Tran v. State Farm Fire and Cas. Co.
| Decision Date | 03 September 1998 |
| Docket Number | No. 65132-9,65132-9 |
| Citation | 136 Wn.2d 214,961 P.2d 358 |
| Court | Washington Supreme Court |
| Parties | Dien TRAN, Respondent, v. STATE FARM FIRE AND CASUALTY COMPANY, an Illinois corporation, Petitioner. |
Reed, McClure by William R. Hickman, Pamela A. Okano and Petrea Knudson Reilly, Seattle, for Petitioner State Farm Fire & Casualty Co.
Adam Chanak, Seattle, for Respondent.
Merrick, Hofstedt & Lindsey, PS, Sidney R. Snyder, Ronald S. Dinning, Seattle, Amicus Curiae on Behalf of Washington Insurers.
Bryan P. Harnetiaux, Debra Stephens, Harbaugh & Bloom, Spokane, Amicus Curiae on Behalf of Washington State Trial Lawyers Association.
We granted review of a Court of Appeals decision reversing a summary judgment in favor of an insurer, State Farm Fire and Casualty Company (State Farm), and against its insured, Dien Tran. The dispositive issue before us is whether the Court of Appeals wrongly concluded that a material factual issue existed about whether State Farm was prejudiced by Tran's refusal to provide it with relevant financial records. We hold that the Court of Appeals did err, being satisfied that an insurer suffers prejudice, as a matter of law, when its insured fails to provide it with the financial records it reasonably needs in order to complete an investigation into the question of whether the insured's claim was fraudulent. We, therefore, reverse the Court of Appeals and reinstate the trial court's order granting summary judgment in favor of State Farm.
Dien Tran, a Boeing engineer, was the sole proprietor of Tran Communications. Tran operated his business of selling and servicing pagers and cellular telephones on evenings and weekends. On August 23, 1992, Tran reported to the Seattle Police Department that his place of business had been burglarized. A police officer who was dispatched to the scene of the alleged burglary surmised, after conducting an investigation, that the business had been entered through a side door. According to the investigating officer's report, Tran indicated that "[t]he inside of the business appeared normal," and that "nothing seemed out of place." Clerk's Papers (CP) at 68. Tran also told the officer that he "did not know if any [property] was missing." CP at 68.
The following day, Tran reported the burglary to his insurance carrier, State Farm. He claimed then that he had sustained property damage as well as a loss of business inventory, personal property, and business income. Two days later, a State Farm claims representative tape recorded a telephone interview she conducted with Tran. A transcript of the interview indicates that Tran told her that one of the first things he noticed when he discovered the burglary was that a display pager unit and a phone display were missing. Tran also told her that numerous other items had been stolen, including a television set, copy machine, two battery chargers, video cassette recorder, video cassettes, computer modem and software, laser printer, program coders, and several pagers. Tran indicated that the burglar broke the alarm system and took a surveillance camera. Tran described other damage to the building, but indicated that he had not yet checked his stock room to see if additional items had been taken.
A few days later, State Farm sent a personal property inventory form to Tran and instructed him to complete it and return it to State Farm together with documentation, i.e., canceled checks, receipts, invoices or other documents that described or placed a value on the items listed on the inventory form. Tran did not submit the form to State Farm until November 23, 1992, despite receiving four telephone messages from the company urging him to complete the forms and to respond to a request for an interview and an inspection of the business premises.
The form submitted by Tran contained a list of property allegedly taken in the burglary and indicated that he was claiming damage in the amount of $12,281.75. He did not, however, provide any documentation to support his loss as has been requested by State Farm.
During the next five weeks a State Farm representative called Tran five times in an effort to obtain the requested documentation. State Farm did not receive a response to any of these calls. State Farm also sent two letters to Tran during this time informing him that it had been unable to contact him and asking him to call its representative to arrange for a recorded interview. A representative of State Farm finally reached Tran by telephone on December 29, 1992, and obtained Tran's agreement to meet with the representative on January 5, 1993 to discuss the claim, make a recorded statement, and arrange for an inspection of the business premises.
Tran failed to appear on the appointed date. Instead, Tran retained an attorney who wrote a letter to State Farm indicating that Tran would not make another recorded statement until the attorney had a chance to review the transcript of the earlier telephone interview. Tran's attorney asked State Farm to indicate if it needed supporting documentation for the personal property inventory form that Tran had previously submitted and to identify the information Tran needed to provide in order to support the claim for loss of business income.
In response to this letter, State Farm concluded that it should broaden its inquiry and investigate Tran's personal and business circumstances in order to determine if he had a motive to submit a fraudulent claim. State Farm's reasons for doing so, according to its representative, were that:
(1) [State Farm's representative] had never been provided with supporting documentation for the items claimed as stolen, (2) [the representative] had never been able to meet with plaintiff to discuss his claim, and (3) [the representative] had never been able to contact plaintiff to view the premises where the alleged burglary occurred.
CP at 298. 1
An attorney for State Farm then wrote Tran's attorney on January 15, 1993, and requested that he be provided, by January 29, 1993, with a list of documents relating to the circumstances surrounding the claimed loss as well as detailed business and personal financial information. When State Farm's attorney failed to receive a timely response to this request, he sent several letters to Tran's attorney in which he reiterated State Farm's request for documentation to support the claim as well as Tran's financial records and warned that failure to comply with the request could constitute a breach of the policy's cooperation clause and result in denial of the claim.
Tran's attorney did not respond to these letters until February 11, 1993 when he contacted State Farm's attorney via fax and indicated that documents would be provided at a later date. Tran's attorney also stated that he would contact State Farm's attorney as soon as possible to arrange for an inspection of the business premises. On February 16, 1993, Tran's attorney supplied State Farm with various documents supporting Tran's claim of property loss, including the police report and photographs that Tran had taken of the premises after the break-in. He did not, however, provide any personal or business financial records, nor did he produce any supporting documents for several items that were alleged to have been stolen, including the copy machine, television set, video cassette recorder, two battery chargers, computer modem, and surveillance camera. Furthermore, he merely submitted a copy of an owner's manual to document loss of a program coder. His claim for several cellular phones and a laser printer was supported only by copies of commercial advertisements.
State Farm continued to make efforts to contact Tran's attorney by telephone and mail in order to obtain the requested financial information and to remind him that State Farm had not been contacted about an inspection of the business premises. Finally, on March 4, 1993, more than seven months after the burglary had been reported, Tran arranged for State Farm's representative to conduct an inspection of the premises.
On March 9, 1993, Tran's attorney informed State Farm's attorney that Tran was not going to produce any financial records or tax returns and that his client would not answer questions regarding his financial situation. State Farm's attorney warned Tran's attorney that Tran's claim could be denied if he failed to provide this information.
Eventually, on March 31, 1993, Tran's attorney sent a letter to State Farm informing it that Tran was dropping his claims for software allegedly taken in the burglary and for loss of business income. Tran's attorney took the position in this letter that by dropping the latter claim, Tran's personal and business financial information was no longer relevant and, therefore, need not be disclosed. State Farm responded that it needed the financial information "as part of its investigation into the facts and circumstances of the loss." CP at 331. State Farm warned Tran that "failure to provide required information is a breach of the policy conditions and may result in denial of your client's insurance claim." CP at 331.
An examination of Tran under oath finally took place on May 26, 1993. At that time, Tran's attorney instructed Tran to decline to answer any questions about his personal or business finances or produce any financial records. Tran did, however, testify that the first thing he noticed when he discovered the burglary was that a pager, a cellular phone, a copy machine, and 15 display items were missing and that a telephone was on the floor broken.
On June 16, 1993, State Farm sent Tran's attorney a letter requesting the addresses and phone numbers of certain persons Tran had identified at his examination, records of inventory purchases and sales, and a copy of an estimate for repair of the door through which the business premises had allegedly been entered. State Farm also...
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