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Farmers Insurance Co. v. Gossett

filed: June 21, 1996.


Superior Court of Pierce County. Superior Court Docket No. 91-2-10458-7. Date Filed In Superior Court: May 13, 1994. Superior Court Judge Signing: Donald Thompson.

Written By: Houghton, Acj, Concurred IN By: Turner, J, Bridgewater, J.

Author: Houghton

HOUGHTON, A.C.J. -- Farmers Insurance Company of Washington (Farmers) appeals from an award of attorney fees and a partial summary judgment that Richard and Margaret Gossett had a limited insurable interest under a homeowner's policy issued by Farmers. The Gossetts cross-appeal, arguing that the trial court erred in limiting their insurable interest to the value of repairs and improvements. We affirm the trial court's award of attorney fees and its ruling that the Gossetts had an insurable interest, but reverse and remand on the issue of limitation of the insurable interest.


The Gossetts found an unfinished house for sale at a "bargain price". The house was located at 14402 11th Avenue East in Tacoma. Richard Gossett is a construction superintendent for a contractor and is also a carpenter. The Gossetts intended to buy the house, move in, and finish it and sell it at a profit. The Gossetts offered $90,000 for the house and determined they would need an additional $60,000 or $70,000 to finish the house.

The Gossetts' $90,000 offer was accepted after two prior offers expired. The Gossetts had difficulty obtaining financing through conventional sources due to Richard Gossett's prior bankruptcy and a tax lien and because the house was unfinished. They eventually signed a fee agreement with Trusty Deed Services, Inc., (Trusty) a mortgage broker that "specialized in [] hard to place loans." Because a loan through one source would not be available before the August 30, 1990 closing date, and the Gossetts believed they would lose the sale to the offer behind theirs, they assigned their interest in the earnest money agreement to Trusty. Trusty borrowed $100,000 from Cynthia Crennell in order to lend the Gossetts money to close the sale.

The Gossetts and Trusty agreed that the Gossetts would pay Trusty when they obtained long-term financing and Trusty would use those funds to repay Crennell. Trusty took title to the property in order to facilitate the sale and to protect Crennell, but did not intend to buy or become record owner of the property. The Gossetts had to repay a total of $109,000 by October 4, 1990. The sale closed on September 5 and Trusty was named as the buyer. The seller conveyed title to Trusty.

The Gossetts moved into a motel while they worked on the house. They moved some of their belongings into the house and one of their sons slept there to watch over things. They began working on the house in early September 1990. Richard Gossett and his sons did most of the work, including work on the roof, wiring, plumbing, and adding a garage.

Jim Hecker, a Farmers agent, contacted the Gossetts and they obtained homeowners' insurance in late August. The Gossetts told Hecker they owned the property. Farmers later contacted them in September and raised the amount of insurance from approximately $350,000 to $437,000. The policy was issued to the Gossetts as insured and to Trusty as mortgagee. Hecker stated that the Gossetts did not tell him that Trusty held title to the property and he assumed the Gossetts were the title holders because they were seeking insurance. He stated that, had he known Trusty held title and not the Gossetts, the policy would not have been issued.

On November 16, the electricity and heat were turned on and the Gossetts planned to move in the following Monday. Richard Gossett was at the house on Sunday night, November 18, installing light fixtures in a stairway. He fell off a ladder onto a plastic container of kerosene that was next to a space heater. Even though the heat was on, the space heater was being used to help dry the house. The ladder knocked over the space heater, which started a fire.

Richard Gossett drove to a neighbor's to telephone 911 dispatch. He returned to the house to wait for the fire department and to see if he could salvage anything, but found the living room was "engulfed in flames."*fn1 The Gossetts went to Disney World on November 20 (having previously purchased non-refundable tickets), and stayed for about 10 days.

Richard Gossett stated that he obtained a long-term mortgage and a loan for the construction costs through George Moore and Associates. However, there was no written loan agreement. This loan did not come through before the fire. After the fire, Trusty was only able to make a partial payment of $5000 to Crennell. Trusty assigned its rights under the insurance policy to Crennell and delivered a Deed of Trust on the property to Crennell. Crennell ultimately obtained a judgment against Trusty for the amount due on the note.

Both the Gossetts and Trusty made claims under the insurance policy. Farmers paid the Gossetts for the loss of contents and personal property. Farmers also tendered a $114,818.00 check, naming Crennell, Trusty and the Gossetts as payees. Crennell, Trusty and the Gossetts eventually entered into a settlement agreement in November 1991, whereby upon deposit of the Farmers' check, receipt of $5000 from the Gossetts, a quit-claim deed and other documents from Crennell and a quit-claim deed from Trusty, $115,818.00 would be paid to Crennell, and $4000 to Trusty.

The Gossetts filed suit in October 1991, seeking a money judgment for damage to the dwelling and for loss of use. Farmers alleged that the Gossetts did not have an insurable interest, or in the alternative, any recovery would be limited as to an insurable interest. Farmers also asserted that the insurance policy was issued upon mistaken facts regarding ownership of the property and that the policy should be reformed.

Both parties moved for summary judgment on the issue of insurable interest. The trial court granted the Gossetts' motion, but limited their insurable interest to the value of their improvements. The trial court denied the Gossetts' motion for reconsideration.

The Gossetts' claim for improvements to the structure, including debris removal and additional living expenses, totaled $130,333.40. They asserted that most of the documentation pertaining to improvements was destroyed in the fire and they were unable to substantiate this amount. The Gossetts subsequently revised the amount to $47,375.86.

The parties eventually settled all claims, but the Gossetts reserved the right to appeal the issue of insurable interest. The trial court awarded attorney fees to the Gossetts to the extent the fees were incurred to establish coverage. The trial court used the lodestar fee ...

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