Dye Seed Inc v. Farmland Mutual Insurance Company, No. 2:2012cv00218 - Document 126 (E.D. Wash. 2013)
Court Description: ORDER GRANTING PLAINTIFF'S MOTION FOR RECONSIDERATION granting 91 Motion for Reconsideration re granting 40 MOTION for Summary Judgment filed by Dye Seed Inc ; denying 115 Motion to Strike. Signed by Senior Judge Lonny R. Suko. (VR, Courtroom Deputy)
Download PDF
<![CDATA[
Dye Seed Inc v. Farmland Mutual Insurance Company Doc. 126 1 2 3 4 5 UNITED STATES DISTRICT COURT 6 EASTERN DISTRICT OF WASHINGTON 7 8 DYE SEED, INC., Plaintiff, 9 10 11 -vsFARMLAND MUTUAL INSURANCE COMPANY, 12 Defendant. 13 ) ) ) ) ) ) ) ) ) ) ) ) NO. CV-12-0218-LRS ORDER GRANTING PLAINTIFF’S MOTION FOR RECONSIDERATION 14 BEFORE THE COURT is Plaintiff’s Motion For Reconsideration Of Order 15 Denying Its Motion For Partial Summary Judgment (ECF No. 91) filed on 16 October 21, 2013, and without oral argument. 17 Court reconsider its Order Denying Plaintiff’s Motion For Partial Summary 18 Judgment (ECF No. 86) and grant Plaintiff’s motion for partial summary 19 judgment. 20 motion. 21 Plaintiff requests the The briefing was completed on December 2, 2013 for this As a brief background, this Court’s prior order entered June 19, 22 2013 granted Dye Seed’s motion for partial summary judgment relating to 23 Farmland’s duty to defend. 24 judgment (ECF No. 40) under reconsideration, Dye Seed had requested the 25 Court to determine the following: 26 In Dye Seed’s motion for partial summary 1. That Farmland denied its duty to defend in bad faith. 2. That Farmland unreasonably denied coverage to Dye Seed in ORDER - 1 Dockets.Justia.com 1 2 3 violation of Washington’s Insurance Fair Conduct Act (RCW 48.30.015). 3. That Farmland’s unreasonable denial of coverage violated Washington’s Consumer Protection Act (RCW 19.86). 4. That Farmland is estopped from raising any coverage defenses based on its bad faith denial of a duty to defend. 4 5 Plaintiff Dye Seed requests reconsideration of the Court’s order 6 denying Plaintiff’s motion for partial summary judgment arguing that the 7 Court erred in applying a reasonableness standard to Farmland’s claim 8 handling where, under the specific unfair claims practices regulations, 9 none exists. Further, Plaintiff believes it submitted sufficient 10 evidence that Farmland’s denial was unreasonable as a matter of law and 11 Farmland submitted no evidence that its conduct was reasonable. 12 Plaintiff contends that because the regulations (which define 13 specific unfair and deceptive acts) relevant to this case do not contain 14 a 15 insurer’s conduct is not a defense. 16 WAC 284-30-330 provides: 17 18 19 20 specific “reasonableness” requirement, the reasonableness of the Specific unfair claims settlement practices defined. The following are hereby defined as unfair methods of competition and unfair or deceptive acts or practices in the business of insurance, specifically applicable to the settlement of claims: (1) Misrepresenting pertinent facts or insurance policy provisions. 21 WAC 284-30-350 defines the specific misrepresentations that are 22 deemed unfair or deceptive: 23 24 25 26 (1) No insurer shall fail to fully disclose to first party claimants all pertinent benefits, coverages or other provisions of an insurance policy or insurance contract under which a claim is presented. (2) No agent shall conceal from first party claimants benefits, coverages or other provisions of any insurance contract when such benefits, coverages or other ORDER - 2 1 provisions are pertinent to a claim. 2 Plaintiff asserts that while other unfair and deceptive practices 3 regulations are subject to a reasonableness standard, the duty to 4 affirmatively disclose coverages and pertinent policy provisions is not. 5 Farmland submitted the affidavit of Stuart Shkolnick in which he stated 6 that he “mistakenly” reviewed a cancelled policy that did not contain the 7 Seed Merchants Endorsement. The undisputed facts show that prior to 8 issuing the denial letter, Mr. Shkolnick discussed coverage with both his 9 claims manager, Catherine Grady, and the claims director, Mike Johnson. 10 On three levels of review, a decision was made to deny coverage. 11 Plaintiff concludes that the undisputed facts show that it notified 12 Farmland of the claim and Farmland denied the claim without advising Dye 13 Seed about the Seed Merchants Endorsement. 14 Farmland suggests the denial was merely a good faith mistake by the 15 adjuster handling the claim, which does not amount to bad faith. Farmland 16 makes no attempt to argue its purported “mistake” was reasonable. Rather, 17 Farmland argues that in any case involving bad faith, the question of 18 reasonableness must be left to the jury. 19 Plaintiff argues that only if there were a reasonable disagreement 20 about Farmland’s interpretation of a disclosed provision of the policy, 21 and Farmland’s interpretation was merely wrong, then the reasonableness 22 of its interpretation may be subject to a finding of fact by the trier 23 of fact. Plaintiff states that is not what occurred. Plaintiff contends 24 Farmland’s failure to disclose all of the applicable policy provisions 25 was a per se unfair and deceptive act. 26 Plaintiff further asserts that it presented evidence that, upon ORDER - 3 1 first receiving the claim, Farmland determined it was going to deny the 2 claim. No coverage investigation or claim investigation was conducted. 3 Shortly thereafter, Farmland communicated its denial decision both orally 4 and in writing. Plaintiff concludes that under Fireman’s Fund ins. Co. 5 v. Alaska Pride Pshp., 106 F.3d 1465, 1470 (9th Cir. 1997), failure to 6 conduct a reasonable investigation alone is sufficient to support a 7 finding of bad faith. 8 adjuster’s investigation and coverage denial is properly determined on 9 summary judgment if there are no disputed facts as to what the adjuster 10 Plaintiff argues that reasonableness of an did. Villella v. PEMCO, 106 Wn,2d 806, 725 P.2d 957(1986). 11 Plaintiff argues it is undisputed, based on the affidavit of Stuart 12 Shkolnick, that Mr. Shkolnick reviewed a cancelled policy that did not 13 contain the Seed Merchants Endorsement. Plaintiff further argues that 14 even if this was a good faith mistake, it was not a reasonable mistake 15 based 16 implicated other policies, but he failed to review them. Basing a 17 coverage denial on a policy the adjuster knew was not in effect at the 18 time of loss is clearly unreasonable. on a reasonable investigation. Mr. Shkolnick knew the loss 19 Next Plaintiff asserts that a violation of WAC 284-30-330 is an 20 unfair or deceptive act and a per se violation of the CPA. Sharbono v. 21 Universal Underwriters Ins. Co., 139 Wn. App. 383, 414, 161 P.3d 406 22 (2007). Plaintiff states that Farmland has never disputed that its 23 failure to disclose the Seed Merchants Endorsement was a violation of WAC 24 284-30-330. Rather, Farmland argued that doing so was reasonable in light 25 of Mr. Shkolnick’s review of the wrong policy. 26 out that a reasonableness inquiry, as discussed above, is not required ORDER - 4 Plaintiff again points 1 because there 2 is no reasonableness standard in that particular regulation. 3 Finally Plaintiff argues that Farmland’s bad faith and violation of 4 the Insurance Fair Conduct Act (RCW 48.30.015) can be determined as a 5 matter of law under Lloyd v. Allstate Ins. Co., 167 Wn. App. 490, 496, 6 275 P.3d 323, 326 (2012). 7 reasonable minds could not differ as to the reasonableness of the 8 insured’s actions, summary judgment was appropriate. Here, Plaintiff 9 asserts, Farmland has not shown that the denial was based on adequate 10 information and that it gave equal consideration to Dye Seed’s interests 11 as its own. 12 was not in effect at the time of the loss. It also knew later policies 13 were in effect because it specifically cited to those policies in its 14 denial letter. 15 In Lloyd, the court indicated that where More specifically, Farmland knew the 2007 insurance policy Considering the terms of a cancelled policy, without more, cannot 16 reasonably be said to be based on adequate information. 17 equal consideration to Plaintiff’s (the insured) interests, Farmland knew 18 Dye Seed was embroiled in expensive litigation and that Scotts was 19 claiming 20 inadequate review, 21 of coverage rather than any policy provisions that may have triggered 22 coverage. 23 forth a reasonableness standard that applies to the insurer’s duty to 24 affirmatively disclose all pertinent policy provisions. However, assuming 25 a reasonableness standard applies, basing a denial decision on a canceled 26 policy and failing to consider the policies that were actually in force, ORDER - 5 over 3 million dollars in damages. By its As to giving actions and Farmland in effect considered only paths for denial Plaintiff argues that there is no regulatory wording setting 1 particularly when Farmland affirmatively acknowledged the latter policies 2 were implicated, cannot be deemed reasonable under any standard. 3 Plaintiff concludes that for the same reasons, Farmland’s violation 4 of the Insurance Fair Conduct Act (RCW 48.30.015) can be determined as 5 a matter of law. The Act provides a remedy to an insured who is 6 “unreasonably denied a claim for coverage or payment of benefits.” The 7 statute also specifically states that a violation of WAC’s 284-30-330 & 8 350 is a violation of the statute. 9 Farmland opposes the motion for consideration arguing that whether 10 Farmland committed any extra-contractual violations depends upon the 11 reasonableness of Farmland’s conduct, and reasonableness, generally, is 12 an issue of fact. 13 that reasonableness could not be determined on summary judgment and must 14 be deemed an issue of fact for trial because of the fact-intensive 15 history of the exchanges between Dye Seed and Farmland during the 16 presentation of Dye Seed’s claims. Under the circumstances of this case, 17 Farmland states that the Court has the right and the obligation to hear 18 testimony and weigh the credibility of witnesses to evaluate whether 19 Farmland put its financial interests ahead of Dye Seed’s or committed a 20 good faith 21 Farmland’s conduct. 22 Farmland Farmland asserts that the Court was correct in finding mistake, and to evaluate the overall reasonableness of further adds that Plaintiff, through its motion for 23 reconsideration, has added new facts and legal theory that it could have 24 asserted in its motion for partial summary judgment. 25 this “new” legal theory requires the Court to weigh witness credibility 26 and does not provide sufficient grounds for reconsideration. ORDER - 6 Farmland argues However, 1 Farmland has been given the opportunity to respond to the allegedly “new” 2 legal theory and evidence and has done so (see ECF No. 118, 119). 3 Farmland concludes that the Court’s earlier ruling is not in error and 4 are consistent with Washington law. 5 The Court has carefully considered the motion for reconsideration 6 and the arguments of the parties. "'[T]he major grounds that justify 7 reconsideration involve an intervening change of controlling law, the 8 availability of new evidence, or the need to correct a clear error or 9 prevent manifest injustice.'" Pyramid Lake Paiute Tribe v. Hodel, 882 10 F.2d 364, 369 n.5 (9th Cir. 1989) (quoting 18 C. Wright, A. Miller & E. 11 Cooper, Federal Practice and Procedure § 4478, at 790); see Frederick S. 12 Wyle P.C. v. Texaco, Inc., 764 F.2d 604, 609 (9th Cir. 1985); see also 13 Keene Corp. v. International Fidelity Ins. Co., 561 F. Supp. 656, 665 14 (N.D. Ill. 1982) (reconsideration available "to correct manifest errors 15 of law or fact or to present newly discovered evidence"). 16 not to grant reconsideration is committed to the sound discretion of the 17 court.” 18 Indian Nation, 331 F.3d 1041, 1046 (9th Cir.2003). “Whether or Navajo Nation v. Confederated Tribes & Bands of the Yakima 19 Plaintiff does not argue that there has been a change of controlling 20 law, or that new evidence is available, but expressly argues that the 21 Court committed error of law or fact and reconsideration is necessary to 22 prevent a manifest injustice. 23 and that the Court erred where the undisputed facts indicate the insurer 24 (through the claims adjuster and his 2 superiors, a claims manager and 25 a claims director) failed to fully disclose to Plaintiff all pertinent 26 benefits, coverages or other provisions of the current insurance policy ORDER - 7 The Court finds that Plaintiff is correct 1 or insurance contract under which its claim was presented. 2 A. Bad Faith 3 The Court agrees that the actions of Farmland, in failing to notice 4 and disclose the Seed Merchant’s forms in the 2009-2011 general liability 5 policies and umbrella policies, were so unreasonably deficient that 6 reasonable minds could not differ that these actions constitute something 7 more than a good faith mistake. 8 Wash.App. 490, 496 (2012), the court stated: 9 10 11 12 13 14 15 16 In Lloyd v. Allstate Ins. Co., 167 An insurer does not act in bad faith where it “acts honestly, bases its decision on adequate information, and does not overemphasize its own interest.” Werlinger v. Clarendon Nat'l Ins. Co., 129 Wash.App. 804, 808, 120 P.3d 593 (2005), review denied, 157 Wash.2d 1004, 136 P.3d 759 (2006). The determinative question is the reasonableness of the insurer's actions in light of all the facts and circumstances of the case. Anderson v. State Farm Mut. Ins. Co., 101 Wash.App. 323, 329–30, 2 P.3d 1029 (2000), review denied, 142 Wash.2d 1017, 20 P.3d 945 (2001). Where reasonable minds could not differ as to the reasonableness of the insurer's actions, summary judgment is appropriate. See Hertog, ex rel. S.A.H. v. City of Seattle, 138 Wash.2d 265, 275, 979 P.2d 400 (1999). 17 Insurance companies have a statutory duty to deal in good faith with 18 their insureds. RCW 48.01.030. Bad faith is the failure to exercise 19 good faith. American States Ins. Co. v. Symes of Silverdale, Inc., 150 20 Wn.2d 462, 78P.3d 1266 (2003). An insurer’s duty to act in good faith 21 is broad and may be breached by conduct short of intentional bad faith 22 or fraud, although not by a good faith mistake. Rizutti v. Basin 23 Travel Service of Othello, Inc., 125 Wn. App. 602, 105 P.3d 1012 24 (2005). The insurer is certainly in the best position to know which 25 policy is current, applicable and provides coverage. 26 Additionally, failure to conduct a reasonable investigation alone ORDER - 8 1 is sufficient to support a finding of bad faith. Fireman’s Fund ins. 2 Co. v. Alaska Pride Pshp., 106 F.3d 1465, 1470 (9th Cir. 1997). 3 Reasonableness of an adjuster’s investigation and coverage denial is 4 properly determined on summary judgment if there are no disputed facts 5 as to what the adjuster did. Villella v. PEMCO, 106 Wn,2d 806, 725 6 P.2d 957 (1986). 7 unreasonably deficient that one adjuster and two superiors could 8 inadvertently overlook the Seed Merchants Endorsement in reviewing at 9 least 3 years of policies to formulate Farmland’s decision to deny Reasonable minds could not differ in finding it so 10 coverage. Instead, Farmland chose language from a cancelled insurance 11 policy, rather than the policies that were in force, to deny coverage. 12 Dye Seed is a seed merchant and the Seed Merchants Endorsement 13 ultimately triggered coverage. 14 A denial of coverage that is unreasonable, frivolous, or 15 unfounded constitutes bad faith. 16 558, 560, 951 P.2d 1124 (1998). 17 coverage is not whether the insurer's interpretation is correct, but 18 whether the insurer's conduct was reasonable. 19 Mutual of Enumclaw Ins. Co., 118 Wash.App. 12, 21, 74 P.3d 648 (2003), 20 rev. denied, 151 Wash.2d 1010, 89 P.3d 712 (2004). 21 that Farmland’s conduct in the denial of coverage was not reasonable 22 and constitutes bad faith under Washington case law. 23 Safeco Ins. Co. of America, 124 Wash.App. 263 (2004). 24 Kirk v. Mt. Airy Ins. Co., 134 Wn.2d The test for bad faith denial of Torina Fine Homes v. The Court finds See Wright v. B. Violation of Washington's Insurance Fair Conduct Act (RCW 48.30.015) 25 Plaintiff argues that Farmland unreasonably denied coverage to 26 Dye Seed in violation of Washington's Insurance Fair Conduct Act (RCW ORDER - 9 1 48.30.015). The Act provides a remedy to an insured who is 2 “unreasonably denied a claim for coverage or payment of benefits.” The 3 statute also specifically states that a violation of WAC’s 284-30-330 4 & 350 is a violation of the statute. 5 As discussed above, the Court finds that Farmland unreasonably 6 denied a claim of coverage or payment of benefits. More specifically, 7 the undisputed facts support a finding that Farmland failed to fully 8 disclose to Dye Seed all pertinent benefits, coverages or other 9 provisions of an insurance policy or insurance contract under which a 10 claim is presented. Therefore, the Court finds that the statute, RCW 11 48.30.015, was violated. 12 C. Violation of the Consumer Protection Act (“CPA”) (RCW 19.86) 13 To prevail on a CPA claim, Dye Seed must show: (1) an unfair or 14 deceptive act or practice; (2) in trade or commerce; (3) which affects 15 the public interest; (4) that injured the plaintiff's business or 16 property; and (5) that the unfair or deceptive act complained of 17 caused the injury suffered. Hangman Ridge, at 784–85. All five 18 elements must be established. Id. 19 An insurer commits a per se violation of the CPA when the insurer 20 violates a statute that contains a specific legislative declaration of 21 public interest impact. Hangman Ridge Training Stables, Inc. v. Safeco 22 Title Ins. Co., 105 Wn2d 778, 791, 719 P.2d 531 (1986). RCW 48.01.030 23 contains such a public interest declaration. A violation of WAC 24 284-30-330 is an unfair or deceptive act and a per se violation of 25 the CPA. Sharbono v. Universal Underwriters Ins. Co., 139 Wn. App. 26 383, 414, (2007). ORDER - 10 As discussed above, failure to disclose the Seed 1 Merchants Endorsement was a violation of WAC 284-30-330. The fact 2 that Farmland did not disclose the pertinent provision from the 3 policies that were actually in force is a violation of the regulation. 4 D. Farmland’s Motion to Strike (ECF No. 115) 5 Finally, the points raised in the Plaintiff’s motion for 6 reconsideration do not constitute improper new facts and legal 7 theories as Farmland asserts. 8 was squarely before this Court previously. 9 its position, based in part on testimony from depositions recently The alleged improper denial of coverage Plaintiff is clarifying 10 taken in October 2013, which is permissible and preferable where 11 justice is the goal. Accordingly, the motion to strike is denied. 12 E. Conclusion 13 The Court concludes that Farmland’s decision to deny coverage-a 14 failure that Defendant attempts to characterize as a good faith 15 mistake-constitutes violations of Washington’s Insurance Fair Conduct 16 Act and Washington’s Consumer Protection Act. 17 chooses to characterize this conduct, there is no question that 18 Defendant failed to act reasonably and in good faith in its denial of 19 coverage. 20 reasonable as a matter of law and constitutes bad faith. 21 However Farmland Farmland's conduct in the denial of coverage was not Accordingly, 22 IT IS ORDERED that: 23 1. Plaintiff’s Motion for Reconsideration, ECF No. 91, and 24 Motion For Partial Summary Judgment, ECF No. 40, are GRANTED to the 25 extent discussed above. 26 estoppel to raise all policy coverage defenses is denied pending ORDER - 11 The remainder of the motion dealing with 1 further order of the Court and/or trial herein. Farmland’s Motion to Strike, ECF No. 115, is DENIED. 2 2. 3 IT IS SO ORDERED. 4 The District Court Executive is directed to enter this Order. 5 DATED this 16th day of December, 2013. 6 s/Lonny R. Suko 7 LONNY R. SUKO SENIOR UNITED STATES DISTRICT JUDGE 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 ORDER - 12
]]>
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You
should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google
Privacy Policy and
Terms of Service apply.
