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Washington Federal Court Rejects Insurer Efforts to Limit Policyholder Recovery to Bare Policy Benefit

Posted Wednesday, May 2, 2018 by Pivotal Law Group

In its April 23, 2018 decision in Williams v. Foremost Insurance Co., 2:17-CV-1113-RSM, 2018 WL 1907523 (W.D. Wash. Apr. 23, 2018), the U.S. District Court for the Western District of Washington analyzed and rejected a frequent argument insurers make in defending bad faith lawsuits: that the insurer can escape a bad faith lawsuit by retroactively paying the benefits it denied in the first instance.

Williams brought a claim for vandalism damage under her insurance policy with Foremost. Foremost denied Williams’ claim for insurance benefits, arguing that the vandalism was caused by people who were Williams’ tenants at the time of the damage. Foremost ignored Williams’ argument the loss was covered because the vandals were former as opposed to current tenants.

Williams brought a lawsuit alleging claims for bad faith and violations of Washington’s Insurance Fair Conduct Act (“IFCA”) and Consumer Protection Act (“CPA”); those claims entitled Williams to damages beyond the amount of the disputed insurance benefit, such as attorney’s fees, court costs and treble damages.

The court promptly ruled that coverage existed and ordered Foremost to pay the disputed benefits. Following that ruling, Foremost paid Williams $187,001.43 in benefits owed.

Foremost then asked the court to dismiss Williams’ claims for bad faith and for CPA and IFCA violations. Foremost claimed that, since it paid the policy benefits Williams claimed, Williams had no right to assert any additional claims. The Court rejected Foremost’s arguments.

First, and most importantly, the court rejected Foremost’s argument that Williams’ remaining claims were barred because Foremost ultimately paid the insurance benefits, and that Williams could not bring further claims without producing “her complete financial records.” The court determined “Foremost’s insurance payment to Ms. Williams is irrelevant to the issue of bad faith” and that “Washington State law does not appear to provide that retroactive payment for an insurance claim extinguishes all the alleged harm to a plaintiff[.]”

Next, the Court rejected Foremost’s argument that its claim denial was reasonable in light of the evidence Foremost had at the time. The Court noted that Foremost’s evidence showed only that the vandalism was caused by former – not current – tenants, and that Foremost had no evidence that the vandals were Williams’ tenants at the time the vandalism occurred. Moreover, Williams explicitly advised Foremost the vandals were not tenants at the time of the damage.

Finally, the Court also emphasized that an insurer’s bad faith denial of coverage injures the insured beyond merely the dollar amount of the policy benefit. In this case, Williams suffered additional damages because Foremost’s wrongful denial delayed her ability to repair the vandalism damage to her building; Williams also had to hire an expert, take construction loans, and perform some repairs herself.

The Williams decision emphasizes an insured’s remedies for bad faith denial of insurance claims are comprehensive, and include losses and injuries beyond the bare policy coverage amount.

If you have questions regarding insurance claim denials or other insurance issues, contact Pivotal Law Group attorney McKean J. Evans today for a free consultation.

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Case law update: City of Seattle potentially liable for slip and fall on metal plate on sidewalk.

Posted Thursday, April 26, 2018 by Christopher L. Thayer

In Sluys v. City of Seattle et al**, No. 76131-5-1 (April 9, 2018), in an unpublished decision the Court of Appeals, Division 1, recently ruled the City of Seattle was potentially liable for injuries suffered by a pedestrian who slipped and fell on a metal utility vault cover (a metal plate) located on the sidewalk.

On January 6, 2012, during a rainy afternoon, Sluys slipped and fell on a wet metal utility vault cover while walking downhill on the 3rd Avenue South sidewalk between Yesler Way and South Washington Street in downtown Seattle. Sluys suffered injuries to both knees requiring surgery and a lengthy recovery. The vault cover is not owned by the City. It was installed by a utility company in the early 1990s. The City issued the permit under the City’s Street Use Ordinance and the installation was completed by Summit in 1992. The vault cover encompasses at least a third of the sidewalk.

Sluys filed suit against the city and the utility company, but initially failed to name the correct utility company entity. In response to a motion to dismiss by the city and the utility company, Sluys offered the sworn testimony of Dr. Gary Sloan, PhD, a psychologist specializing in ergonomics and human factors. Dr. Sloan had conducted a friction analysis of the vault cover and determined it presented an “unsafe condition”. In his opinion, “when wet, it could be anticipated that a metal hatch cover placed in a steeply sloped walkway would pose a potential slip hazard.” The trial court dismissed Sluys’ lawsuit against both the city and the utility company and Sluys appealed.

The Court of Appeals noted government entities in Washington are “liable for damages arising out of tortious conduct … to the same extent as if they were a private person or corporation. RCW 4.96.010(1); Washburn v. City of Federal Way, 178 Wn.2d 732(2013). To succeed on a negligence claim, the plaintiff must prove: the existence of a duty, breach of that duty, a resulting injury, and proximate cause between the breach of duty and resulting injury. The only issue before the court was whether the City owed a duty to Sluys. “Negligence is generally a question of fact for the jury, and should be decided as a matter of law only ’in the clearest of cases and when reasonable minds could not have differed in their interpretation’ of the facts.” Bodin v. City of Stanwood, 130 Wn.2d 726 (1996).

The Court of Appeals summarized municipal liability for streets and sidewalks as follows:

It is well settled that a city has a duty to maintain and repair its streets and sidewalks in order to keep them reasonably safe for ordinary travel. Keller v. City of Spokane, 146 Wn.2d 237, 249, 44 P.3d 845 (2002) … Generally, actual or constructive notice of the unsafe condition is required before liability arises under a city’s duty to maintain streets and sidewalks… Notice is not required, however, if the government entity either created the unsafe condition or should have anticipated the condition would develop… “In sum, if the government entity created the unsafe condition either directly through its negligence or if it was a condition that the governmental entity should have anticipated, the plaintiff need not prove notice.” Nguyen v. City of Seattle, 179 Wn. App. 155 (2014).

The Court of Appeals points out that, while the vault cover was not owned by the City, the City conceded the utility company had applied for a permit to install the utility vault and vault cover within the City sidewalk. The City further concedes that it approved the requested permit subject to Summit complying with guidelines and parameters set by the City as to where within the public right-of-way the facilities could be located. Thus, the only question is whether when approving the permit, the City should have anticipated whether the utility vault could lead to an unsafe condition.

Sluys presented Dr. Sloan’s declaration to support his assertion the vault cover was unsafe. Sloan investigated the site of Sluys’s fall, took various measurements, and then applied a human factors analysis to the pertinent facts. He described his evaluation in a 15-page written declaration accompanied by multiple photographs, charts, and research papers. The City concedes, ·”the declaration of Dr. Gary Sloan … raised a genuine issue of material fact that the vault cover currently presents an unsafe condition. But more than just concluding that the utility vault was slippery, Sloan also opined:

When wet, it could be anticipated that a metal hatch cover placed in a steeply sloped walkway would pose a potential slip hazard. In the safety disciplines, if a hazard can be identified, then reasonable attempts should be made to eliminate the hazard. If the hazard cannot be eliminated, then people should be guarded from exposure to the hazard. Lastly, if residual risk remains following reasonable attempts at elimination and guarding, people should be warned about the hazard and provided direction for how to avoid harm. In the present matter, the hatch cover should not have been placed in a predictable pedestrian travel path having high density pedestrian traffic.

(Emphasis in original).

The Court of Appeals held this evidence was sufficient to raise an issue of material fact, and reversed the trial court’s dismissal of Sluys’ claims against the city.

Although this is an “unpublished” decision, and therefore has no direct precedential value, the Court of Appeals decision in the Sluys’ case is noteworthy in that it found the City could potentially be liable for a condition it did not create or construct – but merely permitted. This is likely because the metal plate was located in the middle of the sidewalk and the City has an independent duty to ensure the sidewalks are reasonably safe for users.

Anyone who lives in the City of Seattle knows the metal plates and grills in the sidewalks can be treacherous, especially on rainy days. If you or someone you know has been injured due to an unsafe condition on a city sidewalk, please contact managing member Chris Thayer for more information: (206) 805-1494 or CThayer@PivotalLawGroup.com.

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Ninth Circuit Decision Shows Life Insurance Pitfalls for Policyholders; Clarifies Diversity Jurisdiction in Insurance Disputes

Posted Tuesday, April 17, 2018 by Pivotal Law Group

The Ninth Circuit’s recent ruling in Elhouty v. Lincoln Benefit Life, Case No. 15-16740 (March 27, 2018) is notable for two reasons. It illustrates the pitfalls of certain life insurance policies that supposedly pay for themselves, and it clarifies the jurisdictional standard governing when insurance disputes can be litigated in federal as opposed to state courts.

Elhouty purchased a flexible premium adjustable life insurance policy from Lincoln Benefit Life Company with a $2 million face value. Adjustable life policies are often marketed as giving the policyholder all the advantages of death benefit protection, an interest-bearing account for investment purposes, and flexibility as to how premiums are paid. The policies often come with a sales pitch that the policy’s investment component will effectively pay off the future premiums, without mentioning that the investment returns are often inadequate to cover future premium increases.

Elhouty’s case illustrates this pitfall: for years, Elhouty arranged for his premiums to be paid directly out of the policy’s net surrender value, but failed to notice when the net surrender value was exhausted and he was sent a bill for $55,061.49 to keep the policy in force. Since Elhouty never paid the additional premium, Lincoln Benefit claimed the policy lapsed. Elhouty disputed Lincoln Benefit properly notified him of the additional premium he owed, and filed a lawsuit seeking a court declaration that the policy remained in force.

Elhouty sued in state court, and Lincoln Benefit removed the action to federal court (conventional wisdom holds federal courts are more insurer-friendly than state courts). To properly remove the action, Lincoln Benefit was required to establish that the amount of money at issue in the lawsuit exceeded $75,000.00. Lincoln Benefit argued the amount at issue was the full $2 million policy face value; Elhouty claimed it was only the $55,880.08 in premiums he allegedly owed Lincoln Benefit. On the jurisdictional issue, the Ninth Circuit agreed with Lincoln Benefit. The court determined the unpaid premiums were not in dispute because Lincoln Benefit did not seek to recover them from Elhouty. Elhouty had had the option to pay $55,880.08 to keep the policy in force, but the real dispute in the lawsuit was the policy’s validity. The court clarified that, in cases where the “controversy relates to the validity of the policy and not merely to liability for benefits accrued,” the policy’s face value is the amount in controversy for jurisdictional purposes. Thus, the court ruled the amount in controversy was $2 million and federal courts had jurisdiction.

The court also agreed with Lincoln Benefit on the merits of the dispute. Elhouty argued Lincoln Benefit’s policy termination notice for unpaid premiums was defective because Elhouty never received notice. But the court ruled that the language of the policy and applicable state law required only that the notice be mailed, not that the policyholder actually receive it.

For insurance lawyers, Elhouty is useful for its clarification of the jurisdictional standard. For policyholders, Elhouty is a reminder of the importance of keeping your premium payments up to date and not taking the insurer’s promotional materials at face value.

McKean J. Evans is an attorney at Pivotal Law Group representing insurance policyholders. If you have questions regarding insurance issues, contact McKean today for a free consultation. McKean blogs regarding insurance and ERISA issues at https://seattleinsuranceanderisablog.com/.

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Department of Labor’s New ERISA Claims Regulations Restore Important Rights to Insureds

Posted Wednesday, April 11, 2018 by Pivotal Law Group

For insureds, ERISA (which governs most employer-sponsored insurance) has a serious downside. Insureds and plan participants who dispute the company’s denial of their claims for coverage or benefits must submit to ERISA’s administrative appeal process before they can file a lawsuit challenging the company’s decision. This can disadvantage the participant because failure to dot i’s and cross t’s in the administrative appeal can cause the participant to lose important rights in litigation. Moreover, because ERISA excludes many traditional state-law remedies such as punitive or exemplary damages and gives no right to a jury trial, even plan participants who successfully navigate the administrative appeals process and make it to court often face an uphill battle.

Accordingly, insurance companies spent several decades designing their benefit plans and policies to leverage ERISA against the insured. One recently-published internal memo recommended the company get as many policies as possible covered by ERISA to reduce the money the company had to pay to its insureds. The memo did a test study of 12 non-ERISA cases in which the company paid of a total of $7.8 million, estimating that ERISA’s application would have reduced the company’s liability in those cases to $0 to $0.5 million. The author concluded “the advantages of ERISA coverage in litigious situations are enormous.”

Recognizing that ERISA can favor the company over the insured or participant, the federal Department of Labor promulgated a regulation aimed at leveling the playing field, which became effective on April 1, 2018. Because the Department of Labor concluded the majority of ERISA disputes arise in disability and health plans, the new rule focuses on these types of benefits specifically. The rule’s upshot is:

• Claims adjusters may no longer be incentivized to deny claims through hiring, pay or promotion practices;

• Claimants under disability policies must receive a clear and detailed explanation of why their claim was denied, and, particularly, the company must explicitly address its disagreement with opinions about the claimant’s condition by treating physicians or Social Security;

• Clearly state any deadlines by which the insured or participant must file a lawsuit challenging the denial of benefits;

• Disability claimants must also receive a clear statement of their rights to appeal a denial of a benefit claim;

• If the company upholds its claim denial based on new information, the company must permit the insured or participant to review and respond to the new information before the denial becomes final;

• Claimants must be specifically advised of their right to examine the insurer’s entire claim file to permit them to evaluate the basis for the claim denial; and

• Notices must be written in a culturally and linguistically appropriate manner if the situation warrants.

Importantly, violations of the new rule can permit the insured or participant to bypass the administrative appeal process and sue in court directly. This reduces the risk that an insured or participant loses rights in litigation through technicalities in the appeal process.

Hopefully, the Department of Labor’s new rule will go a long way towards leveling the playing field for ERISA policyholders and plan participants.

Pivotal Law Group attorney McKean Evans has obtained favorable coverage decisions for insureds and ERISA plan participants in disputes regarding coverage denials. If you have concerns regarding insurance coverage, contact McKean at (206) 805-1493 for a free consultation. More information regarding ERISA disputes can be found here.

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Court of Appeals Clears the Way for Bad Faith Suits Against Individual Insurance Adjusters

Posted Wednesday, April 4, 2018 by Pivotal Law Group

On March 26, 2018, the Court of Appeals (Division One) issued an important published ruling upholding claims against an individual insurance adjuster for insurance bad faith and violations of the Consumer Protection Act (Ch. 19.86 RCW). In Keodalah v. Allstate Insurance Company and Smith, No. 75731-8-I, the court ruled the bad faith and CPA claims could proceed against the Allstate adjuster in the adjuster’s individual capacity: “we hold that an individual insurance adjuster may be liable for bad faith and CPA violations.” This significant ruling has several implications for future insurance bad faith litigation.

I. The Trial Court Dismissed the Insured’s Claims Against the Adjuster

Keodalah made a UIM claim under his Allstate auto policy after being injured when a motorcyclist struck his truck as Keodalah proceeded through an intersection. Allstate’s internal investigation, the report of Allstate’s accident reconstructionist, and the police report uniformly established the motorcyclist was solely at fault for the collision. Specifically, the investigations confirmed the motorcyclist was speeding, that Keodalah stopped at the stop sign, and Keodalah was not using his cell phone at the time of the collision.

Allstate nevertheless insisted Keodalah was 70 percent at fault and tendered a lowball offer on the UIM claim. Despite the above reports exonerating Keodalah, Allstate’s adjuster, Smith, asserted Keodalah had run the stop sign and had been on his cell phone. Smith later admitted these claims were false. The parties tried the UIM claim and the jury determined the motorcyclist was 100 percent at fault, awarding Keodalah $108,868.20. Allstate’s highest offer had been $15,000.00.

Keodalah subsequently filed suit against Allstate as well as Smith individually, asserting claims for bad faith, violations of the CPA, and violations of the Insurance Fair Conduct Act (“IFCA”). The trial court dismissed Keodalah’s claims against Smith and certified the case for discretionary review pursuant to RAP 2.3(b)(4).

II. The Court of Appeals Reinstated the Bad Faith and CPA Claims Against the Adjuster

The Court of Appeals determined insureds may bring bad faith claims against individual insurance adjusters pursuant to RCW 48.01.030. The court reasoned RCW 48.01.030 imposes a duty of good faith on “all persons” engaged in the business of insurance, including specifically “the insurer…and their representatives.” (emphasis added).

Because Ms. Smith, as an insurance adjuster, “was engaged in the business of insurance and was acting as an Allstate representative,” the court had no difficulty concluding Smith owed Keodalah a duty of good faith and could be sued for breaching that duty. Besides the statute, the court also relied on Division Three’s ruling in Merriman v. Am. Guarantee & Liability Ins. Co., 198 Wn. App. 594, 396 P.2d 351 (2017), and the Western District of Washington’s ruling in Lease Crutcher Lewis WA, LLC v. Nat’l. Union Fire Ins. Co., 2009 WL 3444762 (2009), that corporate adjusters could be sued for bad faith, finding no distinction between corporate and individual adjusters. The court explicitly distinguished a conflicting federal court ruling, Garoutte v. Am. Family Mutual Ins. Co., 2013 WL 231104 (2013) as incorrectly reading the “representatives” language out of RCW 48.01.030. And the court ruled RCW 48.01.030 is not limited by narrower WAC provisions which were expressly “not exclusive.”

As for the CPA claim, the court rejected Smith’s argument the claim was barred because policyholders have no contractual relationship with adjusters. The court relied on a straightforward interpretation of the Washington Supreme Court’s ruling in Panag v. Farmers Ins. Co. of Wash., 166 Wn.2d 27, 43-44 204 P.3d 885, 892 (2009), in which the Supreme Court explicitly ruled “a private CPA action may be brought by one who is not in a consumer or other business relationship with the actor against whom the suit is brought.” The Court of Appeals recognized Panag abrogated the Court of Appeals’ contrary rulings in International Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co., 122 Wn. App. 736, 87 P.3d 774 (2004). Smith also relied on Ninth Circuit authority, but the court determined that authority was based on California insurance law.

III. Can Policyholders Bring IFCA Claims Against Individual Adjusters?

Despite reinstating the bad faith and CPA claims against the adjuster, the Court of Appeals affirmed dismissal of the IFCA claim against the adjuster. That ruling is limited to the narrow nature of Keodalah’s IFCA claims, which were not premised on unreasonable coverage denials but instead were limited explicitly to WAC violations. In light of the Supreme Court’s holding WAC violations alone cannot support IFCA claims, the Court of Appeals dismissed that claim with minimal discussion. An IFCA suit against an individual adjuster premised on unreasonable coverage denials or malfeasance beyond mere WAC violations would not be barred by Keodalah.

Despite Keodalah, IFCA claims against adjusters, while theoretically possible, are likely problematic. RCW 48.30.015(1) grants policyholders a cause of action if they are “unreasonably denied a claim for coverage or payment of benefits by an insurer” without limiting the cause of action to the insurer itself. IFCA’s treble damages provision is expressly limited to cases in which “an insurer has acted unreasonably” (RCW 48.30.015(2) (emphasis added)); the presence of this limiting language with respect to the discretionary treble damages subsection might suggest its absence from the cause of action arguably evidences an intent to permit IFCA suits (but not treble damages) against adjusters.

However, the Washington Supreme Court already rejected one invitation to read IFCA broadly in Perez-Crisantos. Further, IFCA is written in terms of “first party claimants” and misconduct “by an insurer” which suggests IFCA is limited to suits against insureds. See RCW 48.30.15(1). And it is counterintuitive to suggest IFCA would permit a cause of action against adjusters while restricting treble damages against adjusters.

IV. Other Future Issues

Keodalah has several potential implications for future insurance disputes. Obviously, the adjuster’s personal exposure adds a significant dimension to the dispute. And foreign insurers employing Washington adjusters could likely be sued in state court without removal to federal court, because federal courts typically only have diversity in insurance disputes where all the parties are citizens of different states. It’s also noteworthy Keodalah declined to address Smith’s argument that she could not be held liable for her conduct in the prior UIM action in a subsequent bad faith action. Adjusters might assert this defense in future disputes.

Finally, Keodalah could be read as supporting bad faith claims against the policyholder’s representatives, such as attorneys or public adjusters. The Court of Appeals never states this, but the court’s reliance on RCW 48.01.030 might support such claims since the statute imposes the duty of good faith on “the insured…and their representatives” as well as the insurer and its representatives. The assumption that there is no bad faith cause of action against the insured and the insured’s representatives was the basis for the Garoutte decision, which the Court of Appeals specifically rejected in Keodalah.

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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