Woo v. Fireman's Fund Ins. Co.

Decision Date26 July 2007
Docket NumberNo. 77684-9.,77684-9.
PartiesRobert C. WOO, D.D.S., and Anne M. Woo, husband and wife; and the marital community composed thereof, Petitioners, v. FIREMAN'S FUND INSURANCE COMPANY, a California corporation; and National Surety Corporation, an Illinois corporation, Respondents, Depositors Insurance Company, an Iowa corporation; and the Pacific Underwriters Corporation, a Washington corporation, Defendants.
CourtWashington Supreme Court

Richard B. Kilpatrick, Bellevue, WA, Richard Andrew Bergh, Law Office of Andrew Bergh PS, Seattle, WA, Charles Kenneth Wiggins, Wiggins & Masters PLLC, Bainbridge Island, WA, for Petitioners.

Michael Simpson Rogers, Reed McClure, Seattle, WA, for Defendants.

Michael Barr King, Talmadge Law Group PLLC, Tukwila, WA, Michael Henry Runyan, Lane Powell PC, Emilia L. Sweeney, Lane Powell PC, Seattle, WA, for Respondents.

Bryan Patrick Harnetiaux, Spokane, WA, Amicus Curiae on behalf of Washington State Trial Lawyers Association Foundation.

FAIRHURST, J.

¶ 1 This case arises from a practical joke that an oral surgeon, Dr. Robert C. Woo, played on an employee, Tina Alberts, while he was performing a dental procedure on her. Alberts brought suit against Woo as a result of the practical joke, and Woo asked his insurer, Fireman's Fund Insurance Company1 (Fireman's), to defend him, claiming coverage under the professional liability, employment practices liability, and general liability provisions of his insurance policy. Fireman's refused Woo's request to defend.

¶ 2 Woo brought suit against Fireman's, claiming breach of duty to defend, bad faith, and violation of the Consumer Protection Act (CPA), chapter 19.86 RCW. The trial court granted Woo's motion for partial summary judgment, holding that Fireman's had a duty to defend under all three provisions. After trial on the bad faith and CPA claims, a jury found by special verdict that Fireman's failed to act in good faith and violated the CPA. Division One of the Court of Appeals reversed, holding that Fireman's had no duty to defend. Woo seeks review of the Court of Appeals ruling and attorney fees and costs on appeal.

¶ 3 We partially reverse the Court of Appeals and reinstate the trial court's judgment based on the jury's verdict. We hold that Fireman's had a duty to defend under the professional liability and general liability provisions but not under the employment practices liability provision. We grant Woo's request for attorney fees and costs on appeal.

I. STATEMENT OF THE CASE

¶ 4 Alberts worked for Woo as a dental surgical assistant for about five years. Her family raised potbellied pigs, and she often talked about them at work. She claims that over the course of her employment, Woo made several offensive comments about her pigs. Woo claims his comments about Alberts' pigs were part of a "friendly working environment" he encouraged in the office. Br. of Resp'ts at 4-5.

¶ 5 The event that precipitated this case occurred during a procedure Woo agreed to perform for Alberts to replace two of her teeth with implants. The procedure required Woo to install temporary partial bridges called "flippers" as spacers until permanent implants could be installed. Pet. for Review at 3. When he ordered the flippers for Alberts' procedure, Woo also ordered a second set of flippers shaped like boar tusks to play a practical joke on Alberts.2 While Alberts was under anesthesia, Woo and his staff removed Alberts' oxygen mask, inserted the boar tusk flippers in her mouth and took photographs of her, some with her eyes pried open. After taking the photographs, Woo completed the planned procedure and inserted the normal flippers.

¶ 6 Woo subsequently had the photographs developed but claims that when he saw them he concluded they were ugly and should not be shown to Alberts. He also claims he told another surgical assistant he thought the photographs were ugly. He claims that he did not expect his staff to give them to Alberts before talking with him. However, about a month later, Woo's staff gave Alberts the photographs at a gathering to celebrate her birthday. Stunned, Alberts proceeded to assist in a dental surgery procedure after receiving the photographs but after that procedure, she went home and never returned to her job. Woo called Alberts several times and wrote to apologize, but Alberts did not respond.

¶ 7 Shortly thereafter, Alberts filed suit against Woo alleging outrage, battery, invasion of privacy, false light, public disclosure of private acts, nonpayment of overtime wages, retaliation for requesting payment of overtime wages, medical negligence, lack of informed consent, and negligent infliction of emotional distress. At the time of Alberts' suit, Woo's policy contained provisions for professional liability, employment practices liability, and general liability.3 About five months after Alberts filed suit, Fireman's notified Woo that his policy did not cover the claims asserted in Alberts' suit and declined to fund his defense.

¶ 8 Fireman's refused to defend under the professional liability provision on the grounds that the acts alleged in Alberts' complaint did not arise out of the provision of dental services. It refused to defend under the employment practices liability provision on the grounds that the complaint did not allege sexual harassment, discrimination, or wrongful discharge as those terms were defined by the policy. It refused to defend under the general liability provision on the grounds that the alleged practical joke was intentional and was not considered a "business activity." Pl.Ex. 25, at 7.

¶ 9 Because Fireman's refused to defend him, Woo paid attorney John Versnel to defend him against Alberts' suit and settled with Alberts just prior to trial for $250,000. Woo then brought suit against Fireman's alleging breach of duty to defend under the professional, employment practices, and general liability provisions of Woo's insurance policy, bad faith, and violation of the CPA. He further alleged that Fireman's was estopped from denying coverage under the policy as a result of its breach of the duty to defend.

¶ 10 The parties submitted cross motions for summary judgment.4 The trial court granted Woo's motion for partial summary judgment holding that Fireman's breached its duty to defend.

¶ 11 Following trial on the bad faith and CPA issues, a jury found that Fireman's failed to act in good faith, violated the CPA, and awarded Woo damages in the amount of $750,000. The trial court entered judgment against Fireman's and awarded damages under the jury verdict, attorney fees and costs pursuant to Olympic Steamship Co. v. Centennial Insurance Co., 117 Wash.2d 37, 811 P.2d 673 (1991), and recovery of the $250,000 settlement Woo negotiated with Alberts.

¶ 12 Fireman's appealed to the Court of Appeals, Division One. Woo v. Fireman's Fund Ins. Co., 128 Wash.App. 95, 114 P.3d 681 (2005). The Court of Appeals reversed the trial court's summary judgment order regarding duty to defend and instructed the trial court to vacate the jury's verdict and dismiss the case. The Court of Appeals did not reach Fireman's remaining issues on appeal. Id. at 118, 114 P.3d 681. Woo petitioned this court for review, which we accepted. Woo v. Fireman's Fund Ins. Co., 156 Wash.2d 1035, 134 P.3d 1171 (2006). Woo also requests attorney fees and costs on appeal.

II. ISSUES

A. Did Fireman's have a duty to defend Woo under the professional liability, employment practices liability, and general liability provisions of his insurance policy?

B. Do other issues raised by Fireman's at the Court of Appeals have merit?

C. Is Woo entitled to attorney fees and costs on appeal?

III. ANALYSIS

¶ 13 An appellate court reviews a partial summary judgment order de novo and engages in the same inquiry as the trial court. Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wash.2d 654, 692 n. 17, 15 P.3d 115 (2000). Interpretation of an insurance contract is a question of law reviewed de novo. Roller v. Stonewall Ins. Co., 115 Wash.2d 679, 682, 801 P.2d 207 (1990), overruled on other grounds by Butzberger v. Foster, 151 Wash.2d 396, 89 P.3d 689 (2004). When we construe the language of an insurance policy, we give it the same construction that an "average person purchasing insurance" would give the contract. Id.

A. The duty to defend

¶ 14 The rule regarding the duty to defend is well settled in Washington and is broader than the duty to indemnify. Hayden v. Mut. of Enumclaw Ins. Co., 141 Wash.2d 55, 64, 1 P.3d 1167 (2000). The duty to defend "arises at the time an action is first brought, and is based on the potential for liability." Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wash.2d 751, 760, 58 P.3d 276 (2002) (emphasis added). An insurer has a duty to defend "`when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy's coverage.'" Id. (quoting Unigard Ins. Co. v. Leven, 97 Wash.App. 417, 425, 983 P.2d 1155 (1999)). An insurer is not relieved of its duty to defend unless the claim alleged in the complaint is "clearly not covered by the policy." Id. (citing Kirk v. Mt. Airy Ins. Co., 134 Wash.2d 558, 561, 951 P.2d 1124 (1998)). Moreover, if a complaint is ambiguous, a court will construe it liberally in favor of "triggering the insurer's duty to defend." Id. (citing R.A. Hanson Co. v. Aetna Ins. Co., 26 Wash.App. 290, 295, 612 P.2d 456 (1980)).5 In contrast, the duty to indemnify "hinges on the insured's actual liability to the claimant and actual coverage under the policy." Hayden, 141 Wash.2d at 64, 1 P.3d 1167 (emphasis added). In sum, the duty to defend is triggered if the insurance policy conceivably covers the allegations in the complaint, whereas the duty to indemnify exists only if the policy actually covers the insured's liability.

¶ 15 "There are two exceptions to the rule that...

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