Opinion
No. 65046-7-I
10-31-2011
AMERICAN STATES INSURANCE COMPANY, in its own right and as assignee of JASON MUN and ALEXANDER MUN d/b/a PROFESSIONAL HOMEBUILDERS, a Washington partnership, Respondents, v. CENTURY SURETY COMPANY, a foreign insurance company, Appellant,
UNPUBLISHED OPINION
spearman, j.— In this action, a building contractor's primary insurer, American States, Insurance Company (American States)seeks to recover payment it made in satisfaction of a judgment against the contractor from the contractor's excess insurer, Century Surety Company (Century). Finding questions of fact exist as to whether both primary policies issued by American States cover the loss at issue here, and as to whether Century can prove its affirmative defenses, we reverse summary judgment in favor of American States and remand for further proceedings.
FACTS
American States issued two primary liability insurance policies to Alex and Jason Mun d/b/a Professional HomeBuilders (PHB), a siding contractor. Policy no. 01-CE-108730-3 covered the period of 9/19/98-9/19/99, and policy no. 01-CE-108730-4 covered 9/19/99-9/19/2000. Each policy provided PHB with primary general liability insurance with annual limits of $1,000,000 per occurrence.
Century provided excess liability insurance to PHB under a commercial excess liability policy no. CCP-182938, for the policy period of 9/19/99-9/19/2000. The policy obligates Century to "pay those sums that the insured becomes legally obligated to pay as damages because of . . . property damage . . . to which this insurance applies." This coverage grant, however, is limited: "But: (1) [t]he amount we will pay for damages is limited as described in LIMITS OF INSURANCE (SECTION III) . . . ." The limits of insurance section specifies that the Century policy is excess to insurance listed on an attached schedule: "[T]his Coverage Part is excess of an amount not less than the amount shown in the Schedule of Underlying Insurance for the applicable underlying insurance . . . ." Additionally, the conditions section of the Century policy contains the following "other insurance" clause:
If other valid and collectible insurance is available to the insured for a loss we cover under this Coverage Part, then this insurance is excess of and not contributing with such insurance.
The above does not apply to 'Underlying Insurance' nor to insurance written specifically in excess of this Coverage Part.
In December 1998, PHB entered into a subcontract with Residential Investment Partners 1997, LLC (RIP) to supply and install vinyl siding on several apartment buildings. The subcontract obligated PHB to begin work on each building on two-day notice and to complete its work on each building within five working days. PHB completed work on the first building and the temporary certificate of occupancy for that building was issued on July 22, 1999.
PHB's work was defective, and as a result, moisture entered the building envelope and caused decay and damage. According to Century's wood and mold expert, Kevin Flynn, the decay started before September 19, 1999:
Q. Do you have facts that you can point out that would establish that decay fungi was present in the exterior sheathing at Phase I Heritage Ridge prior to September 19, 1999?
A. There are photographs and that that show damage in an advanced state during later time periods. But because the fungus takes a time to become established and considerably longer time to break down the wood to an advanced state, that it would have had to have initiated during the earlier time - time period.
. . .
Q. So your assumption is that decay may have been present prior to September 19, 1999?
A. Well, I believe for it to have reached the advanced state observable in the later photographs, it would have had to have initiated during that time period.
In January 2003, RIP sued PHB and others for construction defects. The matter went to binding arbitration. PHB notified American States of the lawsuit and requested that American States defend and indemnify. On July 22, 2003, American States responded by agreeing to defend under its 1999-2000 policy, but under a reservation of rights. Century was not informed of the lawsuit or arbitration for more than two years. It was on March 30, 2005 that the law firm retained by American States to defend PHB first sent a letter tendering defense of the matter to other possible insurers. The letter contained no information about the status of the litigation, nor did it contain any information about possible excess exposure. Instead, it was a generic tender to other insurers for the purpose of sharing in the cost of defense:
Ladies and Gentlemen:
This firm has been retained by Safeco/American States Insurance Company to defend Professional Home Builders in the above referenced construction defect lawsuit brought by the developer, Residential Investment Partners 1997, LLC ("RIP"). RIP filed a complaint against various subcontractors and Professional Homebuilders, LLC on January 10, 2003. An amended complaint was filed November 19, 2003. The case was then moved to the American Arbitration Association pursuant to the subcontracts. Enclosed is a copy of the second amended complaint.On April 21, 2005, Century responded to this letter by requesting further notice "as soon as it appears as though the underlying limits will not be sufficient to cover the amount of the loss."
. . .
We hereby tender the defense of this matter to Hartford, First Financial, National Fire, Atlantic, and Century. We request that you forward this letter to the appropriate person for each carrier immediately. If you should have any questions or concerns, please do not hesitate to call. Please let me know if I can provide additional information. We look forward to hearing from you.
The next day, RIP's expert consulting firm, Exterior Research & Design, LLC issued a report opining that it would cost $2,005,540 to repair the damage caused by PHB's defective work. Neither American States' nor PHB's insurance defense counsel informed Century of this report. On May 10, 2005, RIP demanded $2,738,270 in settlement from PHB. Century was also never informed of this demand.
On May 27, 2005, RIP reduced its settlement demand to $1,000,000. Insurance defense counsel told American States she believed RIP was willing to settle for $500,000, and that $500,000 was too much:
[W]e received a settlement demand of One Million via a letter (on its way to you) whining about [sic] how great their case is and how unreasonable we have been ("everybody else paid or offered a lot more than 100K"). I told him that we could not get to a million so they obviously want to know what we WILL go to. If they are at One Million, with us at 100K and knowing we won't go to One Million, I'll bet they are hoping for 500K which is still too much. Ordinarily I would think that somewhere around 250 to 350 or so maybe even more would be about the right range but in this case I think ERD's involvement during construction and RIPS's knowledge (from ERD's involvement) and the fact that these aren't condos take the valuation down from that range. I suggest offering $150K.Again, Century was never informed of this demand, or of any of the settlement discussions. In fact, neither American States nor PHB's insurance defense counsel made any further contact with Century until after the arbitrator assessed an award in excess of $1,900,000 against PHB.
Before the arbitration, insurance defense counsel informed American States that "PHB's likely risk at arbitration was in the $100,000 to $500,000 range." The American States claim handler did not expect a defense verdict at arbitration, expected only a 50-65 percent chance of prevailing on major issues, and even saw the potential for a damages plus fee award of $1,000,000. American States, however, only offered RIP $100,000 to settle the case.
After the arbitration started, insurance defense counsel informed American States that the arbitration was going poorly in that the arbitrator appeared to be "swallowing" all of RIP's expert testimony. The claim handler raised the reserves to $350,000 plus attorney fees and costs, but made no other settlement offer. A week after RIP completed its case-in-chief, RIP demanded $1,400,000 to settle with PHB. Again, Century was never informed of this demand.
Several days later, on June 13, 2005, American States updated its reservation of rights letter. In that updated reservation letter, American States told PHB that it was covered under both the 1998-99 and 1999-2000 primary policies:
Our information indicates that the first building upon which you worked was completed on July 22, 1999, triggering coverage under policy periods 9/19/1998 to 9/19/1999 and 9/19/1999 to 9/19/2000, each policy with limits of $1,000,000 per occurrence and a $2,000,000 aggregate limit per policy year.PHB's personal counsel, Leslie Drake, monitored the progress of the underlying litigation and arbitration. It was her understanding that based on the July 13, 2005 updated reservation of rights letter, both the 1998-1999 and 1999-2000 American States policies, with separate $1,000,000 limits would apply to any award. As such, Drake provided PHB with advice concerning settlement under the impression that American States would have two million dollars available to cover any award against PHB. According to Drake, if she had known American States would later assert that only the 1999-2000 policy was available, she would have more aggressively pursued settlement with RIP on behalf of PHB. After American States took the position that only the 1999-2000 policy was available to cover the arbitration award, Drake wrote to American States on this issue:
At a minimum I assert that [American States] is estopped from asserting that only one year is available to my clients given that all decisions made by them in this matter have been based upon the representations of [American States] that both policy years are available to them. If we had been told that [American States] was taking the position that only one policy year was available, then our response to RIP's settlement demand of one million dollars prior to the arbitration would have been different.
The arbitrator found that RIP suffered $2,113,955 in damages for repair costs and consequential damage, and assigned 71.5 percent of these damages ($1,511,478) to PHB. The arbitrator also awarded attorney fees of $384,436.73. Including costs, the total award against PHB totaled $1,922,044.68. Century did not learn about this award until after it was issued, and in fact, was never told the arbitration had started.
When American States declined to pay the award, RIP sued American States in a separate action. In December 2005, RIP, PHB, and American States entered into a settlement agreement. Under the settlement agreement, American States paid RIP the full amount of the judgment against PHB, $1,922,044.68. In consideration of this payment, American States received, among other things, (1) dismissal of RIP's lawsuit against American States; (2) a release from PHB of all claims it may have had against American States, including any claim for bad faith; and (3) an assignment of any claims and rights PHB might have against other insurers.
After an unsuccessful lawsuit against another of PHB's primary insurers,_ American States commenced this litigation against Century, suing both on its own behalf and "as assignee of PHB." Among other things, American States sought declaratory relief that (1) "[a]ll applicable underlying insurance is exhausted"; (2) Century was in breach of a duty to defend PHB; and (3) Century owed American States "indemnity, contribution, and/or subrogation" for the amount paid to satisfy the judgment against PHB.
The case was resolved on a series of motions for partial summary judgment from both American States and Century. Century argued below that American States was not entitled to reimbursement because, among other things, (1) both the 1999-2000 and 1998-1999 primary policies covered the loss; and (2) American States brought the size of the award upon itself by failing to actively pursue settlement. The trial court disagreed and found Century was liable for all damages in excess of the $1,000,000 limit of the 1999-2000 American States primary policy. The trial court also awarded American States Olympic Steamship attorney fees on grounds that American States stood in the shoes of its insured after taking an assignment of the insured's claims against Century. Century appeals.
Olympic S.S. Co., Inc. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991).
DISCUSSION
A moving party is entitled to summary judgment only "'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits . . . show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.'" Hash v. Children's Orthopedic Hosp. & Med. Ctr., 110 Wn.2d 912, 915, 757 P.2d 507 (1988) (quoting CR 56 (c)). "The burden of showing that there is no issue of material fact falls upon the party moving for summary judgment" and further, "all reasonable inferences must be resolved against the moving party, and the motion should be granted only if reasonable people could reach but one conclusion." Hash, 110 Wn.2d at 915 (quoting Detweller v. J.C. Penney Cas. Ins. Co., 110 Wn.2d 99, 108 751 P.2d 282 (1988)).
The interpretation of an insurance policy is a question of law which this court reviews de novo. Polygon Northwest Co. v. American Natl. Fire Ins. Co., 143 Wn. App. 753, 766, 189 P.3d 777 (2008). Insurance policies are construed as a whole and "'given a fair, reasonable, and sensible construction.'" Id. (quoting Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 575 964 P.2d 1173 (1998) and Queen City Farms, Inc. v. Cent. Nat'l Ins. Co., 126 Wn.2d 50, 65, 882 P.2d 703, 891 P.2d 718 (1994)). "'A policy is considered as a whole so that the court can give effect to every clause in the policy.'" Polygon, 143 Wn. App. at 767 (quoting Kitsap County, 136 Wn.2d at 575).
Century argues the trial court erred in granting American States' motion for partial summary judgment and holding that Century was liable for all damages excess of the $1,000,000 limit of the 1999-2000 American States primary policy. Specifically, Century argues that questions of fact exist as to whether the American States 1998-1999 primary policy also covered the arbitration award. We agree with Century for the reasons stated herein.
The Century Policy is a "Commercial Excess Liability Policy[.]" The policy provides coverage only for sums that PHB "becomes legally obligated to pay as damages because of . . . property damage . . . to which this insurance applies." Century's payout under this policy, however, is limited to amounts in excess of the primary insurance policies listed on the "Schedule of Underlying Insurance", as well as "other valid and collectible insurance" that "is available to the insured for a loss . . . ." Thus, under its plain language, the Century policy is excess to the American States 1998-1999 policy so long as the 1998-1999 policy is "valid and collectible" and "available" to PHB.
American States contends, however, that the Century policy is excess only to the 1999-2000 primary policy. According to American States, the "other insurance" clause in the Century policy does not apply here because such clauses never apply "to policies with different policy periods." In support of this proposition, American States analyzes at length an unpublished Federal District Court ruling, Order on Cross-Mots. for Summ. J. re: Interpretation of EIFS Endorsement, Devington Condo. Ass'n v. Steadfast Ins. Co., No. C06-1231 MJP, 2007 WL 709032 (W.D. Wash. Mar. 5, 2007). But as Century correctly points out, the parties and insurance policies involved in the cases cited by American States, including Devington, are different from those at issue here.
In Devington, the plaintiff condominium association sued its general contractor for defective construction. The general contractor was insured by a primary general liability policy from North American Capacity (NAC) for the 10/15/98 to 3/10/00 policy period, and also by a primary general liability policy from American Safety for the 3/10/00 to 6/15/01 policy period. The general contractor and NAC settled with Devington. The general contractor confessed to a judgment of $1,375,000, and both the general contractor and NAC assigned their claims for indemnity and contribution to Devington. Further, NAC contributed $750,000 toward the settlement.
Devington brought suit against American Safety. American Safety moved for summary judgment, arguing that its policy was excess over the NAC policy because the American Safety policy included a "super-escape" clause (the policy was "excess over any other insurance . . . whether primary, excess, contingent, or on any other basis"). The District Court denied the motion on grounds that "'while successive policies might insure the same type of risk, they do not insure the same risk'" and "applying 'other insurance' clauses to successive policies might make insurers liable for damages occurring outside their policy periods." Devington Condo. Ass'n, 2007 WL 709032 at *3.
Unlike Devington, the allegation here is that continuous or progressive property damage from the same occurrence spanned both policy periods, and as such, damage did occur during the 1998-1999 American States policy period. Under the "continuous trigger" rule, every policy spanning the period during which property damage progresses is liable for all damages attributable to the occurrence. Am. Nat'l. Fire Ins. Co. v. B & L Trucking Co., 134 Wn.2d 413, 425, 951 P.2d 250 (1998); Gruol Const. Co. v. Ins. Co. of N. Am. 11 Wn. App. 632, 637-38, 524 P.2d 427 (1974). Again, Century's wood and mold expert, Kevin Flynn, testified that the decay at issue in this case started before September 19, 1999, placing the continuing damage squarely within the 1998-1999 American States policy period. Additionally, shortly after American States received a $1,400,000 settlement demand, it sent PHB a revised reservation of rights letter indicating that both the 1998-1999 and 1999-2000 policies would be available. American States claims that the expert testimony is "speculative" and that the revised reservation of rights letter was not referring to indemnity, but instead was referring only to defense. But on each point, American States' arguments go to the weight of the evidence, and on summary judgment "all reasonable inferences must be resolved against the moving party[.]" Hash, 110 Wn.2d at 915.
Citing Cadet Mfg. Co. v. Am. Ins. Co., 391 F. Supp. 2d 884 (W.D. Wash. 2005), American States also argues the 98-99 policy did not apply because "'horizontal exhaustion'' is not the law in Washington." American States misreads Cadet. In that case, the dispute was between an insured and its insurer, where the insurer was seeking to force the insured to exhaust all other available insurance before gaining access to a policy that covered the loss. Cadet, 391 F. Supp. 2d at 887-88. But, unlike in Cadet, the insured here did not sue Century seeking coverage. Rather, the judgment creditor of the insured sued American States, which paid the entire judgment against the insured, and American States is now seeking to recover some of that amount from Century.
American States also relies on an unpublished opinion in Port of Seattle v. Am. Nat'l Fire Ins. Co., No. C96-434D, 1998 LEXIS 23038 (W.D. Wash. January 27, 1998). For the same reasons Cadet
This type of dispute was addressed in Polygon. There, one of the issues was how to apportion a $7,800,000 continuous loss among primary and excess insurance policies spanning multiple policy periods. See Polygon, 143 Wn. App. at 763. The excess policies in Polygon, like the Century policy at issue here, covered sums in excess of the scheduled underlying insurance, and contained "other insurance" clauses indicating they were excess over other valid and collectable insurance. Id. at 777. Based on the "other insurance" clauses, this court held that the excess insurers were liable only for the amount that exceeded the total of collectible primary coverage, including primary coverage outside of the excess policy period. Id. at 778 ("In Assurance's role as excess insurer, that liability was for sums in excess of the valid and collectible underlying policies—Assurance's own $1 million underlying policy, plus CUIC's $1 million underlying policy."). American States contends Polygon addressed only allocation of a loss among excess insurers, but this is simply incorrect. As is described above, Polygon squarely addressed the applicability of the "other insurance" clauses in the context of a continuous loss among primary and excess insurance policies spanning multiple policy periods.
American States responds that Cadet nevertheless governs because it took an assignment from the insured of "all claims and rights, if any" against the other insurers. According to American States, because it now stands in the shoes of its insured, it can, like the insured in Cadet, require Century to provide coverage regardless of whether does not apply here, this case is also of no help to American States. other primary coverage might exist. But even under this theory, summary judgment was improperly granted because disputed issues of fact exist regarding what amount of the settlement paid by American States, if any, compensated its insured for a loss for which Century was liable.
The settlement agreement provides that American States receive in exchange for its payment of $1,922,044.68 (1) an assignment of PHB's "claims and rights, if any, . . . against the Other Insurers;" (2) a release by PHB and RIP of their claims for coverage of the arbitration award under American States' primary policies; and (3) a release by PHB of its "bad faith" claim against American States. The agreement does not specify what amount, if any, was paid toward an obligation owed by Century. Accordingly, American States must establish by extrinsic evidence that the payment it made to RIP, or some portion thereof, was not to fulfill its own contractual and extra-contractual obligations but rather to satisfy an obligation owed by Century to PHB. But the evidence on whether Century had such an obligation is disputed. As noted above, the testimony of Century's expert, Mr. Flynn, if believed, could establish that some portion of the damage occurred prior to September 1999 policy which would invoke coverage under American States' 1998-1999 policy.
In sum, a question of fact exists as to whether the American States 1998-99 primary policy covered the arbitration award, and we reverse summary judgment on this issue.
Century next argues that the trial court erroneously dismissed on summary judgment its affirmative defense that American States is at least partially at fault for the judgment against PHB, because American States breached a duty to pursue settlement. We agree.
"[A]n insurance company undertaking to defend its insured may be liable to the insured for failing to make a good faith attempt to settle[.]" First State Ins. Co. v. Kempter Nat'l. Ins. Co., 94 Wn. App. 602, 612, 971 P.2d 953 (1999). American States contends its own failure to pursue settlement negotiations is irrelevant because a primary insurer's duty to pursue settlement runs only to the insured, unless the excess carrier is the insured's subrogee. American States cites Truck Ins. Exchange v. Vanport Homes, Inc., 147 Wn.2d 751, 58 P.3d 276 (2002) for the proposition that the Supreme Court has declined to recognize a cause of action against the primary insurer that might give an excess insurer greater rights than the insured would have. Id.
But Century is not attempting to sue American States. Rather, it is simply asserting as an affirmative defense that American States' breach of its own duties caused the damage it now seeks to recover. Here, the American States claims handler did not expect a defense verdict at arbitration and expected only a 50-65 percent chance of prevailing on major issues. The claims handler even saw the potential for an award of $1,000,000, including attorney fees. There was also evidence that RIP was amenable to a settlement offer of $1,000,000 or less and that American States was aware of this possibility. Yet, American States never made a settlement offer of more than $100,000. PHB's personal counsel indicated she would have more aggressively pursued settlement if she had known American States would later argue both primary policies did not apply to an arbitration award. Viewing "all reasonable inferences" against American States, questions of fact remain as to whether American States failed to pursue settlement, and whether that failure contributed to the judgment against PHB. We reverse summary judgment on this issue.
Century also argues the trial court erred in awarding Olympic Steamship fees to American States. In light of our resolution of the other issues in this case, we reverse the award of fees.
Reversed and remanded.
WE CONCUR: