Gossett v. Farmers Insurance Company and Washington and insurable interest and fire and arson

After I read and re-read Gossett, I realized that many questions regarding the basic facts of the case were left untreated or unpresented in our casebook, and so I spent some time trying to put the facts together from the WA Sup Ct and Ct of Appeals cases. By understanding the facts of the case more fully, I think the issue of insurable interest becomes much more focused. And, I think the left-out facts make the case actually a fun one to study.

Telling the Facts

Richard and Margaret Gossett decided to buy a home in the summer of 1990 in a pleasant Tacoma neighborhood, hoping to buy it for $90,000 and then put about 2/3 that amount into repairs to "finish" the house. The Gossett's, however, had some skeletons in the closet. Their credit was lousy because they were in arrears in paying their federal income tax and they had declared bankruptcy. In addition, in 1982 Mr. Gossett was convicted of attempted arson for hiring someone to burn down the house he lived in at the time. No wonder the case will call them a "hard to place" loan.

In any case, they offered $90,000 for the home. They couldn't attain financing through "conventional sources" (i.e., a bank) and so they dealt directly with Trusty Deed Services, Inc., a mortgage broker who, for a fee of course, acquired a loan for the Gossetts from a Ms. Cynthia Crennell. Here is how it worked.

Late in August 1990 Trusty secured a $100,000 short-term loan from Crennell, with repayment of the $100,000 + $9,000 to be owed to Crennell on October 4, 1990. Thus, Crennell would be getting 9% on her money in five weeks time. Not bad. Trusty executed a promissory note in favor of Crennell for this transaction.

The Gossets and Trusty agreed that the Gossetts would pay the $109,000 to Trusty (plus Trusty's fee) when they obtained long-term financing which, they were sure, was right around the corner. Actually no long-term financing was ever secured, even though Mr. Gossett testified at trial that he thought he had secured it. Must have slipped his mind.

In any case, with the money loaned through Trusty by Crennell, the Gossetts bought the house in September and Mr. Gossett and his sons began working on the house. The deed was in the name of Trusty, however, and Trusty was listed in the closing documents as the buyer. Before the deal had been consummated, however, Mr. Gossett obtained insurance from Farmers on the property. He represented that he and his wife were owners, with Trusty as the mortgagee. From the Court of Appeals-listed facts, it says that Farmers "raised the amount of insurance from approximately $350,000 to $437,000 on the house. What? It seems like there is enough incompetence (fraud?) to go around to everyone in this case...

The "Inconvenient" Fire

So, the Gossetts had their insurance coverage and they set to work on the house in September. They were about to move into it on Monday, Nov. 19. However, on Sunday night, Nov. 18, Mr. Gossett apparently fell from a ladder, with the ladder knocking over a space heater, which started a fire, which quickly consumed the house. Distraught by the turn of affairs, the Gossett family then went to Disney World (after all, they had non-refundable tickets) on Nov. 20 for 10 days, deciding to clean up the pieces, so to speak, upon their return.

Upon return, both the Gossetts and Trusty made claims under the homeowners policy. Farmers paid the Gossetts for the loss of contents and personal property. Farmers also tendered a check for $114,818 naming all three parties as payees. The purpose of doing this was to force the parties to meet to divide the check. The Gossetts contributed $5,000 to the amount (was this a partial interest payment to Crennell? Trusty's fee?) and then the $119,818 was (in Nov. 1991) divided as follows: $4,000 to Trusty (part of all of their fee) and $115,818 to Crennell. Both Trusty and Crennell then quitclaimed the deed in favor of the Gossetts. The Gossetts were left holding the bag, so to speak--with just a burnt-out house and loads of problems.

The Gossetts File Their Case Against Farmers

Because Farmers refused to pay the Gossetts more money, the Gossetts sued Farmers, seeking: (1) money for the work completed; (2) money for damage to the dwelling, under the theory that they had an insurable interest in the dwelling since the date of purchase; (3) money for profit lost because they were planning to fix up the house and sell it for a considerable profit; (4) attorney fees. At trial, the court granted the Gossetts MSJ (both parties had moved for SJ), but limited their insurable interest to the value of their improvements (1 above). True to form, the Gossett's submitted a claim that they had expended $130,333 on improvements but all the documentation was, unfortunately, incinerated. Upon pressure from all sides, they lowered their estimate of loss to $47,375.

The Court of Appeals affirmed on (1) above and remanded for a factual hearing on (3), holding that, in this case of first impression, the expected profit for a sale was an insurable interest. They also awarded attorney fees (4) under the theory developed in a recent WA case (Olympic Steamship) which held that when an insurer forced its insured to file suit in order to obtain the full benefit of its insurance contract, it would be liable for its insured's attorney fees. All of these should come in for some mention in class on Monday.

Finally, the S Ct (in the terribly abbreviated case you read) affirmed the lower courts on (1), reversed the Ct of Appeals on (3) and affirmed on (4). Since they held that the Gossetts had no insurable interest beyond their improvements to the property, there was no recovery under (2).

Conclusion

This is the kind of case that make studying law fun for me. You see the human dimension laid out in all its glory before you, and you see the way that courts have to try to apply a panoply of legal doctrines to the interesting facts. I believe also that this fuller summary of the case also makes not just the facts more interesting, but the law more compelling, too, especially on the issue of attorneys fees and the debate over a possible insurable interest in future profits earned by the sale of the house.