Supreme Court makes it easier to prove insurer bad faith
By Gregory P. Turner

Insurers will have more difficulty obtaining dismissal of bad-faith claims, based on a pair of recent decisions by the Washington Supreme Court.

In Smith v. Safeco Ins. Co., no. 73299-0 (Nov. 6, 2003) and Amer. States Ins. Co. v. Symes of Silverdale, Inc., no. 72817-8 (Nov. 6, 2003), the Supreme Court overruled recent case law suggesting that a policyholder must do more than present facts to show committed bad faith, and instead must prove bad faith as a matter of law.

In Smith, Safeco’s insured, Bryce, negligently injured Smith. Before any suit was filed, Smith asked Safeco to disclose the limits of Bryce's liability-insurance policy. Safeco did not have current contact information for Bryce, could not reach her, and could not obtain her permission to divulge policy limits. Safeco therefore refused to tell Smith the policy limits. Smith sued Bryce. In discovery responses, Safeco disclosed the policy limits.

Bryce and Smith settled. Bryce agreed not to pursue Smith's personal assets; Smith assigned to Bryce any claims she had against Safeco. Safeco brought a declaratory-judgment action, seeking a ruling that its pre-suit refusal to divulge policy limits was not bad faith. The trial court consolidated the declaratory and personal-injury actions, heard summary judgment motions, and held that Safeco did not commit bad faith. The Court of Appeals affirmed. The Supreme Court accepted review.

The Supreme Court considered the standard of proof of insurer bad faith under Ellwein v. Hartford Acc. & Indem. Co., 142 Wn.2d 766 (2001). The Ellwein Court seemed to authorize dismissal of a bad-faith claim on summary judgment whenever a reasonable dispute exists as to "coverage-determining facts." Some Washington courts interpreted this language from Ellwein to mean that, if the insurer can raise a fact dispute as to the reasonableness of its conduct, there cannot be bad faith. Thus either bad faith occurred as a matter of law, or not at all.

The Smith Court disagreed. "Ellwein did not create a special burden for policyholders, nor did it create special standards of summary judgment to benefit insurers accused of bad faith," the Smith Court ruled. The insurer is entitled to summary judgment only "if reasonable minds could not differ that its denial of coverage was appropriate." On the other hand, "the insured may present evidence that the insurer's alleged reasonable basis was not the actual basis for its action, or that other factors outweighed the reasonable basis. To the extent that Ellwein is inconsistent with these principles, it is overruled."

In Symes, American States issued a fire policy for a restaurant that later filed for bankruptcy. The restaurant burned, and BATF concluded that the fire was arson. American States declined the bankruptcy trustee's fire-insurance claim, citing a fraudulent proof of loss, failure to cooperate with the insurer, and harm that the insured intentionally caused. American States sued for declaratory judgment. The bankruptcy trustee counterclaimed for bad faith. Both parties moved for summary judgment, but the trial court denied both motions. The Court of Appeals held that the insured had failed to prove bad faith and reversed in part. The Supreme Court accepted review, followed its ruling in Smith, reversed the dismissal of the bad-faith claims, and remanded.

Retailer has no duty to secure customer's oversized load
By Tammy L. Williams

A retailer has no duty to secure oversized merchandise to a customer’s truck, the Washington Court of Appeals has held.

In Ganno v. Lanoga Corp., no. 29762-1-I (Nov. 25, 2003), Henry Ganno bought a 12-foot, 100-pound wooden beam at Lumbermen’s Building Center. A Lumbermen’s employee used a forklift to help Ganno load the beam onto Ganno’s pickup truck. The truck’s bed was half the length of the beam. The beam stuck out some four feet beyond the truck’s tailgate. The employee placed a flag on the rear end of the beam. Lumbermen’s supplied twine for customers to use in securing loads. However, Lumbermen’s had posted a sign that said that it would not secure loads for customers.

Neither Ganno nor anyone from Lumbermen’s tied or secured the load. Ganno drove away. As he rounded a corner, the beam fell into the street. He got out and tried to put the beam back onto the truck, but another vehicle hit the beam. The beam struck and injured Ganno.

Ganno sued Lumbermen’s for his injuries. He claimed that Lumbermen’s was negligent in loading the beam without securing it. Lumbermen’s moved for summary judgment. Lumbermen’s argued that it did not owe Ganno a duty as its business invitee, because the accident did not happen on its premises. The trial court agreed and dismissed the action.

The Court of Appeals affirmed the dismissal. The court noted that premises liability traditionally arises from known or obvious dangers on a landowner’s property, and the landowner’s duty to warn an invitee about these dangers. “The key to liability is that the injury occurs on the landowner’s property,” the court held.

Ganno argued that Lumbermen’s was liable under the voluntary-rescue doctrine, which can apply where one undertakes a duty that the law otherwise does not impose. Ganno asserted that Lumbermen’s undertook a duty to warn by posting a sign telling customers that it would not tie down loads, and by gratuitously helping to load and flag the beam. But the Court of Appeals noted that the voluntary-rescue doctrine applies where one takes steps to aid a person who is in danger. The rescuer can be liable for making the victim’s situation worse by increasing the danger, misleading the victim into believing the danger has been removed, or depriving the victim of assistance from others. Here, the doctrine did not apply because Lumbermen’s did not try to rescue Ganno from any danger that then existed. Its conduct that preceded the danger did not trigger the voluntary-rescue doctrine.

Ganno next asserted that the Uniform Commercial Code imposed the risk of loss on the product seller even after Ganno left Lumbermen’s premises. Again, the court disagreed. Citing UCC provisions, the court held that the risk of loss passes to the buyer on receipt of the goods, which in this case was when the beam was placed in Ganno’s truck.

Finally, Ganno argued that the Washington statute that requires the securing of all loads on vehicles before they enter public roads did not apply to him. The court examined the statute and held that it did require Ganno to secure his own load. The court rejected Ganno’s assertion that it created some percentage of fault on the part of Lumbermen’s, because no employee of Lumbermen’s operated Ganno’s truck.

New newsletter, new website, same firm
By Jeffrey P. Downer

Lee Smart, P.S., Inc. began in 1913 as an insurance-defense law firm. It continues today to concentrate its practice on insurance defense and other litigation. The firm has grown steadily, especially in recent years, and now has more than 50 attorneys.

Lee Smart has published the Lee Smart Quarterly, the newsletter you are now reading, for the past 14 years. We offer it as a free service to clients and others. We plan to distribute the Quarterly by e-mail as well as by regular mail.

If you would like to receive the e-mail edition of the Lee Smart Quarterly, please e-mail us at lsq@leesmart.com and type the word “subscribe” in the subject line. Be sure to include your name, mailing address, and phone number in the body of the e-mail.

Lee Smart recently redesigned and updated its website, www.leesmart.com, and invites you to visit it. With this issue, we’ve updated the Quarterly’s look to complement the website.

We welcome questions and comments about this publication. Direct them to the editor, Jeff Downer, at jpd@leesmart.com.

Around The Firm

Washington Law & Politics magazine continues to recognize Lee Smart’s many up-and-coming younger lawyers. The magazine’s Rising Stars for 2004 include Lee Smart lawyers Charles P.E. Leitch, Michelle A. Corsi, Jennifer M. Ilenstine, and Stacy D. Heard.

Jennifer Ilenstine also has had a string of courtroom wins, including a defense verdict in the trial of Raven Construction v. Marie Gallagher & Associates, a real-estate-malpractice claim. A real estate agent pointed out flags and stakes to a property buyer, who also was a contractor. The buyer closed on his purchase of the property and later built a $650,000 home on it. He claimed to have relied on the real estate agent’s representations, and he had no survey performed before building. The house was built 60 feet onto the neighbor’s property. Plaintiff claimed more than $200,000 in damages after buying the strip of land onto which the house encroached, plus attorney fees and other expenses. The jury agreed with Jennifer that the real estate agent’s representation was not negligent.

Peter E. Sutherland won a favorable jury verdict in Bergquist v. Evergro Sales, which arose from a serious head-on auto accident. Plaintiff suffered cervical and thoracic dysfunction, aggravation of a previous thoracic compression fracture, and paresthesia of her arms. Plaintiff claimed more than $11,000 in medical expenses and $50,000 in business losses. Liability was disputed. Plaintiff asked the jury for more than $150,000. Although the jury found Peter's client 100 percent liable, it awarded less than $32,000 in total damages.

David L. Martin and Frank A. Cornelius won a favorable verdict in Brannan v. Potelco. In that case, a 78-year-old woman fell in her kitchen on water that spilled due to excessive water pressure in the pipes. Dave and Frank’s client, Potelco, had ruptured the water main, because the local water association, Dockton, had inaccurately located the main. After the water main was repaired, only some water valves were turned back on, which plaintiff alleged was the cause of the over-pressure incident. Plaintiff claimed a concussion, shortness of breach, loss of stamina and energy, and $65,000 in medical bills for a post-fall hospitalization. The jury returned a verdict of only $207,000. The jury found Potelco and Dockton each 50 percent at fault. However, another homeowner previously had sued Potelco and Dockton in small-claims court for property damage arising from the same incident, and the small-claims court had found Potelco only 25 percent at fault and Dockton 75 percent at fault. After trial, the court agreed with Dave and Frank that collateral estoppel applied, so that the 25-75 fault allocation applied to the Brannan case also. As a result, Dave and Frank’s client paid only $52,000, which was essentially the same as their pre-trial settlement offer.

Eric S. Newman defended the jury trial of Seidemann v. Newell, an admitted-liability case involving plaintiff’s two unrelated car accidents three weeks apart. Eric defended the driver in the second accident. The trial addressed the allocation of damages between the two defendants and a calculation of plaintiff's damages. The plaintiff claimed nearly $10,000 in medical bills and alleged that she still could not work more than two years after the accidents. At trial she asked the jury for past and future medical expenses, past and future wage loss, and pain and suffering. After a four-day trial, the jury awarded the plaintiff a total of $45,856.30. Eric’s client was assigned only 0.32711% of the liability, which totaled $150. Because Eric previously had served a $5,000 offer of judgment on plaintiff, she was left owing Eric’s client's costs incurred after the offer.