Nikfard v. State Farm Fire and Casualty Company

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 6 BIJAN NIKFARD, 7 Case No. C19-6001RSL Plaintiff, 8 AMENDED MEMORANDUM OF v. DECISION 9 STATE FARM FIRE AND CASUALTY 10 COMPANY, 11 Defendant. 12 13 This matter was heard by the Court in a bench trial commencing on April 5, 2021, 14 and concluding on April 7, 2021. Plaintiff Bijan Nikfard filed this lawsuit seeking 15 payments under a first-party property insurance policy issued by State Farm Fire and 16 Casualty Company. Plaintiff asserted breach of contract, bad faith, and statutory claims 17 against the insurer, seeking an award of damages as well as declaratory and injunctive 18 relief. The Court’s findings of fact and conclusions of law were issued on April 28, 2021. 19 The parties subsequently filed motions to amend those findings and conclusions (Dkt. 20 # 111 and # 112) and plaintiff filed a motion for attorney’s fees (Dkt. # 108). The original 21 Memorandum of Decision is hereby amended to address all three motions. 22 FINDINGS OF FACT 23 By a preponderance of the evidence, the Court finds as follows: 24 On March 10, 2019, a fire severely damaged the first floor living space of a rental 25 house owned by plaintiff. Prior to the fire, the home was in need of significant repairs, 26 with two leaks in the roof and a dilapidated deck that was unsafe and unusable. The fire 1 suppression efforts involved cutting a large hole in the roof and a massive influx of water. 2 Plaintiff (or his representative, his brother George Nikfard) timely notified State 3 Farm of the fire.1 State Farm acknowledged that the loss was covered by the policy and 4 requested that the insured take steps to protect the property from further damage. Mr. 5 Nikfard had fencing installed around the house, boarded up the blown out windows and 6 front door, and attempted to keep water out of the holes in the roof with tarps. State Farm 7 recommended KenCade Construction as a general contractor specializing in insurance 8 restoration and, with Mr. Nikfard’s approval, sent KenCade to the house to prepare a 9 repair estimate. Using a software program called Xactimate, KenCade developed a very 10 detailed, but preliminary, estimate of $149,900.36 to restore the property. KenCade was 11 never asked to prepare a formal bid for the Nikfard project and therefore never offered to 12 be bound to do the work for $149,900.36. 13 Plaintiff obtained a competing repair estimate of $269,850.00 plus tax from Ivan’s 14 Remodeling. The estimate contained prices for each line item, such as “Permits. 15 $4,300.00” and “Siding. $16,700.00,” but did not contain the level of detail regarding 16 materials, number of units, and price per unit as the KenCade estimate. Ivan’s offered to 17 do the work for the quoted price, but State Farm rejected the bid. The adjuster who was 18 handling the claim, Bobby Greer, deemed certain line items to be upgrades not covered by 19 the policy and/or not necessary to repair the fire damage. Mr. Nikfard requested 20 clarification regarding which line items, in whole or in part, State Farm believed were 21 unrelated to the fire or otherwise not covered by the policy. Mr. Greer, convinced that his 22 conversation with Mr. Nikfard regarding the Ivan’s bid was sufficient, did not provide the 23 requested clarification. 24 In mid-May 2019, State Farm sent plaintiff its estimate of the covered repair costs, 25 26 1 For purposes of this decision, the Court uses the term “plaintiff” to refer to Bijan Nikfard and “Mr. Nikfard” to refer to George Nikfard. 1 largely adopting the KenCade estimate, along with a payment of $113,167.93. State Farm 2 also promised to disburse another $46,848.09 if repairs were actually undertaken and 3 completed within the time allowed by the policy. Plaintiff was told that if he obtained a 4 repair estimate that exceeded State Farm’s estimate, he should contact State Farm before 5 authorizing or beginning work. In subsequent correspondence, State Farm explained how 6 the replacement cost coverage works, noting that if additional damage were discovered 7 during demolition or repair, the contractor could request additional authorization for 8 repairs from State Farm. Mr. Nikfard requested a copy of his policy. 9 A new adjuster, Kellie Kleinschmidt, was assigned to the case at this point, the 10 fourth since State Farm was first notified of the claim.2 A review of the claim file made 11 Ms. Kleinschmidt aware that Mr. Nikfard disagreed with the KenCade estimate, that he 12 was seeking a meeting to discuss State Farm’s objections to the Ivan’s estimate in the 13 hopes of reaching an agreement that would enable him to proceed with the repairs, and 14 that he had requested a copy of the insurance policy. After consulting with Mr. Greer, Ms. 15 Kleinschmidt was apparently convinced that the Ivan’s bid had been given all the 16 attention it was due and that there would be no benefit to meeting with the contractor. Ms. 17 Kleinschmidt also believed that Mr. Nikfard had been given a copy of the policy as 18 requested. When Mr. Nikfard notified State Farm that he intended to move forward with 19 the repairs based on the Ivan’s Remodeling estimate, Ms. Kleinschmidt limited her 20 response to introducing herself as the new adjuster and requesting that Mr. Nikfard 21 forward a signed copy of the Ivan’s contract so that she could release the rest of the 22 23 2 When the claim was first made, a third-party adjuster was handling Kellie Kleinschmidt’s claim files while she was out on maternity leave. That adjuster had a 24 medical emergency, however, and the file was transferred to State Farm adjuster Necia Riddell, who made first contact with George Nikfard. The claim file then transitioned to 25 another third-party adjuster, Bobby Greer, who conferred with George Nikfard regarding 26 the Ivan’s estimate, authorized the May payment, and requested a copy of the policy from underwriting. When Kellie Kleinschmidt returned to work, the file transitioned to her. 1 previously-authorized funds. 2 Mr. Nikfard persisted, however, seeking clarification regarding what the 3 replacement cost benefits payment would cover, whether he was authorized to contract 4 with Ivan’s for an amount that was approximately $100,000 above the State Farm 5 estimate, and, if not, whether State Farm would meet with him and his contractor to go 6 through the anticipated costs before he signed a repair contract. Mr. Nikfard also pointed 7 out that the unoccupied house was now infested with rodents and inquired how to seek 8 authorization and payment for additional expenses related to its deteriorating condition. 9 He requested a response by the end of the day. The next evening, Mr. Nikfard again 10 contacted State Farm. He confirmed that he intended to pay for any work that was not 11 related to the fire out-of-pocket, but asserted that the State Farm estimate and the Ivan’s 12 bid diverged so greatly with regards to covered activities/expenses that he needed a 13 meeting to determine how to proceed. Mr. Nikfard argued that State Farm’s estimate was 14 unrealistically low. There is no indication that State Farm ever responded. At trial, it 15 became very clear that this was an error: further discussion between State Farm and 16 plaintiff’s contractor was a necessary step in reconciling the differences between the bids 17 and getting the demolition and renovation underway in a timely manner.3 As it was, Mr. 18 Nikfard did not sign a contract with Ivan’s Remodeling, and the water-logged, rodent- 19 infested house continued to deteriorate. 20 Plaintiff filed this lawsuit on September 17, 2019, six months after the fire. After 21 obtaining assistance from an industrial hygienist regarding asbestos, mold, and smoke 22 3 In its rebuttal closing argument, State Farm argues that “[t]he one-page Ivan’s estimate 23 did not have sufficient detail to allow for reconciliation with the State Farm estimate” because it 24 “did not describe the repairs with any specificity or break them down by room” and “included items unrelated to the fire” or “not present in the house.” Dkt. # 106 at 2. State Farm misses the 25 point: if it needed additional information from the contractor in order to understand why the two estimates were so far apart, it should have made the effort to obtain that information. 26 1 sealing, a structural engineer regarding the scope of work (including any required code 2 upgrades), an architect, and a water loss mitigation specialist, Mr. Nikfard signed a 3 contract with Charter Construction, Inc. to restore the home - in keeping with the experts’ 4 recommendations - for $228,563.91. Mr. Nikfard also engaged Charter Construction to 5 make $11,432.34 in upgrades to the property that were unrelated to the fire loss and for 6 which he is not seeking coverage. 7 Upon receipt of the Charter Construction contract, State Farm made an additional 8 payment of $60,904.01 to cover the replacement cost benefits (based on its original 9 estimate), material costs for laminate flooring, permit fees, and architect and engineering 10 charges that State Farm deemed unrelated to litigation. State Farm has declined to pay the 11 water loss mitigation invoice, investigative costs, and the contractor charges in excess of 12 its original estimate. State Farm has also limited certain payments, such as lost rents and 13 reimbursement for fencing rental, on the ground that plaintiff should have completed the 14 repairs more quickly. At the time of trial, the dwelling was still undergoing repair and 15 renovation. 16 With one exception, all of the consultations and expenditures incurred by plaintiff 17 were reasonable and necessary to the protection, investigation, demolition, repair, and/or 18 replacement of the insured property given the nature of the loss, the length of time the 19 property had been water-logged, and the changes in code requirements. Plaintiff cannot, 20 however, recover the $3,815.71 budgeted for building a new deck or the associated 21 overhead and tax charges totaling $1,211.87. The original deck was non-functional at the 22 time of the fire, and State Farm is not obligated to replace something that had zero value. 23 The Nikfard insurance policy included the following relevant coverages: 24 Investigative Costs does not reduce policy limits 25 Dwelling Repairs $299,200 26 1 Code Upgrades $74,800 (25% of the Dwelling Repairs Coverage) 2 Personal Property $18,500 3 Debris Removal $14,960 (5% of the Dwelling Repairs Coverage)4 4 Lost Rents 12 months 5 Plaintiff has spent $9,883.95 on industrial hygiene and engineering services to investigate 6 the scope of the loss and repairs.5 He has also spent or contracted to spend another 7 $322,400.54 in the demolition and repair of the dwelling. After subtracting the $500 8 deductible, the unrecoverable costs associated with the deck, and the non-recoverable 9 depreciation associated with appliances and carpeting,6 plaintiff’s covered demolition and 10 repair expenditures equal $316,186.05. Because that amount exceeds the Dwelling 11 Repairs coverage limit, the 5% debris removal coverage comes into play. The Dwelling 12 Repairs and Debris Removal coverages, combined, equal $314,160.00. The difference of 13 $2,026.05 falls easily within the Code Upgrades coverage because the majority of the 14 siding costs and the firesafing in the attic were necessary code upgrades that cost at least 15 $10,000. Finally, plaintiff has lost $700 per month in rent since the fire occurred. 16 CONCLUSIONS OF LAW 17 A. Breach of Contract 18 All told, plaintiff has a contractual claim for reimbursement of $334,470.00, 19 including investigative expenses, demolition and repair expenses, and lost rents that were 20 21 4 The additional 5% coverage for debris removal applies only if the amount payable under the policy plus debris removal exceeds the policy limit for Dwelling Repairs. 22 5 Expenses related solely to litigation are not covered and have been deducted. 23 6 To determine the actual cash value based on the replacement costs in Charter’s estimate, 24 the Court applied the percentage reduction utilized by State Farm in its structure repair estimate, 25 namely 58.42% for appliances and 90.63% for carpet. The deduction for non-recoverable depreciation totals $686.91. 26 1 proximately caused by the covered fire loss. Plaintiff took reasonable steps to protect the 2 damaged property, as directed by State Farm, and his reluctance to incur or contractually 3 bind himself to additional expenses without knowing whether State Farm would 4 reimburse him was not a breach that would relieve the insurer of liability for subsequent 5 loss. State Farm has paid a total of $174,071.94 under the various coverages. Plaintiff is 6 therefore entitled to an award of $160,398.06 on his breach of contract claim. 7 B. Bad Faith 8 To prove the tort of bad faith in insurance claims handling, the insured must show 9 that the insurer acted unreasonably, frivolously, or without foundation. Smith v. Safeco 10 Ins. Co., 150 Wn.2d 478, 485 (2003). The Court will assume, for purposes of this claim, 11 that State Farm acted unreasonably in failing to meet with plaintiff’s contractor to 12 reconcile the differences in State Farm’s reconstruction estimate and that put forward by 13 Ivan’s Remodeling. Plaintiff has already been awarded the economic damages arising 14 from that failure under his breach of contract claim and is not entitled to a double 15 recovery. Bad faith is a tort claim, however, and plaintiff also seeks an award of general 16 damages for the emotional distress arising from State Farm’s conduct. Plaintiff, a 17 businessman, held the subject house as a rental property. He had not visited the property 18 in years, leaving it to the long-term tenant to do any necessary repairs and maintenance in 19 exchange for a reduced rent. Plaintiff had no discernable attachment to the house, and he 20 left the insurance negotiations entirely to his brother, George Nikfard. Plaintiff has not 21 shown emotional distress or that he is otherwise entitled to an award of general damages. 22 C. Insurance Fair Conduct Act (“IFCA”) 23 IFCA authorizes “first party claimant[s] to a policy of insurance who [are] 24 unreasonably denied a claim for coverage or payment of benefits by an insurer [to] bring 25 an action in superior court of this state to recover the actual damages sustained, together 26 1 with the costs of the action, including reasonable attorneys’ fees and litigation costs.” 2 RCW 48.30.015(1). State Farm neither denied plaintiff’s claim for coverage nor denied 3 the payment of any benefits due under the policy. Rather, State Farm promptly 4 acknowledged coverage and relied on an estimate from a licensed general contractor 5 when offering a payment of over $150,000 with a promise of more funds if the contractor 6 discovered additional damage during demolition/construction. Although there was a 7 significant dispute regarding the valuation of the claim, State Farm’s offer was reasonable 8 in light of what was then known, and it increased its offer of payment as more 9 information was obtained regarding costs and expenses. Plaintiff was not unreasonably 10 denied payment of the benefits afforded by his policy for purposes of an IFCA claim. 11 D. Consumer Protection Act (CPA) 12 The elements of a CPA claim are (1) an unfair or deceptive act or practice 13 (2) occurring in trade or commerce, (3) affecting the public interest, (4) injury to a 14 person’s business or property, and (5) causation. Hangman Ridge Training Stables, Inc. v. 15 Safeco Title Ins. Co., 105 Wn.2d 778, 784-85 (1986). Proof of a violation of the 16 regulatory provisions of WAC Ch. 284-30 et seq. establishes the first two elements of a 17 CPA claim. In addition, “CPA claims ‘alleging unfair insurance claims practices meet the 18 public interest element because RCW 48.01.030 declares that the ‘business of insurance is 19 one affected by the public interest.’” Bancroft v. Minnesota Life Ins. Co., 329 F. Supp. 3d 20 1236, 1259 (W.D. Wash. 2018), aff’d, 783 F. App’x 763 (9th Cir. 2019) (internal citation 21 and quotation marks omitted). 22 State Farm’s continuing reliance on the KenCade estimate and subsequent refusal 23 to meet and confer with plaintiff’s contractor resulted in an inadequate investigation of 24 the scope of the loss and an inaccurate determination of the actual cash value in violation 25 of WAC 284-30-330(4) and WAC 284-30-380(7), respectively. Ultimately, State Farm 26 1 offered to pay slightly more than half of the amounts due under the policy, compelling 2 plaintiff to initiate litigation in order to recover the rest in violation of WAC 284-30- 3 330(7). The legislature has declared that this conduct impacts the public interest, and 4 plaintiff has shown that the violations caused injury to his business or property. In such 5 circumstances, the CPA authorizes a civil action to enjoin further violations and to 6 recover actual damages, the costs of the suit, and reasonable attorney’s fees. RCW 7 19.86.090. “In addition, the court may, in its discretion, increase the award of damages up 8 to an amount not to exceed three times the actual damages sustained: PROVIDED, That 9 such increased damage award for violation of RCW 19.86.020 may not exceed 10 twenty-five thousand dollars.” Id. 11 Plaintiff’s claim for actual damages under the CPA is duplicative of the remedy 12 afforded on his breach of contract claim: he is not entitled to a double recovery of that 13 amount. Nor has he stated what sort of injunctive relief would be appropriate in the 14 absence of evidence suggesting that the regulatory violations that occurred here are the 15 result of a pattern or practice that could be altered going forward. To the contrary, the 16 outcome here appears to have been a function of unique circumstances - primarily the 17 assignment of four different adjusters to the case and the quick involvement of lawyers on 18 both sides - that cannot be suitably addressed through injunctive relief. For similar 19 reasons, the Court finds that neither punishment nor deterrence justifies an award of 20 treble damages in this case. Plaintiff is, however, entitled to an award of costs and 21 reasonable attorney’s fees. 22 23 For all of the foregoing reasons, the Court finds that State Farm is liable to 24 plaintiff for damages in the amount of $160,398.06, attorney’s fees in the amount of 25 26 1 $261,965.00,7 plus costs in the amount of $7,339.26.8 Plaintiff’s motion for attorney’s 2 fees (Dkt. # 108) and motion to amend (Dkt. # 111) are GRANTED in part. Defendant’s 3 motion to amend (Dkt. # 112) is also GRANTED in part. The Clerk of Court is directed 4 to enter judgment in the above-captioned matter. 5 6 Dated this 16th day of August, 2021. 7 Robert S. Lasnik 8 United States District Judge 9 10 7 The Court finds that counsels’ hourly rates are reasonable given the contingent nature of 11 fee arrangement and the associated risks. Because counsels’ skill and the risk of nonpayment are already reflected in the hourly rate, no multiplier is warranted. The Court has made some 12 deductions related to hours spent retaining an industrial hygienist prior to suit, working on unsuccessful claims, and performing clerical work. 13 8 An award of costs under the CPA is limited to the costs that are taxable under RCW 14 4.84.010. Nordstrom, Inc. v. Tampourlos, 107 Wn.2d 735, 743 (1987). Plaintiff seeks to recover 15 costs related to videotaped depositions. “To the extent that the court . . . finds that it was necessary to achieve the successful result, the reasonable expense of the transcription of 16 depositions used at trial” may be recoverable under RCW 4.84.010(7). As plaintiff acknowledges in reply, however, the deposition transcripts were not used at trial and were not necessary to the 17 successful pursuit of his claims. Those costs are not recoverable. Pursuant to RCW 4.84.010(5), a party may also recover the “[r]easonable expenses, 18 exclusive of attorneys’ fees, incurred in obtaining reports and records, which are admitted into evidence at trial . . . , including but not limited to medical records, tax records, personnel records, 19 insurance reports, employment and wage records, police reports, school records, bank records, 20 and legal files.” Plaintiff argues that the costs of obtaining expert witness reports that were admitted at trial fall within this category of recoverable costs. Washington law does not support 21 his assertion. “[E]xpert witness fees are not a proper element of damages, nor are they awardable as costs.” Wagner v. Foote, 128 Wn.2d 408, 417 (1996). “If either party sees proper to employ 22 the services of an expert for his own benefit, the court should not require the opposite party to pay for the services thus rendered.” Fiorito v. Georig, 27 Wn.2d 615, 620 (1947) (citation 23 omitted). In Bearden v. McGill, 193 Wn. App. 235, 250 (2016), the Washington Court of 24 Appeals allowed the recovery of costs associated with a physician’s report because it was an expense incurred to obtain the report of a treating physician, rather than a cost for an expert 25 witness. The reports for which plaintiff now seeks recovery, in contrast, were based on the witnesses’ expertise, not his or her role as a fact witness. They are not recoverable. 26