WILLIAM MERRIMAN AND COLLEEN MERRIMAN, husband and wife, Appellants,
AMERICAN GUARANTEE & LIABILITY INSURANCE COMPANY; PARTNERS CLAIM SERVICES, INC.; BERND MOVING SYSTEMS, INC., a Washington corporation; DOUGLAS A. BERND and JANE DOE BERND; JOHN DOES 1-5, Defendants, YORK RISK SERVICES GROUP, INC., Respondent.
and Colleen Merriman brought a negligence action against Bemd
Moving Systems after a fire at Bernd's storage warehouse
destroyed over $300, 000 worth of the Merrimans'
property. When the Merrimans learned through litigation that
Bernd had substantial insurance protecting its storage
customers against property loss that had never been disclosed
by Bernd's insurer, its adjuster, or the adjuster's
local agent, they amended their complaint to assert claims
against all three companies. They also moved, successfully,
for certification of a class action. Settlements were reached
between the class and Bernd, the insurer, and the
adjuster's local agent.
settlement was reached with the adjuster, York Risk Services
Group (York), and the trial court eventually decertified the
class and granted summary judgment dismissal of the
Merrimans' claims against it. We reverse the dismissal of
the Merrimans' claims against York for insurance bad
faith, negligent misrepresentation, and non per se violations
of Washington's Consumer Protection Act
(CPA). We also reverse dismissal of the
Merrimans' negligence claim in light of York's broad
contractual claims administration undertakings, which were
intended in part to benefit insureds. Finally, having
reinstated two claims that were never decertified as class
actions, we direct the trial court to reexamine its
decertification of the negligent misrepresentation,
negligence, and non per se CPA claims.
FACTS AND PROCEDURAL BACKGROUND
August 5, 2012, a storage warehouse in Yakima owned and
operated by Bernd Moving Systems burned to the ground. In
addition to destroying the warehouse itself, the fire
destroyed Bernd's personal property and the property of
38 of its customers who stored property in the
warehouse-among them, the Merrimans.
$300, 000 worth of the Merrimans' property was destroyed
in the fire. Before placing property in storage at the Bernd
warehouse, the Merrimans had been told by Doug Bernd that
their property would be fully insured. Following the fire,
they spoke with a representative of Bernd who told them they
would be contacted by insurance representatives.
was insured by American Guarantee & Liability Insurance
Company (American Guarantee). Its commercial insurance policy
provided many types of property and liability coverage.
American Guarantee engaged York to not only adjust claims for
the Bernd warehouse fire, but to more broadly administer the
entire review, adjustment, settlement, and payment process
under a preexisting third party administrator agreement
between its parent company and York.
in turn, engaged Partners Claim Services, Inc. (Partners) to
serve as its '"boots on the ground'" for
the Bernd claims administration engagement. Br. of Resp't
at 1. It was Partners whose representatives communicated with
the Merrimans and other insurance claimants.
two days of the fire, York's field adjuster had reviewed
Bernd's insurance policy with American Guarantee and seen
that property provisions of the policy insured not only
Bernd's business personal property from loss or damage
but also covered "Personal property of others in your
care, custody and control." Clerk's Papers (CP) at
2037, 1881. The policy form went on to provide,
"[O]ur payment for loss of or damage to personal
property of others will only be for the account of the owner
of the property." Id. Blanket limits of
Bernd's business and personal property coverage were
$777, 500, and $435, 000 of coverage for property loss was
available under a commercial inland marine policy if Bernd
were found liable for the loss.
Guarantee would ultimately concede that Bernd's policy
covered the Merrimans' and other storage customers'
property loss but it never disclosed the coverage to the
Merrimans. It claimed it relied on York to perform its
"contractual job duties, " including to make
required disclosures of coverage to potential insureds. CP at
agreed that covered business personal property included
customer property stored at the warehouse, but it did not
provide a copy of the policy to Partners nor inform Partners
of coverage for those property owners. Instead, York
instructed Partners to tell property owners that Partners did
not know what Bernd's coverages were, or whether its
policy would apply to their loss. It further instructed
Partners to tell property owners they should file a claim
under their own homeowner's insurance, which might
expedite payment for their loss. During discovery, York's
CR 30(b)(6) designee admitted that in light of the limited
information it provided to Partners, no property owner could
expect to get a full explanation of the coverage provisions
in Bernd's policy.
Merriman's communications about Bernd's policy's
coverage for the Merrimans' property loss began with a
call from Liz Bowers, a Partners employee, 12 days after the
fire. In contacting property owners, Ms. Bowers informed them
she was calling on behalf of York, who was managing claims on
behalf of the insurance company. She told Mr. Merriman she
would be handling the Merrimans' claim for their property
loss. She initially told him she would send him forms for
preparing an inventory and hoped to meet with all of the
property owners and take them through the claim process.
Shortly thereafter, however, she told Mr. Merriman not to
bother with the inventory because there would most likely be
no coverage under Bernd's policy. In another, later call,
she repeated it would be a waste of time to put together an
inventory because there would likely be no coverage for the
Merrimans' goods under Bernd's policy. She left Mr.
Merriman with the impression that the couple's only
source of recovery would be through their own homeowner's
policy. Their homeowner's policy covered only $15, 000 of
learning that the warehouse fire was likely caused by a
cigarette left burning by a Bernd employee, the Merrimans
sued Bernd for negligence. Through discovery, the Merrimans
obtained a copy of Bernd's policy. They learned it
included a $3 million limit on liability coverage. But they
also learned for the first time of the earlier undisclosed
property coverage, which applied whether or not Bernd was at
fault. They amended their complaint to address the failure to
disclose the coverage, naming American Guarantee, York, and
Partners as additional defendants and framing a later
complaint as a class action. The trial court granted the
Merrimans' motion to certify a class action.
settled a couple of months after entry of the order
certifying the class action. The fairness and reasonableness
of its settlement was approved by the court.
American Guarantee conceded that Bernd's policy covered
the Merrimans' and other storage customers' property,
it, and York, have always contended that Bernd's
customers were not insureds with first party claims, but were
instead third party claimants, and that only Bernd could have
made a claim for their property losses. York also contended
that as an adjuster rather than an insurer, it could not be
sued for insurance bad faith and did not owe any of an
insurer's statutory or regulatory duties to insureds.
motions for summary judgment resulted in the dismissal of
some of the claims asserted against York-those characterized
as "insurance" claims-York moved to decertify the
class as to the remaining claims against it, arguing that
liability for those claims (negligent misrepresentation,
constructive fraud, and non per se CPA claims) were
individualized. The trial court granted the motion. York then
moved again for summary judgment of the three remaining
claims, and the court granted the motion.
Guarantee never sought decertification. Instead, it reached a
settlement with the class that the court found to be fair and
reasonable in November 2015.
Merrimans appeal dismissal of their claims against York for
insurance bad faith, negligent misrepresentation, negligence,
and violation of the CPA. They also appeal decertification of
first address a threshold issue of whether the Merrimans'
claim under the property provisions of the policy is a first
party claim by an insured or a third party claim. We then
address the dismissal of their claims for insurance bad
faith, negligent misrepresentation, negligent claims
handling, and violation (per se and non per se) of the CPA,
in the order stated. We conclude with their challenge to the
decertification of the class.
The Merrimans' claim is a first party claim, as an
of review, interpretation, and construction
resolving issues involving the interpretation of an insurance
contract, summary judgment is appropriate unless relevant
terms of the contract are ambiguous and the parties introduce
conflicting evidence to clarify the ambiguity. Nat'l
Gen. Ins. Co. v. Sherouse, 76 Wn.App. 159, 162, 882 P.2d
1207 (1995). The parties did not offer conflicting evidence
to resolve an ambiguity below; both agreed there and agree on
appeal that Bernd's policy may be interpreted and
construed as a matter of law. We review an order denying
summary judgment de novo, engaging in the same inquiry as the
trial court. Ruvalcaba v. Kwang Ho Baek, 175 Wn.2d
1, 6, 282 P.3d 1083 (2012).
contract of insurance should be given a fair, reasonable and
sensible construction, consonant with the apparent object and
intent of the parties, a construction such as would be given
the contract by the average person purchasing insurance.
Morgan v. Prudential Ins. Co. of Am., 86 Wn.2d 432,
434, 545 P.2d 1193 (1976). If the policy language is clear
and unambiguous, the court may not modify the contract or
create an ambiguity where none exists. Id. at 435.
However, where the clause in the policy is ambiguous, a
meaning and construction most favorable to the insured must
be applied, even though the insurer may have intended another
meaning. Id. (citing Glen Falls Ins. Co. v.
Vietzke, 82 Wn.2d 122, 508 P.2d 608 (1973)).
'insured' under a contract of insurance is the person
or entity that will receive a certain sum upon the happening
of a specified contingency or event." 3 Steven Plitt et
al., Couch on Insurance 3d § 40:1, at 40-3 (2016).
Black's similarly defines "insured" as
"[s]omeone who is covered or protected by an insurance
policy." Black's Law Dictionary 928 (10th ed. 2014).
insured may be named within the policy or may be identified
by description such as 'employee, ' 'dependent,
' 'resident, ' or 'member' of a
household, 'owner, ' or 'eligible
debtor.'" Plitt, supra, § 40:3, at
40-6 (footnotes omitted). If the identification of who is
insured requires interpretation and is susceptible of
different conclusions, '"the one will be adopted
most favorable to the insured; and will be liberally
construed in favor of the object to be
accomplished.'" Dennis v. Great Am. Ins.
Co., 8 Wn.App. 71, 74, 503 P.2d 1114 (1972) (quoting
Jack v. Standard Marine Ins. Co., 33 Wn.2d 265, 271,
205 P.2d 351 (1949). Careful consideration of any definition
of "insured" in the policy must be made. PLITT,
supra, §40:1, at 40-4.
is undefined by Bernd's policy for the personal property
coverage that remains at issue in this case. Bernd's
policy consists of a number of policy forms, each addressing
a particular type of coverage. Only one of the forms, the
commercial general liability coverage form, contains a
"Who is an Insured" section. See CP at
278-296, specifically at 286.
contrast, the coverage form relevant here, the building and
personal property coverage form, speaks of "Covered
Property" rather than addressing who is an
"Insured." E.g., CP at 224. Section 5 of
the form, "Coverage Extensions, " provides at
subsection (b) that Bernd "may extend the insurance that
applies to Your Business Personal Property to apply to .. .
(2) Personal property of others in your care, custody or
control, " and further states, "Our payment for
loss of or damage to personal property of others will only be
for the account of the owner of the property." CP at
230. Bernd secured such an extension of coverage, addressed
by a property basket coverage endorsement, which amended the
building and personal property coverage form as follows:
The following paragraph is added to b. Your Business Personal
Property of paragraph 1. Covered Property of section A.
Personal property of others in your care, custody and
control. However, our payment for loss of or damage to
personal property of others will only be for the account of
the owner of the property.
CP at 198.
language clearly and unambiguously includes as covered
property personal property of the Merrimans and other
customers that was in Bernd's care, custody and control
at the time of the covered loss.
statement that "our payment for loss of or damage to
personal property of others will only be for the account of
the owner of the property" also appears to clearly and
unambiguously contemplate that American Guarantee will pay
the loss to the owner of the property-unlike policy language
seen in other cases, such as "' [L]oss shall be
adjusted with the named insured for the account of
the owners of the property, '" language used in the
policy at issue in Stanley Fine Furniture, Inc. v. North
River Insurance Co., 411 So.2d 210, 211 (Fla. Dist. Ct.
App. 1982) (emphasis added).
argues, however, that one can infer from the types and limits
of coverage Bernd purchased that the building and personal
property coverage was only intended to cover the replacement
cost of Bernd's building and its own property. But the
policy covered any loss, not just a total loss, and the
endorsement modifying the covered property section of the
coverage form plainly extends coverage to property of others.
Policy limits are not required to cover all possible loss,
and Washington courts allow an insurer to "limit[ ] its
liability to a specified dollar amount" even when that
limit prevents "full compensation for insureds."
Certain Underwriters at Lloyd's, London v. Valiant
Ins. Co., 155 Wn.App. 469, 478, 229 P.3d 930 (2010).
also argues that if the Merrimans and other storage customers
were insureds, American Guarantee would owe conflicting
duties to Bernd and the other insureds, because limits of the
coverage fell short of their combined loss. But this is not a
rare occurrence, and it is addressed by case law. See,
e.g., Allstate Ins. Co. v. Ostenson, 105 Wn.2d 244, 246,
713 P.2d 733 (1986) (interpleader was used, and the court was
asked to determine whether a "per person"
limitation under policy would control over the general rule
of distributing on a pro rata basis in accordance with the
amount of damage suffered by each claimant).
next points to the loss payment section of the building and
personal property coverage form, which provides, in part,
that American Guarantee "may adjust losses with the
owners of lost or damaged property if other than you, "
and thereby satisfy "your claims against us for the
owners' property." CP at 233 (§ 4(e)). (Here,
as elsewhere, "you" and "your" mean
"Bernd, " which we substitute hereafter.) This
paragraph of the loss payment section advances York's
argument, but language elsewhere in the section undercuts its
position. Paragraph (e) allows American Guarantee to pay
other owners "their financial interest in the Covered
Property" and paragraph (d) states that the insurer
"will not pay [Bernd] more than [Bernd's] financial
interest in the Covered Property"- contradicting
York's contention that American Guarantee could pay Bernd
for both its own financial interest and whatever additional
amount (within limits) was needed to cover the financial
interests of its customers. Id. (§ 4(d)).
also points to paragraph 4(f) of the loss payment provision,
which allows American Guarantee to defend Bernd "against
suits arising from claims of owners of property."
Id. According to York, this language means that
other owners must assert claims for covered property against
Bernd. But York has never identified a legal theory the
owners could advance if Bernd was not at fault for their
property loss. As the Merrimans point out, under Bernd's
comprehensive general liability coverage, they and other
storage customers asserted viable negligence claims against
Bernd, which could be enforced against any of Bernd's
assets, including its rights to payment under other
coverages. Perhaps that is what the paragraph envisions.
American Guarantee and the Merrimans have sometimes
analogized the building and personal property coverage to
warehouseman's policies. The Merrimans have pointed to
§ 68:40 of Couch on Insurance, which states:
Where the bailee or warehouseman has effected insurance in
favor of the bailor, the latter is entitled to the proceeds
to the extent of his or her insurable interest, without
regard to whether the bailee or warehouseman procured the
policy voluntarily, or pursuant to an agreement, express or
implied, to carry insurance.... A person having possession of
goods of another may insure for the benefit of the latter
without authority, and the latter may adopt the policy so as
to recover insurance collected, in proportion to the value of
the owner's goods lost.
Reply Br. at 6 & n.5; 5 PLITT, supra, §
68:40, at 68-63. The Merrimans cite cases from other
jurisdictions supporting a bailor's right to sue the
insurer for coverage. See id.; cf. Clausen v.
Columbia Nat. Ins. Co., 1 Neb.App. 808, 816, 510 N.W.2d
399, (1993) (insurer did not challenge property owner's
right to bring third party claim under same "covered
property" provision at issue here; a directed verdict
should have been entered in favor of property owner as to the
property being within the "care, custody and
control" of named insured).
Guarantee, whose policy interpretation is embraced by York,
also raised warehouseman's insurance in the trial court,
directing the court to § 242:82 of the Couch
treatise, which explains that "[t]he bailee's policy
of insurance may be so worded that it does not give rise to
any cause of action in favor of the bailor, " and that
"where a policy contains a clause making the loss
payable to and adjustable with the bailee ... it may be
inferred that the insurer does not intend to assume a direct
liability to the owners." Report of Proceedings at 219;
17 Couch, supra, §242:82. American
Guarantee's building and ...