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WASHINGTON MOLD LITIGATION (cont'd)
Kelsey Lane Homeowners Association v. Kelsey Lane Co., Inc.,
125 Wn. App. 227, 103 P.3d 1256 (2005)
A condominium homeowners association sued KLC, after construction defects caused severe water damage to the condominium buildings. The Association contends that KLC fraudulently concealed from prospective purchasers the fact that building envelope components were missing or improperly installed. The trial court dismissed the complaint, finding no genuine issue of material fact about the developer’s actual knowledge of the defects without considering claims that relied on a "should have known" standard. Plaintiffs introduced no evidence suggesting that the defendant had actual knowledge of the defects or that it breached its fiduciary duty while it controlled the homeowners association. The court rejected a "should have known" standard.
State Farm Fire & Casualty. Co. v. Piazza, 132 Wn. App. 329 (2006)
This was an insurance coverage case under a homeowner's policy where the insurer sued its policyholder seeking a decision from the court that it did not have a duty to defend an action for damages brought by the insureds' former tenants for personal injuries caused by mold in the house. The insurance policy excluded coverage for injuries or damage arising out of renting the property unless rental was on an occasional basis. The homeowners had continuously rented the property for more than 26 months. The Superior Court entered a summary judgment in favor of the insurer. The Court of Appeals affirmed.
Piazza claimed that she raised a genuine issue of material fact precluding summary judgment regarding whether the rental was "on an occasional basis." She contended that the phrase "on an occasional basis" is ambiguous and that this ambiguity must be construed in her favor and against the insurer which drafted the policy. State Farm argued that "occasional" means "on a now and then basis" or "irregularly or infrequently" and that there is no other reasonable interpretation of "occasional." The courts agreed with the insurer and found this definition was clear and not ambiguous.
Ramos v. Arnold, WACA 58679-3 – 071607 (2007)
The Ramos family purchased a home in Lynnwood in 2001. Before making an offer, they noticed that a three-foot portion of the hallway ceiling was sagging. They questioned their real estate agent about this defect and the agent stated that it was likely a "PUD package," apparently referring to insulation added to conserve energy. A cousin who worked in the drywall and ceiling business looked at the hallway ceiling and told the Ramoses that the sag may have been caused by water damage. The Ramoses nevertheless made an offer on the home on September 24, 2001, conditioned on a satisfactory home inspection. Their inspector noted that the roof was in "very poor condition with decay under the trees and missing shakes on the south faces and east face." The inspector’s report advised that the roof would not last much longer but did not mention the sagging ceiling in the hallway.
After the inspection, the Ramoses waived the contingencies and proceeded with the purchase. Their lender ordered an appraisal. The appraiser made a visual inspection of both the inside and exterior of the home in order to estimate the property’s market value. The appraiser did not report noticing any apparent defects either inside or outside the home and did not communicate with the Ramos family or send them a copy of the appraisal.
The sale closed on October 15, 2001. Several days later, after the Ramos family moved in, the roof began leaking during a storm. Water damaged the roof and ceiling and caused mold growth. The ceiling started crumbling and material containing asbestos fell into the house, causing Karina and the two children to experience respiratory problems.
The Ramoses filed a claim under their homeowner's insurance policy. Their claim for water damage was accepted and paid, but their claim for mold damage was rejected. They then filed suit against several defendants, including claims against the appraiser for breach of contract, negligence in conducting the appraisal, and violation of the Consumer Protection Act. The appraiser moved for summary judgment arguing that the Ramoses were actually aware of the sagging ceiling before purchasing the home and that the Ramoses could not show that they had relied on the appraisal report when they decided to purchase the house. Karina declared that she did review "the contents of" the appraisal before the purchase, which she apparently contradicted in her deposition. The Ramos’ claimed that the appraiser committed an unfair or deceptive act by failing "to include major defects in the residence in the appraisal report which kept the paperwork 'clean' on the residence. They alleged that this prevented further investigation, and caused the Ramoses to enter into the purchase and sale agreement for the residence.
Both parties cited the same case to support their respective positions, Schaaf v. Highfield, 127 Wn.2d 17, 896 P.2d 665 (1995). In Schaaf, the trial court found that while the appraiser owed a duty of care, the plaintiff did not demonstrate justifiable reliance on the appraisal report and already knew before he bought the house that it needed a new roof. He could not blame the appraiser for failing to report what he already knew to be true. Schaaf, 127 Wn.2d at 30. Lack of reliance on the appraisal report barred Schaaf's claim. In Ramose, their claim failed under the negligent misrepresentation analysis detailed in Schaaf, because without proof of reliance there is no basis upon which to find that any breach by the appraiser proximately caused their damages.
The Court of Appeals held that there was no claim against the appraiser under the Consumer Protection Act, stating that the purpose of the Consumer Protection act is to "complement the body of federal law governing restraints of trade, unfair competition and unfair, deceptive, and fraudulent acts or practices in order to protect the public and foster fair and honest competition." RCW 19.86.920. The term "trade" as used by the Act only includes the entrepreneurial or commercial aspects of professional services, not the substantive quality of services provided. Entrepreneurial aspects include how the cost of services is determined, billed, and collected and the way a professional obtains, retains, and dismisses clients. Claims directed at the competence of and strategies employed by a professional amount to allegations of negligence and are exempt from the Consumer Protection Act. The Ramoses allegations concerning the inadequacy of the appraisal amounted to an allegation of negligence, not an implication of entrepreneurial or commercial aspects of professional services. The Court of Appeals upheld the trial court dismissal of the Consumer Protection Act claim on summary judgment.
The Ramoses also appealed the trial court’s dismissal of their breach of contract claim contending that, even though they had no contract with the appraiser, they were third party beneficiaries to her contract with the bank. Under Washington law, as in most states, a party is a third party beneficiary only if the contracting parties intend to create such a relationship at the time the contract is formed. The test of intent is an objective one, for which the key is whether performance of the contract would necessarily and directly benefit the party claiming to be a third party beneficiary. Although the appraisal report identifies the Ramoses as potential borrowers, the report was written for the benefit of the lender which wanted to see if the house was worth what the lender was lending for its purchase. There was no evidence the bank intended for the appraiser to assume a direct obligation to the Ramoses or that they would necessarily benefit from the terms of the contract between the bank and the appraiser. The Court upheld the trial court’s dismissal of the contract claim, concluding that the Ramoses were not third party beneficiaries to the appraisal contract between the appraiser and the lender.
© Kelly Vance 2008
This article is excerpted from Toxic Mold Litigation, Second Edition, published by Lawyers and Judges Publishing Company. It is reproduced here by permission of the publisher.
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