Wintersteen v. Liberty Mutual Insurance Company

• Court: District Court, E.D. Washington
• Decided: July 5, 2022
• Docket: 2:21-cv-00185
• Status: Unknown

Opinion

1 U.S. F DIL ISE TD R I IN C TT H CE O URT EASTERN DISTRICT OF WASHINGTON 2 Jul 05, 2022

SEAN F. MCAVOY, CLERK 3 UNITED STATES DISTRICT COURT EASTERN DISTRICT OF WASHINGTON 4 RORY WINTERSTEEN and TERRI No. 2:21-cv-00185-SMJ 5 WINTERSTEEN, individually and the marital community thereof, 6 ORDER GRANTING Plaintiffs, DEFENDANT’S MOTION TO 7 DISMISS v. 8 LIBERTY MUTUAL INSURANCE 9 COMPANY,

10 Defendant.

11 12 Before the Court is Defendant’s second Motion to Dismiss, ECF No. 11. The 13 Court previously granted Defendant’s first motion to dismiss but provided Plaintiffs 14 an opportunity to amend their complaint. Plaintiffs have now filed an amended 15 complaint, which Defendant contends suffers from the same deficiencies. Having 16 reviewed the relevant record, the Court grants Defendant’s motion and dismisses 17 Plaintiff’s complaint without prejudice. 18 BACKGROUND 19 Plaintiffs’ property was damaged by a fire. ECF No. 12 at 2–3. Defendant 20 insured Plaintiffs for their first party property loss and paid Plaintiffs under their 1 claim. Id. at 3. Defendant’s coverage was insufficient to cover all their losses, so 2 they sued their neighbors—Mr. Zimmerman and Ms. Kloster—who they allege

3 caused the fire. Id. Coincidentally, Defendant also insured their neighbors. Id. 4 Defendant agreed to defend the neighbors in that action, and provided defense 5 counsel, who answered and asserted affirmative defenses, including “offset, setoff,

6 or credit for payments made to or on behalf of Plaintiffs.” Id. at 3–4. 7 Plaintiffs filed suit against Defendant on June 4, 2021, asserting causes of 8 action for negligent supervision, bad faith, and breach of fiduciary duty, as well as 9 causes of action under the Washington Insurance Fair Conduct Act (IFCA), Wash.

10 Rev. Code § 48.30.015, and the Washington Consumer Protection Act (WCPA), 11 Wash. Rev. Code § 19.86.010 et seq. ECF No. 1. They also requested several forms 12 of declaratory relief. Id. at 14–19.

13 On August 4, 2021, Defendant filed a motion to dismiss all claims against it. 14 ECF No. 6. The Court granted the motion, though it granted Plaintiffs leave to 15 “save their Complaint through amendment and clearer articulation or 16 supplementation of their claims.” ECF No. 11 at 8.

17 Plaintiffs filed an amended complaint on October 22, 2021. ECF No. 12. 18 Plaintiffs’ amended complaint asserts three causes of action, two of which were 19 asserted in the original complaint (declaratory relief and bad faith) and have been

20 clarified in the operative amended complaint. Plaintiffs’ third cause of action 1 (underinsured motorist claim) was not asserted in the original complaint. Compare 2 ECF No. 1, with ECF No. 12 at 21.

3 LEGAL STANDARD 4 Under Federal Rule of Civil Procedure 12(b)(6), the Court must dismiss a 5 complaint if it “fail[s] to state a claim upon which relief can be granted,” including

6 when the plaintiff’s claims either fail to allege a cognizable legal theory or fail to 7 allege sufficient facts to support a cognizable legal theory. Kwan v. SanMedica Int’l, 8 854 F.3d 1088, 1093 (9th Cir. 2017). To survive a Rule 12(b)(6) motion, a 9 complaint must contain “sufficient factual matter, accepted as true, to ‘state a claim

10 to relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) 11 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). 12 Facial plausibility exists when a complaint pleads facts permitting a

13 reasonable inference that the defendant is liable to the plaintiff for the misconduct 14 alleged. Iqbal, 556 U.S. at 678. Plausibility does not require probability but 15 demands something more than a mere possibility of liability. Id. While the plaintiff 16 need not make “detailed factual allegations,” “unadorned” accusations of unlawful

17 harm and “formulaic” or “threadbare recitals” of a claim’s elements, supported only 18 “by mere conclusory statements,” are insufficient. Id. 19 In deciding a Rule 12(b)(6) motion, the Court construes a complaint in the

20 light most favorable to the plaintiff, assumes the facts as pleaded are true, and draws 1 all reasonable inferences in his or her favor. Ass’n for L.A. Deputy Sheriffs v. County 2 of Los Angeles, 648 F.3d 986, 991 (9th Cir. 2011); Iqbal, 556 U.S. at 678. Even so,

3 the Court may disregard legal conclusions couched as factual allegations. See id. 4 DISCUSSION 5 I. Declaratory Judgment Claim

6 Plaintiffs, through their first cause of action, seek a declaration that 7 Defendant Liberty Mutual does not have a right to subrogation, reimbursement, or 8 offset. ECF No. 12 at 5–10. Defendant counters that at present, there is no justiciable 9 controversy supporting such a claim. ECF No. 13 at 2.

10 A. Right to subrogation, reimbursement, and offset 11 “It is well established in Washington that insureds are not entitled to double 12 recovery, and thus after an insured is fully compensated for his loss, an insurer may

13 seek an offset, subrogation, or reimbursement for [] benefits already paid.” Gamble 14 v. State Farm Mut. Auto. Ins. Co., No. C19-5956 MJP, 2022 WL 92985, at *2 (W.D. 15 Wash. Jan. 10, 2022) (quoting Sherry v. Fin. Indem. Co., 160 P.3d 31, 34 (Wash.2d 16 2007) (internal quotation marks omitted).

17 Subrogation is an equitable doctrine intended to avoid unjust enrichment by 18 allowing an insurer to recover what it pays to an insured under a policy by suing the 19 wrongdoer. Axis Surplus Ins. Co. v. St. Paul Fire & Marine Ins. Co., No. C12-1024

20 MJP, 2013 WL 12121969, at *2 (W.D. Wash. Mar. 1, 2013) (citing Touchet Valley 1 Grain Growers v. Opp & Seibold General Constr., 831 P.2d 724, 728 (Wash.2d 2 1992)). “An insurer bringing a subrogation claim stands in the shoes of the insured

3 and is entitled to all rights and remedies belonging to the insured against a third 4 party.” Id. However, “[a]n insurer has no subrogation-like rights against its own 5 insured unless provided for by contract.” Sherry, 160 P.3d at 35.

6 The difference between an insurer’s right to reimbursement or an offset is a 7 technical one. An “offset” is the credit an insurer receives under one coverage for 8 payments under another coverage in the same policy, whereas reimbursement 9 “permits an insurer to be reimbursed by its insured from proceeds that the insured

10 collects directly from the party at-fault.” Winters v. State Farm Mut. Auto Ins. 11 Co., 31 P.3d 1164, 1167 (Wash.2d 2001). But both terms refer to the right of an 12 insurer to be reimbursed for payments already advanced. Sherry v. Fin. Indem. Co.,

13 131 P.3d 922, 925 (Wash. Ct. App. 2006). Regarding both, “[t]he general rule is 14 that, while an insurer is entitled to be reimbursed to the extent that its insured 15 recovers payment for the same loss from a tortfeasor responsible for the damage, it 16 can recover only the excess which the insured has received from the wrongdoer,

17 remaining after the insured is fully compensated for his loss.” Thiringer v. Am. 18 Motors Ins. Co., 588 P.2d 191, 193 (Wash.2d 1978). As such, any right of an insurer 19 to seek reimbursement or offset applies only after its insured has been made whole.

20 // 1 B. Case or Controversy Requirement 2 Plaintiffs contend in their amended complaint their claim for declaratory

3 judgment is ripe for this Court’s review. Whether the question is viewed as one of 4 standing or ripeness, Article III of the United States Constitution mandates that 5 prior to a court’s exercise of jurisdiction there must exist a constitutional

6 “case or controversy,” such that that the issues presented are “definite and concrete, 7 not hypothetical or abstract.” Railway Mail Ass’n v. Corsi, 326 U.S. 88, 93 (1945). 8 “Ripeness is a justiciability doctrine designed ‘to prevent the courts, through 9 avoidance of premature adjudication, from entangling themselves in abstract

10 disagreements over administrative policies, and also to protect the agencies from 11 judicial interference until an administrative decision has been formalized and its 12 effects felt in a concrete way by the challenging parties.’” Nat’l Park Hosp. Ass’n

13 v. Dep’t of Interior, 538 U.S. 803, 807–08 (2003) (quoting Abbott Laboratories v. 14 Gardner, 387 U.S. 136, 148–149 (1967). 15 The ripeness inquiry involves two components: (1) constitutional ripeness 16 and prudential ripeness. United States v. Braren, 338 F.3d 971, 975 (9th Cir. 2003).

17 “The constitutional ripeness of a declaratory judgment action depends upon 18 ‘whether the facts alleged, under all the circumstances, show that there is a 19 substantial controversy, between parties having adverse legal interests, of sufficient

20 immediacy and reality to warrant the issuance of a declaratory judgment.’” Id. 1 (quoting Maryland Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273 2 (1941).

3 Here, the Court has little trouble concluding that Plaintiffs’ claim for 4 declaratory relief is not ripe for review. Nowhere in Plaintiffs’ amended complaint 5 do they claim that Defendant has asserted rights to subrogation,1 offset, or

6 reimbursement. Instead, Plaintiffs note that Defendant, through its pleadings in this 7 action, asserted a right to an offset. But this argument ignores the procedural posture 8 of Defendant’s statements. On August 4, 2021, Defendant moved to dismiss 9 Plaintiffs’ original complaint. In its motion, it indicated several times that is has a

10 right to an offset or reimbursement if Plaintiffs are made whole at the conclusion of 11 their suit against their neighbors. See, e.g., ECF No. 6 at 8. But this motion was 12 brought under Federal Rule of Civil Procedure 12(b)(6), which requires Defendant

13 to assume Plaintiffs’ allegations are true and Defendant’s statements therein are not 14 admissions. 15 And in any event, it is undisputed that Defendant has no right to 16 reimbursement or offset unless and until Plaintiffs are made whole. As the Court

17 has previously stated, in the action against their neighbors, Plaintiffs will either be 18

19 1 Defendant has expressly represented that it will not assert any right to subrogation. ECF No. 13 at 7. Furthermore, a review of Plaintiffs’ amended complaint and the 20 relevant pleadings show that there is presently no allegation that Defendant has asserted any such right. 1 entitled to recovery or they will not. And Defendant’s right to an offset or 2 reimbursement is contingent upon Plaintiffs first being made whole. Because

3 Plaintiffs have not yet been made whole, and because there is no allegation that 4 Defendant is presently seeking an offset or reimbursement, there exists no 5 immediate and substantial controversy between the parties warranting the issuance

6 of a declaratory judgment. See Braren, 338 F.3d at 975. Given this, the Court will 7 not preemptively determine that Defendant either does or does not have a right to 8 remedies it has not even asserted and which are contingent upon Plaintiffs 9 recovering from theirs neighbors. As such, the Court finds that Plaintiffs’ claim for

10 declaratory judgment is not ripe for review. In so holding, the Court expresses no 11 opinion as to whether Plaintiffs’ claim may be properly brought in federal court at 12 a later time, nor does it express any opinion on whether Defendant is entitled to any

13 of the disputed remedies for recovery. 14 II. Bad Faith and Breach of Contract Claim 15 Plaintiffs’ second cause of action alleges that Defendant breached its contract 16 with Plaintiffs and acted in bad faith by seeking reimbursement without providing

17 Plaintiffs with the noticed mandated under Washington law. ECF No. 12 at 16. In 18 support, Plaintiffs submit that “[d]espite never providing the Wintersteens with 19 written notice of a right to reimbursement, Liberty Mutual attempts to seek

20 1 reimbursement from the Wintersteens. This action by Liberty Mutual has damaged 2 the Wintersteens and violates Liberty Mutual’s contract with Wintersteen.” Id.

3 Washington Administrative Code 284-3-0350(7) provides that “[n]o insurer 4 shall make a payment of benefits without clearly advising the payee, in writing, that 5 it may require reimbursement, when such is the case.” Wash. Admin. Code 284-30-

6 350(7). In addition, Defendant’s insurance policy with Plaintiffs—i.e. the parties’ 7 contract—provides that Defendant is not entitled to any reimbursement from 8 Plaintiffs unless Plaintiffs have been fully compensated, though Defendant notes 9 this provision is contained within the uninsured motorists portion of the policy and

10 not the property portion under which Defendant paid benefits to Plaintiffs. ECF 11 No. 15 at 7. 12 Again, though, Plaintiffs have not been fully compensated because their suit

13 against their neighbors remains pending, and Plaintiffs have not plausibly alleged 14 that Defendant presently seeks reimbursement. That Defendant may at some later 15 time seek to be reimbursed for amounts paid prior to Plaintiffs’ recovery from 16 another party is of no consequence at this juncture, as Plaintiffs have not yet

17 recovered from another party and whether they ultimately will recover remains an 18 open question. Implicit in WAC 284-3-0350(7)’s mandate is the requirement that 19 an insured actually require reimbursement. And the cited policy provision defining

20 Defendant’s rights to recover amounts paid, even assuming it applies here, clearly 1 requires that the insured first recover from another party. Neither of these events 2 have happened, nor have Plaintiffs alleged they have.

3 Plaintiffs seek to skirt this deficiency by claiming that Defendant is using its 4 insureds—Mr. Zimmerman and Ms. Kloster—to bring an offset claim on 5 Defendant’s behalf. As previously indicated, Defendant agreed to defend Mr.

6 Zimmerman and Ms. Kloster in Plaintiffs’ action against them. Defendant provided 7 Mr. Zimmerman and Ms. Kloster defense counsel, who answered Plaintiffs’ 8 complaint and asserted several affirmative defenses, including “offset, setoff, or 9 credit for payments made to or on behalf of Plaintiffs.” ECF No. 12 at 3–4.

10 This claim fails for several reasons. First, though the terms carry similar 11 meanings, there is a difference between a reimbursement and an offset or a setoff. 12 “An offset is not a reimbursement nor a recoupment. It simply prevents an insured

13 from receiving a double recovery.” Hamm v. State Farm Mut. Auto. Ins. Co., 88 14 P.3d 395, 399 n. 5 (Wash.2d 2004). More specifically, an offset “refers to a credit 15 to which an insurer is entitled for payments made under one coverage against 16 claims made under another coverage within the same policy.” Winters, 31 P.3d at

17 1167 (emphasis added). “‘Reimbursement’ permits an insurer to be reimbursed by 18 its insured from proceeds that the insured collects directly from the party at-fault.” 19 Id. A setoff “refers to sums paid to the insured by another party.” Id. What is clear

20 from these definitions is that these terms carry distinct meanings and scope of rights 1 dependent upon the party who is asserting them. Given this, Mr. Zimmerman and 2 Ms. Kloster could not plausibly assert a right to a setoff or offset on behalf of

3 Defendant. 4 Second, given the unadorned and conclusory nature of Plaintiffs’ allegation, 5 the Court will not speculate that defense counsel for Mr. Zimmerman and Ms.

6 Kloster is improperly attempting to litigate Defendant’s interests. Washington Rule 7 of Professional Conduct 5.4(c) “prohibits a lawyer, employed by a party to represent 8 a third party, from allowing the employer to influence his or her professional 9 judgment.” Tank v. State Farm Fire & Cas. Co., 715 P.2d 1133, 1137 (Wash.2d

10 1986) (citing Wash. RPC 5.4(c)). This, of course, means that defense counsel for 11 Mr. Zimmerman and Ms. Kloster, though provided by Defendant, represents Mr. 12 Zimmerman and Ms. Kloster only and does not act on Defendant’s behalf. Id.

13 (“RPC 5.4(c) demands that counsel understand that he or she represents only 14 the insured, not the company.”). Plaintiffs have set forth no facts in support of their 15 allegation that Defendant has caused defense counsel for Mr. Zimmerman and Ms. 16 Kloster to act improperly by asserting Defendant’s interests. Accordingly,

17 Plaintiffs’ bad faith claim cannot survive. 18 Regardless, Plaintiffs have also failed to adequately allege any causation or 19 damages related to their bad faith claim. Under Washington law, a bad faith claim

20 requires a plaintiff to show duty, breach, causation, and damages. Safeco Ins. Co. v. 1 Butler, 823 P.2d 499, 503 (Wash.2d 1992). Plaintiffs allege that they have suffered 2 damages in the form of “needless anxiety, stress, and uncertainty,” as well as

3 “additional legal costs to defend against an affirmative defense.” ECF No. 12 at 20. 4 Regarding damage in the form of legal costs, the Court notes that Plaintiffs chose 5 to bring this action attempting to prematurely define the scope of the parties’ rights.

6 And most importantly, for the reasons explained, Plaintiffs have not sufficiently 7 alleged causation. Accordingly, the Court dismisses Plaintiffs’ second cause of 8 action. 9 III. Underinsured Motorist Claim

10 Plaintiffs’ third cause of action makes a claim under their underinsured 11 motorist policy with Defendant. ECF No. 12 at 21. This cause of action is outside 12 of the scope of amendment permitted by the Court. See ECF No. 11 at 8. In granting

13 Defendant’s first motion to dismiss, the Court allowed Plaintiffs an opportunity to 14 “save their Complaint through amendment and clearer articulation or 15 supplementation of their claims.” Id. It did not, however, permit Plaintiffs to amend 16 their complaint to include entirely new claims not previously asserted. And even if

17 Plaintiffs’ third cause of action was within the scope of permitted amendment, it 18 would fail. First, it is entirely unclear what Plaintiffs’ grievance is. Apparently, 19 Defendant provides Plaintiffs coverage under an underinsured motorist policy. See

20 ECF No. 12 at 21. But Plaintiffs have not submitted a claim to Defendant for 1 coverage under this policy or given Defendant an opportunity to accept or reject 2 any claim. There is therefore no dispute requiring this Court’s resolution. If

3 Plaintiffs have a claim to make, they must submit it to Defendant—its insurance 4 provider—and not this Court. 5 CONCLUSION

6 Given the deficiencies identified above, the Court will dismiss Plaintiffs’ 7 complaint. But given that the Court has determined Plaintiffs’ first and second 8 causes of action are premature, and Plaintiffs’ third cause of action is not cognizable 9 at this point, the Court will dismiss these claims without prejudice. In doing so, the

10 Court expresses no opinion as to the merit of these claims or whether they may be 11 properly asserted at a later date. 12 Accordingly, IT IS HEREBY ORDERED:

13 1. Defendant’s Motion to Dismiss, ECF No. 13, is GRANTED. 14 A. All claims are DISMISSED WITHOUT PREJUDICE. 15 2. The Clerk’s Office is directed to ENTER JUDGMENT for Defendant 16 and CLOSE this file.

17 // 18 // 19 //

20 // 1 2 IT ISSO ORDERED. The Clerk’s Office is directed to enter this Order and 3 || provide copies to all counsel. 4 DATED this 5" day of July 2022.

5 (nn ntage 6 SF SALVADOR MENDOZAZIR. 7 United States District Judge 8 9 10 11 12 13 14 15 16 17 18 19 20