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12/29/97 RICHARD C. GOSSETT and M v. FARMERS INSURANCE COMPAN

BLUE BOOK CITATION FORM: 1997.WA.2149 (http://www.versuslaw.com)

[Editor's note: footnotes (if any) trail the opinion]

[1] IN THE SUPREME COURT OF THE STATE OF WASHINGTON

[2] RICHARD C. GOSSETT and MARGARET D. GOSSETT, husband and wife,Respondents,

v.

[3] FARMERS INSURANCE COMPANY OF WASHINGTON, a domestic insurer,Petitioner.

[4] No. 64368-7

[5] EN BANC

[6] Filed December 24, 1997

[7] MADSEN, J.

[8] -- In this action for homeowners insurance benefits the partiesdispute the nature and extent of the insurable interest which Richardand Margaret Gossett had in an unfinished house destroyed by fire, aswell as the constitutionality and propriety of attorney fees awardedunder Olympic S.S. Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d673 (1991). We affirm the trial court's holding that the Gossetts had aninsurable interest in the property only to the extent of improvementsthey made prior to the fire, and accordingly reverse the Court ofAppeals' decision. We uphold the constitutionality of an attorney feesaward under Olympic S. S. Co.

[9] FACTS

[10] In 1990, the Gossetts found an unfinished house in Tacoma whichthey wished to buy, complete, and sell at a profit. They offered $90,000and estimated they would need another $60,000 to $70,000 to finish thehouse. Their offer was accepted by the owner, Mr. Gunns, after twoprevious offers expired. The Gossetts signed an earnest money agreementand had 30 days to arrange financing. They were unable to acquireconventional financing *fn1 and, therefore, attempted to obtain a loanthrough a broker specializing in hard to place loans, Trusty DeedServices. They signed a fee agreement with Trusty Deed providing that inexchange for Trusty Deed obtaining financing on a best-effort basis, theGossetts would pay a fee of five percent of the loan amount. Trusty Deedwas unable to locate financing in the full amount desired by theGossetts. Instead, it was able to obtain financing for the purchaseprice only. Further, the investor-lender providing the funds, Ms.Crennell, was willing to provide only temporary financing. In order tocarry out their plans to purchase the house, therefore, the Gossetts hadto obtain long-term financing.

[11] In late August, the Gossetts spoke with a Farmers InsuranceCompany agent about insurance on the home. Mr. Gossett represented tothe agent that the Gossetts would be the legal owners of the property. Apolicy was issued with the Gossetts as the named insureds and TrustyDeed as the mortgagee. According to the agent, the policy would not havebeen issued in the Gossetts' names had he known that the Gossetts werenot legal owners.

[12] On August 30, 1990, the Gossetts assigned all their interest inthe purchase and sale agreement to Trusty Deed. They also signed anaddendum to the purchase and sale agreement providing "Title to be takenin the name of Trusty Deed . . . ." Clerk's Papers (CP) at 88. When thesale closed on September 5, 1990, title was placed in Trusty Deed, andTrusty Deed was listed as the buyer in the closing documents. There isevidence that Trusty Deed did not intend to buy or become record ownerof the property. There is also evidence that title was placed in TrustyDeed because the Gossetts feared losing the sale to a back-up purchaser,as well as evidence that Ms. Crennell required title to be placed inTrusty Deed. Paul Anderson, who acted on behalf of Trusty Deed, statedthat the Gossetts were to repay the money loaned by Ms. Crennell byOctober 4, 1990. However, the only promissory note in the recordobligates Trusty Deed to repay Ms. Crennell for the loan. As eventsdeveloped, the money was not repaid in a timely fashion. Ms. Crennellsued Trusty Deed on the promissory note and obtained a judgment againstTrusty Deed.

[13] The record contains no evidence of any written agreementobligating the Gossetts to repay any money loaned for purchase of theproperty or of any written agreement under which the Gossetts couldpurchase the property from Trusty Deed.

[14] The Gossetts began to work on the house in early September. Mr.Gossett testified that on November 18, 1990, he was working on the housewhen he fell and knocked over a kerosene heater, causing a fire thatdestroyed the house. At the time, the Gossetts were storing some oftheir belongings in the unfinished house and their sons stayed in thehouse at least some of the time to watch over things. The Gossetts hadbeen staying at a motel and planned to move into the house the next day.

[15] At the time of the fire, the Gossetts still had not obtainedlong-term financing. Although Mr. Gossett testified he had obtainedlong-term financing, the evidence is equivocal at best as to whether theGossetts had in fact found a source of long-term financing. The recorddoes not show any commitment for such financing other than Mr. Gossett'sclaim that such financing had been secured. Although a letter from a Mr.Moore to Trusty Deed mentions "processing a loan" for the Gossetts, Mr.Moore declared that if there had been a commitment to provide financing,there would have been documentation to that effect; he had none, and thefact that he had no such documentation "confirms that no such agreementwas ever made." CP at 231, 314. Also, although Mr. Gossett testified hehad a commitment for long-term financing, he conceded there was nothingin writing.

[16] After the fire, Trusty Deed was not able to pay Ms. Crennell infull and therefore transferred its rights in the property to her.

[17] The Gossetts filed a claim with Farmers. Farmers paid theGossetts for the loss of personal property destroyed in the fire andissued a check for $114, 818 payable to Ms. Crennell, Trusty Deed, andthe Gossetts. Nearly a year after the fire, the parties entered into asettlement agreement under which the Gossetts added $5,000 to the amountof the Farmers check, and Trusty Deed was paid $4,000 and Ms. Crennellwas paid $115,818. Also as part of the settlement, the judgment Ms.Crennell had obtained against Trusty Deed was satisfied, and both TrustyDeed and Ms. Crennell quit-claimed the property to the Gossetts.

[18] In October 1991, the Gossetts sued Farmers, claiming they wereentitled to benefits for damage to the house and for loss of use.Farmers maintained the Gossetts had no insurable interest in the house,or, in the alternative, had only a limited interest. Farmers alsomaintained the policy was issued under a mistake of fact as to ownershipof the house. Both sides moved for summary judgment on the issue ofinsurable interest. The trial court granted the Gossetts' motion, butruled that their insurable interest was limited to the improvements theymade prior to the fire. The parties then settled all claims, with theGossetts reserving the right to appeal the issue of insurable interest.The trial court awarded the Gossetts $25, 912.50 in attorney fees.

[19] Farmers appealed, and the Gossetts cross-appealed. The Court ofAppeals partially reversed the judgment. Gossett v. Farmers Ins. Co., 82Wn. App. 375, 917 P.2d 1124, review granted, 130 Wn.2d 1016 (1996). Thecourt held that an issue of fact remained as to whether and to whatextent the Gossetts had an insurable interest in the house other thanthe improvements they made. The court expressly entertained thepossibility of an insurable interest in profits the Gossetts expectedfrom sale of the house once it was finished. The Court of Appealsaffirmed the award of attorney fees and awarded the Gossetts attorneyfees on appeal. We granted Farmers' petition for discretionary review.

[20] ANALYSIS

[21] On review of summary judgment, the appellate court engages inthe same inquiry as the trial court. Honey v. Davis, 131 Wn.2d 212, 217,930 P.2d 908, 937 P.2d 1052 (1997). The facts and inferences therefromare viewed in the light most favorable to the nonmoving party, andsummary judgment may be granted when there are no material issues ofdisputed fact and the moving party is entitled to judgment as a matterof law. Id.; CR 56(c).

[22] Insurable Interest

[23] The Farmers policy provides: "Even if more than one person hasan insurable interest in the covered property, we shall not pay morethan: (1) an amount equal to the insured's interest, or (b) theapplicable limit of insurance." CP at 15. Pursuant to RCW 48.18.040(2),an "insurable interest" is "any lawful and substantial economic interestin the safety or preservation of the subject of the insurance free fromloss, destruction, or pecuniary damage." As Farmers concedes, under thisdefinition legal title to property is not dispositive of whether one hasan insurable interest in property. Thus, the fact that Trusty Deed heldtitle to the property at the time of the fire does not preclude theGossetts from having an insurable interest in it. Farmers maintains,however, that the Gossetts had only a speculative, expectation interestin the property at the time of the fire. We agree that on the facts ofthis case, the Gossetts did not have an insurable interest in theproperty beyond the improvements they made.

[24] The record shows that the Gossetts intended to purchase theproperty from Mr. Gunns. However, at the time the fire broke out, theyhad been unable to carry out that intent because of problems securinglong-term financing for the purchase price and construction costs tofinish the house. They clearly did not purchase the property. Instead,they assigned "all interest" in their purchase and sale agreement toTrusty Deed. CP at 86. All the closing documents list Trusty Deed as thebuyer, and title was placed in Trusty Deed. The fact that the Gossettsdid not purchase the property is further borne out by Mr. Gossett's owntestimony. When Mr. Gossett was deposed, he testified about his attemptto secure long-term financing, and testified that he had found suchfinancing but with nothing in writing. He was then asked:

[25] Q Did you buy the house from Trusty Deed then?

[26] A No.

[27] Q Prior to the fire?

[28] A No.

[29] Q Why didn't you buy the house prior to the fire?

[30] A Because the fire happened before the loan transpired.

[31] Q Was there a real estate purchase and sale agreement prior tothe fire that you signed to purchase the house from Trusty Deed?

[32] A Yes.

[33] Q Now I'm not talking about the original one signed in July.

[34] A No, this is one that was sent to Trusty Deed.

[35] Q And do you know the approximate date of that document?

[36] A Sometime in October I would estimate.

[37] Q And did Trusty Deed sign it?

[38] A No.

[39] CP at 610. Mr. Gossett's testimony that he tried to purchase theproperty from Trusty Deed before the fire confirms that the Gossettswere not purchasers of the property. Thus, while there is evidence thatTrusty Deed did not intend to buy the property, Trusty Deed did in factbuy the property because of the Gossetts' inability to obtain long-termfinancing.

[40] The Gossetts claim, though, that Trusty Deed merely held thedeed to the property as security. Where a party is indebted on propertyand the property stands as security for the debt, the party has aninsurable interest in the property. See, e.g., Integon Gen. Ins. Corp.v. Gibson, 226 Ga. App. 152, 485 S.E.2d 576, 578 (1997); Kilpatrick v.Hartford Fire Ins. Co., 701 S.W.2d 755 (Mo. App. 1985).

[41] Here, the record does not reveal any obligation on the Gossetts'part to purchase the property. The written agreement they had withTrusty Deed was a fee agreement where Trusty Deed agreed to "assistAPPLICANT in obtaining financing on a best-effort basis." CP at 48. Theagreement provided that Trusty Deed had the exclusive right to obtainfinancing "from a LENDER" and that in consideration of servicesrendered, the Gossetts would pay a fee of five percent of the loanamount obtained to Trusty Deed. Id. There is no writing whichmemorializes any indebtedness on the Gossetts' part to either TrustyDeed or Ms. Crennell. There is no promissory note, no mortgagedocumentation, and no deed of trust. Nothing prior to the fire documentsany security interest given by the Gossetts to either Trusty Deed or Ms.Crennell.

[42] Instead, the only promissory note in the record is signed by thepresident of Trusty Deed and obligates Trusty Deed to pay Ms. Crennell.Not only does this note indicate that Trusty Deed purchased the propertyand incurred indebtedness for that purchase, rather than the Gossetts,it also shows that both Trusty Deed and Ms. Crennell were aware of theimportance of such documentation. Thus, if the Gossetts had owed TrustyDeed or Ms. Crennell for the property, there should be a promissory notefrom the Gossetts to Trusty Deed or Ms. Crennell.

[43] Moreover, when the Gossetts, Trusty Deed, and Ms. Crennellfinally reached a settlement agreement respecting the payment of$114,818 from Farmers to them jointly, certain facts were set out in it.Among them is the fact that when the money due to be repaid to Crennellwas not paid in a timely fashion, Crennell sued Trusty Deed on thepromissory note it had signed and obtained a judgment against TrustyDeed. The record simply shows no indebtedness on the Gossetts' part forany "purchase" of the property.

[44] Further, Mr. Gossett's testimony that he tried to arrange topurchase the house from Trusty Deed before the fire is inconsistent withany claim that the deed was held by Trusty Deed merely as security forindebtedness on the part of the Gossetts.

[45] It is a long-standing rule that when property is conveyed by adeed absolute in form, with nothing in the collateral papers to show anycontrary intent, the presumption is that the transaction is what itappears to be on its face and any party who claims that the transactionis other than what it appears to be must prove that claim by clear andconvincing evidence. Johnson v. National Bank of Commerce, 65 Wash. 261,268-69, 118 P. 21 (1911); Hoffman v. Graaf, 179 Wash. 431, 436, 38 P.2d236 (1934). If the deed is conveyed with the intent of the parties beingto create a debtor-creditor relationship, then the deed may be declaredto create an equitable mortgage. Beadle v. Barta, 13 Wn.2d 67, 123 P.2d761 (1942); accord Thomas v. Osborn, 13 Wn. App. 371, 375, 536 P.2d 8,88 A.L.R.3d 898 (1975) (a legal or equitable mortgage arises at the timeof the transaction when money is loaned or credit given and the partiesintend to create a lien upon the property of the debtor as security forpayment of the debt). "{T}he character of the transaction is fixed atits inception and . . . it is what the intention of the parties makesit." Johnson, 65 Wash. at 268. "{C}lear and convincing evidence must beproduced to establish that the deed was given as security and wasintended as a mortgage." Id. at 269. "The intent must be that of bothparties." Hoffman, 179 Wash. at 436. In determining the parties' intent,all the circumstances surrounding the transaction may be considered.Pittwood v. Spokane Sav. & Loan Soc., 141 Wash. 229, 233, 251 P. 283(1926). The lack of any note evidencing indebtedness has been a majorconsideration in decisions holding that no mortgage was created where aconveyance was made by a deed absolute on its face. Wakefield v.Greenway, 141 Wash. 204, 211, 251 P. 112, 256 P. 503 (1926); Nutter v.Cowley Inv. Co., 85 Wash. 207, 210-11, 147 P. 896 (1915).

[46] In this case the evidence prior to the fire is insufficient toshow, under the clear and convincing standard, that the deed from Mr.Gunns to Trusty Deed, absolute on its face, was intended as a securitydevice for any indebtedness on the Gossetts' part.

[47] Further, we note that an assignment of all interest in propertywhich also involves extinguishment of indebtedness on the propertygenerally eliminates any economic interest in the property and thuseliminates any insurable interest in the property. CLS Mortgage, Inc. v.Bruno, 86 Wn. App. 390, 937 P.2d 1106 (1997); see Davis v. Oregon Mut.Ins. Co., 71 Wn.2d 579, 581, 429 P.2d 886 (1967) (former property ownerlost his insurable interest in property when he sold the property beforethe insurance policy expired). The Minnesota Supreme Court has held thatan assignment of all a party's interest in property without anyobligation on the assignor's part to repurchase the property divests theassignor of any insurable interest. Hane v. Hallock Farmers Mut. Ins.Co., 258 N.W.2d 779 (Minn. 1977). Here, as noted, the Gossetts assigned"all interest" in their purchase money agreement with Mr. Gunns toTrusty Deed and had no documented indebtedness on the property.

[48] The Gossetts, however, point to the post-fire quit claim deedsconveying any interest in the property held by Trusty Deed and Ms.Crennell to the Gossetts and stating that the conveyances were in partfor "release of security."*fn2 A claimant must have an insurableinterest at the time of the loss. 4 John A. Appleman & Jean Appleman,Insurance Law and Practice sec. 2122, at 31 (1969). The after-the-lossexecution of the quit claim deeds, offered to establish the parties'intent as to a transaction occurring well before the loss, should beviewed with caution.

[49] The quit claim deeds here were actually executed as a result ofthe settlement negotiations over the check from Farmers made payablejointly to Trusty Deed, Ms. Crennell, and the Gossetts. The settlementagreement was finally entered into nearly one full year after the fire.See CP at 247. At that time, it appears from the record that Ms.Crennell wanted repayment of the amount due her, Trusty Deed wantedentry of satisfaction of the judgment obtained by Ms. Crennell againstit, and neither wanted the property, which had the debris from theburned house on it. Under these circumstances, and where there is nodocumentation at the inception of the transaction between Trusty Deedand the Gossetts showing any indebtedness on the part of the Gossetts,the well-after-the-fire execution of the quit claim deeds stating theywere for release of security is doubtful evidence of any intent behindthe conveyance of the property to Trusty Deed before the house wasdestroyed.

[50] Just as importantly, the value of the post-fire documentationmust be viewed in light of significant public policy militating againstthe Gossetts' claim that their insurable interest extended at least tothe full value of the house. A fundamental principle of insurance law isthat

[51] opportunities for net gain to an insured through the receipt ofinsurance proceeds exceeding a loss should be regarded as inimical tothe public interest. In other words, insurance arrangements arestructured to provide funds to offset a loss either wholly or partly,and the payments made by an insurer generally are limited to an amountthat does not exceed what is required to restore the insured to acondition relatively equivalent to that which existed before the lossoccurred. The concept that insurance contracts shall confer a benefit nogreater in value than the loss suffered by an insured is usuallyreferred to as the "principle of indemnity."

[52] Robert E. Keeton & Alan I. Widiss, Insurance Law, A Guide toFundamental Principles, Legal Doctrines, and Commercial Practices,Practitioner's Edition sec. 3.1(a), at 135 (1988).

[53] The doctrine of insurable interest is tied to the principle ofindemnity and serves a number of purposes, among them the prevention ofusing insurance contracts as gambling or wagering contracts. Id. sec.3.1(c), at 136. Additionally, the doctrine is designed to protectagainst societal waste and to avoid the danger in allowing personswithout an insurable interest to purchase insurance, because thosepersons might then intentionally destroy lives or property. Id. at 138."To destroy life or property in order to receive insurance benefits is,to say the least, unproductive for a society." Id.

[54] These purposes of the "insurable interest" doctrine would beill-served by permitting the Gossetts to recover whatever insuranceproceeds would be due based upon the value of the house at the time itwas destroyed. They had no documented indebtedness. They would be placedin a far better position than they were before the fire. If we were toaccept the-well-after-the-fire execution of quit claim deeds stating for"release of security" as establishing indebtedness for purchase of theproperty by the Gossetts, under the facts of this case our decisionwould be an incentive for insurance fraud and arson.

[55] Nor is it an answer that the Gossetts paid insurance premiums.Where the ownership of the property belongs elsewhere, payment ofinsurance premiums on the property does not give rise to an insurableinterest. *fn3 Lee R. Russ & Thomas F. Segalla, Couch on Insurance sec.41:11, at 41-26 (3d ed. 1995).

[56] The Gossetts also urge the court to consider their expectationof profit as evidence of an insurable interest. The Court of Appealsfound a material issue of fact as to insurable interest in part becausethe Gossetts expected to buy the house, finish it, and make a profitselling it.

[57] Initially, the policy involved here does not provide coveragefor expected profits from a future sale of the insured property.Instead, the policy is a replacement cost policy which provides forcoverage for the smaller of "the replacement cost of that part of thebuilding damaged for equivalent construction and use on the samepremises{,}" or "the amount actually and necessarily spent to repair orreplace the building intended for the same occupancy and use." CP at 15.

[58] Moreover, the Gossetts' expectations do not constitute aninsurable interest. This court has previously held that inchoate rightsin expectation did not constitute an insurable interest where theexpectation never materialized. Tyree v. General Ins. Co., 64 Wn.2d 748,751-52, 394 P.2d 222 (1964). In Tyree, the plaintiffs purchased a bakerybusiness under a conditional sales contract and became sublessees in thebakery building, which was owned by the federal government. Theplaintiffs obtained insurance covering the bakery equipment andfixtures, as well as the building. When legislation made it possible topurchase the government-owned property, the plaintiffs applied topurchase the building. Their application was denied. A fire thenoccurred which damaged the building. The plaintiffs had believedthemselves entitled to a priority right to acquire the building andclaimed an insurable interest in inchoate rights of expectation. Becausethose expectations never materialized, and were in fact foreclosed amonth prior to the fire when a federal district court left standing thedenial of their application to purchase the building, the court heldthat the plaintiffs lacked an insurable interest in the building.

[59] Other courts have agreed that mere possession and expectation ofownership do not establish an insurable interest. For example, the courtfound no insurable interest where an individual was using a garage thathad been conveyed to his wife under the terms of a divorce decree andexpected to purchase it. Instead, the individual had only an expectancyand, consequently, did not have a risk of direct pecuniary loss bydamage or destruction of the garage. Anderson v. State Farm Fire & Cas.Co., 397 N.W.2d 416 (Minn. App. 1986); see also Hane v. Hallock FarmersMut. Ins. Co., 258 N.W.2d 779 (possession and expectation of ownershipdo not establish an insurable interest).

[60] In this case, like the situation in Tyree, the Gossetts'expectations of purchasing the property once they obtained long-termfinancing had not materialized at the time the fire occurred. TheGossetts' hopes and expectations of acquiring the property in the futureare insufficient to constitute an insurable interest. At most, any suchinterest is akin to an option to purchase, and under an ordinary optioncontract prior to exercise of the option, "the optionee acquires noequitable estate or interest in the optioned land." Robroy Land Co. v.Prather, 95 Wn.2d 66, 71, 622 P.2d 367 (1980). Many courts have heldthat a mere option to purchase is insufficient to constitute aninsurable interest. E.g., Allstate Ins. Co. v. Thompson, 164 Ga. App.508, 297 S.E.2d 520 (1982); Erie-Haven, Inc. v. Tippmann RefrigerationConst., 486 N.E.2d 646, 650 (Ind. App. 1985); St. Paul Fire & MarineIns. Co. v. Daughtry, 699 S.W.2d 321, 322-23 (Texas App. 1985); Harrisv. North Carolina Farm Bureau Mut. Ins. Co., 91 N.C. App. 147, 370S.E.2d 700 (1988); Vendriesco v. Aetna Cas. & Sur. Co., 68 A.D.2d 946,414 N.Y.S.2d 64 (1979). Where an option to purchase is contingent onoccurrence of another event, courts have been even less inclined to findan insurable interest. E.g., Christ Gospel Temple v. Liberty Mut. Ins.Co., 273 Pa. Super. 302, 417 A.2d 660 (1979); Bartlett v. Allstate Ins.Co., 280 Mont. 63, 929 P.2d 227, 230-31 (1996). Even if the Gossetts hadhad an option to purchase, it would have been at best an optioncontingent upon their obtaining long-term financing and thus wasinsufficient to constitute an insurable interest. The Gossetts, however,do not claim they had even an option to purchase. All they had was anexpectation. "{T}he mere possibility of an interest materializing,depending upon the occurrence of an uncertain event, will not give riseto an insurable interest."3 Russ & Segalla, sec. 41.11, at 41-26.

[61] The Gossetts also contend that because of their possession ofthe property, their improvements to the property, their interest in itssafety, and their continued efforts to secure long-term financing, theyhad an insurable interest in the property.

[62] The trial court correctly held that the Gossetts had an interestin preserving the house from damage to the extent of the improvementsthey made because of their pecuniary loss resulting when thoseimprovements were destroyed along with the rest of the house. See 4 JohnA. Appleman & Jean Appleman, Insurance Law and Practice sec. 2131, at 49(1969) (one who has built on the lands of another with the other'spermission has an insurable interest in the improvements built).Improvements to property do not, however, entitle the party making theimprovements to an insurable interest to the extent of the fullreplacement value of the property. Under the principle of indemnitydiscussed above, an insured with a partial interest in the property cangenerally recover only to the extent of that interest. See City ofCarlsbad v. Northwestern Nat'l Ins. Co., 81 N.M. 56, 463 P.2d 32 (1970);see generally 44 Am. Jur. 2d Insurance, sec.sec. 1515, 1516 (1982).Otherwise, an insurance policy could too readily be used as a device toprofit from destruction of property rather than as a contract ofindemnification for a loss actually incurred. See Harrington v.Agricultural Ins. Co., 179 Minn. 510, 229 N.W. 792, 794, 68 A.L.R. 1340(1930). If improvements to a structure are all that is necessary toobtain an insurable interest in the replacement value of the entirestructure, one could, for a small "investment," obtain a huge windfall.

[63] As to possession of the property, the record does not show theGossetts were purchasers entitled to possession because of a presentpurchase or an obligation to purchase the property in the future, nordoes it show that they were lessees. They had not moved into the houseat the time of the fire (though their sons stayed at the house at leastsome of the time to watch over things). The record is not clear why theGossetts were allowed to make improvements to the property without anyapparent legal obligations arising in connection with the property.However, to the extent they were in possession of the property, theirinterest in that possession is still insufficient to establish aninsurable interest in the entire replacement value of the house. AsFarmers points out, so far as the record shows Trusty Deed could havedemanded that the Gossetts leave the premises at any time. Under suchcircumstances, the Gossetts did not have a sufficient pecuniary interestin continued possession of the property. See, e.g., Boston Ins. Co. v.Beckett, 91 Idaho 220, 419 P.2d 475 (1966) (where right to use a cabincould have been terminated at any time by individual's mother-in-law,the right to use the cabin was not a "substantial economic interest"within meaning of Idaho statute defining "insurable interest," usingnearly the same definition as Washington's statute; thus, individuallacked insurable interest in cabin).

[64] We conclude that in this case the trial court correctly grantedsummary judgment in favor of the Gossetts, while holding that theirinsurable interest is limited to the improvements they made to theproperty. Under the summary judgment standard, judgment should begranted where there is no genuine issue as to any material fact and themoving party is entitled to judgment as a matter of law. CR 56(c). Inruling on a motion for summary judgment, a court must apply the standardof proof which will apply at trial. Sedwick v. Gwinn, 73 Wn. App. 879,885, 873 P.2d 528 (1994). As explained above, when property is conveyedby deed absolute in form, a party attempting to overcome the presumptionthat the transaction is what it appears to be on its face must do so byclear and convincing evidence. Where the evidence is less than clear andconvincing, summary judgment may be granted. See 4 Lewis H. Orland &Karl B. Tegland, Washington Practice, Rules Practice 550 (4th ed. 1992).The Gossetts have failed to present clear and convincing evidencesufficient to overcome the presumption that the conveyance of theproperty by a deed absolute in form from Mr. Gunns to Trusty Deed was anoutright conveyance of the property. Further, as to other evidencepresented, reasonable minds could reach but one conclusion, i.e., thatthe Gossetts' insurable interest in the property extends only to theimprovements they made. Accordingly, the trial court's order on summaryjudgment is affirmed. See Ruff v. King County, 125 Wn.2d 697, 704, 887P.2d 886 (1995) (questions of fact may be determined as a matter of lawwhen reasonable minds could reach but one conclusion).

[65] The Gossetts' insurable interest is limited to the extent of theimprovements they made to the property, as the trial court held.

[66] Finally, the Gossetts' cross-appealed, contending that Farmersis estopped from denying coverage on the ground that Farmers did nottender return of premiums paid by the Gossetts. Tender back of premiumspaid is a condition precedent to maintaining an action to rescind aninsurance policy on the ground of fraud or misrepresentation. Queen CityFarms, Inc. v. Central Nat'l Ins. Co. of Omaha, 126 Wn.2d 50, 111-112,882 P.2d 703, 891 P.2d 718 (1995) (Utter, J., dissenting) (majorityopinion on this point). If the defrauded party elects not to rescind thecontract, tender of payments is not required. Id. at 111. Farmers hasnot sought to rescind the insurance contract, and accordingly tenderback of premiums would not be required even if Farmers alleged fraud ormisrepresentation. Regardless, the issue we address here, Farmers'challenge to the nature and extent of the Gossetts' insurable interest,does not require tender back of premiums before assertion by Farmers.

[67] Attorney Fees

[68] An insured who prevails in a dispute over coverage is entitledto attorney fees from the insurer. Olympic S.S. Co., 117 Wn.2d at 53.Farmers contends the Olympic S.S. Co. rule for awarding attorney feesviolates equal protection and due process principles under the federalconstitution. Farmers also maintains that the rule violates privilegesand immunities and due process provisions of the state constitution,particularly in light of the state constitutional right of corporationsto sue and be sued.

[69] While it may be unusual for a judicially created rule to bechallenged on constitutional grounds, this court, like the executive andlegislative branches, is also subject to constitutional requirements. Wehave previously addressed, for example, a constitutional challenge to acourt-adopted judicial canon. In re Discipline of Blauvelt, 115 Wn.2d735, 741-43, 801 P.2d 235 (1990). We have also addressed constitutionalchallenges under the federal Equal Protection Clause and the state equalrights amendment to this court's judicially created common law rule thathusbands could recover damages for loss of consortium but wives couldnot, and held the rule violated both constitutional provisions. Lundgrenv. Whitney's, Inc., 94 Wn.2d 91, 614 P.2d 1272 (1980). "`The courtsshould not perpetuate in the common law a discrimination that could notconstitutionally be created by statute.'" Id. (quoting Leffler v. Wiley,15 Ohio App. 2d 67, 69, 239 N.E.2d 235 (1968)); see generally 41 Am.Jur. 2d, Husband and Wife sec. 185 (1995) (common law doctrine ofnecessaries has been held to violate state equal protection clauses); 41Am. Jur. 2d Husband and Wife sec. 290 (common law inter-spousal tortimmunity has withstood a variety of constitutional challenges includingequal protection and due process); 57 Am. Jur. 2d, Municipal, County,School, and State Tort Liability sec. 64 (1988) (common law doctrine ofstate sovereign immunity enforced as a court-made or judiciallyrecognized rule has been upheld against equal protection and due processchallenges). Accordingly we address the constitutional arguments raisedand apply the same constitutional analysis which applies when alegislative enactment is challenged.

[70] As to the equal protection and privileges and immunitieschallenges, Farmers maintains the rule impermissibly discriminatesbetween litigants who have an action against insurance companies andthose who sue other entities because it permits an attorney fees awardin the former case but not the latter. Insurance companies are thusexposed to attorney fees while noninsurance litigants are not. Farmershas engaged in a Gunwall analysis and maintains the state privileges andimmunities clause provides greater protection than the equal protectionclause in this context. See State v. Gunwall, 106 Wn.2d 54, 720 P.2d808, 76 A.L.R.4th 517 (1986).

[71] An examination of the first two Gunwall factors shows that ananalysis of the textual language of the state constitutional provisionand a comparison of the federal equal protection clause and the stateprivileges and immunities clause are required. Farmers suggests that thetext of the state provision and the differences in language of the twoconstitutional provisions favor independent state constitutionalanalysis. Farmers emphasizes that Const. art. I, sec. 12 (along withConst. art. XII, sec. 5) makes it clear that all citizens and,specifically, corporations share the same privileges and immunities andurges that the federal constitution provides for a less specific equalprotection of the laws. We note again that while there are differencesin the provisions, these differences do not compel an independent stateanalysis; indeed, "this court has repeatedly found these provisionssubstantially similar and treated them accordingly." Seeley v. State,132 Wn.2d 776, 788, 940 P.2d 604 (1997) (citing cases). Corporations areclearly entitled to the same privileges and immunities as individualpersons, but this does not explain why any enhanced protection should beconsidered under the state constitution. We are not persuaded byFarmers' further argument that because our state provision is like thatof Oregon's, and Oregon courts analyze a privileges and immunitieschallenge differently from a federal equal protection claim, this meansthe second Gunwall factor favors an independent analysis of this state'sprivileges and immunities clause. We are not concerned in the first twoGunwall factors with how Oregon interprets its constitution. Althoughthe differences suggest we should not foreclose the possibility thatthere may be a context where the state privileges and immunities clauseshould be independently examined, Farmers offers little in the way ofpersuasive argument as to the first two Gunwall factors.

[72] The third factor involves examination of the stateconstitutional and common law history of the privileges and immunitiesclause. Farmers relies upon the history of attorney fees awardable inthis state as set out in State ex rel. Macri v. City of Bremerton, 8Wn.2d 93, 107, 111 P.2d 612 (1941) and the dissenting opinion in Estateof Jordan v. Hartford Accident & Indem. Co., 120 Wn.2d 490, 508, 844P.2d 403 (1993) (Andersen, J., dissenting). This Gunwall factorpertains, however, to the constitutional and common law history of theconstitutional provision at issue. See Gunwall, 106 Wn.2d at 61, 65-66;Seeley, 132 Wn.2d at 788. On this matter, the only history Farmers hasaddressed is State v. Carey, 4 Wash. 424, 30 P. 729 (1892), where thecourt separately addressed the constitutionality of a statute under thestate privileges and immunities clause and under article 4, section 2 ofthe United States Constitution, securing to the citizens of each statethe privileges and immunities of the several states, and the FourteenthAmendment. The court did not, however, conclude that greater protectionwas provided under the state constitution's privileges and immunitiesclause than under the federal constitution. Carey has limited value indetermining whether the state constitution should be considered asextending broader rights to state citizens than does the federalconstitution.

[73] The fourth factor concerns pre-existing state law. "Previouslyestablished bodies of state law, including statutory law, may also bearon the granting of distinctive state constitutional rights." Gunwall,106 Wn.2d at 61. The history of attorney fees is relevant to thisfactor. However, contrary to Farmers' claims, the history they rely ondoes not support an independent state constitutional analysis. Farmersreasons that historically this court has upheld the American rule onattorney fees, i.e., that each party bears its own attorney fees absenta recognized basis in contract, statute, or equity for requiring thatattorney fees be paid by the other party. E.g., State ex rel. Macri v.Bremerton, 8 Wn.2d 930. Farmers maintains that pre-existing state lawthus favors equality of treatment on the issue of attorney fees. Farmersstates the only equitable grounds for an attorney fees award recognizedprior to Olympic S.S. Co. were to punish a losing party who had acted inbad faith, to preserve a common fund, to protect constitutionalprinciples, and to reimburse a party for private attorney generalactions, citing PUD No. 1 v. Kottsick, 86 Wn.2d 388, 545 P.2d 1 (1976).

[74] While it is true that the American rule as to attorney fees hasprevailed as pre-existing law in this state, we recently held that theOlympic S.S. Co. rule does not do violence to the American rule.Instead, "it is consistent with the long-standing rule that an award offees may be based on recognized grounds of equity." McGreevy v. OregonMut. Ins. Co., 128 Wn.2d 26, 35, 904 P.2d 731 (1995). We determined thatthe equitable remedy of attorney fees follows from the special fiduciaryrelationship existing between an insurer and the insured. McGreevy, 128Wn.2d at 36; see Tank v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 715P.2d 1133 (1986).

[75] Because we have already determined that Olympic S.S. Co. feesare consistent with the American rule of attorney fees, we areunpersuaded by Farmers' apparent claim in this case that they are not.More to the point, for purposes of the Gunwall analysis, Farmers doesnot satisfactorily explain how application of the American rule in thisstate's history favors an independent analysis of the stateconstitution. The fourth Gunwall factor is concerned with previouslyestablished bodies of state law because such law may bear on thegranting of distinctive state constitutional rights. Gunwall, 106 Wn.2dat 61. Rather than touching on distinctive state rights, the Americanrule has been a general rule having widespread application throughoutthe United States, as the many cases cited in State ex rel. Macri v.Bremerton, 8 Wn.2d 930, attest.

[76] The fifth Gunwall factor addresses the structural differencesbetween the state and federal constitutions. This factor always favorsan independent state analysis. Seeley, 132 Wn.2d at 789-90. The sixthfactor requires examining whether the subject matter is local incharacter or, alternatively, whether there appears to be need fornational uniformity. Gunwall, 106 Wn.2d at 62. An award of attorney feesin insurance litigation in this state's courts appears to be a matter oflocal concern as Farmers urges because there seems to be no need fornational uniformity on the matter.

[77] After examining the Gunwall factors and the arguments advancedby Farmers, we conclude that an independent state constitutionalanalysis is not justified in this case. Accordingly, we address theprivileges and immunities challenge according to the analysis applicableunder the federal equal protection clause.*fn4

[78] Under the equal protection clause, persons similarly situatedwith respect to the purposes of the law must receive like treatment.State v. Blilie, 132 Wn.2d 484, 493, 939 P.2d 691 (1997). Farmers doesnot show that it is either a member of a suspect class or that afundamental right is at stake, nor does it establish the need forintermediate scrutiny. See generally State v. Thorne, 129 Wn.2d 736,770-72, 921 P.2d 514 (1996). Thus, the rational relationship testapplies. Id. at 771. Under the rational relationship test, aclassification will be upheld unless it rests on grounds whollyirrelevant to the achievement of legitimate state objectives. Id. Theburden is on the challenger to show that the classification is purelyarbitrary. Id. A classification will be upheld against an equalprotection challenge if there is any conceivable set of facts that couldprovide a rational basis for the classification. Heller v. Doe, 509 U.S.312, 320, 113 S. Ct. 2637, 125 L. Ed. 2d 257 (1993). The rationality ofa classification does not require production of evidence to sustain theclassification; it is not subject to courtroom fact-finding. Id. "Aclassification does not fail rational-basis review because it `"is notmade with mathematical nicety or because in practice it results in someinequality."'" Id. at 321 (quoting Dandridge v. Williams, 397 U.S. 471,485, 90 S. Ct. 1153, 25 L. Ed. 2d 491 (1970) (quoting Lindsley v.Natural Carbonic Gas Co., 220 U.S. 61, 78, 31 S. Ct. 337, 55 L. Ed. 369(1911))).

[79] The classification drawn by the rule consists of insurers whomust pay attorney fees to their insureds because the insureds wereforced to litigate coverage issues and prevailed in the litigation. Wehave already determined that the Olympic S.S. Co. rule is justified bythe disparity in bargaining power in the relationship between aninsurance company and the policyholder and the expectation of thepolicyholder that premiums are paid to avoid expensive litigation.McGreevy v. Oregon Mut. Ins. Co., 128 Wn.2d 26, 35, 904 P.2d 731 (1995).In particular, we note that the insured's expectation arises because ofthe insurer-insured fiduciary relationship. Id. at 36, 37. Given theseconsiderations, the Olympic S.S. Co. rule is a legitimate attempt tobalance the one-sidedness of the ordinary insurer-policyholderrelationship. Id. at 38. The rule serves this purpose because thepotential for an attorney fees award encourages insurers to satisfyfiduciary obligations, including prompt payment of claims. We find noequal protection or privileges and immunities violations.*fn5

[80] Farmers' reliance on article XII, section 5 of the stateconstitution does not lead to a different result. It provides inrelevant part that corporations have the right to sue and be sued thesame as an individual person. Our analysis recognizes that Farmers isentitled to the same equal protection and privileges and immunities asan individual.

[81] Farmers also claims that due process guarantees are violatedbecause Olympic S.S. Co. fees may be awarded without a hearing on thepropriety of such an award. Farmers appears to suggest that foressentially the same reasons that an independent state constitutionalanalysis should be applied under the privileges and immunities clause,the state due process clause should also be examined independently. Thestate and federal due process causes are virtually the same, as Farmersconcedes. In light of that fact, and in that the remainder of Framers'arguments respecting the Gunwall factors in the privileges andimmunities context are equally unpersuasive in the due process context,we examine the due process arguments using federal analysis.*fn6

[82] Farmers contends that a hearing is required to determine if theproblems the rule is supposed to remedy in fact existed in a particularcase. Farmers urges that, on a case-by-case basis, the insurer should beentitled to argue that it balanced the rights of the insured withcompeting societal interests, to show that it engaged in expeditious,inexpensive, "well-mannered" litigation and took no advantage of anydifference in wealth or power, or that it offered a fair settlementrejected by the insured. Supplemental Brief of Petitioner at 22.*fn7

[83] Farmers, of course, has had an opportunity to be heard on thequestion whether the Gossetts are entitled to Olympic S.S. Co. attorneyfees. It is not entitled to the case-by-case assessment for which itargues. As noted, the rationality of a classification is not subject tocourtroom fact-finding. Heller, 509 U.S. at 320. When examining whetherlegislation (or here, a judicially created equitable rule) is rationallyrelated to legitimate state goals, the challenging party "`must show,beyond a reasonable doubt, that no state of facts exists or can beconceived sufficient to justify the challenged classification, or thatthe facts have so far changed as to render the classification arbitraryand obsolete.'" Seeley, 132 Wn.2d at 795-96 (quoting State v. Smith, 93Wn.2d 329, 337, 610 P.2d 869 (1980)). Under the rational basis test themeans employed to achieve the state goal need not be the best way toachieve the goal. Heller, 509 U.S. at 321; Seeley, 132 Wn.2d at 795. Itfollows that assessing on a case-by-case basis the rationality of theclassification to which the Olympic S.S. Co. rule applies is simply notrequired to uphold the constitutionality of the rule. Because Farmers isnot entitled to be heard on the question whether the rule's aims arefactually achieved in every case, there is no due process violationresulting from denying it the opportunity to be heard on the matter.

[84] Finally, Farmers suggests in its Petition for Review that it isentitled to an opportunity to be heard on the propriety of fees in agiven case because the case may be one involving a novel coverage issueor one where the insured does not prevail on all issues. As to theformer, the insurer must necessarily assess whether to risk losing on acoverage issue. As to the latter, nothing about the Olympic S.S. Co.rule precludes limiting attorney fees to those expended on coverageissues on which the insured prevailed. Neither of these concerns compelsa hearing to satisfy due process concerns.

[85] Farmers also contends that an award of Olympic S.S. Co. attorneyfees in this case conflicts with Dayton v. Farmers Ins. Group, 124 Wn.2d277, 876 P.2d 896 (1994). Farmers maintains the court held in Daytonthat Olympic S.S. Co. fees may not be awarded when there is a legitimatedifference of opinion on a matter which varies with the facts of theparticular case. Farmers misreads Dayton. We held in Dayton that theOlympic S.S. Co. rule applies only to disputes over coverage, and not todisputes over the amount of a claim. Id. at 280-81. Here, Farmerscontended that the Gossetts had no coverage for the house or at the mosthad coverage only for improvements they made. Thus, coverage wasdisputed, and the trial court properly awarded Olympic S.S. Co. attorneyfees to the Gossetts for their expenses of establishing coverage. TheCourt of Appeals also properly awarded Olympic S.S. Co. attorney fees onappeal. See RAP 18.1; Olympic S.S. Co., 117 Wn.2d at 53. Farmers has notchallenged the amount of the award.

[86] The Gossetts request attorney fees in this court pursuant to RAP18.1 and Olympic S.S. Co.. Pursuant to RAP 18.1(f), the Commissioner ofthis court is directed to award attorney fees to the Gossetts for theirexpenses involved in defending their right to coverage for improvementsmade to the property.

[87] The Court of Appeals is reversed in part and the judgment ofthe trial court is reinstated.

[88] No. 64368-7

[89] TALMADGE, J.

[90] (concurring) -- While I concur in the majority's resolution ofthe issue pertaining to the Gossetts' insurable interest in theproperty, I disagree with its application of a constitutional analysisto a common law rule, particularly one adopted pursuant to our equitablepower. In Olympic S.S. Co., Inc. v. Centennial Ins. Co., 117 Wn.2d 37,811 P.2d 673 (1991), and McGreevy v. Oregon Mut. Ins. Co., 128 Wn.2d 26,904 P.2d 731 (1995), we adopted an additional equitable exception to theAmerican rule on attorney fees where an insurance carrier breached itsduty to indemnify an insured. Olympic S.S. and McGreevy control in thiscase.

[91] Neither the majority nor Farmers cites authority for the view wemust engage in a constitutional review of a previously announced commonlaw equitable decision of the Washington Supreme Court, whether on dueprocess or equal protection grounds. Such a contention borders on thefrivolous, and merely opens each common law ruling a Washington courtmay make to an additional round of unneeded litigation.

[92] While it goes without saying we are not free to act in disregardof either the federal or state constitutions, it also should go withoutsaying our announcement of common law rules ordinarily subsumes anyconstitutional considerations that may exist. It is difficult to see howFarmers can believe it was deprived of due process, procedural orsubstantive, when we announced our decisions in Olympic S.S. andMcGreevy.

[93] Similarly, it is difficult to discern how Farmers was deprivedof equal protection of the law. We decided in the Olympic S.S./McGreevyline of cases to award attorney fees as an equitable matter to policyholders who have to sue to obtain the benefits of their policy coverage.I cannot conceive of what useful task the majority would set for us in aconstitutional analysis of the Olympic S.S./McGreevy holdings or anyother common law rule. Must we now, years later, emptily recite we had a"rational basis" for our decision simply because a new opponent of theOlympic S.S./McGreevy rule raises an equal protection challenge?*fn8 Ourquintessential function is to make decisions on a rational basis,although, of course, there may always be those who claim in every casewe have not done so. Mere disagreement with an outcome does not giverise to a constitutional challenge, however.

[94] In its classic formulation, equity is an exception to aprinciple of law and is designed to do justice in an appropriate case.Farmers' attempt to apply a constitutional analysis to an equitableprinciple is a significant attack on the inherent power of the Court todo equity, and is fraught with potential for mischief.

[95] The majority's approach to this issue is unprecedented andunwarranted. We should not open the door to this kind of collateralattack on our common law rulings.*fn9 I would reject Farmers' claimwithout reaching the merits because we adhere to the OlympicS.S./McGreevy rule.

***** BEGIN FOOTNOTE(S) HERE *****

[96] *fn1 The Gossetts had declared bankruptcy in 1981, and had anoutstanding Internal Revenue Service tax lien.

[97] *fn2 In each of the quit claim deeds "release of security" is indifferent typeface from the rest of the deed.

[98] *fn3 Further, there is no documentation in the record obligatingTrusty Deed or Ms. Crennell to convey the property to the Gossetts ifand when they acquired long-term financing.

[99] *fn4 In briefing to the Court of Appeals, Farmers argued thatthe analysis used in applying the Oregon State Constitution's privilegesand immunities provision should be followed in applying this state'sprivileges and immunities clause. Because we conclude that Farmers hasfailed to establish that an independent state constitutional analysis isappropriate in this case, we need not address this issue, nor do we needto consider whether that argument has been abandoned in this court.

[100] *fn5 Farmers has argued that a statute providing for attorneyfees in a manner similar to the Olympic S.S. Co. Co. v. Centennial Ins.Co., 117 Wn.2d 37, 811 P.2d 673 (1991) rule was held unconstitutional inJolliffe v. Brown, 14 Wash. 155, 44 P. 149 (1896). We disagree withFarmers' assessment of Jolliffe. The statute there, which imposedattorney fees only on railroad company defendants, was struck downbecause it imposed a penalty which lacked any relationship to any dutyof railroad companies.

[101] *fn6 We note that, in any event, Farmers has not suggested analternative state due process analysis.

[102] *fn7 To the extent Farmers' brief to the Court of Appeals mightbe read as raising due process arguments which it does not argue inbriefing to this court, the arguments have been abandoned. See State v.Myles, 127 Wn.2d 807, 817 n.4, 903 P.2d 979 (1995) (argument made to theCourt of Appeals abandoned in this court); Havens v. C & D Plastics,Inc., 124 Wn.2d 158, 169 n.3, 876 P.2d 435 (1994) (same).

[103] *fn8 Strict scrutiny applies when the allegedly discriminatoryclassification affects a suspect class or threatens a fundamental right.Intermediate scrutiny applies in the limited circumstances where the lawaffects important rights or semi-suspect classifications. The rationalbasis test applies where the statutory classification does not involve asuspect or semi-suspect class and does not threaten a fundamental right.State v. Heiskell, 129 Wn.2d 113, 123-24, 916 P.2d 366 (1996). Farmerssuggests intermediate scrutiny is the appropriate standard of review forits equal protection claim because the "right to be indemnified forpersonal injuries is a substantial property right." Br. of Appellant at35. But Farmers' right to be indemnified for personal injuries is not atstake in this case. Farmers does not claim membership in a semi-suspector suspect class, or that it has any fundamental rights at stake. Thus,the rational basis test would be appropriate in this case were there isa need for an equal protection analysis.

[104] *fn9 A party is, of course, always free in our common law systemto ask us to revisit a common law rule and to repeal or reshape such arule. Constitutional grounds may be advanced for such a request. SeeLundgren v. Whitney's Inc., 94 Wn.2d 91, 96, 614 P.2d 1272 (1980) (Courtabandoned common law rule that wife had no cause of action for loss ofconsortium when husband was injured, noting that such a rule couldviolate equal protection or Washington's Equal Rights Amendmentprinciples because a husband had such a cause of action for injuries tohis wife).

***** END FOOTNOTE(S) HERE *****

[Editor's note: Illustrations from the original opinion, if any, areavailable in the print version]

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