Washington Case Law Update: Damages and Attorney Fee Exposure Can Make a Mistaken Coverage Denial a Costly Error
From the desk of Kyle D. Riley: Denying coverage under an insurance policy in Washington is a risky proposition. Damages and attorney fee exposure can make a mistaken coverage denial costly. If there is any doubt, the insurer can file a declaratory action and avoid some of the potential pitfalls of a bad faith claim. How does such a situation look in practice? Read on to find out.
Claims Pointer: In this insurance coverage opinion, an insurer was held to be justified in denying coverage to its insured. A woman was injured while self-picking cherries on the insured’s cherry orchard and sued the orchard. The orchard sought coverage under a homeowner’s policy. The insurer filed a declaratory action and was held to be justified in denying coverage due to a business exclusion clause in the policy. This case, although unpublished, serves as a reminder that it is better to be safe (filing a declaratory action) than sorry (denying coverage outright and being exposed to a bad faith lawsuit).
W. Nat’l Assur. Co. v. Robel, et ux, et al., No. 35394-0-III, 2018 Wash. App. LEXIS 2387, (Ct. App. Oct. 23, 2018) (unpublished).
In July of 2010, Vicki Posa (“Ms. Posa”) fell off a ladder while self-picking cherries on an orchard operated by John and Linda Robel (the “Robels”). Ms. Posa filed a lawsuit against the Robels and, under a homeowner’s policy (the “Policy”), Western National Assurance Co. (“Western National”) provided a defense under reservation of rights. After a successful motion to dismiss was reversed, Western National filed a declaratory action arguing that the Policy excluded coverage for injuries arising from business operations.
The Robels did not appear to defend the declaratory action due to filing for bankruptcy protection. However, Ms. Posa was allowed to appear and argued that the Policy covered her injuries. Specifically, Ms. Posa argued that the Robels were not conducting business when Ms. Posa was injured. Rather, she contended that the Robels’ “business” was farming and that the occasional self-pick customer was not within the scope of the farm’s primary business operation. Western National filed a Motion for Summary Judgment, arguing that the Policy unambiguously excluded coverage for Ms. Posa’s injuries. The court agreed with Western National, determining that the Policy unambiguously denied coverage for business related injuries and operated to deny coverage for Ms. Posa’s injuries.
Ms. Posa appealed, renewing her arguments from below and contending that there were at least factual questions as to whether the Robels were engaged in the “business” of farming and whether self-service picking falls within the farming business.
The court of appeals began by noting that insurance policies are construed as contracts. Accordingly, it proceeded to apply basic contract policies to the Policy in question. It focused its interpretation of the Policy on whether the “Business Exclusion Clause” and the Policy’s definition of “Business” were ambiguous. The business exclusion clause excluded any “bodily injury…resulting from activities related to the business of an insured…” “Business” was defined as “a trade, a profession, or an occupation including farming, all whether full or part time….” The court adopted a common sense approach in interpreting the Policy. It noted that (1) the Robels had a cherry orchard and sold produce to the public; (2) it was the cherries that drew Ms. Posa to the Robels’ farm; and (3) the identity of the harvester does not change the nature of the farming operation. Thus, it held that “[t]he only conclusion to draw from the evidence is that the Robels were engaged in the business of farming.”
Based on this conclusion, the court of appeals affirmed the trial court’s grant of summary judgment in favor of Western National. Costs and fees were avoided and the court verified that there was not liability coverage available for the event. Although not every coverage question is as straightforward as this one, Western National made the right move by defending under reservation of rights and filing for a declaratory action to deny coverage. When coverage is debatable or even straightforward, you should always speak with counsel to determine if defending under reservation of rights and filing a declaratory action is the right course of action.
NOTE: This opinion has not been published. It is provided to demonstrate how the court approaches the issues involved in the case. It cannot be cited as authority to a court of law.
View full opinion at: https://www.courts.wa.gov/opinions/pdf/353940_unp.pdf
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To view the most recent Oregon Case Law Update: Oregon Court of Appeals Reminds Litigants That Destruction of Evidence Can Warrant Serious Sanctions, please click here.