Unrepresented Insured Takes on the Industry and Wins: Washington Supreme Court Rules in Mulcahy v. Farmers Insurance

On May 7, 1994, Mary Mulcahy, a resident of Washington State, was injured in a motor vehicle accident in British Columbia. She sued the other driver, a British Columbia resident insured by ICBC, and her case was settled at a mediation. Pursuant to s.25 of the Insurance (Motor Vehicle) Act, ICBC deducted the sum of $150,000.00 from the settlement, on the basis that Mulcahy was entitled to receive this amount from her insurer under the no-fault provisions in her own policy.

Mulcahy was insured by Farmers Insurance Company of Washington, and her policy contained a standard Personal Injury Protection section with a limit of US$10,000.00. This sum was paid, but Farmers refused any further payments on the basis of the policy limits.

Farmers, however, had filed a Power of Attorney and Undertaking (“PAU”) in Canada, and Mulcahy sued them both in Washington and in British Columbia, claiming that under the PAU, Farmers was not entitled to set up any defence (including a limits defence) on which they would not be able to rely had the policy been issued in Canada. She sought payment by Farmers of the amounts deducted by ICBC.

In the Washington trial court, Farmers brought an application for summary judgment, and the case was dismissed. Mulcahy appealed, and the Washington Court of Appeals affirmed the trial court’s decision. Not to be deterred, Mulcahy again appealed, this time to the Washington Supreme Court, where, unable to afford a lawyer, she argued the case on her own behalf. On July 15, 2004, the Washington Supreme Court issued its judgment, allowing the appeal and remanding the case to the trial court for further proceedings consistent with its decision.

In reaching its decision, the Washington Supreme Court purported to apply the law of British Columbia in determining the obligations of Farmers under the PAU. The Court held that the PAU applied to Mulcahy’s no-fault coverages and that Farmers was indeed liable for the full BC limits of $150,000.00.

In the circumstances of the Mulcahy case, the Supreme Court’s decision is correct. Farmers Insurance Co. of Washington, which issued Mulcahy’s policy, had filed a PAU in 2002, and as a result, was liable for the full limits of BC’s compulsory automobile insurance regime, including third party liability and first party no-fault (Part 7) benefits. As the PAU is effective on a going forward basis, the 2002 form governs, even though the accident occurred and litigation was commenced before the date of filing.

However, notwithstanding the correct result, the Supreme Court made a number of errors in its application of BC law, which could cause difficulty for insurers in future litigation in the Washington courts.

First, the Court seems to have ignored the fact that there were three Farmers companies named in Mulcahy’s suit, each of which had filed a PAU. Farmers Insurance Co. of Washington filed its PAU in 2002, Farmers Insurance Group of Companies filed theirs in 1986, and Farmers Insurance Exchange filed theirs in 1964. The Court seems to have treated all three companies as one, and based its decision on the PAU filed by Farmers Group of Companies in 1986. It is possible (though not stated) that the Court assumed that Farmers Group of Companies included the other two Farmers companies.

This finding is significant, as the PAU filed in 1986 by Farmers Group would be in a different form from the one filed in 2002 by Farmers of Washington. In 1988, the Superintendent of Insurance for British Columbia changed the wording of the standard PAU form, with the result that insurers filing a PAU in the new form are clearly required to provide the mandatory first party coverages and limits contained in the British Columbia legislation, including the first party accident benefits claimed by Mulcahy.

Insurers operating under a pre-1988 PAU, however, only have to reform the third party liability coverages, and can rely on their (usually) much lower policy limits when handling first party claims. This result was recently confirmed by the BC Court of Appeal in Batchelder v. Filewich, 2004 BCCA 50. As a result, if the applicable PAU had in fact been filed in 1986, the Supreme Court would have been wrong in finding that Mulcahy was entitled to accident benefits under the BC regime.

Unfortunately for Farmers, because the applicable PAU was filed in the new form in 2002, this error does not affect the correctness of the judgment (though it does affect the correctness of the reasoning).

The Washington Supreme Court seems to have fundamentally misunderstood the nature and history of the PAU regime in British Columbia. Initially, the Court seems to suggest that the PAU form was changed in 1985, while the change in fact came about in 1988. More significantly, the Court seems to imply (incorrectly) that the new wording is deemed to be incorporated into all PAUs, including the old forms filed prior to introduction of the new wording. The latter assumption is inconsistent with the Batchelder decision.

Based on theses mistaken assumptions, the Court reaches the incorrect conclusion that a 1986 PAU applies to first party coverages. According to the Batchelder decision, only PAUs filed in 1988 or later apply to first party coverages.

Finally, the Court wrongly states that "since 1990, the Canadian courts have uniformly held obligations under the PAU extend to any kind of insurance coverage..." (at p.6). This obviously conflicts with the Batchelder decision. While the Court might be forgiven for this oversight due to the fact that Mulcahy was heard 3 weeks prior to the Batchelder decision being released, the Batchelder decision was five months old at the time of the Mulcahy decision, and should have been noted.

The errors described above could impact future lawsuits before Washington’s lower courts, which will presumably be bound by the Supreme Court's decision. This could lead to insurers operating under pre-1988 PAUs, who would not be liable to provide the full Part 7 coverage in British Columbia, being forced to pay the higher BC first party limits if they are sued in their home state.

As there is likely no basis for an appeal to the US Supreme Court in Mulcahy (given that the Washington court managed to reach the correct result in spite of the errors), it will likely fall to the next insurer to take the case back to the Washington Supreme Court on the basis of the Batchelder decision, which was not considered in Mulcahy.

A copy of the Mulcahy case is available on the Washington Courts website at:

http://www.courts.wa.gov/opinions/?fa=opinions.opindisp&docid=736472MAJ

The date of filing of a given insurer’s PAU can be found on the website of the Canadian Council of Insurance Regulators ("CCIR"), which operates the national repository of PAU forms. The repository can be accessed at:
www.ccir-ccrra.org.

Readers with any questions about the Mulcahy case, or out-of-province MVA issues generally, are invited to contact Jonathan Hodes at jlh@cwilson.com (e-mail) or 604-643-3168 (direct dial).