Court of Appeals Directs Dismissal of Bad Faith and Consumer Protection Claims Where Insured Committed Fraud against Insurer

Kim v. Allstate Insurance Co. (Wash. Ct. App. Div. II, November 24, 2009)

Allstate denied the UIM claim of its insured, Ki Sin Kim, under the “void for fraud” provisions of her insurance policy after an investigation revealed that she faked some of her injuries and lied about not returning to work following a collision with an uninsured motorist. The court of appeals held that her bad faith and consumer protection claims should have been dismissed where it was established that she made material misrepresentations to Allstate during its investigation.

In her proof of loss statement, Ms. Kim claimed she suffered from pain in her shoulders, neck, back, left knee, and left ankle. Three months after the accident, Ms. Kim stated she had not returned to work. But a private investigator observed Ms. Kim walking and driving normally, turning her head side to side, and working at her job in a restaurant kitchen.

At Ms. Kim’s independent medical examination (IME), her pain complaints were inconsistent. For instance, her initial reaction to palpation of her left ankle was exaggerated, but she had no reaction when the physician palpated the same ankle while Ms. Kim was distracted. In addition, the physician concluded that Ms. Kim’s apparent limp was not credible because it was inconsistent with a limp from a true ankle injury. He also noticed unexplained modifications to her medical records, adding injury complaints and procedures. The physician concluded that Ms. Kim “feigned her physical injuries and presentation during examination.”

Video surveillance showed Ms. Kim walking normally the day after the IME, confirming the physician’s conclusion. Allstate denied Ms. Kim’s claim after she subsequently testified at an examination under oath that she still had not been back to work since the accident due to shoulder, arm, and leg pain.

Ms. Kim sued Allstate alleging breach of contract, bad faith, and violation of the Washington Consumer Protection Act. At her deposition, she admitted that she had, in fact, returned to work less than three months after the accident.

Allstate moved for partial summary judgment, asking the trial court to find that Ms. Kim’s policy was void due to her misrepresentations of material facts. Ms. Kim cross-moved, asking the trial court to find that Allstate acted in bad faith and violated the Consumer Protection Act as a matter of law by merging its PIP and UIM claim investigations and by failing to pay the bills for her initial emergency room visit. The trial court denied Allstate’s motion and granted Ms. Kim’s motion.

The court of appeals reversed and directed entry of summary judgment in Allstate’s favor as to Ms. Kim’s bad faith and Consumer Protection Act claims. The court accepted Allstate’s argument that, if Ms. Kim intentionally misrepresented a material fact to Allstate, her claims for bad faith and violation of the Consumer Protection Act must fail. And the evidence established that Ms. Kim misrepresented the nature and extent of her injuries and her ability to work.

The court of appeals did not direct entry of summary judgment in Allstate’s favor as to the lack of coverage for Ms. Kim’s emergency room bills, finding that a question of fact existed whether the misrepresentations were material in light of “equivocal” language in Allstate’s policy. The void for fraud provision did not state that the entire policy was void in the event of fraud, but instead that Allstate “may not provide coverage for any insured who has made fraudulent statements or engaged in fraudulent conduct in connection with any accident or loss for which coverage is sought under this policy.” According to the court, this left open to interpretation the extent of Allstate’s obligation with respect to Ms. Kim’s emergency room visit because there was no evidence that Ms. Kim made misrepresentations during that visit and because the use of the word “may” made it unclear the circumstances under which Allstate would deny coverage.

Finally, in dicta, the court found no possible bad faith from “commingling” the PIP and UIM files or from using the same IME to deny both types of coverage because Ms. Kim could be required to submit to an IME as a condition of receiving either PIP or UIM coverage and because the IME report belonged to Allstate as its own work product, distinguishing Ellwein v. Hartford Accident & Indemnity Co., 142 Wn.2d 766 (2001).