W. Beach Condo. v. Commonwealth Ins. Co. of Am.

11 Wash.App.2d 791

455 P.3d 1193

WEST BEACH CONDOMINIUM, a Washington non-profit corporation, Appellant,

v.COMMONWEALTH INSURANCE COMPANY OF AMERICA, a foreign insurance company, Respondent.

No. 79676-3-I

Court of Appeals of Washington, Division 1.

FILED: January 13, 2020

Charles K. Davis, Todd Christopher Hayes, Harper Hayes PLLC, 600 University St. Ste. 2420, Seattle, WA, 98101-1129, for Appellant.

Andrew J. Gabel, Stephania Camp Denton, Lane Powell PC, 1420 5th Ave. Ste. 4200, Seattle, WA, 98101-2375, for Respondent.

PUBLISHED OPINION

Andrus, J. ¶1 West Beach Condominium appeals the dismissal of its claim that its property insurer, Commonwealth Insurance Company of America, wrongfully denied coverage. We conclude that the one-year suit limitation clause in the Commonwealth policies precludes West Beach from suing the insurer for breach of contract but does not bar West Beach’s extra-contractual claims under the Insurance Fair Conduct Act and the Consumer Protection Act. We reverse the summary judgment in favor of Commonwealth and remand.

FACTS

¶2 West Beach is a homeowner’s association for a condominium complex in West Seattle. The 84 residential units in 3 buildings were constructed in the mid to late 1960s or early 1970s. In June 2015, West Beach retained Amento Group to conduct an assessment and intrusive investigation of the building envelope on each of the 3 buildings. Amento Group reported the results of its investigation to West Beach on September 8, 2015—documenting water damage behind the exterior cladding and building envelope.

¶3 On September 26, 2016, West Beach submitted a claim for insurance coverage to Commonwealth.¹ Included with the claim letter was an Amento Group report that detailed the discovery of, among other things, deficiencies in flashings,² weather resistant barriers, and waterproofing transitions at elevated walkways and unit decks; moisture issues at the belly band and cold joints in one building; below grade water intrusion; insufficient exhaust of moisture from unit interiors; improper flashings; moisture damaged gypsum; lack of waterproofing of deck surfaces; deteriorated metal fascia at deck edges; and the lack of head flashing at sliding glass doors.

¶4 West Beach also notified Commonwealth it had filed a lawsuit against it to preserve claims that may become time barred. The parties agreed to enter into a tolling agreement effective September 22, 2016, and West Beach dismissed its complaint without prejudice to allow Commonwealth to conduct an investigation.

¶5 Commonwealth retained an engineering consultant to perform a visual inspection of the property on November 15, 2016. In March 2017, Commonwealth denied coverage. It contended West Beach had been experiencing water intrusion issues for at least 10 years, and concluded that:

• All of the policies required suit to be commenced at least 12 months after the "occurrence" giving rise to the claim, and West Beach did not sue within that time period.

• The 2009 policy covered only direct physical loss or damage "commencing" during the policy period, and the 2010 and 2011 policies covered only direct physical loss or damage "occurring" during the policy periods. Commonwealth concluded that the losses West Beach had sustained neither commenced nor occurred during the applicable policy periods.

• The policies only covered "fortuitous risks," and none had been identified by West Beach.

• The policies did not cover faulty construction or inadequate repairs, and the Amento Group report identified numerous deficiencies that fell into this excluded category.

• The policies did not cover rust, corrosion, wear and tear, or gradual deterioration, and some of the losses fell into this excluded category.

• The policies excluded coverage for mold, bacteria, fungi, and wet or dry rot, and some of the losses fell into this excluded category.

Commonwealth also raised a number of other "potentially applicable" exclusions, including an exclusion for the settling, cracking, or expansion in foundations, and seepage of water below ground level.

¶6 In May 2017, West Beach refiled its complaint, alleging breach of contract, bad faith investigation, and Consumer Protection Act³ (CPA) violations relating to the investigation of West Beach’s claim and Commonwealth’s denial of coverage. It subsequently filed an amended complaint, adding a claim for Insurance Fair Conduct Act⁴ (IFCA) violations based on the same investigation and denial of coverage.

¶7 In December 2017, the trial court held the 2009 policy did not cover any of West Beach’s losses because the claimed damage commenced years before 2009. It also held that Commonwealth’s 2010 and 2011 all-risk policies covered damage from faulty construction, faulty maintenance, and wind-blown rain, contrary to the position Commonwealth had taken in its denial letter. It also concluded that the policies covered damage resulting from a combination of excluded and non-excluded perils. The court concluded that Commonwealth was liable for all covered damage if any of the damage occurred during the policy periods. But it found genuine issues of fact regarding the causes and timing of the claimed damages.⁵

¶8 Commonwealth then moved to dismiss West Beach’s breach of contract claim based on the "suit limitation" provision in the policies. The provision at issue required any lawsuit to be filed no later than 12 months after discovery of the loss. Commonwealth argued that West Beach had notice of its loss no later than September 8, 2015, the date Amento Group presented the results of its investigation, and West Beach did not file suit within 1 year of that date. In August 2018, the trial court granted Commonwealth’s motion and dismissed West Beach’s breach of contract claim.

¶9 That same month, as both parties prepared for trial, they filed motions for a legal ruling as to whether the suit limitation provision also barred West Beach’s IFCA and CPA claims and, if not, what damages West Beach could recover. Commonwealth argued that the suit limitation clause not only barred a breach of contract claim but it also voided its underlying coverage obligations under the 2010 and 2011 policies. It maintained that under Coventry Associates v. American States Insurance Co., 136 Wash.2d 269, 961 P.2d 933 (1998), West Beach could not use the CPA or IFCA to obtain policy coverage that otherwise did not exist.

¶10 West Beach contended the suit limitation clause did not affect Commonwealth’s obligations under the policy. It argued Coventry only addressed what damages a policyholder could recover in the absence of coverage. It asserted both IFCA and the CPA allow a policyholder to recover policy benefits when those benefits should have been paid by the insurer.

¶11 The trial court ruled that

[i]n light of [its] August 17, 2018 order granting [Commonwealth’s motion to enforce the suit limitation provisions], [West Beach] cannot establish that Commonwealth’s coverage denial was unreasonable. [West Beach] failed to allege any consequential damages proximately caused by Commonwealth’s alleged bad faith or breach of the [CPA], and it cannot seek contract damages on its extra-contractual claims.

It dismissed the bad faith, CPA, and IFCA claims with prejudice and entered judgment for Commonwealth.

¶12 West Beach sought direct review by the Supreme Court.⁶ The Supreme Court transferred the appeal to this court.

ANALYSIS

A. Standard of Review

¶13 West Beach’s claims were dismissed on pretrial dispositive motions analogous to a summary judgment. Under these circumstances, we review the trial court’s ruling de novo. Havens v. C & D Plastics, Inc., 124 Wash.2d 158, 176, 876 P.2d 435 (1994) (where trial court’s pretrial ruling had effect of dismissing cause of action, review is de novo). Moreover, the interpretation of an insurance policy is a question of law, also reviewed de novo. Woo v. Fireman’s Fund Ins. Co., 161 Wash.2d 43, 52, 164 P.3d 454 (2007). When we construe the language of an insurance policy, we give it the same construction that an average person purchasing insurance would give the policy. Id.

B. Commonwealth’s Suit Limitation Clause

¶14 Commonwealth denied West Beach’s coverage claim based on, among other reasons, the all-risk policies’ suit limitation clause:⁷

22. SUIT

No suit, action or proceeding for the recovery of any claim under this Policy shall be sustainable in any court of law or equity unless the same be commenced within Twelve (12) months next after discovery by the Insured of the occurrence which gives rise to the claim. ...

¶15 West Beach argues that even though this suit limitation clause bars it from suing Commonwealth for breach of contract, it does not discharge the insurer’s underlying coverage obligation. It contends that if Commonwealth violated IFCA and the CPA⁸ by unreasonably denying its claim for coverage or payment of benefits, then it can recover the contractual benefits Commonwealth should have otherwise paid.

¶16 IFCA provides that "[a]ny first party claimant to a policy of insurance who is unreasonably denied a claim for coverage or payment of benefits by an insurer may bring an action in the superior court of this state to recover the actual damages sustained." RCW 48.30.015(1) ; see also Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wash.2d 669, 683, 389 P.3d 476 (2017) (claimant must prove the insurer unreasonably denied a claim for coverage or the insurer unreasonably denied payment of benefits).

¶17 And to prevail under the CPA, a plaintiff must prove (1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) with a public interest impact, (4) injury to the plaintiff’s business or property, and (5) causation. Ledcor Indus. (USA), Inc. v. Mut. of Enumclaw Ins. Co., 150 Wash. App. 1, 12, 206 P.3d 1255 (2009). A denial of coverage is not an unfair or deceptive act or practice if based on reasonable conduct by the insurer, even if the denial of coverage is ultimately proved...