Vandivort Const. Co. v. Seattle Tennis Club, 2061--I
| Decision Date | 20 May 1974 |
| Docket Number | No. 2061--I,2061--I |
| Citation | 522 P.2d 198,11 Wn.App. 303 |
| Parties | VANDIVORT CONSTRUCTION CO., a Washington corporation, Appellant, v. SEATTLE TENNIS CLUB, a Washington corporation, and Washington Mutual Savings Bank, a Washington corporation, Defendants, United States Fire Insurance Company, Respondent, National Fire Insurance Company of Hartford et al., Defendants. |
| Court | Washington Court of Appeals |
Davis, Wright, Todd, Riese & Jones, Rex M. Walker, Seattle, for appellant.
Reed, McClure, Moceri & Thonn, P.S., William R. Hickman, Hugh A. McClure, Seattle, for respondent.
Vandivort Construction Company, a Washington corporation, appeals from the trial court's grant of summary judgment for its third party liability insurer, United States Fire Insurance Company, in Vandivort's action to recover increased construction costs resulting from an earthslide caused by Vandivort's negligence.
Vandivort contracted with the Seattle Tennis Club to construct a concrete building housing six tennis courts. On September 22, 1966, during construction, an earthslide damaged the site. Immediate remedial work was undertaken to prevent increased damages from the slide and, in addition, the slide necessitated a redesign of the west wall of the building to compensate for the added stress. This caused increased architect fees and construction costs. Vandivort tendered the matter to its insurance carrier, U.S. Fire which failed to respond immediately. 1 Vandivort then made the necessary changes and paid the increased costs before suit or settlement negotiations approved by U.S. Fire as required in the contract of insurance.
Vandivort contends that these additional costs are insured by U.S. Fire under two third party liability policies in effect at the time of the slide: (1) Primary coverage through comprehensive general liability policy No. CAG--100652 () and (2) excess coverage under comprehensive catastrophe liability policy No. DCL--209400 (). The claim included the following items:
A. $34,201.44 for stabilizing the west wall and slide repair
B. $24,016.93 cost overrun for McGilvra Boulevard repair. 2
C. $204,483.15 for construction of the west wall as redesigned
D. $31,274.52 for the cost of redesigning the west wall.
E. $10,327.50 in incidental costs.
Total: $304,303.54
It is not disputed that the claim arose from Vandivort's negligence. The slide occurred September 22, 1966, and notice was immediately given to U.S. Fire which denied coverage on December 19, 1966. A formal claim was filed September 7, 1967, and when U.S. Fire rejected the claim relying upon the insuring provisions, exclusions and conditions of the policies, Vandivort initiated this action. U.S. Fire argues that the claim by Vandivort is to recover Vandivort's own costs and expenses; it is not a suit against Vandivort by a third party to recover for Vandivort's negligent acts; Vandivort voluntarily expended the funds which it now seeks to recover to correct problems caused by its own negligence; and Vandivort was not sued nor would a third party have had the right to sue for the alleged damages. The trial court found no coverage and granted summary judgment for U.S. Fire. Vandivort appeals. We affirm.
The appeal questions the legal effect of Condition 12 of the primary policy, which provides:
No action shall lie against the company unless, as a condition precedent thereto, the insured shall have fully complied with all the terms of this policy, nor until the amount of the insured's obligation to pay shall have been finally determined either by judgment against the insured after actual trial or by written agreement of the insured, the claimant and the company.
and Condition H of the umbrella policy, which provides:
Liability of the company with respect to any one occurrence shall not attach unless and until the insured, the company in behalf of the insured, or the insured's underlying insurer, has paid the amount of retained limit. The insured shall make a definite claim for any loss for which the company may be liable within twelve (12) months after the insured shall have paid an amount of ultimate net loss in excess of the amount borne by the insured or after the insured's liability shall have been made certain by final judgment against the insured after actual trial, or by written agreement of the insured, the claimant, and the company.
It is not disputed that no judgment was entered against Vandivort and that U.S. Fire never agreed to a settlement. Vandivort argues that U.S. Fire waived the 'no action' clauses of its policies (Condition 12 and Condition H) when it denied coverage. The effect of those clauses is to provide that no action may be brought against the insurer until the liability of the insured has been finally determined in an action or in an agreement to which the insurer is a party. See 11 G. Couch, Insurance § 44:312 (2d ed. R. Anderson 1963). Although this state has never decided the question, some jurisdictions have held that an insurer is liable for his insured's independent settlement of an unlitigated claim after the insurer's denial of liability despite a no action clause. Thomas W. Hooley & Sons v. Zurich Gen. Accident & Liab. Ins. Co., 235 La. 289, 299, 103 So.2d 449, 452, 67 A.L.R.2d 1078 (1958), held that:
(B)y the mere denial of the insurer to its insured of any liability under the insurance policy for the damages claimed by a third person, the insurer forfeits its right to claim the benefits of the 'no action' clause, and the insured policyholder even in the absence of litigation may compromise the claim against him without prejudicing his right to recover from the insurer the amount of a reasonable and good faith settlement made by him. Especially when as here liability to the third person is unquestioned, and after a denial of coverage by the insurer the policyholder minimizes the loss and avoids the expenses of litigation by a reasonable compromise, the insurer should be unable to claim that reimbursement to its insured of damages clearly covered by the insurance contract is barred by such compromise which was to the ultimate benefit of the insurer.
See also Keith Fulton & Sons, Inc. v. Continental Ins. Co., 273 F.Supp. 486 (D.Mass.1967); Neighbours v. Harleysville Mut. Cas. Co., 169 F.Supp. 368 (D.Md.1959); Keating v. Universal Underwriters Ins. Co., 133 Mont. 89, 320 P.2d 351 (1958); Otteman v. Interstate Fire & Cas. Co., 172 Neb. 574, 111 N.W.2d 97 (1961). 3
In a Washington case not directly on point, where an insurer incorrectly denied liability under its policy and the insured then made a fair settlement with the injured party after suit but before judgment, the court held the insurer liable for the amount of the settlement despite a no action clause. L. J. Dowell, Inc. v. United Pac. Cas. Ins. Co., 191 Wash. 666, 688, 72 P.2d 296 (1937). See also Bosko v. Pitts & Still, Inc., 75 Wash.2d 856, 454 P.2d 229 (1969); 7A J. Appleman, Insurance Law & Practice §§ 4681, 4682, 4690 (1962). Whether Washington should join those jurisdictions which hold that if a third party liability insurer Incorrectly denies policy coverage, the insured may make a reasonable settlement before an action is filed and proceed with a claim against the insurer need not be decided here unless U.S. Fire Incorrectly denied coverage.
The question therefore is whether U.S. Fire Incorrectly denied coverage under the two policies.
Endorsement No. 7 to the primary policy provides that property damage coverage under the policy does not apply:
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