FINDINGS OF FACT AND CONCLUSIONS OF LAW
ROBERT H. WHALEY, Chief Judge.
On December 1, 2006, Plaintiff brought suit against Defendant Unumprovident Corporation in Asotin County Superior Court, seeking a declaratory judgment regarding an accidental death insurance policy.
Plaintiff seeks damages from Defendants Unum, DRIASI, and U.S. Bank under theories of breach of contract, negligence, violations of the Washington State Consumer Protection Act, bad faith, misrepresentation, and promissory estoppel. Plaintiff also seeks recovery of reasonable attorney fees and costs pursuant to Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991) and RCW 19.86.090.
A bench trial was held on September 15-16, 2008, in Spokane, Washington. At trial, Plaintiff was represented by Robert F. Greer, II. Unum and DRIASI were represented by Charles C. Huber. U.S. Bank was represented by Scott R. Smith. Having fully reviewed all the materials submitted by the parties and the record in this matter, the Court enters the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
Most of the facts in this case are undisputed. The following Findings of Fact are based on the facts stipulated by the parties in advance of trial and the evidence adduced at trial.
The Court makes the following Findings of Fact:
Plaintiff Rodrick Matheny is the son of Keith Matheny and the sole beneficiary of Keith Matheny's accidental death and dismemberment (hereinafter "AD & D") policy underwritten by Unum. Unum sells certain insurance products including AD & D products, and DRIASI is a third party administrator that provides certain administrative services for Unum in connection with insurance policies, including the AD & D policy at issue in this matter. Unum and DRIASI contracted with U.S. Bank to implement a direct mail campaign through which Unum and DRIASI would solicit enrollment in AD & D policies by U.S. Bank home mortgage customers. U.S. Bank buys, sells, originates, markets, and services home mortgages throughout the country.
The development and operation of the direct mail campaign are convoluted processes that required the testimony of several witnesses to untangle. For present purposes, the process began in 1997 when Unum reached an agreement with U.S. Bank's predecessor, FirstStar Mortgage, authorizing FirstStar to solicit and procure applications for Unum's insurance policies, and to collect the initial premium due. In 1998, Unum delegated the duties associated with administering these policies (including the billing and collection of all premiums) to DRIASI, who in turn coordinated billing and collection duties with U.S. Bank.
At all times relevant to this lawsuit, the direct mail campaign operated as follows: U.S. Bank included solicitation materials in the monthly mortgage statements mailed to its mortgage customers. These materials (which will be discussed in more detail below) notified mortgage customers that U.S. Bank would provide them with $3,000 in complimentary life insurance and offered customers the option to select additional
Keith Matheny was a customer of U.S. Bank (and its predecessor, FirstStar Mortgage) from December 2001 through January 2004. In December 2001, Keith Matheny took out a home mortgage with FirstStar Mortgage in the amount of $40,500, and began paying a monthly mortgage payment of $344.51. Keith Matheny was on a bill and receipt system, under which FirstStar (and later, U.S. Bank) would send Keith Matheny a new mortgage statement upon receipt of each payment. Keith Matheny received no regular monthly mortgage statements; even though his mortgage payment was due on the first of each month, his statements were generated only when U.S. Bank received each mortgage payment. By the fall of 2003, Keith Matheny had prepaid his mortgage by months, and he paid his December 2003 mortgage on October 6, 2003. The same day, U.S. Bank issued a new mortgage statement showing that Keith Matheny's next payment of $344.51 was due on January 1, 2004.
Included with Keith Matheny's January mortgage statement was a one-page sheet inserted as part of the direct mail campaign described above. The sheet included a solicitation letter on the front side, a summary of coverage on the back side, and a detachable enrollment form at the bottom of the sheet.
The solicitation letter offered customers of U.S. Bank $3,000 of AD & D insurance at no cost, stating: "All you have to do to receive this insurance is complete the enrollment form below and return it with your mortgage payment." The letter went on to invite customers to select additional AD & D coverage up to $250,000, stating: "Premiums for the additional coverage you select will be included with your monthly mortgage payment. There are no extra bills or checks to write." The letter concluded: "Be sure to read the Summary of Insurance Benefits on the backside of this letter. It explains the policy limitations and exclusions of this insurance coverage." Above the enrollment form, the sheet included a disclaimer stating that the insurance product solicited by the letter was not a product of U.S. Bank or its affiliates, and was not insured by the Federal Deposit Insurance Corporation or any other entity.
On the back of the sheet, the summary of coverage explained the monthly premiums for the optional coverage, up to a monthly premium of $27.50 for $250,000 of individual coverage. Under the heading, "Rates for Additional Coverage-Coverage reduces 50% when Insured is age 70 or older," the following language appeared: "Coverage is contingent upon our receipt
Kelly Smith, a former director of the special risk underwriting department at Unum that oversaw these AD & D policies, testified that Unum's goal with these solicitation materials was to make it as easy as possible for home mortgage customers to enroll by assuring them that no additional bills or checks were necessary. Raymond LuBien, an expert in the banking and insurance industry who has developed and implemented similar direct mail campaigns for several different employers, also testified that insurance companies like Unum have had great success with such campaigns precisely because of the ease with which customers can enroll.
Keith Matheny signed the enrollment form on October 18, 2003, selecting $250,000 in additional coverage and designating his son, Plaintiff Rodrick Matheny, as his beneficiary. U.S. Bank received the signed enrollment form sometime thereafter, and forwarded the form on to DRISI. DRIASI received this enrollment form on November 6, 2003. DRIASI and Unum thereafter processed and approved Keith Matheny's application.
On November 11, 2003, DRIASI sent Keith Matheny a set of documents that an employee of DRIASI described in testimony as a "welcome packet." This welcome packet was comprised of three documents: a welcome letter, schedule of benefits, and certificate of insurance.
The welcome letter, which was signed by a Plan Administrator of DRIASI, stated:
The welcome letter also mentioned the amount of Keith Matheny's monthly premium ($27.50). The schedule of benefits included an "Effective Date" (January 1, 2004) and information on coverage amounts. The certificate of insurance enclosed with this packet was issued by Unum. The certificate referenced Master Policy # GSR 19971 and included the following language: "This certificate describes the main features of the Master Policy. Read it Carefully. However, the Mater [sic] Policy is the only contract under which benefit payments are made ... We certify that We will provide you with the benefits for loss as described herein, subject to the payment of premium." None of the three documents included in the welcome packet mentioned a due date for Keith Matheny's first premium; none of the documents repeated the statement that Keith Matheny's coverage was contingent upon receipt of his first premium payment before the due date and during his lifetime.
On January 6, 2004, U.S. Bank received Keith Matheny's January mortgage payment in the amount of $344.51. This was the amount shown on Keith Matheny's January mortgage statement, which was generated before he selected optional AD & D insurance and did not include the premium of $27.50 that had been added to his payment.
Also on January 6, 2004, U.S. Bank generated a new mortgage statement for Keith Matheny, with payment due February 1, 2004. The statement showed a total amount due of $372.01, which included a mortgage payment of $344.51 and an insurance premium of $27.50 (listed on the statement as "Other"). Accompanying the mortgage statement was a "Notice of Non-Payment of Optional Insurance," stating: "The payment due 01-01-04 of your loan has been applied without optional insurance premiums of 27.50. Please return your remittance with this notice to keep your insurance in force." Testimony at trial established that, according to its normal practices, U.S. Bank would have mailed the statement and notice to Keith Matheny on January 7, 2004.
On January 10, 2004, Keith Matheny died in a single car accident before making any additional payments to Defendants. On February 9, 2004, Plaintiff Rodrick Matheny submitted payment to U.S. Bank in the amount of $372.01.
Plaintiff submitted a claim for death benefits to DRIASI on February 20, 2004. On March 8, 2004, Unum sent Plaintiff a check for $3,000—the amount of basic coverage provided for Keith Matheny by U.S. Bank. On March 11, 2004, Unum sent Plaintiff a letter notifying him that additional benefits were not payable because Unum had not received Keith Matheny's first premium payment prior to the due date and during the insured's lifetime, and thus the AD & D policy never became effective. Plaintiff appealed that decision on June 7, 2004; the appeal was denied on the same basis on July 2, 2004. This suit followed.
In addition to the foregoing chronology, the Court finds the following evidence to be relevant to its determination.
A document setting forth U.S. Bank's optional insurance procedures was entered into evidence at trial. This document indicates a "revised" date of March 15, 2004. At trial, Sarah Johnson-Fodge (supervisor of the insurance department at U.S. Bank) testified that this document sets forth revisions to the optional insurance procedures that would have been adopted by the department in the year preceding March 15, 2004. Ms. Johnson-Fodge could not recall when the particular procedures relevant to this matter were adopted, but testified that they would have been in place prior to March 15, 2004. It is more likely than not that the revised procedure was in effect in October 2003.
For a mortgage customer who has just added optional insurance to their account, these procedures provide that a new statement must be generated when the system shows that "the loan due date is equal to the plan due date." Ms. Johnson-Fodge explained that "loan due date" means the date on which the customer's mortgage payment is due, and "plan due date" means the date on which the customer's
Also entered into evidence at trial was Master Policy # GSR 19971. Although Keith Matheny never saw a copy of this instrument, his insurance contract with Unum was controlled by its terms. The Master Policy purports to be an agreement between Unum and an entity styled "Upper Northwest Bankers Association," defined as "the Policyholder." The Master Policy also defines "Insured" as "All eligible persons described in the Application who are enrolled for this insurance."
The Master Policy includes provisions for "Premiums and Grace Period," which were updated by an endorsement effective July 1, 1997. Those provisions read:
Testimony at trial established that the Upper Northwest Bankers Association is essentially a holding company whose sole raison d'etre is to satisfy the legal requirements for creation of a group policy under which individual mortgage customers can obtain AD & D insurance from Unum. The Master Policy and its endorsements are signed only by agents of Unum. No premium payments were ever made by the Upper Northwest Bankers Association; all premium payments were in fact made by individual mortgage customers, who this Master Policy would define as "Insured."
At trial, there was some confusion over what was the actual due date for Keith Matheny's first insurance premium payment. Ms. Smith, who directed the department at Unum that was in charge of these AD & D policies, testified that no coverage would have existed unless Unum received the premium payment by December 31, 2004. However, U.S. Bank's internal reports indicated that the due date for payment was January 1, 2004, the date Keith Matheny's January mortgage payment was due. Ms. Johnson-Fodge also testified that, while customers' mortgage payments are due on the first of the month, the bank does not charge late fees until the 15th of the month, and the bank will not report the account delinquent until the last day of the month. As noted above, neither the solicitation materials nor the welcome packet that Keith Matheny received specified a due date for his first premium payment.
CONCLUSIONS OF LAW
Plaintiff seeks damages from Unum, DRIASI, and U.S. Bank under theories of breach of contract, negligence, violations of the Washington State Consumer Protection Act, bad faith, misrepresentation, and promissory estoppel. Plaintiff also seeks
I. BREACH OF CONTRACT
Plaintiff asserts breach of contract claims against Unum and U.S. Bank.
Plaintiff argues that an insurance contract was formed between Keith Matheny and Unum, and Unum breached that contract by failing to pay death benefits in the amount of $250,000. Unum acknowledges that the solicitation materials sent to Keith Matheny were an offer, and that the return of Keith Matheny's signed enrollment form constituted acceptance of that offer. However, Unum argues that no contract was formed because Keith Matheny failed to fulfill a condition precedent, viz.: payment of the first premium prior to the due date and during Keith Matheny's lifetime. In response, Plaintiff argues that Unum is now estopped from asserting that condition precedent or, alternatively, that Unum waived that condition precedent.
Separately, Plaintiff seeks a declaratory judgment that the grace period provided by the Master Policy applies to Keith Matheny, and that Unum breached its contract by denying Plaintiff's claim without applying the grace period.
The elements of estoppel are:
Under Washington law, "the general rule is that, while an insurer may be estopped, by its conduct or its knowledge or by statute, from insisting upon a forfeiture of a policy, yet under no conditions can the coverage or restrictions on the coverage be extended by the doctrine of waiver or estoppel." Carew, Shaw & Bernasconi v. General Cas. Co., 189 Wn. 329, 336, 65 P.2d 689 (1937). The rule has been criticized as "eroding," and Washington law recognizes at least two exceptions to it. Estate of Hall v. HAPO Fed. Credit Union, 73 Wn.App. 359, 362-63, 869 P.2d 116 (1994) (quoting 16B J. Appleman, Insurance Law § 9090, at 582 n. 5 (1981)); see Saunders v. Lloyd's of London, 113 Wn.2d 330, 336, 779 P.2d 249 (1989) (holding that an insurer can be estopped from denying coverage for failure to make payments where that insurer has established a course of conduct of accepting late payments); Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 823 P.2d 499, 505-06 (1992) (holding the Carew rule to be inapplicable to claims of insurer bad faith).
The Court finds the Carew rule inapplicable. In Carew, the insured received a policy that insured only a certain kind of safe from burglary. The insured tried to amend the coverage language to cover a different area of the safe. Under the policy as written, there was no coverage. Plaintiff here is not seeking to change the insurance contract's substantive terms of coverage, which would implicate the Carew rule. Rather, Plaintiff argues that Unum is estopped from relying on a condition
Turning to the elements of estoppel, the undisputed facts establish that Unum's later assertion of a condition precedent is inconsistent with numerous statements in the materials received by Keith Matheny before his death. The solicitation letter informed him that, "All you have to do to receive this insurance is complete the enrollment form below and return it with your mortgage payment ... there are no extra bills or checks to write." While the summary of coverage provided, under an impertinent heading, that "coverage is contingent upon our receipt of the first premium prior to the due date and during the insured's lifetime," below that language and under the heading "IMPORTANT," the letter instructed Keith Matheny: "DO NOT SEND ANY PREMIUM PAYMENT." Furthermore, the words used in the welcome letter, certificate of insurance, and the Notice of Non-Payment of Optional Insurance all create the impression that the AD & D policy was in force on the dates Keith Matheny received those documents.
The Court finds instructive a decision out of the Fifth Circuit Court of Appeals, Monumental Life Ins. Co. v. Hayes-Jenkins, 403 F.3d 304 (5th Cir.2005).
The solicitation materials, read as a whole, instructed Keith Matheny that all he must do to receive coverage was to return the enrollment form. After he did so, the additional materials he received fostered the impression that his coverage was already in force. The evidence adduced at trial established that Keith Matheny relied on those statements, and the Court finds that reliance to be reasonable. Moreover, it is undisputed that Plaintiff has been injured because of his father's reliance. Thus, the Court finds that Plaintiff has proven all three elements of estoppel by clear and convincing evidence.
In the insurance context, "waiver requires that the insurers voluntarily and intentionally relinquished a known right or that their conduct `warrants an inference of the relinquishment of such right.'" Saunders, 113 Wash.2d at 339-40, 779 P.2d 249 (quoting PUD 1 v. WPPSS, 104 Wn.2d 353, 365, 705 P.2d 1195 (1985)). Waiver by conduct requires unequivocal acts evincing the intent to waive. Id.; Mike M. Johnson, Inc. v. County of Spokane, 150 Wn.2d 375, 386, 78 P.3d 161 (2003); James E. Torina Fine Homes, Inc. v. Mutual of Enumclaw Ins. Co., 118 Wn.App. 12, 19, 74 P.3d 648 (2003).
The summary of coverage included in the solicitation materials did articulate Unum's right to require payment of the first premium as a condition precedent to coverage. However, other language in the solicitation materials—language that was highlighted and tagged as "IMPORTANT"—suggested that Unum had decided not to enforce that right. Standing alone, this language probably would not amount to the kind of unequivocal act necessary to infer waiver by conduct. However, the impression that Unum knowingly waived its right was bolstered by its issuance of a welcome letter, schedule of benefits, and a certificate of insurance before it
(iii). Interpretation of the Master Policy
The following principles apply to the Court's interpretation of the Master Policy:
The grace period purportedly applies to the Policyholder, defined as the Upper Northwest Bankers Association. Because this entity is solely a holding company who pays no premiums, granting it the benefit of a grace period renders this provision of the Master Policy absurd. The only reasonable construction of the Master Policy is that the grace period applies to the one party who does pay premiums: the insured. Therefore, Unum's failure to extend the grace period to Keith Matheny breached its obligation under the Master Policy.
In conclusion: Plaintiff has established that an insurance contract was formed between Keith Matheny and Unum, and that Unum breached that contract by failing to pay death benefits and failing to extend the benefit of the Master Policy's grace period to Keith Matheny. The evidence establishes both that Unum waived its right to require payment of the first premium as a condition precedent, and that Unum is now estopped from asserting that condition precedent.
B. U.S. Bank
Plaintiff's breach of contract claim against U.S. Bank is of a different order: Plaintiff claims that U.S. Bank assumed a contractual duty to add Keith Matheny's insurance premium to his mortgage statement, and breached that duty by failing to issue a new mortgage statement including the premium amount before the premium payment was due. At trial, U.S. Bank acknowledged that it had assumed an obligation of some nature, but declined to say whether a claim for breach of that obligation would sound in contract or tort. Regardless, U.S. Bank argues that its obligation was limited to adding Keith Matheny's insurance premium to his mortgage payment (and his next routinely generated mortgage statement), not generating a new mortgage statement.
Washington law recognizes two kinds of contracts: unilateral and bilateral. Higgins v. Egbert, 28 Wn.2d 313, 317-18, 182 P.2d 58 (1947). In unilateral contracts, the promise of one party becomes binding when the other party performs the act upon which the promise is based. Id.; see also Multicare Medical Ctr. v. Dep't of Social and Health Serv., 114 Wn.2d 572, 584, 790 P.2d 124 (1990). Sufficient consideration for a unilateral contract may be provided by a benefit received by the promisor at the request of
The Court finds that the solicitation materials received by Keith Matheny constituted an offer from U.S. Bank to form a unilateral contract. U.S. Bank's promise is articulated on the enrollment form by the following language:
This promise became binding when Keith Matheny signed and returned the enrollment form. The consideration for this promise was the benefit U.S. Bank would receive from Keith Matheny's continuing performance (viz., 25% of all premiums paid).
U.S. Bank's argument that it promised only to add the premium to Keith Matheny's payment, not his statement, minces words and is unpersuasive. Read as a whole, the solicitation materials promise to bill the insured in such a way as to effectuate timely payment of the insurance premiums. Addition of the premium amount to U.S. Bank's internal accounting system was insufficient to fulfill this promise. When Keith Matheny returned the signed enrollment form, U.S. Bank was contractually obligated to bill him for his insurance premiums in advance of their due dates. That Keith Matheny had elected to receive his mortgage statements on a bill and receipt system was of no import and does not affect U.S. Bank's obligation. U.S. Bank breached its obligation when it failed to bill Keith Matheny in advance of the first premium payment's due date. That Plaintiff has suffered injury as a result of breach (viz., the denial of his insurance claim) is undisputed.
Plaintiff argues that U.S. Bank undertook the obligation to bill Keith Matheny for his optional AD & D insurance premiums, and breached that duty by failing to exercise ordinary care in the billing and collection of those premiums. U.S. Bank concedes the existence of a duty, but argues that it fulfilled that duty by adding Keith Matheny's insurance premium to his mortgage payment and including that amount on his next regularly generated mortgage statement.
To prove negligence, Plaintiff must establish "the existence of a duty, a breach thereof, a resulting injury, and proximate causation between the breach and the resulting injury." Schooley v. Pinch's Deli Market, Inc., 134 Wn.2d 468, 474, 951 P.2d 749 (1998). A party who undertakes to render services for another is liable for harm resulting from the party's failure to exercise reasonable care. Estes v. Lloyd Hammerstad, Inc., 8 Wn.App. 22, 26, 503 P.2d 1149 (1972) (citing Restatement (Second) of Agency § 379(2) (1958)).
The evidence establishes that U.S. Bank assumed the duty of timely billing Keith Matheny for his insurance premiums. Further, the evidence establishes that U.S. Bank failed to comply with its own billing procedures for optional AD & D insurance, which were in place at the time Keith Matheny elected to receive AD & D coverage. These procedures provide that U.S. Bank should generate new mortgage statements for customers who elect to receive optional AD & D coverage after their regular mortgage statements have already been issued. Here, U.S. Bank
III. WASHINGTON STATE CONSUMER PROTECTION ACT VIOLATIONS, MISREPRESENTATION, AND BAD FAITH
Plaintiff claims that Unum and U.S. Bank are liable under the Washington State Consumer Protection Act ("CPA") for deceptive acts in connection with their solicitation and billing of AD & D premiums. Plaintiff also claims that DRIASI and Unum are liable under the CPA and common law for their bad faith failures to investigate Plaintiff's insurance claim.
There are five elements of a CPA claim: "(1) an unfair or deceptive act or practice, (2) occurring in trade or commerce, (3) public interest impact, (4) injury to plaintiff in his or her business or property, and (5) causation." Estate of Hall, 73 Wash.App. at 365, 869 P.2d 116. No CPA claim will lie for an insurer's denial of an insurance claim where the insurer has a reasonable justification for denying coverage. Id. at 366, 869 P.2d 116. The insurance commissioner has defined a number of practices as deceptive acts, including "misrepresenting pertinent facts or insurance policy provisions" and "refusing to pay claims without conducting a reasonable investigation." WAC 284-30-330. To determine whether a deceptive act impacts public interest, the following factors are relevant:
Plaintiff does not claim that Unum's denial of coverage violated the CPA, but rather that Unum and U.S. Bank misrepresented pertinent policy provisions in their solicitation of Keith Matheny's business. The Court agrees. As detailed above, the solicitation materials affirmatively misrepresented the condition that coverage was contingent upon payment of the first premium, representing instead that coverage was created simply by returning a signed enrollment form. The welcome packet materials added another layer of misrepresentation, fostering the impression that Keith Matheny's insurance coverage was already in force. In addition, the Court finds that these deceptive acts satisfy the Hangman factors for public interest impact. The solicitation and welcome packet materials were part of an ongoing course of conduct affecting thousands of consumers, both before and after the incidents at issue here. Because of this strong public interest impact, the Court finds that treble damages authorized by RCW 19.86.090 are appropriate.
The misleading language in the solicitation and welcome packet materials also meets the elements of a misrepresentation claim: "(1) a false statement (2) made to induce a business transaction (3) upon which the other party justifiably relies." Amtruck Factors v. Int'l Forest Products, 59 Wn.App. 8, 18, 795 P.2d 742 (1990). Here, Keith Matheny justifiably relied on the false statements in the solicitation materials that no additional checks
In addition to violating the CPA, a failure to investigate an insurance claim can support a bad faith cause of action. Coventry Associates v. American States Ins. Co., 136 Wn.2d 269, 279, 961 P.2d 933 (1998). However, no claim for bad faith will lie where, as here, "the insurance company acts with honesty, bases its decision on adequate information, and does not overemphasize its own interests." Id. at 280, 961 P.2d 933. There is no evidence that DRIASI and Unum failed to adequately and reasonably investigate Plaintiffs claim in good faith. Therefore, Plaintiffs claims on these grounds must fail.
Plaintiff is entitled to damages from Unum and U.S. Bank for breach of contract, violations of the CPA, and misrepresentation. Plaintiff is also entitled to damages from U.S. Bank for negligence. Plaintiff has proven no claims against DRIASI.
The amount of actual damages is Plaintiffs benefit of the bargain, the amount of the losses proximately caused by Defendants' breach of contract and misrepresentation: $250,000.00. See Turner v. Enders, 15 Wn.App. 875, 880, 552 P.2d 694 (1976). In addition, the Court finds that treble damages in the statutory maximum amount of $10,000.00 are appropriate. See RCW 19.86.090. Defendants Unum and U.S. Bank are thus jointly and severally liable for damages in the amount of $260,000.00.
Plaintiff also seeks pre-judgment interest, as well as reasonable attorney fees and costs pursuant to Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991) and RCW 19.86.090. Plaintiff has submitted briefing on the issue of prejudgment interest (see Ct. Rec. 107), but Defendants have not yet submitted a response. Defendants are directed to do so, and Plaintiff is directed to submit briefing on the issue of fees and costs.
1. Plaintiff is to present a proposed judgment consistent with this Order.
2. No later than thirty days from the date of this Order, the parties shall submit briefing to the Court on the issues of prejudgment interest and attorneys fees and costs.