Lithocolor, Inc., et al. v. Pacific Employers Insurance Company, et al.

Consumer Protection Act - Insurance Contract - Recovery of Damages - Bad Faith - Commercial Property - Jackie and Douglas Ward own Litho Color (Litho), a Seattle color scan and pre-press company. In 1987, Litho purchased a Crosfield 635E Color Scanner, which reduces film to a digital format. And in August of 1990, Litho purchased a "Studio 19" which retouches and alters pictures by a computerized digital process. Litho also entered into a maintenance agreement with DuPont Crosfield, the manufacturer of the machines. DuPont Crosfield employee Michael Whiteman generally responded to service calls from Litho. Pacific Employers Insurance Company (PEIC) provided Litho with commercial property and general liability insurance during 1990, 1991, and 1992. Litho also purchased boiler and machinery (B & M) insurance form PEIC to protect against damages to certain equipment and related loss of income. The B & M insurance is characterized as an endorsement to the PEIC policy. The contract defined "accident" to specifically require proof of physical damage necessitating repair of replacement. Although PEIC issued the B & M endorsement, Hartford Steam Boiler Inspection and Insurance Company (HSB) reinsured the policy in full. The Wards claim that the air conditioning at Litho malfunctioned and that the subsequent temperatures damaged the scanner and the Studio 910. There were three incidents in May, October, and February in which Litho claims those high temperatures damaged the machinery. They claimed that the scanner and the Studio 910 were damaged and that the business had to operate at a reduced capacity, which resulted in a loss of income. The only damage that HSB acknowledged was that there was an "accident as defined by the policy" that harmed a Winchester disk drive, for which HSB paid $8,898.74. HSB rejected Litho's additional requests for repair and its replacement estimates. On August 31, 1994, Litho filed a complaint against PEIC and HSB to enforce the insurance contract. Litho also alleged breach of contract, bad faith, and violations of the Consumer Protection Act RCW 19,86. The trial court subsequently dismissed Litho's breach of contract claim as duplicative of Litho's efforts to enforce the insurance contract. On May 3, 1996, three days before the trial, Litho entered in to a partial settlement with PEIC. Litho released PEIC from liability under the commercial property portion of the policy and for attorney fees, claims of bad faith, and Consumer Protection Act violations, in exchange for $335,000. The settlement does not specifically allocate the proportionate values of the various claims. The settlement did not release PEIC and HSB "from their obligations or liability, if any, under the boiler and machinery endorsement to the policy." Litho then disposed of the claim that related to the May 1991 incident by an order of dismissal entered prior to trial. The trial was bifurcated to determine coverage in the first part; and if the jury found coverage, the bad faith and Consumer Protection Act claims were to be decided in the second part. At trial Litho relied on the testimony of Michael Whiteman and Jackie Ward to show that the machines were damages by the overheating incidents and that it was entitled to coverage under the B & M policy. At the close of Litho's case-in-chief-, HSB moved for a directed verdict, arguing that Litho filed in its burden of proving that the Studio 910 and the scanner were damaged by the overheating, as required for coverage under the B & M endorsement. The trial court denied the motion. The defense claimed that Mr. Whiteman could not specifically recall performing, nor did his record reflect, and repairs to the scanner following the 1992 incident. He next testified that he did not have any knowledge that any parts of the Litho equipment were damaged in February 1992, except for the Studio 910 Winchester disk drive, which HSB paid for. Lastly, HSB retained three separate and independent analyst companies to assess Litho's claims. All three concluded that the scanner and Studio 910 did not show any physical damage, nor any problems associated with heat exposure, but rather the machines exhibited problems associated with improper maintenance and with the power supply. Finally a fourth expert, hired by Litho, concluded that the machine malfunctions were due to inadequate maintenance and improper installation. The jury deadlocked on the October 1991 claim. Regarding the February 1992 claim, the jury awarded Litho $529,954: $366,000 for physical damages to the machines, $156,240 for loss due to business interruption, and $7,714 for extra expense that Litho incurred. The trial court subsequently set aside the business interruption award leaving a jury award of $373,714. HSB then made a motion for a total offset of the PEIC settlement against the verdict. The court allowed an offset of $193,000 by deducting from the PECI settlement payment of $335,000 those amounts which, the court concluded, did not constitute double recovery. Various amounts were deducted from the award leaving a principal verdict of $180,714. After trial, HSB filed a "Motion for Judgment as a Matter of Law or in the Alternative for New Trial" which the court denied finding that the "jury awards were supported by substantial evidence." The parties subsequently settled the claim regarding the October 1991 incident and final judgment was entered against PECI and HSB in the amount of $251,401.39.

The jury awarded Litho $529,954. It was later reduced to $180,714.

None

Unknown

The decision was reversed and remanded by the Court of Appeals of Washington, Division 1. See: 984 P.2d 461 (Wash.App.Div. 1 1999). The date above reflects the date of the appellate decision and not the trial date. Reported by EMDH.