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Daniels v. State Farm Mutual Automobile Insurance Co.

Court of Appeals of Washington, Division 1

July 16, 2018

LAZURI DANIELS, individually, and on behalf of all those similarly situated Appellant,

          Spearman, J.

         When interpreting a term or phrase in an insurance contract, we view the term or phrase in the context of the entire contract and not in isolation. We consider the insurance policy as a whole, giving the policy a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance. Where possible, we harmonize provisions of the contract that appear to be in conflict to give effect to all of the contract's provisions. But we avoid a literal, strained or forced interpretation which could lead to absurd results. In this case, Lazuri Daniels purchased an automobile insurance policy from State Farm Mutual Automobile Insurance Company (State Farm). Under the terms of the policy, State Farm has the right to recover payments it is obligated to make, but it may only exercise that right after Daniels has been fully compensated for damage or loss. The policy also provides that Daniels pay a deductible to cover the first $500 of the loss.

         When Daniels' vehicle was damaged in a collision, she paid the deductible and State Farm paid the remaining amount of the cost to repair her car. When State Farm recovered 70 percent of the amount it paid for the repair from the tortfeasor's insurance company, it also recovered 70 percent of Daniels' deductible payment and paid it to her. Daniels contends State Farm violated the policy because it did not pay her the full amount of the deductible. She claims that before State Farm could exercise its right to recover the payments it made, the policy requires that she be "fully compensated" for her loss which she argues includes the full amount of the deductible. State Farm contends that it satisfied the policy's terms because Daniels was fully compensated when it paid the cost to repair her car. It disputes that, as that term is used in the policy, "fully compensated" includes Daniels' deductible. The trial court agreed with State Farm and dismissed Daniels' claims.

         We hold that State Farm fully compensated Daniels for her loss when it paid for the repairs of the car and properly exercised its right to recover that payment. We affirm.


         Lazuri Daniels car was damaged in a three car accident. State Farm insured her vehicle for collision coverage with a $500 deductible. Daniels paid the deductible and State Farm paid the remaining cost to repair the car.

         In subrogation, State Farm sought payment for the repairs from Geico, which insured one of the other drivers. Attributing 70 percent fault to its client, Geico agreed to pay.70 percent of the cost to repair Daniels' car. Pursuant to insurance regulation, State Farm also sought reimbursement for Daniels' deductible. It returned $350, or 70 percent, of her deductible to Daniels.

         Daniels filed a complaint asserting that State Farm violated the insurance policy by failing to fully reimburse her deductible with funds obtained in its subrogation effort against Geico. She pleaded claims for breach of contract, tort of bad faith, and conversion, and she requested class action certification.

         State Farm moved to dismiss the complaint. Meanwhile, not satisfied with the reimbursement amount from Geico, State Farm sought arbitration. The arbitrator determined that Geico's client was 100 percent at fault for the accident. State Farm recovered and gave Daniels the remaining $150 of her deductible.

         The trial court granted State Farm's motion to dismiss. Daniels appeals.


         Daniels argues that the trial court erred in dismissing her complaint. She contends that State Farm did not comply with the terms of its policy when it failed to return her full deductible before retaining money it received in subrogation.

         We review a CR 12(b)(6) dismissal de novo. FutureSelect Portfolio Mgmt., Inc. v. Tremont Grp. Holdings. Inc., 180 Wn.2d 954, 962, 331 P.3d 29 (2014). Dismissal is warranted if the court concludes beyond a doubt that "the plaintiff cannot prove any set of facts which would justify recovery." Tenore v. AT&T Wireless Services, 136 Wn.2d 322, 330, 962 P.2d 104 (1998).

         Interpretation of an insurance contract is a question of law that we also review de novo. Averill v. Farmers Ins. Co. of Wash., 155 Wn.App. 106, 118, 229 P.3d 830 (2010). Because they are generally contracts of adhesion, courts look at insurance contracts in a light most favorable to the insured. Id. (Citing Panorama Vill. Condo. Owners Ass'n Bd. of Dir. v. Allstate Ins. Co., 144Wn.2d 130, 141, 26 P.3d 910 (2001)). A 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, 545 P.2d 1193 (1976) (citing Ames v. Baker, 68 Wn.2d 713, 415 P.2d 74 (1966)). "Where possible, we harmonize clauses that seem to conflict in order to give effect to all of the contract's provisions." Kut Suen Lui v. Essex Ins., Co., 185 Wn.2d 703, 710, 375 P.3d 596 (2016). We also give the contract a practical and reasonable rather than a literal, strained or forced interpretation which would lead to an absurd conclusion. Morgan at 434. "The insurance contract must be viewed in its entirety; a phrase cannot be interpreted in isolation." Allstate Ins. Co. v. Peasley, 131 Wn.2d 420, 424, 932 P.2d 1244 (1997).

         The policy language at issue here states:

12. Our Right to Recover Our Payments
c. Underinsured Motor Vehicle Property Damage Coverage and Physical Damage Coverages
If we are obligated under this policy to make payment to or for a party who has a legal right to collect from another, then the right of recovery of such party passes to us. Such party must help us recover our payments by:
(1) keeping our right to recover our payment in trust for us and doing nothing to impair that legal right;
(2) executing any documents we may need to assert that legal right; and
(3) taking legal action through our representatives when we ask.
Our right to recover our payments applies only after the insured has been fully compensated for the bodily injury. property damage, or loss.

Clerk's Papers at 80. (Emphasis added).

         Daniels contends that the policy unambiguously conditions State Farm's right to recover its payments on Daniel's full compensation for her property loss, including her full deductible. Daniels argues that in the absence of a conflicting policy definition, the term "loss" can only mean "the total amount of the insured's damages."[1] Appellant's Reply Br. at 7. Thus, she contends that State Farm has no right to subrogation until she receives full compensation for the total amount of her loss, which would include that part of the loss covered by her deductible.

         State Farm argues that "fully compensated" means payment of the insured's property loss less the deductible. And, because it paid this amount, State Farm contends that under the policy, it is entitled to subrogation of her claims. We agree with State Farm.

         Daniels reading of the insurance contract is flawed in a number of respects. First, Daniels asserts that under the contract, State Farm has no right to seek recovery at all, unless and until its insured obtains a full refund of his or her deductible. "Whatever rights State Farm may have to recover its payments, it does not have those rights until after its insured has been fully compensated for the loss." Br. of Appellant at 15. And to the extent State Farm has a right to seek recovery, it "has no such rights until its insured receives full compensation." Id. at 17. But reading the contract to preclude State Farm's subrogation unless Daniels first obtains a full refund of her deductible leads to absurd results. Under Daniels reading of the contract, before State Farm could assert a subrogation claim against a third party, one of two things would have to occur. First, State Farm would have to refund the deductible that Daniels paid, which would make the provision requiring the payment of the deductible meaningless. Or, second, Daniels would have to obtain reimbursement from the third party on her own. And if she failed to do so for any reason, or simply chose not to, State Farm would be barred from seeking recovery of the payments it made from the responsible third party.

         In addition, Daniels' reading of the contract is inconsistent with WAC 284- 30-393, which places the burden of pursuing a refund of the insured's deductible on the insurer. Under that regulation:

The insurer must include the insured's deductible, if any, in its subrogation demands. Any recoveries must be allocated first to the insured for any deductible(s) incurred in the loss, less applicable comparable fault. Deductions for expenses must not be made from the deductible recovery unless an outside attorney is retained to collect the recovery. The deduction may then be made only as a pro rata share of the allocated loss adjustment expense... .

         The regulation recognizes that insureds often lack the resources or incentive to pursue recovery of what is very often a small amount of money. It therefore places the burden of collecting the refund on the insurer. But the regulation assumes that the insurer's ability to proceed with a subrogation claim precedes a refund of the deductible to the insured. Daniels reading of the contract does just the opposite. The logical result of her interpretation is that State Farm is either precluded from subrogating its claim and thus its ability to obtain a refund of Daniels' deductible or Daniels would have to seek the refund on her own. In either event, the purpose of the regulation would be frustrated. State Farm either was or was not entitled to exercise a subrogation right. If it was, then by Daniels' own definition, she was "fully compensated." If it wasn't, then the issue isn't how State Farm allocated the funds it received, but instead that it was subrogating its claim at all. Daniels can't have it both ways.[2]

         We conclude that the only reasonable interpretation of the term "fully compensated" as used in the insurance contract at issue in this case, does not include the amount of deductible paid by the insured. The trial court did not err in dismissing Daniels' complaint on this ground.[3]

         Daniels also argues that she stated a claim for recovery under WAC 284-30-393, which requires that a subrogating insurer also seek recovery of the insured's deductible, less applicable fault. Daniels argues that State Farm violated this provision by not reimbursing her full deductible because it was later determined by an arbitrator that she was not at fault.

         State Farm complied with WAC 284-30-393. It included Daniels' deductible with its subrogation demand and originally reimbursed her 70 percent based on Geico's initial determination that its insured was 70 percent at fault. It then fully reimbursed her when an arbitrator concluded that she was not at fault. Daniels relies on hindsight to argue that, because she was ultimately found not at fault, she should have been originally reimbursed her full deductible. But State Farm's incremental implementation of WAC 284-30-393 was reasonable and complied with the plain language of the regulation. In addition, because Daniels did not plead lack of fault in her complaint, the record does not support her argument that she had no "applicable comparable fault" at the time she was first reimbursed her deductible. The trial court did not err in finding that there was no violation.

         Amendment of Complaint

         Daniels argues that the trial court erred by denying her request that she be granted leave to amend her complaint "to address any deficiencies found by the trial court." Br. of Appellant at 27-28. The decision to grant leave to amend the pleadings is within the discretion of the trial court. Sprague v. Sumitomo Forestry Co. Ltd., 104 Wn.2d 751, 763, 709 P.2d 1200 (1985).

         Daniels does not identify in her appellate brief how she might amend her complaint. Thus, we cannot assess whether permitting amendment would cause prejudice such as "undue delay, unfair surprise, and jury confusion." Wilson v. Horsley, 137 Wn.2d 500, 505-06, 974 P.2d 316 (1999) (citing Herron v. Tribune Publ'g. Co., Inc, 108 Wn.2d 162, 165-66, 736 P.2d 249 (1987). RAP 10.3(a)(6) directs each party to supply, in its brief, "argument in support of the issues presented for review, together with citations to legal authority and references to relevant parts of the record." We do not consider conclusory arguments that are unsupported by citation to authority. Joy v. Dep't of Labor & Industries, 170 Wn.App. 614, 629, 285 P.3d 187 (2012). Therefore, we decline to consider this assignment of error.

         Attorney Fees

         Daniels seeks attorney fees under Olympic Steamship Co. Inc., v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991). Because Daniels is not the prevailing party, she is not entitled to fees under Olympic Steamship.



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