Loretta Lesure v. Farmers Insurance Company Of Wa

Filed
Washington State
Court of Appeals
Division Two
September 20, 2016
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION II
LORETTA LESURE, a single woman, No. 48045-0-II
Appellant,
v.
FARMERS INSURANCE COMPANY OF UNPUBLISHED OPINION
WASHINGTON, a domestic corporation and a
Washington State Stock Insurer,
Respondent.
LEE, J. — Loretta Lesure appeals the trial court’s order granting Farmers Insurance
Company of Washington’s (Farmers) motion for summary judgment, finding Farmers did not owe
additional benefits to Lesure for fire damage to her home. The trial court concluded that as a matter
of law, Lesure’s policy did not cover the total cost of fire-loss house repairs that included, in part,
costs for changed building code requirements. We agree and affirm.
FACTS
The facts are primarily undisputed. Lesure’s Port Angeles home was partially damaged by
fire. The home was insured by Farmers. Coverage A of the insurance policy covered the cost to
repair or replace the insured’s dwelling up to a policy limit of $112,000.00.1 The policy, however,
1
The policy states that under Coverage A:
No. 48045-0-II
excludes “direct or indirect loss” resulting from the “[e]nforcement of any ordinance or law
regulating construction, repair or demolition of a building or other structure, unless endorsed by
this policy.”2 Clerk’s Papers (CP) at 129. Lesure purchased an optional endorsement for coverage
of building code and ordinance upgrades with a liability limit of “10% of the total limit of insurance
applying to the covered property.”3 CP at 144. The policy limit for the optional coverage was
$11,200.00.
We cover:
1. The dwelling, including attached structures, on the residence premises and used
principally as a private residence.
2. Material and supplies on or adjacent to the residence premises for use in
construction, alteration or repair of the dwelling or other structures on the residence
premises.
Wall-to-wall carpeting attached to the dwelling is part of the dwelling.
CP at 125.
2
The policy states:
We do not cover direct or indirect loss from:
1. Enforcement of any ordinance or law regulating construction, repair or
demolition of a building or other structure, unless endorsed to this policy.
CP at 129.
3
The endorsement states:
Under Section I — Property, Losses Not Insured or Losses Not Covered, the
following exclusion is deleted:
Enforcement of any ordinance or law regulating construction, repair or demolition
of a building or other structure, unless endorsed on this policy.
Under Section I — Property, Additional Coverages, the following coverage is
added:
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No. 48045-0-II
Replacement costs for the partially fire-damaged home totaled $22,248.25 (less Lesure’s
$500 deductible). Because the home failed to comply with current building code requirements,
the city of Port Angeles required that the home be rebuilt to construction code. Specifically, the
home needed a foundation. Lesure estimates the cost to rebuild her home with the code required
updates to be $125,397.12. Farmers tendered $21,748.25 for repairs related to the fire damage,
plus $11,200.00 for repairs related to code compliance, which was the coverage limit.
Lesure rejected Farmers’ offer and requested the full policy limit of $112,000.00 plus an
additional 10 percent under the optional building ordinance or law endorsement, totaling
$123,200.00 to demolish and rebuild her home to current code. Farmers denied her request.
Lesure filed a complaint for declaratory relief and damages. Lesure requested declaratory
judgment arguing the efficient proximate cause (EPC) rule required Farmers to pay the full policy
limit.
Farmers filed a motion for partial summary judgment, arguing it fulfilled its obligations
under the policy by offering payment for the property damage plus an extra 10 percent of her
maximum policy limit under her optional endorsement. The trial court granted Farmers’ request
for partial summary judgment, finding Farmers owed no additional benefits under the coverage
1. Our limit of liability for this coverage will not be more than 10% of the total
limit of insurance applying to the covered property under Coverage A—Dwelling
or Coverage B—Separate Structures, shown in the declarations or premium notice,
whichever is most recent at the time of loss. This endorsement applies to all
coverages whether in the policy contract or subsequently added by endorsement.
CP at 144.
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No. 48045-0-II
terms of the policy; denied Lesure’s request for declaratory judgment; and dismissed with
prejudice Lesure’s action. Lesure appeals.4
ANALYSIS
A. STANDARD OF REVIEW
We review a superior court’s order on summary judgment in a declaratory judgment action
de novo. Internet Cmty. & Entm’t Corp. v. Wash. State Gambling Comm’n, 169 Wash. 2d 687, 691,
238 P.3d 1163 (2010). Summary judgment is appropriate if no genuine issues of material fact
exist and the moving party is entitled to judgment as a matter of law. CR 56(c).
Interpretation of an insurance policy is a question of law we review de novo. Woo v.
Fireman’s Fund Ins. Co., 161 Wash. 2d 43, 52, 164 P.3d 454 (2007). Because insurance policies are
construed as contracts, the policy terms are interpreted according to contract principles.
Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wash. 2d 654, 665, 15 P.3d 115 (2000). The
policy is considered as a whole, and is given a “‘fair, reasonable, and sensible construction as
would be given to the contract by the average person purchasing insurance.’” Id. at 666 (quoting
Am. Nat’l Fire Ins. Co. v. B & L Trucking & Constr. Co., 134 Wash. 2d 413, 427, 951 P.2d 250
(1998)). If the language is clear, the court must enforce the policy as written and may not create
ambiguity where none exists. Quadrant Corp. v. Am. States Ins. Co., 154 Wash. 2d 165, 171, 110
P.3d 733 (2005). “[T]he expectations of the insured cannot override the plain language of the
contract.” Id. at 172.
4
The parties stipulated to the dismissal of all other potential coverage claims and agreed the
court’s memorandum order was a final decision on the merits.
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No. 48045-0-II
B. EFFICIENT PROXIMATE CAUSE RULE
Lesure first contends the trial court erred in failing to recognize and apply the EPC rule.
The EPC rule is applied in Washington to determine first-party insurance policy coverage when a
single loss occurs as the result of two or more perils acting together. Vision One, LLC v.
Philadelphia Indem. Ins. Co., 174 Wash. 2d 501, 519, 276 P.3d 300 (2012). “The efficient proximate
cause rule applies only when two or more perils combine in sequence to cause a loss and a covered
peril is the predominant or efficient cause of the loss.” Id. (citing McDonald v. State Farm Fire &
Cas. Co., 119 Wash. 2d 724, 732, 837 P.2d 1000 (1992)) (emphasis added). “In such a situation, the
efficient proximate cause rule mandates coverage, even if an excluded event appears in the chain
of causation that ultimately produces the loss.” Vision One, 174 Wash. 2d at 519 (citing Safeco Ins.
Co. of Am. v. Hirschmann, 112 Wash. 2d 621, 628, 773 P.2d 413 (1989)).
Here, the facts in Allemand v. State Farm Insurance Companies, 160 Wash. App. 365, 248
P.3d 111 (2011), are very similar to our facts. In Allemand, fire damaged the Allemands’ home.
The Allemands’ policy with State Farm covered damage due to fire plus an optional endorsement
for coverage of “increased costs resulting from enforcement of any ordinance or law.” 160 Wn.
App. at 367. The optional coverage provided an additional sum equal to 10 percent of the policy
maximum. Id. After a fire damaged their home, the Allemands learned their home would have to
meet building codes. Specifically, their home needed a foundation, crawl space, and updated
electrical wiring. Id. They requested the full policy limit plus an extra 10 percent for these repairs.
State Farm rejected their demand, and the Allemands filed a complaint for declaratory judgment.
The court held that “Coverage A is to provide ‘similar construction’ in rebuilding the home . . .
[and] does not include paying for required code upgrades.” Id. at 373. The court further held that
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No. 48045-0-II
the sole source of coverage for bringing the remodeled home up to code was the optional coverage
and that coverage had a policy limit of 10 percent of the Coverage A policy limit. Id. In a footnote,
the court noted, “[T]he Allemands’ argument that the policy conflicts with [the EPC] rule is
without merit.” Id. at 372 n.2.
Similarly here, Lesure’s EPC rule argument is without merit. The rule “applies only when
two or more perils combine in sequence to cause a loss and a covered peril is the predominant or
efficient cause of the loss.” Vision One, 174 Wash. 2d at 519. “When . . . the evidence shows the
loss was in fact occasioned by only a single cause, . . . the efficient proximate cause analysis has
no application.” Kish v. Ins. Co. of N. Am., 25 Wash. 2d 164, 170, 883 P.2d 308 (1994) (quoting
Chadwick v. Fire Ins. Exch., 17 Cal. App. 4th 1112, 1117, 21 Cal. Rptr. 2d 871 (1993)). The Kish
court elaborated, “An insured may not avoid a contractual exclusion merely by affixing an
additional label or separate characterization to the act or event causing the loss.” (quoting
Chadwick, 17 Cal. App. 4th at 1117).
There is no uncovered peril here. Fire is the only cause of loss. Non-compliance with a
city’s building code is not a peril. There is no chain of events. Thus, the EPC rule does not trigger
coverage for additional repair costs due to building code violations other than what is allowed
under the building ordinance or law endorsement.5
5
The United States District Court for the Western District of Washington recently held likewise
in an unpublished opinion. Certain Underwriters at Lloyds, London v. Allen, 2015 WL 4094350,
at *4 (W.D. Wash. July 7, 2015). Farmers cites this case in its response brief. Washington’s
former General Rule 14.1(b) permits parties to cite unpublished decisions from non-Washington
jurisdictions if that jurisdiction permits citation to the decision. Federal courts permit citation to
unpublished decisions issued on or after January 1, 2007. FRAP 32.1. But, former GR 14.1(b)
required the party citing an unpublished decision to “file and serve a copy of the opinion with the
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No. 48045-0-II
Next, Lesure contends the insurance policy effectively circumvents the EPC rule because
the entire fire loss would be covered if Lesure did not purchase optional coverage, making the
optional building ordinance or law endorsement coverage illusory. We disagree because the EPC
rule simply does not apply in this case. There is no chain of covered and uncovered peril to warrant
further discussion or speculation of the EPC rule on an optional endorsement.
C. DECLARATORY JUDGMENT
Lesure next contends the trial court erred by dismissing her action because the policy
language for the building ordinance or law endorsement is ambiguous. She contends the term
“Additional Coverages” can be interpreted as meaning additional to the maximum policy limit
(including code upgrade costs) or additional solely to the repair costs (excluding code upgrade
costs). CP at 109. Lesure urges this court to interpret the policy as permitting recovery of the
building ordinance or law endorsement limit of $11,200.00 in addition to the $112,000.00 policy
limit, for a total of $123,200.00. We disagree.
A similar policy was discussed at length in Allemand, where the court addressed “nine
decades” of Washington law involving comparable policies. 160 Wash. App. at 366. The Allemand
court held that replacement costs for like construction and use of a structure do not include costs
of upgrading a structure to meet building codes that it did not previously meet. 160 Wash. App. at
372; see also Dombrosky v. Farmers Ins. Co. of Wash., 84 Wash. App. 245, 259, 928 P.2d 1127
(1996) (holding that coverage for “equivalent construction” did not include building code
brief or other paper in which the opinion is cited.” Farmers failed to include the required copy;
therefore, this opinion does not address Allen. As a side note, amendments to GR 14.1 took effect
September 1, 2016, but the changes have no impact on this opinion.
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No. 48045-0-II
upgrades), review denied, 131 Wash. 2d 1018 (1997); Roberts v. Allied Grp. Ins. Co., 79 Wash. App.
323, 325, 901 P.2d 317 (1995) (holding that coverage for “like construction” did not include
building code upgrades). For Lesure to reach the Coverage A maximum, the code upgrade costs
would have to be covered under Coverage A. They are not.
Moreover, in Vision One, our Supreme Court held that an extraexpense endorsement
(additional coverage for soft costs including loan interest, property taxes, and accounting and legal
fees) was limited to the endorsement amount and was not “designed to provide an additional $1
million for the specified . . . losses in the event the $12.5 million [policy] limit was exhausted.”
174 Wash. 2d at 522.
Based on the above authority, the policy language is clear and unambiguous. Farmers’
original obligation under Coverage A is to provide similar construction in rebuilding the partially
damaged home. This does not include paying for required code upgrades. Instead, the policy
provides for necessary code upgrades by the optional endorsement. The endorsement is the sole
source of the obligation to pay for bringing the remodeled home up to code. The coverage,
however, is limited to 10 percent of Coverage A that Lesure purchased. The necessary upgrades
required more than that figure and Farmers, accordingly, properly tendered its limits under that
coverage. Farmers was not required to pay the full policy limits plus an extra 10 percent as alleged
by Lesure.
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No. 48045-0-II
We affirm.
A majority of the panel having determined that this opinion will not be printed in the
Washington Appellate Reports, but will be filed for public record in accordance with RCW 2.06.040,
it is so ordered.
Lee, J.
We concur:
Johanson, J.
Bjorgen, C.J.
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