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Anderson v. Country Mutual Insurance Co.

United States District Court, W.D. Washington, Seattle

February 18, 2015

CHRISTOPHER H. ANDERSON, Plaintiff,
v.
COUNTRY MUTUAL INSURANCE COMPANY, Defendant.

ORDER DENYING CROSS-MOTIONS FOR SUMMARY JUDGMENT

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court are the parties' cross-motions for summary judgment. (Pltf.'s Mot. (Dkt. # 55); Def.'s Mot. (Dkt. # 58).) The court has considered the parties' submissions, the balance of the record, and the relevant law. Being fully advised, [1] the court DENIES both motions.

II. BACKGROUND

This is an insurance coverage case arising out of a fire at a house that Plaintiff Christopher H. Anderson owned in Seattle, Washington ("the House"). ( See Ver. of State Ct. Rec. (Dkt. # 3) Ex. 1 (Dkt. # 3-1) ("Compl."); Anderson Decl. (Dkt. # 56) ¶ 3.) The fire occurred on December 26, 2012, and caused significant damage to the House. (Compl. ¶ 3.1.) The Seattle Fire Department ("SFD") responded to the scene and conducted an investigation. ( See Thielbar Decl. (Dkt. # 61) ¶ 6, Ex. I (Dkt. # 61-3) ("SFD Report").) The investigation concluded that the fire occurred due to an overheated electrical outlet in the basement that was rewired for an illegal marijuana growing operation ("the Operation"). ( See id. )

The Seattle Police Department ("SPD") also conducted an investigation. (4th Carsely Decl. (Dkt. # 49) ¶ 11, Ex. F. (Dkt. # 49-6) ("SPD Report").) In the course of this investigation, Detective Marco Ortiz found that the Operation was concealed within the basement with false walls, that electricity was diverted to the Operation so that the power used for the Operation would not show up on the electricity meter, and that an airfiltering and venting system was installed to hide the smell of the Operation. ( See SPD Report at 2-4; Thenell Decl. (Dkt. # 59) ¶ 2, Ex. A (Dkt. # 59-1) ("Ortiz Dep.")[2] at 19:17-20:13, 21:3-22:18; Weber Decl. (Dkt. # 64) ¶ 5, Ex. D (Dkt. # 64-4) ("Lefebvre Dep.") at 40:19-41:5.)

Mr. Anderson had a homeowner's insurance policy with Defendant Country Mutual Insurance Company ("Country Mutual") that was effective at the time of the fire. ( See Thielbar Decl. ¶ 3, Ex. H (Dkt. ## 61-1, 61-2) ("Policy").) On January 3, 2013, Mr. Anderson reported the fire to Country Mutual, which began its own investigation. ( See Theilbar Decl. ¶¶ 5-6.) Country Mutual collected SFD and SPD reports, reviewed news reporting on the fire, and interviewed witnesses. ( See, e.g., 5th Carsely Decl. (Dkt. # 57) ¶ 2, Ex. A (Dkt. # 57-1) ("Thielbar Dep.") at 67:24-69:12, 84-94; Weber Decl. ¶ 7, Ex. F (Dkt. # 64-6) ("Lefebvre Email"); Lefebvre Decl. (Dkt. # 60) ¶ 3, Ex. G (Dkt. # 60-3) ("Anderson 1/10/13 Statement")[3].) To facilitate this investigation, Mr. Anderson signed multiple releases enabling Country Mutual to obtain documents and made available a number of additional documents not covered by the releases. ( See, e.g., 4th Carsley Decl. ¶ 19, Ex. J. (Dkt. # 49-10) ("1/9/13 Email").) In addition, Mr. Anderson hired Paul Gaouette of Adjusters International, a private adjusting firm, to assist him with the presentation of his claim. ( See 5th Carsley Decl. ¶ 8, Ex. G (Dkt. # 57-7) ("Gaouette Dep.") at 7:5-7.)

Since the outset of Country Mutual's investigation, Mr. Anderson has maintained that he did not know about the Operation and suggested that it was likely carried on by his tenant, Mark Gray. ( See, e.g., Anderson 1/10/13 Statement at 30; 2d Carsley Decl. (Dkt. # 22) ¶ 8, Ex. G (Dkt. # 22-2) at 2-13 ("Anderson 2/8/13 Statement")[4]; Pltf.'s Mot. at 3-4.) Mr. Anderson told Country Mutual about his tenant around the time he gave notice of the fire and provided a form lease agreement signed by Mr. Gray. ( See Anderson 1/10/13 Statement at 6; Lefebvre Decl. ¶ 2, Ex. E (Dkt. # 60-1) ("Lease Email"), Ex. F (Dkt. # 60-2) ("Lease").) Mr. Anderson told Country Mutual that he thought Mr. Gray had lived in the House for about 19 months with his girlfriend and two children. (Anderson 1/10/13 Statement at 6-7; Anderson 2/8/13 Statement at 18; Pltf.'s Mot. at 3.) In addition, Mr. Anderson related that he had visited the House on several occasions while Mr. Gray lived there, including to repair the deck, but had never conducted a walkthrough, gone into the basement, or detected the Operation. ( See Anderson 1/10/13 Statement at 7-9, 26-27; Anderson 2/8/13 Statement at 28-31, 35-36.) Mr. Anderson further asserted that he does not smoke marijuana and has never grown it. (Anderson 2/8/13 Statement at 36-37.)

On January 10, 2013, Country Mutual claims handler James Lefebvre conducted an initial interview with Mr. Anderson. ( See generally Anderson 1/10/13 Statement.) During that interview, Mr. Lefebvre asked Mr. Anderson where he was at the time of the fire. ( Id. at 20.) Mr. Anderson responded that he was golfing in Chelan, Washington. ( See id.; see also Anderson 2/8/13 Statement at 38-39.) In checking Mr. Anderson's story, Country Mutual learned that the golf course was closed on December 26, 2012, due to snow. (Thielbar Decl. ¶ 12.)

Approximately one month later, Country Mutual special investigator Chris Thielbar conducted a second interview with Mr. Anderson. ( See id. ¶ 11; Anderson 2/8/13 Statement.) Mr. Theilbar confronted Mr. Anderson with the facts about the snow, to which Mr. Anderson responded that he had actually been in Roslyn, Washington, on December 26, 2012, with a prostitute named Teyana Dorsey. ( See Anderson 2/8/13 Statement at 37-41.) Mr. Anderson acknowledged that he had lied about his whereabouts but explained that his only motive was to prevent his daughter from finding out that he was with Ms. Dorsey. ( See id. at 38-43.)

In addition to that misrepresentation, Country Mutual claims to have discovered several other irregularities in Mr. Anderson's statements. ( See Def.'s Mot. at 3-6.) For example, Country Mutual asserts that Mr. Anderson has testified inconsistently about the frequency and timing of his visits to the House in the months leading up to the fire and about how he received and processed rent payments from Mr. Gray. ( See id. at 4-6.) Country Mutual highlights contradictory statements from Mr. Anderson about Mr. Gray's vehicle. ( See id. at 4, 6.) Country Mutual also points out that after the fire the SPD found property belonging to Mr. Anderson in the House; that the lease agreement is inconsistent with Mr. Anderson's statements because it lists Mr. Anderson as a coresident and prohibits children; and that the utilities for the House were in Mr. Anderson's name. ( See id. at 3, 5.) Furthermore, Country Mutual has been unsuccessful in locating Mr. Gray. (Thielbar Decl. ¶ 20.)

On October 9, 2013, Country Mutual sent a letter to Mr. Anderson informing him that it was denying coverage. ( See 2d Carsley Decl. ¶ 15, Ex. N (Dkt. # 22-3) at 21-25. ("Denial Letter").) It based this denial on two policy exclusions. ( See id. at 4.) The first exclusion precludes coverage when the insured has misrepresented any material fact relating to the insurance ("the misrepresentation exclusion"). ( See id.; Policy at 32.) The second exclusion bars coverage when the loss results from the illegal manufacture of controlled substances and the insured has knowledge of such manufacture ("the controlled substances exclusion"). ( See Denial Letter at 4; Policy at 26, 28.) The denial letter supported application of those exclusions with the following facts: Mr. Anderson admitted to visiting the House on numerous occasions before the fire and misrepresented his whereabouts at the time of the fire. ( See Denial Letter at 3-4.)

During the investigation, Country Mutual made payments to Mr. Anderson totaling $5, 565.29 and $29, 200.00. ( See Thielbar Decl. ¶ 21, Ex. O (Dkt. # 61-9) ("Ledger").) The first sum was, in Country Mutual's words, "towards the Dwelling, " while the second was for rent replacement. ( See id. ) Also during the investigation, Country Mutual paid $97, 996.74 for the actual cash value ("ACV") of the House to Mr. Anderson's mortgagee as the loss payee under Mr. Anderson's policy. ( See id.; Def.'s Mot. at 14.) Mr. Anderson alleges that the denial of coverage caused him to lose the property because he could no longer afford his mortgage and had to sell the property to avoid foreclosure. ( See Anderson Decl. ¶ 3.) Mr. Anderson also contends that if coverage had not been denied, he would have retained the property and repaired or replaced the House. ( See id.; Weber Decl. (Dkt. # 64) ¶ 15, Ex. L (Dkt. # 64-12) ("Neupert Dep.") at 5, 7.)

On December 20, 2013, Mr. Anderson filed this lawsuit in the Superior Court for King County, Washington, bringing claims against Country Mutual for breach of contract, bad faith, and violation of the Consumer Protection Act ("CPA"), RCW ch. 19.86.010, et seq., and the Insurance Fair Conduct Act ("IFCA"), RCW 48.30.15. ( See generally Compl.) Country Mutual removed the case to this court on January 10, 2014. (Not. of Rem. (Dkt. # 1).) Shortly thereafter, Country Mutual filed an answer and asserted two counterclaims for breach of contract. ( See Answer (Dkt. # 6) at 8-9.)

The parties filed the instant cross-motions for summary judgment on December 16, 2014. ( See Pltf.'s Mot.; Def.'s Mot.) Mr. Anderson moves for partial summary judgment on two issues. (Pltf.'s Mot. at 2.) First, Mr. Anderson asks the court to rule that Country Mutual is estopped from relying on evidence other than what it stated in its denial letter, provided Country Mutual knew or should have known of the additional evidence at the time of the denial letter. ( See id. at 11-18; Pltf.'s Reply at 2-9.) Second, Mr. Anderson seeks to preclude Country Mutual from asserting the controlled substances exclusion. ( See Pltf.'s Mot. at 2.) Mr. Anderson argues that Country Mutual had so little evidence of Mr. Anderson's knowledge of the Operation that its conclusion in that regard is unreasonable as a matter of law. ( See id. at 18-23; Pltf.'s Reply at 9-12.) He points out that Country Mutual lacked any direct evidence of Mr. Anderson's knowledge, distrusted Mr. Anderson, and failed to pursue avenues of investigation that might have corroborated Mr. Anderson's story, such as the efficacy of the various measures concealing the Operation. ( See Pltf.'s Mot. at 20-23; Pltf.'s Reply at 10-12.)

Country Mutual, in turn, moves for summary judgment on five issues. ( See Def.'s Mot. at 10-17.) First, it asks the court to rule that the misrepresentation exclusion applies because Mr. Anderson's initial statement about his whereabouts is a material misrepresentation. ( See id. at 10-11; Def.'s Reply at 2-3.) Second, it moves for summary judgment on the reasonableness of its conclusion that Mr. Anderson knew about the Operation and thus that the controlled substances exclusion barred coverage. ( See Def.'s Mot. at 13-14; Def.'s Reply at 4-5.) Third, Country Mutual argues that it is enjoys immunity from Mr. Anderson's bad faith, IFCA, and CPA claims under RCW 48.50.075. ( See Def.'s Mot. at 14-15; Def.'s Reply at 6-7.) That statute protects insurance companies who deny coverage in reliance on a written opinion from a qualified agency that the claim involves criminal activity and that the insured is the target of the investigation. See RCW 48.50.075. Fourth, Country Mutual contends that Mr. Anderson's bad faith claim must fail because he has no evidence of damages. ( See Def.'s Mot. at 16-17; Def.'s Reply at 7.) Fifth and finally, it requests a determination that it has fulfilled its obligations under the contract by paying the ACV of the House to Mr. Anderson's mortgagee. ( See Def.'s Mot. at 14; Def.'s Reply at 5-6.)

The parties' cross-motions are now before the court. For the reasons stated below, the court finds that summary judgment is inappropriate on the issues raised by the parties and therefore DENIES the parties' cross-motions for summary judgment.

III. DISCUSSION

A. Summary Judgment Standard

Summary judgment is appropriate if the evidence, when viewed in the light most favorable to the non-moving party, demonstrates "that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. Cnty. of L.A., 477 F.3d 652, 658 (9th Cir. 2007). A fact is "material" if it might affect the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "genuine" if the evidence is such that reasonable persons could disagree about whether the facts claimed by the moving party are true. Aydin Corp. v. Loral Corp., 718 F.2d 897, 902 (9th Cir. 1983).

[T]he issue of material fact required... to be present to entitle a party to proceed to trial is not required to be resolved conclusively in favor of the party asserting its existence; rather, all that is required is that sufficient evidence supporting the claimed factual dispute be shown to require a jury or judge to resolve the parties' differing versions of the truth at trial.

First Nat. Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 288-89 (1968).

The court is "required to view the facts and draw reasonable inferences in the light most favorable to the [non-moving] party." Scott v. Harris, 550 U.S. 372, 378 (2007). The court may not weigh evidence or make credibility determinations in analyzing a motion for summary judgment because these are "jury functions, not those of a judge." Anderson, 477 U.S. at 249-50.

The moving party bears the initial burden of showing there is no genuine issue of material fact and that he or she is entitled to prevail as a matter of law. Celotex, 477 U.S. at 323. If the moving party meets his or her burden, the non-moving party "must make a showing sufficient to establish a genuine dispute of material fact regarding the existence of the essential elements of his case that he must prove at trial." Galen, 477 F.3d at 658.

B. Mr. Anderson's Knowledge of the Operation

Both Country Mutual and Mr. Anderson move for summary judgment on the issue of whether Country Mutual reasonably concluded that Mr. Anderson knew about the Operation. ( See Def.'s Mot. at 13-14; Pltf.'s Mot. at 18-23.) As described above, Country Mutual invoked the controlled substances exclusion as one of its bases for denying coverage. ( See Denial Letter at 4.) In doing so, it relied on its conclusion that Mr. Anderson knew about the Operation. ( See id. ) Mr. Anderson now alleges that Country Mutual's denial of coverage on that basis amounts to bad faith because Country Mutual lacked a reasonable basis for its determination that Mr. Anderson knew about the Operation. ( See Pltf.'s Mot. at 20-23.)

An insurer has an obligation to act in good faith when dealing with its insureds. See RCW 48.01.030; Indus. Indem. Co. of the Nw., Inc. v. Kallevig, 792 P.2d 520, 526 (Wash. 1990). "This fiduciary duty... is fairly broad and may be breached by conduct short of intentional bad faith or fraud." Kallevig, 792 P.2d at 526 (citing Phil Schroeder, Inc. v. Royal Globe Ins. Co., 659 P.2d 509 (Wash. 1983)). "Thus, an insurer's denial of coverage, without reasonable justification, constitutes bad faith." Id. Notably, however, bad faith is an issue of fact that is rarely appropriate for summary judgment. See Hell Yeah Cycles v. Ohio Sec. Ins. Co., 16 F.Supp. 3d 1224, 1235 (E.D. Wash. 2014) (citing Smith v. Safeco Ins. Co., 78 P.3d 1274, 1277 (Wash. 2003)).

In raising this issue on summary judgment, therefore, each party is effectively arguing that, even viewing the facts in the light most favorable to the opposing side, no reasonable jury could disagree about the reasonableness (or unreasonableness) of Country Mutual's determination regarding Mr. Anderson's knowledge. See Hell Yeah Cycles, 16 F.Supp. 3d at 1235; Smith, 78 P.2d at 1277-78. Both parties are mistaken. Viewing the evidence as it must at summary judgment, see Scott, 550 U.S. at 378, the court finds that reasonable minds could differ regarding the reasonableness of Country Mutual's decision to invoke the controlled substances exclusion. See Hell Yeah Cycles, 16 F.Supp. 3d at 1235. Summary judgment is therefore inappropriate.

Country Mutual points to the following facts to support its position that Mr. Anderson knew about the Operation: Mr. Anderson admitted to visiting the House in the months leading up the fire, the SPD discovered items belonging to Mr. Anderson at the House, few other items consistent with tenancy were found at the House, the utilities remained in Mr. Anderson's name, the lease agreement lists Mr. Anderson as a resident, Mr. Anderson misrepresented his whereabouts on the night of the fire, Mr. Anderson waited a week to inform Country Mutual of the fire, and Mr. Gray has not been located. ( See Def.'s Mot. at 13; Def.'s Resp. at 9-10.) Based on those facts, Country Mutual argues that it reasonably concluded that Mr. Anderson knew about the Operation. ( See Def.'s Mot. at 13-14; Def.'s Resp. at 9-10.)

Mr. Anderson, on the other hand, relies on weaknesses in Country Mutual's evidence and on his own repeated and consistent denials of knowledge. For example, Mr. Anderson notes that Country Mutual's conclusion depends entirely on inferences from circumstantial evidence and total disbelief of Mr. Anderson's denials of knowledge. ( See Pltf.'s Mot. at 21-23; Pltf.'s Reply at 10-12; Pltf.'s Resp. at 16-18.) Mr. Anderson further points out that Country Mutual failed to investigate aspects of the claim that might have corroborated Mr. Anderson's denial, such as the efficacy of the measures used to hide the Operation. ( See, e.g., Pltf.'s Mot. at 22.) On the basis of these arguments, Mr. Anderson contends that Country Mutual's conclusion regarding his knowledge of the Operation amounts to nothing more than unreasonable speculation. ( See Pltf.'s Mot. at 22-23.)

Neither party has shown that the undisputed facts entitle it to judgment as a matter of law on the reasonableness of Country Mutual's conclusion. See Hell Yeah Cycles, 16 F.Supp. 3d at 1235. Country Mutual relies on inferences from circumstantial evidence and judgments about Mr. Anderson's credibility. ( See Def.'s Mot. at 13; Def.'s Resp. at 9-10.) Yet viewing the facts in the light most favorable to Mr. Anderson, the court cannot say that reasonable minds could only agree with Country Mutual. Rather a reasonable jury could potentially find that Country Mutual's inferences from the evidence and mistrust of Mr. Anderson were unwarranted, based on an inadequate investigation, and unreasonable. See Anderson, 477 U.S. at 455 ("Credibility determinations, the weighing of the evidence, and the drawing of legitimate inferences from the facts are jury functions, not those of a judge... on a motion for summary judgment...."); see also, e.g., Safeco Ins. Co. of Am. v. JMG Rests., Inc., 680 P.2d 409, 417-418 (Wash.Ct.App. 1984). Conversely, viewing the facts in the light most favorable to Country Mutual, a jury could find that Mr. Anderson lacks credibility and conclude that Country Mutual reached a reasonable conclusion based on the available information. See Anderson, 477 U.S. at 455. Accordingly, summary judgment is not appropriate for either party on this issue.[5]

C. Materiality of Mr. Anderson's Misrepresentation

Country Mutual contends that there is no genuine dispute of material fact that Mr. Anderson's misrepresentation regarding his whereabouts on the day of the fire constitutes a material misrepresentation that precludes coverage. ( See Def.'s Mot. at 10-11.) In addition to the controlled substances clause, Country Mutual denied coverage on the basis of the misrepresentation clause. (Denial Letter at 4.) That clause precludes coverage under Mr. Anderson's policy where the insured "intentionally misrepresent[s] any material fact... relating to this insurance." (Policy at 32.) Mr. Anderson contends that his misrepresentation regarding his whereabouts was not material. ( See Pltf.'s Resp. at 14-15.)

Key to resolving this issue is what constitutes a material misrepresentation. "A misrepresentation is material if a reasonable insurance company, in determining its course of action, would attach importance to the fact misrepresented.'" See Ki Sin Kim v. Allstate Ins. Co., 223 P.3d 1180, 1188-99 (Wash.Ct.App. 2009) (internal quotation marks omitted) (quoting Onyon v. Trucks Ins. Exch., 859 F.Supp. 1338, 1341 (W.D. Wash. 1994)) ("A misrepresentation is material if it involves a fact that is relevant to a claim or the investigation of a claim."); Allstate Ins. Co. v. Huston, 94 P.2d 358, 363 (Wash.Ct.App. 2004) ("[A] misrepresentation is material when it concerns a subject relevant and germane to the insurer's investigation as it was then proceeding at the time the inquiry was made.'" (internal quotation marks omitted) (quoting Tran v. State Farm Fire & Cas. Co., 961 P.2d 358 (Wash. 1998) (construing materiality as a limitation on the insured's duty to cooperate))); Huston, 94 P.2d at 363 ("[A] misrepresentation is material if, when made, it could have affected the insurer's investigation...." (emphasis in original)). Prejudice to the insurer is not an element of materiality. See Ki Sin Kim, 223 P.3d at 1188. In addition, "materiality is generally a mixed question of law and fact" that may be decided as a matter of law only "if reasonable minds could not differ on the question.'" Onyon, 859 F.Supp. at 1341 (quoting Long v. Ins. Co. of N. Am., 670 F.2d 930, 934 (10th Cir. 1982)).

The misrepresentation at issue here occurred when Mr. Anderson told Country Mutual in his initial interview that he was golfing in Chelan, Washington, on the day of the fire. ( See Def.'s Mot. at 11; compare Anderson 1/10/13 Statement at 20 with Anderson 2/8/13 Statement at 37-41.) As Mr. Anderson later admitted, he was actually in Roslyn, Washington, with a prostitute named Teyana Dorsey. ( See Anderson 2/8/13 Statement at 37-41.) Country Mutual does not dispute the accuracy of Mr. Anderson's second statement. Instead, Country Mutual argues that the initial misrepresentation was material because it concerned a subject that was relevant to its investigation at that time-namely, Mr. Anderson's whereabouts at the time of the fire. ( See Def.'s Mot. at 11; Def's Reply at 2-3.)

Mr. Anderson counters that his whereabouts were not material to Country Mutual's investigation at that time. ( See Pltf.'s Resp. at 14-15.) In support of this contention, Mr. Anderson explains that at the time of the misrepresentation, all of the information in Country Mutual's possession indicated that the fire was accidental and had resulted from an overheated electrical outlet. ( See id. at 4, 7-9, 14 (citing Lefebvre Dep. at 36:4-11; Lefebvre Email; Thielbar Dep. at 68:1-16 (noting Mr. Thielbar's receipt on 1/10/13 of the SFD's opinion that the fire was accidental)).) Thus, Mr. Anderson argues, Country Mutual knew that arson had not caused the fire and could not have cared about his whereabouts at the time of the fire. ( See Pltf.'s Resp. at 14-15.) Country Mutual responds that it was entitled to conduct its own investigation and had not yet determined the cause of the fire. ( See Def.'s Reply at 2-3.) Yet, as Mr. Anderson points out, this argument suffers in light of the absence of any independent opinion or analysis on the cause of the fire in the cause and origin report that Country Mutual later issued. ( See Pltf.'s Resp. at 15; Weber Decl. ¶ 10, Ex. H (Dkt. # 64-8) ("Kreg Report").)

Viewing the record in the light most favorable to Mr. Anderson, the court cannot say that reasonable minds would invariably conclude that Mr. Anderson's misrepresentation of his whereabouts was material. See Onyon, 859 F.Supp. at 1341. Instead, a rational jury could conclude that a reasonable insurance company in Country Mutual's position would not attach importance to the fact misrepresented. See Ki Sin Kim, 223 P.3d at 1188-99. In particular, a jury could look at the information that Country Mutual had before it at the time of the misrepresentation, including the SFD opinion on the fire's cause, and conclude that Mr. Anderson's location was not a material fact. ( See Thielbar Dep. at 68:1-16.) Accordingly, the court denies summary judgment on the materiality of Mr. Anderson's misrepresentation of his whereabouts.[6]

D. Equitable Estoppel

Mr. Anderson moves for summary judgment on the issue of whether Country Mutual can rely on grounds for denying coverage that it did not state in its denial letter. ( See Pltf.'s Mot. at 11-18; Pltf.'s Reply at 2-9.) As a basis for barring Country Mutual from doing so Mr. Anderson asserts the doctrine of equitable estoppel.[7] ( See Pltf.'s Mot. at 11-14.) This doctrine prevents an insurer from raising grounds to support a denial of coverage that it did not assert in its denial letter if (1) the insurer knew or should have known of the additional grounds when it denied coverage, and (2) the insured demonstrates that it suffered prejudice from the insurer's failure to raise the new grounds in its initial letter. See Hayden v. Mut. of Enumclaw Ins. Co., 1 P.3d 1167, 1171 (Wash. 2000) (citing Bosko v. Pitts & Still, Inc., 454 P.2d 229, 234 (Wash. 1969)).

The parties' dispute on this issue centers on what constitutes new grounds for denying coverage. They agree that equitable estoppel may preclude an insurer from justifying its denial of coverage on the basis of a policy provision not asserted in the denial letter. (C ompare Pltf.'s Reply at 4 with Def.'s Resp. at 6-7.) They dispute, however, whether this doctrine can preclude the insurer from introducing new evidence to support denial under the provision cited in the denial letter. ( Compare Pltf.'s Reply at 4-8 with Def.'s Resp. at 6-9.) Mr. Anderson contends that the language of the opinions applying equitable estoppel is broad enough to encompass new evidence ( see Pltf.'s Reply at 4-7), while Country Mutual argues that such an interpretation of the doctrine is unprecedented and would impose an unfair sanction on insurers who continue to diligently develop a defense after litigation has begun ( see Def.'s Resp. at 7).

Precisely what evidence is in issue remains unclear from the parties' filings. Nevertheless, it is clear that the disputed evidence would support the applicability of the controlled substances and misrepresentation exclusions. ( See Denial Letter at 3-4; Def.'s Resp. at 6-7.) Accordingly, the court will discuss whether additional evidence would constitute a new ground for denial with reference to each of those exclusions.

1. Additional Misrepresentations

In its denial letter, Country Mutual stated that it was denying coverage in part under the misrepresentation exclusion. ( See Denial Letter at 3-4.) The letter explained that "Mr. Anderson misrepresented his whereabouts at the time of the loss and the identity of the person he was with at the time.... Based on Mr. Anderson's misrepresentations of material facts during the claims process there is no coverage under the applicable policy." ( Id. at 4.) The letter mentions no other alleged misrepresentations, yet Country Mutual has apparently identified additional misrepresentations. ( See, e.g., Pltf's Mot. at 14; Def.'s Mot. at 5-7.) The parties now dispute whether Country Mutual may avoid coverage by showing that Mr. Anderson made other material misrepresentations.

The court finds that each alleged material misrepresentation is an independent ground for denying coverage. Notably, "[a]n insured need only make one material misrepresentation to void all coverage under the policy." Ki Sin Kim, 223 P.3d at 1188 (citing Onyon, 859 F.Supp. at 1341). Thus, each new material misrepresentation constitutes a discrete and independently sufficient ground on which the insurer may deny coverage. See id. Moreover, another court in this district has held that an insurer claims a new basis for rejecting an insured's claim when the insured asserts misrepresentations beyond those on which it relied at the onset of litigation. See Karpenski v. Am. Gen. Life Ins. Cos., 999 F.Supp.2d 1235, 1245-46 (W.D. Wash. 2014). Country Mutual attempts to distinguish Karpenski by pointing out that Karpenski dealt with rescission of an insurance policy rather than denial of coverage based on a policy exclusion. ( See Def.'s Resp. at 7-8.) Yet Country Mutual fails to articulate why this distinction is pertinent. ( See id. )

Nevertheless, the court denies Mr. Anderson's motion. Mr. Anderson has the burden on summary judgment to show that there is no genuine dispute of material fact that Country Mutual knew or should have known of a particular misrepresentation at the time of the denial letter, and that Country Mutual's failure to raise that misrepresentation in the denial letter has prejudiced him. See Celotex, 477 U.S. at 323; Hayden, 1 P.3d at 1171. He has not met that burden. Instead, he simply references several subjects to which additional misrepresentations might relate, and two pages later describes some aspects of Country Mutual's discovery timeline. ( See Pltf.'s Mot. at 14, 16.) Without further analysis or explanation, Mr. Anderson's motion fails to show that Country Mutual knew or should have known about any particular misrepresentation when it sent the denial letter. See Hayden, 1 P.3d at 1171; Karpenski, 999 F.Supp.2d at 1245-47.

Mr. Anderson likewise fails to carry his burden of demonstrating prejudice. In his motion, Mr. Anderson contends that he initiated litigation and has prepared his case in reliance on Country Mutual's denial letter. ( See Pltf.'s Mot. at 15.) He argues that Country Mutual's failure to raise additional misrepresentations in its denial letter "has significantly prejudiced [his] ability to develop an effective litigation strategy and prepare for trial." ( Id. at 17.) Yet Mr. Anderson admits that he learned of Country Mutual's intention to rely on additional misrepresentations in discovery ( see id. at 14-15), and he does not explain why he has nevertheless had insufficient time to adapt his strategy and preparation. Indeed, Mr. Anderson provides no evidence and almost no argument to show prejudice. ( See id. at 15-18.) As such, the court finds that genuine issues of fact remain and that summary judgment is therefore inappropriate. See also Time Oil Co. v. Cigna Prop. & Cas. Ins. Co., 743 F.Supp. 1400, 1419 (W.D. Wash. 1990) (citing Bosko, 454 P.2d 229 (Wash. 1969)) (noting that, as a general matter, estoppel claims are inappropriate for summary judgment because they implicate factual issues such as whether the insured suffered actual prejudice).

2. Additional Evidence that Mr. Anderson Knew of the Operation

In addition to the misrepresentation exclusion, Country Mutual rests its denial of coverage on the controlled substances exclusion. ( See Denial Letter at 3-4.) The denial letter explains that "[t]he evidence shows that Mr. Anderson knew of the marihuana grow." ( Id. at 4.) Earlier paragraphs also cite several facts that presumably are intended to support that conclusion-namely, that Mr. Anderson admitted to visiting the House and lied about his whereabouts on the day of the fire. ( See id. at 3-4.) Beyond those facts, the letter refers only to "the evidence." ( See id. ) Mr. Anderson now seeks to preclude Country Mutual from introducing any other evidence of his knowledge, provided that Country Mutual knew or should have known of the evidence when it wrote the denial letter and that he is prejudiced by Country Mutual's failure to raise the evidence in the denial letter.[8]

The court finds that additional evidence of Mr. Anderson's knowledge does not amount to a new ground for denial in the context of equitable estoppel. Unlike an additional material misrepresentation, additional evidence of knowledge is not a discrete and sufficient basis for denying coverage. Cf. Ki Sin Kim, 223 P.3d at 1188 (noting that a single material misrepresentation is enough to preclude coverage). Instead, such evidence is merely support for a previously articulated basis. Further, the court's research has not uncovered a single case in which a court has held that an insurer is equitably estopped from presenting evidence to support its previously articulated position simply because that evidence was not mentioned in a denial letter.

The court agrees with Country Mutual that Mr. Anderson's new evidence theory of equitable estoppel would constitute an unprecedented extension of the law and would impose harsh and unfair limitations on insurers. ( See Def.'s Resp. at 7.) In effect, Mr. Anderson's theory would require insurers to exhaustively list in their denial letters every shred of evidence supporting their basis for denial lest they forfeit that evidence in subsequent litigation. As such, the court denies Mr. Anderson's motion for summary judgment insofar as it seeks to preclude Country Mutual from introducing evidence of Mr. Anderson's knowledge that does not appear in the denial letter.[9]

E. Immunity under RCW 48.50.075

Country Mutual also moves for summary judgment on the ground that under RCW 48.50.075 it enjoys immunity from Mr. Anderson's extra-contractual claims. ( See Def.'s Mot. at 14-15.) RCW 48.50.075 provides immunity from extra-contractual claims, such as bad faith, to an insurer who [1] "[i]n denying a claim... relies [2] upon a written opinion [3] from an authorized agency specifically enumerated in RCW 48.50.020(1)(a) through (g) [4] that criminal activity that is related to that claim is being investigated... and [5] that the claimant is a target of the investigation...." RCW 48.50.075. The immunity exists, however, "only so long as [6] the incident for which the claimant may be responsible is under active investigation...." Id. Country Mutual argues that the immunity applies here because in conducting its investigation and deciding to deny Mr. Anderson's claim it relied on reports from the SPD. ( See Def.'s Mot. at 15.) Country Mutual points out that the Operation was illegal and contends that Mr. Anderson was the "person of interest" in the SPD's investigation into the Operation. ( Id. )

Country Mutual's argument for RCW 48.50.075 immunity fails for multiple reasons. First, although the SPD is an authorized agency under the statute, see RCW 48.50.020(1)(c), Country Mutual admits that no written SPD opinion identifies Mr. Anderson as the target of the SPD investigation into the Operation ( see Def.'s Mot. at 15). Detective Ortiz ultimately stated that Mr. Anderson was of interest to the SPD's investigation; however, that statement came during a deposition that Country Mutual conducted over one year after it denied coverage. ( Compare Ortiz Dep. at 1, 31:13-22, 33:17-34:10 with Denial Letter at 1.) Thus, even if Detective Ortiz's deposition was in some sense a "written opinion, " a proposition that the court does not endorse, Country Mutual has not demonstrated that it relied on that opinion "[i]n denying [Mr. Anderson's] claim." RCW 48.50.075. Finally, Country Mutual offers no evidence or even argument to suggest that the SPD's investigation of the Operation was ongoing at the time Country Mutual denied coverage.

Country Mutual's assertion of RCW 48.50.075 immunity relies on a mix-andmatch approach to the immunity. According to this approach, the immunity applies where its discrete components exist even if they do not bear the required connection to one another. ( See Def.'s Mot. at 14-15.) Thus, if a police officer has an opinion that the insured was of interest to a criminal investigation, that opinion need not be in written form, and the insurer need not have actually relied on that opinion in denying coverage. ( See id. ) Country Mutual offers no support for this interpretation of RCW 48.50.075, and the court has found none. The plain language of the statute requires that in denying coverage the insurer rely upon a written opinion identifying the insured as the target of a criminal investigation. See RCW 48.50.075. Because Country Mutual fails to make such a showing, the court denies its motion for summary judgment with respect to immunity under RCW 48.50.075.

F. Evidence of Damages from Bad Faith

In addition, Country Mutual asks the court to grant it summary judgment on Mr. Anderson's bad faith claim because, according to Country Mutual, Mr. Anderson has no allegations or evidence of damages, an essential element of a bad faith claim. ( See Def.'s Mot. at 16-17.) Country Mutual is right on the law but wrong on the facts. Damages attributable to bad faith are indeed an essential element of a bad faith claim. Coventry Assocs. v. Am. States Ins. Co., 961 P.2d 933, 935-36 (Wash. 1998). Yet Mr. Anderson has made allegations and produced evidence sufficient to create a genuine issue of material fact as to whether he suffered damages from Country Mutual's alleged bad faith.

In his complaint, Mr. Anderson alleges wrongful denial of coverage amounting to bad faith and prays for compensation for "all consequential losses he has suffered or may suffer as a result of Country Mutual's breaches." ( See Compl. at 2-3.) Furthermore, Mr. Anderson provides a declaration in which he suggests that he would have retained the House had Country Mutual not denied coverage. ( See Anderson Decl. ¶ 3.) He also offers testimony from a proposed expert who asserts that Mr. Anderson has lost money by failing to retain the House and use it as a rental property. ( See Neupert Dep. at 5, 7.) In other words, Mr. Anderson has produced evidence showing that Country Mutual's alleged bad faith denial of coverage has cost him money by preventing him from retaining and renting out the House. ( See Pltf.'s Resp. at 20-21.) The court therefore finds that a genuine issue of material fact exists regarding damages attributable to bad faith, and denies summary judgment on that question.

G. Fulfillment of Contractual Obligations

Finally, Country Mutual contends that there is no genuine issue of material fact that it has fulfilled its obligations under the contract and, therefore, that Mr. Anderson has no damages for breach of contract. ( See Def.'s Mot. at 14.) This argument hinges on a provision in Mr. Anderson's policy that conditions payment of replacement costs on actual repair or replacement by the insured. ( See id.; Policy at 30.) Absent actual repair or replacement, the insured is entitled only to the ACV of the property. ( See Policy at 30.) Because Country Mutual paid the ACV to Mr. Anderson's mortgagee, Country Mutual argues that it has discharged its obligations under the policy. ( See Def.'s Mot. at 14.)

Mr. Anderson disputes Country Mutual's reasoning on several grounds ( see Pltf.'s Resp. at 18-20), but the court finds it necessary to focus on only one to resolve this aspect of Country Mutual's motion. Specifically, Mr. Anderson argues that Country Mutual cannot rely on his failure to repair or replace when its own wrongful denial of coverage prevented repair or replacement. ( See id. at 19-20.) Mr. Anderson claims that he would have kept the House and repaired or replaced it if Country Mutual had not denied coverage. ( See id. at 19; Anderson Decl. ¶ 3; Neupert Dep. at 5, 7.) Following Country Mutual's denial, however, Mr. Anderson lacked the funds to repair the House or even stay current on his mortgage. ( See Pltf.'s Mot. at 19; Anderson Decl. ¶ 3.) He ultimately sold the House to avoid foreclosure. ( See Pltf.'s Mot. at 19; Anderson Decl. ¶ 3.)

Mr. Anderson relies on three out-of-state cases to support the notion that Country Mutual cannot rely on his failure to perform the repair condition where its wrongful denial caused that failure. ( See Pltf.'s Mot. at 19-20 (citing Zaitchick v. Am. Motorists Ins. Co., 554 F.Supp. 209, 216-217 (S.D.N.Y. 1982); Rockford Mut. Ins. Co. v. Pirtle, 911 N.E.2d 60, 64-67 (Ind.Ct.App. 2009); McCahill v. Commercial Union Ins. Co., 446 N.W.2d 579, 584-85 (Mich. Ct. App. 1989)).) Country Mutual counters that such cases are "not controlling and... thus irrelevant." (Def.'s Reply at 6.)

Although the court agrees that the authority to which Mr. Anderson cites is not controlling, the court nevertheless finds it to be persuasive. All three opinions are grounded in the unremarkable proposition that an insurer cannot withhold replacement value because the insured has not actually repaired or replaced where the insured was unable to repair or replace due to the insurer's wrongful conduct. See Zaitchick, 554 F.Supp. at 216-217; Pirtle, 911 N.E.2d at 64-67; McCahil, 446 N.W.2d at 584-85. Furthermore, Washington contract law recognizes the equitable principle underlying these out-of-state cases. Under Washington law, when a party prevents the occurrence or fulfillment of a condition precedent, the condition is excused. See Highlands Plaza, Inc. v. Viking Invest. Corp., 435 P.2d 669, 676-77 (Wash. 1967); Tacoma Northpark, LLC v. NW, LLC, 96 P.3d 454, 459 n.4 (Wash.Ct.App. 2004) ("Failure to satisfy a condition precedent does not excuse the promisor's performance if the failure was the result of misconduct or fault of the promisor.").

Applying that principle to this case, the court concludes that genuine issues of material fact remain regarding whether Country Mutual has fulfilled its obligations under the contract. Mr. Anderson contends that he would have repaired or replaced the House if Country Mutual had not wrongfully denied coverage. ( See Pltf.'s Resp. at 19; Anderson Decl. ¶ 3; Neupert Dep. at 5, 7.) Although Country Mutual maintains that it properly denied coverage ( see Def.'s Mot. at 14), the court has denied Country Mutual's motion for summary judgment on that issue ( see supra Parts III.B-C, E), and thus a jury could decide that denial was improper. Country Mutual also contends that Mr. Anderson could not have repaired in any case because his mortgagee would not have allowed it. ( See Def.'s Reply at 5.) Yet Country Mutual fails to explain that contention or provide evidence to demonstrate its merit. ( See id. ) In light of Mr. Anderson's testimony and the testimony of his expert witness indicating that he would have repaired or replaced, the court finds that a genuine issue of material fact exists on this issue.[10] Consequently, the court denies summary judgment on the issue of whether Country Mutual has fulfilled its obligations under the contract.

IV. CONCLUSION

For the foregoing reasons, the court DENIES the cross-motions for summary judgment (Dkt. ## 55, 58).


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