Leingang v. Pierce County Medical Bureau, Inc.

Sanders, J.

(dissenting in part) — I dissent from the majority opinion insofar as it reverses the trial court’s award of summary judgment to Leingang on his Consumer Protection Act (CPA) and affirms dismissal of his tortious interference with contract claims. I concur with the majority that Leingang should recover his reasonable attorney fees under Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991); however, I would also award Leingang reasonable attorney fees under the CPA.

I.

Consumer Protection Act

Washington’s Consumer Protection Act broadly provides:

Unfair methods of competition and unfair or deceptive acts *159or practices in the conduct of any trade or commerce are hereby declared unlawful.

RCW 19.86.020. The Legislature stated the purpose of the act is to complement a related body of federal law, and specifically provides "[T]his act shall be liberally construed that its beneficial purposes may be served.” RCW 19.86 .920.

RCW 19.86.090 further provides that any person injured in his or her business or property through violation of the act "or any person so injured because he or she refuses to accede to a proposal for an arrangement which, if consummated, would be in violation” of the act may bring a civil suit to recover actual damages, reasonable attorney fees, and treble damages.

The record discloses several independent bases for imposing CPA liability against Pierce County Medical (PCM). These include:

1. drafting and enforcing a contractual provision which excludes benefits to the extent they are paid under an under-insured motorist policy,
2. demanding that Leingang execute an agreement granting PCM a security interest against underinsured motorist (UIM) proceeds as a condition precedent to the receipt of medical insurance benefits, and
3. overtly interfering with Leingang’s right to recover contracted UIM payments from his first-party auto insurer, Farmers Insurance Company.

I would affirm the trial court’s CPA judgment favoring Leingang against Pierce County Medical on all three counts although any one of them would suffice to sustain the trial court. I would certainly never do as the majority has done: not only reverse Leingang’s summary judgment but actually award summary judgment to PCM to dismiss this claim.

1. PCM violated the CPA by drafting and enforcing an unlawful policy provision.

The invalid provision at issue is quoted in full on page *160138-39 of the majority opinion and essentially provides that no benefits will be provided to the extent that they are payable under any automobile UIM coverage. Clerk’s Papers (CP) at 102-03. The illegality of such an exclusion under similar facts was established as a matter of law in Brown v. Snohomish County Physicians Corp., 120 Wn.2d 747, 845 P.2d 334 (1993), which held such exclusion is inconsistent with the underinsured motorist coverage mandate codified in RCW 48.22.030.

Essentially the majority attempts to avoid the necessary legal conclusion that the CPA has been violated by claiming that the law was not well settled on this point as of the date the PCM contract was executed or enforced against its insured. To justify its result the majority crafts a hybrid rule drawn from two distinguishable lines of cases.

First, it relies on Perry v. Island Sav. & Loan Ass’n, 101 Wn.2d 795, 684 P.2d 1281 (1984) to support the broad proposition that acts performed in good faith under an arguable interpretation of existing law do not constitute unfair conduct violative of the CPA. At issue in Perry was the enforceability of a due-on-sale clause and whether a lender’s attempt to enforce the clause violated the CPA. The court held that the clause was unenforceable but that there was no CPA violation since the lender attempted to enforce it in good faith under an arguable interpretation of existing law.

However, this broad rule has never been applied to insurers who are held to a higher fiduciary standard of good faith which " 'implies more than the "honesty and lawfulness of purpose” which comprises a standard definition of good faith.’ ” McGreevy v. Oregon Mut. Ins. Co., 128 Wn.2d 26, 36, 904 P.2d 731 (1995) (quoting Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 385-86, 715 P.2d 1133 (1986)). An insurer’s fiduciary duty to act in good faith "is fairly broad and may be breached by conduct short of intentional bad faith or fraud.” Industrial Indem. Co. v. Kallevig, 114 Wn.2d 907, 916-17, 792 P.2d 520, 7 *161A.L.R.5th 1014 (1990) (citing Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wn.2d 65, 73, 659 P.2d 509 (1983) (quoting Tyler v. Grange Ins. Ass’n, 3 Wn. App. 167, 173-74, 473 P.2d 193 (1970)), adhered to as modified, 101 Wn.2d 830, 683 P.2d 186 (1984)); Whistman v. West Am., 38 Wn. App. 580, 584-85, 686 P.2d 1086 (1984); Safeco Ins. Co. of Am. v. JMG Restaurants, Inc., 37 Wn. App. 1, 11, 680 P.2d 409 (1984)). The rule announced in Perry, 101 Wn.2d 795, was never subjected to scrutiny under the higher good faith standard in the insurance context.4

Second, the majority misapplies the line of cases which support the proposition that "a denial of coverage, although incorrect, based on reasonable conduct of the insurer does not constitute an unfair trade practice.” Majority at 155. None of the cases cited by the majority dealt with the reasonableness of an insurer’s subjective opinion of the lawfulness of its actions. Rather, these cases dealt with the reasonableness of factual investigation or policy interpretation. For example, an insurer’s factual investigation of whether a particular loss is of a type covered5 or the reasonableness of the insurer’s policy interpretation.6 Since "[i]gnorance of the law [is] not excusable, although ignorance of a fact often is,” Noyes v. Parsons, 104 Wash. 594, 600, 177 P. 651 (1919), the majority incorrectly applies a mistake of fact rule to a mistake of law issue.

The majority concedes, "an insurer’s denial of coverage, *162without reasonable justification, constitutes an unfair act under the Consumer Protection Act.” Majority at 155 (citing Kallevig, 114 Wn.2d at 917). It is never "reasonable” to violate the law. Insurers have never had immunity to liability for mistakes of "arguable” law, and the policy provision at issue7 is void as a matter of law as against public policy, Brown, 120 Wn.2d 747. PCM must bear the burden of its mistakes of law. That PCM attempted to enforce the policy provision before Brown was decided is irrelevant since "there is no 'retroactive’ effect of the court’s construction of a statute; rather, once the court has determined the meaning, that is what the statute has meant since its enactment.” State v. Darden, 99 Wn.2d 675, 679, 663 P.2d 1352 (1983) (quoting Johnson v. Morris, 87 Wn.2d 922, 927-28, 557 P.2d 1299 (1976)).

2. PCM violated the CPA by frustrating Leingang’s recovery of UIM benefits.

In July 1986, after his May accident, Leingang asked his medical insurer, PCM, to pay his resulting medical bills. PCM told Leingang it would not pay any benefits unless Leingang signed a "subrogation” agreement. This agreement would not only allow PCM to proceed in subrogation against the tortfeasor but also mentioned the insurer’s expectation that its insured provide "full reimbursement” from UIM benefits, CP at 22, implying it had a right to such reimbursement. Execution of an agreement imposing upon Leingang a duty to reimburse UIM payments was not, however, required by the insurance policy as a condition precedent to payment of benefits to Leingang even if the exclusion clause was valid.8

Leingang rightfully refused. PCM paid his medical bills anyway but nevertheless contacted Leingang’s underin-*163sured motorist (UIM) carrier, Farmers, asserting PCM’s "security interest and subrogation claim” against the UIM proceeds even though the proposed agreement was refused by the insured and there was no other arguable legal basis for the claim of security.

PCM demanded from Farmers:

When this case is concluded either by way of agreed settlement between the parties, or by way of final judgment, Pierce County Medical hereby notifies you that it requires that you protect its interest in connection with this claim. Should you fail to name Pierce County Medical on your settlement draft to the extent of its interest or should you otherwise fail to protect this interest by issuing a settlement draft, Pierce County Medical will look to your office to indemnify it for any loss ....

CP at 321 (emphasis added).

Although the letter was addressed to Farmers (Leingang’s first party liability and UIM carrier) as well as Allstate (the third party liability carrier), its message to Farmers was: (1) PCM had a security interest and legal right to directly recover a portion of Leingang’s UIM benefits from Farmers and (2) if Farmers failed to directly pay PCM, or at least withhold the proceeds from Leingang, PCM would proceed directly against Farmers to recover the amount in question. PCM made up its own rules as it went along.9 As a predictable consequence of this demand, Farmers withheld all UIM payments due Lein-gang, depositing same in the registry of the court, thus preventing its own insured from enjoying the benefits of his UIM *164coverage while the litigation dragged on at considerable expense for another three years. PCM put enormous, and wrongful, financial pressure on its own insured to yield to PCM’s demands for repayment of funds previously paid notwithstanding (1) the illegal exclusion and (2) the absence of a lawful security interest in the UIM proceeds. This conduct violated the CPA.

[T]o prevail in a private CPA action ... 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.

Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780, 719 P.2d 531 (1986).

PCM’s actions were unfair and/or deceptive. First, it was unfair to enforce an unlawful policy exclusion. Second, even if the exclusion clause were not unlawful (although it was, see Brown, 120 Wn.2d 747), the contract of insurance between PCM and Leingang, while allowing for a right of subrogation against the third party tortfeasor, CP at 82, allowed no "security interest” against UIM proceeds to which the insured would otherwise be entitled from his own first party carrier.10

Had PCM refrained from interfering with the relationship between Leingang and Farmers and simply sued Leingang to recover what PCM thought he owed it, the act of seeking a judicial remedy might not have been either unfair or deceptive; however, that is not the record before us.

*165The other prongs of the CPA violation are easily established. "Trade or commerce” includes the insurance industry and the public has per se interest in the business of insurance. Hangman Ridge Training Stables, Inc., 105 Wn.2d at 791 (citing RCW 48.01.030). Leingang was damaged by PCM’s conduct, which caused a three-year delay in payment of UIM benefits from Farmers and forced him to proceed through litigation to obtain control of his own property.

In summary, PCM violated the Consumer Protection Act by (1) drafting and enforcing an unlawful policy provision; (2) conditioning payment on execution of a security interest agreement, and (3) asserting a legally unjustified security interest against Leingang’s UIM insurer, causing it to withhold policy benefits for approximately three years. I would therefore affirm the trial court insofar as it awarded summary judgment to Leingang against PCM on his Consumer Protection Act claim, award reasonable attorney fees to him under the CPA, and then consider whether the trial court appropriately applied the treble damage statute.11

II.

PCM Tortiously Interfered with Leingang’s ConTRACTURAL RELATION WITH HlS UIM INSURER, Farmers

As previously noted, the trial court dismissed Lein-gang’s claim against PCM for improperly interfering with his contractual relationship with his UIM carrier, Farmers, on summary judgment. The majority of this court affirms that dismissal.

The facts are undisputed. PCM deliberately contacted Leingang’s UIM insurer and then misrepresented that (1) it had security interest against Leingang’s UIM benefits (2) to secure performance of an invalid policy exclusion.

*166The majority erroneously affirms the dismissal of Lein-gang’s tortious interference claim by misconstruing the "improper purpose” or "improper means” element of this tort to require something akin to subjective ill will. To the contrary, our authority, the Restatement (Second) of Torts (upon which the majority relies), as well as precedent from other jurisdictions, demonstrates subjective wrongful intent is not required to establish this element.

Prior to 1989, only four elements were necessary to prove tortious interference with contract: (1) a valid contract or business expectancy; (2) knowledge of such by the defendant; (3) intentional interference causing breach of the contract or expectancy; and (4) resulting damages. Pleas v. City of Seattle, 112 Wn.2d 794, 800, 774 P.2d 1158 (1989) (citing Calbom v. Knudtzon, 65 Wn.2d 157, 162-63, 396 P.2d 148 (1964)). " '111 will, spite, defamation, fraud, force, or coercion, on the part of the interferor, [were] not essential ingredients ....’” Pleas, 112 Wn.2d at 800. This rule was not only consistent with the first Restatement but with most precedent of the time. Id. at 802.

In 1989 the Pleas court added a fifth element, requiring that the defendant interfere either for the improper purpose of harming the plaintiff or with wrongful means which in fact cause injury to plaintiff’s contractual or business relationships. Id. at 804-05. The improper objective requirement was taken from the Restatement (Second) of Torts, which included this additional element out of concern that too little was required of the plaintiff when the burden was on the defendant to prove that the interference was justified. Pleas, 112 Wn.2d at 802.

The majority’s reliance solely on the Restatement (Second) of Torts ignores the fact that the Pleas court expressly declined to require improper purpose as the exclusive means of satisfying the fifth element. Wrongful means would also satisfy the test. Pleas, 112 Wn.2d at 803-04. Pleas made clear the purpose of the new element was only to require some wrongfulness beyond the fact of the interference itself. Id. at 804. But this additional wrongful*167ness does not turn exclusively on subjective intent, although intent would suffice. "Interference can be 'wrongful’ by reason of a statute or other regulation, or a recognized rule of common law, or an established standard of trade or profession.” Id. Such reasoning is consistent with other jurisdictions that have looked to the Restatement (Second) op Torts for guidance. See, e.g., Engine Specialties, Inc. v. Bombardier Ltd., 605 F.2d 1, 19-20 (1st Cir. 1979), cert. denied, Durham Distrib. v. Bombardier Ltd., 449 U.S. 890, 101 S. Ct. 248, 66 L. Ed. 2d 116 (1980); Straube v. Larson, 287 Or. 357, 600 P.2d 371, 7 A.L.R.4th 557 (1979); Leigh Furniture & Carpet Co. v. Isom, 657 P.2d 293 (Utah 1982); see also Model Jury Instructions: Business Torts Litigation § 1.03[4][A], cmt. at 11 (2d ed.). PCM acted wrongfully when it attempted to enforce a void policy provision through a bogus claim of security entitlement. PCM’s assertion of subjective good faith is irrelevant—although I cannot see how a baseless claim of security interest can be asserted in "good faith” in any event. The "wrongful” act was violating the public policy contained in the UIM statute and asserting a security interest to which it was not entitled. This cause of action is distinct from the CPA cause of action but arises from some of the same facts.

I would, therefore, affirm the trial court’s summary judgment on the CPA claim but reverse the trial court’s dismissal of the tortious interference claims. I dissent from a majority opinion which is wrong in both respects.

The only case which has held that an insurer’s actions taken in reliance on an arguable interpretation of law does not amount to a CPA violation, Starczewski v. Unigard Ins. Group, 61 Wn. App. 267, 810 P.2d 58, review denied, 117 Wn.2d 1017, 818 P.2d 1099 (1991), is of questionable utility since the McGreevy court pronounced the higher good faith standard for insurers after Starczewski was decided. Starczewski was a Court of Appeals decision argued pro se.

Villella v. Public Employees Mut. Ins. Co., 106 Wn.2d 806, 725 P.2d 957 (1986) (insurer acted reasonably in determining that damage was from earth movement and therefore not covered under fire insurance policy); Saunders v. Lloyd’s of London, 113 Wn.2d 330, 779 P.2d 249 (1989) (insurer acted reasonably in determining that policy had expired).

Transcontinental Ins. Co. v. Washington Pub. Utils. Dists.’ Util. Sys., 111 Wn.2d 452, 470, 760 P.2d 337 (1988); Schelinski v. Midwest Mut. Ins. Co., 71 Wn. App. 783, 863 P.2d 564 (1993); Smith v. Ohio Cas. Ins. Co., 37 Wn. App. 71, 678 P.2d 829 (1984).

See Majority at 138.

PCM admitted in its summary judgment response that "subrogation case law and principles are totally inapplicable to PCM’s right to recovery of its funds from the proceeds of the UIM policy,” and further argued "PCM’s entitlement is by virtue of the exclusion pertaining to first party recovery only.” CP at 53.

In its letter of August 17,1989 to Farmers Insurance in which it gave its notice of alleged security interest/subrogation claim, PCM cited Hardware Dealers Mut. Fire Ins. Co. v. Farmers Ins. Exch., 4 Wn. App. 49, 480 P.2d 226 (1971); 16 George J. Couch, Couch on Insurance § 61:201 (2d rev. ed. 1982); and D.L. Buckner, Annotation, Rights and Remedies of Property Insurer as Against Third-Person Tortfeasor Who Has Settled With Insured, 92 A.L.R.2d 102, 124 (1963). All three deal with whether a settlement between an insured and a tortfeasor extinguishes the insurer’s subrogation right vis-a-vis the tortfeasor. Therefore, the cited authorities do not support the proposition that PCM had any claim against UIM benefits. Moreover, 16 Couch on Insurance § 45:665, at 226 (2d rev. ed. 1982) states that "since subrogation is an equitable right, it will not be granted to a collision insurer seeking to succeed to the insured’s rights under an underinsured motorist clause.”

PCM could only be "subrogated” to Leingang’s rights against the third party tortfeasor, not his own UIM insurer. See Touchet Valley Grain Growers, Inc. v. Opp & Seibold Gen. Constr., Inc., 119 Wn.2d 334, 340, 831 P.2d 724 (1992); Paulsen v. Department of Soc. & Health Servs., 78 Wn. App. 665, 668, 898 P.2d 353 (1995), review denied, 128 Wn.2d 1010, 910 P.2d 481 (1996). See also Automobile Club Inter-Ins. Exch. v. Farmers Ins. Co., 646 S.W.2d 838 (Mo. Ct. App. 1982) (insurer has no right of recovery against third party other than tortfeasor notwithstanding fact that insured had right of recovery from third party); Motors Ins. Corp. v. Surety Ins. Co., 243 S.C. 487, 134 S.E.2d 631 (1964) (same); Thaxton v. Travelers Indem. Co., 555 S.W.2d 718 (Tenn. 1977) (same); Bobbitt v. Shelby Mut. Ins. Co., 209 Va. 37, 161 S.E.2d 671 (1968) (same).

Given the majority’s resolution of the CPA claim against Leingang in favor of PCM, a discussion of the treble damage issue is unnecessary.