JAMES P. DONOHUE, Magistrate Judge.
On May 26, 2009, plaintiff Tracy Dennis was seriously injured while on business in a motor vehicle accident involving an underinsured motorist. After settling for the inadequate policy limits of the driver at fault, she seeks declaratory relief that she is covered under the terms of the uninsured/underinsured motorist ("UIM") provisions of her employer's insurance plan. The insurance carriers who issued the employer's policy, Liberty Mutual Group, Safeco Insurance Company of North America, and General Insurance Company of America (collectively "Liberty Mutual, or "defendants") seek declaratory relief that the terms of the policy do not extend to provide coverage for Ms. Dennis' injuries. Both parties have filed motions for summary judgment on their claims. Dkts. 10, 12-13. Diversity jurisdiction is proper. For the reasons set forth below, plaintiff's motion for summary judgment is GRANTED, and defendants' motion for summary judgment is DENIED.
At oral argument, the parties agreed that the facts material to the interpretation of the policy are not in dispute. On the day of the accident, plaintiff and another employee of Truck Trails Northwest, LLC ("Truck Trails") drove a to-be-rented Budget vehicle to a customer, and were returning to work together in another Budget rental vehicle, a 2009 Chrysler minivan, when a car behind them failed to stop in time, causing a collision and injuries to plaintiff. At the time of the accident in question, plaintiff was employed by Truck Trails. Dkt. 13, Ex. 4 (Navone Dep. at p.13) (hereinafter "Navone Dep."). Truck Trails is an auto repair and service business owned by Keith Navone. Navone Dep. at 11. Sometime prior to the plaintiff's accident, Mr. Navone started a side business from the same business premises, operating as an agency operator for Budget rental vehicles. Budget supplied the office equipment and vehicles necessary for the business, but Truck Trails provided the personnel necessary to staff the car rental location. Navone Dep. at 17.
In 2007, Liberty Mutual issued policy No. 24-CC-216073-2, which identified Truck Trails as the named insured. Dkt. 13, Exs. 1-3, 5, 6-9 (Wong Decl.) (hereinafter "the policy"). The policy provided business auto coverage protection, including a $1 million liability limit for "specifically described `autos'" and "nonowned `autos,'" as well as a $1 million UIM limit for "specifically described `autos.'" Id., Exs. 1-2. Under the policy, coverage restricted to "specifically described `autos'" was designated by a symbol "7," and defined in relevant part as "only those `autos' described in Item Three of the Declarations[.]" Id., Ex. 2 at 1. Coverage restricted to "nonowned `autos' only" was designated by a symbol "9," and defined in relevant part as "only those `autos' you do not own, lease, hire, rent or borrow that are used in connection with your business." Id. at 2. The declarations page of the policy identified two specifically designated covered vehicles — a 1993 Ford 4x2 truck and a 1992 Ford F-250. Id., Ex. 1 at 1.
In December 2008 and January 2009, Truck Trails made changes to the policy by adding and deleting vehicles identified as the "specifically described `autos'" in the policy. Id., Ex. 5-6. Specifically, a 1993 Ford vehicle was added in December 2008, but deleted the next month, when a 1999 jeep vehicle was added. The type and extent of coverage, however, remained unchanged.
Most significantly, Truck Trails altered the policy a third time in May 2009 by extending its liability coverage from "specifically described `autos'" and "nonowned `autos'" (designations 7 and 9) to "any autos" (designation 1). Id., Ex. 8. The $1 million coverage limit for liability remained unchanged, and the $1 million coverage limit for UIM for "specifically described `autos'" (designation 7) remained unchanged. Id.
Finally, the policy also included a "Washington Underinsured Motorists Coverage" endorsement, which states that "this endorsement modifies insurance provided under the following . . . business auto coverage." Id., Ex. 9. The endorsement Schedule states that "this endorsement provides `bodily injury' and `property damage' underinsured motorist coverage unless an `X' is entered [in a box] below." Id. The endorsement was left blank, and therefore no "X" was entered in the box. Id. Similarly, no amount of coverage for "bodily injury" or "property damage" was specified on the endorsement. However, the Schedule also states that "[i]nformation required to complete this Schedule, if not shown above, will be shown in the Declarations." Id. (emphasis added).
Under the headings "Description of `Autos'" and "Coverage," the endorsement provided that "we will pay all sums the `insured' is legally entitled to recover as compensatory damages from the owner or driver of an `uninsured motor vehicle'" resulting from bodily injury or property damage sustained by the "insured" in an accident. Under the heading "Who Is An Insured," the endorsement provided that if the named insured designated in the declarations is a limited liability company, an "insured" includes "anyone `occupying' a covered `auto.'" Id.
A moving party is entitled to summary judgment when there are no genuine issues of material fact in dispute and the moving party is entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). An issue of fact is "genuine" if it constitutes evidence with which "a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). That genuine issue of fact is "material" if it "might affect the outcome of the suit under the governing law." Id.
Here, the parties stipulated during oral argument that there are no genuine issues of material fact regarding the policy. Thus, the sole issue before the Court concerns the proper interpretation of the insurance policy, which the Court may decide as a matter of law.
As a threshold matter, the Court notes that during oral argument, the parties agreed that the vehicle plaintiff was driving at the time of the accident was covered by the plain language of the policy's liability provisions. In other words, had plaintiff been the driver at fault in the accident, the liability provisions of the policy, as amended in May 2009 to extend liability coverage to "any autos," would have applied. However, defendants assert that unlike the liability coverage provisions of the policy, the May 2009 amendment of the policy did not alter the portion of the declarations limiting UIM coverage to a "symbol 7," defined as only "specifically described `autos.'" Dkt. 18 at 2. It is undisputed that the "specifically described `autos'" listed in the declarations did not include the Chrysler minivan that plaintiff was driving. Defendants argue that if the Court were to interpret the policy, and in particular the endorsement, as extending UIM coverage to plaintiff, such an interpretation "would render the policy declarations and insuring agreement forms that describe the application of `symbol 7' meaningless." Id. at 1. Defendants further point out that "Liberty Mutual included a provision in the UIM endorsement that states that "[i]nformation required to complete this Schedule, if not shown above, will be shown in the Declarations." Id. at 2. As a result, the fact that the Schedule in the UIM endorsement was left blank evinces the parties' intention that UIM coverage to be governed by the coverages listed in the Declarations. Id.
Relying on the endorsement, plaintiff argues that the plain language of the policy extends liability coverage to plaintiff, despite the fact that the policy's declarations limited such coverage to "specifically described `autos'" (designation 7). Specifically, plaintiff argues that the endorsement "states that bodily injury and property damage coverage is provided unless an `X' is entered in the box shown on the first page of the endorsement page. Clearly, the box is not marked at all." Dkt. 15 at 6. Plaintiff asserts that "if Liberty Mutual had specifically wanted only certain vehicles to have UIM coverage, then it should have marked the box with an `X' and listed the specific vehicles in the designated section." Id. at 7. "Consequently, this UIM endorsement section provides UIM coverage to all `covered autos' under the policy," and "[i]n this instance, when Truck Trails changed its policy to broaden its coverage to include all of its employees using `nonowned autos,' all `nonowned autos' became `covered autos' as designated as Symbol 1 (`Any auto') in Liberty Mutual's Business Auto Coverage Form." Id.
An insurance contract should be considered as a "whole" and be given a "fair, reasonable and sensible construction as would be given to the contract by the average person purchasing insurance." Quadrant Corp. v. American States Ins. Co., 154 Wn.2d 164, 171, 110 P.3d 733 (2005). The interpretation of an insurance policy involves a question of law. Smith v. Continental Casualty Co., 128 Wn.2d 73, 78, 904 P.2d 749 (1995). A clause is ambiguous only "when on its face, it is fairly susceptible of two different interpretations, both of which are reasonable." Quadrant, 154 Wash. 2d at 171. If a clause is ambiguous, the Court may rely on extrinsic evidence of the intent of the parties to resolve the ambiguity. Id. at 171-72. "Any ambiguity remaining after examination of the applicable extrinsic evidence is resolved against the insurer and in favor of the insured." Id. at 172. Nevertheless, "an insurance contract should not be given a strained interpretation that would render it ineffective. If policy language is clear, a court must construe it as written and may not create an ambiguity where none exists." Smith, 128 Wash. 2d at 81.
With this framework in mind, the Court must turn to the policy and its terms.
Dkt. 13, Ex. 9 at 1.
As a result, in order to be covered by the UIM policy, plaintiff must first establish that she qualifies as an "insured" under the terms of the policy. It is undisputed that the only "Named Insured" in the policy is Truck Trails, which is a limited liability company. The term "insured" for UIM purposes is defined in part B of the endorsement as follows:
Dkt. 13, Ex. 9 at 1-2.
Sections 2(b) and (c) do not apply to plaintiff. Section 2(b) by its terms is for a derivative injury — that is, damages sustained as a result of an "insured" being injured, such as, for example, loss of consortium. Section 2(c) is only applicable to Truck Trails, the named insured.
This leaves only Section 2(a). To be considered an "insured," by the terms of the policy, plaintiff would have to be occupying a "covered auto." Section I of the policy provides that "Item Two of the Declarations shows the `autos' that are covered `autos' for each of your coverages. The following numerical symbols describe the `autos' that may be covered `autos.' The symbols entered next to a coverage on the Declarations designate
As discussed in detail above, even after the May 2009 amendment of the policy, the Declarations page provides that UIM coverage up to $1 million had been purchased only for "specifically described `autos'" (designation 7). Dkt. 13, Ex. 8 at 1. "Specifically described `autos'" are defined as "[o]nly those `autos' described in Item Three of the Declarations for which a premium charge is shown...." Dkt. 13, Ex. 2 at 1. It is undisputed that the Chrysler minivan plaintiff was driving at the time of the accident was not a "specifically described `auto'" in Item Three of the Declarations. Because plaintiff was not "occupying" a "covered auto" at the time of the accident, but instead was in a Budget vehicle, she does not fall within the scope of the UIM coverage under the policy.
The Court is also not persuaded by plaintiff's argument that the endorsement section of the policy extends UIM coverage to the Chrysler minivan because the Schedule states that "this endorsement provides `bodily injury' and `property damage' underinsured motorists coverage unless an "X" is entered below," and no such "X" was entered. Dkt. 13, Ex. 9.
Accordingly, the plain language of the contract is unambiguous.
Plaintiff's alternative argument is that regardless of the plain language of the policy, RCW 48.22.030 extends UIM coverage to plaintiff by operation of law because the May 2009 amendment constituted a "material change" to the policy, requiring a waiver or rejection of UIM coverage by the named insured (i.e., Truck Trails) that was not obtained by Liberty Mutual in this case. Defendants conceded at oral argument that if the Court finds that the expansion of Truck Trails' liability coverage to encompass "any autos" was a "material" change under RCW 48.22.030 and relevant caselaw, plaintiff is entitled to UIM coverage by operation of law. However, defendants argue that the Court should not find that the May 2009 policy amendment constituted a "material" change, especially because the $1 million coverage limit for liability was not increased at that time.
The Washington Supreme Court has held that insurance regulatory statutes are incorporated into an insurance policy. Johnson v. Farmers Ins. Co., 117 Wn.2d 558, 565, 817 P.2d 841 (1991) (citing Blackburn v. Safeco Ins. Co., 115 Wn.2d 82, 86, 794 P.2d 1259 (1990)). In Washington, UIM coverage is considered sufficiently important to require that any rejection of it be in writing. Torgeson v. State Farm, 91 Wn.App. 952, 958, 957 P.2d 1283 (1998) (citing Clements v. Travelers Indem. Co., 121 Wn.2d 243, 255, 850 P.2d 1298 (1993)). Specifically, the Washington State UIM law, RCW 48.22.030, provides in part as follows:
Thus, unless the insured has signed a written rejection, RCW 48.22.030 requires insurers to make UIM coverage available in all Washington automobile insurance policies in the same amount as the insured's third party liability or bodily injury coverage. RCW 48.22.030(3); Clements, 121 Wash.2d at 562.
In Johnson, the Washington Supreme Court adopted a "materiality standard" to distinguish a "new" policy from a "supplemental" or "renewal" policy under RCW 48.22.030. 117 Wash.2d at 571 (citing with approval Kerr v. State Farm Mut. Auto. Ins. Co., 434 So.2d 970 (Fla. Dist. Ct. App. 1983); Makela v. State Farm Mut. Auto. Ins. Co., 147 Ill.App.3d 38, 100 Ill.Dec. 505, 497 N.E.2d 483 (1986)). See also Koop v. Safeway Stores, Inc., 66 Wn.App. 149, 154, 831 P.2d 777 (1992) (noting Johnson's adoption of the materiality standard to distinguish a new policy from continuation of existing policy). Washington courts have recognized that under this standard, "the inquiry is fact specific. We look to whether `the changes made to the policy [are] sufficiently material to support a conclusion that a new, as opposed to a renewal, policy was issued.'" Torgerson, 91 Wash. App. at 958 (citing Johnson, 117 Wash.2d at 571). In addition, "in applying this standard to determine the applicable amount of UIM coverage, we must consider `the intent and purpose of the statute' and the `contract between the insurance company and the party asserting coverage.'" Jochim v. State Farm Mut. Auto. Ins. Co., 90 Wn.App. 408, 952 P.2d 630 (1998).
For example, Washington courts have found that a "new" policy is not created when a party simply replaces a vehicle covered under an existing policy with a new vehicle. See Johnson, 117 Wash.2d at 571. Likewise, the addition of a new car to an existing policy is no more than a renewal of, or an action supplementary to, the original policy. Id. Continuation of a policy number is also not determinative. Id. at 572.
In Johnson, the originally named insured previously elected lower UIM coverage limits instead of full coverage. After the insured separated from his wife, she acquired the insured vehicle and replaced it with a newer one, while also naming herself as the principal insured on the policy. The policy number and amounts of coverage remained the same. The Supreme Court held that the changes made by the wife to the initial policy did not constitute "material" changes that created a "new" policy. The Supreme Court observed that "[t]here were no changes made in coverage, and where coverage levels remain constant, the majority of jurisdictions support the conclusion that no new policy is created." Id. at 572. See also Koop, 66 Wash. App. at 149 (holding that an employer's initial rejection of UIM coverage was effective against subsequent renewals where the subject matter, policy number, and coverage levels remained the same).
In Jochim, Division II of the Court of Appeals interpreted Johnson and Koop as suggesting that the materiality inquiry focuses almost entirely upon whether there was an increase in liability coverage limits. Specifically, the court observed that "the present case is similar to Johnson and Koop in that the amount of liability coverage remained unchanged," even though "the Jochims increased the overall scope of their insurance policy with the addition of collision, comprehensive, and indemnity coverages. The question, then, is whether these changes to the Jochims' existing policy created a new policy within the meaning of RCW 48.22.030, even though the liability limits remained the same." 90 Wash. App. at 414. The court noted that the Legislature's intent in enacting RCW 48.22.030 was to require insurers to offer UIM coverage to the same extent as the insured's third party liability coverage, and therefore an "insurer's exposure to liability arising from an accident involving an underinsured or uninsured motorist directly corresponds to the policyholder's limits of third party liability coverage." Id. The court concluded that although the policy's overall scope of coverage increased, "the addition of comprehensive, collision, and indemnity coverages . . . in no way alters or increases the insurer's exposure to additional UIM coverage; it is only liability coverage that corresponds by statute to the extent of UIM coverage that the insurer must make available." Id. As a result, the court held that "if the liability coverage limits remain constant, the insured will not be entitled to any additional amount of UIM coverage beyond the amount initially selected. It does not follow that an insurer should be obligated to re-offer UIM coverage or to obtain a second waiver or election of lower UIM limits." Id.
In the nearly contemporaneous case of Torgerson, Division III of the Court of Appeals disagreed with the Jochim court's focus on liability coverage limits, in particular. 91 Wash. App. at 961. The court observed that although "the Jochim court . . . seems to read Johnson as imposing a bright line rule — if liability coverage does not change, then the materiality standard adopted in Johnson has not been met . . . we do not read Johnson so narrowly." Torgerson, 91 Wash. App. at 961. The court explicitly rejected State Farm's argument that "because the amount of liability coverage did not change . . . the policy cannot be `new' as a matter of law" under Johnson, commenting that "we do not read Johnson as adopting a bright line rule. Johnson requires instead that we look at the materiality of the changes." Id. at 960. In Torgerson, the policy was revised to add four new coverages, two of which had been specifically rejected in the earlier policy. The court held that these changes were sufficiently material to constitute a "new policy" under Johnson and its progeny. Id. at 961.
As a threshold matter, the Court agrees with the Torgerson court's observation that Johnson did not limit the materiality inquiry to whether the liability coverage limits remained constant. Although the Johnson court noted that "the fact that no changes in coverage limits are made is consistent with the act of continuation of the policy," the Supreme Court also emphasized that this is a fact-specific inquiry. Johnson, 117 Wash.2d at 572. Indeed, during oral argument, defendants conceded that no single factor controls the materiality inquiry, and that pursuant to Johnson and subsequent caselaw this Court should consider factors such as whether there were any changes made in the parties, subject matter, policy number, scope of coverage, and liability limits. Thus, the fact that the $1 million coverage limit for liability was not increased in May 2009 is not determinative of whether the changes made to the policy at that time were "material."
Here, the scope of Truck Trails' liability coverage was drastically expanded with the change from "specifically described `autos'" and "nonowned `autos'" (designations 7 and 9) to "any autos" (designation 1) in May 2009. Dkt. 13, Ex. 8. The material nature of this change is evident from Mr. Navone's deposition testimony, in which he explained that his entire reason for amending the policy in May 2009 was to extend liability coverage to all his employees and vehicles working with the Budget rental counter location because of his increased risk of exposure to liability arising from operating the Budget rental car business:
Navone Dep. pp. 24-25.
The conclusion that the expansion of liability coverage to "any auto" constitutes a material change is fully consistent with Johnson and its progeny, as well as the intent of the Legislature in enacting RCW 48.22.030. This case is distinguishable from Jochim, which held that the addition of collision, comprehensive, and indemnity coverages were not "material" changes that created a "new" policy because the liability coverage limits remained unchanged. Jochim, 90 Wash. App. at 415-16. As discussed above, that court's holding was driven by its reasoning that "it is only liability coverage that corresponds by statute to the extent of UIM coverage that the insurer must make available." Id. at 414. Here, unlike in Jochim, Truck Trails' liability coverage was expanded from only specified and non-owned autos to "all autos," and therefore the insurer's exposure to liability arising from an accident involving an underinsured or uninsured motorist increased to the same extent, absent a written waiver or rejection by Truck Trails, because RCW 48.22.030 requires insurers to offer UIM insurance to the extent of liability coverage. See RCW 48.22.030(2)-(4).
Accordingly, the May 2009 expansion of liability coverage under the policy to "all autos" was sufficient to constitute a "material" change to the policy, i.e., create a "new" policy requiring Liberty Mutual to provide UIM coverage equal to the liability coverage, absent a written waiver or rejection of such UIM coverage by the named insured (i.e., a representative of Truck Trails such as Mr. Navone). See RCW 48.22.030(2)-(4). It is undisputed that no written waiver or rejection of UIM coverage was obtained by Liberty Mutual at that time. As a result, plaintiff was entitled to UIM coverage under the policy.
Finally, although plaintiff has not moved for summary judgment on her extra-contractual claims, plaintiff contends that "[b]ased on the records review of Liberty Mutual's claims file, it is clear that Liberty Mutual outright denied coverage without determining or investigating if there was any UIM coverage for plaintiff's losses arising from the May 26, 2009 collision. A sophisticated company like Liberty Mutual should have known that a written waiver rejecting UIM coverage was required under Washington law." Dkt. 15 at 11. Plaintiff argues that "at a minimum, there are genuine issues of material fact which preclude summary dismissal of plaintiff's bad faith, negligence and CPA claim" against Liberty Mutual. Id.
Defendants contend that "Liberty Mutual's reasonable conduct requires the dismissal of Ms. Dennis' remaining claims. The only conduct alleged in Ms. Dennis' complaint that gives rise to these extra-contractual claims concerns Liberty Mutual's coverage decision," but "a reasonable disagreement regarding the existence of coverage does not mean that the insurer acted in bad faith, violated the CPA or the IFCA." Dkt. 10 at 11-12 (citing Ins. Co. of Pennsylvania v. Highlands Ins. Co., 50 Wn.App. 782, 786-87, 801 P.2d 284 (1990)).
Summary judgment on plaintiff's extra-contractual claims is inappropriate. There are disputed issues of material fact regarding Liberty Mutual's investigation and consideration of plaintiff's UIM claim. Because there are genuine issues of material fact as to the reasonableness of Liberty Mutual's handling of plaintiff's UIM claim, the Court DENIES defendants' motion for summary judgment and dismissal of these claims.
Accordingly, plaintiff's motion for summary judgment, Dkts. 12-13, is GRANTED, and defendants' motion for summary judgment, Dkt. 10, is DENIED. Plaintiff is entitled to coverage under the UIM provision of policy No. 24-CC-216073-2. All issues not specifically resolved herein are reserved for subsequent disposition at trial.
