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Johnson v. Safeco Insurance Co. of America

Court of Appeals of Washington, Division 1

September 16, 2013

JOEL JOHNSON, a single person, Appellant,
SAFECO INSURANCE COMPANY OF AMERICA, an insurance company; MOUNT VERNON FIRE INSURANCE COMPANY, an insurance company, Respondents, TAYLOR, BEAN &WHITAKER MORTGAGE CORP., a Washington corporation, Defendant.

Order Date 15 January 2014.


Respondent Safeco Insurance Company of America filed a motion to publish the opinion filed on September 16, 2013. Third parties Farmers Insurance Company of America and Allstate Insurance Company also filed a motion to publish the opinion. A majority of the panel has determined that the motion to publish should be granted and the opinion filed on September 16, 2013 amended by the order filed on December 20, 2013 shall be published;

Now, therefore, it is hereby

ORDERED that the motion to publish is granted and the opinion filed on September 16, 2013 amended by the order filed on December 20, 2013 shall be published.


Joel Johnson appeals summary judgment dismissal of his claims against Safeco Insurance Co. and the order granting the CR 50 motion to dismiss his bad faith claim and claims against Mount Vernon Fire Insurance Co. under the Consumer Protection Act (CPA), chapter 19.86 RCW. We affirm.


The material facts are not in dispute. Joel Johnson owned a house in Edmonds located at 5703 145th Street Southwest and had a "Quality-Plus Homeowners Policy" with Safeco Insurance Co. On July 22, 2008, Johnson refinanced the Edmonds house with Taylor Bean & Whitaker Mortgage Corp. (TBW). TBW assumed responsibility for paying the insurance premium from the escrow account.

Johnson also owns rental property located at 9036-38 4th Avenue Southwest in Seattle. The rental property is a duplex with an upstairs unit of approximately 2, 500 square feet and a small basement apartment of approximately 1, 000 square feet. The mortgage payments for the rental property were $1, 800 a month.

On September 28, 2008, Safeco sent TBW and Johnson a renewal notice for the upcoming 12-month policy period of November 17, 2008 to November 17, 2009. In October, TBW sent Safeco a check for the premium amount due to renew the policy. But TBW stopped payment on the check and did not reissue another check to pay for the premium.

On December 2, Safeco sent Johnson an expiration notice. The notice states that Safeco had not received the renewal premium from the mortgage company. The notice gave Johnson until January 5, 2009 to send Safeco the premium to "keep your policy in effect." Neither Johnson nor TBW paid the premium to renew the homeowners' insurance policy.

On January 11, 2009, Safeco sent a notice of cancellation to TBW stating that the mortgage company's interest in the policy would be cancelled on February 5. At some point after receipt of the notice of cancellation from Safeco, TBW obtained a "lender placed" homeowners' insurance policy for Johnson's house with Mount Vernon Fire Insurance Co. The policy was effective from November 17, 2008 to November 17, 2009.

On January 25, 2009, the chimney in Johnson's house caught fire. The fire destroyed the house and personal property. Johnson moved into his rental property in Seattle.

When Johnson contacted Safeco, Safeco told him the policy expired because the premium was not paid. TBW informed Johnson that the Mount Vernon policy would cover the fire-related structure repairs, damaged personal property, and additional living expenses (ALE).

Johnson submitted a claim to Mount Vernon. Mount Vernon assigned Maureen Connor to process the claim. Mount Vernon also retained an independent local adjuster, Tony Brown. Brown inspected the property on February 6. On February 23, Brown submitted an estimate for the structural repairs of $133, 041.30, plus an allowance for personal property. On February 25, Mount Vernon authorized payment for the full cost of repair. But after discovering the Safeco policy was in effect as to TBW, Mount Vernon cancelled payment. On April 27, Mount Vernon filed a claim with Safeco.

In early May, Johnson told Brown that he was living in his rental property and the rent was $1, 800 a month. Johnson said that he moved into his unoccupied rental "to mitigate his exposure (ALE)."

On May 27, Connor informed Johnson that Mount Vernon needed documentation to support his ALE claim for $1, 800 a month in rent. Johnson then sent a letter to Connor stating that "[t]he cost of the house I'm living in is $1, 800 per month." In response, Connor told Johnson that "Mt. Vernon needed actual substantive documentation to support his claim."

Connor's supervisor James Ziff concluded that there was no coverage to reimburse Johnson for lost rent. But when Ziff spoke to Johnson on May 29, Ziff agreed to pay five months of ALE at $1, 250 per month. Ziff also agreed to a $5, 000 advance for reimbursement of the personal property loss. In August, Johnson contacted Brown to request additional ALE. On September 21, Ziff told Johnson that he had 30 days to provide documentation to support his ALE claim or Mount Vernon would close the claim.

Safeco concluded that TBW was entitled to coverage for the structural damage to Johnson's house. In June, Safeco entered into an agreement with Mount Vernon to pay 51 percent of the structural repair costs. On June 20, Safeco paid its share of its estimate of the actual cash value of the structure.

Mount Vernon asked an independent adjuster to review Safeco's estimate of the structural repair costs. In October, Mount Vernon paid its share of the structure repair cost based on its own estimate.[1] Mount Vernon then closed the claim because Johnson did not submit an inventory of personal property or any documentation to support his ALE claim.

On November 25, an attorney representing Johnson sent a letter to Mount Vernon demanding payment of $18, 000 for ALE. The attorney provided Mount Vernon with a lease agreement between Johnson and his previous renters Pete and Evon Little. According to the terms of the lease, the Littles rented the upstairs of the duplex from May 15, 2008 to November 15, 2008 for $1, 800 a month. Mount Vernon denied ALE coverage on the grounds that the policy did not cover lost rent.

On December 18, Johnson notified Mount Vernon that he planned to file a claim under the Insurance Fair Conduct Act, chapter 48.30 RCW, for unreasonable denial or delay for ALE payments. Mount Vernon agreed to pay Johnson an additional $1, 250 a month for the previous six months.

On May 24, 2010, Johnson filed a lawsuit against Safeco, Mount Vernon, and TBW. Johnson alleged Safeco breached the terms of the insurance policy by failing to provide proper notice to Johnson before cancellation, and refusing to pay him for the structural costs of repair, personal property damage, and ALE. Johnson alleged TBW had a contractual duty "to properly and timely make his insurance payments to avoid any cancellation of his insurance policy" with Safeco. Johnson alleged Mount Vernon breached its contractual duty to pay for the cost of structural repairs, personal property damage, and living expenses. Johnson alleged Mount Vernon also failed "to conduct a reasonable investigation of the fire loss, and fail[ed] to provide for the timely repair and/or rebuilt of his dwelling to its original pre-loss condition with like, kind, and quality materials and professional workmanship."

Johnson also alleged that Safeco and Mount Vernon violated the insurance regulatory provisions of the Washington Administrative Code (WAC); violated the Consumer Protection Act (CPA), chapter 19.86 RCW, and the Insurance Fair Conduct Act, chapter 48.30 RCW; and breached the duty of good faith and fair dealing. After TBW filed for bankruptcy, Johnson voluntarily dismissed TBW without prejudice.

Safeco filed a motion for summary judgment arguing that because Johnson did not pay the premium, the homeowners' policy expired before the fire on January 25, 2009. The court granted the motion for summary judgment. The court ruled, in pertinent part:

The relevant law here that has to do with renewal of a policy or a cancellation. Either way, Safeco's properly met its obligations here. The notices were sent. Mr. Johnson didn't renew the policy.
I recognize that it may have been the responsibility of [TBW] to do that, but nevertheless, it's not Safeco's fault that the policy wasn't renewed and therefore, Safeco doesn't have any liability here.

The trial on the claims against Mount Vernon was scheduled to begin on October 3, 2011. On August 18, Johnson filed a motion for summary judgment on the breach of contract claim for ALE. Johnson argued that he was entitled to lost rental income of $1, 800 a month.

On August 31, Mount Vernon took Johnson's deposition. Johnson testified that Dean Little signed the lease on May 15, 2008 and the Littles rented the upstairs portion of the duplex for $1, 800 a month from May 2008 to December 2008. But Johnson later admitted that he had forged the lease and asserted the lease reflected the oral agreement he had with the Littles. Mount Vernon filed an amended answer asserting misrepresentation and fraud as an affirmative defense.

Mount Vernon filed a motion for entry of a judgment as a matter of law to dismiss. In support, Mount Vernon filed the affidavit of Dean Little. Little states that he and his spouse rented the basement apartment of Johnson's duplex from May 2008 to March 2009 for $750 a month, and they did not sign a lease.

On the first day of the scheduled trial, the court granted the CR 50 motion for judgment as a matter of law. The court ruled that "following plaintiff's factual admissions, no legally sufficient basis exists for a jury to find for the plaintiff on his contractual, extra-contractual or CPA claim." The order sets forth in detail the undisputed facts establishing Johnson intentionally misrepresented the terms of the rental agreement that was submitted to obtain ALE. The undisputed findings state, in pertinent part:

2. Mt. Vernon's insurance policy issued to plaintiff contains a clause stating that it provides coverage to no "insureds" if the insured has committed fraud, concealment or misrepresentation of any material fact related to the insurance. (Homeowners 3, condition Q). . . .
3. In May 2009, plaintiff submitted a letter to Mt. Vernon requesting that he be paid $1, 800 per month in additional living expenses ("ALE").
4. In November 2009, plaintiff submitted a document entitled "Rental Agreement" to Mount Vernon as evidence in support of his claim for $1, 800 per month in ...

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