Water's Edge Homeowner's Association v. Farmers Insurance Exchange ( 2014 )

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
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WATER'S EDGE ASSOCIATES, a
Washington general partnership; KEY No. 71066-4-
PROPERTY SERVICES, INC., a fO > --
Washington corporation, WATER'S DIVISION ONE
EDGE HOMEOWNERS' ASSOCATION,
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a Washington non-profit corporation, O en"1
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Appellants,
UNPUBLISHED OPINION
FARMERS INSURANCE EXCHANGE,
a foreign corporation; MID-CENTURY FILED: March 3, 2014
INSURANCE COMPANY, a foreign
corporation; and TRUCK INSURANCE
EXCHANGE, a foreign corporation,
Respondents.
Becker, J. — A homeowners' association appeals from the dismissal on
summary judgment of an assigned bad faith claim against Farmers Insurance.
We affirm.
The background facts are set forth in the opinion in the previous case.
Water's Edge Homeowners Ass'n v. Water's Edge Assocs., 152 Wn. App. 572,
216P.3d 1110(2009), review denied, 168 Wn.2d 1019 (2010). We will not
repeat them here.
No. 71066-4-1/2
This court reviews an order granting summary judgment de novo,
performing the same inquiry as the trial court. Wilson Court Ltd. P'ship v. Tony
Maroni's, Inc., 134 Wn.2d 692, 698, 952 P.2d 590 (1998). Summary judgment is
properly granted when the pleadings, affidavits, depositions, and admissions on
file demonstrate that there is no genuine issue of material fact. CR 56(c). The
party opposing summary judgment may not rely on speculation or argumentative
assertions that unresolved factual issues remain—the nonmoving party must set
forth specific facts that show a genuine issue as to a material fact exists.
Herman v. Safeco Ins. Co. of Am.. 104 Wn. App. 783, 787-88, 17 P.3d 631(2001).
Bad faith is a tort—plaintiffs must prove duty, breach, causation, and
damages. Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d
903, 916, 169 P.3d 1 (2007). A liability insurer has two principal duties to its
insured: the duty to defend and the duty to indemnify. Mut. of Enumclaw, 161
Wn.2d at 914. In order to establish liability for bad faith, an insured or the
insured's assignee is required to show that the insurer breached one of these
duties and that the breach was unreasonable, frivolous, or unfounded. Kirk v. Mt.
Airy Ins. Co., 134 Wn.2d 558, 560, 951 P.2d 1124 (1998). Where an insurer's
conduct is reasonable, the insurer does not act in bad faith. Transcon. Ins. Co. v.
Wash. Pub. Utils. Dists.' Util. Svs., 111 Wn.2d 452, 470, 760 P.2d 337 (1988).
Here, the plaintiff is the Water's Edge Homeowners' Association, as
assignee of bad faith claims by the former owner of the condominium complex,
Water's Edge Associates, and the company they hired to perform maintenance
No. 71066-4-1/3
and repairs, Key Property Services. The Association claims that Farmers
breached its duty in four ways:
Issue 1: Did Farmers' failure to reserve rights for 10 to 12
months after appointment of counsel to represent its insured
constitute bad faith as a matter of law?
Issue 2: Did Farmers' failure to disclose several-liability
defenses under RCW 4.22.070, and 9-month delay in appointing
separate legal counsel for WEA and KPS constitute bad faith in
breach of its duty to defend?
Issue 3: Did Farmers' failure to provide coverage updates,
and failure to disclose the amount of indemnity available to settle,
constitute bad faith in breach of its duty to defend?
Issue 4: Did Farmers elevate its own financial interests
above potential risks to its insured, in breach of its duty to defend?
Brief of Appellant at 2.
Farmers responds that the bad faith claim must fail because, regardless of
the four allegations, (1) it is undisputed that Farmers fully defended and
indemnified both insureds in the underlying suit and (2) the insureds cannot
prove damages.
Farmers assigned counsel to defend its insureds. First Tom Heinrich,
then Bruce White represented them up through December 2006. At that point,
the Association had begun to collude with the insureds to set Farmers up for a
bad faith claim. As a result of the collusion, the two insureds insisted that White
had a conflict because he was representing both of them. White withdrew, and
Farmers appointed separate defense counsel for each insured. The collusive
parties excluded Farmers and White from the negotiation of the stipulated
settlement agreement. By the terms of this agreement, the insureds were
released in exchange for their contribution of $215,000. Farmers paid the
$215,000.
No. 71066-4-1/4
This case is simple. Farmers provided defense counsel to its insureds. At
the first mention of a possible conflict created by joint representation, Farmers
appointed separate counsel for each insured. When presented with a settlement
contract that would unconditionally release the insureds from all liability in
exchange for a cash payment of $215,000, Farmers paid $215,000. The record
is insufficient to establish breach of duty by Farmers.
The Association claims $90,000 in attorney fees incurred to hire outside
counsel as the only damages caused by the alleged bad faith of Farmers. Even
assuming that Farmers breached a duty to defend in one of the ways alleged by
the Association, the record is insufficient to prove that the conduct by Farmers
caused the insureds to hire outside counsel. Rather, the hiring of outside
counsel was a choice the insureds made as part of deliberate strategy developed
in collusion with the Association.
Because the plaintiffs do not establish breach or damages, summary
dismissal was appropriate.
Affirmed.
WE CONCUR:
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