FIRE INSURANCE CLAIMS --
COMBATING THE INSURERíS ARSON DEFENSE
This article was written
for the Washington State Trial Lawyers 2001 Insurance Law Seminar.
No, itís 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.
I. PROOF, ELEMENTS
rules are a little different in first party coverage cases. The law
protects insureds from overreaching carriers, so counsel should bone
up on proof and presumption issues to defeat 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.
B. Elements of the Arson Defense:
Motive, Opportunity, Incendiarism.
To escape liability, The insurer must prove owner arson by either
direct or circumstantial evidence. In the typical case, no direct
evidence exists to prove owner arson. The insurer must carry its
burden through circumstantial evidence.
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 carrierís 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 (8th 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 insuredís 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].
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 Laneís wife, Mr. Laneís 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 Insurerís 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).
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
"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).
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
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
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
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.
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).
II. FORUM AND
A. State or Federal Court:
Whether to file
in State or Federal court can determine the course and outcome of your
case. Reasonable, objective evaluation of the case must precede the
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.
592-93. In 1998, the Eleventh Circuit Court of Appeals applied the Daubert
analysis to uphold the exclusion of a fire investigatorís testimony
in Michigan Millers Mutual Ins. Corp. v. Benfield, 140 F.3d 915
(11th 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 Courtís decision to exclude Buckleyís 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.
The Courtís 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. ß
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,
plaintiffís position may be in jeopardy, as well as counselís
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
plaintiffís 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
Ė a vast wasteland of unfamiliar rules and inflexible people.
Wonít it involve a lot of extra work? How can we possibly be
But consider some advantages to
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
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. ("Itís 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, donít worry about it. Put the local rules in the
bathroom, and read those instead of the jokes in the Bar News.
Youíll 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
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,
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
Moore's Federal Practice,
vol. v, ß 42.03(1). Our Supreme Court characterizes CR 42(b) as
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
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 plaintiffís 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, donít assume bifurcation is a bad
thing just because the insurer moves for it. Consider the options, and
IV. LIABILITY FOR BAD
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 Ė 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
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.
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
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.
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 insurerís
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).
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
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 clientís 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
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 carrierís 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 donít 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
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.
Donít play softball with crooks.
VI. REASONABLE ATTORNEY FEE CLAIMS
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,
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 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.
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.