NCF v. CYBERSAFE, 136 Wn. App. 1015 (2006)

Affirmedby unpublished opinion per Becker, J., concurred in by Schindler, A.C.J., and Ellington, J.

NCF Financial, Inc. owned computers that were damaged while on lease. NCF seeks to establish itself as an additional insured on a policy that was issued to the lessee. Although NCF was named an additional insured in an earlier policy, NCF was not named in the policy under which it now seeks coverage. Finding no basis to deem that NCF's coverage remains in effect or that the lessee's broker had a duty to see that it did, the trial court properly dismissed the case on summary judgment.

NCF leased computers to CyberSafe in 1996. The lease obligated CyberSafe to buy insurance for the computers, name NCF as an additional insured on the policy, and provide NCF with certificates of insurance documenting the coverage.

The record contains three of Federal Insurance Company's policies covering CyberSafe. The first of these policies originally ran from February 1999 to February 2000, then was extended to March 2000. This policy contained a Blanket Additional Insured Endorsement: "An additional insured shall include an organization where shown on a certificate of insurance or to whom the named insured is obligated by virtue of a written contract or agreement to provide insurance." This endorsement was not included in the second policy or the third and final policy. These ran, respectively, from March 2000 to March 2001 and from March 2001 to March 2002.

All three policies had the same cancellation and renewal provisions. The policies provided that the first named insured, CyberSafe, "may cancel this policy by mailing or delivering to us advanced written note of cancellation." Federal promised to give notice of cancellation to interested parties shown on the policy. Federal also promised to notify interested parties if it chose not to renew.

By November 2001, CyberSafe had defaulted on its agreement with its premium finance company. After giving CyberSafe 10 days notice, the premium finance company cancelled the third policy on CyberSafe's behalf, effective November 19, 2001. Federal did not notify NCF of the cancellation, and neither did anyone else.

By January 2002, NCF learned that several of the computers had been lost or damaged. Four months later NCF submitted a $106,000 claim to Federal, relying on the third policy. Federal denied the claim.

NCF sued Federal for breach of contract in December 2003. NCF also brought a negligence claim against CyberSafe's insurance broker, Parker Smith Feek Inc. Both defendants successfully moved for summary judgment dismissal. NCF appeals.

Review is de novo. Summary judgment is proper only when pleadings, depositions, admissions, and affidavits show there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c); Olivine Corp. v. United Capitol Ins. Co.,147 Wn.2d 148,155-156,52 P.3d 494(2002). NCF's suit, brought in December 2003, attempts to establish that Federal must honor the claim based on an interest NCF claims to have in the third policy. The suit is barred by a two-year suit limitation clause if the cancellation of that policy in November 2001 was effective. Relying on Olivine, NCF contends that Federal breached an obligation to send notice that the third policy was being cancelled, and consequently NCF's interest in the third policy continued in effect by operation of law. The problem with this argument is that NCF did not have an interest in the third policy.

The policy in question in Olivine named two insureds. One of those insureds gave a premium finance company the power to request cancellation on that insured's behalf. The other named insured, Olivine, had not given that power to the premium finance company. As in the present case, the premium finance company requested cancellation of the policy for nonpayment of the premiums. The insurer cancelled the policy without providing notice to Olivine. This failure to notify Olivine "left the policy in effect with respect to Olivine." Olivine,147 Wn.2d at 163. This was because of a statute providing that a cancellation of an insurance policy is effective as to a named insured only if the insurer delivers or mails a cancellation notice "to the named insured at least ten days before the effective date of cancellation." RCW48.18.290(1)(c); Olivine,147 Wn.2d at 161.

Here, NCF was not a named insured on the third policy. And NCF was not listed as an additional insured either, so it cannot benefit from RCW48.18.290(1)(e), which provides for like notice to each "other person shown by the policy to have an interest in any loss which may occur thereunder." Because NCF was not "shown by the policy" to have an interest, the statutory notice requirement does not apply.

NCF nevertheless contends that its interest in the first policy automatically continued past the date of expiration of that policy because Federal breached an obligation to notify NCF that the additional insured endorsement was being deleted. The source of that obligation, according to NCF, is the first policy's provision requiring Federal to give notice to any party with an interest in the policy in the event Federal elected not to renew it:

We may elect not to renew this policy by mailing or delivering written notice of non-renewal, stating the reasons for non-renewal, to the first named insured and the first named insured's agent or broker, at their last mailing addresses known to us. We will also mail to any mortgage holder, pledge or other person shown in this policy to have an interest in any loss which may occur under this policy, at their last mailing address known to us, written notice of non-renewal. . . .

. . .

Otherwise, we will renew this policy.¹

The notice requirement quoted above means that Federal promised to give notice both to CyberSafe and to NCF if Federal elected not to renew the policy. According to NCF, it also means that Federal promised to notify NCF if CyberSafe renewed the policy but deleted the endorsement for additional insureds, because the deletion in effect created a non-renewal of the status of the additional insured. That is quite a stretch. We are not persuaded that deletion of the endorsement after the term of the first policy ended amounted to a non-renewal at the election of the insurer. We conclude NCF did not have an interest in the third policy deriving from the notice of nonrenewal provision in the first policy.

Alternatively, NCF contends the loss payee endorsement in the final policy gave NCF an interest in that policy that Federal could not cancel without proper notice. "It is agreed loss payees are added to the policy . . . as per certificates on file with this company." CyberSafe was insured with Federal from 1997 to 1998, as evidenced in the record by a 1997 Certificate of Insurance. The certificate, issued by CyberSafe's insurance broker, indicated that NCF was an additional insured party on a policy covering CyberSafe's business personal property, and that the policy would expire in February 1998. NCF asserts that the Certificate of Insurance was on file with Federal, and that this certificate "clearly confirmed that the policy had granted NCF additional insured status." But because the 1997 Certificate of Insurance evidences coverage from February 1997 to February 1998 only, it does not render NCF a loss payee on the third and final policy.

NCF argues there is a factual issue as to its status as an additional insured because the 1997 and 1998 insurance contracts between Federal and CyberSafe are missing from the record. NCF speculates that those contracts might have had terms making NCF an additional insured. But even if NCF was an additional insured in 1997 and 1998, that would not prove NCF had an interest in the final policy (2001-2002).

Because NCF did not have the status of an additional insured in the third policy, or any other interest in it, the statute applied in Olivine did not require Federal to give NCF notice that the third policy was being cancelled. When the policy was cancelled on November 19, 2001, coverage ended; it did not continue as to NCF.

The final policy has a provision barring any suit against Federal that is not brought within two years after the date the damage occurred. Although it is not entirely clear when the computers were damaged, the damage could not be covered at all unless it occurred before coverage ended. Since any coverage provided by that policy ended more than two years before NCF brought suit in December 2003, NCF's suit against Federal is time-barred. NCF contends that if it was not entitled to coverage under the third Federal policy, this lapse in coverage was caused by the negligence of Parker, the insurance broker for CyberSafe at the time the third policy was issued.

The threshold issue in any negligence action is whether the defendant owed the plaintiff a duty of care. Kae Kim v. Budget Rent A Car Sys. Inc.,143 Wn.2d 190,194-195,15 P.3d 1283(2001). NCF contends that Parker owed it a duty to ensure that NCF was informed about the status of CyberSafe's insurance policies. NCF contends Parker owed this obligation because Parker was "aware of the obligation of CyberSafe to insure the NCF leased property, and name NCF as an additional insured under that policy, and it undertook to satisfy that obligation."²

NCF's apparent³theory is that if Parker had fulfilled the alleged duty to notify NCF that it was no longer named on the policy, NCF would have taken steps to ensure its own status as an additional insured. If NCF had been an additional insured, it would have been entitled under Olivine to receive notice of cancellation from Federal. If Federal had sent notice of cancellation to NCF, presumably NCF would have then taken steps to stop the cancellation and continue the coverage.

No evidence shows that Parker undertook any obligation to NCF, or that it undertook to satisfy any obligation CyberSafe owed to NCF. NCF cites no evidence of such an undertaking other than the 1997 Certificate of Insurance. But Parker did not issue that certificate. Another company, Insurance Services Group, Inc., issued the certificate. NCF fails to otherwise articulate how it believes Parker undertook to satisfy CyberSafe's obligation to provide NCF insurance.

NCF's related theories are similarly unsupported. NCF contends that "clearly there was detrimental reliance upon NCF's part that the insurance agent for CyberSafe took the steps necessary to add it as an additional insured."⁴No record citation supports this claim, nor does NCF explain what Parker did to make NCF's reliance reasonable.

NCF replies that it would be improper for this court to affirm summary judgment for Parker based on absence of duty because Parker failed to raise this issue in its motion below. See White v. Kent Medical Ctr., 61 Wn. App. 163, 169,810 P.2d 4(1991) ("it was error for the court to consider the proximate cause issue first raised in Defendants' reply memorandum and to rely on that issue as a basis for granting summary judgment."). At oral argument before this court, NCF claimed to have been "blindsided" by Parker on the duty issue below.

The duty issue was sufficiently developed below to allow the trial court to conclude Parker did not owe a duty to NCF. Parker's summary judgment brief referred to the duty issue, albeit briefly, when it stated that Parker "denies that it breached any duty owed to NCF."⁵Parker's summary judgment reply brief pointed out that NCF had failed to establish the existence of a duty:

Plaintiff's memorandum cites no authority whatsoever supporting the proposition that Parker Smith Feek ("PSF"), an insurance broker that assisted the insured, CyberSafe, in acquiring insurance, owed any duty to NCF, a third party. . . .

NCF has cited no authority for the proposition that it is a third-party beneficiary of the contract between PSF and the insured, CyberSafe, in order to create standing to sue PSF.⁶

NCF did not object at the time that it would be improper for the court to consider the issue of duty. Nor did NCF request the opportunity to further develop the record before the summary judgment decision. Parker again raised the duty issue at oral argument on the motion for summary judgment:

Although Parker contends that the issue of whether it owed any legal duty to NCF is irrelevant since NCF cannot establish proximate cause or damage, I'll just briefly note that the only evidence that they have put forth to support its argument that we did have a duty is the Certificate of Insurance that's already been addressed.⁷

Parker's attorney argued that NCF had not cited any authority to support a claim that NCF "had any legal duty to NCF to insure that the policy was canceled in a particular manner."⁸NCF's attorney responded to these arguments without objection. NCF then raised the duty issue of its own accord in its opening brief on appeal, again without asserting that the issue was unpreserved. We conclude the record has been sufficiently developed to show conclusively that Parker did not owe NCF a duty. NCF had opportunities to address this issue below, and has at no time identified any document or authority that would support the existence of a duty.

NCF contends Parker breached duties owed to it as a third party beneficiary of the agreement between Parker and CyberSafe. To be a third party beneficiary entitled to recover on an insurance agreement, a plaintiff must show that the contracting parties intended to benefit the plaintiff and indicated that intention in the contract. Postlewait Constr. v. Great Am. Ins. Cos.,106 Wn.2d 96,101,720 P.2d 805(1986). The record shows no evidence of any intention by Parker to protect NCF. NCF's speculation as to what CyberSafe and Parker might have agreed is insufficient to defeat summary judgment.

The trial court properly dismissed NCF's claims against Federal and Parker.

Affirmed.

WE CONCUR:

Anne Ellington, Ann Schindler, Concurring.