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Washington Court of Appeals Rules on Insurance Coverage and Arson Case

Posted Wednesday, February 28, 2018 by McKean J. Evans

The Washington Court of Appeals, in an unpublished decision in Schmidt v. American Commerce Insurance Company, recently decided claims against an insurance company where the jury concluded the insured burned his own house down. Schmidt rebuilt his home following landslides, but found that the home violated King County code and could not lawfully be torn down or rebuilt. Thereafter, a fire burned down the home while Mr. Schmidt was home alone. Mr. Schmidt, a firefighter, testified he was unable to put out the fire because he had previously shut off power to the home, and could not call the fire department because his phone was dead.

Mr. Schmidt made a claim for the fire to his insurance company American Commerce Insurance Company (“ACIC”). ACIC denied the claim, asserting arson. A jury concluded Mr. Schmidt set fire to his own home, and found for ACIC. After the verdict, ACIC asked the court to award ACIC its costs of defending the suit, but the court awarded ACIC only $200.00 out of its requested $30,009.67 in fees.

Mr. Schmidt asked for a new trial. He claimed ACIC’s counsel made prejudicial statements in ACIC’s closing argument to the jury by telling the jury to infer Mr. Schmidt’s guilt from the lack of his fellow firefighters supporting him at trial. Even though his lawyer failed to object to this statement, Mr. Schmidt claimed the statement was so prejudicial that he was entitled to a new trial even absent an objection. Mr. Schmidt also sought a new trial on the basis that ACIC’s lawyers prejudiced Mr. Schmidt by repeatedly pointing out Mr. Schmidt’s claims handling experts were from outside Washington. Finally, Mr. Schmidt claimed he was entitled to a new trial because ACIC disclosed new expert witness opinions in the middle of trial.

The Court of Appeals denied Mr. Schmidt’s request for a new trial. It found ACIC’s improper statements could have been cured by an instruction from the trial judge, but Mr. Schmidt’s lawyer’s failure to ask for such an instruction at the time precluded Mr. Schmidt from seeking a new trial on appeal. The Court of Appeals determined ACIC’s references to Mr. Schmidt’s expert being from outside Washington was part of an appropriate effort to show that the expert was not qualified to opine on insurer practices in Washington. Lastly, the court determined Mr. Schmidt was not prejudiced by ACIC’s late expert opinions because those opinions responded to statements by Mr. Schmidt’s experts. Mr. Schmidt’s other objections were dismissed because he failed to adequately assert them at trial.

ACIC asked the Court of Appeals to award ACIC all its attorney’s fees and costs based on the jury’s finding that Mr. Schmidt committed arson. ACIC relied on Washington statutory provisions requiring insurance policyholders to act in good faith and imposing criminal penalties for false or fraudulent insurance claims. The Court of Appeals concluded neither statute authorized attorney’s fees.

ACIC also asked the Court of Appeals to reverse the trial court’s decision that ACIC improperly failed to identify policy coverage for the interest of Mr. Schmidt’s mortgage lienholder. ACIC claimed Mr. Schmidt lacked standing to invoke policy provisions benefitting his lienholder and that Mr. Schmidt’s arson precluded his claim against ACIC. Even though the jury ultimately concluded Mr. Schmidt intentionally set fire to the house, the Court of Appeals found ACIC could be liable for failing to disclose and pay the leinholder’s coverage.

Because the Court of Appeals’ decision is unpublished, it lacks precedential value, but it is nevertheless an interesting example of the issues that can play out where both an insurer and policyholder engage in misconduct.

McKean Evans is an attorney at Pivotal Law Group representing insurance policyholders and ERISA plan participants and beneficiaries. McKean blogs regarding insurance and ERISA issues at https://seattleinsuranceanderisablog.com/.

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