Summary
reading Averill to hold "that when an insurer obtains a recovery in subrogation from a third party, the insured is not entitled to reimbursement for the deductible paid by the insured under the common law 'made whole' rule"
Summary of this case from Hall v. Encompass Ins. Co. of Am.Opinion
64626-5-I
01-17-2012
DALJEET SOMAL, Respondent, v. ALLSTATE PROPERTY AND CASUALTY INSURANCE COMPANY, Appellant.
UNPUBLISHED OPINION
Schindler, J.
In Averill v. Farmers Insurance Co. of Washington, 155 Wn.App. 106, 119, 229 P.3d 830 (2010), review denied, 169 Wn.2d 1017 (2010), we held that when an insurer obtains a recovery in subrogation from a third party, the insured is not entitled to reimbursement for the deductible paid by the insured under the common law "made whole" rule. Because neither the common law made whole rule nor the insurance contract requires Allstate Property and Casualty Insurance Company to reimburse Daljeet Somal for the deductible he paid from funds Allstate recovered in subrogation from the other driver's insurance company, we reverse the order denying the CR 12(b)(6) motion to dismiss filed by Allstate, and the order granting partial summary judgment in favor of Somal.
The Car Accident
On January 12, 2009, Daljeet Somal's Ford Explorer was involved in a motor vehicle accident. The driver of the other car involved in the accident was Steven Parascondola. Allstate Property and Casualty Insurance Company insured Somal's Ford Explorer under a motor vehicle liability insurance policy that included collision coverage with a $500 deductible. State Farm Insurance Company insured Parascondola's car. The total cost to repair the Ford Explorer was $1,970.76. Allstate paid $1,470.76 to repair the Ford Explorer. Somal paid the $500 deductible.
Subrogation Recovery
In a letter dated February 12, Allstate informed Somal that under the subrogation provision of the policy, Allstate was seeking recovery of payment for the repair costs from the other driver's insurer, State Farm. The letter also states that if it was determined that Somal was partially at fault for the accident, Allstate will only reimburse Somal the proportionate share of the deductible. The letter states, in pertinent part:
We are writing to let you know that we have started our efforts to recover your deductible as well as the amount we paid in the loss . . . .
. . . The recovery process, which is known as subrogation, typically takes several months to complete.
If we make a full recovery, we will refund your deductible in full. In the event we determine that you are partially responsible for the accident, and we obtain only partial recovery, we will reimburse you the proportionate share of your deductible.
Allstate and State Farm agreed that Somal was 60 percent at fault for the accident. State Farm paid Allstate for 40 percent of the total cost of the repairs. In a letter dated March 11, Allstate informed Somal of the subrogation recovery and the determination that he was partially at fault. The letter states, in pertinent part:
We're writing to let you know that we were unable to recover the entire amount of your deductible . . . . We now have concluded our subrogation efforts.
After a review of the facts of the accident, it has been determined that you were partially at fault. For this reason, we have reduced the recovery amount in proportion to your share of responsibility for the loss. We will send you a check for the proportionate share of your deductible in a separate mailing. Please know the amount you receive will be the final settlement of any obligation Allstate . . . has regarding the refund of your deductible.
Allstate sent Somal a check for 40 percent of the deductible, or $200. Somal cashed the check.
Lawsuit
On June 23, Somal filed a class action lawsuit against Allstate for violation of the Washington Consumer Protection Act, chapter 19.86 RCW, bad faith, conversion, and breach of contract. Somal asserted claims on behalf of himself and others similarly situated and sought declaratory and injunctive relief and damages. Somal alleged that under the common law made whole rule and the insurance policy,
Although Somal filed the lawsuit as a class action, the parties agreed to first file motions to address the legal issue.
The class is comprised of the following:
All persons in the State of Washington who had a motor vehicle liability insurance policy issued by Allstate that included Collision coverage, where Allstate obtained any measure of reimbursement for payments made under that coverage before its insureds were first fully compensated for the losses related to those payments.
13. . . . Allstate is only entitled to recoup payments made to or for plaintiff, such as the payments made here under his Collision coverage, if plaintiff is first fully compensated for the applicable loss. Even then, Allstate is only entitled to recoups [sic] its payments to the extent the funds recovered exceed full compensation for the applicable loss.
14. Here, plaintiff has plainly not been fully compensated for his loss in regards to his property damage loss, yet Allstate has recouped part of its payment under the Collision coverage.
15. Notwithstanding the Policy language and Washington law, Allstate has taken the position that it is entitled to retain the remainder of the funds received from State Farm, and is under no obligation to fully compensate plaintiff for his property damage loss.
Cross Motions
Allstate filed a CR 12(b)(6) motion to dismiss for failure to state a claim. Allstate asserted that Somal has no legal or contractual right to receive reimbursement for the entire deductible he paid. Allstate argued that neither the common law made whole rule, the insurance commission regulations, nor the insurance contract supported the premise of the claim that, regardless of fault, Somal was entitled to reimbursement of the entire amount of the deductible from the funds Allstate received in subrogation.
Somal filed a motion for partial summary judgment, arguing that as a matter of law, the common law made whole rule, the insurance commission regulations, and the insurance agreement required Allstate to compensate him for the entire deductible. Somal argued that Allstate had a duty to pay him the full amount of the deductible from the funds Allstate obtained in subrogation from State Farm in order to fully compensate him for the property damage.
The court denied the CR 12(b)(6) motion to dismiss and granted partial summary judgment in favor of Somal. The trial court ruled that the common law made whole rule required Allstate to compensate Somal the full amount Somal paid as a deductible. But the court reserved ruling on the measure of damages or the scope of relief. The partial summary judgment order states, in pertinent part:
Somal is entitled to be made whole for his property damage loss before Allstate, as his property damage insurer, is entitled to retain funds recovered from the third party tortfeasor representing payment for Somal's property damage loss.
Discretionary Review
Allstate filed a motion for discretionary review. Allstate asserted that under RAP 2.3(b)(2), the trial court's decision on partial summary judgment constituted probable error that substantially altered the status quo and improperly precluded Allstate from recovering payments made on behalf of partially at-fault insureds.
RAP 2.3(b)(2) permits discretionary review where "[t]he superior court has committed probable error and the decision of the superior court substantially alters the status quo or substantially limits the freedom of a party to act."
A commissioner of this court granted Allstate's motion for discretionary review but stayed the appeal pending the decision in a case that presented the same issue, Farmer's Insur. Co. v. Averill, No. 62767-8-I. The order states, in pertinent part:
Allstate filed a motion for discretionary review of a trial court order granting partial summary judgment for respondent Da[l]jeet Somal and denying Allstate's motion to dismiss Somal's complaint. The key issue is whether Allstate is obligated to fully reimburse Somal for his deductible after a subrogation recovery when Somal was partially at fault for the accident. On February 9, 2011, a commissioner of this court granted discretionary review and stayed review pending the decision in Farmer's Insur. Co. v. Averill, No. 62767-8-I.
After the decision in Averill was filed on March 15, 2010, we lifted the stay and scheduled the appeal in this case for oral argument.
Averill
Allstate contends our decision in Averill governs and that Somal is not entitled to reimbursement for his entire collision deductible from the recovery Allstate received in subrogation for the total cost of repairs under the common law made whole rule. We agree with Allstate.
In Averill, we held that an insurer does not have an obligation under the common law made whole rule to reimburse the insured for the deductible from the recovery the insurer obtained in subrogation from the other driver's insurer. Averill, 155 Wn.App. at 114. "[T]he made whole doctrine does not apply when the insurance company has pursued recovery of its subrogation interests." Averill, 155 Wn.App. at 112. Here, as in Averill, the made whole rule does not apply to Allstate's recovery in subrogation.
Insurance Contract
Allstate also asserts the subrogation provision of the insurance agreement does not require it to reimburse Somal for the deductible from the recovery Allstate obtained in subrogation from a third party.
Interpretation of an insurance contract is a question of law subject to de novo review. Overton v. Consol. Ins. Co., 145 Wn .2d 417, 424, 38 P.3d 322 (2002). "The insurance contract must be viewed in its entirety; a phrase cannot be interpreted in isolation." Allstate Ins. Co. v. Peasley, 131 Wn.2d 420, 424, 932 P.2d 1244 (1997). Further, in determining a contract's legal effect, "a court must construe the entire contract together so as to give force and effect to each clause." Pub. Util. Dist. No. 1 of Klickitat County v. Int'l Ins. Co., 124 Wn.2d 789, 797, 881 P.2d 1020 (1994).
Because insurance policies are contracts, the principles of contract interpretation apply. See, e.g., Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165, 171, 110 P.3d 733 (2005). " 'The cardinal rule with which all interpretation begins is that its purpose is to ascertain the intention of the parties.' " Berg v. Hudesman, 115 Wn.2d 657, 663, 801 P.2d 222 (1990) (quoting Arthur L. Corbin, The Interpretation of Words and the Parol Evidence Rule, 50 Cornell L. Quar. 161, 162 (1965)). If the language in an insurance contract is not ambiguous, the court must enforce it as written and may not modify the contract or create an ambiguity where none exists. State Farm Mut. Auto. Ins. Co. v. Ruiz, 134 Wn.2d 713, 721, 952 P.2d 157 (1998). A provision is ambiguous if, on its face, it is fairly susceptible to more than one reasonable interpretation. Daley v. Allstate Ins. Co., 135 Wn.2d 777, 784, 958 P.2d 990 (1998). And while ambiguity is construed against the drafter, a strict application should not trump the plain, clear language such that a strained or forced construction results. See Findlay v. United Pac. Ins. Co., 129 Wn.2d 368, 374, 379, 917 P.2d 116 (1996); Transcont. Ins. Co. v. Wash. Pub. Util. Dists.' Util. Sys., 111 Wn.2d 452, 457, 760 P.2d 337 (1988).
Part VII of the Allstate insurance policy, "Subrogation Rights, Protection Against Loss to the Auto, " states, in pertinent part:
When we pay, your rights of recovery from anyone else become ours up to the amount we have paid. However, we may recover only the excess amount you have received after being fully compensated for the loss.
(Bold in original.)
The plain language of the first sentence unambiguously refers to Allstate's subrogation right to recover from "anyone else" including the right to recover from third parties. Allstate has a right to assert its subrogation interest. Mahler v. Szucs, 135 Wn.2d 398, 413, 957 P.2d 632, 966 P.2d 305 (1998). An insurer may enforce its subrogation interest "by an action by the subrogee/insurer in the name of the insured against the tortfeasor" or by "a type of lien against the subrogor/insured's recovery from a tortfeasor." Mahler, 135 Wn.2d at 417-18. The language in the first sentence clearly informs the insured that when Allstate pays for a loss under the terms of the insurance agreement, it has the right to seek recovery in subrogation of the funds it paid from third parties.
The second sentence addresses Allstate's right of recovery when the insured, instead of Allstate, obtains a recovery from a third party. Where the insured obtains a recovery from a third party, Allstate "may recover only the excess amount you have received after being fully compensated." This unambiguous language is consistent with the common law made whole rule. "The made whole doctrine is a limitation on the recovery of the insurer when it seeks reimbursement from its insured for a loss it has previously paid to the insured." Averill, 155 Wn.App. at 114.
Here, there is no dispute that Allstate paid Somal for the loss, and Allstate was entitled to pursue its rights in subrogation to obtain reimbursement for the amount Allstate paid for the loss. There is also no dispute that Somal did not seek recovery from a third party. The plain and unambiguous language of the policy does not entitle Somal to recovery of his deductible from the recovery Allstate obtained in subrogation from the other driver's insurance company.
We reverse the order denying Allstate's CR 12(b)(6) motion to dismiss and the order granting Somal's motion for partial summary judgment. On remand, the court shall enter an order dismissing Somal's lawsuit with prejudice.
In supplemental briefing, the parties address a change to the insurance commission's regulations, WAC 284-30-393 . Allstate argues the new WAC provision supports the argument that the trial court erred in ruling that Somal was entitled to full reimbursement of his deductible. See Wash. St. Reg. 11-13-029 (June 7, 2011) (amending WAC 284-30-393 to allocate subrogation recoveries first to the insured for "any deductible(s) incurred in the loss, less applicable comparable fault"). Because we conclude Somal is not entitled to full reimbursement under Averill or his insurance contract, we need not address the effect of the amendment to WAC 284-30-393 .