Young v. Safeco Ins. Co. of Am.

• Decision Date: 02 September 2022
• Docket Number: 20-CV-01816-LK
• Parties: DUKE YOUNG, an individual, and K221, LLC, a Washington State limited liability company, Plaintiffs, v. SAFECO INSURANCE COMPANY OF AMERICA, Defendant.
• Court: U.S. District Court — Western District of Washington

DUKE YOUNG, an individual, and K221, LLC, a Washington State limited liability company, Plaintiffs,
v.
SAFECO INSURANCE COMPANY OF AMERICA, Defendant.

No. 20-CV-01816-LK

United States District Court, W.D. Washington, Seattle

September 2, 2022

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT SAFECO'S MOTION FOR SUMMARY JUDGMENT AND DENYING PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT

Lauren King United States District Judge

This matter comes before the Court on Defendant Safeco Insurance Company of America's Motion for Summary Judgment, Dkt. No. 40, and Plaintiffs Duke Young and K221, LLC's Motion for Partial Summary Judgment, Dkt. No. 43. For the reasons set forth below, the Court grants in part and denies in part Safeco's motion and denies Plaintiffs' motion.

I. BACKGROUND

This insurance dispute arises out of a death at Duke Young's rental property in Kirkland, Washington. Young purchased the property in July 2015. See Dkt. No. 41 at 7-22. He obtained a

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Landlord Protection Policy (the “Policy”) from Safeco shortly thereafter and, in February 2018, began renting the premises to a tenant. Dkt. No. 41 at 24-30, 202-230. The house was in “terrible” condition when the tenant and his fiance moved in.^[1]Id. at 35:13.

The Insurance Policy

Relevant here are three Policy provisions. First, the Policy promises that Safeco will insure direct physical loss caused by “[v]andalism or malicious mischief” unless the loss falls under one of the enumerated General Exclusions (Perils Insured Against - Coverage C - Personal Property). Id. at 209. Second, one such General Exclusion bars coverage for “[p]lanning, [c]onstruction or [m]aintenance,” which is defined as “faulty, inadequate or defective . . . workmanship, repair, construction, renovation, [or] remodeling . . . of the property . . . by any person or organization” (General Exclusion No. 10). Id. at 212. The third and final relevant provision sets forth several “duties” that the insured “must perform” in the event of a loss (General Condition No. 4). Id. at 213. These duties include, but are not limited to, “cooperat[ing] with [Safeco] in the investigation . . . of any claim” (General Condition No. 4(a)); “mak[ing] reasonable and necessary repairs required to protect the property and keep[ing] an accurate record of repair expenses” (General Condition No. 4(d)); and “prepar[ing] an inventory of the loss to the building and damaged personal property showing in detail the quantity, description, actual cash value and age”^[2] (General Condition No. 4(e)). Id. at 213 (emphasis in original). Of particular import here, though, is the insured's obligation to “provide [Safeco] with records and documents [it] request[s]” and to

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“exhibit the damaged and undamaged property” to Safeco “as often as [Safeco] reasonably require[s]” (General Condition No. 4(f)(1)-(2)). Id.

Young's Insurance Claims

In April 2019, the tenant passed away in one of the bedrooms of the rental house. Id. at 7273.^[3]Young subsequently inspected the property and “discovered” that the tenant had made several “unauthorized modifications.” Dkt. No. 43 at 3. The lease agreement prohibits “alterations or improvements to the Property without [Young]'s prior written approval.” Dkt. No. 41 at 25. Although Plaintiffs frame the tenant's renovations as a surprise, the record suggests otherwise. The tenant's fiance testified during her deposition that Young authorized the renovations and even accepted the work in lieu of rent. Dkt. No. 41 at 36:15, 38:22-24. The tenant replaced, among other things, the rotting bathroom floor, tub, basin, and toilet. Id. at 36:14-15.^[4] He also enlarged the closets in both bedrooms, sealed two bedroom doors leading to a shared bathroom, and erected walls in the living room to create a third bedroom. Dkt. No. 40 at 3; see also id. at 4 (diagram); Dkt. No. 41 at 84-115 (Safeco's inspection photographs). Plaintiffs further allege that the tenant opened, reframed, or wholesale removed other walls in the house, removed the structural support for the fireplace, tore out the wood-burning stove, and altered sections of the plumbing and electrical wiring. Dkt. No. 41 at 41:39-41, 42:42-45. Although the parties dispute the extent of the tenant's remodeling efforts, the Court need not resolve the disagreement. It suffices to say that Plaintiffs claim that they “didn't recognize” the house and that the tenant “reconfigured the whole

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house to meet his needs.” Id. at 41:40, 43:49.

Young submitted a claim to Safeco seeking coverage for repairs associated with the tenant's remodeling work (the “vandalism claim”). Dkt. No. 40 at 4.^[5]On April 26, 2019, Safeco conducted an inspection of the property and concluded that the claimed loss was due to “incomplete/unauthorized home renovations by tenant.” Dkt. No. 14-1 at 22. Safeco's on-site investigator explained to Young the “difference between vandalism/malicious mischief” and “wear/hard living/incomplete renovations[.]” Id. And because there was “no evidence of malicious intent related to [the] unauthorized home renovations,” the investigator denied coverage for the claimed loss. See id. (“Coverage Analysis: Coverage excluded for incomplete/unauthorized home renovations by tenant, wear, hard living, [and] long-term water damage[.]”).

Young mounted a spirited objection to Safeco's initial denial. The record indicates that at least one claims adjuster had an escalated call with him days after the inspection. Id. at 21; Dkt. No. 43 at 4 (“Mr. Young repeatedly challenged Safeco's decision, explaining that regardless of whether [the tenant] intended to harm the Rental Property, the Lease forbid him from knocking down and altering walls.” (footnote omitted)). Safeco responded by requesting a copy of the lease agreement “to determine how it read[] pertaining to the interior remodeling/removal and additions of the property[.]” Dkt. No. 14-1 at 21. Safeco's review of the lease, however, did not alter its position. Id. at 20. And on May 6, 2019, it issued a formal letter denying coverage. Dkt. No. 41 at 121. The letter summarily explains that the Policy “does not afford coverage for damage(s) which arise out of wear, tear, deterioration, construction renovation, remodeling, maintenance and rot.”

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Id. It also includes two pages of reproduced Policy excerpts, including General Exclusion No. 10 (excluding repair, construction, renovation, and remodeling work). See id. at 122-23. The letter concludes by instructing Young to “please begin the repair process as soon as possible” to protect his property from further loss. Id. at 123.

According to Plaintiffs, Young “complied” with this directive. Dkt. No. 43 at 5. The extent of the tenant's alterations, however, was not apparent until Young “removed some of the drywall sheetrock” and exposed the improperly reframed interior walls, inadequate structural support, and rewired electrical system. Dkt. No. 44 at 2. The unforeseen scale of the repair work apparently inspired Young to “perform other work at the Rental Property to make the home more desirable.” Id. And because Safeco had already denied his claim, he reasoned that it was “more efficient and cost-effective” to perform the repairs and remodel work concurrently. Id. at 2-3; see also Dkt. No. 43 at 5 (“Because of the significant amount of repair work required, Mr. Young decided to remodel other parts of the Rental Property at the same time.”). Young started the repair work in “[l]ate Spring 2019.” Dkt. No. 50 at 3; see also Dkt. No. 41 at 159-61 (City of Kirkland building permit issued on July 16, 2019, and limited in scope to “replacing roof, overlaying sheetrock over existing walls and replacing windows”). But he did not obtain the architectural plans, structural engineering plans, or building permit for the major remodeling work until July 2020.^[6]See Dkt. No. 41 at 144 (contractor estimate referring to a building permit issued on July 6, 2020); Id. at 147-52 (architectural plans dated July 2020); Id. at 153-57 (engineering plans dated July 2020).

Young's IFCA Notice

On August 10, 2020, fifteen months after Young's vandalism claim was formally denied,

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his counsel sent Safeco a 20-day notice of intent to sue under Washington's Insurance Fair Conduct Act (“IFCA”). Id. at 127-30; see Wash. Rev. Code § 48.30.015(8)(a). The notice criticized at length Safeco's interpretation of the Policy's vandalism provision and defective construction exclusion, and alleged that Safeco's denial of coverage was “manifestly unreasonabl[e].” See Dkt. No. 41 at 128-29. Safeco's attorney responded to the notice 18 days later in an email indicating that Safeco had agreed to “cure” its initial denial and “accept coverage” for Young's loss. Id. at 132. Safeco's counsel also requested an estimate of the cost to repair the tenant's unauthorized renovations. Id.

Safeco's request for an estimate remained pending through early October 2020, when it advised Young's attorney that “a re-inspection w[ould] be needed . . . to capture data regarding damages.” Id. at 139. Although Safeco had “agreed to address interior damage (vandalism),” it “[r]emin[d]ed” counsel of its “right to inspect the property.” Id. Counsel responded by indicating that Young “was not interested in a second inspection.” Id. He nonetheless agreed to “reach out” to Young and “follow up” with Safeco afterwards. Id. Safeco subsequently issued a letter to Young and his attorney reserving its right to “amend or supplement [its] coverage position” pending further investigation. Dkt. No. 51-1 at 2. This letter set forth the Policy's vandalism provision and enumerated every duty that an insured must fulfill following a loss. See id. at 3. Perhaps most importantly, though, the letter identified the basis for Safeco's reservation of rights: Young's failure to abide by General Condition No. 4(f)(1), which obligates the insured to “exhibit the damaged and undamaged...