Them v. ManhattanLife Assurance Co. of Am.

DAVID C. THEM and KATHLEEN A. THEM, husband and wife, Plaintiff, v. MANHATTANLIFE ASSURANCE COMPANY OF AMERICA, a foreign insurance company, Defendant.

CASE NO. :19-cv-06034-RBL

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA

August 18, 2020

HONORABLE RONALD B. LEIGHTON

ORDER ON DEFENDANT'S MOTION FOR DETERMINATION OF CHOICE OF LAW

INTRODUCTION

THIS MATTER is before the Court on Defendant ManhattanLife Assurance Company of America's Motion for Determination of Choice of Law. Dkt. # 32. Plaintiffs David and Kathleen Them reside in Washington State and have sued ManhattanLife after the company refused to cover Kathleen Them's May 2, 2018 back surgery. ManhattanLife contends that the Court should apply Texas law in this dispute because it differs from Washington law on several issues and the Thems resided in Texas when their Policy was issued. The Thems oppose this conclusion, arguing that ManhattanLife identifies no actual conflicts of law and was aware that the Thems planned to move to Washington, where they continued paying premiums. Because ManhattanLife has not identified any actual conflicts requiring a choice of law determination, the Court DENIES the Motion.

BACKGROUND

In October 2017, ManhattanLife issued and delivered a Hospital Confinement and Other Fixed Indemnity Insurance Policy, Policy No. 72-486507, to the Thems that took effect on October 10, 2017. Policy, Dkt. # 35, Ex. 1, at 5. At that time, the Thems resided in Lakeway, TX. Id. at 3, 5, 41, 53; David Them Dec., Dkt. # 44, at 2. ManhattanLife is an Arkansas corporation with its principal place of business in Houston, TX. Dkt. # 3.

In addition to identifying the Thems as Texas residents, their Policy states that the insured "must be a resident of the state where the Policy is issued." Policy at 25. If the insured moves to a new state, ManhattanLife will either "replace [the] Policy with a similar fixed indemnity Policy with the form number that is issued in [the new] state" or, if the insured "move[s] to a state where [ManhattanLife] do[es] not provide insurance under a fixed indemnity Policy with the same Policy design, . . .coverage will terminate." Id. Washington State falls into the latter category. Blakey Dec., Dkt. # 33, at 2. The Policy contains references to Texas law and associations (such as the Texas Life and Health Insurance Guaranty Association), directs the insured to contact the insurer at Texas addresses, and contains the letters "TX" in the bottom left corner of every page, indicating that the Policy forms were approved by the Texas Insurance Commissioner. Id. at 7, 12, 13, 15.

The Thems obtained their Policy through Michael McAllister, an employee of Healthcare Solutions Team Insurance Broker. David Them Dec. at 1; Dkt. # 43, Ex. 6. David Them informed McCallister in September that he and his wife were moving from Texas to Washington and needed a policy that would provide coverage in both states. David Them Dec. at 1.McCallister confirmed that the Policy the Thems ultimately purchased would provide such coverage. Id. at 2. The Thems put their Texas home on the market in August 2017, purchased a new home in Washington in September, and arrived in Washington on October 29, where they have lived ever since. Id. However, the Thems apparently continued to own property in Texas and maintained their Texas phone numbers after leaving the state. Dkt. # 34, Exs. B & C.

On January 24, 2018, David Them received emergency medical care in Washington State. MahattanLife covered $250 of the $658 bill. The Explanation of Benefits (EOB) issued on March 16 was addressed to the Thems' Washington address and stated that they should direct any complaints to the Washington Office of the Insurance Commissioner Consumer Protection Division. 03/16/18 EOB, Dkt. # 43, Ex. 8. Despite this apparent knowledge of the Thems' new Washington location, ManhattanLife did not terminate the Policy and continued accepting payment of premiums.

On February 26, 2018, Kathleen Them fell during physical therapy and sustained an injury to her lower back. She underwent vertebral augmentation surgery on May 2. ManhattanLife denied coverage for this surgery on August 28 and confirmed the denial on November 27 after the Thems appealed. The Thems then filed this lawsuit alleging breach of contract, violation of the Washington Consumer Protection Act, bad faith, negligence, and violation of the Washington Insurance Fair Conduct Act (IFCA). Amended Complaint, Dkt. # 24, at 3-6.

DISCUSSION

1. Summary Judgment Standard

Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that themovant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether an issue of fact exists, the Court must view all evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Anderson Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986) (emphasis added); Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996). A genuine issue of material fact exists where there is sufficient evidence for a reasonable factfinder to find for the nonmoving party. Anderson, 477 U.S. at 248. The moving party bears the initial burden of showing there is no material factual dispute and that he or she is entitled to prevail as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the movant has met this burden, the nonmoving party then must show that there is a genuine issue for trial. Anderson, 477 U.S. at 250.

2. Choice of Law

A federal court sitting in diversity applies the choice of law principles of the forum state to determine which state's substantive law applies. Fields v. Legacy Health Sys., 413 F.3d 943, 950 (9th Cir. 2005). "'Choice of law is decided on an issue by issue basis' and it is inappropriate for a court to prospectively declare that a particular state's law applies to each and every issue in a 'case before the specific issue is identified.'"¹ Bayley Constr. v. Wausau Bus. Ins. Co., No. C12-1176-RSM, 2012 WL 12874163, at *2 (W.D. Wash. Dec. 19, 2012) (quoting Newmont USA Ltd. v. Am. Home Assurance, 676 F. Supp. 2d 1146, 1156 (E.D. Wash. 2009)). "But, where thespecific legal issues have been identified, partial summary judgment regarding choice of law is appropriate." Id.

Washington courts apply a two-step analysis to resolve disputes over choice of law. First, "there must be an actual conflict between the laws or interests of Washington and the laws or interests of another state before Washington courts will engage in a conflict of laws analysis." Erwin v. Cotter Health Centers, 161 Wash. 2d 676, 692 (2007). An actual conflict exists "[i]f the result for a particular issue is different under the law of the two states." Id. (internal quotation omitted). "[W]here laws or interests of concerned states do not conflict, the situation presents a false conflict and the presumptive local law is applied." Shanghai Commercial Bank Ltd. v. Kung Da Chang, 189 Wash. 2d 474, 481 (2017) (internal quotation omitted).

Second, if there is a conflict, Washington courts apply the "most significant relationship" test to determine which state's law to apply to the issue. Id. at 693-94. Under the most significant relationship test, the court must determine which state has the most significant relationship to the occurrence and the parties. The court applies different factors depending upon whether the cause of action is in contract or tort. See West American Ins. Co. v. MacDonald, 68 Wn. App. 191, 196 (1992). Washington courts typically follow the Restatement (Second) Conflict of Laws § 188 for contract issues where, as here, the contract contains no choice of law provision.² Potlatch 1 Fed. Credit Union v. Kennedy, 76 Wn.2d 806, 809 (1969). Washington applies the Restatement (Second) Conflict of Laws (1971) Section 145 for tort claims. Rice v. Dow Chem. Co., 124 Wn.2d 205, 213 (1994).

a. Conflicts of Law Identified by ManhattanLife

ManhattanLife points to conflicts both in the contractual and extra-contractual spheres. With respect to contract law, ManhattanLife first argues that there is a difference in how attorney fees are calculated in Washington vs. Texas. In Texas, attorney fees are "taxed as part of the costs in the case," Tex. Ins. Code §542.060(b), and therefore can be cut off by Fed. R. Civ. P. 68(d), which prohibits payment of additional costs if the insured passed up a settlement offer that turned out to be more favorable than the judgment. Washington does not treat attorney fees as costs, so Fed. R. Civ. P. 68(d) does not apply.

Second, ManhattanLife argues that Texas law differs from Washington regarding the effects of waiver and estoppel in insurance disputes. Washington has adopted the "mend the hold" doctrine, which expresses the idea that insurers cannot identify new provisions supporting a coverage denial in the midst of litigation. See Karpenski v. Am. Gen. Life Cos., LLC, 999 F.Supp.2d 1235, 1244 (W.D.Wash. 2014) (citing Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 520 (2012)). Texas has not. See Fed. Ins. Co. v. Infoglide Corp., No. A-05-CA-189-AWA, 2006 U.S. Dist. LEXIS 53734 *30, 2006 WL 2050694 (W.D.Tex. 2006). Similarly, although waiver and estoppel generally cannot operate to extend coverage beyond the policy, Washington recognizes an exception to this rule if the insurer has accepted premiums or acted in bad faith. See Estate of Hall v. HAPO Fed. Credit Union, 73 Wash. App. 359, 363-64 (1994) (citing Saunders v. Lloyd's of London, 113 Wash. 2d 330, 336 (1989)). Texas does not recognize an exception for payment of premiums. Great American Reserve Ins. Co. v. Mitchell, 335 S.W.2d 707, 708 (Tex. App. 1960). Both states, however, observe the rule that waiver and estoppel may prevent the forfeiture of a policy. Carew, Shaw & Bernasconi v. Gen. Cas. Co. of...