IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
BRAD and AMY WHALEY, and BRAD and AMY WHALEY dba CAFÉ No. 86200-6-I BURLINGTON, DIVISION ONE Appellants, UNPUBLISHED OPINION v.
OHIO SECURITY INSURANCE COMPANY,
Respondent,
and
ALPINE FIRE & SAFETY SYSTEMS, INC., STEPHEN BOUNDS, CAFÉ BURLINGTON, LLC, ALLIE and MANNY MARTINEZ, a married couple, and MARTHA VARGAS,
Defendants.
CHUNG, J. — Brad and Amy Whaley (collectively, the “Whaleys”) own a
building in Burlington, Washington, and rented it out as the Café Burlington. In
December 2019, a fire in the Café caused fire and smoke damage. The Whaleys
filed a claim with their insurance provider, Ohio Security Insurance Company
(Ohio Security). Ohio Security denied the claim, citing exclusions that required
the Whaleys to comply with certain protective safeguards for their fire
suppression systems. The Whaleys filed a lawsuit against Ohio Security for No. 86200-6-I/2
breach of contract and bad faith. Ohio Security filed a motion for summary
judgment, which the trial court granted and the Whaleys now appeal. We affirm.
FACTS
Brad and Amy Whaley owned a restaurant, the Café Burlington, in
Burlington, Washington. The Whaleys rented the Café to the Martinez and
Vargas families. The Whaleys retained a commercial property insurance policy
for the building through Ohio Security, an affiliate of Liberty Mutual Insurance.
The Whaleys’ policy covered property damage, defined as “[p]hysical
injury to tangible property, including all resulting loss of use of that property.” The
policy included a Protective Safeguards endorsement that modified the
Commercial Property Conditions as follows:
Protective Safeguards
1. As a condition of this insurance, you are required to maintain the protective devices or services listed in the Schedule above.
2. The protective safeguards to which this endorsement applies are identified by the following symbols: ....
“P-9”, the protective system described in the Schedule. . . . [Including] [a]n automatic commercial kitchen fire suppression including hoods, plenums, exhaust ducts, and fire extinguishing equipment, over cooking appliances that is in compliance with both Underwriters Laboratories standard 300 (UL 300) and National Fire Protective Association 96 (NFPA 96).[1] The suppression system must be inspected and serviced semi-annually by an independent contractor and the ventilating system must be cleaned quarterly by an independent contractor.
1 According to the National Fire Protective Association website, the NFPA 96 standard
“provides preventive and operative fire safety requirements intended to reduce the potential fire hazard of both public and private commercial cooking operations.” See https://www.nfpa.org/codes-and-standards/nfpa-96-standard-development/96 (last visited May 20, 2025).
2 No. 86200-6-I/3
The Protective Safeguards endorsement also added the following language in
the Exclusions section:
We will not pay for loss or damage caused by or resulting from fire if, prior to the fire, you:
1. Knew of any suspension or impairment in any protective safeguard listed in the Schedule above and failed to notify us of that fact; or 2. Failed to maintain any protective safeguard listed in the Schedule above, and over which you had control, in complete working order.
The Kidde Wet Chemical Fire Suppression System in the Café’s kitchen
involves a wet chemical agent that can be activated either manually or
automatically. Automatic activation occurs through release of cable tension that
is connected to detection devices called fusible links. When a specified
temperature rating is exceeded, the link activates the system. A properly installed
and functioning commercial kitchen ventilation system keeps fire and smoke
within the hood and keeps it from spreading. The hood extends over the cooking
appliances, and the area inside the hood called the plenum houses the fusible
links that trigger activation of the fire suppression system. The exhaust duct and
the hood/plenum interface must be welded together to form a “liquid tight” seal to
prevent accumulation of grease, a fuel, outside the exhaust duct and
hood/plenum and to keep smoke and heat or fire from escaping the fire
suppression system during a fire.
On September 18, 2019, Alpine Fire and Safety Systems, Inc. (Alpine
Fire), a fire safety inspection company, conducted a service test at the Café. The
inspector, Dave Kilmer, rated the system as a “yellow tag,” which means that the
3 No. 86200-6-I/4
system is operational but is noncompliant. In conducting his inspection, Kilmer
conducted system operation tests and the system was “fully operational.”
However, Kilmer found that there were multiple deficiencies in the fire
suppression system, including lack of link detection for the four-burner, “make up
air did not shut down upon system actuation, exhaust fan didn’t come on during
system actuation,” 2 “improper nozzle coverage over griddle,” and “exhaust duct
not properly sealed using silicone.” Other deficiencies included that cinder blocks
were improperly being used to support appliances, and there was “heavy fuel
build up” both in the cinder block openings and behind the appliances. The report
noted that “system is not designed to extinguish heavy fuel build up.” Kilmer
marked “no” for several questions, including “Are all heated appliance surfaces
protected?”, “Positioning of all nozzles is appropriate?”, “Is system UL 300
compliant?” and “Does system have adequate volume and/or nozzle coverage?”
The report also marked the fire suppression systems as “fail” in multiple aspects,
including “[s]ystem meets or exceeds MFG requirements,” “[s]ystem meets UL
300 requirements,” and “[s]ystem design and approval OK.”
On September 30, 2019, the city of Burlington (the City) conducted an
annual fire safety inspection of the Café. It informed the Café it had found
“concerns” with the system that needed to be addressed within 30 days.
Specifically, the commercial range hood did not have a “liquid-tight weld” and
2 When the kitchen is operating, an exhaust fan on top of the duct creates negative
pressure to remove the cooking exhaust through the duct. Because the exhaust fan creates negative pressure, exhausted air is replaced with “make-up air.” If the fire suppression system activates, the exhaust fan should automatically turn on and the make-up air should deactivate, so that while fire is drawn into the system, fresh air is not introduced to fuel the fire.
4 No. 86200-6-I/5
there was accumulated grease. Further, the fire suppression system did not have
fusible links for each cooking appliance in the kitchen, the existing fusible links
were ranked for a different system than what was in the Café, a temperature
survey was not performed at each location where fusible links were installed, the
make-up air system that activated when triggered by the system did not shut off
as required, and the hood exhaust fans were not activated by the system.
In the morning of December 16, 2019, one of the tenants reported a fire at
the Café. By the time the fire department arrived, the fire was extinguished,
although there was “heat and smoke damage.” A fire marshal for the City, Kelly
Blaine, responded to the fire department’s request for a marshal to conduct an
investigation. Blaine obtained permission to hire a certified hood company to
assist with the investigation and retained All American Fire Protection, Inc.
Blaine investigated the exterior and interior of the building. He
documented that the range hood was not attached to the wall and “[t]he mounting
bolts had completely pulled out of the wall,” as had been noted in the City’s
September 2018 fire inspection report. He noted that where the hood duct was
attached to the plenum was “to be welded and liquid tight,” but that it appeared to
have been sealed with silicone caulking which “melted away” during the fire. 3
Blaine identified the fire suppression system for the hood as a “WHDR
Wet Chemical Fire Suppression System made by Kidde Fire System.” Blaine
also reported that the fire system’s mechanical detection links, or fusible links,
3 Additionally, Blaine explained that the nozzle required to activate the fire suppression
system was located six inches from the cooking surface, which was not compliant with the fire system. Also, the hood nozzles were pointing toward the back of the hood, when they needed to point straight up the duct.
5 No. 86200-6-I/6
were A-PC (Ansul/Pyro-Chemical Company) 500 degree links and were not
compliant with the Kidde system, which required “ML type fusible links.” Further,
according to the Kidde system manual, one link will serve a continuous 54-inch
by 54-inch area, but Blaine found only one fusible link for a 60-inch span that
included the griddle and the four-burner range. Blaine stated that based on the
burn patterns around the hood and the smoke damage, the single detector “did
activate after a considerable amount of time.” Blaine concluded that the fire was
caused by a burner that was left on, which caused oil in a metal container to boil
over onto the cooking surface. Based on the burn patterns at the point of origin,
Blaine concluded the fire was accidental.
After the Whaleys filed an insurance claim, Ohio Security retained Rimkus
Consulting to investigate. A Rimkus consultant, Ted Hickey, inspected the Café
on December 18, 2019. Hickey reported that he spoke with one of the Café
tenants, Emmanuel Martinez, who informed him that Mr. Whaley knew of the
identified issues and stated that he would take care of them. Hickey spoke with
Blaine, who disclosed that the fusible links on the system were incompatible with
the Whaleys’ system and that the make-up air system did not properly activate.
Hickey explained that “[t]he lack of code compliance related to the delay and
malfunction of the hood system was a contributing factor to the fire and smoke
damage.”
In February 2020, Ohio Security denied the Whaleys’ claim. Ohio Security
explained its denial was based on the following:
6 No. 86200-6-I/7
The hood extinguishing system malfunctioned as a result of deficiencies that were outlined by the City of Burlington in a notice provided on September 30, 2019.
Deficiencies were not repaired or adequately addressed in compliance with The City of Burlington.
The condition of the hood and area surrounding, as well as information provided indicated that cleaning had not been conducted on a quarterly basis as required.
We were not notified of the impairment to the scheduled protective safeguard.
Ohio Security explained that although fire is a covered cause under the policy,
the Whaleys failed to meet the conditions of the Protective Safeguard because
“non-compatible fusible links were installed in the ventilation hood which delayed
activation and contributed to the extent of damages,” and “prior to the fire [the
Whaleys] were notified of the impairment to the system but failed to notify us.”
Further, it noted that the Whaleys had not complied with the required quarterly
cleaning of the ventilation system. Therefore, it concluded that the Whaleys’
policy did not cover their claim.
In November 2020, the Whaleys filed suit against Ohio Security, raising
claims of breach of contract and breach of the duty of good faith and fair dealing.
In February 2023, Ohio Security filed a motion for summary judgment, arguing
that the Whaleys’ policy included an exclusion to coverage for failure to maintain
the fire suppression system and that they violated a condition for coverage
because the system was non-compliant with UL 300 and NFPA 96. In April 2023,
at the summary judgment hearing, the trial court explained that the “policy
language is not ambiguous,” and it “specifically exclude[d] coverage if there was
7 No. 86200-6-I/8
known non-compliance.” Further, it found that “the Whaleys knew of the
noncompliance, and they did not notify the insurance company.” Therefore, the
trial court granted summary judgment in favor of Ohio Security and dismissed the
Whaleys’ claims.
The Whaleys timely appeal.
DISCUSSION
The Whaleys argue that the trial court erred in granting summary
judgment in favor of Ohio Security because (1) there are questions of fact about
whether the fire suppression system was impaired; (2) Ohio Security should have
been required to establish actual prejudice to prevail on its argument that the
Whaleys failed to notify it that an inspection resulted in a “yellow tag”; and (3)
Ohio Security acted in bad faith by failing to conduct a reasonable investigation
before denying their claim.
We review orders granting summary judgment de novo. Keck v. Collins,
184 Wn.2d 358, 370, 357 P.3d 1080 (2015). We consider “the evidence and all
reasonable inferences from the evidence in the light most favorable to the
nonmoving party.” Id. at 370.
To prevail on a summary judgment motion, the moving party must show
the absence of an issue of material fact. Young v. Key Pharm., Inc., 112 Wn.2d
216, 225, 770 P.2d 182 (1989). A “material fact” exists when such facts impact
the outcome of the litigation. Owen v. Burlington N. & Santa Fe R.R. Co., 153
Wn.2d 780, 789, 108 P.3d 1220 (2005). The moving party can submit affidavits
demonstrating an absence of a material issue or can demonstrate that the
8 No. 86200-6-I/9
nonmoving party lacks competent evidence to support an essential element of
their case. Young, 112 Wn.2d at 225-26. When the moving party satisfies the
initial burden, the burden then shifts to the nonmoving party to demonstrate “the
existence of an element essential to [their] case, and on which [they] will bear the
burden of proof at trial.” Id. at 225. There is a genuine issue of material fact when
“the evidence is sufficient for a reasonable jury to return a verdict for the
nonmoving party.” Keck, 184 Wn.2d at 370. The failure to make such showing
will result in the trial court granting summary judgment. Young, 112 Wn.2d at
225.
I. Policy Coverage and Fire Suppression System Requirements
Determining whether coverage exists is a two-step process. McDonald v.
State Farm Fire & Cas. Co., 119 Wn.2d 724, 731, 837 P.2d 1000 (1992). The
burden first lies with the policyholder to establish that the loss is of the type
covered by the policy. Id. at 731. Then, the insurer can avoid coverage by
showing that “the loss is excluded by specific policy language.” Id.
In general, insurance policies are construed in the same manner as
contracts. State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 480, 687 P.2d
1139 (1984). A contract must be interpreted as a whole “to give effect to each
clause.” Wash. Pub. Util. Dists. Utils. Sys. v. Pub. Util. Dist. No. 1 of Clallam
County, 112 Wn.2d 1, 10, 771 P.2d 701 (1989). The terms of the insurance
policy are given “ ‘a fair, reasonable, and sensible construction.’ ” Vision One,
LLC v. Philadelphia Indem. Ins. Co., 174 Wn.2d 501, 512, 276 P.3d 300 (2012)
(internal quotation marks omitted) (quoting Key Tronic Corp. v. Aetna (CIGNA)
9 No. 86200-6-I/10
Fire Underwriters Ins. Co., 124 Wn.2d 618, 627, 881 P.2d 201 (1994)). An
undefined term in the policy is given its ordinary meaning. Id. Any ambiguities in
the policy are construed against the insurer. Id. However, a policy with clear and
unambiguous language should be enforced without modification. Gardens
Condo. v. Farmers Ins. Exch., 2 Wn.3d 832, 839, 544 P.3d 499 (2024). A court is
not required to expand the interpretation of the exclusion “ ‘beyond [its] clear and
unequivocal meaning.’ ” Vision One, 174 Wn.2d at 512 (quoting State Farm Fire
& Cas. Co. v. Ham & Rye, LLC, 142 Wn. App. 6, 13, 174 P.3d 1175 (2007)).
Here, there is no dispute as to whether the fire damage constituted
property damage, as the policy defines such loss as “[p]hysical injury to tangible
property, including all resulting loss of use of that property.” However, Ohio
Security claims two different exclusions apply and preclude coverage. The
Whaleys counter that there are questions of fact as to whether either exclusion
applies. 4
A. Failure to Notify of Impairment
The Whaleys’ insurance policy had a Protective Safeguards endorsement
4 As an initial matter, we reject the Whaleys’ suggestion that Ohio Security is barred from
asserting the exclusions by the “mend the hold” doctrine, which bars insurers from “changing the basis for avoiding liability after the onset of litigation.” Karpenski v. Am. Gen. Life Cos. LLC, 999 F. Supp. 2d 1235, 1245 (W.D. Wash. 2014). The Whaleys complain that in the section “Application of Policy,” the denial letter did not mention any “exclusion,” but rather referred to “conditions of the protective safeguards.” However, at oral argument, the Whaleys conceded that they were notified that Ohio Security was denying coverage under an exclusion. Wash. Court of Appeals oral argument, Whaley v. Alpine Fire & Safety Systems, Inc., No. 86200-6-I (Jan. 23, 2025), at 1 min., 26 sec. to 2 min., 08 sec., video recording by TVW, Washington State’s Public Affairs Network, https://tvw.org/video/division-1-court-of-appeals- 2025011576/?eventID=2025011576. Indeed, in addition to the protective safeguard description, P-9, and the condition requiring protective safeguards, the denial letter quotes the two exclusions relating to the safeguards. The letter again references the exclusion, stating that “prior to the fire you were notified of the impairment of the system but failed to notify us.” The Whaleys’ “mend the hold” argument is unavailing.
10 No. 86200-6-I/11
that provided that as a condition to coverage under their policy they were
“required to maintain the protective devices or services,” including the following:
“P-9”, the protective system described in the Schedule. . . . [Including] [a]n automatic commercial kitchen fire suppression including hoods, plenums, exhaust ducts, and fire extinguishing equipment, over cooking appliances that is in compliance with both Underwriters Laboratories standard 300 (UL 300) and National Fire Protective Association 96 (NFPA 96). The suppression system must be inspected and serviced semi-annually by an independent contractor and the ventilating system must be cleaned quarterly by an independent contractor.
The first exclusion applies if the insured “[k]new of any suspension or impairment
in any protective safeguard listed in the Schedule above and failed to notify [Ohio
Security] of that fact.”
The Whaleys contend that the word “impairment” means a “loss of
function” and that there is a genuine question of fact as to whether the system
lost function, given that it ultimately worked to extinguish the fire. This argument
is unavailing.
The terms of an insurance policy “are to be given their plain, ordinary and
popular meaning.” Queen City Farms, Inc. v. Cent. Nat’l Ins. Co. of Omaha, 126
Wn.2d 50, 77, 882 P.2d 703 (1994), as amended (Sept. 29, 1994). The dictionary
definition of “impairment” is “the act of impairing or the state or condition of being
impaired.” W EBSTER’S THIRD NEW INTERNATIONAL DICTIONARY 1131 (2002). The
word “impair” can also mean “to make worse: diminish in quantity, value,
excellence, or strength: do harm to: damage, (or) lessen: deteriorate.” W EBSTER’S
THIRD NEW INTERNATIONAL DICTIONARY 1130 (2002).
11 No. 86200-6-I/12
Here, the exclusion specifically references impairment of “any protective
safeguard listed in the Schedule.” The safeguards described in P-9 include
compliance with UL 300 and NFPA 96 standards. Thus, under their policy, the
Whaleys were required to maintain protective systems that complied with UL 300
and NFPA 96 standards. We disagree with the Whaleys’ contention that
“impairment” means only “loss of function.”
Next, the Whaleys argue that a question of fact exists regarding whether
their fire suppression system complied with the applicable standards. Ohio
Security argues that there is no question that the Whaleys’ system was non-
compliant given the recorded deficiencies on the pre-fire inspection reports and
the Whaleys’ failure to correct those deficiencies. We agree with Ohio Security.
First, Alpine Fire inspector Kilmer reported on September 18, 2019, that
the fire suppression system was not UL 300 compliant. Kilmer certified the
Whaleys’ system with a yellow tag, meaning it was operational but noncompliant.
In coming to this conclusion, Kilmer reported various deficiencies in the system,
which included the improper welding of the hood vent, the make-up air vents’
failure to shut down and the exhaust fans’ failure to activate when the system
was activated, and the insufficient number of fusible links, which also did not
correspond with a Kidde system. Later that same month, on September 30, after
the City conducted its annual fire safety inspection, it informed the Café of similar
“concerns” with the system as Alpine Fire had noted, stating that these needed to
be addressed within 30 days.
12 No. 86200-6-I/13
The Whaleys do not dispute that these deficiencies identified by the City
existed prior to the fire. For example, when asked whether they remedied the
City’s identified issue with the improper sealing of the hood vent within 30 days,
Brad Whaley testified that “[w]e were trying to identify someone to remedy it.”
Further, when prompted about the City’s finding that the appliances had
accumulated grease, Whaley testified that they had the tenant clean it, not the
professional cleaning service, Cascade Hood Cleaning Services. Additionally,
when asked whether they followed up with Alpine Fire about remedying the
deficiencies identified by the City, Whaley testified, “I took it straight to . . . Alpine
[Fire] and went through it. . . . we had agreed that these things would be
remedied, but I don’t believe they happened before the fire occurred.” Thus, even
though the Whaleys assert they were not responsible for remedying the identified
deficiencies, they acknowledge that their system had deficiencies and provide no
evidence to the contrary.
Nevertheless, the Whaleys claim that a reasonable trier of fact could
determine that the “yellow tag” marking for their system indicated that it was
normal and, as such, the Protective Safeguards endorsement did not apply. They
point to testimony from the fire marshal, Blaine, who was asked whether a
system marked with a yellow tag indicated that “the system was fine.” But a more
complete reading of the record demonstrates that he replied, “Yes. If they (Alpine
Fire) noted it that there was deficiencies and we looked at it, went out and
inspected it and noticed those were the deficiencies that we saw, yes, that would
be normal.” Blaine’s testimony preceding and following that statement was about
13 No. 86200-6-I/14
an ongoing issue in the area where systems were marked with yellow tags
despite having deficiencies that should have prompted red tag markings. Blaine
went on to explain that a yellow tag does not mean the system is “fine” or
“normal” but rather that it will function with deficiencies that may render it non-
compliant. Ohio Security’s investigator, Hickey, similarly testified that a yellow tag
certification implies that while a system is operational, meaning it will function to
extinguish a fire, it is in need of correction.
The Whaleys also did not comply with the provision in the Protective
Safeguards that required them to have the system “inspected and serviced semi-
annually by an independent contractor” and the ventilating system “cleaned
quarterly by an independent contractor.” Records from Alpine Fire indicate that
the Whaleys’ system was serviced only three times between 2017 and the date
of the fire in December 2019. And records from the Whaleys’ cleaning service,
Cascade Hood Cleaning Services, show that the system was cleaned only once
in 2019. Thus, the Whaleys’ system was not compliant with the cleaning and
servicing schedule that was a condition of their policy.
The Whaleys also suggest that there must be a causal connection
between the yellow tag notices and the fire loss. But the plain language of the
exclusion contains no such requirement. 5 Moreover, the cases the Whaleys cite
in support do not require a causal connection for a policy exclusion to apply,
where the exclusion contains no such requirement. Metropolitan Club v.
Massachusetts Bonding & Insurance Co., did not involve a policy exclusion but a
5 Further, as Ohio Security notes in its briefing, “[w]hile a system might fail to partially or
fully extinguish a fire because of deficiencies, it doesn’t cause the fire.”
14 No. 86200-6-I/15
bond to secure against any loss by larceny or embezzlement by an employee.
127 Wash. 320, 324-25, 220 P. 818 (1923). There, a club sued the surety
company when its employee embezzled money. Id. at 323. To procure the bond,
the insurer had asked for certain information about how the club would maintain
oversight of the bonded employee. Id. at 324-26. The court reversed the trial
court’s judgment notwithstanding the verdict dismissing the surety, determining
that there was a triable issue regarding whether the club’s statements to procure
the bond were false and the promised oversight was performed by the club. Id. at
325, 329. The Whaleys’ interpretation—that Metropolitan Club requires a causal
connection between the reporting requirement and the loss—implies far more
than is actually reflected in the court’s decision.
The aviation insurance cases from other jurisdictions that the Whaleys cite
are also inapposite as they relied on state-specific law outside of Washington. In
Puckett v. U.S. Fire Insurance Co., the issue was “whether an insured’s failure to
have his plane inspected need be the cause of an accident in order for the
insurance company to avoid liability under an aviation policy for damages
resulting from that accident.” 678 S.W.2d 936, 937, 48 A.L.R.4th 769 (1984). The
policy suspended coverage “if the aircraft . . . airworthiness certificate is not in full
force and effect,” which, under federal law, meant that all maintenance
requirements had been met, including an annual inspection. Id. It was undisputed
that no such inspection had been performed, but also that the failure to inspect in
no way caused the accident. Id. The court held that the policy required no causal
connection between the breach of the policy and the accident, but nevertheless,
15 No. 86200-6-I/16
the clause as interpreted violated the state’s public policy and was
unconscionable. Id. at 938. Likewise, in Pickett v. Woods, the liability policy for
an aircraft contained an exclusion for an insured “unless its airworthiness
certificate is in full force and effect.” 404 So.2d 1152 (Fla. Dist. Ct. App. 1981). A
Florida law required that any breach by the insured of a transportation insurance
policy would not allow an insurer to avoid coverage unless the related breach
“ ‘increased the hazard by any means within the control of the insured.’ ” Id. at
1152-53 (quoting Fla. Stat. Ann. § 627.409 (1979)). As it was undisputed that
pilot error was the only cause of the accident, the court remanded for trial on the
issue of whether the failure of the aircraft to be properly certified increased the
hazard. Id. at 1153.
The applicable policy language here is clear and excludes coverage if the
insured “[k]new of any suspension or impairment in any protective safeguard
listed in the Schedule above and failed to notify [Ohio Security] of that fact.” It is
undisputed that the Whaleys were aware of deficiencies in their fire suppression
system based on inspections by the City and Alpine Fire and did not notify Ohio
Security despite the notice provision in the Protective Safeguards. Thus, the
court properly held the loss was excluded under the first exclusion.
B. Failure to Maintain Protective Safeguard in Complete Working Order
Alternatively, a second provision in the Whaleys’ policy excludes a loss
from coverage if the insured “[f]ailed to maintain any protective safeguard listed
in the Schedule above, and over which [the insured] had control, in complete
working order.” The Whaleys argue that questions of fact remain about whether
16 No. 86200-6-I/17
their fire suppression system was “in complete working order,” because it did put
out the fire. Again, we disagree.
In Ohio Security’s coverage denial letter to the Whaleys, it explained that
although fire was a covered cause of loss,
it has been established that you have not met the conditions of the protective safeguards. It was determined that non-compatible fusible links were installed in the ventilation hood which delayed activation and contributed to the extent of the damages. . . . In addition, the condition of the hood and surrounding appliances at the time of the loss do not support that quarterly cleaning of the ventilation system occurred as required in your protective safeguards endorsement.
Further, the denial letter specifically noted that “the hood extinguishing system
malfunctioned as a result of deficiencies that were outlined by the City of
Burlington in a notice provided on September 30, 2019.” The Whaleys claim that
despite these deficiencies, their fire suppression system was in “complete
working order” because it functioned to put out the fire, so the exclusion did not
apply.
To counter the Whaleys’ argument, Ohio Security relies on United
Specialty Insurance Co. v. Shot Shakers, Inc., which involved a policy with the
same protective safeguards and exclusions as here. C18-0596JLR, 2019 WL
199645 (W.D. Wash. Jan. 15, 2019), aff’d, 831 Fed. App’x 346 (9th Cir. 2020). In
Shot Shakers, both parties sought partial summary judgment on the issue of
whether failure to comply with the protective safeguards precluded coverage.
2019 WL 199645 at *5. The policy excluded coverage for “fail[ing] to maintain
any protective safeguard listed in the Schedule above, and over which you had
control, in complete working order.” Id. at *11. The court concluded that “[a] fire
17 No. 86200-6-I/18
suppression system that does not comply with the Safeguards Condition cannot
be in ‘complete working order’ for purposes of the Safeguards Exclusion.” Id. at
*12. Thus, “[a] deficient system is not in ‘complete working order.’ ” Id.
The Whaleys contend that Shot Shakers is factually dissimilar because
there, the policyholder continuously made misrepresentations, 6 the fire
suppression system did not have nozzles above one of the kitchen appliances,
the origin of the fire was accumulated grease in the suppression system itself,
and there was not enough extinguishing substance to put out the fire. See 2019
WL 199645 at *4. Here, they argue, the system functioned as intended because
the fire suppression had nozzles over the appliance that activated, the fire did not
start in the suppression system, and the system functioned to extinguish the fire
as intended. The Whaleys also highlight that the investigations by the City and
Ohio Security did not establish that the fire suppression system delayed in
activating or that it caused more damage. They point to Blaine’s statement that it
was not definitively known how long the fire burned based on the burn pattern
and that he did not follow the NFPA 921 Guide for Fire and Explosion
Investigations before issuing his report. 7 However, even if the types of
deficiencies in Shot Shakers and this case were different, the Whaleys do not
dispute that their fire suppression system did not comply with the Protective
Safeguards condition. Shot Shakers involved precisely the same type of
6 The policy in Shot Shakers specifically included a provision not present in the Whaley’s
policy that excluded coverage if the insureds made misrepresentations in their application for coverage. 2019 WL 199645 at *2-3. 7 On the other hand, Ohio Security’s consultant, Hickey, noted in his report to Ohio
Security that he used the NFPA 921 guide.
18 No. 86200-6-I/19
exclusion, 8 and we follow its sound reasoning that “[a] fire suppression system
that does not comply with the Safeguards Condition cannot be in ‘complete
working order’ for purposes of the Safeguards Exclusion.” 2019 WL 199645 at
*12.
The Whaleys rely on Hernandez & Nunez, Inc. v. Penn-American
Insurance Co., to support their argument that when a system functions as
intended, the lack of compliance with protective safeguards should not defeat
coverage. CV 18-4192 AS, 2019 WL 1423770, at *7 (C.D. Cal. Feb. 15, 2019).
But in Hernandez & Nunez, the system was in working order, as required by the
policy, 2019 WL 1423770 at *7, whereas here, the pre-fire reports noted that the
Whaleys’ system was deficient and not in “complete working order.”
Also, the Hernandez & Nunez court treated the protective safeguards
endorsement as a condition precedent to coverage rather than as an exclusion
from coverage. Id. at *6, *10. Thus, the Whaleys also argue that as in Hernandez
& Nunez, “Washington also applies a substantial compliance standard when
addressing policy conditions.” But other than Hernandez & Nunez, the only
authority they cite for this proposition is Staples v. Allstate Insurance Co., a case
involving a cooperation clause as a condition of coverage. 176 Wn.2d 404, 414,
295 P.3d 201 (2013). We decline to read a substantial compliance standard into
the policy exclusion in this case. Therefore, we conclude that there is no triable
issue of fact as to whether the second exclusion applies to the Whaleys’ claim.
8 Under GR 14.1(c), we may cite to unpublished decisions as necessary for a reasoned
opinion, as is the case here.
19 No. 86200-6-I/20
II. Showing of Prejudice
The Whaleys assert that even if the Protective Safeguards endorsements
are conditions of coverage, Ohio Security nonetheless had to prove that it was
prejudiced by their failure to satisfy those conditions to prevail at summary
judgment. Ohio Security counters that it is not required to demonstrate prejudice
regarding “an exclusion with a notice requirement” and that the Whaleys’ failure
to notify it satisfies the elements of the exclusions.
In general, exclusionary clauses are narrowly construed “for the purpose
of providing maximum coverage for the insured.” George v. Farmers Ins. Co. of
Wash., 106 Wn. App. 430, 439, 23 P.3d 552 (2001). However, “[w]e will uphold
exclusions that rationally limit the risks of the insurer.” Int’l Marine Underwriters v.
ABCD Marine, LLC, 179 Wn.2d 274, 288 n.15, 313 P.3d 395 (2013).
On the other hand, conditions to coverage in an insurance policy are used
to “prevent the insurer from being prejudiced by the insured’s actions,” as
“releas[ing] an insurer from its obligation without a showing of actual prejudice
would be to authorize a possible windfall for the insurers.” Pub. Util. Dist. No. 1 of
Klickitat County v. Int’l Ins. Co., 124 Wn.2d 789, 803, 881 P.2d 1020 (1994).
Thus, in some post-loss contexts, an insurer cannot avoid coverage unless it can
show it “suffered prejudice from its insured’s breach.” Tran v. State Farm Fire &
Cas. Co., 136 Wn.2d 214, 228, 961 P.2d 358 (1998). 9 Courts generally analyze
prejudice when there is a clause that “designate[s] the manner in which claims
9 Actual prejudice means “ ‘affirmative proof of an advantage lost or disadvantage
suffered as a result of the [breach]’ ” that detrimentally affects the insurer’s ability to defend against coverage. Tran, 136 Wn.2d at 228-29 (quoting Canron, Inc. v. Fed. Ins. Co., 82 Wn. App. 480, 491, 918 P.2d 937 (1996), review denied, 131 Wn.2d 1002, 932 P.2d 643 (1997)).
20 No. 86200-6-I/21
covered by the policy are to be handled once a claim has been made or events
giving rise to a claim have occurred.” Pub. Util. Dist. No. 1, 124 Wn.2d at 803.
For example, courts commonly apply a prejudice analysis with cooperation,
notice, and no-settlement clauses, but do not “analyze prejudice in cases
involving types of clauses other than those involving the handling of claims.”
Pilgrim v. State Farm Fire & Cas. Ins. Co., 89 Wn. App. 712, 723-24, 950 P.2d
479 (1997). See also Shot Shakers, 2019 WL 199645 at *11 (the protective
safeguards in the policyholder’s policy did not deal with “late notice, failure to
cooperate, voluntary payment or other claims handling clause[s]” that would
require the insurer to show it was prejudiced by the policyholder’s breach—i.e.,
noncompliance with the conditions to coverage).
The Whaleys do not provide authority that a showing of actual prejudice is
required outside of those contexts. For example, in Tran, 136 Wn.2d at 217-19,
the policyholder, whose business was burglarized, refused to produce financial
records related to his claim, in violation of the policy’s cooperation clause; the
court held that as a result, the insurer was actually prejudiced because it was
prevented from determining the validity of his claim. Canron, Inc. v. Federal
Insurance Co., involved a notice clause that required the policyholder to give the
insurer notice of any unanticipated “occurrence[s]” resulting in damage; the court
held that the insurer was not actually prejudiced because it identified only
“possible detriments” resulting from the policyholder’s year-long delay in notifying
the insurer of potential liability for contamination of soil and groundwater. 82 Wn.
App. 480, 483, 486, 488, 918 P.2d 937 (1996). And Griffin v. Allstate Insurance
21 No. 86200-6-I/22
Co., involved the breach of a condition prohibiting the policyholder from making
voluntary payments in the event of bodily injury or property damage to be
relieved of its duty to defend. 108 Wn. App. 133, 141-42, 29 P.3d 777 (2001).
Rather, courts have declined to require the insurer to show prejudice
before declining coverage when a policyholder fails to provide pre-loss notice of
risk. For example, in Safeco Title Insurance Co. v. Gannon, the court held that
actual prejudice was not required for claims involving termination clauses,
reasoning that otherwise the insurer could be required to provide coverage “the
insurer did not intend”—i.e., a claim might be covered if the policyholder
submitted “notice of ‘facts and circumstances’ ” that may result in subsequent
claims prior to the expiration of the claims period. 54 Wn. App. 330, 334, 339,
774 P.2d 30 (1989). And in Simms v. Allstate Insurance Co., the court concluded
that a finding of prejudice is unnecessary for a statute of limitations clause
because it is merely a contractual modification. 27 Wn. App. 872, 876-77, 621
P.2d 155 (1980).
Here, the Protective Safeguards endorsements in the policy did not
impose a notice condition relating to the presentation of a claim, but rather
required notice of an impairment of one of the identified safeguards. This notice
does not implicate Ohio Security’s handling of claims or duty to defend. Rather,
the failure to notify Ohio Security of an impairment itself resulted in the exclusion
from coverage. On these facts, we conclude that Ohio Security was not required
to show actual prejudice caused by the Whaleys’ failure to comply with the
protective safeguards in order for the policy exclusion to apply.
22 No. 86200-6-I/23
III. Duty of Good Faith and Fair Dealing
The Whaleys assert that Ohio Security acted in bad faith in denying their
claim because if Ohio Security had conducted a “balanced analysis of the case
law,” it would have discovered authority that supported coverage and challenged
the applicability of the exclusion. This argument is unavailing.
All contracts convey an implied duty of good faith and fair dealing. Badgett
v. Sec. State Bank, 116 Wn.2d 563, 569, 807 P.2d 356 (1991). This duty extends
to insurance policies. Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269,
281, 961 P.2d 933 (1998). To comply with this duty, an insurer must timely
conduct any necessary and reasonable investigation before denying coverage.
Id. In general, good faith is a question of fact, but “it may be resolved on
summary judgment where no reasonable minds could differ on the question.”
Marthaller v. King County Hosp. Dist. No. 2, 94 Wn. App. 911, 916, 973 P.2d
1098 (1999).
The Whaleys claim that here, Ohio Security did not properly complete a
“balanced analysis of the case the law” because a thorough review would have
demonstrated that “the law treats a total failure or absence of a system differently
than alleged defects in an operational fire suppression system.” In support of
their argument, the Whaleys cite to American Best Food, Inc. v. Alea London,
Ltd., in which the court held the insurer acted in bad faith as a matter of law
because it failed to uphold its duty to defend “based upon a questionable
interpretation of law.” 168 Wn.2d 398, 412-13, 229 P.3d 693 (2010). The
Whaleys also point to Robbins v. Mason County Title Ins. Co., in which the
23 No. 86200-6-I/24
insurer refused to defend the policyholder based on its own interpretation of an
undecided area of law. 195 Wn.2d 618, 634-35, 462 P.3d 430 (2020).
Ohio Security contends its analysis of the law did not breach the duty of
good faith because the cases on which the Whaleys rely, American Best Food
and Robbins, pertained only to the duty to defend. As the first party property
claim in this case does not involve the duty to defend, Ohio Security argues that
it was not obligated to consider cases involving that duty.
We agree with Ohio Security. The fact that Ohio Security did not rely on
inapposite caselaw does not establish bad faith.
Further, the Whaleys argue that questions of fact exist regarding whether
Ohio Security conducted “all reasonable and necessary investigations” as
required by Coventry before denying their claim. They contend there was “no
evidence” to prove that the hood malfunctioned; that if the fusible links were not
the correct rating for the Kidde system, the “investigation revealed none of the
investigators knew what the real temperature rating should have been”; and that
Ohio Security failed to perform system tests and denied coverage before the Fire
Marshal released its final report.
Ohio Security argues that the Whaleys waived this argument about the
efficacy of their investigation because they did not raise it below. 10 In general, a
reviewing court need not consider arguments a party did not raise before the trial
court, but may exercise discretion “to consider newly-articulated theories” of an
10 Ohio Security briefly addresses the merits of this argument in a footnote, explaining
that its investigation was proper because it “inspected the loss, hired a cause and origin expert, interviewed the Fire Marshal and obtained his pre-fire inspection, and interviewed Mr. Whaley.”
24 No. 86200-6-I/25
issue addressed by the trial court. Cave Properties v. City of Bainbridge Island,
199 Wn. App. 651, 662, 401 P.3d 327 (2017).
Even if it were not waived, the Whaleys’ argument fails on the merits. The
record demonstrates that Ohio Security conducted a reasonable investigation
before denying the Whaleys’ claim in good faith. Ohio Security promptly hired
Rimkus Consulting, a third-party firm to investigate the fire. Rimkus’s inspector,
Hickey, conducted his investigation on December 18, two days after the fire.
Hickey spoke with the Whaleys’ tenant, Emmanuel Martinez, inspected the Café,
met with Blaine, the Fire Marshal, and determined a cause of the fire. Further,
Ohio Security obtained the pre-fire inspection by the City, which detailed
deficiencies in their system. The Whaleys identify no additional evidence that
would have resulted in a different conclusion on the facts relevant to the policy
exclusions.
Viewing the evidence in the light most favorable to the Whaleys, we hold
that no reasonable juror could conclude that Ohio Security acted in bad faith in
denying the Whaleys’ claim.
CONCLUSION
We affirm the trial court’s summary judgment dismissal of the Whaleys’
claims.
25 No. 86200-6-I/26
WE CONCUR: