‘Known loss’ coverage defense reinforced
By Dirk J. Muse

A policyholder’s prior knowledge of pollution of its property that renders it liable to a third party defeats insurance coverage for that liability, the Washington Supreme Court recently held.

In Overton v. Consolidated Ins. Co., no. 70562-3 (Jan. 2002), Overton bought the Spokane Transformer Company in 1972. Since 1961, hazardous materials, including harmful PCBs, had been used in industrial operations at the site. In 1976, the Environmental Protection Agency tested the soil and found high PCB levels. Overton learned of the test results.

In 1977, Overton and Spokane Transformer bought liability insurance from Industrial Indemnity. In 1979, they bought liability insurance from Consolidated. When applying for insurance, Overton did not tell either insurer about the EPA test results.

In 1981, Overton sold the property to the Gisselbergs. Years later, the Gisselbergs examined the property during a refinancing, discovered the PCB contamination, and began to clean it up. In a letter to Overton, they demanded that he contribute to the cleanup costs because he was a "potentially liable person" under the Model Toxics Control Act. The Gisselbergs later sued Overton under MTCA.

Overton tendered both the demand letter and the complaint to Industrial Indemnity and Consolidated. Both insurers denied coverage, in part because the previously known and existing damage to the property was not a covered "occurrence" under the policies. The policies defined "occurrence" as certain types of harm that the insured neither expected nor intended. Overton and Spokane Transformer sued both insurers. The trial court dismissed all coverage claims on summary judgment. The Court of Appeals reversed, finding disputes of fact. The Washington Supreme Court then accepted review.

The insurers argued that a federal case decided under Washington law, Time Oil Co. v. Cigna Prop. & Cas. Ins. Co., 743 F. Supp. 1400 (W.D. Wash. 1990), governed. The Time Oil court held that a risk was known to the insured, and therefore not an unexpected occurrence, when the insured received notice that indicated a "substantial probability" that the loss would occur. Overton argued that Time Oil did not apply because that case involved an official EPA notice, whereas here, only a private party made the demand. The Supreme Court disagreed, holding, "The dispositive issue is not how the insured was notified of property damage, but whether the insured had notice prior to purchasing the policy."

Spokane Transformer and Overton next argued that because the insurance policies protected against liability to third parties, and the Gisselbergs did not make claim against them until after issuance of the policies, the risk of loss was not previously known to them. The harm insured against, they argued, was not the harmful event itself but their legal obligation to pay for damages as a result of that event.

The Court of Appeals agreed with this reasoning, but the Supreme Court did not. The Supreme Court noted that the policies required not just damages (the Gisselbergs’ attempt to recover money) but also "property damage" (the contamination). The policies defined the latter term as requiring physical injury to, or loss of use of, tangible property.

Default vacated due to ongoing negotiations with insurer
By Jeffrey P. Downer

Where a plaintiff’s lawyer continues to negotiate with defendant’s liability insurer, a default order taken against plaintiff may be vacated for lack of notice to the defense, the Washington Court of Appeals has held.

In Colacurcio v. Burger, no. 47155-4-I (Mar. 2002), cars driven by Colacurcio and Burger were involved in a collision. Colacurcio later sued Burger. Colacurcio moved for default, without giving notice of the motion to Burger or anyone representing her.

Before and after commencing the lawsuit and moving for default, Burger’s liability insurance company engaged in extended settlement negotiations with Colacurcio’s attorney. The accident occurred in early August 1997, and by August 9, the insurer had paid Colacurcio’s property damage. By August 12, Colacurcio had retained a lawyer. Over the next 10 months, a claim representative of Burger’s insurance company contacted Colacurcio’s lawyer 15 or more times to request records, inquire as to the status of the claim, or attempt to obtain a settlement demand. On July 19, 1998, the claim representative called counsel’s office and was told that he was not ready to make a settlement demand.

However, on June 28, 1998, plaintiff’s counsel had had a process server serve the summons and complaint at Burger’s address. The parties disputed whether Colacurcio had effected proper service of process. On August 3, as plaintiff’s attorney and the claim representative continued to communicate, plaintiff moved for default without notifying Burger or her insurer. Default was entered that day. Default judgment was entered September 18, 1998, again without notifying Burger or her insurer.

Burger and her insurer did not learn of the default judgment until mid-1999. They moved to vacate the judgment, and the trial court granted the motion. Colacurcio moved unsuccessfully for reconsideration and then appealed.

The Court of Appeals affirmed the order vacating the default judgment. The court noted that if Burger had "appeared" in the case, she was entitled to notice of the motion for default. Washington courts construe broadly what constitutes an "appearance." Default judgments are disfavored and are intended only to resolve claims where a party is unresponsive and has abandoned the action. Here, the continued efforts of the insurer, acting as Burger’s agent, to settle the case disproved any such abandonment.

The Colacurcio court held that whether a party’s agent has appeared does not depend on whether the agent knows that the lawsuit exists.

PTSD can be ‘bodily injury’ under UIM policy
By Jeffrey P. Downer

Post-traumatic stress disorder, constitutes "bodily injury" under an underinsured-motorist policy if supported by objective symptoms, the Washington Court of Appeals has held.

In Trinh v. Allstate Ins. Co., no. 48199-1-I (Jan. 2002), Lien Trinh saw her best friend die when he was changing her flat tire and an uninsured drunk driver hit him. As a result, Trinh suffered PTSD. She sought coverage under the uninsured-motorist coverage of her auto policy with Allstate. Allstate denied the claim on the ground that PTSD is not "bodily injury" under the policy’s definition of that term. The definition requires "bodily injury, sickness, disease or death" to the claimant.

Trinh sued. Allstate argued, and the trial court agreed, that purely emotional conditions are not "bodily injury" under such insurance-policy definitions. Here, however, Trinh alleged that her chronic PTSD was accompanied by physical symptoms such as headaches, nausea, sleeplessness, hair loss, weight loss, and "fragile fingernails."

Although no reported Washington decision discussed whether emotional injuries that accompany such conditions constitute "bodily injury" under an insurance policy, and other states’ courts are divided, the Trinh court concluded that where physical symptoms of PTSD accompany the diagnosis, it meets the policy’s definition of "bodily injury." Trinh had raised a factual dispute on that point, so the appellate court remanded for trial.

Around The Firm

August G. Cifelli won Free v. Autoliv ASP, a product-liability claim involving the deployment of an airbag in a car. Plaintiff claimed that plaintiff’s decedent died because particulate matter was released when the airbag inflated and caused the decedent to suffer a fatal asthma attack. Autoliv manufactured the airbag module. Gus obtained voluntary dismissal of Autoliv. Co-defendant General Motors Corp. then retained Gus as one of its trial counsel. After a three-week trial, the jury returned a defense verdict for GM.

Francis X. Olding won a judgment of more than $250,000 in his defense of Estate of Karen Morgan v. Estate of Casey Morgan, a complex probate dispute. The action began as a $1 million claim by the estate of a deceased wife against the estate of a deceased husband, both of whom the husband’s brother had fatally shot. The wife’s estate claimed wrongful death due to the husband’s negligence. Much of the case turned on which spouse died first, to determine the flow of both spouses’ assets. Frank won a series of motions for partial summary judgment and for attorney fees and sanctions. The parties then tried the issue of the sequence of the deaths, which would determine which estate owned the assets. The court agreed with Frank that the wife died first, so that plaintiff received nothing. In addition, Frank had discovered during discovery that the personal representative of the wife’s estate had raided her retirement accounts, to which the husband’s estate was legally entitled. Frank’s client counterclaimed for those funds. The court ultimately entered judgment in favor of Frank’s client for more than $250,000, and rejected plaintiff’s claim of more than $1 million. … Patricia K. Buchanan has been named a 2002 "Rising Star" by Washington Law & Politics Magazine. The magazine bestows the designation on approximately four percent of Washington lawyers who are under the age of 40 or have practiced for fewer than 10 years. Congratulations, Pat!

Although the Lee Smart firm’s practice traditionally has emphasized the defense of civil litigation, the firm also represents plaintiffs where warranted. In Chenier v. Paccar, Gregory P. Turner and Tammy L. Williams represented Wanda Chenier and her family in a claim arising from a tragic auto accident that rendered Ms. Chenier a quadriplegic. The driver of a 1987 Peterbilt truck changed lanes without seeing a Volkswagen Jetta in the next lane. He collided with the Jetta, which lost control and crashed head-on into the Cheniers’ car in one of the oncoming lanes. The Cheniers’ SUV rolled several times. Ms. Chenier, then age 35, suffered a cervical spinal cord injury. The Cheniers’ five-year-old son suffered severe facial injuries. Mr. Chenier and a daughter suffered lesser injuries. The Cheniers alleged that the truck driver and Paccar, the manufacturer of the truck, were at fault. The truck lacked a right-side view window, which other truck manufacturers included as standard equipment, that would have given the truck driver a greater opportunity to have seen the Jetta. The found both the truck driver and Paccar liable and returned a verdict of $11 million.

Michael A. Patterson, Duncan K. Fobes, and Marc Rosenberg won summary judgment in Miller v. Grays Harbor County, a $4 million personal-injury action. Plaintiff sued after a motorcycle accident rendered him a paraplegic. He alleged negligent maintenance of the road by the county. Plaintiff’s attorney filed the action in a county adjoining Grays Harbor County, but it was the wrong county. A Washington statute requires that any action against a county be filed either in that county or in an adjoining county that the Office of Administrator of the Courts designates. The court agreed with Mike, Duncan, and Marc that the statute’s requirement was jurisdictional and dismissed the action. The statute of limitations now bars any re-filing of the action. … Richard C. Robinson won a defense verdict in Collier v. Pacific Industrial Supply, a product-liability action. The 19-year-old plaintiff lost two fingers while using a threading machine. The day before trial, the co-defendant manufacturer settled, leaving Rich to defend the non-settling remanufacturer defendant. Despite jury instructions that almost directed the jury to find Rich’s client at fault, Rich persuaded the jury that the fault of the plaintiff and his employer, not defendant, had caused the accident. … Tammy L. Williams obtained dismissal of Kennedy v. Windermere. Plaintiff claimed that she slipped and fell at a house that Tammy’s client had listed for sale. Tammy moved for summary judgment because plaintiff had sued the wrong corporation, and as a result the plaintiff voluntarily dismissed her claim.