Tewell, Thorpe & Findlay, Inc., P.S. v. Continental Cas. Co.

• Decision Date: 27 January 1992
• Docket Number: No. 26646-2-I,26646-2-I
• Citation: 825 P.2d 724,64 Wn.App. 571
• Court: Washington Court of Appeals
• Parties: TEWELL, THORPE & FINDLAY, INC., P.S., and Richard J. Thorpe, jointly and individually, Appellants, v. CONTINENTAL CASUALTY COMPANY, Respondent.

Page 571

64 Wn.App. 571

825 P.2d 724

TEWELL, THORPE & FINDLAY, INC., P.S., and Richard J. Thorpe jointly and individually, Appellants, v. CONTINENTAL CASUALTY COMPANY, Respondent.

No. 26646-2-I.

Court of Appeals of Washington Division 1.

Jan. 27, 1992.

Publication Ordered March 6, 1992.

Michael T. Watkins and Tewell & Findlay Inc., Seattle, for appellants.

Warren E. Babb, Jr. and Lane Powell Spears Lubersky, Seattle, for respondent.

AGID, Judge.

This appeal arises out of a declaratory judgment action challenging the denial of coverage by Continental Casualty Company under a professional liability policy issued to the appellant law firm. Specifically, appellants Tewell, Thorpe & Findlay, Inc., P.S. ("Tewell Thorpe") and Richard J. Thorpe appeal the trial court's rulings (1) declining to hold that the disputed language of the policy was ambiguous as a matter of law, and (2) granting respondent Continental Casualty's motion in limine excluding evidence regarding the dismissal of the underlying legal malpractice claim. We affirm the trial court.

Richard Thorpe was retained by Ernest Myers in August 1982 to represent Myers in connection with the purchase of a piece of property that Myers intended to develop as a mobile home park. Thorpe requested a preliminary title report from Pioneer National Title Insurance Company ("Pioneer Title") in connection with the real estate closing. On receiving the 4-page report, Thorpe noticed a problem with the legal description on the first page. He did no more than glance at the remainder of the report because it was his opinion that the initial problem might prove insurmountable. He thus failed to note that page 3 of the report indicated the presence of two easements on the property.

Because there was some urgency with respect to the timing of the closing, Thorpe contacted Chicago Title Insurance Company ("Chicago Title") and requested a new title report. Although he informed them of the problem on page 1 of the Pioneer Title report and provided them with a copy of that page, he did not provide them with a copy of the remainder of the report. When asked by a representative of Chicago Title whether he had missed anything in the Pioneer Title report, Thorpe replied that he believed he had gotten everything. The report and policy subsequently issued by Chicago Title made no mention of the easements that were listed in the Pioneer Title report.

Myers discovered the existence of the easements in October 1982, alleged that they prevented him from developing the purchased property as a mobile home park and, through Thorpe, demanded payment from the title insurer, Chicago Title. Thorpe and Chicago Title then exchanged several letters concerning the circumstances giving rise to Chicago Title's issuance of the policy and when Thorpe had become aware of the easements. Chicago Title informed Thorpe in August 1983 that it might implicate him if the claim resulted in litigation.

The professional liability insurance policy issued by Continental Casualty to Tewell Thorpe took effect in January 1984 and remained in effect throughout 1985. On October 28, 1985, Myers filed a malpractice claim against Thorpe arising out of the real estate transaction. Tewell Thorpe tendered the defense of Myers' claim to Continental Casualty, which initially accepted the defense. After reviewing the underlying file, however, Continental Casualty informed Tewell Thorpe that it was denying coverage and would not defend the action. Continental Casualty relied on the firm's failure to identify the underlying litigation as a potential claim at the time it applied for coverage for 1984 and again when it applied for renewal for 1985. The insurer based its position on the 1983 letter from Chicago Title stating that it might implicate Thorpe if the claim resulted in litigation. Continental Casualty withdrew from the litigation in December 1986. Myers' claim against Thorpe was ultimately arbitrated and dismissed because Myers failed to call an expert witness to testify that Thorpe's conduct was not that of a reasonably prudent attorney under the same or similar circumstances.

Tewell Thorpe brought this declaratory judgment action against Continental Casualty in 1987, alleging that Continental Casualty had wrongfully denied coverage for Myers' claim under the policy issued to Tewell Thorpe. Thetrial court refused to find that the language of the exclusionary clause was ambiguous as a matter of law and excluded evidence regarding dismissal of the underlying legal malpractice claim. The question posed to the jury--whether a reasonable person would have known, based on the information available to it at the time, that Thorpe's acts or omissions in handling the Myers transaction might be the basis for a claim--was answered in the affirmative, and the trial court entered its judgment of no coverage based on that verdict. The firm's motion seeking reconsideration of the trial court's rulings with regard to both of these issues was denied.

I. AMBIGUITY OF THE EXCLUSION CLAUSE

Continental Casualty denied coverage with respect to Myers' claim based on Exclusion D of the policy, which provides:

This insurance does not apply under Coverage A to:

. . . . .

D. a claim arising out of acts or omissions occurring prior to the effective date of the first policy issued to the named insured or any predecessor firm by this Company and continuously renewed thereafter, if any insured on the effective date knew or could have reasonably foreseen that such acts or omissions might be the basis for a claim.

(Emphasis in original.) Specifically, Continental Casualty believed that, based on the information available to Thorpe prior to January 1, 1984, the effective date of the policy, Thorpe reasonably could have foreseen that his acts or omissions with respect to the Myers real estate transaction might be the basis for a claim. ¹

In the trial court and here, Tewell Thorpe argued that the reference in the exclusion clause to a claim, which occurs twice in the clause, was ambiguous on two grounds. First, the phrase is ambiguous because the second reference to "a claim" could mean either any claim or the claim that actually materialized. ² Second, Thorpe argued that it is implicit in the language of the exclusion clause that a claim is one which is meritorious in the eyes of the insured because an attorney could not reasonably be expected to anticipate a groundless claim. The trial court denied the motion, ruling that each of these arguments rested on an unreasonable and strained reading of the clause. Because the interpretation of insurance policy language is a question of law, we review the trial court's ruling de novo. Roller v. Stonewall Ins. Co., 115 Wash.2d 679, 682, 801 P.2d 207 (1990); State Farm Gen. Ins. Co. v. Emerson, 102 Wash.2d 477, 480, 687 P.2d 1139 (1984).

An ambiguity exists when a clause, on its face, is fairly susceptible to more than one reasonable interpretation. Greer v. Northwestern Nat'l Ins. Co., 109 Wash.2d 191, 198, 743 P.2d 1244 (1987). Language in insurance policies is construed according to its " 'popular and ordinary meaning, unless it is apparent from a reading of the whole instrument that a different or special meaning was intended.' " Stoughton v. Mutual of Enumclaw, 61 Wash.App. 365, 368, 810 P.2d 80 (1991) (quoting Lawrence v. Northwest Cas. Co., 50 Wash.2d 282, 285, 311 P.2d 670 (1957)); Dairyland Ins. Co. v. Ward, 83 Wash.2d 353, 358, 517 P.2d 966 (1974). The policy should be given a fair, reasonable, and sensible construction such as would be given the contract by the average person purchasing insurance. Roller, 115 Wash.2d at 682, 801 P.2d 207; E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co., 106 Wash.2d 901, 907, 726 P.2d 439 (1986).

Ambiguous terms, on the other hand, are given the construction most favorable to the insured. Morgan v. Prudential Ins. Co. of Am., 86 Wash.2d 432, 435, 545 P.2d 1193 (1976); Dairyland, 83 Wash.2d at 358, 517 P.2d 966. Because the purpose of insurance is to insure, exclusionary clauses are construed against the insurer with special strictness. Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wash.2d 65, 68, 659 P.2d 509 (1983), modified on reconsideration, 101 Wash.2d 830, 683 P.2d 186 (1984). A court may not, however, give an insurance contract a "strained or forced construction which would lead to an extension or restriction of the policy beyond what is fairly within its terms, or which would lead to an absurd conclusion". Morgan, 86 Wash.2d at 434, 545 P.2d 1193. Similarly, a court may not create an ambiguity where none exists. Morgan, 86 Wash.2d at 435, 545 P.2d 1193; West Am. Ins. Co. v. State Farm Mut. Auto Ins. Co., 80 Wash.2d 38, 44, 491 P.2d 641 (1971) (the rule that insurance contracts are construed in favor of the insured should not be perverted to have the effect of making a plain agreement ambiguous); Sperry v. Maki, 48 Wash.App. 599, 601, 740 P.2d 342, review denied, 109 Wash.2d 1014 (1987) (a court may not modify the unambiguous meaning of language contained in an insurance policy under the guise of construing it).

Here, the trial court correctly ruled that the interpretation of the phrase "a claim" suggested by Thorpe was not a reasonable interpretation. ³ "A" is simply an indefinite article. The context in which the second reference to "a claim" is made does not in any way suggest that "a" should be given anything other than its popular and ordinary meaning. The meaning suggested by Thorpe--"the claim that actually materialized"--would have required the use of the definite article "the" or a word like "...