Searching over 5,500,000 cases.


searching
Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.

Seattle-First National Bank v. Washington Insurance Guaranty Association

February 14, 1991

SEATTLE-FIRST NATIONAL BANK, ET AL, APPELLANTS,
v.
WASHINGTON INSURANCE GUARANTY ASSOCIATION, RESPONDENT



En Banc. Andersen, J. Dore, C.j., Utter, Brachtenbach, Dolliver, Durham, Smith, and Guy, JJ., and Callow, J. Pro Tem., concur. Johnson, J., did not participate in the disposition of this case.

Author: Andersen

Facts of Case

This case involves "residual value insurance", a relatively new and highly specialized type of business-related insurance. At issue is whether the trial court properly characterized residual value insurance as surety insurance that is not protected by the Washington Insurance Guaranty Association Act, RCW 48.32. We hold that the trial court erred, and reverse and remand.

In August 1981, Seattle First National Bank (Sea-First) purchased a "Residual Value Protection Plan" from Integrity Insurance Company (Integrity) of Paramus, New Jersey. According to this agreement, Sea-First wished "to establish a future market for those new motor vehicles which it will in the future lease pursuant to closed-end leases," and Integrity was willing to purchase those leased vehicles from Sea-First "or otherwise indemnify the Bank on the terms and conditions and for the considerations hereinafter set forth."

Those terms and conditions stated that Integrity would provide Sea-First with a subscription to an automotive lease guide listing residual values of motor vehicles at specified future dates. Sea-First would then enroll its leased vehicles by sending Integrity a computer-generated form describing the year, make, model and vehicle identification numbers of vehicles leased that month. The enrollment form also listed the scheduled lease termination date and the residual value established by the lease guide.

At the end of the lease period, Sea-First could deliver the vehicle to Integrity, which was required to then purchase the vehicle for the "operative residual value" (determined by the lease guide) less deductions for excess mileage and wear and tear. Under the excess mileage provisions, the operative residual value of the vehicle was reduced under a computation whereby the miles on the odometer in excess of 1,250 miles per month of the original lease term were multiplied by 4 cents. Under the wear and tear provisions, the operative residual value of the vehicle was reduced by Integrity's estimated cost to place the vehicle in a legally saleable condition. This amount was computed as the cost necessary to (a) place the vehicle in good mechanical condition (ordinary wear and tear excepted); (b) replace any tire that wasn't part of a matching set of five tires or had less than one-eighth inch of tread at its shallowest point; and (c) repair scratches, dents and cracks longer than specified lengths and other damage not constituting ordinary wear and tear.

As consideration for Integrity's promise to purchase the leased vehicles, Sea-First promised to pay Integrity $250 per year plus 2 to 2.25 percent of the residual value of the enrolled vehicles. The Sea-First policy also provided for the recovery of all costs and attorneys' fees incurred to enforce any obligation under the policy.

In another transaction, this one in September 1982, Bill Pierre Leasing, Inc., doing business as American Leasing Company (American Leasing), purchased a "Leased Vehicle Residual Value Protection Policy" from Integrity. Under this policy, Integrity agreed to indemnify American Leasing against the "Ultimate Net Loss" sustained on an enrolled vehicle. American Leasing was to notify Integrity each month of the vehicles leased that month in order to enroll them. At the end of the lease period, American Leasing could deliver an enrolled vehicle to Integrity. Upon delivery, Integrity could pay either the ultimate net loss or purchase the enrolled vehicle for the adjusted residual value. The adjusted residual value would be the amount specified

in the automotive lease guide absent deductions for excess mileage and excess damage. The excess damage deduction included the cost to repair or replace any body damage and mechanical defects; minor body damage was not excluded from the deduction. The policy defined the ultimate net loss as the adjusted residual value minus the net realized value. The net realized value was the highest cash price that American Leasing could receive in a bona fide cash sale.

Unlike the Sea-First policy, the American Leasing policy stated that it did not apply to any enrolled vehicle for which the relevant lease was terminated prior to the scheduled lease termination date, whether by default of the lessee, prepayment or otherwise. The American Leasing agreement also contained no attorneys' fees provision.

In 1987, Integrity was declared insolvent by a New Jersey Superior Court. The court directed the state's insurance commissioner to liquidate and marshal Integrity's assets for the benefit of its policyholders and creditors.

As insureds of an insolvent insurance company, Sea-First and American Leasing made claims with the Washington Insurance Guaranty Association (WIGA) for sums allegedly due under their contracts with Integrity. WIGA denied these claims on the ground that the agreements in question constitute credit or surety insurance and are not the types of insurance protected by the Washington Insurance Guaranty Association Act, RCW 48.32.

Sea-First and American Leasing then filed the present action against WIGA in Thurston County Superior Court. On cross motions for summary judgment, the trial court agreed with WIGA that the agreements constituted surety insurance and thus were exempted from coverage under RCW 48.32. The court dismissed the insureds' complaint.

Sea-First and American Leasing then sought direct review, which this court granted.

Two issues are presented.

Issues

Issue One. Is residual value insurance surety or credit insurance and thus exempted from coverage under the Washington Insurance Guaranty Association Act?

Issue Two. Are the insureds entitled to recover their expenses and attorneys' fees from the Washington Insurance Guaranty Association?

Decision

Issue One.

Conclusion. None of the types of credit or surety insurance defined in Washington's insurance statutes describe the residual value insurance at issue in this case. We conclude that residual value insurance is not credit or surety insurance and is not excluded, therefore, from the Washington Insurance Guaranty Association Act.

The Washington Insurance Guaranty Association (WIGA) is a nonprofit unincorporated legal entity created by and existing pursuant to the Washington Insurance Guaranty Association Act (WIGA Act), RCW 48.32.*fn1 One purpose of the WIGA Act is to provide a mechanism for the expeditious payment of claims asserted by Washington policyholders against insolvent insurers.*fn2 WIGA accumulates funds resulting from assessments levied on member insurers and uses these funds to pay claims as they arise.*fn3 All foreign and domestic insurance companies which ...


Buy This Entire Record For $7.95

Download the entire decision to receive the complete text, official citation,
docket number, dissents and concurrences, and footnotes for this case.

Learn more about what you receive with purchase of this case.