Filed
Washington State
Court of Appeals
Division Two
December 8, 2020
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
NATHANIEL D. CUMMING AND No. 52913-1-II
JENNIFER CUMMING, and the marital
community comprised thereof,
Appellants,
v.
UNITED SERVICES AUTOMOBILE UNPUBLISHED OPINION
ASSOCIATION, a Texas Reciprocal Inter-
Insurance Exchange and Unincorporated
Association, doing business in Washington;
Respondents,
and
BRIGHTON ENTERPRISES, INC., a
Washington Corporation; and ROSS
KOLDITZ, an individual,
Defendants.
CRUSER, J. — Nathaniel and Jennifer Cumming appeal from the trial court’s ruling vacating
the order of default entered in favor of their rental property insurance provider, United Services
Automobile Association (USAA). The Cummings also appeal from the order granting summary
judgment in favor of USAA and dismissing their breach of contract, bad faith, Insurance Fair
Conduct Act (IFCA), and Consumer Protection Act (CPA) claims.
No. 52913-1-II
The Cummings argue that (1) the trial court abused its discretion in vacating the order of
default because USAA’s failure to timely respond to their summons and complaint was not the
product of excusable neglect. The Cummings request that this court reinstate the order of default
and remand the case for further proceedings consistent with that order.
If this court affirms the order vacating default and reaches the summary judgment issue,
the Cummings argue that their breach of contract claim should not have been dismissed because
(2) USAA was equitably estopped from raising new grounds for denying coverage in its motion
for summary judgment. If this court disagrees and considers USAA’s new grounds, the Cummings
argue that a material issue of fact remains regarding (3) whether they intentionally misrepresented
the use of the property and (4) whether the loss would have been covered based on the level of
methamphetamine residue detected. The Cummings maintain that their breach of contract claim
should not have been dismissed because a (5) genuine issue of material fact remains regarding
whether their claim was covered under the vandalism provision of their policy. Finally, the
Cummings argue that (6) a material issue of fact remains, precluding summary judgment dismissal
of their bad faith, IFCA, and CPA claims because USAA failed to conduct a reasonable
investigation prior to denying coverage. The Cummings request that this court reverse the order
granting summary judgment in favor of USAA and remand the case for further proceedings.
We hold that (1) the trial court did not abuse its discretion in vacating the order of default.
We further hold that the trial court erred in dismissing the Cummings’ breach of contract claim
because (2) USAA was equitably estopped from arguing that the Cummings’ claim was not
covered based on their alleged material misrepresentation and the level of methamphetamine
contamination. In addition, we hold that the Cummings’ breach of contract claim withstands
2
No. 52913-1-II
summary judgment because (5) an issue of material fact remains regarding whether their loss was
covered under the vandalism provision of the policy. Finally, we hold that (6) the trial court
improperly dismissed the Cummings’ bad faith, CPA, and IFCA claims because a material fact
remains regarding whether USAA reasonably denied their claim.
Accordingly, we affirm the trial court’s ruling vacating the order of default, but we reverse
the trial court’s order granting summary judgment, remanding for further proceedings as to the
Cummings’ breach of contract claim, bad faith, CPA, and IFCA claims.
FACTS
I. THE CUMMINGS’ RENTAL PROPERTY
The Cummings own a house in Lacey, Washington that they use as a rental property.
Nathaniel Cumming is a Captain in the US Army on active duty, and he and his family are stationed
out of state.
In 2013, a tenant contaminated the property with methamphetamine. The Cummings
remediated the damage, installed new flooring and drywall, and painted the interior walls.
Subsequent testing did not detect the presence of methamphetamine following these efforts.
On September 29, 2015, the Cummings requested a quote for rental property insurance
from USAA. According to USAA, at that time, the Cummings confirmed that the property was
not used for farming, business, or commercial purposes. USAA issued a rental policy to the
Cummings on October 13, 2015. This policy “insure[d] against ‘sudden and accidental’ direct
physical loss to tangible property . . . unless excluded” elsewhere within the insurance contract.
Clerk’s Papers (CP) at 268.
3
No. 52913-1-II
On October 1, 2015, the Cummings entered into a contract with Vanguard Realty,
designating Vanguard as the exclusive leasing agent for their rental property. In addition to leasing
the property, Vanguard agreed to “furnish all services required for the management of property.”
Id. at 301. For example, Vanguard was authorized to make any needed repairs or alterations
required for maintenance.
Vanguard leased the Cummings’ property to Ross Kolditz for a term of two years, ending
on October 31, 2017. Kolditz used the property as an assisted living facility for his company,
Brighton Enterprises. However, the lease agreement stated that the “Property is rented as a private
residence for . . . Ross Kolditz, Jeffrey Dean.” Id. at 306. There was no information within the
lease agreement indicating that the property would be used for anything other than a private
residence for the two listed occupants. Kolditz was the only tenant to lease the property following
the Cummings’ remediation of the prior methamphetamine damage.
After the lease term ended, the Cummings asked a friend to assist them in conducting a
walk-through inspection of the property. The friend discovered damage to the flooring and walls,
including bleach stains on the carpets. The Cummings were planning on selling the home, and real
estate agents showing the property to prospective buyers reported “an odd smell in the house that
was negatively affecting their ability to sell it.” Id. at 124. Because of their prior experience in
2013, the Cummings suspected that the residents of the assisted living facility or one of the
employees may have produced methamphetamine inside the home.
The Cummings filed a claim with USAA on November 13, 2017. According to the USAA
claim notes dated November 14, 2017, the Cummings had reported to USAA that their prior tenant
used the home as an assisted living facility for disabled adults. The Cummings informed USAA
4
No. 52913-1-II
that they suspected either the residents or an employee may have produced methamphetamine
inside the home. The Cummings had also advised USAA that their former property manager was
“ineffective” and that “getting the move out inspection was a lengthy task that involved the [Better
Business Bureau].” Id. at 204.
USAA hired Bio Clean Inc. to conduct testing of the home for methamphetamine residue.
Bio Clean conducted the testing and confirmed that their swabs detected the presence of
methamphetamine residue inside the home, but that the levels were below the Washington
guidelines for required remediation. The Cummings discussed the test results with USAA but
maintained that they wanted to remediate the property because they would be required to disclose
the presence of methamphetamine to any potential buyers.
On December 18, after Bio Clean had completed its full report, USAA discussed the results
with the Cummings and confirmed that remediation was not necessary. However, the Cummings
nevertheless wanted to proceed with remediation. The Cummings explained that the home had a
smell and that there were bleach stains on the carpet, and they requested coverage for the cost of
“removal of all drywall, all finishing products, carpets flooring, duct systems [etc].” Id. at 229.
Aside from the testing done by Bio Clean, USAA did not conduct any inspection of the property
or otherwise investigate the reported damage to the floors or attempt to identify the source of the
smell.
On December 20, 2017, USAA sent the Cummings a letter denying their claim. USAA
denied the claim because the requested repairs were “due to pollutants in [the] rental property.” Id.
at 160. USAA explained that the Cummings’ policy expressly excludes coverage for “remediation
or repair of damages caused by the discharge, dispersal, seepage, migration, release or escape of
5
No. 52913-1-II
pollutants.” Id. at 160. The policy provisions USAA identified in their denial letter included the
pollutants exclusion and the provision regarding diminution in value, “meaning any reduction in
value that would remain after damaged property is repaired or replaced.” Id. at 74. No other
provisions of the policy were identified as the reason for denial. The denial letter likewise did not
separately address the claims regarding damage to flooring or the smell.
The Cummings retained an attorney who submitted an IFCA 20-day notice1 on January 30,
2018 to both USAA and to the Office of the Insurance Commissioner by certified mail. USAA
acknowledged receipt of the notice on February 26, 2018 and stated that it will address the claim
on receipt of the complaint. USAA did not provide any additional response to the IFCA 20-day
notice.
II. ORDER OF DEFAULT
The Cummings filed their complaint on March 6, 2018. In their complaint, the Cummings
acknowledged that their tenant, Kolditz, leased the property for use by Brighton Enterprises as an
assisted living facility. The Cummings alleged that USAA unreasonably denied their claim,
breached its obligations under their contract, breached its duty of good faith and fair dealing, and
violated IFCA and the CPA. The Cummings also filed claims against Kolditz and Brighton
Enterprises.2 The Cummings served the complaint on the Office of the Insurance Commissioner
1
Pursuant to RCW 48.30.015(8)(a), 20 days prior to filing an action in superior court based on
IFCA, “a first party claimant must provide written notice of the basis for the cause of action to the
insurer and office of the insurance commissioner.”
2
These defendants are not parties to this appeal.
6
No. 52913-1-II
as required by RCW 48.05.200(1), and service was accepted on March 9, 2018. USAA’s registered
agent received the complaint on March 19, 2018.
By April 20, 2018, USAA had not appeared or answered the Cummings’ complaint. The
Cummings filed a motion for entry of a default order against USAA, asserting that they properly
served the Insurance Commissioner under RCW 48.05.200(1)3 and that default was proper because
USAA had failed to respond within the allotted 40 days as provided by RCW 48.02.200(4).4 The
trial court found that USAA was properly served and failed to timely answer or appear, and it
entered an order of default on April 20, 2018.
USAA appeared in the case on April 26, 2018. USAA moved to set aside the order of
default and for leave to file its answer, explaining that its failure to timely answer the Cummings’
complaint was due to a calendaring error. Counsel for USAA stated that the error occurred because
the firm calculated the response deadline based on the date USAA’s registered agent received the
complaint rather than from the date the Insurance Commissioner was served.
The Cummings opposed USAA’s motion, asserting that the error did not constitute
excusable neglect. The Cummings argued that USAA willfully failed to respond and that its
3
RCW 48.05.200(1) provides,
Each authorized foreign or alien insurer must appoint the commissioner as its
attorney to receive service of, and upon whom must be served, all legal process
issued against it in this state upon causes of action arising within this state. Service
upon the commissioner as attorney constitutes service upon the insurer. Service of
legal process against the insurer can be had only by service upon the commissioner,
except actions upon contractor bonds pursuant to RCW 18.27.040, where service
may be upon the department of labor and industries.
4
RCW 48.02.200(4) states that “Proceedings must not be had against the person, and the person
must not be required to appear, plead, or answer until the expiration of forty days after the date of
service upon the commissioner.”
7
No. 52913-1-II
alleged calendaring error was instead inexcusable professional incompetence. The Cummings
asserted that the firm representing USAA regularly practices in insurance law and should have
known how to calculate the response deadline.
Following a hearing, the trial court vacated the order of default. The trial court explained
that because default judgments are disfavored and USAA moved quickly to resolve the issue,
USAA should have the opportunity to defend the claim on the merits. The Cummings were
awarded costs and fees for “the necessity to have to go through this process.” Verbatim Report of
Proceedings (VRP) (May 11, 2018) at 7. USAA answered the Cummings’ complaint on June 5,
2018.
III. CROSS MOTIONS FOR SUMMARY JUDGMENT
The Cummings moved for partial summary judgment on August 21, 2018. They argued
that their loss was covered under their policy because it was caused by an act of vandalism, and
that USAA’s denial of their claim relying on the pollution provision was unreasonable.
USAA responded in kind by filing its own motion for summary judgment on October 19,
2018. USAA argued that the Cummings’ claims should be dismissed as a matter of law because
(1) the Cummings failed to disclose that their property was being used as an assisted living facility,
rendering the policy void, (2) the level of methamphetamine detected in the home was too low to
trigger a duty to remediate, and (3) the amount of methamphetamine residue detected was
insufficient to constitute vandalism under that policy provision. USAA had not previously raised
any of these grounds as a reason for denying the Cummings’ insurance claim. USAA also did not
reaffirm its original justification for denying the Cummings’ claim, which pertained only to the
8
No. 52913-1-II
pollutants exclusion and to the provision excluding coverage for diminution in value following
repairs and replacements.
In their response to USAA’s claim, the Cummings argued that USAA could not raise new
grounds for denying coverage in its motion for summary judgment and that material issues of fact
existed as to the remaining arguments. The Cummings also explained that USAA’s denial was
unreasonable because USAA had failed to adequately investigate their claim.
The trial court held a hearing on both parties’ motions for summary judgment. It granted
USAA’s motion for summary judgment and denied the Cummings’ motion for partial summary
judgment, ruling that USAA reasonably denied the Cummings’ claim and that the Cummings’
breach of contract claim fails due to their misrepresentation regarding the business use of their
premises. The trial court further ruled that USAA “was not estopped from modifying its reasons
for denial.” VRP (Nov. 16, 2018) at 32. The trial court dismissed each of the Cummings’ claims.
In addition to the trial court’s ruling vacating the order of default, the Cummings also
appeal the order granting USAA’s motion for summary judgment and dismissing their claims.
DISCUSSION
I. DEFAULT ORDER
The Cummings argue that the trial court abused its discretion in vacating the default order
entered against USAA because the untimely filed answer cannot be attributed to excusable
neglect. The Cummings maintain that failure to understand the law reflects professional
incompetence rather than a good faith mistake, and responsibility for defense counsel’s errors is
necessarily imputed onto the client. The Cummings do not dispute that defense counsel and
USAA responded with due diligence upon learning that the default order had been entered.
9
No. 52913-1-II
USAA contends that it acted diligently by responding soon after it learned of the default
order, and that the good faith calendaring mistake of its attorney constitutes excusable neglect.
USAA further asserts that the Cummings were not prejudiced by its delay in responding and that
USAA had offered to compensate the Cummings for the costs and fees incurred in seeking entry
of the default.
We agree with USAA.
A. LEGAL PRINCIPLES
For an out of state insurance provider such as USAA, service of process must be made on
the insurance commissioner. RCW 48.05.200(1). Service on any other person is insufficient. Ohio
Sec. Ins. Co. v. AXIS Ins. Co., 190 Wn.2d 348, 354, 413 P.3d 1028 (2018). An insurance company
has 40 days to answer a complaint, counting from the date the complaint was served on the
insurance commissioner. RCW 48.02.200(4).
Under CR 55(a)(1), when a defendant fails to timely answer a complaint, a plaintiff may
move for default. See also CR 12(a)(4) (providing that a defendant must file an answer within the
period designated by any applicable statutes or rules). A defendant may then seek to set aside a
default order “[f]or good cause shown and upon such terms as the court deems just.” CR 55(c)(1).
If a judgment by default has been entered, then the defendant may seek to set aside the default
judgment under CR 60(b).
Different standards govern when it is appropriate to set aside a default order as opposed to
a default judgment. Sellers v. Longview Orthopedic Assocs., PLLC, 11 Wn. App. 2d 515, 519-20,
455 P.3d 166 (2019), review denied, 195 Wn.2d 1017, 461 P.3d 1201 (2020). Setting aside a
default judgment in accordance with CR 60(b) requires the moving party to show
10
No. 52913-1-II
(1) that there is substantial evidence supporting a prima facie defense; (2) that the
failure to timely appear and answer was due to mistake, inadvertence, surprise, or
excusable neglect; (3) that the defendant acted with due diligence after notice of the
default judgment; and (4) that the plaintiff will not suffer a substantial hardship if
the default judgment is vacated.
Little v. King, 160 Wn.2d 696, 703-04, 161 P.3d 345 (2007).
To establish “good cause” to set aside a default order under CR 55(c)(1), “a party may
demonstrate excusable neglect and due diligence.” In re Estate of Stevens, 94 Wn. App. 20, 30,
971 P.2d 58 (1999). This court has recently held, however, that although “excusable neglect often
will be a key factor for a trial court to consider” in setting aside a default order, “excusable neglect
is not always required.” Sellers, 11 Wn. App. 2d at 525. For example, a trial court may exercise
its discretion and find good cause to vacate a default order even if the default was caused by
defense counsel’s inexcusable neglect. Id.
Courts prefer to decide cases on their merits rather than by default, and default judgments
are generally disfavored in Washington. Griggs v. Averbeck Realty, Inc., 92 Wn.2d 576, 581, 599
P.2d 1289 (1979). Courts also consider the countervailing policy that values an “organized,
responsive, and responsible judicial system” that requires litigants to adhere to court rules. Little,
160 Wn.2d at 703. When balancing these competing policy interests, courts must ultimately be
guided by “‘whether or not justice is being done.’” Id. (internal quotation marks omitted) (quoting
Griggs, 92 Wn.2d at 582). For this reason, “this system is flexible” by design, and courts are vested
with broad discretion when deciding whether to vacate a default order or judgment. Id.; see also
Brooks v. University City, Inc., 154 Wn. App. 474, 479, 225 P.3d 489 (2010) (“The decision to
vacate an order of default is addressed to the sound discretion of the trial judge.”).
11
No. 52913-1-II
This court reviews for abuse of discretion a trial court’s decision to set aside a default order.
Sellers, 11 Wn. App. 2d at 520. “A trial court abuses its discretion when it is exercised on untenable
grounds or for untenable reasons.” Ha v. Signal Elec., Inc., 182 Wn. App. 436, 449, 332 P.3d 991
(2014). This court is less likely to determine that a trial court has abused its discretion when the
default is set aside. Id.
B. ANALYSIS
The trial court properly exercised its discretion in weighing facts beyond the reason for
delay, and its decision to vacate the default order was just and equitable. Under the less restrictive
standard for vacating a default order under CR 55(c)(1), a trial court is permitted to weigh other
factors in finding good cause to set aside the order, such as the defendant’s conduct, due diligence,
and prejudice to the plaintiff. Sellers, 11 Wn. App. 2d at 526.
The Cummings rely on Prest v. American Bankers Life Assurance Co., 79 Wn. App. 93,
99-100, 900 P.2d 595 (1995), to argue that USAA, as a sophisticated client, has a duty to ensure
that it responds to legal process and its failure to do so within the 40-day deadline was inexcusable.
In Prest, general counsel for the insurance company, who also acted as the insurance company’s
registered agent, had been reassigned to a non-legal position within the company and was out of
town when the insurance commissioner forwarded the complaint, causing the complaint to be
mislaid. 79 Wn. App. at 96, 100. This court reversed the order vacating default judgment, holding
that the insurance company’s failure to timely respond under these circumstances was neglectful
but not excusable. Id. at 100.
Prest is distinguishable. First, Prest involved a default judgment as opposed to a default
order, 79 Wn. App. at 96, and although courts are guided by the same principles in both instances,
12
No. 52913-1-II
vacating a default judgment requires a showing of excusable neglect whereas vacating a default
order does not. Sellers, 11 Wn. App. 2d at 519-20, 525. Second, the error in Prest resulted from
the defendant company’s internal organizational failure to ensure that someone was available to
respond to legal process. 79 Wn. App. at 100. Here, USAA was not at fault for the failure to timely
respond; the delay resulted from its attorney’s mistaken interpretation of the service of process
statutes. Defense counsel readily admitted that the firm was wholly responsible for the tardy filing
and that USAA was blameless.
Sellers is on point. 11 Wn. App. 2d at 525-26. There, this court held that “‘good cause’
under CR 55(c)(1) must be a flexible concept” that accounts for the facts unique to each case.
Sellers, 11 Wn. App. 2d at 525. “The trial court in the exercise of its discretion and to fashion a
fair and reasonable result may find good cause based on appropriate facts even if the default
resulted from defense counsel’s inexcusable neglect.” Id. This court held that although the trial
court found that defense counsel’s failure to timely respond was inexcusable neglect, the trial court
did not abuse its discretion when it also weighed the client’s blameless conduct, the client’s due
diligence, and the lack of prejudice to the plaintiff in determining that good cause existed to vacate
the default order. Id. at 526.
Similar to Sellers, here USAA was not at fault for the delay in answering the Cummings’
complaint. In addition, the trial court specified in its oral ruling that,
The Court does favor resolving matters on their merits, and this certainly was acted
upon quickly, and I believe, consistent with the case law, the moving party should
be granted the ability to have their client involved in this litigation, and that is the
order of the Court.
VRP (May 11, 2018) at 7. The trial court also mentioned that the result would be “less harsh”
given that the plaintiffs and plaintiffs’ counsel would be compensated “for the necessity to have to
13
No. 52913-1-II
go through this process and even this motion today to set aside the default.” Id. The trial court did
not abuse its discretion in considering these facts when it determined that good cause existed under
CR 55(c)(1) to set aside the default order, regardless of whether counsel’s mistake was excusable
or inexcusable neglect. The trial court’s decision was consistent with the well-established policy
that courts should liberally apply CR 55 and CR 60. Morin v. Burris, 160 Wn.2d 745, 754-55, 161
P.3d 956 (2007).
We hold that the trial court did not abuse its discretion in granting USAA’s motion to
vacate the order of default.
II. ORDER GRANTING SUMMARY JUDGMENT
A. STANDARD OF REVIEW
1. SUMMARY JUDGMENT STANDARD
This court reviews a trial court’s decision to grant summary judgment de novo. Specialty
Asphalt & Constr., LLC v. Lincoln County, 191 Wn.2d 182, 191, 421 P.3d 925 (2018). Summary
judgment is appropriate where there are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. CR 56(c). This court considers all facts and reasonable
inferences in the light most favorable to the nonmoving party. Allstate Ins. Co. v Raynor, 143
Wn.2d 469, 475, 21 P.3d 707 (2001).
A question of fact can be resolved as a matter of law on summary judgment “‘when
reasonable minds could reach but one conclusion.’” Owen v. Burlington N. Santa Fe R.R. Co., 153
Wn.2d 780, 788, 108 P.3d 1220 (2005) (quoting Hartley v. State, 103 Wn.2d 768, 775, 698 P.2d
77 (1985)). But where reasonable minds can differ, “the question of fact is one for the trier of fact,
and summary judgment is not appropriate.” Id.
14
No. 52913-1-II
2. POLICY INTERPRETATION
This court reviews de novo issues involving interpretation of language in an insurance
policy. Vision One, LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 512, 276 P.3d 300 (2012).
Courts construe insurance policies from the perspective of the average consumer, “giving the
language ‘a fair, reasonable, and sensible construction.’” Id. (internal quotation marks omitted)
(quoting Key Tronic Corp. v. Aetna (CIGNA) Fire Underwriters Ins. Co., 124 Wn.2d 618, 627,
881 P.2d 201 (1994)). Terms that are undefined in the policy are given their ordinary meaning. Id.
And where the policy is ambiguous, this court will construe the ambiguity against the drafter. Id.
Similarly, coverage exclusions are construed strictly against the insurer and this court “‘will not
extend [exclusions] beyond their clear and unequivocal meaning.’” Id. (alteration in original)
(quoting State Farm Fire & Cas. Co. v. Ham & Rye, LLC, 142 Wn. App. 6, 13, 174 P.3d 1175
(2007)).
B. CONTRACTUAL CLAIM
The Cummings contend that the trial court erred in dismissing their breach of contract
claim because a genuine issue of material fact remains as to whether their loss was covered under
the vandalism provision of their policy.5 The Cummings assert that USAA was equitably estopped
from arguing that their claim was not covered due to their alleged misrepresentation regarding the
5
The Cummings construe this issue as a challenge to the reasonableness of USAA’s denial of their
claim. This framing is incorrect. “Reasonableness” pertains to the bad faith, IFCA, and CPA
claims. See Shields v. Enter. Leasing Co., 139 Wn. App. 664, 676, 161 P.3d 1068 (2007); see also
RCW 48.30.015(1). But if USAA was simply wrong about whether the claim should be covered
that does not mean the denial was “unreasonable.” See Int’l Ultimate, Inc. v. St. Paul Fire &
Marine Ins. Co., 122 Wn. App. 736, 756, 87 P.3d 774 (2004). So, in spite of the Cummings’
framing this issue as a question of reasonableness, it is actually a question of whether the claim
was covered, which pertains to their breach of contract claim.
15
No. 52913-1-II
business use of their property, the fact that the level of contamination did not require remediation,
and that the level of contamination was too low to constitute vandalism, because it did not present
these grounds for denial in the initial denial letter. The Cummings maintain that even if USAA
was not estopped from raising these new grounds for denying coverage, the new grounds do not
warrant summary judgment dismissal of their breach of contract claim.
USAA responds that the Cummings’ loss was not covered and that the trial court properly
dismissed the Cummings’ claim. USAA denies that it was equitably estopped from presenting new
reasons that the Cummings’ claim was not covered in its motion for summary judgment. USAA
maintains that the breach of contract claim was properly dismissed on summary judgment because
the Cummings misrepresented the business use of their property, the policy does not cover
structures used for business purposes, the damages to the property were not sudden or accidental,
the loss was not covered because the level of methamphetamine contamination was too low to
require remediation, and because the level of contamination was too low to require remediation,
the vandalism provision of the Cummings’ policy does not apply.
The trial court erred in dismissing the Cummings’ breach of contract claim on summary
judgment. USAA was equitably estopped from arguing that the Cummings’ policy was void due
to their alleged misrepresentation, and that the loss was not covered because the level of
16
No. 52913-1-II
methamphetamine contamination was below the decontamination standard required remediation.6
However, because the Cummings argued that their loss was covered under the vandalism provision
of their policy in their motion for partial summary judgment, they were not prejudiced when USAA
responded that the levels of contamination were insufficient to constitute vandalism. Although we
consider USAA’s counterargument, we agree with the Cummings that a genuine issue of material
fact remains as to whether the Cummings’ claim was covered under the vandalism provision of
their policy.
1. EQUITABLE ESTOPPEL
a. Legal Principles
Insurers have an affirmative duty to specify the basis for denying a claim. WAC 284–30–
380; see also Vision One, 174 Wn.2d at 520 (“A provision must be asserted as a basis for denying
coverage.”). WAC 284–30–380 provides in pertinent part that,
(1) Within fifteen working days after receipt by the insurer of fully completed and
executed proofs of loss, the insurer must notify the first party claimant whether the
claim has been accepted or denied. The insurer must not deny a claim on the
grounds of a specific policy provision, condition, or exclusion unless reference to
the specific provision, condition, or exclusion is included in the denial. . . .
6
The Washington department of health is responsible for promulgating rules and standards related
to property contamination. RCW 64.44.070. When a property is “contaminated,” a public health
officer issues an order declaring the property unfit for use. RCW 64.44.030(1). Under RCW
64.44.010(2), a property is “‘[c]ontaminated’” when it is “polluted by hazardous chemicals so that
the property is unfit for human habitation or use due to immediate or long-term hazards.”
Methamphetamine is considered a “‘[h]azardous chemical[]’” when it is detected “in amounts
exceeding the decontamination standards set by the department.” RCW 64.44.010(4)(a). The
decontamination standard for methamphetamine includes amounts “less than or equal to 1.5 micro
grams per 100 square centimeters.” WAC 246-205-541(1). If a property owner has received an
order from the local public health officer declaring the property unfit for use, the property owner
must then demolish, dispose of, or decontaminate the property. RCW 64.44.050(2)(b). Here, the
level of methamphetamine contamination was below the decontamination standard, with the
highest reading showing a contamination level of 0.38 micrograms per 100 square centimeters.
17
No. 52913-1-II
(2) If a claim is denied for reasons other than those described in subsection (1) and
is made by any other means than in writing, an appropriate notation must be made
in the claim file of the insurer.
Although insurers are not expressly precluded from modifying the basis for denying a
claim, Washington courts have recognized a form of equitable estoppel that applies when an
insurer shifts its grounds for denying an insurance claim after submitting an initial denial letter.
Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 63, 1 P.3d 1167 (2000). Where “an insurer
denies liability under the policy for one reason, while having knowledge of other grounds for
denying liability, it is estopped from later raising the other grounds in an attempt to escape liability,
provided that the insured was prejudiced by the insurer’s failure to initially raise the other
grounds.” Bosko v. Pitts & Still Inc., 75 Wn.2d 856, 864, 454 P.2d 229 (1969). An insurer may
also be equitably estopped from raising new grounds for denying coverage where the insured can
demonstrate that the insurer acted in bad faith when it failed to raise all grounds for denial in its
initial letter. Hayden, 141 Wn.2d at 63.
b. Analysis
The Cummings contend that USAA was equitably estopped from asserting new reasons
that the claim was not covered for the first time in its motion for summary judgment. The
Cummings argue that USAA had all the necessary facts available to raise these grounds before it
denied their claim, and they suffered prejudice because they based their complaint, discovery
efforts, and motion for partial summary judgment on the grounds USAA presented in the denial
letter.
USAA responds that estoppel does not apply because it did not voluntarily and
intentionally waive its right to assert new grounds for denying coverage after it filed the initial
18
No. 52913-1-II
denial letter.7 USAA takes exception to the fact that the new grounds it raised in the motion for
summary judgment were truly “‘new,’” and further contends that the Cummings have failed to
demonstrate that they have suffered prejudice. Br. of Resp’t at 32. USAA asserts that there was no
prejudice because the Cummings were aware that USAA declined to remediate their property due
to the level of methamphetamine contamination.
USAA was equitably estopped from arguing that the Cummings’ claim was not covered
due to the Cummings’ alleged misrepresentation regarding the business use of their property and
the fact that the level of methamphetamine was below the standard for required remediation. We
adopt the reasoning in Karpenski v. American General Life Cos., LLC, that prejudice can occur in
the form of wasted litigation efforts expended addressing grounds for denying coverage that the
insurance company has later abandoned and replaced with new reasons for denying coverage. 999
F. Supp. 2d 1235, 1245-46 (W.D. Wash. 2014). However, USAA was not estopped from asserting
that the levels of contamination were insufficient to constitute vandalism because the Cummings
were not prejudiced when USAA raised this argument.
Following the rule announced in Bosko, USAA is equitably estopped from raising the
Cummings’ alleged failure to disclose the business use of their property and the lack of a covered
loss due to insufficient levels of contamination to support its argument that the Cummings’ claim
7
USAA argues that for equitable estoppel to apply, the Cummings are required to show that USAA
voluntarily and intentionally waived its right to later raise new grounds for denying the Cummings’
claim. However, no court analyzing equitable estoppel in this context has required an insured party
to show that the insurer knowingly and voluntarily waived its right to change the grounds for
denial, and none of the authority USAA cites supports this proposition. See Br. of Resp’t at 31
(citing Saunders v. Lloyd’s of London, 113 Wn.2d 330, 339-40, 779 P.2d 249 (1989) (holding that
the doctrines of waiver and estoppel have a different focus and must be separately analyzed) and
Specialty Surplus Ins. Co. v. Second Chance, Inc., 412 F. Supp. 2d 1152 (W.D. Wash. 2006) (an
unpublished federal case that separately analyzes equitable estoppel and waiver)).
19
No. 52913-1-II
was not covered. See 75 Wn.2d at 864. USAA was aware of the facts necessary to deny coverage
on these grounds prior to issuing the denial letter, and its failure to raise these grounds for denial
until it moved for summary judgment prejudiced the Cummings. See id.
Karpenski presents an analogous situation. 999 F. Supp. 2d at 1244-46. There, a life
insurance company voided the policy because the insured did not disclose her joint and
musculoskeletal disorders. Id. at 1244. After an extensive review period and after litigation had
commenced, the insurer argued in its motion for summary judgment that the insured made a
number of other misrepresentations distinct from those previously asserted as a basis for voiding
the policy. Id. The federal court explained that application of estoppel “precludes Defendants from
changing their grounds for rescission from those that they stood on prior to the onset of litigation.”
Id. at 1245. It also determined that the insured was “clearly prejudiced by Defendants’ shifting
grounds in that she brought her complaint on the basis of American General’s denial letter and
prepared her case with the understanding that her claim was denied solely due to alleged failure to
disclose joint or musculoskeletal disorders.” Id. at 1246.
Here, by November 14, 2017, USAA knew that the Cummings’ prior tenant operated an
assisted living facility on the insured property. In addition, Bio Clean submitted its report
describing methamphetamine contamination levels on November 22, 2017, and USAA informed
the Cummings that according to this report, the home tested below required remediation levels on
December 18, 2017.
However, in the denial letter dated December 20, 2017, USAA limited its explanation for
denying the Cummings’ claim to the fact that methamphetamine is a pollutant and damage from
pollutants is not a covered loss under the policy. USAA also stated that the policy does not provide
20
No. 52913-1-II
coverage for diminution in value after damaged property has been repaired or replaced. USAA did
not provide any other reason for denying the Cummings’ claim, and it did not cite any other policy
provisions nor mention Washington remediation guidelines.
After the Cummings submitted their 20-day IFCA notice to USAA, USAA had an
opportunity to resolve the basis of the Cummings’ action before the Cummings filed their
complaint. RCW 48.30.015. However, USAA did not take this opportunity to assert alternate
grounds justifying its denial of coverage. And in answering the Cummings’ complaint, USAA
likewise did not raise any alternative ground for denying the Cummings’ claim as an affirmative
defense.
Despite having the information necessary to deny coverage due to the Cummings’ alleged
misrepresentation or due to insufficient levels of contamination to compel remediation, USAA did
not present these bases for denying coverage until October 19, 2018, nearly 10 months after USAA
denied the Cummings’ claim and the Cummings filed a lawsuit and a motion for partial summary
judgment addressing the pollutants exclusion. In its motion for summary judgment, USAA did not
reaffirm its original position that the Cummings’ claim was not covered under the pollutants
exclusion and the provision excluding coverage for diminution in value for repaired or replaced
property.
The Cummings were prejudiced by USAA’s actions because they prepared their case
around USAA’s initial reason for denying their claim, which USAA later abandoned and
substituted with new arguments well after litigation was underway. Under Karpenski, these facts
are sufficient to demonstrate prejudice and warrant application of equitable estoppel. 999 F. Supp.
2d at 1246.
21
No. 52913-1-II
USAA contends that it did not modify its original basis for denying the Cummings’ claim
because it stated that removal and replacement of the drywall, finishing products, flooring, and
duct systems were not covered and because the Cummings were aware of the Bio Clean report and
USAA’s position that the contamination levels were too low to necessitate remediation. But this
argument is not well taken because even if the contamination levels and the necessity for
remediation factored into USAA’s decision, it did not provide this explanation in the denial letter.
It stated only that the requested repairs are not covered (as opposed to unnecessary) due to the
pollutants exclusion and that it does not cover losses arising from the diminished value of the
property following replacement or repair. But even if the level of contamination were high enough
to require remediation, the pollutants exception would have theoretically applied. These grounds
for denial are distinct. And the Cummings were prejudiced because they focused their motion for
partial summary judgment on the narrow reason provided by USAA in denying their claim, arguing
that the proximate cause of their loss was vandalism as opposed to the escape of pollutants.
However, to the extent that USAA raised the low level of contamination not as a new
ground for denying the Cummings’ claim but as a counterargument to the Cummings’ claim that
the vandalism provision applied, it was not estopped from presenting that argument for this narrow
purpose. The Cummings were not prejudiced when USAA raised this point in its motion for
summary judgment because the Cummings were the first to present the vandalism issue and should
have anticipated that USAA would deny that this coverage provision applied.
Consequently, USAA was estopped from arguing that the Cummings’ claim was not
covered due to the Cummings’ alleged material misrepresentation or due to the lack of a covered
loss based on the contamination levels.
22
No. 52913-1-II
For the same reasons, we also decline to address USAA’s arguments, raised for the first
time before this court, that the Cummings’ breach of contract claim fails because the policy does
not cover structures used for business purposes and that the loss was not “sudden and accidental”
within the meaning of the policy. Br. of Resp’t at 15-16. Not only did USAA fail to raise these
provisions in its initial denial letter despite being aware of the nature of the claimed loss and that
the Cummings’ property had been used as an assisted living facility, it also failed to raise these
argument before the trial court. USAA’s argument on summary judgment was limited to the fact
that the Cummings’ failure to disclose the business use of their property constituted a material
misrepresentation that voided the policy and that the contamination level was too low to require
remediation or to constitute vandalism.
2. COVERED LOSS UNDER THE VANDALISM PROVISION
The Cummings argue that their breach of contract claim withstands summary judgment
because a genuine issue of material fact remains as to whether their losses were covered under the
vandalism provision of the policy. However, USAA contends that the Cummings’ claim is not
covered under the vandalism provision because the amount of contamination was too low to prove
that methamphetamine was produced on the property or to require decontamination. We agree with
the Cummings that a genuine dispute of material act remains regarding whether vandalism was the
proximate cause of their loss. Accordingly, summary judgment dismissal of the Cummings’ breach
of contract claim was improper.
a. Legal Principles
To determine whether a loss is covered, “‘[t]he insured must show the loss falls within the
scope of the policy’s insured losses.’” Moeller v. Farmers Ins. Co. of Wash., 173 Wn.2d 264, 272,
23
No. 52913-1-II
267 P.3d 998 (2011) (alteration in original) (quoting McDonald v. State Farm Fire & Cas. Co.,
119 Wn.2d 724, 731, 837 P.2d 1000 (1992)). An insurer avoids coverage if the insurer can show
that the loss is excluded by specific language in the policy. Id. Any ambiguities in an exclusion
provision will be construed in favor of the insured. Id.
Courts characterize the perils contributing to the insured’s loss and determine which perils
are covered and which are excluded. Bowers v. Farmers Ins. Exch., 99 Wn. App. 41, 44, 991 P.2d
734 (2000). “Peril” is a term of art that refers to “‘fortuitous, active, physical forces’” that cause
an insured’s loss. Vision One, 174 Wn.2d at 513 (quoting Garvey v. State Farm Fire & Cas. Co.,
48 Cal. 3d 395, 406, 770 P.2d 704, 257 Cal. Rptr. 292 (1989)).
When a loss occurs as a result of two or more perils, and one peril is covered and the other
is not, the court determines which peril is the efficient or predominant cause of the loss. Bowers,
99 Wn. App. at 47-48. “It is the efficient or predominant cause which sets into motion the chain
of events producing the loss which is regarded as the proximate cause, not necessarily the last act
in a chain of events.” Graham v. Pub. Emps. Mut. Ins. Co., 98 Wn.2d 533, 538, 656 P.2d 1077
(1983). If a covered peril is the proximate cause of the loss, then the loss is covered regardless of
whether subsequent events contributing to that loss are excluded. Bowers, 99 Wn. App. at 47.
When the issue before the court concerns which peril is the proximate cause of the loss, it should
be “referred to the factfinder unless the facts are undisputed and there can be no reasonable
difference of opinion regarding their meaning.” Id. at 48.
If the proximate cause of the Cummings’ loss was vandalism, a covered peril, as opposed
to pollution, the uncovered peril on which USAA initially denied the Cummings’ claim, then
USAA is liable under the Cummings’ insurance policy, and dismissal of their breach of contract
24
No. 52913-1-II
claim was improper. See id. at 44, 47. The Cummings’ policy provides that it does not cover losses
resulting from the “discharge, dispersal, seepage, migration, release or escape of ‘pollutants.’” CP
at 271. “‘Pollutants’” as defined within the policy include solid, liquid, gaseous, or thermal irritants
or contaminants. Id. at 258. However, the Cummings’ policy does cover acts of “vandalism and
malicious mischief . . . and any ensuing loss caused by any intentional and wrongful act committed
in the course of the vandalism or malicious mischief,” unless the property has been vacant for more
than 90 consecutive days before the loss. Id. at 271.
The Cummings’ policy does not define vandalism or malicious mischief, so this court must
look to the plain meaning of these terms. Vision One, 174 Wn.2d at 512. This court has previously
defined vandalism as used in an insurance policy as “‘willful or malicious destruction or
defacement of things of beauty or of public or private property.’” Bowers, 99 Wn. App. at 45
(quoting WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 2532 (1993). This
court also defined malicious mischief as “‘willful, wanton, or reckless damage or destruction of
another’s property.’” Id. (quoting WEBSTER’S, supra, at 1367).
b. Analysis
The Cummings rely on Graff v. Allstate Insurance Co., 113 Wn. App. 799, 804, 54 P.3d
1266 (2002), to argue that methamphetamine contamination may constitute vandalism. In that
case, the insured’s tenant manufactured methamphetamine on the property but did not cause any
visible damage. Graff, 113 Wn. App. at 801. However, the City of Tacoma determined that the
house was uninhabitable due to methamphetamine residue and could not be occupied until it was
decontaminated. Id. After the insurer denied the insured’s claim because contamination was an
excluded peril under the policy, the insured sued for breach of contract, arguing that vandalism
25
No. 52913-1-II
was the proximate cause of loss. Id. at 801-03. This court held that because “[t]he tenant’s acts
were intentional, in disregard of Graff’s property interest, and the resulting damage was almost a
certainty,” the insured’s loss was covered under the vandalism provision of the policy. Id. at 806.
Vandalism, not contamination, was the proximate cause of loss, although the tenant did not cause
any visible damage to the property and the property was contaminated by emission of hazardous
chemicals before any physical repairs became necessary. Id.
USAA argues that Graff is distinguishable and that vandalism was not the cause of the
Cummings’ loss, because here, the amount of methamphetamine detected was too low to prove
that the tenant had operated a laboratory or to compel decontamination.8 This argument is without
merit. This court cannot determine, based on the amount of residue alone, that methamphetamine
was not produced on the property. In addition, neither fact was necessary to this court’s
determination in Graff that the vandalism provision applied. See 113 Wn. App. at 805-06.
Instead, the dispositive issue in Graff was whether the “tenant acted in conscious or
intentional disregard for Graff’s property rights.” Id. at 805. In Bowers, an earlier case involving
an indoor marijuana grow operation, this court similarly emphasized that vandalism is the cause
of loss if “‘the damage results from an intentional act from which damage was reasonably expected
to result.’” Bowers, 99 Wn. App. at 46 (quoting Frontier Lanes v. Canadian Indem. Co., 26 Wn.
8
USAA misconstrues language in Graff to argue that “[t]he Graff court explicitly held it was the
presence of a methamphetamine laboratory that results in coverage under the vandalism provision
of an insured’s policy because it is the act of ‘cooking or mixing’ methamphetamines that leads to
the contamination of the property.” Br. of Resp’t at 13 (citing 113 Wn. App. at 805-06). This court
did not say that coverage under the vandalism provision required evidence of cooking or mixing
methamphetamine, as USAA suggests. Rather, this court said that because the tenant’s act of
“cooking or mixing” methamphetamine came before the contamination by methamphetamine,
vandalism and not contamination was the proximate cause of loss. Graff, 113 Wn. App. at 805-06.
26
No. 52913-1-II
App. 342, 347, 613 P.2d 166 (1980)). The existence of a methamphetamine laboratory provided
evidence of an intentional, destructive act in Graff, but it was not strictly necessary for coverage
under the vandalism provision. 113 Wn. App. at 806. In addition, whether decontamination is
necessary pertains to the extent of damage, it is not determinative of whether that damage was
caused by an act that meets the definition of vandalism.
Here, methamphetamine was detected throughout the Cummings’ property. But the record
does not contain sufficient evidence regarding how the hazardous vapors were released to allow
this court to resolve, on summary judgment, whether the Cummings’ tenants acted in conscious or
intentional disregard of the Cummings’ property rights. See Graff, 99 Wn. App. at 805. If the
vandalism provision applies, it will be the proximate cause of the Cummings’ loss because the
tenants’ act necessarily preceded the pollution arising therefrom. See id. at 806. Consequently, a
material issue of fact remains as to whether the Cummings’ loss occurred as a result of a covered
peril, and their breach of contract cause of action withstands USAA’s motion for summary
judgment.
C. EXTRACONTRACTUAL CLAIMS
The Cummings argue that their bad faith, CPA, and IFCA claims withstand summary
judgment because a genuine issue of material facts remains as to whether USAA reasonably denied
their claim. The Cummings maintain that USAA’s denial was unreasonable because the insurer
did not fully and fairly investigate their claim prior to denying coverage.
In response, USAA argues that summary judgment dismissal of the Cummings’ bad faith,
CPA, and IFCA claims was proper because it reasonably denied the Cummings’ claim. USAA
27
No. 52913-1-II
contends that its investigation was reasonable and that its conduct was neither unfair nor deceptive,
defeating each of the Cummings’ extracontractual claims as a matter of law.
We agree with the Cummings that a material issue of fact remains as to whether USAA
reasonably investigated the Cummings’ claim prior to denying coverage. Therefore, summary
judgment dismissal of the Cummings’ bad faith, CPA, and IFCA claims was improper.
1. LEGAL PRINCIPLES
Insurers owe policyholders a duty to act in good faith. Smith v. Safeco Ins. Co., 150 Wn.2d
478, 484, 78 P.3d 1274 (2003). Within the insurance code, RCW 48.01.030 provides that “[t]he
business of insurance is one affected by the public interest, requiring that all persons be actuated
by good faith, abstain from deception, and practice honesty and equity in all insurance matters.”
The legislature has authorized the insurance commissioner to promulgate regulations, adopted
under chapter 284-30 WAC, that pertain to the claims-handling process. St. Paul Fire and Marine
Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 129, 196 P.3d 664 (2008) (citing RCW 48.01.010). These
regulations define specific acts or practices by an insurer that may constitute breach of the duty to
conduct its business in good faith. Am. Mfrs. Mut. Ins. Co. v. Osborn, 104 Wn. App. 686, 697, 17
P.3d 1229 (2001) (citing RCW 48.30.010; WAC 284–30–300 to –800). Whether an insurer’s
conduct amounts to bad faith is a question of fact. Smith, 150 Wn.2d at 484.
Bad faith handling of a claim gives rise to a tort cause of action. Id. In addition, a single
violation of a chapter 284-30 WAC regulation establishes a per se unfair or deceptive practice that
entitles an insured to bring a private action against an insurer under the CPA. St. Paul Fire, 165
Wn.2d at 129; see also Indus. Indem. Co. of the Nw., Inc. v. Kallevig, 114 Wn.2d 907, 921, 792
P.2d 520 (1990).
28
No. 52913-1-II
“To succeed on a bad faith claim, the policyholder must show that the insurer’s breach of
the insurance contract was unreasonable, frivolous, or unfounded.” Smith, 150 Wn.2d at 484.
Evidence of intentional bad faith or fraud is not required. Kallevig, 114 Wn.2d at 916. An insurer
has acted in bad faith if it denies coverage without a reasonable justification. Id.at 917.
To prevail on a CPA claim, “‘a plaintiff must establish five distinct elements: (1) unfair or
deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact; (4) injury
to plaintiff in his or her business or property; (5) causation.’” Perez-Crisantos v. State Farm Fire
& Cas. Co., 187 Wn.2d 669, 685, 389 P.3d 476 (2017) (quoting Hangman Ridge Training Stables,
Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531 (1986)). Identifying a violation of
WAC 284-30 satisfies the first two elements. Hayden, 141 Wn.2d at 62. The public interest
element may also be satisfied per se where an insurer has violated a statute that contains “a specific
legislative declaration of public interest impact.” Hangman Ridge, 105 Wn.2d at 791. CPA claims
alleging unfair insurance practices satisfy this requirement because in RCW 48.01.030, the
legislature has specifically declared that the “‘business of insurance is one affected by the public
interest.’” Anderson v. State Farm Mut. Ins. Co., 101 Wn. App. 323, 330, 2 P.3d 1029 (2000).
An insurer’s duty to act in good faith is separate from its duty to indemnify a covered loss.
Coventry Assocs. v Am. States Ins. Co., 136 Wn.2d 269, 279, 961 P.2d 933 (1998). Therefore, an
insured may maintain an action for bad faith and a CPA violation even if the insurer was ultimately
correct in determining that the insured’s claim was not covered. Id.
The dispositive issue in both bad faith and CPA claims is whether the insurer provided a
reasonable basis for denying coverage because a reasonable basis for denial “‘constitutes a
complete defense to any claim that the insurer acted in bad faith or in violation of the [CPA]’”
29
No. 52913-1-II
Shields v. Enter. Leasing Co., 139 Wn. App. 664, 676, 161 P.3d 1068 (2007) (quoting Dombrosky
v. Farmers Ins. Co., 84 Wn. App. 245, 260, 928 P.2d 1127 (1996)). The inverse is also true in that
if the insurer incorrectly denies coverage but its conduct was reasonable, it has not acted in bad
faith or violated the CPA. Int’l Ultimate, Inc. v. St. Paul Fire & Marine Ins. Co., 122 Wn. App.
736, 756, 87 P.3d 774 (2004); see also Roberts v. Allied Grp. Ins. Co., 79 Wn. App. 323, 326, 901
P.2d 317 (1995).
An insurer unreasonably denies a claim when it fails to undertake a good faith investigation
of the facts prior to denying coverage. Kallevig, 114 Wn.2d at 917. “[S]uspicion and conjecture,”
alone are insufficient to establish a “reasonable justification” for denying a claim. Id. Similarly,
WAC 284-30-330(4) provides that “[r]efusing to pay claims without conducting a reasonable
investigation” is an unfair or deceptive act.
IFCA provides policyholders with an additional avenue for redressing wrongfully denied
claims. Perez-Crisantos, 187 Wn.2d at 679. A “first party claimant” may recover damages under
IFCA upon a showing that the insurer has “unreasonably denied a claim for coverage or payment
of benefits.” RCW 48.30.015(1). IFCA incorporates by reference the regulations promulgated by
the insurance commissioner that direct insurers to act fairly and promptly. Perez-Crisantos, 187
Wn.2d at 678 (citing WAC 284–30–330, -350, -360, -370, -380). Although not all violations of
these regulations are actionable under IFCA, a violation of WAC 284–30–330(4) for refusing to
pay a claim without conducting a reasonable investigation could potentially be actionable. Perez-
Crisantos, 187 Wn.2d at 678.
30
No. 52913-1-II
2. ANALYSIS
The Cummings argue that a genuine issue of fact remains regarding whether USAA failed
to conduct a reasonable investigation of their claim. The Cummings contend that although they
reported a strange odor that permeated throughout their house as well stains to their carpeting,
USAA never investigated that damage prior to denying their claim. As a result, the Cummings
assert that USAA’s denial was unreasonable and that the trial court erred in dismissing their bad
faith, IFCA, and CPA claims.
USAA maintains that it reasonably denied coverage based on the investigation conducted
by Bio Clean. USAA responds that because that investigation revealed that the methamphetamine
levels were below the decontamination standard, it reasonably denied the Cummings’ request that
it cover the cost of remediation. USAA explains that it was “willing to consider and review any
additional information or evidence [the Cummings] may have had concerning the
methamphetamine residue” if the Cummings had presented it to the insurer. Br. of Resp’t at 26.
We agree with the Cummings that a genuine issue of material fact remains regarding
whether USAA failed to conduct a reasonable investigation of the Cummings’ claim. Therefore, a
genuine issue of material fact also remains with respect to whether USAA unreasonably denied
the Cummings’ claim. Consequently, summary judgment dismissal of the Cummings’ bad faith,
CPA, and IFCA claims was improper.
The record contains evidence that USAA improperly denied the Cummings’ claim based
on mere “suspicion and conjecture.” See Kallevig¸ 114 Wn.2d at 917. When the Cummings
initially filed their claim with USAA, they reported that there was “a strange smell in the house.”
CP at 203. The Cummings informed USAA of their suspicion that the smell was caused by
31
No. 52913-1-II
methamphetamine residue from a laboratory. After Bio Clean inspected the property but before
USAA denied their claim, the Cummings reported damage to their carpet from possible bleach
stains. USAA did not investigate the reported carpet damage.
USAA appears to have taken the Cummings at their word that their damage was related to
methamphetamine, and upon learning that the amount of methamphetamine was below the
decontamination standard, it denied the Cummings’ claim without further investigation. However,
the Bio Clean test did not uncover the source of the Cummings’ reported damage and was limited
to detecting the presence of methamphetamine residue. USAA never inspected the flooring, nor
did it attempt to determine, given the Bio Clean contamination results, whether the smell could
have been caused by something other than methamphetamine. There remains a question of fact
regarding USAA’s instructions to Bio Clean regarding the scope of Bio Clean’s investigation and
whether that investigation would have been sufficient to uncover the source of the Cummings’
damage. If Bio Clean only looked at habitability and the requirement to remediate under the WAC,
reasonable minds could conclude that USAA’s decision to restrict its investigation in this manner
was unreasonable and in bad faith.
By declining to further investigate the source of the Cummings’ damage, whether
methamphetamine related or not, USAA “plac[ed] the insured in the difficult position of having to
perform its insurer’s statutory and contractual obligations.” Coventry, 136 Wn.2d at 279. But the
Supreme Court has specified that the burden of fully and fairly investigating a claim belongs to
the insurer. Id. Here, to determine the source of their loss related to the odor and the stains on their
flooring, the Cummings were effectively compelled to conduct their own investigation.
32
No. 52913-1-II
The Cummings have presented sufficient evidence of USAA’s bad faith investigation of
their claim to raise a question of material fact. Consequently, summary judgment dismissal of the
Cummings’ bad faith, CPA, and IFCA claims, which each turn on whether USAA reasonably
denied their request for coverage, was improper. See Shields, 139 Wn. App. at 676; see also Perez-
Crisantos, 187 Wn.2d at 678.
ATTORNEY FEES
The Cummings request reasonable attorney fees on appeal under RAP 18.1 based on RCW
19.86.090, RCW 48.30.015, and Olympic Steamship Co. v. Centennial Insurance Co., 117 Wn.2d
37, 811 P.2d 673 (1991). However, because we remand the case for further proceedings on each
of the Cummings’ claims, the prevailing party has not yet been determined. The Cummings are
not entitled to attorney fees for this appeal.
CONCLUSION
We hold that the trial court did not abuse its discretion in vacating the order of default
based on the lack of any wrongdoing by USAA and any prejudice to the Cummings. We further
hold that the trial court erred in dismissing the Cummings’ breach of contract claim because USAA
was equitably estopped from raising new grounds for denying coverage. With respect to the breach
of contract claim, we hold that an issue of material fact remains regarding whether the Cummings’
loss was covered under the vandalism provision of their policy. Finally, we hold that the trial court
improperly dismissed the Cummings’ bad faith, CPA, and IFCA claims because a genuine issue
of material fact remains regarding whether USAA reasonably denied the Cummings’ claim.
33
No. 52913-1-II
Accordingly, we affirm the trial court’s ruling vacating the order of default but
reverse the order granting summary judgment, remanding for further proceedings on the
Cummings’ breach of contract, bad faith, CPA, and IFCA claims.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW 2.06.040,
it is so ordered.
CRUSER, J.
We concur:
WORSWICK, P.J.
MELNICK, J.
34