Tudor Insurance Company v. Hellickson Real Estate , 493 F. App'x 895 ( 2012 )

FILED
NOT FOR PUBLICATION SEP 21 2012
MOLLY C. DWYER, CLERK
UNITED STATES COURT OF APPEALS U.S. COURT OF APPEALS
FOR THE NINTH CIRCUIT
TUDOR INSURANCE COMPANY, No. 11-35753
Plaintiff - counter-defedant- Appellee, D.C. No. 3:10-cv-05925-BHS
v.
MEMORANDUM*
HELLICKSON REAL ESTATE et al.,
Defendants-counter-claimants-Appellants.
Appeal from the United States District Court
for the Western District of Washington
Benjamin H. Settle, District Judge, Presiding
Argued and Submitted August 30, 2012
Seattle, Washington
Before: SCHROEDER and GOULD, Circuit Judges, and FRIEDMAN, Senior
District Judge.**
Michael and Tara Hellickson are real estate brokers who own Hellickson
Real Estate and several affiliated companies, and who obtained a professional
*
This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
**
The Honorable Paul L. Friedman, Senior District Judge for the U.S.
District Court for the District of Columbia, sitting by designation.
errors and omissions liability policy from Tudor Insurance Company. Tudor later
brought suit against the Hellicksons, seeking a declaratory judgment that it was
entitled to rescind the policy based on fraudulent misrepresentations made by the
Hellicksons in their two policy applications. The district court granted summary
judgment to Tudor and dismissed the Hellicksons’ counterclaims.
The district court, applying settled principles, correctly held that Tudor was
entitled to rescind its contract with the Hellicksons if they made material
misrepresentations in their insurance applications with the intent to deceive. See
RCW 48.18.090(1); St. Paul Mercury Ins. Co. v. Salovich, 705 P.2d 812, 814
(Wash. Ct. App. 1985) (citing Kay v. Occidental Life Ins. Co., 183 P.2d 181(Wash. 1947)). It also correctly held that there were no genuine issues of material
fact regarding whether the misrepresentations in the Hellicksons’ policy
applications were material and made with the intent to deceive Tudor.
The Hellicksons had been notified by the state authorities and thus were well
aware of at least ten complaints filed against them with the Washington
Department of Licensing (“DOL”), and of the resulting DOL investigations, at the
time that they professed no knowledge of such matters in their policy applications.
In Washington state, “if an insured knowingly makes a false statement, courts will
presume that the insured intended to deceive the insurance company,” Ki Sin Kim
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v. Allstate Ins. Co., 223 P.3d 1180, 1189 (Wash. Ct. App. 2009), and the
presumption prevails “[i]n the absence of credible evidence that false
representations were made without [an] intent to deceive . . . .” Cutter & Buck, Inc.
v. Genesis Ins. Co., 306 F. Supp. 2d 988, 1004 (W.D. Wash. 2004) (quoting
Wilburn v. Pioneer Mut. Life Ins. Co., 508 P.2d 632, 635 (Wash. Ct. App. 1973)).
Tara Hellickson’s professed misinterpretation of one of the application questions
does not create a factual dispute about whether her false statement was made
knowingly, particularly since her explanation accounts for only one of the
Hellicksons’ omissions and her professed interpretation is incompatible with the
clear language of the question.
Nor have the Hellicksons provided any evidence to rebut the presumption
that their knowing misrepresentations were made with the intent to deceive.
Although the Hellicksons informed Tudor about a fine they received from a private
listing agency — an act that they maintain put Tudor on notice of facts that could
have led it to discover the DOL investigations — the relevance of this act is
dubious and attenuated at best. Furthermore, the fact that the Hellicksons already
had insurance coverage with a different provider at the time they applied to Tudor,
without more, is not evidence rebutting the presumption of deceitful intent. To
raise a fact issue for trial, “the non-moving party must present more than a ‘mere . .
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. scintilla of evidence’ to defeat a motion for summary judgment.” Int’l Church of
Foursquare Gospel v. City of San Leandro, 673 F.3d 1059, 1068 (9th Cir. 2011)
(quoting Anderson v. Liberty Lobby, 477 U.S. 242, 252 (1986)).
The Hellicksons likewise have failed to demonstrate any genuine factual
dispute about whether their misrepresentations were material. Levy v. N. Am. Co.
for Life & Health Ins., 586 P.2d 845 (Wash. 1978), the case upon which they
primarily rely, does not address the issue of materiality but rather the existence of a
misrepresentation. See id. at 848–50. In Rowley v. USAA Life Ins. Co., 670 F.
Supp. 2d 1199, 1204 (W.D. Wash. 2009), the applicant made partial disclosures to
the insurer about the same matter that he later was accused of concealing. By
contrast, the Hellicksons revealed nothing to Tudor about the existence of the DOL
investigations, but instead disclosed only a listing agency fine that they averred had
been “handled through appeal” and “reduced or dropped” with “no claims made.”
As the district court discerned, Tudor’s failure to investigate that incident does not
create a factual question about whether numerous and ongoing disciplinary
investigations by the state licensing authority prompted by a slew of complaints
against the Hellicksons for misrepresentation, negligence, incompetence, and
malpractice were material to Tudor’s risk.
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Finally, the district court did not err by adjudicating Tudor’s rescission claim
before addressing the Hellicksons’ counterclaims. According to the Hellicksons,
where an insurer breaches in bad faith its duty to defend a policyholder, the insurer
is estopped from asserting any defense to coverage, including the invalidity of the
insurance contract. If the district court had found that Tudor acted in bad faith by
refusing to defend the Hellicksons, so this argument goes, Tudor would have been
estopped from rescinding the contract regardless of the Hellicksons’ fraud.
This argument is untethered from Washington state case law, which
establishes only that an insurer who refuses to defend a policyholder in bad faith
may be estopped from disputing the scope of coverage provided by a valid
contract. See Am. Best Food, Inc. v. Alea London, Ltd., 229 P.3d 693, 696 (Wash.
2010). The Washington courts have never held that such an insurer may be
estopped from disputing the very legitimacy of the contract. To the contrary, the
courts have consistently ruled that policyholders who render their contracts void by
their own fraud may not pursue claims of bad faith against the insurer. See Ki Sin
Kim, 223 P.3d at 1189 (citing, inter alia, Mutual of Enumclaw Ins. Co. v. Cox, 757
P.2d 499, 504 (Wash. 1988)).
The lone decision on which the Hellicksons rest their argument that a
policyholder’s fraud is not dispositive, Ellis v. William Penn Life Assur. Co. of
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Am., 873 P.2d 1185 (Wash. 1994), involved a life insurance policy, and
misconduct by both the insurer and the applicant during the formation of the
contract risked stranding a blameless beneficiary without recovery. As the
Washington Court of Appeals has explained, Ellis represents a “limited exception”
that “stands for the basic proposition that it would be unfair, in the context of
replacement life insurance, to bar an innocent beneficiary from claiming the benefit
of equitable estoppel when both the insurer and insured engaged in wrongful acts.”
Wickswat v. Safeco Ins. Co., 904 P.2d 767, 776 (Wash. Ct. App. 1995). “The same
fairness and policy considerations simply do not apply,” the court explained,
“where no third party beneficiary is involved.” Id.AFFIRMED.
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