Opinion
No. C14-0791RSL
10-10-2014
THE CITY OF BOTHELL, Plaintiff, v. BERKLEY REGIONAL SPECIALTY INSURANCE COMPANY, Defendant.
ORDER GRANTING IN PART CROSS-MOTIONS FOR SUMMARY JUDGMENT
This matter comes before the Court on "Plaintiff City of Bothell's Motion for Partial Summary Judgment" (Dkt. # 9) and "Defendant's Cross Motion for Summary Judgment" (Dkt. # 19). The City alleges that it was an additional insured under an insurance policy issued by defendant Berkley Regional Specialty Insurance Company ("BRSIC"), that BRSIC improperly refused to defend or indemnify the City in an underlying tort action, and that BRSIC violated various claims handling requirements in the process. The City seeks partial summary judgment establishing that BRSIC breached its duty to defend, acted in bad faith, and violated the Washington Consumer Protection Act ("CPA") and the Insurance Fair Conduct Act ("IFCA"). BRSIC seeks dismissal of all of the City's claims on the grounds that its coverage determination was correct, there was no duty to defend, it acted in good faith as a matter of law, and the City cannot satisfy the elements of a CPA or IFCA claim.
Summary judgment is appropriate if, viewing the evidence in the light most favorable to the nonmoving party, "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a); L.A. Printex Indus., Inc. v. Aeropostale, Inc., 676 F.3d 841, 846 (9th Cir. 2012). The moving party "bears the initial responsibility of informing the district court of the basis for its motion." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to designate "specific facts showing that there is a genuine issue for trial." Id. at 324. "The mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient:" the opposing party must present probative evidence in support of its claim or defense. Arpin v. Santa Clara Valley Transp. Agency, 261 F.3d 912, 919 (9th Cir. 2001); Intel Corp. v. Hartford Accident & Indem. Co., 952 F.2d 1551, 1558 (9th Cir. 1991). "An issue is 'genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party." In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (internal citations omitted).
Having reviewed the memoranda, declarations, and exhibits submitted by the parties, the Court finds as follows:
BACKGROUND
BRSIC issued a Commercial Lines Policy of insurance to Wickman Construction, LLC, the contractor on project to build a new driveway for EastLake Community Church in the City of Bothell. Decl. of Adam Rosenberg (Dkt. # 10-1), Ex. E. In order to obtain a permit for the project, the Bothell Municipal Code and the City's Design and Construction Standards required that the permittee, the developer, and/or the prime contractor obtain insurance in the amount of $1,000,000 per occurrence and provide proof that the City was an additional insured under the policy. Decl. of Adam Rosenberg (Dkt. # 10), Ex. C. at § 1-5.3. When Wickman attempted to schedule a meeting with an inspector from the City to discuss the project, he was told that the City had to receive proof of insurance before a meeting could be held. Decl. of Roger Carter (Dkt. # 11), Ex. D. Wickman promptly complied by providing a Certificate of Liability Insurance, and the project went forward. Decl. of Adam Rosenberg (Dkt. # 10-1), Ex. E.
When the City inspected the project on February 14, 2011, it discovered that the slope up to the inter-urban trail that crossed the new driveway exceeded permissible limits on the north side and did not meet the plan specifications. Decl. of Adam Rosenberg (Dkt. # 10-2 at 27), Ex. F. The church and Wickman were informed that the slope would have to be modified and that, while it was fine to use the driveway, "the project can't be finaled until all the requirements of the approved set of plans are met (correct grade, signage, gate, etc)." Id. The City quickly realized that allowing the driveway to be used was a mistake and directed that it be closed until the identified issues were resolved. Decl. of Adam Rosenberg (Dkt. # 10-2 at 29), Ex. F. The engineers working with the church and Wickman suggested ripping out the steep, 6-foot, concrete ramp and replacing it with a more gradual 31-foot ramp made of asphalt. Decl. of Adam Rosenberg (Dkt. # 10-2 at 31), Ex. F. On June 30, 2011, the engineers notified the City that the new asphalt ramp was in place and that it complied with the City's slope specifications, stating "[w]e hope that this will close this matter and that the church can receive approval to use the new driveway and gate." Decl. of Adam Rosenberg (Dkt. # 10-2 at 33), Ex. F.
Exhibit F to the Declaration of Adam Rosenberg is the underlying tort complaint and attached exhibits.
The City's inspector again visited the site on July 1, 2011, noting four issues that had to be corrected before the project could be approved, including "Seal (AR4000) transition asphalt." Decl. of Adam Rosenberg (Dkt. # 10-2 at 35), Ex. F. On July 6, 2011, a cyclist crossing the driveway on the inter-urban trail hit the ramp on the south side and was launched into the air, suffering injuries. Two days later, the City's inspector sent the following message to the church's representative:
It appears that the problems previously identified by the City and the corrective actions taken involved the north ramp connecting the driveway to the inter-urban trail. Decl. of Adam Rosenberg (Dkt. # 10-2 at 29), Ex. F. The cyclist alleges that he was injured on the southern ramp (which is still depicted as concrete in the photos attached to the complaint). Decl. of Adam Rosenberg (Dkt. # 10-2 at 9 and 22), Ex. F.
Hello Jeff,Decl. of Roxanne Mussulman (Dkt. # 20), Ex. 5 (emphasis in original). Within a week, however, the City was asking the church and its engineer to "take another look at the path as it was altered by the project, in the hopes of making the situation safer for future bicyclists and pedestrians" and declared that "[w]e do not plan on finalizing the permit at this time." Decl. of Adam Rosenberg (Dkt. # 10-2 at 37), Ex. F.
On Tues morning 7/5/11 I inspected the punch list items given to you on the Inspection Report and you have addressed all of the items on the punch list. Dave Phelps has reviewed the letter dated 6/30/11 from DCI Engineers stating the driveway meets ADA slope requirements. I have Finaled the permit.
Regards,
Roger Carter
When the cyclist, Thomas Baker, filed a notice of claim with the City, it tendered the claim to Wickman for further handling because (1) Wickman had agreed to indemnify, defend, and hold the City harmless under the terms of the permit and (2) the City was an additional insured under Wickman's Commercial Lines Policy. Decl. of Adam Rosenberg (Dkt. # 10-2), Ex. H. The tender was forwarded to BRSIC, which stated that it had requested "a copy of our insured's contract" from Wickman and would make a coverage determination after receiving it. Decl. of Adam Rosenberg (Dkt. # 10-2 at 46), Ex. I. Three weeks later, BRSIC declined to provide a defense. After quoting one of the portions of the insurance policy that defined "additional insured" and the scope of coverage, BRSIC noted that:
The "additional insured" provision on which BRSIC relied states that any entity for whom Wickman performed operations is an additional insured if Wickman and the other entity "have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." Covered property damage or bodily injury must arise "in the performance of [Wickman's] ongoing operations for the additional insured." Property damage or bodily injury arising after (a) all work on the project has been completed or (b) the portion of the work out of which the injury or damage arises "has been put to its intended use by any person or organization other than another contractor or subcontractor" is not covered. Decl. of Adam Rosenberg (Dkt. # 10-1 at 102), Ex. E. The second additional insured provision contains slightly different language regarding the requisite contract and can be found at Decl. of Adam Rosenberg (Dkt. # 10-1 at 37), Ex. E.
Our insured has documentation that supports that he completed this project on or before June 13, 2011 and that the City finaled the project on July 5, 2011. Both of these dates are prior to Mr. Baker's accident. Additionally, it is highly questionable that our insured is responsible for this accident as he merely followed the design of DCI engineers who were hired by East Lake [sic] Community Church and the City inspected and approved the work.Decl. of Adam Rosenberg (Dkt. # 10-2 at 48), Ex. I.
We must respectfully decline your tender of defense as the policy requires that the property damage occur during our insured's ongoing operations.
Mr. Baker and his wife filed a complaint for damages in September 2013 against the City, EastLake Community Church, DCI Engineers, and Wickman Construction. The City again tendered its defense to BRSIC by letter dated October 8, 2013. Decl. of Adam Rosenberg (Dkt. # 10-3), Ex. J. The City attached a copy of Mr. Baker's complaint, which included allegations that "[t]he Bothell City Inspector did not give final approval to the driveway project" and "[o]n July 19, 2012 [sic] Bothell advised Wickman and ECC that the City was not finalizing the permit." Decl. of Adam Rosenberg (Dkt. # 10-3), Ex. J at ¶¶ 46 and 51. Although the letter was addressed to BRSIC's adjuster, Roxanne Mussulman, she did not receive it. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 20. She had, however, received a copy of a similar letter directed to Wickman. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 19.
The letter apparently made it to the BRSIC claims department, but not to Ms. Mussulman. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 20.
On November 6, 2013, the City again wrote to Ms. Mussulman: "This letter is in follow-up to my October 8th correspondence. To date, we have received no acceptance, or even acknowledgment, of our tender. And in the meantime, the plaintiffs (and other parties) have begun propounding discovery. We would, again, ask that you provide the City a defense." Decl. of Roxanne Mussulman (Dkt. # 20), Ex. 9. The City received no response. Despite the fact that the letter was addressed and sent to Ms. Mussulman, she apparently thought the City was requesting a defense from Wickman, not BRSIC, and ignored the letter. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 21. A December 9, 2013, follow-up letter threatened bad faith litigation and specifically noted that "Berkley's unwillingness to so much as acknowledge our repeated requests for a defense leave the City with little choice." Decl. of Roxanne Mussulman (Dkt. # 20), Ex. 11. Ms. Mussulman persisted in her view that she had never received any tender to BRSIC, but nevertheless felt compelled to refer the City to "our defense counsel's letter to you dated 11/15/2013 (pdf attached). Mr. Wraith has indeed responded to you on my behalf." Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 23 and Ex. 12. Mr. Wraith was counsel for Wickman in the underlying litigation. It was not until the City pointed out that BRSIC, as the City's insurer, was in a very different position than Wickman, both legally and factually, that Ms. Mussulman finally understood that the City considered itself an additional insured under the policy and was tendering its defense. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 24. Ms. Mussulman promptly notified the City that additional insured status had been declined on October 27, 2011, and attached a copy of the original denial letter. Decl. of Roxanne Mussulman (Dkt. # 20), Ex. 13. When the City attempted to confirm that BRSIC was declining to provide a defense based on the reasons identified in the 2011 letter, rather than the reasons put forth by Wickman's defense counsel, Ms. Mussulman indicated that she was reviewing the matter with her supervisor and would respond later. Decl. of Adam Rosenberg (Dkt. # 10-3 at 86), Ex. P.
The City was not inclined to wait any longer and, on December 16, 2013, provided the required 20-day notice of its intent to file a claim under IFCA. Decl. of Adam Rosenberg (Dkt. # 10-3), Ex. R. On January 7, 2014, BRSIC again declined to provide a defense, this time on two new grounds: that there was no "written contract or agreement signed by the named insured under which the named insured agreed to provide additional insured coverage" for the City and that "Mr. Baker was using that portion of the Trail for the purposes [for] which it was intended." Decl. of Adam Rosenberg (Dkt. # 10-3), Ex. S. This action was filed on May 28, 2014.
DISCUSSION
A. Duty to Defend
An insurer's duty to defend is triggered whenever the complaint, construed liberally, alleges facts which could, if proven, impose a liability upon the insured that falls within the policy's coverage provisions. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 760 (2002). The duty to defend is broader than the duty to indemnify: "[w]hile the duty to indemnify exists only if the policy covers the insured's liability, the duty to defend is triggered if the insurance policy conceivably covers allegations in the complaint." Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 803 (2014). "It is a cornerstone of insurance law that an insurer may never put its own interests ahead of its insured's." Id. at 803. Thus, if there is any doubt regarding coverage, the insurer may not abandon its insured in the underlying litigation while the indemnity determination is made. Truck Ins. Exch., 147 Wn. at 761. Rather, a defense must be provided until it becomes clear in the underlying litigation or through a separate declaratory judgment action that the claim is not covered by the policy. Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 404 (2010).
In order to determine whether the duty to defend has been triggered, the insurer (and a reviewing court) generally looks to the underlying complaint and the insurance policy. Id. If the allegations of the complaint are so bare or ambiguous that it is unclear whether coverage is conceivable or the allegations conflict with facts known or readily ascertainable by the insurer, the insurer may consider extrinsic evidence. Woo v. Fireman's Fund Ins. Co., 161 Wn.2d 43, 53-54 (2007). The insurer may not, however, rely on facts extrinsic to the complaint to deny a request for a defense. Reference to evidence outside of the complaint and the policy may be used only to confirm that a defense is due. Id. at 54.
1. Additional Insured Coverage
The exceptions to the rule that the duty to defend is based solely on the allegations of the underlying complaint and the policy provisions are narrow and favor the insured. Id. at 53. Nevertheless, courts have permitted the insurer to investigate whether the claimant is actually an insured under the policy and to rely on their findings when rejecting a tender. See Allstate Prop. and Cas. Ins. Co. v. A.R., C13-6041RBL, 2014 WL 3579672, at *5-6 (W.D. Wash. July 21, 2014); Hartford Fire Ins. Co. v. Leahy, 774 F. Supp.2d 1104, 1110-14 (W.D. Wash. 2011); Scottish & York Int'l Ins. Group v. Ensign Ins. Co., 42 Wn. App. 158, 161-62 (1985). See also Allan D. Windt, 1 Insurance Claims & Disputes, § 4.5 (5th ed. 2010) ("Before the general principle regarding the duty to defend applies, it must be shown that the person claiming coverage is, in fact, an insured. The insurer has imposed upon itself a contractual duty to defend its insured against suits alleging facts that, if proved, would constitute a risk insured against under the provision of the policy. It has not imposed upon itself a duty to defend a complete stranger to the contract."). For purposes of this motion, the Court will assume that these cases accurately reflect Washington law and that BRSIC was entitled to investigate and rely on extrinsic facts to determine whether the City were an additional insured.
BRSIC has offered a number of theories regarding what it takes to become an additional insured under its policy. When it denied the City's tender, BRSIC argued that a contract signed by Wickman was a "necessary prerequisite to coverage under the endorsement." Decl. of Roxanne Mussulman (Dkt. # 20), Ex. 15. In opposing the City's motion for partial summary judgment, BRSIC takes the position that Wickman must have affirmatively promised, in writing, to provide the City with coverage. Opposition (Dkt. # 19) at 13 (arguing that none of the writings on which the City relies "contain a promise by Wickman to provide the City with additional insured coverage"). In its reply memorandum, BRSIC argues that additional insured coverage is triggered only if Wickman were subject to a contractual imperative to provide insurance coverage to the City. See Reply (Dkt. # 30) at 1 (stating issue as "[d]id Wickman and the City enter into a written contract requiring Wickman to provide the City with additional insured insurance coverage for the driveway transition project?"). Neither the policy nor Washington contract law support the imposition of these various requirements.
The "additional insured" provision on which BRSIC relied in its denial letters defines an additional insured as any entity for whom Wickman performed operations as long as Wickman and the other entity "have agreed in writing in a contract or agreement that such person or organization be added as an additional insured on your policy." Decl. of Adam Rosenberg (Dkt. # 10-1 at 102), Ex. E. A second provision defines additional insureds as "[a]ll persons or organizations when additioanl [sic] insured stsaus [sic] is required by written contract with you." Decl. of Adam Rosenberg (Dkt. # 10-1 at 37), Ex. E. The parties have not addressed which of these provisions is operative, but the gist of both provisions is the same: a third-party becomes an additional insured if there is a writing indicating that Wickman agrees that the third-party is an additional insured. While neither a generic regulatory pronouncement nor an oral agreement would trigger the additional insured coverage, there is no reason to presume that a signature, a bilateral contract, or any other formality other than a writing indicating the mutual intent of the parties to provide additional insurance coverage is required.
Under Washington law, a contract or agreement may be bilateral or unilateral. Cook v. Johnson, 37 Wn.2d 19, 23 (1950). A bilateral agreement is formed by the exchange of promises, along the lines of "X promises to work for Y, and Y promises to pay X $15 per hour for the work." A bilateral contract is enforceable when made. A unilateral agreement, on the other hand, consists of a promise by one party ("Y promises to pay X $15 per hour if X works for Y") and subsequent acceptance by performance. All of the necessary terms are contained in the offer or promise. Where the unilateral offer or promise is in writing, Washington courts have found in the context of a statute of limitations analysis that the contract is a written agreement despite the fact that performance is essential for providing consideration and evidencing mutual assent. DeBritz v. Sylvia, 21 Wn.2d 317, 327 (1944); Multicare Med. Ctr. v. State, 114 Wn.2d 572, 584 (1990), overruled in other part by statute as stated in Neah Bay Chamber of Commerce v. Dep't of Fisheries, 119 Wn.2d 464 (1992).
In this case, the City promised to set up a necessary meeting with Wickman, the project contractor, once it received proof that insurance coverage for the project would be available to the City. Wickman promptly satisfied the contingency, allowing the project to move forward. Decl. of Roger Carter (Dkt. # 11), Ex. D. BRSIC does not allege that Wickman did not intend to grant the City additional insured status, that he misunderstood the nature of the City's offer, or that he did not mean to assent to the offer through his performance. Given the backdrop of the municipal code, the design standards, and the parties' oral discussions, such arguments would verge on the ridiculous. Rather, BRSIC appears to rely on the fact that, when it asked Wickman "whether he had a contract" with the City, he said no. Decl. of Roxanne Mussulman (Dkt. # 20) at ¶ 8. That Wickman, a non-lawyer, was unaware of the intricacies of Washington law related to unilateral contracts does not, however, mean that there was no mutual intent and/or that a contract did not exist. The City's written offer was clear, and Wickman's performance gave rise to an enforceable agreement to provide insurance coverage for the project. The City was, therefore, an additional insured under the policy.
BRSIC simply refuses to acknowledge the existence of this email exchange, repeatedly arguing that "there is no written document between Wickman and the City regarding additional insurance coverage." Reply (Dkt. # 30) at 3.
The question then becomes whether the allegations of the Baker complaint could, if proven, impose a liability upon the insured that falls within the policy's coverage provisions. The allegations are construed liberally in favor of the insured, and any ambiguity is resolved in favor of triggering the duty to defend. In short, an insurer will not be "relieved of its duty to defend unless the claim alleged in the complaint is clearly not covered by the policy." Woo, 161 Wn.2d at 53 (internal quotation marks and citations omitted).
2. Completed Operations Provisions
BRSIC argues that, if the City were held liable for the injuries Mr. Baker sustained, coverage would not be available under the policy because (a) Wickman had already completed his operations at the site and (b) the inter-urban trail had been opened to the public for its intended use, triggering an exclusion to the additional insured provision. In order to reach the conclusion that Wickman had completed his work on the project, BRSIC improperly ignored allegations of the underlying complaint. The complaint alleges that, five days before the accident, the City inspected the project and declined to give final approval, instead requiring additional work. Decl. of Adam Rosenberg (Dkt. # 10-2), Ex. F at ¶ 46. The complaint also alleges that, as of July 19, 2012, the City refused to finalize the permit. Id. at ¶ 51. At the very least, these allegations give rise to an inference that there was still work being performed on the project when the accident occurred. BRSIC ignored these allegations, however, instead conducting an investigation to determine when Wickman had last performed work at the site, when the barricades had been picked up, and whether the City had ever "finaled" the permit. Under Washington law, extrinsic facts cannot be used to reject a tender where the allegations of the complaint, construed liberally in favor of the insured, show that coverage is conceivable.
3. Intended Use Exclusion
With regards to the "intended use" exclusion, BRSIC has the better of the argument. The policy provides coverage for bodily injury caused by the insured "in the performance of your ongoing operations for the additional insured," but specifically excludes injuries that occur after the portion of the work giving rise to the injury "has been put to its intended use by any person or organization other than another contractor or subcontractor" on the project. Decl. of Adam Rosenberg (Dkt. # 10-1 at 102), Ex. E. The gist of Mr. Baker's complaint is that the trail was prematurely opened for public use and that he was injured when he rode his bicycle downhill across the new driveway. Mr. Baker had no role in the construction project and was simply using the inter-urban trail as a member of the general public. Nor is there any allegations from which one could conclude that Mr. Baker skirted safety barriers, was trespassing, or had otherwise extracted a use that was not, at the time, intended. Looking only at the allegations of the complaint, one would conclude that the ramps to and from the new driveway had been opened for use and that Mr. Baker had used the trail and the new ramps as a pedestrian and bicycle thoroughfare (i.e., for its intended purpose). Injuries resulting in such circumstances are clearly not covered by the policy, and the duty to defend was not triggered.
The City raises a number of arguments in an effort to show that the "intended use" exclusion does not apply in these circumstances. First, the City argues that the relevant intended use was "a driveway in conformity with the plans and [constructed] in a manner which would result in a driveway reasonably safe for its intended use by the public crossing over it." Opposition (Dkt. # 26) at 10 (quoting the underlying complaint). This argument proves too much. BRSIC agreed to insure Wickman and any additional insureds during construction, with specified events signaling the end of its insuring obligations, namely (1) when all work was completed and (2) when a portion of the project had been turned over and put to its intended use. There is no indication that BRSIC intended to insure the quality of Wickman's work into the future or to provide indemnification to the church or the City for injuries arising after the specified events occurred. The City's interpretation would keep BRSIC on the hook for an indefinite period and force it to provide coverage whenever a user is injured because of a design or construction defect, since a defective driveway was not the intended purpose of the work. Such a conclusion would be illogical given the terms of the policy. Second, the City posits that virtually all injuries on the project will involve someone traversing the inter-urban trail, so if that were the defined "intended use," coverage would be illusory. The City's underlying assumption is unsupportable. Injuries could arise on the project in various ways: contractors or subcontractors may have an accident, a careless driver may overshoot the barricades, or inspectors or trespassers could be injured on the site. The mere fact of walking on what will eventually be used as a trail does not exclude coverage. Finally, the City argues that the "intended use" provision, if interpreted as BRSIC suggests, is inconsistent with other provisions of the policy. There is no inconsistency. While the most obvious cutoff for coverage under the policy is when the contractor's operations on the project are completed, the policy also provides that if portions of the project are put into service and someone is injured, there will be no coverage even if the contractor is still working in other areas. There is nothing inconsistent about these provisions.
The Court finds that, although the City was an additional insured under the policy, there is no coverage for the claims alleged in Mr. Baker's complaint because his injuries arose after the trail had been opened to the public - rightly or wrongly - and put to its intended use. There is therefore no duty to defend.
B. Bad Faith
An "insurer's duty of good faith is separate from its duty to indemnify if coverage exists" and "an insured may maintain an action against the insurer for bad faith investigation of the insured's claim and violation of the CPA regardless of whether the insurer was ultimately correct in determining coverage did not exist." Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 279 (1998). "Coventry simply recognized the principles enunciated by the legislature in chapter 48.01 RCW: that the insurance business requires good faith, honesty, and equity in all insurance matters." St. Paul Fire and Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 131 (2008). The City argues that BRSIC employed a series of tactics to avoid its coverage obligations, putting its interests ahead of the insured and breaching the duty of good faith. In particular, the City argues that:
(1) BRSIC denied additional insured status for the first time years after the City had first made a claim under the policy and only after imposing requirements that are not found in the policy;
(2) most of the justifications BRSIC provided over the years for denying coverage were wrong on the facts or on the law;
(3) BRSIC failed to timely respond to multiple requests for a defense in 2013;
(4) BRSIC's review of the Baker complaint and subsequent investigation was one-sided, undertaken for the purpose of finding and/or supporting a reason to deny coverage; and
(5) BRSIC raised new grounds for denying coverage as time went on, only the last of which had any merit.
Based on the facts as set forth above (and which BRSIC does not challenge), the Court agrees. Although it was ultimately correct in its coverage determination, BRSIC threw up one reason after another, in serial fashion, why it should not have to defend the City. At least one of these justifications - that Wickman's liability was not assured - was nonsensical. Another - that work on the project had been completed - involved ignoring allegations of the underlying complaint and doing an investigation seemingly for the purpose of justifying a coverage denial. BRSIC's investigation regarding the City's additional insured status was likewise defective: without actually telling the City that its status as an "additional insured" was at issue, BRSIC asked the City for a non-existent signed agreement and apparently expected Wickman, a non-lawyer, to intuit what information the insurer needed and how Washington's law of unilateral contracts applied. BRSIC's reliance on the additional insured provision was also rife with misrepresentations regarding what the provision required. Finally, and only after months of correspondence attempting to get an answer from BRSIC, the insurer hit upon the "intended use" provision as justification for its denial. While this justification is valid, a thoughtful, impartial evaluation of the claim years earlier would have brought the provision to the forefront and saved the City the time, aggravation, and expense of debunking all of the other, meritless justifications.
BRSIC does not deny that any of these delays, misrepresentations, or serial justifications occurred. Rather, it suggests that the delays in responding to the City's tender were simply the result of a misunderstanding, that the misrepresentations regarding the additional insured requirements were a scrivener's error, and that, having hit upon a valid defense to coverage, there can be no bad faith claim. To the extent Ms. Mussulman was unaware that the City was seeking a defense from BRSIC in the fall of 2013, she should have been aware of that fact by November 6, 2013, at the latest, when she received a letter, addressed to BRSIC, specifically requesting that "you provide the City a defense." If she were still confused, she could have called the City's counsel to inquire regarding his intentions, rather than making unjustified assumptions that delayed the insurer's responses well past the regulatory deadlines. As for the assertion of a scrivener's error, the insistence that the written contract be signed by Wickman is only one of a string of requirements superimposed upon the additional insured provision. BRSIC was clearly demanding a contract in the most formal sense of the word: a signed, bilateral, and integrated agreement. These demands were unjustified, but that does not make them scrivener's errors. Finally, while it is true that denying coverage based on the "intended use" provision cannot, standing alone, constitute bad faith, it is the unreasonable delays in communication and the other justifications that were thrown up without adequate investigation and/or in contravention of the basic tenets of Washington insurance law that the Court finds to be unreasonable and unfounded.
The City's request for additional time in which to conduct discovery regarding Ms. Mussulman's actual state of mind in the fall of 2013 is DENIED.
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BRSIC also alleges that the City has failed to prove any harm arising from the alleged bad faith and is therefore not entitled to a declaration of liability. As mentioned above, however, had BRSIC conducted a thorough investigation and analysis of the City's claim in 2011, it likely would have realized that the "intended use" provision, as interpreted by BRSIC and confirmed by the Court, precluded coverage. The delay in coming to that realization caused the City to expend time and resources attempting to respond to the various red herring arguments BRSIC threw up over the years in an ultimately vain pursuit of coverage. Some quantum of damages has been shown.
The Court finds that BRSIC acted in bad faith as a matter of law. Issues related to the amount of damages arising from its conduct are reserved.
C. Consumer Protection Act Claim
The CPA prohibits "[u]nfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce." RCW 19.86.020. A private cause of action exists under the CPA if (1) the conduct is unfair or deceptive, (2) occurs in trade or commerce, (3) affects the public interest, and (4) causes injury (5) to plaintiff's business or property. Hangman Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 105 Wn.2d 778, 780 (1986). The City asserts that the same acts and practices discussed in the context of the bad faith claim are "unfair or deceptive" for purposes of the CPA claim, that insurance impacts the public interest, and that the City has suffered injury to its business or property in an as yet unquantified amount. The Court agrees, and finds that BRSIC violated the CPA as a matter of law. Issues related to the amount of injury to business or property arising from the unfair or deceptive acts are reserved.
D. Insurance Fair Conduct Act Claim
BRSIC argues that the City is precluded from bringing a claim under IFCA because it is a third-party to Wickman's liability policy. Regardless of whether the policy provides first-party coverage (i.e., a homeowner's policy which pays the insured when a loss occurs) or third-party coverage (i.e., a liability policy that pays a third-party on behalf of the insured), IFCA provides anyone who has a right to file a claim under the insurance policy (otherwise known as a first party claimant) with a cause of action against the insurer for unreasonable coverage denials. The City, as an additional insured, is a first party claimant under the policy. To the extent BRSIC unreasonably denied the claim on inapplicable and unsupported grounds for more than two years, the City has established a claim under IFCA.
CONCLUSION
For all of the foregoing reasons, the City's motion for summary judgment (Dkt. # 9) is GRANTED in part and DENIED in part. Although there is no duty to defend the underlying action, BRSIC has engaged in unfair and bad faith claims handling practices, giving rise to liability for bad faith and under the CPA and IFCA. BRSIC's cross-motion for summary judgment (Dkt. # 19) is also GRANTED in part and DENIED in part. BRSIC's denial of coverage under the "intended use" exclusion was correct, and it had no duty to defend or indemnify the City in the underlying litigation. Nevertheless, its claims handling procedures and previous unjustified denials give rise to liability for bad faith and violations of the CPA and IFCA. All issues related to the amount of damages are reserved.
Dated this 10th day of October, 2014.
/s/_________
Robert S. Lasnik
United States District Judge