Category: Fine Print

Lawsuit Over Neighbors’ Target Shooting Triggers Homeowners’ Insurance Coverage Says Court of Appeals

Most homeowner’s insurance policies include coverage protecting the policyholders from certain kinds of lawsuits. For example, many policies provide that, if the policyholder gets sued for “personal injury” claims, the insurance company will pay for lawyers to defend the policyholder in court. This liability coverage is an important part of most homeowners insurance policies. Determining whether the policy provides coverage for a particular lawsuit often turns on the specific definition of “personal injury” in the policy.

A recent Court of Appeals decision emphasizes the importance of the technical definitions of “personal injury” and other liability coverage terms of art under homeowners insurance policies.

Mr. and Mrs. Webb were sued by a neighbor who alleged that, while the Webbs were target shooting on their own property, they fired bullets that ricocheted on to the neighbors’ property. The neighbors asserted claims including trespass and assault.

The Webbs made a claim under the liability coverage contained in their USAA homeowners insurance policy, asking USAA to cover the defense of the neighbors’ lawsuit. The Webbs’ USAA insurance policy provided liability coverage for lawsuits against the Webbs for “bodily injury,” “property damage,” or “personal injury.” The policy excluded coverage for any suits against the Webbs arising from the Webbs’ alleged “intentional acts.”

USAA refused to defend the Webbs against the neighbors’ lawsuit. USAA claimed that “some of the allegations” in the neighbors’ lawsuit did not meet the definitions for “bodily injury,” “property damage,” or “personal injury.” USAA provided no further details. After the Webbs threatened legal action, USAA changed its denial. USAA continued to deny coverage but removed the “some of the allegations” language from the denial letter. The Webbs filed suit against USAA seeking coverage.

The trial court sided with USAA and dismissed the lawsuit. The court concluded all the claims against the Webbs arose from the Webbs “intentional acts” and were therefore excluded from coverage. The Webbs appealed.

The Court of Appeals agreed with the Webbs and reversed the trial court. The Court of Appeals concluded USAA’s insurance policy covered the Webbs by parsing the policy definitions of “personal injury” and “intentional acts.” Prior cases indicated the definition of “personal injury” included claims relating to trespassing on another’s property, which fit the allegations that the Webbs had fired bullets on to the neighbors’ property. The Court of Appeals also determined that because at least some of the neighbors’ allegations triggered coverage under the policy, USAA had to defend the lawsuit. In making that determination, the court relied on the general principle that ambiguous insurance policy language must be interpreted in favor of the insured.

Having determined the policy covered the lawsuit under the definition of “personal injury”, the Court of Appeals also concluded the policy’s exclusion for intentional acts did not apply. The court noted that the appropriate question was whether the Webbs were sued for conduct that the Webbs “expected or intended.” The neighbors’ lawsuit did not allege the Webbs intentionally fired on to the neighbors’ property. Rather, the neighbors alleged the Webbs fired at targets on the Webbs’ property but carelessly and recklessly allowed bullets to ricochet on to the neighbors’ property. Those allegations did not allege the Webbs intentionally trespassed on to the neighbors’ property. Just because the Webbs intended to fire guns did not mean the Webbs intended the bullets would ricochet on to the neighbors’ property.

This decision is an important reminder that the technical terms in insurance policies are critical to understanding the rights and obligations under the policy.  These terms can often have meanings defined in caselaw, as occurred in the Webb so an experienced attorney’s input is essential.

 

 

 

 

 

Ninth Circuit Reiterates Insurers Can’t Re-Write Policies to Justify Denying Coverage

As we’ve often observed, insurance policy fine print matters. Insurers can only deny claims if the policy language excludes the claim from coverage. A recent decision from our local federal appeals court confirms insurers cannot re-write the policy after the fact to support denying coverage.

On February 18, 2020, the Ninth Circuit Court of Appeals, the federal appeals court with jurisdiction over Washington State, decided National Union Fire Insurance Company of Pittsburgh, PA v. Zillow, Inc. The court ruled Zillow could proceed with a lawsuit alleging its insurer improperly denied coverage for a lawsuit against Zillow for copyright infringement. The decision is unpublished, so it can be cited for persuasive value but lower courts are not required to follow the ruling.

The insurance claim arose because Zillow was sued for copyright infringement by VHT, Inc. Zillow made a claim under its professional liability insurance policy issued by National Union Fire Insurance Company.

The insurance policy only covered claims that were first made against Zillow during a specific time period (the “policy period”). VHT sued Zillow during the policy period. But, before the policy period began, VHT had sent Zillow a letter threatening to sue Zillow for the same copyright infringement alleged in the lawsuit. Accordingly, National Union argued there was no coverage because the claims alleged in the VHT lawsuit had been raised before the policy period.

The trial court agreed with VHT and ruled Zillow had no coverage for the VHT suit under its insurance policy. But the Ninth Circuit reversed, ruling the insurer should not have been allowed to stretch the policy language to support denying coverage.

The court of appeals examined the insurance policy language closely. For purposes of deciding whether a claim occurred during the policy period, the policy defined a “claim” as either a lawsuit or a demand letter. Since the VHT lawsuit was obviously a lawsuit, the court had no trouble deciding that the lawsuit was a claim arising during the policy period.

The court did not buy the insurer’s argument that VHT’s demand letter and VHT’s lawsuit should be treated as a single claim. The court emphasized that National Union could have added language to this effect to the insurance policy, but chose not to:

“[U]nlike a number of other claims-first-made policies cited by both parties, the Policy does not contain a provision expressly providing for the integration of factually related Claims. Had National Union wanted factually similar Claims to be integrated under the Policy’s coverage provision, it could have easily drafted the Policy to include such a requirement.”

The Ninth Circuit also emphasized that insurance policies must be read as they are written, criticizing the trial court for reading the word “or” out of the definition of “claim”. The court emphasized that Washington State law requires ambiguous insurance policy language, i.e., language that could arguably be read in two different ways, be interpreted in favor of the insured. The court sent the case back down to the trial court to reconsider whether Zillow had insurance coverage under the correct reading of the policy.

The Zillow decision is an important reminder that insurance policy fine print matters. Insurers, after all, are the ones writing their insurance policies. The insurer has the opportunity to draft exclusions into the policy before they sell it. They can’t add new exclusions to the insurance policy after the fact. And, if the policy is so poorly written that it could be read multiple ways, the proverbial tie-breaker goes to the insured.

Deadlines in Policy Fine Print Can’t Cut off IFCA Rights Says Court of Appeals

Washington’s Insurance Fair Conduct Act (IFCA) protects policyholders from insurers’ unreasonable refusal to pay covered losses or provide insurance policy benefits. Unfortunately, many insurers include fine print in the insurance policy contract that supposedly provides the policyholder cannot sue the insurer once certain time period has passed since the loss. These time periods are typically much, much shorter than statutes of limitations, and are often as short as one year.

Insurers often claim this language lets them off the hook for violating policyholders’ rights under IFCA or other laws once enough time has passed. This is particularly problematic because insurers often drag out disputed insurance claims for as long as possible. Accepting these insurers’ arguments would allow insurers to immunize themselves from suit by simply stalling until the deadline runs.

Can they do that?

Fortunately for Washington State policyholders, our Court of Appeals recently said “no way.” On January 13, 2020, the Court of Appeals decided West Beach Condominium v. Commonwealth Insurance Company of America, ruling that the deadline in the insurer’s fine print could not bar the policyholder from pursuing IFCA and similar consumer protection claims.

West Beach, a West Seattle condo owners’ association, had insurance coverage for the condo complex through Commonwealth Insurance. West Beach found substantial water damage in the condo complex and made an insurance claim with Commonwealth on September 26, 2016.

In March of 2017, Commonwealth denied coverage. Commonwealth claimed that the water damage had been happening for the past ten years. Commonwealth’s insurance policy contained fine print requiring West Beach to sue within a year after the loss, i.e., within a year after the initial water damage.

West Beach sued, alleging that Commonwealth breached the insurance policy contract. West Beach also sued under IFCA and Washington’s Consumer Protection ACT (CPA). The lower court dismissed the entire lawsuit because the claimed damage occurred more than one year before West Beach filed suit.

The Court of Appeals reversed and ordered that the lower court should not have dismissed the IFCA and CPA claims. Commonwealth claimed on appeal that by failing to file suit by the contractual deadline, West Beach gave up its right to any insurance coverage. Therefore, Commonwealth argued, West Beach had no right to bring IFCA or CPA claims because it had given up its insurance coverage.

The Court of Appeals determined the suit limitation clause only prevented West Beach from filing a very specific type of claim for breach of the insurance policy contract. But, the court ruled, Commonwealth could not use the contractual deadline to immunize itself from suit under IFCA and the CPA. These statutes give policyholders rights that do not go away merely because the policyholder missed a deadline buried in the insurance policy.

The West Beach decision is important because it preserves policyholders’ rights under Washington’s consumer protection statutes. These laws exist to protect Washington policyholders from sharp practices. Allowing insurers to exempt themselves from these laws simply by adding arbitrary deadlines to their insurance policy fine print would allow insurers to circumvent these protections by using the very type of sharp practice these laws exist to prevent.

Court of Appeals Confirms Insured Can Reform Policy Language to Provide The Coverage The Insured Purchased

The Washington Court of Appeals recently answered an important question for policyholders: what if your agent sells you coverage but the insurance policy fine print fails to reflect the coverage you thought you purchased?

On November 4, 2019, the Washington Court of Appeals decided Digitalalchemy, LLC v. John Hancock Insurance Company (USA). The court held Digitalalchemy could sue John Hancock for denying coverage under a life insurance policy because, even though the policy language supported John Hancock’s denial, Digitalalchemy had purchased broader coverage than the policy reflected.

Digitalalchemy bought John Hancock’s life insurance policy to cover its key executives. When buying the policy, John Hancock’s agent agreed to backdate the insurance coverage’s start date. That means the policy would effectively begin providing coverage before the date Digitalalchemy purchased the policy. However, due to a mistake, the policy language failed to reflect the backdated start date.

One of the covered executives died by suicide, and Digitalalchemy made a claim under the policy. John Hancock denied coverage under the policy’s suicide exclusion. The policy excluded coverage if the insured died by suicide within two days of the “issue date.” Because the parties agreed to backdate the policy start date, the insured died after the two-year exclusion period, and John Hancock should have paid the claim. But because the policy failed to reflect the backdating, John Hancock denied coverage under the suicide exclusion.

The court agreed with John Hancock that the policy language did not backdate the start date. However, the court also found that Digitalalchemy sufficiently alleged the parties had agreed to backdate the policy and that the failure to reflect the backdating in the policy was a mistake. Accordingly, the court agreed Ditigalalchemy could argue the policy should be reformed to reflect the backdated start date because that was what both parties had intended.

That ruling is important because it is another recent case confirming insureds can still obtain recourse if they purchase coverage but the insurer writes a policy failing to accurately reflect the purchased coverage.

WA Supreme Court Confirms Insurers Must Follow Their Agents’ Promises

Let’s say you go to an insurance agent to buy an insurance policy. You tell the agent you want coverage for something specific, for example, fire damage to your boat. The agent sells you a policy the agent tells you covers fire damage to your boat. The agent gives you some documents summarizing the policy that say fire damage to your boat is covered. Then your boat catches fire and you make a claim, but the insurer denies coverage. The insurer says the policy fine print excludes fire damage, even though the agent said it was covered.

Can they do that?

The answer is no, according to the Washington Supreme Court. On October 10, 2019, the Washington Supreme Court decided T-Mobile v. Selective Insurance Company. The decision confirms insurance companies may be bound by statements their agents make when selling insurance policies.

In this case, T-Mobile hired a contractor to build a cell phone tower. T-Mobile required the contractor to obtain insurance coverage protecting T-Mobile. The contractor’s insurance policy only covered a small T-Mobile subsidiary, not T-Mobile itself. But the insurance company’s agent issued a series of insurance certificates stating that T-Mobile itself was covered in addition to the subsidiary.

T-Mobile was sued over the cell tower construction project and made a claim under the policy. The insurer denied coverage on the basis the policy did not name T-Mobile as an insured. 

In the resulting lawsuit, the insurance company argued T-Mobile should not have relied on the insurance agent’s representations that T-Mobile was covered. The insurer said T-Mobile should have read the policy and seen that T-Mobile was not covered.

The Washington Supreme Court disagreed. The Court determined T-Mobile was justified in believing that the insurance company’s agent was authorized to speak on behalf of the insurer.  The court found the agent’s specific statements that T-Mobile was covered overcame boilerplate disclaimers the insurer had made.

The court also emphasized the importance of holding insurers to their agents’ promises. Without that rule, the court noted, insurers would have no incentive to make sure their agents’ statements to people buying insurance were true. The court observed that allowing insurance companies to ignore their agents’ statements was important because “Otherwise, an insurance company’s representations would be meaningless and it could mislead without consequence.”

This ruling is important. Many folks buy insurance after discussing with their agent, reading brochures, or browsing the internet. They rarely read the policy fine print. Even T-Mobile, a huge corporation presumably represented by a team of insurance lawyers, relied on the insurance agent’s representations without noticing the policy fine print. If insurance companies could let their agents sell policies promising coverage that didn’t exist, consumers would pay for coverage they never received and would have little recourse.