Leingang v. PIERCE CO. MED. BUREAU, INC.
930 P.2d 288 (1997)
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Rule of Law:
An insured is entitled to attorney fees when compelled to litigate a genuine dispute over the scope of insurance coverage to obtain full policy benefits; however, an insurer's good faith reliance on an arguable interpretation of existing law, even if later found incorrect, does not constitute an unfair or deceptive act under the Consumer Protection Act.
Facts:
- In May 1989, Dennis Leingang was injured in an automobile accident.
- At the time of the accident, Mr. Leingang had medical insurance under a health care service contract with Pierce County Medical Bureau, Inc. (PCM) and uninsured/underinsured motorist (UIM) coverage with Farmers Insurance Company.
- PCM's medical insurance contract contained an exclusion stating that no benefits would be provided "to the extent benefits are payable under the terms of any automobile medical, automobile no-fault, underinsured or uninsured motorist or similar contract of insurance."
- In July 1989, Mr. Leingang's attorney wrote to PCM demanding payment of medical bills, and PCM responded by sending a subrogation agreement, stating it would pay upon Mr. Leingang's signature and expected full reimbursement from UIM payments due to the exclusion.
- Mr. Leingang refused to sign the subrogation agreement, but PCM proceeded to pay his medical bills while continuing to maintain its right to reimbursement from UIM payments.
- PCM's attorney informed Farmers Insurance (Mr. Leingang's UIM carrier) that PCM was asserting a security interest and subrogation claim against any future settlement or judgment for the medical bills it had paid.
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Issue:
1. Does the Olympic Steamship rule entitle an insured to attorney fees when an insurer disputes the scope of coverage under an exclusion, even if it initially pays benefits? 2. Did Pierce County Medical Bureau, Inc.'s (PCM) reliance on a UIM exclusion, later found to violate public policy, or its demand for reimbursement, constitute an unfair or deceptive act under the Consumer Protection Act? 3. Did PCM's assertion of a security interest against Mr. Leingang's UIM proceeds constitute tortious interference with his contract with Farmers Insurance Company?
Opinions:
Majority - Guy, Justice
1. Yes, the trial court properly awarded attorney fees for the declaratory judgment action. An award of fees is required under the Olympic Steamship rule when an insurer compels the insured to assume the burden of legal action to obtain the full benefit of his insurance contract, irrespective of a duty to defend. PCM argued that Mr. Leingang lacked coverage for medical bills that his UIM carrier would ultimately pay, which the court determined was a dispute over the 'scope of coverage' or 'extent of the benefit,' not merely a dispute over the value of a claim (as distinguished in Dayton v. Farmers Ins. Group). This aligns with Brown v. Snohomish County Physicians Corp., where similar exclusions were found to 'limit coverage.' Mr. Leingang is also entitled to attorney fees on appeal for the portion of the action concerning the attorney fee award. 2. No, the trial court erred in granting summary judgment on the Consumer Protection Act (CPA) cause of action against PCM, and summary judgment is granted in favor of PCM. The insurance regulations in WAC 284-30, which define per se unfair trade practices, do not apply to health care service contractors like PCM. Furthermore, PCM did not violate any applicable health care service contractor regulations (WAC 284-44-040(7) or (9)). Crucially, an insurer's denial of coverage, even if ultimately incorrect, does not constitute an unfair trade practice if based on acts performed in good faith under an arguable interpretation of existing law. Prior to this court's decision in Brown, multiple trial courts and Courts of Appeals had upheld UIM exclusions in health care contracts, demonstrating PCM had a reasonable justification for its position. PCM had no affirmative duty to request a legal opinion from the Insurance Commissioner. 3. Yes, the trial court properly dismissed Mr. Leingang's claims for emotional distress based on tortious interference with a contract. Tortious interference requires an improper purpose or the use of improper means. PCM was merely exercising what it believed to be its legal interests by notifying Farmers Insurance of its claim for reimbursement. Asserting an arguable interpretation of existing law, even if unsuccessful, does not constitute improper interference. Additionally, personal injuries, including mental pain and suffering, are not compensable under the CPA.
Concurring in part, dissenting in part - Sanders, Justice
I concur with the majority's decision to award Mr. Leingang attorney fees under the Olympic Steamship rule for the declaratory judgment action, but I dissent from the reversal of the trial court's summary judgment for Mr. Leingang on his Consumer Protection Act (CPA) claim and the affirmance of the dismissal of his tortious interference with contract claims. PCM violated the CPA by (1) drafting and enforcing an unlawful policy provision (the UIM exclusion), which was void as against public policy as established by Brown v. Snohomish County Physicians Corp., asserting that 'it is never "reasonable" to violate the law,' and insurers are held to a higher fiduciary standard than other businesses; (2) demanding Mr. Leingang execute an agreement granting a legally baseless security interest against UIM proceeds as a condition for receiving medical benefits; and (3) overtly interfering with his right to UIM payments by asserting an unjustified security interest against Farmers Insurance, causing a three-year delay in his recovery. Regarding tortious interference, the 'improper purpose' or 'improper means' element does not require subjective ill will; wrongful acts, such as enforcing a void policy provision or asserting a baseless claim of security entitlement, are sufficient. PCM's actions were wrongful in violating public policy and asserting an unfounded security interest.
Dissenting - Alexander, Justice
I dissent from the majority's decision to affirm the award of attorney fees to Mr. Leingang. The majority misinterprets McGreevy v. Oregon Mut. Ins. Co. and Olympic Steamship. The issue in this case was not about the 'scope of coverage' or whether coverage existed at all (as in McGreevy, which involved stacking multiple coverages), but rather a disagreement over the 'value of a claim' – specifically, whether PCM should recoup medical expenses it already paid because Mr. Leingang also received UIM payments. PCM conceded coverage and paid benefits. This case squarely presents the question we dealt with in Dayton v. Farmers Ins. Group: whether attorney fees are available where the insurer accepts coverage but disputes the value of a claim according to policy terms. Dayton answered this in the negative. To equate a policy provision preventing double recovery with a complete lack of coverage is an illogical interpretation that would broaden the Olympic Steamship rule beyond its intended scope.
Analysis:
This case significantly refines the application of the Olympic Steamship rule for attorney fees in Washington, distinguishing disputes over the scope or limits of coverage (which trigger fee awards) from disputes merely over the value of an otherwise acknowledged claim. It also clarifies that under the Consumer Protection Act, an insurer may avoid liability for an unfair or deceptive act if its conduct was based on a good-faith, arguable interpretation of existing law, even if that interpretation is later overturned. This provides a 'safe harbor' for insurers navigating complex legal issues, balancing consumer protection with the practicalities of legal uncertainty. The split among the justices highlights the continuing difficulty in drawing a clear line between justifiable legal positions and conduct deemed unfair or tortious within the insurance industry.
