No, it’s not your imagination. You are not becoming paranoid. Insurance companies are denying claims they formerly paid, and for reasons that often make little sense. The arson defense, once reserved for claims where a reasonable person might actually suspect arson, is now used routinely to deny claims. This paper should help get you started in meeting and overcoming the arson defense.

A. Burden of Proof. The insurer carries the burden of proof on the arson defense. Great American Ins. v. K & W Log, 22 Wn. App. 468, 591 P.2d 457 (1979). This view is universal. See, e.g., Knights Templar & M. Life Indemnity Co. v. Berry , 50 F. 511 (8th Cir. 1892 ); Welch v. Fraternal Aid Union , 214 Mo. App. 443, 253 S.W. 187 (1923); Anderson v. General Accident Fire & Life Assur. Corp., 58 App. Div. 2d 568, 395 N.Y.S.2d 118 (1977); Travelers Indemnity v. Lee, 204 So. 2d 759 ( Fla. App. 1967); Pacific Ins. Co. v. Frank , 452 P.2d 794 (Okla. 1969); Dairy Queen of Fairbanks, Inc. v. Travelers Indemnity Co., 748 P.2d 1169 (Alaska 1988). Owner arson is an affirmative defense to coverage, so the carrier must prove the defense or pay the claim.

A circumstantial arson defense includes three elements. In S & W Properties v. American Motorists Ins. Co. , 668 So. 2d 529 (Ala. 1995), the court summarized the carrier’s burden, stating the insurer has the burden of proof and must present: (1) evidence of arson by someone, (2) motive of the insured, and (3) evidence implicating the insured (often called opportunity evidence).

A classic circumstantial arson defense was illustrated in Thomure v. Truck Ins. Exchange, 781 F.2d 141 (8^th Cir. 1986). There, the verdict for the insurer was upheld where the insurer proved that liquid accelerants had been poured throughout the house, that the insured was financially stressed, that all the insured’s property had been for sale for several years before the fire, that all three residents of the dwelling, as well as the dog, were uncharacteristically absent from the house on the night of the fire, and that the house was insured for twice its value. The court said the circumstantial evidence was sufficient because evidence of arson by someone was clear, the insured had a strong financial motive to burn the home, and the insured was implicated by his unusual behavior on the date of loss. This is the classic owner arson for profit scenario.

In Pennsylvania National Mutual Casualty Ins. Co. v. Lane, 656 So. 2d 371 (Ala. 1995), the insured homeowners sued following a house fire, and the insurer alleged that the husband had intentionally caused the fire. Id., at 372. The insureds brought a summary judgment motion, supported by the husband's affidavit stating: "I did not have anything to do with causing the fire, nor did I pay anyone or request anyone to set the fire." Id., at 373. The trial court granted summary judgment for the insured, and the insurer appealed.

The court said to establish a prima facie case of arson, the insurer must prove that:

(1) the fire was intentionally set; (2) [Mr. Lane] had a motive for committing the alleged arson; and (3) [Mr. Lane] either set the fire or had it set, which may be proved by unexplained surrounding circumstantial evidence implicating [Mr. Lane].

Id. at 373. The carrier tried to prove the motive element based on statements made in the examination under oath concerning efforts to sell the house, friction with Lane’s wife, Mr. Lane’s desire to move to Florida, and his desire to get away from his children. Id. The court found that evidence insufficient. For example, Lane stated that he hadn't seriously tried to sell the house, although it was listed, nor did the problems with his children give him a motive to burn his house. Id. at 375. The court reasoned that the usual motive for arson was financial difficulty, summarizing cases in which the insureds had been in extremely poor financial condition, with bankruptcy, collections, monthly bills in excess of income, and outstanding bad checks. In contrast there was no evidence that the Lanes had excessive debts or were otherwise in financial need. In the absence of substantial evidence on the motive element, summary judgment for the insureds was proper.

C. Speculation or Suspicion Cannot Carry The Insurer’s Burden.   Unless the insurer has facts, rather than suspicions or speculations, which are substantial enough to support a verdict in its favor, the arson defense fails. Mere speculation is insufficient to support an arson defense. Industrial Indem. Co. v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990); Safeco Ins. Co. v. JMG Restaurants, 37 Wn. App. 1, 680 P.2d 409 (1984). These cases are required reading for every lawyer who undertakes an arson case.

D. Standard of Proof: Clear, Cogent, and Convincing Evidence, Or a Mere Preponderance?   The Washington Supreme Court has not ruled for nearly a century on the issue of what standard of proof applies in insurance fraud or arson cases. The Court of Appeals, however, has said that a preponderance of evidence is the correct standard. See, e.g., St. Paul Mercury v. Salovich, 41 Wn. App. 652, 705 P.2d 812 (1985); Great American Ins. v. K & W Log, 22 Wn. App. 468, 591 P.2d 457 (1979). Old Supreme Court cases to the same effect include Bruff v. Northwestern Mut. Fire Ass'n, 59 Wash. 125, 109 P. 280 (1910), and King v. King, 83 Wash. 615, 145 P. 971 (1915). The view that a mere preponderance is sufficient to prove civil insurance fraud is at odds with a considerable body of Washington law.

Our Supreme Court has approved the more stringent view, most recently in WPI 160.02, which begins, "A party who alleges fraud has the burden of proving of it by clear, cogent and convincing evidence." By analogy, Beckett v. Social and Health Services, 87 Wn.2d 184, 550 P.2d 529 (1976), is helpful. There, our Supreme Court reviewed a welfare overpayment case. Ms. Beckett was sued civilly for recovery of the overpayment, and DSHS was required to prove welfare fraud by clear cogent and convincing evidence. The Court said:

The standard of proof in civil fraud cases, including the proceedings instituted by respondent in this case pursuant to RCW 74.04.300, is "clear, cogent, and convincing" evidence. See Hughes v. Stusser, 68 Wn.2d 707, 709, 415 P.2d 89 (1966); Baertschi v. Jordan, 68 Wn.2d 478, 483, 413 P.2d 657 (1966); Williams v. Joslin, 65 Wn.2d 696, 697, 399 P.2d 308 (1965); Bland v. Mentor, 63 Wn.2d 150, (154), 385 P.2d 727 (1963).

Beckett, 87 Wn.2d at 186, 187. See, also, Seggern v. Social and Health Services, 28 Wn. App. 332, 622 P.2d 1307 (1981). There, the Court states again that the standard of proof in civil fraud cases is clear, cogent and convincing evidence. Id., at 28 Wn. App. 334.

The application of a higher standard in civil fraud cases is neither exceptional nor unusual in Washington. See 5 Tegland, Washington Practice, Evidence, Section 63, at 150-153 for a list of areas in which the higher standard is applied. These include, among others, emancipation, fraud, an oral trust, undue influence, existence of a gift, some oral contracts, the invalidity of a will, an agreement to make mutual wills, termination of parental rights, and some aspects of legal attorney discipline cases. Good reasons exist for the use of a higher standard in each example. In a mental commitment case, the reasoning was instructive:

Where the "disutility" of an erroneous verdict includes not merely the financial loss which typifies the civil proceeding, but incorporates social stigma and loss of reputation as well, the clear, cogent, and convincing test is applied as requiring proof to a higher probability than a mere preponderance of the evidence.

In Re Levias, 83 Wn.2d 253, 256, 517 P.2d 588 (1973).

Where the insurer charges its insured with insurance fraud, it should be required to prove its case by clear, cogent and convincing evidence.

E. The Presumption Against Arson. Washington law has long recognized the presumption that a fire is accidental, unless proven otherwise. Several criminal cases illustrate the nature of and reasons for the presumption. In State v. Kindred, 16 Wn. App. 138, 553 P.2d 121 (1976), the defendant was a steelhead fisherman charged with burning an Indian fisherman's boat. The court said:

Error is next assigned to the trial court's refusal to instruct the jury on the presumption that the fire resulted from natural or accidental causes: (instruction omitted) This instruction should be given if the defendant contests the issue of the cause of the fire and there is substantial evidence that the fire was of accidental or natural causes. State v. Smith, 142 Wash. 57, 252 P. 530 (1927); State v. Williams, 9 Wn. App. 663, 513 P.2d 1045 (1973), rev'd on other grounds, 84 Wn.2d 853, 529 P.2d 1088 (1975). See also State v. Zamora, 6 Wn. App. 130, 491 P.2d 1342 (1971).

Kindred, at 141. The leading case in Washington is State v. Smith, 142 Wash. 57, 252 Pac. 530 (1927). Although the issue arose in a criminal trial, the reasoning is sound here:

It is first urged that error was committed by the trial court in refusing to give an instruction to the effect that, when a building is burned, the presumption is that the fire was caused by accident or natural causes rather than by the deliberate act of the accused. In State v. Pienick, 46 Wash. 522, 90 Pac. 645, we stated the rule to be that, "where a building is burned, the presumption is that the fire was caused by accident or natural causes rather than by the deliberate act of the accused." We there held that the evidence was insufficient to warrant a conviction. The requested instruction properly stated the law.

The theory upon which the refusal to give this instruction is sought to be upheld by counsel for the state is that, since the state offered evidence indicating the fire was of incendiary origin, the presumption falls of its own weight. But we think this argument is sound. There is always a presumption that a fire is of accidental origin, where the origin is a contested issue. In the instant case, the question of whether the fire was so set was a very serious one. There were facts relied upon by the state that it believed showed that the fire was incendiary. On the other hand, the appellant insisted just as strongly that the evidence did not establish that fact. The evidence showed two previous fires in the same building, neither of which, apparently, were incendiary. The issues were thus presented to the jury on this point. Was not the appellant entitled to the presumption that the fire was of accidental origin in a case where its origin was actually disputed?

To hold otherwise is to say that the presumption can never be available to a defendant in any case where the state seeks to show what caused the fire. Manifestly, this robs the defendant of a very vital protection in a case of this character.

The state seems to argue that this presumption is proper for the court to indulge in when it determines whether there is sufficient evidence to sustain the verdict. If this be so, then we know of no reason why the jury should not be so instructed, when they are to determine whether the evidence is sufficient to establish the origin of the fire.

Smith, at 58. In a civil setting, courts in other states have addressed the presumption. See, e.g., Garrison v. USF&G, 506 S.W.2d 87 (Miss. App. 1974); Morris v. Reed, 510.S.W.2d 234, 241 (Mo. App. 1974); Payne v. Hartford, 409 S.W.2d 591, 595 (Tex. App. 1966). In a life insurance case, the presumption against suicide is similar, and Washington courts require an instruction on the presumption. Burrier v. Mutual Life Ins. Co., 63 Wn.2d 266, 387 P.2d 58 (1963).

We nearly always file in state court. We feel most comfortable in a familiar forum. Recent developments in Federal evidence law may change that. In Daubert v. Merrell Dow Pharmaceuticals, 509 U.S. 579 (1993), the Supreme Court said that Federal Rule of Evidence 702 imposes a "gatekeeping" duty on the district court to screen the proffered testimony of a scientific expert to ensure that it is not only relevant, but reliable. Id. at 589. The Court explained that the determination of reliability:

entails a preliminary assessment of whether the reasoning or methodology underlying the testimony is scientifically valid and of whether that reasoning or methodology properly can be applied to the facts in issue.

Id. at 592-93. In 1998, the Eleventh Circuit Court of Appeals applied the Daubert analysis to uphold the exclusion of a fire investigator’s testimony in Michigan Millers Mutual Ins. Corp. v. Benfield, 140 F.3d 915 (11^th Cir. 1998). Mrs. Benfield sued her insurance company, seeking damages caused by a fire at her home. The insurance company counterclaimed, alleging owner arson.

Michigan Millers relied upon the expert testimony of Mr. Buckley, a fire investigator who had concluded that the fire was intentionally set because he claimed to have ruled out all possible accidental sources of ignition. In upholding the District Court’s decision to exclude Buckley’s testimony as unreliable, the Court of Appeals wrote:

Buckley stated at trial that he came to his opinion that the fire was intentionally set by eliminating all accidental causes, and by determining that, given that the fire began on the dining room table, there were no other sources of ignition of the fire. Essentially, the testimony of Buckley reveals that he came to his opinion that the fire was incindiary largely because he was unable to identify the source of the fire. . . . Buckley was . . . unable to describe the methodology by which he eliminated the chandelier as a possible ignition source for the fire.

Id. at 921.

The Court’s decision in Benfield is significant because it cast serious doubt on the validity of a methodology sometimes used in the fire investigation field called "negative corpus" or "arson by default." This method of analysis admits that the investigator does not know the cause of the fire, and concludes the fire must be arson, since no accidental cause can be proven.

Since the Daubert-Benfield analysis has not been adopted in Washington, cases depending on questionable insurer experts are better filed in Federal court.

B. Removal to Federal Court: If more than $75,000 is at issue, and you have a foreign insurer as defendant, you may elect Federal court. Although this is the favored forum for defendants, few plaintiff lawyers elect a Federal forum. You are more apt to see Federal court after the insurer removes the case.

Removal is available to a defendant who resides in a state other than Washington. 28 U.S.C. § 1332 to 1352 provide that a civil case is removable if there is more than $75,000 at issue, complete diversity of parties (all plaintiffs are citizens of diverse states from all defendants), and the case is removed within 30 days of notice to defendant that it is removable.

Removal can be defeated if citizens of the same state appear on both sides of the case. Thus, if the insured plaintiff is a citizen of Washington, and the carrier defendant is a citizen of Oregon, the case is removable. If, however, an adjuster, agent, or other entity who resides in Washington is a co-defendant, the case is not removable. See, Williams v. LaFayette Ins., 640 F. Supp. 686 (N.D. Miss. 1986), for a discussion of adjuster as defendant issues.

Adding a Washington resident as defendant simply to prevent removal is seldom wise. If the court finds the additional defendant was sued only to prevent removal, plaintiff’s position may be in jeopardy, as well as counsel’s pocketbook. On the other hand, if you have a valid claim against an agent of the insurer, you may wish to add the agent as a defendant.

C. Removal Phobia: Most plaintiff’s lawyers suffer from removal phobia, a disease characterized by rapid heartbeat and queasy stomach. The symptoms come on when the removal pleadings are served. Federal court is an unknown – a vast wasteland of unfamiliar rules and inflexible people. Won’t it involve a lot of extra work? How can we possibly be successful there?

But consider some advantages to Federal court:

A. Early trial dates, often within a year of filing.

B. Available courtrooms when the trial date arrives.

C. No oral argument on most motions. (I always take a Friday afternoon off and go fishing, just to take full advantage of this one).

D. Longer briefing periods for motions.

E. Good judges willing to read your brief and research the issues.

F. Good judges willing to levy terms against defense lawyers who avoid discovery or other duties.

G. Small jury (often seven or eight jurors) unafraid to award large sums. ("It’s a Federal case, after all").

Against these, balance the disadvantages of a Federal forum:

A. Unfamiliar territory.

B. Some of the judges are conservative (just like in state court).

The message is clear. If your case is removed, don’t worry about it. Put the local rules in the bathroom, and read those instead of the jokes in the Bar News. You’ll do just fine in Federal court.

How many trials? Usually, the carrier will move to bifurcate coverage and bad faith issues, pursuant to CR 42(b), which provides:

The court, in furtherance of convenience or to avoid prejudice, or when separate trials will be conducive to expedition and economy, may order a separate trial of any claim, cross claim, counterclaim, or third party claim, or of any separate issue . . . always preserving inviolate the right to trial by jury.

No firm rules govern bifurcation of insurance coverage and bad faith claims. The trial court may exercise its discretion in resolving this issue. Coggle v. Snow, 56 Wn. App. 499, 507, 784 P.2d 554 (1990). In some cases, courts have tried coverage actions and bad faith claims together. See, e.g., Mutual of Enumclaw v. Cox, 110 Wn.2d 643, 757 P.2d 499 (1988); Industrial Indemnity v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990). In other cases, courts have tried the issues separately. See, e.g., Safeco Ins. Co. v. JMG Restaurants, 37 Wn. App. 1, 680 P.2d 409 (1984). Generally, courts handle the issue of bifurcation on a case by case basis.

The carrier must prove prejudice from a consolidated trial, not an easy task. Most carriers try to argue that prejudice should be presumed, or that it just stands to reason that prejudice will result from a consolidated trial. You win if you argue that the carrier must show actual prejudice. Absent some specific item of evidence that would prejudice the jury against the insurer, why bifurcate?

Bifurcation can be a great time-waster. Federal cases applying FRCP 42 encourage consolidation of cases, e.g., Weitort v. A.H. Bull Co., 192 F. Supp. 165 (Pa. 1961), and consistently hold that courts should not order separate, piecemeal trial of issues, except to avoid delay, undue expense, prejudice to the parties or injustice. Zenith Radio Corp. v. Radio Corp. of America, 106 F. Supp. 561 (Del. 1952). As Moore says:

. . . a single trial generally tends to lessen the delay, expense and inconvenience to all concerned, and the courts have emphasized that separate trials should not be ordered unless such a disposition is clearly necessary.

Moore's Federal Practice, vol. v, § 42.03(1). Our Supreme Court characterizes CR 42(b) as follows:

This rule, as its language indicates, vests the trial court with discretionary power to order a separate submission of issues in a trial of any claim for relief. It is not, however, a rule that calls for or properly lends itself to a liberal or indiscriminate application. It should be carefully and cautiously applied and be utilized only in a case and at a juncture where informed judgment impels the court to conclude that application of the rule will manifestly promote convenience and/or actually avoid prejudice. Piecemeal litigation is not to be encouraged.

Brown v. General Motors Corp., 67 Wn. 2d 278, 282, 407 P.2d 461 (1965). See also, Maki v. Aluminum Bldg. Prods., 73 Wn.2d 23, 25, 436 P.2d 186 (1968) (courts should not liberally apply bifurcation.).

All this makes bifurcation sound like evil incarnate. It can, however, be the plaintiff’s best friend. The trouble with consolidation is that some judges will allow almost anything into evidence. Rumors, hearsay statements, and the suspicions of ex-spouses should not be admissible in any circumstance, yet bad faith cases feed on them. If some piece of potential evidence in the bad faith claim can poison the well, plaintiff should move for bifurcation. And, as with removal, don’t assume bifurcation is a bad thing just because the insurer moves for it. Consider the options, and act accordingly.

Two Washington cases deal directly with bad faith and the arson defense, Safeco Ins. Co. v. JMG Restaurants, 37 Wn. App. 1, 680 P.2d 409 (1984), and Industrial Indem. Co. v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990). In each, the issue was whether the insurer's investigation supported the denial – whether it was reasonable to deny under the facts as developed by the insurer. JMG was based on a claim adjusted prior to the effective date of the Unfair Claims Settlement Practices Regulations. Kallevig dealt directly with the Regulations, and also analyzed the common law bad faith claim of unreasonable denial.

The insurer will argue that its denial was not frivolous, thus made in good faith. Some early cases support that view; they have been overruled. The proper inquiry in a denial of benefits case is whether the insurer had reasonable justification for its denial, not whether the denial was frivolous and unfounded. Industrial Indemnity Co. v. Kallevig, 114 Wn.2d 907, 792 P.2d 520 (1990). Kallevig mandates a rule of reasonableness. In Kallevig, the carrier unsuccessfully denied the claim, relying on a local Fire Department arson investigation. The Supreme Court defined the issue as follows:

Thus, we must determine whether there was sufficient evidence to support the jury's verdict. This poses two inquiries: first, what conduct constitutes bad faith denial of coverage, and second, was there sufficient evidence for the jury to find that Industrial Indemnity denied coverage in bad faith.

RCW 48.01.030 requires insurers to act in good faith in dealing with their insureds. /6 Pruitt v. Alaska Pac. Assur. Co., 28 Wn. App. 802, 804, 626 P.2d 528 (1981). This fiduciary duty to act in good faith is fairly broad and may be breached by conduct short of intentional bad faith or fraud. 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)), 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). Thus, an insurer's denial of coverage, without reasonable justification, constitutes bad faith. See Whistman, at 585 ("[a]ctions by an insurer done without reasonable justification are done without the good faith mandated by RCW 48.01.030"); Safeco, at 15 ("refusal must be based upon reasonable grounds"). See also Villella v. Public Employees Mut. Ins. Co., 106 Wn.2d 806, 821, 725 P.2d 957 (1986); Royal Globe Ins., at 74.

Kallevig, 114 Wn. 2d 916, 917. The Supreme Court thus adopted a rule of reasonableness in first party denial of benefits cases, and ignored completely the "frivolous and unfounded" standard used in earlier cases. The proper inquiry is whether the insurer can show that it acted reasonably by denying coverage to its insured. The court in Kallevig reaffirmed the earlier decision of the Court of Appeals in JMG.

The present case is factually similar to Safeco Ins. Co. of Am. v. JMG Restaurants, Inc., 37 Wn. App. 1, 680 P.2d 409 (1984). There, the insured alleged that its insurer acted in bad faith when it filed a declaratory judgment action seeking a declaration of nonliability under a fire loss policy. The insurer suspected that the fire was intentionally set by the insured who was seen leaving the restaurant shortly before the fire. Evidence indicated that the insured was in financial trouble and that the restaurant was operating at a loss. The fire department arson squad suspected that the insured had intentionally set the fire. The insured was charged with arson. The charge, however, was later dropped. Safeco, at 3, 14-15.

In reviewing the trial court's denial of the insurer's motion for a directed verdict, the Court of Appeals stated:

There is no doubt that there was considerable evidence in [the insurer's] favor. That is not the issue. The question is whether there was evidence, or reasonable inference from evidence, sufficient to warrant submitting the case to the jury and to sustain the jury's verdict under the Consumer Protection Act.

The issue is whether there was evidence from which a reasonable person could conclude that [the insurer] was not fair, honest and objective, or that [the insurer] acted without reasonable justification in the handling of [the insured's] claim. Safeco, at 14. The court determined that the "jury could have found that a reasonable and objective person would have recognized that the evidence did not rise above a suspicion and would not have used it as a reason for not paying the claim of its insured." Safeco, at 15.

Kallevig, 114 Wn.2d 907, at 920. These cases describe in detail what facts supported each denial, and why they were insufficient.

The insurer can also commit bad faith by failing to conduct a reasonable investigation. Our Supreme Court recently addressed such claims:

Insurance companies must conduct their relations with their insureds in good faith. RCW 48.01.030 states, "[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." /1 WASHINGTON ADMINISTRATIVE CODE (WAC) 284-30 covers unfair claims settlement and trade practices by insurance companies. The purpose of WAC 284-30 is, in part, to "define certain minimum standards which, if violated with such frequency as to indicate a general business practice, will be deemed to constitute unfair claims settlement practices." WAC 284-30-300. As the Court of Appeals noted, the unfair practices listed in WAC 284-30 include misrepresenting pertinent facts and refusing to pay without a reasonable investigation (WAC 284-30-330), failure to disclose all relevant policy provisions (WAC 284-30-350), and failure to state the specific grounds for denial of a claim (WAC 284-30- 380). Coventry Assocs., 86 Wn. App. at 848-49.

Coventry v. American States Ins. Co., 136 Wn.2d 269, 276, 961 P.2d 933 (1998). Often, the evidence will show that the insurer’s investigation was incomplete, inaccurate, and one-sided. That proves the insurer investigated, not to find the truth, but to collect evidence to support its denial.

To the plaintiff in a bad faith case, discovery means obtaining a copy of the entire claim file. The carrier will do everything possible to prevent discovery, although it knows the file is discoverable. All or part of it will be withheld, under claims of irrelevance, privilege, work product, or preparation in anticipation of litigation. None of those excuses are valid. See, Escalante v. Sentry Insurance, 49 Wn. App. 375, 743 P.2d 832 (1987), where the court said:

In general, the relevancy objections raised by Sentry with respect to this and other discovery requests are meritless because the very nature of most bad faith actions makes most, if not all, of the insurer's claim file relevant. In re Bergeson, 112 F.R.D. 692 (D. Mont. 1986); Brown v. Superior Court, 137 Ariz. 327, 670 P.2d 725 (1983).

Escalante, fn. 10, at 49 Wn. App. 303. The entire opinion merits close reading, as the court discusses work product, mental impressions, and anticipation of litigation principles as they apply to claim file production. The opinions in Brown and Bergeson are also helpful.

All the favorable case law in the world, however, will not protect you from crooks. Many claims adjusters and supervisors believe it is standard practice to "clean up" a claim file prior to disclosure. The defense lawyer may not know the file was sanitized in the claim office. What can you do about it? The following list may help.

1. Find multiple copies. Did a copy of the claim file get to the Commissioner as a result of your client’s complaint? You can get it with a Freedom of Information Act request. How many claim files does the insurer maintain? There are usually at least two, often three. Cover this in depositions.

2. Determine what is missing. Is a scheduled meeting not documented? Are activity log pages misnumbered? Make a chronology, then look for holes.

3. Demand everything. Demand all electronic communication of any kind. Get billing records from investigators and contractors of any kind. What phone calls and meetings show up? Are they documented in the claim file? Remember this from WAC 284-30-340:

The insurer's claim files shall be subject to examination by the commissioner or by his duly appointed designees. Such files shall contain all notes and work papers pertaining to the claim in such detail that pertinent events and the dates of such events can be reconstructed.

4. Depose someone about the file. The handling adjuster may not be the best source of information on the carrier’s claim files. Try a CR 30 (b) 6 deposition devoted only to the file.

5. Insist on a log of withheld documents. In your production request, ask for a list of withheld documents, along with reasons they were not produced. If counsel stalls, swiftly get an order requiring counsel to list every document withheld and the reasons for nondisclosure. You cannot move to compel production of documents you don’t know exist.

Once you have the full, complete claim file, you have your basic discovery done. If you wish, you can march through depositions of the various adjusters, supervisors, and home office claims personnel. I prefer to spend a few days with the claim file, meeting some of the claim people for the first time at trial.

Everyone involved in bad faith litigation knows the claim file is the case. If you are unreasonably deterred from obtaining the entire file, move for sanctions. If you catch counsel or claims people sanitizing a file, go to the court, the Bar Association, and the Insurance Commissioner. Don’t play softball with crooks.

Plaintiffs who succeed against the arson defense usually have two separate claims for reasonable attorney fees: (1) Consumer Protection Act, for fees incurred in proving and presenting the bad faith claims, and (2) Olympic Steamship, pursuant to Olympic Steamship v. Centennial Insurance Company, 117 Wn.2d 37, 811 P.2d 673 (1991), for establishing coverage after a denial.

A. Consumer Protection Act. The Consumer Protection claim springs from the statute. RCW 19.86.090 states in part: "Any person who is injured in his or her business or property by a violation of RCW 19.86.020 . . . may bring a civil action in the superior court to enjoin further violations, to recover the actual damages sustained by him or her, or both, together with the costs of the suit, including a reasonable attorney's fee..." The relationship between bad faith claims and the CPA was explained in Gingrich v. Unigard, 57 Wn. App. 424, 433, 788 P.2d 1096 (1990):

An insurer's breach of its duty of good faith, RCW 48.01.030, constitutes a per se violation of the Consumer Protection Act, RCW 19.86.020. Salois v. Mutual of Omaha Ins. Co., 90 Wn.2d 355, 359, 581 P.2d 1349 (1978). The remedy includes costs, attorney fees and treble damages. RCW 19.86.090. An insurer breaches its duty by acting without reasonable justification in handling an insured's claims. Villella v. Public Employees Mut. Ins. Co., 106 Wn.2d 806 , 821, 725 P.2d 957 (1986).

In the seminal first party insurance bad faith case, Safeco v. JMG Restaurants, 37 Wn. App. 1, 680 P.2d 409 (1984), the court discussed the insured's entitlement to an award of reasonable fees in a successful case:

The statute providing for a civil action for damages under the Consumer Protection Act, RCW 19.86.090, provides for an award of "the costs of the suit, including reasonable attorney's fees". The amount of reasonable attorney's fees under RCW 19.86 is within the discretion of the trial court. State v. Ralph Williams' N.W. Chrysler Plymouth, Inc., 87 Wn.2d 298 , 553 P.2d 423 (1976); Levy v. North Am. Co. for Life & Health Ins., 90 Wn.2d 846 , 586 P.2d 845 (1978). Attorney's fees are treated as part of the costs of the suit and the amount is within the trial court's discretion. Hsu Ying Li v. Tang, 87 Wn.2d 796 , 557 P.2d 342 (1976).

Safeco v. JMG Restaurants, at 19.

B. Olympic Steamship. In Washington, the insured deserves an award of attorney fees expended to obtain the full benefit of the insurance contract. Olympic Steamship v. Centennial Insurance Company, 117 Wn.2d 37, 811 P.2d 673 (1991). The Supreme Court based its decision on a first party property insurance case, Hayseeds, Inc. v. State Farm, 352 S.E. 2d 73, 77 (W. Va. 1986). Hayseeds was a restaurant arson defense case. State Farm denied coverage, claiming the insureds set the fire.

The court in Hayseeds recognized that insurance policies are unlike other contracts because policyholders rely on insurers to provide immediate aid and indemnity. Hayseeds, 352 S.E.2d at 77. The court said first party insurance cases (between policyholders and insurers) are prominent instances where the American rule on awarding attorney fees does not work. An award of fees to the insured encourages the prompt payment of claims. Hayseeds, 352 S.E.2d at 79.

In Olympic Steamship, our Supreme Court relied heavily on Hayseeds:

Other courts have recognized that disparity of bargaining power between an insurance company and its policyholder makes the insurance contract substantially different from other commercial contracts. Hayseeds, Inc. v. State Farm Fire & Cas., 352 S.E.2d 73, 77 (W. Va. 1986). When an insured purchases a contract of insurance, it seeks protection from expenses arising from litigation, not "vexatious, time-consuming, expensive litigation with his insurer." 352 S.E.2d at 79. Whether the insured must defend a suit filed by third parties, appear in a declaratory action, or as in this case, file a suit for damages to obtain the benefit of its insurance contract is irrelevant. In every case, the conduct of the insurer imposes upon the insured the cost of compelling the insurer to honor its commitment and, thus, is equally burdensome to the insured. Hayseeds, Inc. v. State Farm Fire & Cas., 352 S.E.2d 73, 77 (W. Va. 1986); cf. Security Mut. Cas. Co. v. Luthi, 303 Minn. 161, 226 N.W. 2d 878, 884 (1975). Further, allowing an award of attorney fees will encourage the prompt payment of claims. 352 S.E.2d at 79.

Olympic Steamship, 117 Wn.2d at 36, 37.

This paper should help the lawyer new to the circumstantial arson defense. In addition, my web site contains a variety of materials directed at first party insurance and bad faith, with an emphasis on arson defense. See it at http://areyoucovered.com.