II.

Court of Appeals of Washington, Division 2.

October 16, 2007.

Publication Ordered December 11, 2007.

John Budlong, Faye Jew Wong, Law Offices of John Budlong, Edmonds, WA, Malcolm Stephen Harris, Harris Mericle & Wakayama PLLC, Seattle, WA, for Appellants.

Michael Simpson Rogers, Pamela A. Okano, Reed McClure, Seattle, WA, for Respondent.

ARMSTRONG, P.J.

¶ 1 Chanel Chadwick and a friend started a fire that spread to the nearby Aldrich's Market building, damaging property of Ham & Rye, LLC (H & R) and Retail Services, Inc. (RSI). State Farm insured Chadwick and her grandparents with homeowners' liability and personal umbrella policies. H & R and RSI appeal the trial court's order granting summary judgment to State Farm Fire and Casualty Company and declaring that State Farm's insurance policies did not provide coverage for H & R and RSI's claims against Chadwick. H & R and RSI argue that the trial court erred in ruling that the Aldrich's Market fire was not an accident and resulted from Chadwick's willful and malicious acts. Because reasonable minds could disagree whether the fire was an accident or whether Chadwick acted willfully and maliciously in causing the fire, we reverse the summary judgment and remand for trial.

FACTS

A. The Aldrich's Market Fire

¶ 2 Late one night, Chanel Chadwick, James Ellis, and Corinne Anderson, all 14 years old, found discarded cardboard and newspaper in dumpsters outside the Aldrich's Market building in Port Townsend. Chadwick and Ellis lit some cardboard on fire and watched it smolder and turn to ash. They then lit some newspaper on fire, pulling it out of the bin and onto the sidewalk. Anderson became bored with the activity and walked away from the other two. Chadwick and Ellis eventually stomped on the fire and patted it with a sweatshirt to put it out. When they rejoined Anderson, she asked them if they were sure the fire was out and they both said yes. The three teens then left the scene, believing that the fire was out. The fire, however, spread to the building, burning it down. Both Chadwick and Ellis have maintained that they did not intend to set fire to the building.¹

¶ 3 H & R owned the building and RSI operated the Aldrich's Market grocery store in it. H & R and RSI sued Chadwick and Ellis, alleging that they negligently caused a fire adjacent to the H & R property and, as a result, the property was destroyed.

B. Chadwick's Insurance Policies

¶ 4 State Farm insured Chadwick under her grandparents' homeowners' policy with $100,000 coverage. The policy's personal liability coverage, called Coverage L, provided:

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable....

Clerk's Papers (CP) at 187. The policy defined an "occurrence" as

an accident, including exposure to conditions, which results in:

a. bodily injury; or

b. property damage....

CP at 174. The policy contained the following exclusions:

Coverage L ... do[es] not apply to:

a. bodily injury or property damage:

(1) which is either expected or intended by the insured; or

(1) which is the result of willful and malicious acts of the insured.

CP at 188.

¶ 5 State Farm also covered Chadwick under her grandparents' personal liability umbrella policy with $1,000,000 coverage. The umbrella policy provided: "If you are legally obligated to pay damages for a loss, we will pay your net loss minus the retained limit." CP at 212. The policy defined "loss" as "an accident that results in personal injury or property damage during the policy period. This includes injurious exposure to conditions." CP at 210. The policy contained the following exclusions:

We will not provide insurance:

...

2. for personal injury or property damage:

a. which is either expected or intended by you; or

b. to any person or property which is the result of your willful and malicious act, no matter at whom the act was directed.

CP at 213.

C. Coverage Dispute

¶ 6 State Farm initially defended Chadwick but reserved its rights to withdraw the defense and deny coverage, asserting that it was "questionable" whether the property damage was the result of an occurrence as defined in the homeowners' policy or a loss as defined in the umbrella policy; State Farm also asserted that even if the fire could qualify as an occurrence or loss, the policies excluded coverage because Chadwick either willfully and maliciously caused the property damage or she expected or intended the damage. State Farm ultimately denied coverage on the grounds that the fire was not an accident and that Chadwick willfully and maliciously caused the fire.² State Farm then initiated this lawsuit, seeking a declaratory judgment that its homeowners' and personal liability umbrella policies did not cover Chadwick for the Aldrich's Market fire.³

¶ 7 Chadwick settled the H & R and RSI lawsuit, agreeing to an entry of judgment against her and assigning her claims against State Farm to H & R and RSI in exchange for a covenant not to execute on the judgment. H & R and RSI then filed counterclaims against State Farm, alleging that State Farm breached its insurance contract and its duty of good faith by denying coverage for the fire loss.

¶ 8 The trial court granted State Farm's motion for partial summary judgment, ruling that there was no coverage as a matter of law. In its oral ruling, the trial court stated that the fire was a "deliberate act" by Chadwick and that she started it with "willful and malicious behavior." Report of Proceedings (RP) at 4. H & R and RSI then voluntarily dismissed their counterclaims and sought direct review in the Supreme Court, which transferred the case to us.

¶ 19 We address two questions: (1) whether the Aldrich's Market fire was an "accident" within the meaning of State Farm's insurance contract and therefore a covered "occurrence," and if so, (2) whether Chadwick's liability was, nonetheless, excluded because she willfully and maliciously caused the fire.

ANALYSIS

I. Summary Judgment Standard

¶ 10 Chadwick argues that the trial court used an incorrect definition of the term "accident" in granting State Farm's motion for summary judgment; she also asserts that she did not act willfully and maliciously in setting the fire.

¶ 11 We review an order granting summary judgment de novo. Go2Net, Inc. v. FreeYellow.com, Inc., 158 Wash.2d 247, 252, 143 P.3d 590 (2006) (citing Troxell v. Rainier Pub. Sch. Dist. No. 307, 154 Wash.2d 345, 350, 111 P.3d 1173 (2005)). Summary judgment is appropriate where no genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. CR 56(c). In our review, we consider all facts, and reasonable inferences from those facts, in the light most favorable to the nonmoving party. Berrocal v. Fernandez, 155 Wash.2d 585, 590, 121 P.3d 82 (2005) (citing Wilson v. Steinbach, 98 Wash.2d 434, 437, 656 P.2d 1030 (1982)).

II. Principles of Insurance Policy Interpretation

¶ 12 We interpret insurance policies as a matter of law. Kitsap County v. Allstate Ins. Co., 136 Wash.2d 567, 575, 964 P.2d 1173 (1998). Insurance policies are contracts, and courts seek to determine the contracting parties' intent by resorting to a fair, reasonable, and sensible construction of the contract's language, as the average insurance purchaser would understand it. Am. Nat'l Fire Ins. Co. v. B & L Trucking & Constr. Co., 134 Wash.2d 413, 427, 951 P.2d 250 (1998).

¶ 13 In general, we will enforce an insurance contract as written if the contract is clear and unambiguous. Allstate Ins. Co. v. Peasley, 131 Wash.2d 420, 424, 932 P.2d 1244 (1997) (citing Transcon. Ins. Co. v. Wash. Pub. Utils. Dist's. Util. Sys., 111 Wash.2d 452, 456, 760 P.2d 337 (1988)). If a policy leaves a term undefined, we give the term its plain, ordinary, and popular meaning; we may use a standard English dictionary definition as an aid. Panorama Vill. Condo. Owners Ass'n Bd. of Dirs. v. Allstate Ins. Co., 144 Wash.2d 130, 139, 26 P.3d 910 (2001).

¶ 14 Determining if insurance coverage exists is a two-step process: an insured must show that a loss is within the scope of her coverage; the insurer then bears the burden of showing that an exclusion applies. McDonald v. State Farm Fire & Cas. Co., 119 Wash.2d 724, 731, 837 P.2d 1000 (1992). 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. Stuart v. Am. States Ins. Co., 134 Wash.2d 814, 818-19, 953 P.2d 462 (1998). In the same vein, we construe exclusions against the insurer. Stuart, 134 Wash.2d at 818-19, 953 P.2d 462.

III. Definition of "Accident"

¶ 15 Chadwick contends that the trial court erred in concluding that because she deliberately set the paper outside the market on fire, the Aldrich's Market fire was not an accident.

¶ 16 State Farm's homeowners' policy covers only an "occurrence," which is defined as an "accident" that causes harm to a person or property. CP at 174. And the personal liability umbrella policy covers only a "loss," which is defined as an "accident" that results in personal injury or property damage. CP at 210. Thus, the Aldrich's Market fire is covered only if it was an accident. Because the State Farm policies do not define the term "accident," we must give the term its plain, ordinary meaning. Panorama Vill., 144 Wash.2d at 139, 26 P.3d 910.

¶ 17 The trial court used the following definition of accident:

[...