[00:00:02] Speaker 04:
Thank you.

[00:00:03] Speaker 04:
May it please the court.

[00:00:04] Speaker 04:
My name is Brian Fisher.

[00:00:05] Speaker 04:
I represent the Kaufmans.

[00:00:06] Speaker 04:
I'm going to try to reserve two minutes, and I will do my best to keep track of that.

[00:00:10] Speaker 02:
Thank you.

[00:00:11] Speaker 04:
State Farm's hired engineer said he could not determine what caused the pipe to break.

[00:00:15] Speaker 04:
State Farm then asked for possible reasons why the pipe broke, and the engineer said it was potentially caused by earth compaction or differential earth movement.

[00:00:26] Speaker 04:
Later, State Farm submits a declaration saying these were actually probable causes of the pipe break that had never been disclosed to the Kaufmans before.

[00:00:33] Speaker 03:
Council, is it your understanding that

[00:00:37] Speaker 03:
The insurer must identify the actual cause of some damage with 100% certainty?

[00:00:42] Speaker 04:
No, Your Honor.

[00:00:43] Speaker 04:
The insurer can identify the cause or even the world of causes, but it needs to be probable.

[00:00:48] Speaker 04:
We don't let experts speculate as to possible causes, and that's the crux of the issue here.

[00:00:54] Speaker 04:
It's axiomatic that under evidence rule 702, experts are not allowed to speculate as to possible causes.

[00:01:01] Speaker 04:
It's not helpful to the trier of fact because it invites them to speculate.

[00:01:06] Speaker 04:
The disclosure here said the expert's opinion was going to be possible reasons.

[00:01:13] Speaker 04:
That's not enough.

[00:01:14] Speaker 04:
Had the disclosure said, well, the expert's going to talk about probable reasons, that is a different ballgame.

[00:01:21] Speaker 04:
That tells the Kaufmans, okay, there's actually admissible expert testimony here.

[00:01:26] Speaker 04:
when the disclosure is there's only possible reasons that instead tells the coffins and any reasonable reader of this that the experts going to be offering speculation and frankly that's what the coffins thought they thought this the engineer.

[00:01:39] Speaker 04:
I don't know how to pronounce his name, so I'm just going to refer to him as the engineer, was going to be offering speculation as to possible reasons consistent with both the disclosure and his underlying report.

[00:01:49] Speaker 04:
Again, that supplemental disclosure reflects on... So a deposition was taken.

[00:01:54] Speaker 01:
A deposition was taken.

[00:01:55] Speaker 01:
And in that deposition, he was asked whether he had a conclusion within a reasonable degree of engineering certainty

[00:02:05] Speaker 01:
Why doesn't that check off the box that needs to be checked off?

[00:02:09] Speaker 04:
Because you can have opinions to reasonable degrees of engineering certainty, but they can still be possible.

[00:02:15] Speaker 04:
Let's imagine instead of State Farm having the burden of proof,

[00:02:20] Speaker 04:
The Kaufman's had the burden of proof.

[00:02:22] Speaker 04:
And they produced an expert who said, you know, in the Kaufman's backyard, there's this rare type of mole that exists.

[00:02:28] Speaker 04:
And those moles burrow.

[00:02:30] Speaker 04:
And it is possible, to a reasonable degree of zoological certainty, that the mole burrowed and broke the pipe.

[00:02:36] Speaker 02:
But we don't have that.

[00:02:38] Speaker 04:
Exactly.

[00:02:38] Speaker 04:
And the engineer, similarly, the State Farm only had possible testimony.

[00:02:44] Speaker 02:
Well, going back to Judge Clifton's point,

[00:02:48] Speaker 02:
He had a reasonable degree of engineering certainty.

[00:02:54] Speaker 02:
So why do you convert that as to not being reasonable?

[00:03:00] Speaker 04:
Well, so to answer your question, at ER 104, the supplemental disclosure, the following conclusion has been reached within a reasonable degree of engineering certainty.

[00:03:09] Speaker 04:
The pipe in the PVC crack was consistent with the lateral load potentially

[00:03:14] Speaker 01:
had he not said potentially maybe this would be enough but the potentially and earlier in that the paragraph before the valuation may have been due and then you keep going back to the disclosure and I've asked you about the deposition where they got much more specific and your client's counsel had the opportunity to get much more specific

[00:03:34] Speaker 01:
And he was asked, was there anything else that might have caused it?

[00:03:37] Speaker 01:
And his answer is no.

[00:03:40] Speaker 01:
And so I'm kind of struggling with how it wasn't pretty clear at that point that they were pointing at these two possible alternatives, but adding up to nothing else is going to explain what happened.

[00:03:55] Speaker 01:
What's missing?

[00:03:56] Speaker 01:
Well, what's missing is saying... Unless you want to keep your eyes closed, which is, I think, what is missing here.

[00:04:01] Speaker 01:
You're trying to argue to us that we ought to close our eyes to what happened, because you've never presented any evidence of an alternative cause.

[00:04:09] Speaker 04:
To answer your question, at the deposition, State Farm actually confirmed that these were possible causes.

[00:04:15] Speaker 01:
There was no testimony... And was there any other possible cause identified?

[00:04:19] Speaker 01:
No.

[00:04:20] Speaker 01:
And has there ever been any other cause possibly identified?

[00:04:23] Speaker 04:
No, because there was no.

[00:04:23] Speaker 01:
And has your client identified any other cause?

[00:04:26] Speaker 04:
No, Your Honor.

[00:04:26] Speaker 01:
So if the two possible causes are both part of the exclusion, what's missing?

[00:04:33] Speaker 04:
What's missing in the disclosure, as well as the deposition, is the ability to rule out everything else, as he did in his declaration.

[00:04:41] Speaker 01:
Well, actually, in his deposition, he said, are there any other possible causes?

[00:04:45] Speaker 01:
No.

[00:04:46] Speaker 01:
Seems to me that kind of clearly rules out anything else.

[00:04:49] Speaker 01:
And it takes a degree of willful blindness to conclude, oh, well, he's never made a disclosure to the level necessary.

[00:04:58] Speaker 01:
And so we're going to, and you're arguing to us, we need to disregard that evidence.

[00:05:02] Speaker 01:
And having a hard time understanding why it wasn't pretty clear

[00:05:06] Speaker 01:
That was the position being taken by the insurance carrier.

[00:05:11] Speaker 04:
The position being taken by the insurance carrier was clear.

[00:05:14] Speaker 04:
They were denying for possible reasons, which as the State Farm's 30B6.

[00:05:18] Speaker 01:
And there are these two possible reasons, and there's no other possible reasons.

[00:05:21] Speaker 01:
What am I missing?

[00:05:23] Speaker 04:
That there's no other possible reasons is not in the record.

[00:05:26] Speaker 04:
It's in the declaration.

[00:05:27] Speaker 04:
I did not see that in the deposition.

[00:05:29] Speaker 04:
I have the infront of me, and maybe I'm.

[00:05:31] Speaker 04:
Same deposition.

[00:05:32] Speaker 04:
If the ER, would you mind if I?

[00:05:36] Speaker 01:
I just have a quote from the deposition.

[00:05:38] Speaker 01:
OK.

[00:05:39] Speaker 04:
Let me pull it up.

[00:05:41] Speaker 01:
As you sit here today, can you think of any other cause, or was there any other cause considered as far as a possible cause of the crack?

[00:05:48] Speaker 01:
Not to my knowledge.

[00:05:50] Speaker 01:
And as a review of the picture that I showed you earlier, can you come up with any other potential cause or probable cause of the crack as you sit here today?

[00:05:58] Speaker 01:
No.

[00:05:59] Speaker 01:
I said no.

[00:06:03] Speaker 01:
If that's in the deposition, how is it that your client's not on notice that that's what they're pointing at?

[00:06:10] Speaker 01:
Your Honor, we stand on the briefing that.

[00:06:12] Speaker 04:
OK.

[00:06:14] Speaker 01:
And you haven't come up with another cause and presented no evidence to the district court of another cause.

[00:06:20] Speaker 04:
Well, the other cause, I would point out, is from the adjuster's declaration saying, well, product malfunction is the third one.

[00:06:32] Speaker 01:
Let me go back to the question I posed.

[00:06:34] Speaker 01:
Have you presented any evidence supporting another cause?

[00:06:39] Speaker 04:
We have not, but the record shows that there is a third one, identified by the adjuster, product malfunction.

[00:06:44] Speaker 04:
And that's important because that product malfunction is subject to an ensuing loss clause under paragraph 1f of the policy.

[00:06:55] Speaker 04:
What the ensuing loss clause does is it says, look, that pipe breaking from that product malfunction, State Farm doesn't have to pay for the broken pipe.

[00:07:03] Speaker 04:
But what it does have to pay for is losses that result from that broken pipe.

[00:07:07] Speaker 01:
And you had the opportunity to present evidence that that was, in fact, the cause, and no evidence was presented.

[00:07:13] Speaker 01:
Is that correct?

[00:07:14] Speaker 04:
I disagree.

[00:07:14] Speaker 04:
The State Farm to Juster testified that was one of the causes.

[00:07:17] Speaker 01:
Identified that as a possible cause.

[00:07:19] Speaker 04:
Yes.

[00:07:20] Speaker 04:
And State Farm can deny coverage.

[00:07:21] Speaker 01:
And the testimony offered by the experts who looked at it concluded, apparently, that was not an alternative clause that would explain it.

[00:07:29] Speaker 04:
But what matters is why State Farm denied it.

[00:07:32] Speaker 04:
We're here suing on State Farm's reason for the denial.

[00:07:36] Speaker 01:
So we've moved off the coverage question in terms of, was this loss covered by the policy?

[00:07:44] Speaker 01:
And now we're entirely on the question of, was the denial at that time based on insufficient information?

[00:07:51] Speaker 01:
And I understand that's a separate cause of action, but I want to be clear what it is we're talking about.

[00:07:55] Speaker 04:
Sure.

[00:07:57] Speaker 04:
I'm putting aside what they knew at the time, which is viable in and of itself.

[00:08:02] Speaker 04:
The adjuster says there are three reasons, not just the two the engineer identified.

[00:08:08] Speaker 04:
And that third reason, product malfunction, is how we get to coverage, even considering what's happened in the 2003 declaration.

[00:08:14] Speaker 01:
Except there's no evidence other than the speculation of the adjuster, not of somebody who's an expert in this subject, that in fact that was the cause.

[00:08:25] Speaker 01:
You're asking us to adopt the theoretical possibility instead of the evidence offered by the engineers.

[00:08:32] Speaker 04:
I mean, the adjuster is qualified to say why the pipe broke.

[00:08:39] Speaker 04:
He is saying in his, they pull up his declaration, he says, based on his years of adjusting.

[00:08:45] Speaker 04:
We, the engineer, or excuse me, the adjuster says it was wear on the pipe because it was, I think he says it's not typically at that location outside of the water main.

[00:08:57] Speaker 04:
You don't see PVC pipe.

[00:08:59] Speaker 04:
And so because there's that third cause as established by the adjuster's testimony.

[00:09:05] Speaker 01:
Well, I'm not even sure that describing where on the pipe is in fact,

[00:09:11] Speaker 01:
a deficiency in the pipe, it reflects the pressure being put on the pipe, which is what results from the other two causes under discussion.

[00:09:22] Speaker 01:
So if that's what you're pointing at.

[00:09:27] Speaker 04:
Your honor, the specific testimony from the deposition is that it's a 90 degree angle on PVC.

[00:09:35] Speaker 04:
It has nothing to do with differential earth movement or improper compaction.

[00:09:40] Speaker 04:
So I agree.

[00:09:44] Speaker 02:
You know, there's kind of this conundrum here where we have an insurance adjuster with, what, 25 years of experience, some common sense, having seen a lot of different claims.

[00:09:59] Speaker 02:
And he gets the report.

[00:10:00] Speaker 02:
It's inconclusive.

[00:10:02] Speaker 02:
But he basically says there's not a cause that would have been covered.

[00:10:07] Speaker 02:
Turns out he's right.

[00:10:09] Speaker 02:
But now, in effect, we're going to penalize State Farm and send them to a bad faith trial on this.

[00:10:16] Speaker 02:
There's just something missing, and maybe you can fill in the missing piece for me.

[00:10:22] Speaker 04:
Well, that is the law under, as this court recognized in Fireman's Fund versus Alaska Partnership, a later vindication of the initial unreasonable denial doesn't get you out of bad faith.

[00:10:35] Speaker 02:
I understand that, but was it an unreasonable denial?

[00:10:39] Speaker 02:
So let me just ask you a practical question.

[00:10:41] Speaker 02:
If this were to go back for trial, if we're to determine there is a material fact that would preclude summary judgment, would the ultimate decision and vindication come in or not?

[00:11:00] Speaker 04:
I think it would depend how you, to give a yes or no answer.

[00:11:06] Speaker 04:
I don't think it would come in, because if it's going only on that issue of the bad faith at the time of the denial, then what happened later is irrelevant.

[00:11:17] Speaker 03:
Didn't that first letter, though, the September 2021 letter, I know it's cited to the wrong language, but didn't it also say that the damage was related to subsurface water?

[00:11:27] Speaker 04:
It did.

[00:11:28] Speaker 03:
And ultimately isn't that the reason that one of the two probable possible reasons that they're giving for denial is that subsurface isn't covered?

[00:11:37] Speaker 04:
That is correct, but subsurface water, that's not a reasonable reading of the policy, because there are other parts of the policy that clearly contemplate subsurface water being covered.

[00:11:46] Speaker 04:
I point you to the endorsement that covers overflow of subsurface water from a system designed to remove water from the foundation, like a sump pump.

[00:11:55] Speaker 04:
that is definitionally subsurface water.

[00:11:58] Speaker 04:
There's also water, there's a specific exclusion for water being applied to the weight of walls, of basement walls, that is definitionally below ground water.

[00:12:07] Speaker 04:
Why is there, if you're interpreting that water below the surface of the ground to exclude all water below the surface of the ground, that other exclusion is meaningless, which you can't do under the McDonald case we cited in our reply.

[00:12:17] Speaker 03:
Was there a sump pump in this?

[00:12:19] Speaker 04:
No.

[00:12:21] Speaker 04:
But you still have to, under warehousing, you have to interpret the policy as a whole.

[00:12:28] Speaker 04:
With my remaining two minutes and 30-some seconds, I'd like to reserve it for a bottle.

[00:12:32] Speaker 04:
Thank you.

[00:12:35] Speaker 03:
All right.

[00:12:35] Speaker 03:
Thank you, counsel.

[00:12:42] Speaker 03:
And Mr. Hessel-Gesser, did I get your name correct?

[00:12:45] Speaker 00:
That is correct, Your Honor.

[00:12:46] Speaker 00:
Fantastic.

[00:12:47] Speaker 00:
Thank you.

[00:12:47] Speaker 00:
All right.

[00:12:47] Speaker 03:
Good morning.

[00:12:48] Speaker 03:
So you have 15 minutes.

[00:12:51] Speaker 00:
Good morning, Your Honors, and may it please the Court.

[00:12:53] Speaker 00:
My name is Ryan Hussle, guest here on behalf of State Farm.

[00:12:56] Speaker 00:
This case is an insurance coverage matter, as you guys just heard, pursuant to a homeowners insurance policy issued by State Farm to the Kaufmans.

[00:13:03] Speaker 00:
Kaufmans suffered property damage after a water pipe ruptured and entered the basement of their home.

[00:13:10] Speaker 00:
State Farm promptly investigated the claim, concluded there was no coverage based on the plain language.

[00:13:16] Speaker 00:
Kaufmans filed lawsuits.

[00:13:18] Speaker 00:
And the district court properly granted summary judgment on all, all claims.

[00:13:21] Speaker 03:
Let me ask you this council.

[00:13:23] Speaker 03:
Um, and I understand the December, 2021 denial was a lot more thorough, but state farms still issued a very problematic denial in the first instance in September of 2021.

[00:13:34] Speaker 03:
That's when they cited the wrong policy.

[00:13:36] Speaker 03:
Um, why can't that September, 2021 letter support the Kaufman's claim of inadequate investigation and bad faith?

[00:13:44] Speaker 00:
Well, I think under Coventry, it does allow a claim for improper investigation.

[00:13:50] Speaker 00:
Washington law allows a claim for improper investigation, notwithstanding the fact that the insurer is correct.

[00:13:57] Speaker 00:
I think the evidence before the district court, though, included at the time of that September 21st, 2021 letter, the declaration of Mr. Perry, where he said, and based on my years of experience, I looked at this.

[00:14:07] Speaker 00:
I looked at the picture.

[00:14:08] Speaker 00:
We did have the picture.

[00:14:10] Speaker 00:
We did have the information in the first report.

[00:14:13] Speaker 00:
And I looked at that and I concluded I couldn't come up with a covered cause based on my years of experience.

[00:14:19] Speaker 00:
I don't know that, I don't think there's a case out there that says, for example, you need reasonable degree of engineering certainty as to this specific cause in order to deny or for it to be a reasonable denial, your honor.

[00:14:30] Speaker 00:
So I would submit that based on the evidence, there's still, I think would be enough there to say this was a reasonable denial.

[00:14:36] Speaker 00:
I think the district court looked at that.

[00:14:38] Speaker 01:
Well, state farms,

[00:14:40] Speaker 01:
own officers or officials seem to say it didn't meet their standards.

[00:14:49] Speaker 00:
I think candidly they admitted that.

[00:14:51] Speaker 00:
Would they have liked to see the proper language cited?

[00:14:54] Speaker 00:
Absolutely.

[00:14:55] Speaker 00:
Would they have liked to see a little bit more analysis on, for example, the efficient proxy cause?

[00:15:00] Speaker 00:
Yes.

[00:15:00] Speaker 00:
And I think those were the two deficiencies of the letter.

[00:15:03] Speaker 00:
However, standing alone, I don't know that that supports an unreasonable denial of coverage.

[00:15:09] Speaker 00:
step back for a second, because it depends on what cause of action you're pursuing it under.

[00:15:14] Speaker 00:
To your question earlier, Your Honor, if you're looking at an IFCA claim, an Insurance Fair Conduct Act claim, that provides a 20-day cure period, clearly the initial letter was cured well in advance of this litigation.

[00:15:29] Speaker 00:
The IFCA claim, we would argue, Your Honor, that that does not support a standalone IFCA claim, because State Farm did issue a more robust denial letter.

[00:15:40] Speaker 00:
I would also submit, Your Honor, that there was an initial reservation of rights letter that needs to be reviewed in conjunction with that September 21st denial letter.

[00:15:50] Speaker 00:
And that one had all of the policy language in there.

[00:15:53] Speaker 00:
It had all of those causes listed.

[00:15:56] Speaker 00:
at least from a standpoint of reasonableness, they put the insured on notice that this language was an issue, that we were hiring an engineer to investigate the loss, and that we were looking into coverage.

[00:16:09] Speaker 00:
So I think you look at that entirely from a standpoint and all of that information and look at State Farm's conduct at the time of the September 21st letter.

[00:16:20] Speaker 00:
And I think at a minimum, the IFCA claim it does not support

[00:16:23] Speaker 00:
as to a common law of bad faith claim, then the question becomes, what is the harm, what are the damages resulting from those mis- the statements or what I would refer to as a clerical error in the letter.

[00:16:35] Speaker 00:
And the record does not have anything related to the damage or the harm.

[00:16:39] Speaker 00:
And I want to just make sure we're clear that that does not get to the damage to the home.

[00:16:46] Speaker 00:
Under no circumstances does that letter, even if you were able to maintain a claim that the letter was unreasonable,

[00:16:53] Speaker 00:
or some mistake there that that gets you to get the covered damages.

[00:16:58] Speaker 00:
You'd have to prove separate harm from that.

[00:17:01] Speaker 00:
And I think also you have to look at the conduct of State Farm.

[00:17:07] Speaker 00:
And after that letter, the October 26th letter from council does not mention any of the deficiencies they're now claiming.

[00:17:15] Speaker 00:
So the October 26th letter, the Kaufman's retained council, they issued a letter to State Farm, and that does not

[00:17:23] Speaker 00:
push back on any of those deficiencies.

[00:17:25] Speaker 00:
State Farm.

[00:17:26] Speaker 00:
reopened the investigation, looked into the additional causes, sought additional evidence on its own.

[00:17:31] Speaker 00:
So I think that information comes in when you're looking at a bad faith claim, Your Honor.

[00:17:36] Speaker 00:
Let's talk about that.

[00:17:38] Speaker 02:
Go ahead.

[00:17:39] Speaker 02:
So your position is even if there's some deficiency at the outset in the adjuster's letter that it's in effect cured or you can take into account the subsequent information.

[00:17:55] Speaker 00:
Yeah, I think you can take into account the reasonableness of the insurer's conduct in response to that.

[00:18:03] Speaker 02:
So you're looking at kind of the holistic situation for a bad faith claim and not a single point in time?

[00:18:09] Speaker 00:
Right, and I think the position stems from Coventry, Your Honor.

[00:18:12] Speaker 00:
I think Coventry says,

[00:18:14] Speaker 00:
Yeah, you can maintain a claim if you had to go do the investigation for the insurer.

[00:18:18] Speaker 00:
If you had to retain experts and you had to go do it.

[00:18:20] Speaker 00:
Ultimately, the insurer was correct in coverage, but you can still maintain that claim.

[00:18:24] Speaker 00:
We don't have that here.

[00:18:25] Speaker 00:
They didn't retain an expert.

[00:18:26] Speaker 00:
They didn't do the investigation for state form.

[00:18:28] Speaker 03:
What about attorney's fees?

[00:18:30] Speaker 00:
Attorney's fees, I don't think are recognized as a separate damage under Coventry.

[00:18:34] Speaker 00:
as far as a tort damage, bad faith claim, is what we're talking about there.

[00:18:38] Speaker 00:
So I don't think that Covingey goes that far to say, hey, I hired an attorney.

[00:18:44] Speaker 00:
And then I would also argue, Your Honor, that the attorney's letter did not push back on those issues.

[00:18:50] Speaker 00:
They didn't do that investigation, make those arguments.

[00:18:52] Speaker 00:
State Farm did that on its own.

[00:18:56] Speaker 00:
I think to the extent there's any questions on the declaration or the

[00:19:03] Speaker 00:
the procedural or the evidentiary issue that's before the court.

[00:19:06] Speaker 00:
I just want to make sure it's clear that, obviously, this is an abuse of discretion standard.

[00:19:10] Speaker 00:
So the court has to look to the district court and say that the district court abused the discretion in denying the motion to strike.

[00:19:17] Speaker 00:
I did hear some argument from counsel about 702.

[00:19:21] Speaker 00:
And I just wanted to point out that the court did not consider a Daubert motion or a 702 motion because it was untimely and denied on that basis.

[00:19:28] Speaker 00:
To the extent that was trying to be brought up here, I did not see that in the opening brief.

[00:19:33] Speaker 00:
My understanding of their argument was that it was a late disclosure under CR 26, A to B. And our argument primarily is that A to C controls because this is a fact witness.

[00:19:47] Speaker 00:
And I think your honor was correct that this is the only witness, the expert witness that looked at this.

[00:19:53] Speaker 00:
He came up with two possible causes.

[00:19:56] Speaker 00:
I think what's important is to look at the Capilouto case here.

[00:20:01] Speaker 00:
And that allows the insurer to say, look, if there's three possible causes here and all of them are excluded, and in that case it was a sewer backup issue, if all of them are excluded, then the insurer can nevertheless deny coverage and is not unreasonable in denying coverage on that basis.

[00:20:18] Speaker 00:
I'd also point out that the Capilouto case, in fact, very similar factually, had a misquote of policy language issue in that case as well.

[00:20:28] Speaker 00:
And the court said,

[00:20:29] Speaker 00:
Now it wasn't unreasonable and dismissed on that basis as well.

[00:20:33] Speaker 03:
But counsel for the Kaufmans says that one of the three reasons, the product malfunction, isn't necessarily excluded.

[00:20:43] Speaker 03:
So here you don't have that situation where all three, no matter what, aren't going to be covered.

[00:20:49] Speaker 03:
The argument by Mr. Fisher is actually, Judge, one of them may be.

[00:20:54] Speaker 00:
I think that's a misstatement of that provision.

[00:20:58] Speaker 00:
What it is, it actually is excluded.

[00:21:01] Speaker 00:
First of all, the terms product malfunction are not used in the policy.

[00:21:04] Speaker 00:
It would be, I think, wear and tear is what the council's pointing to, or deterioration.

[00:21:09] Speaker 00:
That is excluded.

[00:21:10] Speaker 00:
It's absolutely excluded under subsection one.

[00:21:13] Speaker 00:
The argument is that there's a resulting loss provision that would somehow provide coverage.

[00:21:18] Speaker 00:
But the resulting loss has to also be covered.

[00:21:22] Speaker 00:
And the resulting loss in that circumstances, our submission would be that it's still excluded under the subsurface water exclusion.

[00:21:28] Speaker 00:
So every cause along the chain here, there would be an exclusion that would apply.

[00:21:34] Speaker 00:
The other aspect of that is that State Farm did not, even though the adjuster may have mentioned that in his deposition, State Farm's December 13th letter said the predominant causes here were improper compaction and I think differential earth movement, consistent with what the expert had said.

[00:21:52] Speaker 00:
So State Farm did not deny based on a product failure or indicate that that was the predominant or efficient proximate causes that term is used.

[00:22:00] Speaker 00:
And so I think it's important to note that just because there may be contributing factors or causes under another exclusion does not invalidate the earth movement exclusion, for example, here that does not have an ensuing loss provision.

[00:22:13] Speaker 00:
So I'm not aware of any case law that says that in Washington that says, hey, you have to look here and then that somehow the ensuing loss provision here would then take, get rid of the earth movement exclusion or the improper compaction exclusion.

[00:22:37] Speaker 00:
Briefly, Your Honors, I think the,

[00:22:41] Speaker 00:
The important thing to note on this, and I think we've touched on all of it, but as far as the coverage question, there was no other evidence in the record, and I think the court had recognized this, that there was no other evidence as to any other cause, any expert or anything submitted by the Coffman's.

[00:23:00] Speaker 00:
The Coffman's cite the Calivig case, and I wanna just take a small moment there to distinguish that case.

[00:23:07] Speaker 00:
The Capilouto case distinguishes Calivig, and in Calivig, the issue before the court was the insurer denied based on a suspicion of arson, okay?

[00:23:21] Speaker 00:
And the insurer had evidence that it was

[00:23:25] Speaker 00:
defective electrical box or that the fire resulted from defective electrical box.

[00:23:29] Speaker 00:
The insurer ignored that evidence and said, no, it's arson and maintained the denial.

[00:23:35] Speaker 00:
That was the linchpin to the conclusion by the court that based on speculation and conjecture is unreasonable or it's a bad faith, right?

[00:23:45] Speaker 00:
So here we don't have that.

[00:23:47] Speaker 00:
We do not have anything that State Farm was ignoring.

[00:23:50] Speaker 00:
or there's no evidence that additional investigation would have revealed some other cause or some cause that could be covered here.

[00:23:59] Speaker 00:
And I think that is the key distinguishing point.

[00:24:02] Speaker 00:
And Capilouto really does hit on that.

[00:24:04] Speaker 00:
And so I would urge Your Honors to take that into consideration.

[00:24:12] Speaker 00:
I wanted to take a moment just to touch about the misquotation of the clerical error.

[00:24:19] Speaker 00:
I noticed something in the reply brief from counsel that clerical error was not sufficient.

[00:24:25] Speaker 00:
I would submit that Washington law says otherwise.

[00:24:29] Speaker 00:
Washington law says a good faith mistake cannot be a basis for bad faith.

[00:24:32] Speaker 00:
And I think that's in Coventry, that's in a long line of cases.

[00:24:36] Speaker 00:
So I just think legally, if it is a clerical error or a mistake, a good faith mistake, which all the evidence indicates that it was, that cannot be the basis for an extra contractual claim here, your honor.

[00:24:49] Speaker 00:
Unless you have any other questions, I would submit, Your Honor, that the appellant has failed to demonstrate any reversible error in the district court.

[00:24:57] Speaker 00:
The record and the law clearly support the decision reached, and we would respectfully urge the court to affirm the district court's decision.

[00:25:05] Speaker 00:
Thank you.

[00:25:06] Speaker 03:
All right.

[00:25:06] Speaker 03:
Thank you so much.

[00:25:09] Speaker 03:
Mr. Fisher?

[00:25:13] Speaker 04:
Thank you, Your Honors.

[00:25:14] Speaker 04:
Judge Clifton, during my break, I went back and looked at the three pages of Mr. Pioli's declaration in the record, or excuse me, deposition.

[00:25:23] Speaker 04:
I did not see the testimony that you cited.

[00:25:25] Speaker 04:
I am looking at page 33 right now.

[00:25:28] Speaker 04:
He's discussing the things that potentially broke the pipe break.

[00:25:32] Speaker 04:
Again, that's ER 33.

[00:25:35] Speaker 04:
Based on your prior investigation, you were determining these possible causes.

[00:25:39] Speaker 04:
Has anything changed from your supplemental conclusion?

[00:25:41] Speaker 04:
No.

[00:25:41] Speaker 04:
I mean, State Farm is confirming these are possible causes.

[00:25:44] Speaker 04:
This is not the world of possible causes.

[00:25:47] Speaker 04:
They're speculating.

[00:25:48] Speaker 04:
We do not allow insurers denied by speculation as both the law and State Farm's own internal policies recognize.

[00:25:53] Speaker 04:
I heard some argument about causation.

[00:25:55] Speaker 04:
Causation was not an issue before the district court.

[00:25:57] Speaker 04:
It's not appropriate to get to that issue here where it has not been developed.

[00:26:02] Speaker 04:
While it's true there was a Daubert challenge made below, we're not pursuing that here.

[00:26:06] Speaker 04:
ER-702 exists separate of Daubert.

[00:26:08] Speaker 04:
We are not saying to you the engineer's methods for arriving at his conclusions were bad under Daubert.

[00:26:16] Speaker 04:
We are saying that it's a separate under ER-702 issue because it's not helpful to the trier of fact because it's speculation.

[00:26:24] Speaker 04:
We also said in the opening brief, the problem with this disclosure and with his testimony is that it's possible, right in the heart of the 702 issue.

[00:26:34] Speaker 03:
Let me interrupt you, counsel.

[00:26:35] Speaker 03:
I want to talk a little bit more about your bath faith damages.

[00:26:38] Speaker 03:
What would the damages be?

[00:26:40] Speaker 04:
Well, to start with, the denial of policy benefits, because under that, the

[00:26:49] Speaker 04:
pipe the product malfunction, assuming lost cost coverage is owed.

[00:26:52] Speaker 04:
In addition for bad faith and IFCA damages, there are non-economic damages, the stress of having to do this.

[00:26:58] Speaker 04:
The whole point of insurance is they're supposed to protect you in times of calamity.

[00:27:01] Speaker 04:
When there was six inches of water in the Kauffman's basement, their homeowner's insurance left them hung out to dry.

[00:27:07] Speaker 04:
That's precisely what bad faith and IFCA damages are designed to do.

[00:27:11] Speaker 01:
Well, that stress resulted from the denial.

[00:27:15] Speaker 01:
And if the denial was soundly based,

[00:27:18] Speaker 01:
even if the reasons came up later, I don't know that I understand how those damages can be asserted as resulting from the bad faith misconduct.

[00:27:28] Speaker 01:
It came from the denial.

[00:27:30] Speaker 04:
Our position is the denial is wrongful.

[00:27:31] Speaker 01:
If you disagree with me on that, there are... Yeah, but okay, you've argued that.

[00:27:35] Speaker 01:
I think we're sort of past that.

[00:27:37] Speaker 01:
No alternative ground has been identified.

[00:27:41] Speaker 01:
So you've got what injury resulted

[00:27:46] Speaker 01:
from the, what I will describe now as premature denial, since the subsequent denial doesn't seem to be seriously at issue, what injury was suffered?

[00:27:59] Speaker 04:
I see the red light blinking.

[00:28:00] Speaker 04:
May I answer your question?

[00:28:01] Speaker 04:
Please.

[00:28:02] Speaker 04:
the investigation costs.

[00:28:05] Speaker 04:
While it's true, attorney's fees don't get covered for litigation costs, attorney's fees get covered for investigation costs, saying, do you have a claim?

[00:28:12] Speaker 04:
A lot of time, while our position is the denial was wrongful, if the denial wasn't wrongful, there was a lot of time wasted trying to converse back and forth.

[00:28:19] Speaker 04:
The Kaufmans had to pay a coverage lawyer to get the State Farm to acknowledge the right policy language.

[00:28:27] Speaker 03:
Whose time was wasted, and how are you measuring that?

[00:28:29] Speaker 03:
What's the hourly rate on this time?

[00:28:31] Speaker 03:
How do you measure that?

[00:28:33] Speaker 04:
Well, the coffins pay a lawyer.

[00:28:35] Speaker 04:
Admittedly, that's not in the record.

[00:28:38] Speaker 03:
Okay, but I thought you, and maybe I misunderstood, I thought attorney's fees were not covered.

[00:28:43] Speaker 04:
So attorney's fees are not covered for the cost of litigation, but investigation costs.

[00:28:48] Speaker 04:
That's recognizable under the Consumer Protection Act and bad faith, and there are bad, no IFCA if there's not, it's a wrongful denial of coverage, but bad faith.

[00:28:57] Speaker 04:
It also includes those economic investigation damages.

[00:29:02] Speaker 04:
Even being deprived of information you're entitled to is recognizable damage.

[00:29:08] Speaker 04:
Okay.

[00:29:08] Speaker 04:
Thank you and thanks for letting me go a little over.

[00:29:10] Speaker 03:
Okay.

[00:29:10] Speaker 03:
Thank you and thank you to both counsel.

[00:29:13] Speaker 03:
This matter is now submitted.

[00:29:15] Speaker 03:
And this concludes our arguments for this morning.

[00:29:18] Speaker 03:
Thank you again to everyone and the court staff.

[00:29:20] Speaker 03:
The court will now stand in recess.