W. Beach Condo. v. Commonwealth Ins. Co. of Am. , No. 79676-3-I (Wash. Ct. App. Div. I, Jan. 13, 2020)

Issue: The Insured’s failure to file suit against its insurer within one year, as required by the
policy’s suit limitation, precluded the Insured’s breach of contract claim. Did this also preclude the
Insured’s claims against its Insurer for IFCA and CPA violations? NO. The Insurer’s coverage
obligations existed independently of any suit limitation period.

Facts: The Insured, a condominium owner’s association, submitted a claim to its property Insurer
when an inspection revealed water damage behind the building envelope of each of the
condominium’s three buildings. The Insured submitted its claim on September 26, 2016—more
than a year after it received the forensic report detailing the defects causing the damage, dated
September 8, 2015. After conducting its investigation, the Insurer denied coverage, contending
among other exclusions that the Insured did not submit its claim or file suit within one year after
the occurrence giving rise to the claim, as required by the policy’s one-year suit limitation
clause. The provision stated:

No suit, action or proceeding for the recovery of any claim under this Policy shall be sustainable in
any court of law or equity unless the same be commenced within twelve (12) months next after
discovery by the Insured of the occurrence which gives rise to the claim…

The Insured then filed its complaint, alleging breach of contract, bad faith, and CPA and IFCA
violations. The trial court dismissed the breach of contract claim for the Insured’s failure to file
within the one-year period and, on a later motion, dismissed the remaining claims because
dismissal of the Insured’s contract claim demonstrated that the Insurer’s denial of coverage was
reasonable as a matter of law.

Holding: The Court of Appeals concluded that the contractual one-year suit limitation precluded
the breach of contract claim but did not preclude the CPA and IFCA claims. For a first-party
claimant to recover under the CPA or IFCA, it must demonstrate that its insurer unreasonably
denied a claim for coverage or payment of benefits. Here, the one-year suit limitation clause did not
negate coverage or extinguish the Insurer’s coverage obligations; it only barred the judicial remedy
available to the Insured for breach of the obligations. It did not bar the judicial remedy available to
the Insured for violations of the CPA or IFCA.

Discussion: Insurers issuing policies to Washington insureds may be held liable under the CPA
and IFCA for unreasonably denying coverage despite the fact that the insured can no longer pursue
a breach of contract claim. Insurers should understand that their legal obligation to provide
coverage for a claim (and thus their exposure to CPA and IFCA violations) is not extinguished by
the expiration of either a statute of limitation or suit limitation clause. As a result, insurers should
take care to make coverage decisions independent of whether the insured could seek a remedy in
court, including whether any suit limitation periods have expired. It should be noted that the suit
limitation clause was not phrased as a coverage condition. As a result, this ruling does not address
how the result may be different if the suit limitation clause was phrased as a coverage condition.

Briefing by Jimmy B. Meeks, Jr., an Associate Attorney in HWS Law Group ’s Seattle
Of ice. Jimmy is licensed to practice in Washington and Oregon.