Category: Homeowners Insurance

Washington Court of Appeals Enforces Insurance Protections for Domestic Violence Victims

Since 1998, Washington State has had legislation on the books protecting the rights of domestic violence victims when it comes to insurance. Among other things, the law prohibits insurers from excluding coverage for losses based on intentional or fraudulent acts that result from domestic violence. Intentional acts exclusions are common in insurance.

For example, most homeowner’s insurance would be unlikely to cover a fire intentionally started by the insured. Given the interpersonal dynamic of domestic abuse, restricting the insurance company’s ability to exclude losses from coverage because they arose from an abusive family member’s actions is necessary to prevent domestic abuse from becoming an unfair limitation on insurance coverage.

Washington’s Court of Appeals applied this law in its September 3, 2024 ruling in Welch v. PEMCO Mutual Insurance Company.

In that case, Welch had been married to her husband Morgan and owned a home together. When they divorced, the court awarded the family home to Morgan and the two shared custody of their child.

After the divorce, Morgan attacked Welch when she arrived at the family home to collect their child. During the attack, Morgan set the home on fire. The house was destroyed. A jury later found Morgan guilty of attempted murder and arson.

Welch still owned part of the home at the time of the attack because the couple was still in the process of untangling their assets following the divorce. The home was covered under property insurance issued by PEMCO. Welch and Morgan were both named as insureds.

PEMCO denied coverage. It pointed to the insurance policy’s exclusion for any loss caused by intentional acts, which included Morgan’s arson.

As required by law, the insurance policy stated that the intentional acts exclusion did not apply to losses resulting from acts of domestic violence by family members. But PEMCO claimed that this did not apply. Since Welch and Morgan had been divorced, they were no longer married and not “family.” (The legislature has since amended the law to provide that domestic violence among any intimate partner cannot be excluded from insurance coverage by “intentional acts” exclusions).

The Court of Appeals ruled for Welch. It agreed that the historical definition of “family” did not apply. Welch and Morgan were divorced, and Welch lived with a new partner at the time of the attack.

But the court held that the more modern definition of “family” was more appropriate. Recognizing changing times, modern dictionaries define “family” to include two parents rearing children together even if not married.

Under that definition, the court had little trouble determining that the rule limiting insurance exclusions for domestic violence victims applied, and that PEMCO could not exclude the loss.

The ruling is “unpublished,” meaning it is not binding precedent. But it is a good illustration of the impact of Washington State’s protections for insurance policyholders who are victims of domestic violence.

Washington Court of Appeals Emphasizes Distinction Between “Replacement Cost” and “Actual Cash Value” in Homeowners’ Insurance Coverage

Fine print is tedious, but it matters. That’s the takeaway from the Washington Court of Appeals July 30, 2024 ruling in McKay v. PEMCO Mutual Insurance Company.

We’ve blogged before about the distinction between “actual cash value” and “replacement cost” coverage. These are two types of coverage that basically decide when and how much you get reimbursed if your house is damaged.

The distinction has to do with how you define value. Let’s say your house burns down and your insurance policy says the insurance company will reimburse you for the home’s value. What was it worth? What does “value” mean? This is the kind of question generally pondered only by philosophy undergraduates and insurance lawyers.

One perspective is: “things are worth whatever someone would pay for them.” Under this theory, your house is worth whatever you could have sold it for on the open market the day before it burned down. This (basically) is “actual cash value.”

Here’s another way to look at it: “a thing is worth whatever you’d pay to get a new one.” Under this theory, your house is worth what it would cost to rebuild it. This (basically) is “replacement cost.”

The difference matters in a big way. As anyone who’s tried to hire a contractor in the last few years knows, building new is almost always going to cost more than what you could list the property for on the open market.

So, the difference between “replacement cost” and “actual cash value” becomes pretty relevant as soon as your house gets damaged and you need to make an insurance claim.

Back to McKay: Tina McKay’s house caught fire. Luckily, she had homeowner’s insurance. It would pay the full “replacement cost.”

But, like most homeowners’ insurance, the policy said McKay had to fix the damage from the fire before the insurance company was responsible for paying the replacement cost. (This makes sense, from a certain point of view, because how would we know what it cost to replace the home until the owner hires a contractor who completes the work and presents the final bill?).

Before the insured rebuilt the home, the insurance policy stated PEMCO would pay only the “actual cash value.” When PEMCO paid that amount, it did not reimburse McKay for the full amount of sales tax on the cost to restore the home and replace her belongings.

McKay sued. She alleged that sales tax should be included in the “actual cash value” even if she never collected the “replacement cost.” She relied on a Washington Supreme Court case from 2010 finding that insurers must pay the full cost of sales tax on the cost to repair a home after a loss.

The Court of Appeals saw it differently. It agreed with McKay that the 2010 Supreme Court case entitled her to be reimbursed for the full sales tax in the abstract.

But the court ruled that McKay couldn’t recover the full sales tax amount until she completed restoration and collected the “replacement cost.” The court reasoned that “actual cash value” is the equivalent of fair market value for used goods or property, and that, when you buy used goods, you pay sales tax on the secondhand price rather than the price you would have paid to buy new.

This case is a good example of how fine print and abstract ideas about the meaning of “value” can have a real-world impact for insurance coverage.

WA Appeals Court Confirms Insurers Can’t Make Coverage Denials A Moving Target

Insurers who deny coverage on an unreasonable basis and get sued by their insureds often try to retroactively change their basis for denying coverage. A recent Washington Court of Appeals decision illustrates why this strategy typically fails.

Nathaniel and Jennifer Cummings owned a home in Western Washington that they rented out. The Cummings purchased homeowners insurance for the property from USAA and continued to rent out the property. Because they lived out of state, the Cummings hired a property manager to handle leasing out the property.

In 2017, the Cummings discovered serious damage and an odd smell left behind when the most recent tenants vacated the property. These issues made it harder for the Cummings’ to sell the property. The Cummings suspected the damage was due to tenants producing methamphetamine in the property.

The Cummings made a claim with USAA and advised that they suspected their property manager had failed to effectively handle the tenants. The only investigation USAA performed was obtaining testing confirming methamphetamine residue in the property, but at levels below the Washington State limits for remediation. The Cummings told USAA they wanted to remediate the methamphetamine contamination anyway because even a small amount of contamination would make it harder to sell the property.

USAA denied the claim. The sole reason it gave was that the policy excluded damage from “pollutants.”

The Cummings filed suit and argued the loss was covered under the USAA insurance policy because the tenants’ meth operation was an act of vandalism. USAA defended its decision to deny coverage by raising new arguments not previously disclosed. It claimed the Cummings violated the policy by failing to disclose the tenants’ use of the property and that the methamphetamine contamination levels were too low to count as vandalism. USAA abandoned its initial reason for denying coverage.

The Cummings argued USAA could not raise new grounds for denying coverage in the lawsuit. The trial court agreed with USAA and dismissed the lawsuit. The Cummings appealed.

The Washington Court of Appeals reversed. Siding with the Cummings, the appellate court agreed that USAA could not raise new justifications for denying the claim after the Cummings filed suit.

The court applied the legal principle of equitable estoppel and relied on Washington State regulations requiring that insurers explain their basis for denying a claim. While insurers can modify the basis for denying coverage when they receive new information as part of a reasonable investigation, insurers cannot raise new grounds for denying coverage after the insured shows that the initial basis given for denying coverage is wrong where they could reasonably have given that bases in the original denial.

The Court of Appeals also agreed with the Cummings that the loss was covered under the policy’s vandalism coverages. The court applied the traditional rule that, where a loss occurs due to multiple causes, and one cause is covered while other causes are excluded, the policy covers whichever cause is the main reason for the damage. The court determined that a reasonable jury could find that the meth contamination qualified as vandalism and hence that USAA should have covered the loss. The appeals court determined the Cummings had the right to challenge USAA’s denial of their claim and sent the case back down to the lower court for trial.

The decision is unpublished, meaning it is not binding precedent, but serves as a good reminder that Washington law frowns on insurers’ efforts to retroactively change their basis for denying coverage after they get caught denying coverage without a reasonable basis.

Replacement Cost Coverage Under Homeowners Insurance Can Be Broader Than You Might Think

Most homeowners insurance provides what’s known as “replacement cost” coverage. Replacement cost coverage varies from policy to policy, but generally provides that the insurance company will pay to repair or replace damaged portions of the home with materials of the same or similar quality that existed before the loss. This coverage basically provides the insurer will pay to repair your home after a loss, so it’s an important component of a homeowners insurance policy.

It’s critical to keep in mind that insurance policies can use many different definitions of replacement cost coverage. The only way to know what a particular insurance policy covers is to have a qualified attorney review the entire policy and all the facts related to the loss. With that in mind, a replacement cost provision typically looks something like this:

The insurance company will pay the cost to repair or replace the damaged part of property insured with material of like construction for similar use on the same premises.

In most insurance policies, this language comes with exclusions, limitations, loss settlement provisions, and other policy language that can change how the replacement coverage applies. It’s critical to have a lawyer review the entire policy to determine how replacement cost coverage works in a particular situation.

Replacement cost coverage can involve several important issues that sometimes cause disputes between the policyholder and the insurer. The first is that the policyholder generally gets to choose the contractor who performs the repairs or replacement. In general, whatever a qualified contractor charges is the cost to repair or replace the damaged property and, therefore, what the insurer should pay under the policy. Unless the insurer hires the contractor and pays for the repairs directly, the insurer should, absent special circumstances, pay the policyholder whatever the contractor charges to repair or replace the damaged property.

Second, replacement cost typically means the cost to replace the materials that were there. If high quality materials were damaged, the insurer should pay for high quality replacements. If damaged materials cannot be repaired to the same condition they were in before the loss, the materials need to be replaced with new materials. Again, this depends on the insurance policy fine print– the devil is in the details.

Third, replacement cost generally includes all the costs to repair or replace the damaged property. These costs often go beyond the mere costs of the new building materials. For instance, replacing a leaky pipe might require removing sections of the drywall and other fixtures to get access to the pipe. In that scenario, the costs to tear out the drywall and fixtures, and to restore them to their pre-loss condition, would exceed the mere cost of the replacement pipe.

Fourth, most policies would require the policyholder to commit to actually performing the repairs or replacement before paying replacement cost benefits. If the policyholder doesn’t plan to actually perform the repair or replacement, many policies would pay only the “actual cash value” of the damaged property. Actual cash value is typically the dollar value the property had immediately before the loss. Replacement cost value is often much higher than actual cash value.

It is important to be mindful that, as with any insurance law question, replacement cost coverage and other benefits vary from case to case. Tiny nuances in the insurance policy fine print of the facts of the specific loss can make a huge difference. In some cases, removing a single word could alter the policyholder’s rights. The only way to know what a particular insurance policy covers, and what benefits the policy holder is entitled to, is to consult a qualified attorney.

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.