Financial Pacific Leasing Inc v. RVI America Insurance Co

• Court: District Court, W.D. Washington
• Decided: July 3, 2023
• Docket: 2:21-cv-00756
• Status: Unknown

Opinion

1 2 3 4

5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 FINANCIAL PACIFIC LEASING INC., CASE NO. 2:21-CV-00756-LK 11 Plaintiff, ORDER ADOPTING REPORT AND 12 v. RECOMMENDATION WITH MODIFICATIONS 13 RVI AMERICA INSURANCE CO., 14 Defendant. 15

16 This matter comes before the Court on Defendant RVI America Insurance Company’s 17 Motion to Dismiss, Dkt. No. 23, the Report and Recommendation (the “R&R”) of United States 18 Magistrate Judge S. Kate Vaughan, Dkt. No. 43, RVI America’s objections thereto, Dkt. No. 47, 19 and the parties’ supplemental briefs, Dkt. Nos. 57–59. Also before the Court are RVI America’s 20 Motion for an Order Staying All Discovery or, in the Alternative, for a Protective Order, Dkt. No. 21 36, Judge Vaughan’s order denying that motion, Dkt. No. 51, and RVI America’s partial objections 22 to that order, Dkt. No. 52. After reviewing the full record and hearing the parties’ oral arguments, 23 the Court modifies Judge Vaughan’s R&R as follows and grants in part and denies in part RVI 24 America’s motion to dismiss. RVI America’s discovery motion is denied. 1 I. INTRODUCTION AND BACKGROUND 2 Financial Pacific is an asset-based lender that leases equipment to commercial customers. 3 Dkt. No. 14 at 2. At the center of this dispute are 150 Greenbriar C112 Covered Hopper railcars 4 that Financial Pacific leased to Halliburton Company (a party not otherwise featured in this case)

5 in 2015 for a five-year term. Id. at 2, 5, 7. Financial Pacific purchased these railcars for $81,500 6 apiece and expected a residual value of $61,000 per railcar at the end of the lease term. Id. at 2. 7 According to Financial Pacific, it purchased a Master Residual Value Insurance Policy (the 8 “Policy”) from RVI America to “protect itself from the risk that the actual value of the railcars at 9 the end of the lease term would be significantly lower than the expected residual value[.]” Id. 10 A. Relevant Policy Provisions 11 The first page of the Policy states, in capitalized bold font, that it is “an indemnity against 12 loss incurred by the insured due to a fortuitous decline in value of a class of asset to which the 13 insured equipment belongs caused by changes in market conditions when such equipment is used 14 and maintained as intended.” Id. at 44. A few other Policy provisions require mention. Under

15 Article I, RVI America agreed to indemnify Financial Pacific “as of the Lease Termination Date 16 against Loss, if any, which shall be payable on the Settlement Date, in respect of all Units subject 17 to a Lease.” Id. The Policy further defines “Loss” as “the amount, if any, by which the sum of the 18 Insured Values of all Units subject to such Lease exceeds the sum of the End Of Term Values 19 thereof on the Lease Termination Date, as determined in accordance with Article V., reduced by 20 the Deductible.” Id. at 46. The “Insured Value” of each railcar was $51,815.08, or approximately 21 60% of the original equipment cost. Id. at 3, 5. 22 As for End of Term Value, the Policy states that it must be “defined and determined in 23 accordance with Section 5.02.” Id. at 45. This is the crux of the parties’ dispute. Section 5.02 of

24 the Policy originally required the End of Term Value to be calculated by determining the greater 1 of three sums. Id. at 50. Two of those sums are not relevant to the dispute at hand. For current 2 purposes, it suffices to note that one of the three values was “[t]he Appraised Value of the Unit 3 determined under the direction of [RVI America] but at the Insured’s expense, by a Qualified 4 Inspector/Appraiser selected and approved by [RVI America.]” Id. And Section 2.01(d) of the

5 Policy originally defined “Appraised Value” as follows: 6 Appraised Value: with respect to a Unit, the fair retail price (not reduced by the value of any trade-in, allowances or set-offs) that would result from an arm’s-length 7 retail sales transaction, free and clear of mortgages, liens, security interests and other encumbrances, between an informed and willing seller under no compulsion 8 to sell and an informed and willing purchaser (other than a user in possession or a used equipment dealer) under no compulsion to purchase, who is purchasing the 9 Unit for its own usage (not for resale) with the intent of utilizing the Unit in accordance with the Unit’s intended usage, such fair retail price being determined: 10 (i) as of the Lease Termination Date; 11 (ii) by a Qualified Inspector/Appraiser in accordance with Section 12 5.02(a) or Section 6.01(b)(ii), as applicable;

13 (iii) with respect to Section 5.02(a), on the basis that such Unit complies with all standards set forth in the Equipment Portfolio Return 14 Conditions Endorsement but with respect to Section 6.01(b)(ii), on the basis of such Unit being in its existing condition; 15 (iv) without deduction of any costs, fees, commissions, charges or 16 expenses incurred or expected to be incurred with respect to repossession, storage, remarketing, redelivery or de-installation, if 17 applicable, or removal from any location of current use, of such Unit; and 18 (v) highest and best use without regard to quantity, location or country 19 of registration of such Unit. 20 Id. at 44–45. 21 The parties, however, executed Endorsement D to the Policy, id. at 6, which deleted Section 22 5.02 in its entirety and replaced it with the following sentence: “5.02 The End of Term Value of 23 the Unit shall be the Appraised Value (Reproduction Cost New).” Id. at 60. It also deleted Section 24 2.01(d) of the Policy (the original “Appraised Value” definition) and replaced it with the following 1 definition of “Appraised Value (Reproduction Cost New)”: 2 Appraised Value (Reproduction Cost New): with respect to a Unit, the fair retail price (not reduced by the value of any trade-in, allowances or set-offs) that would 3 result from an arm’s-length retail sales transaction, free and clear of mortgages, liens, security interests and other encumbrances, between an informed and willing 4 seller under no compulsion to sell and an informed and willing purchaser (other than a user in possession or a used equipment dealer) under no compulsion to 5 purchase, who is purchasing the Unit for its own usage (not for resale) with the intent of utilizing the Unit in accordance with the Unit’s intended usage, such fair 6 retail price being determined:

7 (i) by the cost of substituting another asset of comparable utility;

8 (ii) on the basis of the expense necessary to construct an exact duplicate of a subject property considering current prices for identical 9 components, criteria, design, arrangement, and quality meeting current regulatory requirements (i.e., “reproduction cost new” 10 basis);

11 (iii) as of the applicable Lease Termination Date;

12 (iv) by a Qualified Appraiser in accordance with Section 5.02 hereof;

13 (v) on the basis that such Unit complies with all standards set forth in the Return Condition Endorsement; 14 (vi) without deduction of any costs, fees, commissions, charges or 15 expenses incurred or expected to be incurred with respect to repossession, storage, remarketing redelivery or de-installation, if 16 applicable, or removal from any location of current use, of such Unit; and 17 (vii) without regard to quantity, location or country of registration of such 18 Unit. 19 Id. at 59–60. 20 The Court’s cataloguing of Policy provisions does not end there. As Judge Vaughan 21 observed in her R&R, the parties’ dispute implicates two other provisions. See Dkt. No. 43 at 4– 22 6. First, Article III of the Policy sets forth four conditions precedent to filing a claim. See Dkt. No. 23 14 at 48. The only condition germane to this dispute, however, is the requirement that RVI America 24 “must receive the Preliminary Notice of Claim and the Notice of Claim as to all Units subject to a 1 Lease at the times and with the supporting documentation required by Sections 5.01 and 7.03[.]” 2 Id.1 And second, Article V of the Policy establishes a mandatory mechanism for resolving disputes 3 over the End of Term Value. Id. at 50. That provision requires the insured to “state in a Preliminary 4 Notice of Claim its opinion of the End Of Term Value of each Unit subject to the Lease and the

5 basis thereof.” Id. Once RVI America has “all relevant documentation pertaining to the Units in 6 question,” it must, “in accordance with Section 5.02, determine the End Of Term Value of each 7 such Unit.” Id. The Policy makes clear that RVI America’s calculation of the End of Term Value 8 binds the parties unless RVI America receives, within 30 days, “a written notice of objection 9 accompanied by the Insured’s determination of the End Of Term Value and an appraisal of the 10 Unit performed by a Qualified Inspector/Appraiser.” Id. 11 If the insured submits a written notice of objection, Article V specifies additional processes 12 for resolving the dispute. Id. at 51. The parties thereafter have 30 days to “meet and attempt to 13 arrive at a mutually acceptable determination” and, in the event such attempt fails, they must each 14 choose a Qualified Inspector/Appraiser. Id. Their Qualified Inspectors/Appraisers must then select

15 a third Qualified Inspector/Appraiser. Id. “If either party fails to choose a Qualified 16 Inspector/Appraiser within fifteen (15) Business Days after having received a written request from 17 1 The Policy defines “Notice of Claim” and “Preliminary Notice of Claim” as follows: 18 Notice of Claim: a written final notice of a Claim executed by the Insured and given to [RVI America] which: (i) states the Policy number; (ii) states the amount of the Claim; (iii) identifies the 19 Lease as to which the Claim is made and all the Units subject to the Lease; (iv) states the End Of Term Value of such Units as finally determined in accordance with Article V.; and (v) is 20 accompanied by a certificate executed by an authorized officer of the Insured certifying that, as of the date of such Notice, the conditions precedent set forth in Section 3.01 have been satisfied. 21 Preliminary Notice of Claim: a written preliminary notice of a Claim executed by the Insured and given to [RVI America] which: (i) states the Policy number; (ii) states the estimated amount of the anticipated Claim; (iii) identifies the Lease as to which the Claim may be made and all the Units 22 subject to such Lease; (iv) states the Insured’s opinion of the End Of Term Value of each such Unit accompanied by an appraisal of each such Unit performed by a Qualified Inspector/Appraiser; and 23 (iv) is accompanied by a certificate executed by an authorized officer of the Insured certifying that, as of the date of such Notice, the conditions precedent set forth in Section 3.01 will be satisfied. 24 Dkt. No. 14 at 46–47. 1 the other party to do so, the other party will choose both Qualified Inspectors/Appraisers, and they 2 will choose the third Qualified Inspector/Appraiser.” Id. However the third Qualified 3 Inspector/Appraiser is ultimately selected, he or she must “make an independent determination” 4 of the End of Term Value pursuant to the Policy’s criteria. Id. That determination is “conclusively

5 binding on the parties,” although the third Qualified Inspector/Appraiser’s determination cannot 6 be “less than the lower of the prior two appraisals nor greater than the higher.” Id. 7 B. The Dispute 8 According to Financial Pacific, the fair market value of a Greenbriar C112 Covered Hopper 9 railcar “plummeted to $28,000 or less” by the end of the five-year lease to Halliburton. Id. at 3.2 10 This means that each railcar was worth at least $23,815.08 less than its $51,815.08 Insured Value. 11 See Dkt. No. 43 at 6. Financial Pacific accordingly submitted a Preliminary Notice of Claim and 12 Notice of Claim to RVI America identifying an End of Term Value of $28,000 per Unit and a total 13 Loss of $3,572,262. Dkt. No. 14 at 8–9.3 RVI America countered with its own calculation of the 14 End of Term Value, which it placed between $67,500 and $69,500 per Unit. Id. at 9. It thus

15 determined that there was no covered Loss under the Policy. Id.; see id. at 46 (defining “Loss” as 16 “the amount, if any, by which the sum of the Insured Values of all Units subject to such Lease 17 exceeds the sum of the End Of Term Values thereof on the Lease Termination Date”). Financial 18 Pacific timely objected to RVI America’s End of Term Value determination. Id. at 10. The parties, 19

20 2 Financial Pacific attributes this decline in value to the 2016 drop in oil prices. Dkt. No. 14 at 8. As it explains in its amended complaint, C112 Covered Hoppers “are specialized railcars used mainly for the transportation of ‘frac sand’ 21 (sand used in hydraulic fracturing to facilitate the production of oil and natural gas), cement, and non-metallic minerals and earths.” Id. at 7. Financial Pacific avers that in 2018, the market for frac sand was “further impacted . . . by the use of in-basin (locally sourced) brown sand . . . in hydraulic fracturing” because in-basin sand “can be delivered to 22 the wellhead for one-third or less of the cost of white silica sand[.]” Id. at 8. The market for C112 Covered Hoppers is now “essentially nonexistent,” and “[m]any of the large less[ors] of C112 Covered Hoppers”—for example, 23 Financial Pacific—“are facing, or have declared, bankruptcy.” Id. 3 Financial Pacific subsequently reduced its claim to $3,524,631.84 because two of the 150 Units leased to Halliburton 24 “were declared a total loss prior to the termination of the . . . lease[.]” Dkt. No. 14 at 9. 1 however, did not adhere to the remainder of Article V’s End of Term Value dispute procedure. 2 Financial Pacific instead filed suit in this Court for breach of contract, declaratory relief, insurance 3 bad faith, and violations of Washington’s Consumer Protection Act (“CPA”), Wash. Rev. Code 4 § 19.86.020, and Insurance Fair Conduct Act (“IFCA”), id. § 48.30.015. Dkt. No. 1 at 10–12; Dkt.

5 No. 14 at 10–12.4 These claims turn on interpretation of the Appraised Value (Reproduction Cost 6 New) definition used to calculate the End of Term Value. 7 C. RVI America’s Motion to Dismiss and Motion to Stay Discovery 8 RVI America moved to dismiss Financial Pacific’s claims. Dkt. No. 23. It argued that the 9 Appraised Value (Reproduction Cost New) definition is clear and unambiguous, and, under a 10 straightforward application of that definition, Financial Pacific did not suffer a Loss and therefore 11 has no claim under the Policy. Id. at 20–23. RVI America also maintained that any claim for 12 illusory coverage must fail because “there are examples of when using the Appraised Value 13 (Reproduction Cost New) methodology to calculate the End of Term Value would result in a claim 14 payment obligation.” Id. at 25. Next, RVI America urged wholesale dismissal of Financial

15 Pacific’s action on the ground that the parties failed to complete Article V’s mandatory End of 16 Term Value dispute process—a condition precedent to asserting a claim under the Policy. Id. at 17 26–27. Financial Pacific allegedly “started the claim submission procedures required by the Policy, 18 but refused to participate in the appraisal [dispute process] unless RVI would agree to FinPac’s 19 (incorrect) interpretation of Endorsement D or forego application of Endorsement D entirely.” Id. 20 at 27. Last, RVI America contended that Financial Pacific’s CPA and IFCA claims must fail 21 because they are premised on an allegedly unreasonable denial of coverage, and RVI America’s 22 interpretation of the Policy was legally correct. Id. 23

24 4 Financial Pacific’s amended complaint added a claim under IFCA. See Dkt. No. 14 at 12. 1 Roughly three months after RVI America filed its motion to dismiss, Financial Pacific 2 served its First Set of Interrogatories and First Requests for Production of Documents. See Dkt. 3 No. 37-1–37-2. RVI America opposed the request and moved the Court to stay discovery pending 4 resolution of the motion to dismiss or, alternatively, to enter a protective order with respect to

5 Financial Pacific’s requests. Dkt. No. 36 at 6–9. It argued that a stay was appropriate because 6 Financial Pacific’s claims involve pure questions of law—interpretation of the Policy language— 7 that must be resolved without consideration of extrinsic evidence. Id. at 7. And in the event the 8 Court found a stay of discovery unnecessary, RVI America pressed for a protective order that 9 would at least shield it from Financial Pacific’s first interrogatories and document requests. Id. at 10 8. RVI America premised this alternative ask on its position that Financial Pacific’s discovery 11 requests sought irrelevant information “because FinPac’s claims for breach of contract and 12 ‘illusory’ coverage are pure questions of law that are to be decided by the Court based on the clear 13 and unambiguous Policy language.” Id. (“The requested document discovery and interrogatories 14 seek documents and information that are impermissible to show ambiguity or that coverage is

15 ‘illusory.’”). 16 D. Judge Vaughan’s Report and Recommendation 17 Judge Vaughan recommended denying RVI America’s motion to dismiss. Dkt. No. 43 at 18 2. As for Financial Pacific’s breach of contract claim, she concluded that its amended complaint 19 states a plausible claim for relief because “on its face, the Policy’s language—specifically that of 20 Endorsement D—is ambiguous.” Id. at 9. Judge Vaughan agreed that the definition of Appraised 21 Value (Reproduction Cost New) combines “two disparate concepts.” Dkt. No. 43 at 12. On the 22 one hand, the prefatory language of 2.01(d) suggests that Appraised Value must be ascertained by 23 looking to the fair market value of the railcar: “the fair retail price . . . that would result from an

24 arm’s length retail sales transaction . . . between an informed and willing seller under no 1 compulsion to sell and an informed and willing purchaser . . . under no compulsion to purchase.” 2 Dkt. No. 14 at 59; see Dkt. No. 43 at 12. This “arm’s length” language, in Judge Vaughan’s view, 3 evinces the parties’ intent to incorporate fair market value into the definition. See Dkt. No. 43 at 4 12–13 (“[A]nalogous language is commonly used to define ‘fair market value.’ Thus, by invoking

5 such language, Endorsement D implies that an informed and willing buyer would not pay more for 6 the Railcars than their fair market value.” (citation omitted)). 7 On the other hand, seven subsections specify how “fair retail price” must be determined. 8 See Dkt. No. 14 at 59. Judge Vaughan took specific issue with criterion (ii), which considers “the 9 expense necessary to construct an exact duplicate of a subject property,” id., and found that it is 10 “inherently disconnected from the Railcars’ fair market value,” Dkt. No. 43 at 13 (“Because it is 11 unclear how the Policy intends these two concepts to function together, the Appraised Value 12 (Reproduction Cost New) definition is ambiguous.”). Nor does the ambiguity end there. Judge 13 Vaughan also determined that the Policy’s stated purpose “creates ambiguity as to whether, and to 14 what extent, the market should be considered in determining the Railcars’ End of Term Value.”

15 Id. The Policy—again, as Judge Vaughan read it—necessarily calls for consideration of fair market 16 value because it purports to protect Financial Pacific against loss resulting from “a fortuitous 17 decline in value of a class of asset . . . caused by changes in market conditions.” Dkt. No. 14 at 44. 18 Her rhetorical question best summarizes the perceived issue: “[h]ow can the Policy intend to 19 indemnify against a fortuitous decline in the Railcars’ value caused by changes in market 20 conditions if it fails to consider market conditions at all?” Dkt. No. 43 at 14. 21 Most of Judge Vaughan’s R&R turns on her ambiguity determination. With respect to 22 Financial Pacific’s illusory coverage claim, Judge Vaughan could not assess “how or when 23 coverage might exist under the Policy” because the Appraised Value (Reproduction Cost New)

24 definition is ambiguous. Id. at 15. The R&R also concluded that Financial Pacific otherwise stated 1 a plausible claim for relief, assuming that its allegations about RVI America’s calculation are 2 true—i.e., the Insured Value of each railcar is 60% of the original equipment cost but the End of 3 Term Value is approximately 84.5% of the original equipment cost, “meaning there could never 4 have been a covered loss using this approach.” Id. at 16; see Dkt. No. 14 at 46 (defining “Loss” as

5 “the amount, if any, by which the sum of the Insured Value of all Units . . . exceeds the sum of the 6 End Of Term Values thereof[.]”). Judge Vaughan likewise concluded that Financial Pacific’s CPA 7 and IFCA claims should survive. Although RVI America urged dismissal of these claims based on 8 its purportedly correct interpretation of the Policy, here again Judge Vaughan’s ambiguity finding 9 foreclosed such a result. See Dkt. No. 43 at 18. 10 Judge Vaughan was also unpersuaded by RVI America’s arguments about the Policy’s 11 allegedly mandatory End of Term Value dispute procedure. Two considerations underpin her 12 rejection of this defense. First, Financial Pacific alleged in its amended complaint that it submitted 13 a Preliminary Notice of Claim and Notice of Claim to RVI America in accordance with Policy 14 requirements. Id. at 17; see Dkt. No. 14 at 10 (alleging that Financial Pacific “has satisfied all

15 conditions precedent.”). Judge Vaughan found that this “is all that is required at the pleading 16 stage.” Dkt. No. 43 at 17. And second, “only when the failure to secure an appraisal is the fault of 17 the insured should the absence of an appraisal bar the insured from bringing an action on the 18 policy.” Id. at 18. Here, Judge Vaughan concluded that RVI America “could have proceeded with 19 the appraisal process absent [Financial Pacific]’s participation to conclusively determine the End 20 of Term Value.” Id. at 17–18. Thus, RVI America was at least partially at fault for the parties’ 21 failure to secure a conclusively binding End of Term Value determination, and Financial Pacific’s 22 action should not be barred. Id. at 18. RVI America filed timely objections. Dkt. No. 47. 23

24 1 E. Judge Vaughan’s Order on the Discovery Motion 2 Judge Vaughan subsequently denied RVI America’s motion to stay discovery. Dkt. No. 51 3 at 4. In doing so, she rejected RVI America’s argument that a stay was proper simply because it 4 had filed a motion to dismiss: “[i]ndeed, the undersigned recommends denying [RVI America]’s

5 Motion to Dismiss, believing both that [Financial Pacific] has successfully stated a claim for relief 6 and that, because the Policy is ambiguous, extrinsic evidence is relevant to ascertaining its 7 meaning.” Id. at 3. RVI America’s alternative bid for a protective order fared no better. Judge 8 Vaughan reasoned that because the Policy is ambiguous, the extrinsic evidence sought by Financial 9 Pacific is relevant and a “blanket protective order” precluding access to that evidence is 10 inappropriate. Id. at 5. And as Judge Vaughan further observed, RVI America “made no showing 11 suggesting [Financial Pacific]’s discovery requests annoy, embarrass, oppress, or impose an undue 12 burden or expense on it.” Id. at 5–6. RVI America again filed timely objections. Dkt. No. 52. 13 II. DISCUSSION 14 The Court first addresses RVI America’s objections to Judge Vaughan’s R&R. Because

15 the Policy language at issue is ambiguous, the Court denies RVI America’s request to stay 16 discovery or, alternatively, for a protective order. 17 A. Objections To Report And Recommendation 18 The Court makes “a de novo determination of those portions of the [R&R] to which 19 objection is made,” and “may accept, reject, or modify, in whole or in part, the recommendations 20 made by the magistrate judge.” 28 U.S.C. § 636(b)(1); see also Fed. R. Civ. P. 72(b)(3) (the Court 21 “must determine de novo any part of the magistrate judge’s disposition that has been properly 22 objected to.”). As the statute and rule suggest, the Court reviews findings and recommendations 23 “if objection is made, but not otherwise.” United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th

24 Cir. 2003) (en banc); accord Wang v. Masaitis, 416 F.3d 992, 1000 n.13 (9th Cir. 2005). 1 1. Legal Standard 2 Dismissal under Rule 12(b)(6) may be based on either the lack of a cognizable legal theory 3 or the absence of sufficient facts alleged under a cognizable legal theory. Shroyer v. New Cingular 4 Wireless Servs., Inc., 622 F.3d 1035, 1041 (9th Cir. 2010). At this stage, the Court accepts as true

5 all factual allegations in the complaint and construes them in the light most favorable to the 6 nonmoving party. Gonzalez v. Google LLC, 2 F.4th 871, 885 (9th Cir. 2021). “To survive a motion 7 to dismiss, a complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to 8 relief that is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. 9 Corp. v. Twombly, 550 U.S. 544, 570 (2007)); see Fed. R. Civ. P. 8(a)(2) (a plaintiff must make a 10 “short and plain statement of the claim showing that [he] is entitled to relief”). A claim is facially 11 plausible “when the pleaded factual content allows the court to draw the reasonable inference that 12 the defendant is liable for the misconduct alleged.” Iqbal, 556 U.S. at 663. 13 2. Choice-Of-Law Provision 14 As an initial matter, the parties dispute whether Washington or Connecticut law applies to

15 the interpretation of the Policy. See Dkt. No. 43 at 7. The Policy contains a choice-of-law provision 16 stating that it “shall be governed by and construed in accordance with the laws of the state of [RVI 17 America’s] domicile,” which is Connecticut. Dkt. No. 14 at 3, 54. Under Washington law, 18 however, “no insurance contract delivered or issued for delivery in this state and covering subjects 19 located, resident, or to be performed in this state, shall contain any condition, stipulation, or 20 agreement . . . requiring it to be construed according to the laws of any other state or country[.]” 21 Wash. Rev. Code § 48.18.200(1). Any provision that violates this directive “shall be void[.]” Id. § 22 48.18.200(2); see, e.g., Providence Health & Servs. v. Certain Underwriters at Lloyd’s London, 23 358 F. Supp. 3d 1195, 1199 (W.D. Wash. 2019) (insurance policy’s New York choice-of-law

24 provision was void under Section 48.18.200). 1 RVI America argues that “[f]or purposes of the instant motion only, it makes no difference 2 if the law of Connecticut or the law of Washington applies because the outcome is the same under 3 either state’s law.” Dkt. No. 23 at 16 n.3. It cites to both Washington and Connecticut law in its 4 briefing. See generally Dkt. No. 23. For its part, Financial Pacific emphatically asserts that Section

5 48.18.200 voids the Policy’s choice-of-law provision and, as a result, Washington law applies: 6 Financial Pacific is a Washington corporation with its principal place of business in Federal Way[,] and the insurance polic[y] was issued for delivery, and 7 delivered[,] to Financial Pacific[] in Washington. Further, the RVI policy ‘covers subjects located, resident, or to be performed in’ Washington, as this specialized 8 insurance covers the value of Financial Pacific’s financial interest in property, rather than casualty loss (i.e., damage) to any physical property. The ‘subject’ that 9 the RVI policy covers, then, for purposes of [Section] 48.10.200(1)(a) is Financial Pacific’s ownership interest in the subject leased property, rather than the inherently 10 transient railcars themselves. That subject—the value of Financial Pacific’s ownership interest—is located in Washington and the insurance obligation thus is 11 to be performed in Washington. 12 Dkt. No. 31 at 7 (citations omitted). Despite RVI America’s ambivalence about Connecticut versus 13 Washington law for purposes of this motion, it counters that Section 48.18.200(1)(a) does not 14 apply here because the railcars “were not located or resident in Washington.” Dkt. No. 34 at 4 n.1. 15 Judge Vaughan sidestepped the choice-of-law issue because, in her view, the outcome was the 16 same under either Washington or Connecticut law: “the Court need not resolve . . . the issue of 17 choice of law at this time. The Court concludes that on its face, the Policy’s language—specifically 18 that of Endorsement D—is ambiguous.” Dkt. No. 43 at 9. She then relied on Washington law to 19 find the Appraised Value (Reproduction Cost New) definition ambiguous. See id. at 9–14. RVI 20 America objects to Judge Vaughan’s Report and Recommendation “[t]o the extent that [it] found 21 that Washington law governs[.]” Dkt. No. 47 at 14. 22 Where, as here, the Court is sitting in diversity, it applies Washington’s choice-of-law 23 rules. See Coneff v. AT & T Corp., 673 F.3d 1155, 1161 (9th Cir. 2012). “Under Washington law, 24 when parties dispute choice of law, there must be an actual conflict between the laws or interests 1 of Washington and the laws or interests of another state before the Court will engage in a conflict- 2 of-laws analysis.” Carideo v. Dell, Inc., 706 F. Supp. 2d 1122, 1126 (W.D. Wash. Feb. 12, 2010) 3 (citing Erwin v. Cotter Health Ctrs., 167 P.3d 1112, 1120 (Wash. 2007)); accord Seizer v. Sessions, 4 940 P.2d 261, 264 (Wash. 1997) (a real conflict exists only “[w]hen the result of the issues is

5 different under the law of the two states”). Washington law applies absent an actual conflict. 6 Carideo, 706 F. Supp. 2d at 1126. 7 The Court’s ruling on each of RVI’s motions would be the same regardless of whether 8 Washington or Connecticut law applies. Compare, e.g., Quadrant Corp. v. Am. States Ins. Co., 9 110 P.3d 733, 737 (Wash. 2005) (discussing criteria for interpreting insurance contracts, including 10 ambiguity and when it exists), with Karas v. Liberty Ins. Corp., 228 A.3d 1012, 1020 (Conn. 2019) 11 (same). The Court therefore applies Washington law. 12 3. Breach Of Contract 13 Financial Pacific alleges that RVI America breached the Policy “by failing to pay for the 14 loss incurred . . . for the decline in value of the Hal[l]iburton Units caused by changes in market

15 conditions.” Dkt. No. 14 at 10. However, the parties hotly dispute how the rail cars’ end of term 16 value should be appraised under the Policy. 17 The brunt of RVI America’s objections center on Judge Vaughan’s finding that the Policy 18 language at issue—Endorsement D’s Appraised Value (Reproduction Cost New) definition—is 19 ambiguous because reproduction cost new is “entirely disconnected from the Railcars’ fair market 20 value.” Dkt. No. 43 at 13; see Dkt. No. 47 at 8–13. According to RVI America, “Endorsement D 21 sets forth a specific process for determining ‘fair retail price’ without any regard to fair market 22 value.” Id. at 8. Although Endorsement D “mentions ‘arm’s-length retail sales transaction,’” these 23 words “are descriptive and illustrative for contract interpretation purposes” rather than

24 “prescriptive and mandatory.” Id. (quoting Dkt. No. 1 at 59). 1 Financial Pacific counters with the opposite position. It argues that Endorsement D is 2 ambiguous because it “contains two entirely disparate and irreconcilable concepts of valuation.” 3 Dkt. No. 48 at 2. The prefatory language of Endorsement D, as Financial Pacific reads it, refers to 4 an “arm’s length transaction” and thus mandates consideration of fair market value, while the latter

5 portion of Endorsement D indicates that “fair retail price” must be determined, in relevant part, 6 “on the basis of the expense necessary to construct an exact duplicate of” the insured railcar. Id. at 7 3 (internal quotation marks omitted) (quoting Dkt. No. 1 at 59) (highlighting allegedly conflicting 8 language in green and red). In its supplemental briefing, Financial Pacific also contends that 9 Section 2.01(d)(i) and (ii) (the first two criteria for ascertaining fair retail price) conflict and thus 10 “highlight[] the uncertainty in meaning identified by Magistrate Judge Vaughan in her Report and 11 Recommendation.” Dkt. No. 58 at 3. According to Financial Pacific, subsection (d)(i)’s 12 comparable utility requirement “is entirely separate from—and unconnected with—the cost to 13 construct an exact duplicate” under subsection (d)(ii). Id. (“Whether the insured property is 14 obsolete or is otherwise fit for some purpose . . . has no relationship to the expense necessary to

15 construct it.”). 16 The Court disagrees with Financial Pacific’s argument that the prefatory language in 17 Endorsement D defines how to determine fair retail price. However, it agrees that subsections 18 2.01(d)(i) and (d)(ii) render Endorsement D ambiguous. 19 a. Contract Interpretation In Washington 20 “The criteria for interpreting insurance contracts in Washington are well settled.” Quadrant 21 Corp., 110 P.3d at 737. The “primary goal” is to ascertain and give effect to the parties’ intent at 22 the time of the Policy’s execution, not “the interpretations the parties are advocating at the time of 23 the litigation.” Int’l Marine Underwriters v. ABCD Marine, LLC, 313 P.3d 395, 399–400 (Wash.

24 2013). The Court therefore “focus[es] on the objective manifestation of the agreement, rather than 1 the unexpressed subjective intent of the parties.” Hearst Commc’ns, Inc. v. Seattle Times Co., 115 2 P.3d 262, 267 (Wash. 2005). This principle is “quite simple”: the parties’ “[u]nilateral or subjective 3 purposes and intentions about the meanings of what is written do not constitute evidence of [their] 4 intentions.” Lynott v. Nat’l Union Fire Ins. Co., 871 P.2d 146, 149 (Wash. 1994). Thus, although

5 “[a]n interpretation of an insurance clause must be reasonable and take into account the purpose 6 of the insurance at issue,” Lynott, 871 P.2d at 152, the “expectations of the insured cannot override 7 the plain language of the contract,” Quadrant Corp., 110 P.3d at 737. The Court will “not interpret 8 what was intended to be written but what was written.” Hearst, 115 P.3d at 267. 9 In doing so, the Court “construe[s the] insurance polic[y] as a whole and give[s] the 10 language a fair, reasonable, and sensible construction as would be given to the contract by the 11 average person purchasing insurance.” Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) 12 PLC, 516 P.3d 796, 800 (Wash. 2022) (cleaned up). Undefined terms are given “their popular and 13 ordinary meaning in accord with the understanding of the average purchaser of insurance[.]” Kut 14 Suen Lui v. Essex Ins. Co., 375 P.3d 596, 601 (Wash. 2016). But when the Policy expressly defines

15 terms, the Court is bound by those definitions. Overton v. Consol. Ins. Co., 38 P.3d 322, 327 16 (Wash. 2002). Again, the Court must enforce clear and unambiguous language as written and will 17 not “modify the contract or create ambiguity where none exists.” Transcon. Ins. Co. v. Wash. Pub. 18 Utilities Dists.’ Util. Sys., 760 P.2d 337, 340 (Wash. 1988). Nor will the Court inject ambiguity 19 into the Policy so that it may be construed in favor of the insured. See ABCD Marine, 313 P.3d at 20 400. 21 The Washington Supreme Court has emphasized that policy language is ambiguous “if, on 22 its face, it is fairly susceptible to two different but reasonable interpretations.” Seattle Tunnel 23 Partners, 516 P.3d at 800. Contract provisions can also be ambiguous if their terms are uncertain.

24 Brower Co. v. Baker & Ford Co., 431 P.2d 595, 597 (Wash. 1967); Dan's Trucking, Inc. v. Kerr 1 Contractors, Inc., 332 P.3d 1154, 1158 (Wash. Ct. App. 2014). However, language is not 2 ambiguous just because one party suggests an opposing meaning. Davis v. State, Dep’t of Transp., 3 159 P.3d 427, 431 (Wash. Ct. App. 2007). Indeed, the Court “will not read ambiguity into a 4 contract where it can reasonably be avoided.” GMAC v. Everett Chevrolet, Inc., 317 P.3d 1074,

5 1078 (Wash. Ct. App. 2014) (cleaned up). 6 One final point deserves mention. As noted, the Court construes the Policy as a whole, 7 meaning it “give[s] force and effect to each clause.” Transcon. Ins. Co., 760 P.2d at 340; 8 Certification from U.S. Dist. Ct. ex rel. W. Dist. of Wash. (Kroeber) v. GEICO Ins. Co., 366 P.3d 9 1237, 1239 (Wash. 2016) (“This court views an insurance contract in its entirety, does not interpret 10 a phrase in isolation, and gives effect to each provision.”). As particularly relevant here, this 11 includes consideration of “endorsements that explicitly change the terms of the policy.” Kut Suen 12 Lui, 375 P.3d at 602; see Transcon. Ins. Co., 760 P.2d at 343 (an endorsement forms part of the 13 policy “even if the result is a new and different contract”); Wash. Rev. Code § 48.18.520 (insurance 14 contracts “shall be construed” as modified by any endorsement).

15 b. Endorsement D’s Valuation Approach Is Not In The Prefatory Language 16 The Court begins with the prefatory language of Endorsement D. The parties agreed that, 17 with respect to each railcar, the Appraised Value (Reproduction Cost New) is 18 the fair retail price . . . that would result from an arm’s-length retail sales transaction . . . between an informed and willing seller under no compulsion to sell 19 and an informed and willing purchaser . . . under no compulsion to purchase, who is purchasing the [railcar] for its own usage (not for resale) with the intent of 20 utilizing the [railcar] in accordance with the [railcar’s] intended usage, such fair retail price being determined: 21 (i) by the cost of substituting another asset of comparable utility; 22 (ii) on the basis of the expense necessary to construct an exact duplicate of [the railcar],” given “current prices for identical components, criteria, design, 23 arrangement, and quality meeting current regulatory requirements (i.e., ‘reproduction cost new’ basis)”; 24 1 (iii) as of the applicable Lease Termination Date . . . . 2 Dkt. No. 14 at 59 (emphasis added). The criteria for determining “fair retail price” includes seven 3 subsections, but only the three above are relevant for purposes of the parties’ dispute. 4 In urging that Endorsement D’s valuation approach is defined by the language preceding

5 “such fair retail price being determined,” Financial Pacific reads into the Policy something that is 6 not there. The Policy states that the Appraised Value (Reproduction Cost New) of each railcar is 7 the “fair retail price,” and it specifically defines that term in the subsections (i.e., by the cost of 8 substituting another asset of comparable utility “on the basis of the expense necessary to construct 9 an exact duplicate of [the] subject property, considering current prices for identical components, 10 criteria, design, arrangement, and quality meeting current regulatory requirements,” as of the 11 applicable Lease Termination Date). Nowhere does “fair market value” appear. Financial Pacific 12 nonetheless contends that reference to “arm’s length retail sales transaction” and “informed and 13 willing” sellers and buyers operates as talismanic language incorporating “fair market value” into 14 the definition and superseding any subsequent language purporting to define the valuation

15 approach. See id. at 4–5 (“[T]he phrases ‘arms-length transaction’ [sic] and ‘informed and willing’ 16 buyer and sellers are the fundamental building blocks of the typical definition of fair market 17 value.”). This language does not have the effect or meaning that Financial Pacific suggests. 18 Two strong cues support that the parties intended “fair retail price” to be determined by the 19 listed criteria, not the prefatory language. First, the parties’ use of the phrase “such fair retail price 20 being determined” followed by a colon makes it clear that the fair retail price must be determined 21 by the criteria following the colon. Id. at 59. A sentence that follows a colon is one that “illustrates, 22 extends, or amplifies the preceding thought.” American Psychological Association, What are the 23 correct ways to use a colon?, https://apastyle.apa.org/learn/faqs/colon-use (last visited Jan. 15,

24 2016); see also United States v. Ernest E Marks Co., 29 C.C.P.A. 77, 80 (1941) (“[I]f the ordinary 1 rules of grammatical construction be followed, the language before the colon . . . must be regarded 2 as descriptive only[.]”). Here, “such fair retail price being determined,” coupled with a colon and 3 the ensuing numbered list, suggests that the list describes how to determine the fair retail price. 4 See Bachstein v. Discord, Inc., 424 F. Supp. 3d 1154, 1159 (M.D. Fla. 2019) (“[T]he sentence ends

5 in a colon, which is followed by a bulleted list of terms, suggesting that the additional terms and 6 conditions being referred to are contained in the bulleted list that follows.”). Indeed, the parties’ 7 other uses of colons in the Policy have the same function. See, e.g., Dkt. No. 14 at 36–37 (“At the 8 time of return, each Unit shall:” followed by a numbered list describing requirements at the time 9 of a unit’s return). Second, in executing Endorsement D, the parties kept the prefatory language 10 from the prior version of Section 2.01(d), but changed the criteria explaining how “such fair retail 11 price” would “be[] determined.” Compare Dkt. No. 14 at 44–45 with id. at 59–60; see also Dkt. 12 No. 56 at 31–32. Thus, the parties could not have intended or understood the prefatory language 13 to have independent, talismanic significance. 14 In sum, the text following the colon—not the prefatory language—defines the specific

15 valuation approach for the “fair retail price.” But the clarity ends there. 16 c. Sections 2.01(d)(i) And (ii) Render Endorsement D Ambiguous 17 As discussed above, the parties agreed that fair retail price of the rail cars would be 18 determined “by the cost of substituting another asset of comparable utility . . . on the basis of the 19 expense necessary to construct an exact duplicate of a subject property considering current prices 20 for identical components, criteria, design, arrangement, and quality meeting current regulatory 21 requirements[.]” Dkt. No. 14 at 59. The parties do not dispute that “a subject property” refers to 22 the rail cars. See Dkt. No. 57 at 5; Dkt. No. 58 at 2–3. However, the operative language creates a 23 potential conflict because the cost of substituting another asset of comparable utility for a rail car

24 is not necessarily the same as the expense of constructing an exact duplicate of a rail car. 1 Endorsement D therefore calls for two potentially irreconcilable valuation methods. And to salvage 2 Endorsement D, the Court would have to render Section 2.01(d)(i) or (d)(ii) meaningless. That it 3 cannot do. 4 An analogy is helpful. If the insured property were a 2017 Ford F-150, the policy would

5 require an appraiser to determine its fair retail price by (1) the cost of substituting another truck of 6 comparable utility (say, a Ram 1500), (2) “on the basis of” the cost of constructing the F-150 new 7 using current prices for its components, etc., and meeting the quality standards required by current 8 regulations. It is entirely possible that those two values are different. And if the Ram 1500’s price 9 was $25,000 and the cost to build the F-150 new was $35,000, the language of the agreement does 10 not provide a legally viable avenue for resolution. Either the appraiser is to determine the cost of 11 substitution (which in reality is $25,000) “on the basis of” something different (i.e., the $35,000 12 new build cost), in which case the language of Section 2.01(d)(i) is rendered meaningless, or the 13 appraiser is left with two different numbers and no language in Endorsement D indicating how to 14 reconcile them.

15 “An interpretation of a contract that gives effect to all provisions is favored over an 16 interpretation that renders a provision ineffective, and a court should not disregard language that 17 the parties have used.” Snohomish Cnty. Pub. Transp. Benefit Area Corp. v. FirstGroup Am., Inc., 18 271 P.3d 850, 856 (Wash. 2012). The plain language of Endorsement D does not provide a clear 19 way to give effect to both Section 2.01(d)(i) and (ii). See Slottow v. Am. Cas. Co. of Reading, Pa., 20 10 F.3d 1355, 1361 (9th Cir. 1993) (language preceding a colon applies equally to the clauses that 21 follow). And although the thrust of Endorsement D—as indicated by its title—seems to be that the 22 appraisal value of the rail cars is “reproduction cost new,”5 such construction renders ineffective 23

5 See Dkt. No. 14 at 59 (endorsements title is “Endorsement D Establishment of Reproduction Cost New Appraisal 24 1 Section 2.01(d)(i). Indeed, cases and articles discussing the different valuation methods suggest 2 that substitution (i.e., replacement) cost and reproduction cost are often two different values.6 The 3 excerpt of the “Valuing Machinery and Equipment” text that RVI America attaches to its 4 supplemental brief also differentiates between the two: “The appraiser starts with the current

5 replacement cost new (or in some circumstances the reproduction cost new) of the property being 6 appraised[.]” Dkt. No. 57 at 12. 7 The Court thus reaches the same conclusion as the R&R, albeit via a different path: the 8 Policy is ambiguous. 9 d. Financial Pacific’s Breach Of Contract Claim Must Be Dismissed 10 RVI America contends that, because the Appraised Value (Reproduction Cost New) 11 definition is unambiguous, “FinPac failed to state a breach of contract claim.” Dkt. No. 47 at 13. 12 The Court disagrees because it finds the definition ambiguous for the reasons just discussed. 13 However, it is unclear whether—and to what degree—Financial Pacific’s breach of contract claim 14 is based on its failed arguments regarding the prefatory text of Endorsement D.

15 Financial Pacific predicates its breach of contract claim on RVI America’s “fail[ure] to pay 16 for . . . the decline in value of the Hal[l]iburton Units caused by changes in market conditions.” 17 Methodology for Two Hundred Fifty (250) Units Only,” and subsection (d) heading is “Appraised Value 18 (Reproduction Cost New)” (capitalization altered)); see also id. at 60 (stating that old section 5.02 is “deleted and replaced” with “5.02 The End of Term Value of the Unit shall be the Appraised Value (Reproduction Cost New)”). 19 6 See, e.g., Robert F. Reilly, Personal Property Appraisal Report Guidelines, 23 Am. Bankr. Inst. J. 46, 67 (July/August 2004) (“It is essential that the appraiser understand the difference between replacement cost new and 20 reproduction cost new. Replacement cost is the current cost of a similar new property having the nearest equivalent utility as the property being appraised, whereas reproduction cost is the current cost of reproducing a new replica of the property being appraised using the same, or closely similar, materials.” (quoting Valuing Machinery and 21 Equipment, American Society of Appraisers, 2000, p. 46)); James A. Amdur, Property Taxation of Regulated Industries, 40 Tax Law. 339, 359–60 (1987) (“In theory, functional obsolescence [i.e., loss in value resulting from 22 improvements in technology and inadequacy of the property for present needs] is the difference between reproduction cost new and replacement cost new. It reflects the fact that a company ordinarily would not reproduce the property, 23 but rather would replace it with a substitute reflecting the current state of the art.” (footnote omitted)); Farmers Union Cent. Exch. v. FERC, 584 F.2d 408, 412 n.3 (D.C. Cir. 1978) (differentiating between “the reproduction cost (present cost of reproducing the same physical assets)” and “the replacement cost (present cost of building a like enterprise 24 taking advantage of modern technology)”). 1 Dkt. No. 14 at 10. “Changes in market conditions” can be reflected in either reproduction cost new 2 or replacement cost new, because those valuation approaches consider current prices for either a 3 comparable substitute for, or a new reconstruction of, the subject property. However, there is some 4 indicia that Financial Pacific’s allegations are based on its theory that the prefatory language of

5 Endorsement D defines the valuation method. See, e.g., id. at 8–9 (alleging that RVI America 6 should have valued the cars at their fair market value of $28,000 or less); Dkt. No. 31 at 5, 14 7 (same); Dkt. No. 48 at 2–6 (same). To the extent Financial Pacific’s breach of contract claim is 8 premised on that now-rejected theory, the claim is dismissed. The Court will permit Financial 9 Pacific to revise its breach of contract theory in a second amended complaint. 10 4. Illusory Coverage 11 RVI America next argues that Financial Pacific’s illusory coverage claim should be 12 dismissed. Dkt. No. 47 at 13–14. To recap, Financial Pacific seeks a declaratory judgment that the 13 Policy’s coverage is illusory and therefore unenforceable, even if RVI America’s interpretation of 14 the Appraised Value (Reproduction Cost New) definition is correct. Dkt. No. 14 at 10. Judge

15 Vaughan found that she could not determine “how or when coverage might exist under the Policy” 16 or “whether coverage under the Policy is illusory” because the Appraised Value (Reproduction 17 Cost New) definition is ambiguous. Dkt. No. 43 at 15. As with Financial Pacific’s breach of 18 contract claim, RVI America now contends that any claim for illusory coverage must also fail 19 because the Policy is unambiguous. Dkt. No. 47 at 14. The Court disagrees. 20 An insurance policy is illusory if an insured does not receive some benefit (i.e., coverage) 21 in exchange for the insurance premiums it pays, such as when a policy excludes coverage for all 22 occurrences. Neil Jones Food Co. v. Traveler’s Cas. Ins. Co., No. 3:15-CV-5459-RJB, 2016 WL 23 150382, at *3–4 (W.D. Wash. Jan. 13, 2016) (policies were not illusory because they provided

24 coverage “in at least two circumstances, either of which would be legally sufficient on its own”); 1 Quadrant Corp., 110 P.3d at 743 (“If the absolute pollution exclusion is so broad that it excludes 2 coverage for all occurrences, then the insurance contract would be illusory because it would render 3 the business liability policy meaningless.”). Courts will not give effect to interpretations that would 4 render a contract illusory. SAK & Assocs., Inc. v. Ferguson Constr., Inc., 357 P.3d 671, 675 (Wash.

5 Ct. App. 2015). 6 Financial Pacific alleges that RVI America’s calculation of End of Term Value applies a 7 straight-line depreciation of 3.1% per year. Dkt. No. 14 at 9. Thus, at the end of a five-year lease, 8 the railcars’ End of Term Value is approximately 84.5% of the original equipment cost. Id. The 9 problem is that the Insured Value of the railcars is only 60% of the original equipment cost, 10 meaning “there could never be a covered loss under RVI’s calculation of the End of Term Value.” 11 Id.; see Dkt. No. 14 at 46 (defining “Loss” as “the amount, if any, by which the sum of the Insured 12 Values of all Units . . . exceeds the sum of the End of Term Values thereof on the Lease 13 Termination Date[.]”). RVI America counters with a hypothetical situation in which the railcars 14 “might have depreciated along a more normal curve” and resulted in a covered loss. Dkt. No. 23

15 at 26. 16 As a threshold matter, it is unclear where depreciation comes into play in Section 2.01(d). 17 RVI America argues that Endorsement D follows the “cost approach,” which “starts with the 18 current replacement cost new (or in some circumstances the reproduction cost new) of the property 19 being appraised, and then deducts for the loss in value caused by physical deterioration, functional 20 obsolescence, and economic obsolescence.” Dkt. No. 57 at 5, 8–9, 12 (emphasis added). But while 21 the cost approach is a common valuation method to “estimate[] the current cost (as if new) of the 22 subject property less all forms of depreciation,” Reilly, Personal Property Appraisal Report 23 Guidelines, 23 Am. Bankr. Inst. J. at 67, nothing in Section 2.01(d) mentions depreciation. Instead,

24 Section 2.01(d) includes only the starting points of the cost approach: replacement cost new and 1 reproduction cost new. Dkt. No. 14 at 59. 2 In any event, Section 2.01(d)’s ambiguity makes it impossible for the Court to determine 3 at this juncture whether the Policy is illusory. Taken as true, Financial Pacific’s allegations 4 sufficiently plead a claim for illusory coverage, and nothing in RVI America’s objections changes

5 that. Indeed, and as already noted, its objections rely on its failed argument that the Appraised 6 Value (Reproduction Cost New) definition is unambiguous. Dkt. No. 47 at 13–14. The motion to 7 dismiss is denied with respect to this claim. 8 5. Declaratory Judgment 9 Judge Vaughan’s Report and Recommendation does not address Financial Pacific’s 10 declaratory judgment claim. See generally Dkt. No. 43; Dkt. No. 14 at 10–11; but see Dkt. No. 48 11 at 10 (response to objections arguing that declaratory judgment claim should not be dismissed). In 12 its complaint, Financial Pacific contends that it is entitled to “declaratory relief holding that . . . 13 the determination of End of Term Value under the Policy is ambiguous and must be construed to 14 accomplish the purpose of the insurance purchased[.]” Dkt. No. 14 at 10. It similarly requests a

15 judicial declaration that it is “entitled to coverage for the amount by which the sum of the Insured 16 Values of the Hal[l]iburton Units exceeds the fair market value of the units at the Lease 17 Termination Date.” Id. at 11. This portion of Financial Pacific’s declaratory judgment claim is 18 dismissed (with leave to amend) because it relies on the failed argument that Endorsement D’s 19 valuation method is set out in the prefatory language. However, Financial Pacific alternatively asks 20 for declaratory relief stating that “RVI’s calculation of End of Term Value and covered Loss would 21 render coverage under the Policy illusory and is therefore unenforceable[.]” Dkt. No. 14 at 10. 22 This aspect of its claim survives for the reasons set forth above. 23 6. Bad Faith

24 Financial Pacific alleges that RVI America breached its duties of good faith and fair dealing 1 by “denying coverage based on [an] unreasonable, frivolous, [and] unfounded interpretation of the 2 Policy,” and “issuing an insurance policy that, under RVI’s proffered post-claim interpretation of 3 the applicable policy language, could not (i) transfer risk from Financial Pacific to RVI or 4 (ii) provide coverage consistent with RVI’s pre-claim representations to Financial Pacific.” Dkt.

5 No. 14 at 11. Although RVI America’s motion to dismiss asserts that “FinPac’s Third Cause of 6 Action (Insurance Bad Faith) is predicated entirely on FinPac’s breach of contract claim,” Dkt. 7 No. 23 at 11, the motion does not otherwise mention the bad faith claim, see generally Dkt. No. 8 23. Nor does Judge Vaughan’s Report and Recommendation. See generally Dkt. No. 43. 9 The Court declines to dismiss Financial Pacific’s bad faith claim in the absence of any 10 argument from RVI America regarding why it should do so. 11 7. CPA and IFCA 12 RVI America next argues that Financial Pacific’s CPA and IFCA claims should be 13 dismissed. Dkt. No. 47 at 14. Here again, the basis for its objection is that the Policy language is 14 unambiguous and, because Financial Pacific’s breach of contract claim fails, so too must its

15 extracontractual claims. Id. But again the Court disagrees—at least in part. 16 a. CPA Claim 17 Financial Pacific bases its CPA claim on RVI America’s alleged bad faith (as detailed 18 above) and violations of two insurance regulations. Dkt. No. 14 at 11–12. Specifically, Financial 19 Pacific alleges that RVI America refused to pay its loss claim without conducting a reasonable 20 investigation, see Wash. Admin. Code § 284-30-330(4), and failed to promptly provide a 21 reasonable explanation of the basis in the Policy in relation to the facts or applicable law for denial 22 of its claim, see id. § 284-30-330(13). Dkt. No. 14 at 11–12. 23 To establish a CPA claim, a plaintiff must show that (1) the defendant engaged in an unfair

24 or deceptive act or practice (2) occurring in trade or commerce and (3) impacting the public interest 1 that (4) injured the plaintiff’s business or property and (5) was caused by the defendant. Hangman 2 Ridge Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 533 (Wash. 1986). Violations of 3 Washington’s insurance regulations are per se violations of the CPA. Truck Ins. Exch. v. Vanport 4 Homes, Inc., 58 P.3d 276, 283–84 (Wash. 2002). An insurer’s bad faith likewise constitutes a per

5 se violation of the CPA. Ledcor Indus. (USA), Inc. v. Mut. of Enumclaw Ins. Co., 206 P.3d 1255, 6 1262 (Wash. Ct. App. 2009). 7 Financial Pacific has pleaded a plausible CPA claim based on RVI America’s alleged bad 8 faith, see supra Section II.A.6, and on its alleged violation of Section 284-30-330(13) of 9 Washington’s insurance regulations. That is not the case, however, with respect to the alleged 10 violation of Section 284-30-330(4) of Washington’s insurance regulations. 11 “An insurer must make a good faith investigation of the facts before denying coverage and 12 may not deny coverage based on a defense that [a] reasonable investigation would have proved to 13 be without merit.” Rizzuti, 105 P.3d at 1020. It is unfair and deceptive for an insurer to refuse to 14 pay claims without conducting a reasonable investigation. Wash. Admin. Code § 284-30-330(4).

15 But nowhere in its amended complaint does Financial Pacific advance facts that, taken as true, 16 demonstrate a deficiency in RVI America’s investigation. Indeed, Financial Pacific takes issue 17 with RVI America’s interpretation and application of the Appraised Value (Reproduction Cost 18 New) definition to the facts of the claim, not its predicate investigation. See Young v. Safeco Ins. 19 Co. of Am., No. 20-CV-01816-LK, 2022 WL 4017893, at *15 (W.D. Wash. Sept. 2, 2022) (“[T]he 20 crux of this dispute is not the sufficiency of Safeco’s underlying investigation—it is Safeco’s 21 application of the vandalism provision to the facts uncovered during that investigation.”). This 22 portion of Financial Pacific’s CPA claim is dismissed. Financial Pacific will have the opportunity 23 to supply allegations in support of this claim in a second amended complaint.

24 RVI America’s motion to dismiss is granted in part and denied in part with respect to 1 Financial Pacific’s CPA claim. 2 b. IFCA Claim 3 Financial Pacific alleges that RVI America violated IFCA by “unreasonably failing and 4 refusing to cover” its loss claim. Dkt. No. 14 at 12. It further contends that the alleged insurance

5 regulation violations discussed above constitute violations of IFCA. Id. 6 IFCA authorizes a first-party claimant to an insurance policy “who is unreasonably denied 7 a claim for coverage or payment of benefits by an insurer” to bring an action for damages. Wash. 8 Rev. Code § 48.30.015(1). The statute creates two circumstances under which an insurer may be 9 liable: when it unreasonably denies a claim for coverage or when it unreasonably denies a payment 10 of benefits. Ainsworth v. Progressive Cas. Ins. Co., 322 P.3d 6, 20 (Wash. Ct. App. 2014). As 11 relevant here, an insurer also violates IFCA when it violates any of the insurance regulations. See 12 Wash. Rev. Code § 48.30.015(5)(a). But the Washington Supreme Court has clarified that IFCA 13 “does not create an independent cause of action for regulatory violations” absent an underlying 14 unreasonable denial of coverage or payment of benefits. Perez-Crisantos v. State Farm Fire &

15 Cas. Co., 389 P.3d 476, 483 (Wash. 2017). 16 Financial Pacific has pleaded a plausible IFCA claim based on RVI America’s allegedly 17 unreasonable denial of coverage, see supra Section II.A.6, and on its alleged violation of Section 18 284-30-330(13) of Washington’s insurance regulations. However, for the reasons discussed above, 19 the portion of Financial Pacific’s IFCA claim predicated on RVI America’s violation of Section 20 284-30-330(4) of the Washington Administrative Code is dismissed with leave to amend. RVI 21 America’s motion to dismiss is granted in part and denied in part with respect to Financial Pacific’s 22 IFCA claim. 23 8. Mandatory Appraisal Procedure

24 According to RVI America, “no ‘conclusively binding’ determination of the End of Term 1 Value of the railcars was ever made by a third Qualified Inspector/Appraiser pursuant to Section 2 5.03(e).” Dkt. No. 34 at 13. It contends that Financial Pacific “does not have a claim under the 3 Policy entitling it to relief” until the appraisal procedure is completed. Dkt. No. 23 at 27; see Dkt. 4 No. 34 at 13 (“It is well-established that, where the insurance policy has mandatory appraisal

5 procedures, the insured must complete these appraisal proceedings before it can bring an action 6 against the insurer.”). Judge Vaughan rejected this argument on two grounds. First, she reasoned 7 that Financial Pacific sufficiently pleaded compliance with all conditions precedent by alleging 8 that it had submitted a Preliminary Notice of Claim and Notice of Claim to RVI America. Dkt. 9 No. 43 at 17. And second, RVI America could have unilaterally proceeded with the appraisal 10 procedure to obtain a “conclusively binding” End of Term Value without Financial Pacific’s 11 participation. Id. at 17–18; Dkt. No. 14 at 51 (stating that if either party fails to choose an appraiser 12 within 15 business days after having received a written request from the other party to do so, the 13 requesting party will choose both appraisers, who will then choose a third appraiser to make a 14 conclusively binding End of Term Value determination). Judge Vaughan thus concluded that the

15 failure to secure a conclusively binding End of Term Value was “also the fault of [RVI America],” 16 and the lack of such an appraisal should not bar Financial Pacific’s claims. Dkt. No. 43 at 18. 17 RVI America’s objections on this issue are paltry to say the least. It cites to its motion and 18 reply brief and states that, “[f]or the reasons previously argued, the R&R’s recommendation is 19 incorrect.” Dkt. No. 47 at 15. The Court disagrees once again. 20 Appraisal provisions “are universally held to be valid and enforceable, and, if the assured 21 refuses to comply with a demand for appraisal, such refusal may be plead in bar of a recovery.” 22 Keesling v. W. Fire Ins. Co., 520 P.2d 622, 626 (Wash. Ct. App. 1974); accord MKB Constructors 23 v. Am. Zurich Ins. Co., No. C13-0611-JLR, 2014 WL 2533286, at *3 (W.D. Wash. June 5, 2014)

24 (“Washington law is generally supportive of appraisal provisions in insurance policies.”); Graham 1 v. Country Mut. Ins. Co., No. 2:20-CV-00189-SAB, 2021 WL 5239795, at *2 (E.D. Wash. Feb. 9, 2 2021) (“When a party makes a demand for appraisal pursuant to a provision in an insurance policy, 3 a party’s refusal to engage in appraisal may serve as a bar to recovery.”). Public policy favors 4 enforcement of appraisal provisions because they “provide a plain, inexpensive and speedy

5 determination of the extent of the loss.” Keesling, 520 P.2d at 625. Courts have accordingly stayed 6 litigation to permit the parties to complete their policy’s appraisal process. See MKB Constructors, 7 2014 WL 2533286, at *4. 8 However, as Judge Vaughan observed, Financial Pacific was not alone with respect to 9 appraisal obligations. True, Financial Pacific alleged that it “ha[d] fulfilled its obligations under 10 the Policy and ha[d] satisfied all conditions precedent” at the time it filed its complaint, Dkt. No. 11 14 at 10, and subsequently admitted that the appraisal under Section 5.03 of the Policy never 12 happened, Dkt. No. 31 at 16. But RVI America concedes that Financial Pacific initiated “the claim 13 submission procedures required by the Policy,” Dkt. No. 23 at 27; specifically, Financial Pacific 14 adhered to Section 5.01’s requirement that an insured submit “a written notice of objection

15 accompanied by [its] determination of the End Of Term Value and an appraisal of the Unit 16 performed by a Qualified Inspector/Appraiser,” Dkt. No. 14 at 8, 50. From there, if the parties fail 17 to “agree upon the End Of Term Value,” the Policy requires them to either (i) request that their 18 existing appraisers continue to act for them, or (ii) each select a new appraiser and allow those two 19 appraisers to select a third appraiser. Id. at 51 (Section 5.03(b)). And, if one of the parties fails to 20 choose an appraiser within 15 days of “a written request from the other party to do so,” the 21 requesting party “will” then choose both of the first two appraisers, who “will” choose a third to 22 perform a “conclusively binding” appraisal. Id. (Sections 5.03(d)–(e)). 23 In other words, it is undisputed that Financial Pacific complied with its obligations under

24 Section 5.01, and even assuming for the sake of argument that it failed to request that its existing 1 appraiser continue to represent it or select a new appraiser under Section 5.03(b), the Policy 2 anticipates such failing and places the onus on RVI America to finish the process. See Dkt. No. 14 3 at 51 (“the other party will choose both Qualified Inspectors/Appraisers, and they will choose the 4 third Qualified Inspector/Appraiser” to perform the final appraisal (emphasis added)). Thus, the

5 Court denies RVI America’s motion to dismiss on this basis.7 6 9. Leave to Amend 7 “A party may amend its pleading with the court’s leave, which ‘[t]he court should freely 8 give . . . when justice so requires.’” Hoang v. Bank of Am., N.A., 910 F.3d 1096, 1102 (9th Cir. 9 2018) (alteration in original) (quoting Fed. R. Civ. P. 15(a)(2)). As the language of the rule 10 suggests, the standard for leave to amend is “very liberal.” AmerisourceBergen Corp. v. Dialysist 11 W., Inc., 465 F.3d 946, 951 (9th Cir. 2006); Morongo Band of Mission Indians v. Rose, 893 F.2d 12 1074, 1079 (9th Cir. 1990) (“[T]his policy is to be applied with extreme liberality.”). The Court 13 considers five factors when determining whether to grant leave to amend: (1) bad faith, (2) undue 14 delay, (3) prejudice to the opposing party, (4) futility of amendment, and (5) whether the party has

15 previously amended the complaint. Desertrain v. City of Los Angeles, 754 F.3d 1147, 1154 (9th 16 Cir. 2014). “The party opposing amendment bears the burden of showing why leave to amend 17 should not be granted.” Hedglin v. Swift Transp. Co. of Ariz., No. C16-5127-BHS, 2016 WL 18 8738685, at *1 (W.D. Wash. Nov. 15, 2016). 19 Leave to amend is appropriate here. First, the Ninth Circuit has repeatedly emphasized that 20 “[a] district court abuses its discretion by denying leave to amend unless amendment would be 21 futile or the plaintiff has failed to cure the complaint’s deficiencies despite repeated opportunities.” 22

23 7 The Court’s determination on this issue should not be construed as a determination regarding whether either party has waived any of its rights under the Policy. See Giulietti v. Conn. Ins. Placement Facility, 534 A.2d 213, 217 (Conn. 24 1987); Goldstein v. Nat'l Fire Ins. Co., 180 P. 409, 411–12 (Wash. 1919). 1 AE ex rel. Hernandez v. Cnty. of Tulare, 666 F.3d 631, 636 (9th Cir. 2012); accord Heineke v. 2 Santa Clara Univ., 812 F. App’x 644, 645 (9th Cir. 2020); see also Ebner v. Fresh, Inc., 838 F.3d 3 958, 963 (9th Cir. 2016) (“In dismissing for failure to state a claim, a district court should grant 4 leave to amend even if no request to amend the pleading was made, unless it determines that the

5 pleading could not possibly be cured by the allegation of other facts.” (cleaned up)). For the reasons 6 discussed above, amendment would not be futile here. An amendment is futile only when “no set 7 of facts can be proved . . . that would constitute a valid and sufficient claim[.]” Miller v. Rykoff- 8 Sexton, Inc., 845 F.2d 209, 214 (9th Cir. 1988), overruled on other grounds by Iqbal, 556 U.S. at 9 678. And while Financial Pacific previously amended its complaint, it did so to add an IFCA 10 claim—not to cure an identified deficiency. Compare Dkt. No. 1 at 11–12, with Dkt. No. 14 at 12. 11 It also did so before RVI America filed an answer or other motion, and only about a month after 12 filing the original complaint. 13 As for the remaining three factors—bad faith, undue delay, and prejudice to the opposing 14 party—the Court discerns nothing in the record sufficient to overcome Rule 15(a)’s presumption

15 in favor of leave to amend. See Eminence Cap., LLC v. Aspeon, Inc., 316 F.3d 1048, 1052 (9th 16 Cir. 2003) (prejudice to the opposing party “carries the greatest weight” and, absent prejudice or a 17 “strong showing” under the other factors, there is a presumption in favor of granting leave to 18 amend). RVI America does not argue (and thus has not shown) that Financial Pacific intends to 19 amend its complaint in bad faith or that permitting a second amended complaint will result in 20 undue delay. RVI America’s sole ground for opposing amendment is futility—an argument the 21 Court has already rejected. See Dkt. No. 34 at 13–14. Moreover, this case is relatively young. 22 Discovery does not close until April 2024, dispositive motions are not due until May 2024, and 23 trial is over a year away. Dkt. No. 62 at 1–2; see DCD Programs, Ltd. v. Leighton, 833 F.2d 183,

24 187–88 (9th Cir. 1987) (granting leave to amend did not prejudice opposing party because case 1 was “still at the discovery stage with no trial date pending”).8 For these reasons, the Court grants 2 Financial Pacific leave to amend its complaint. 3 B. Objections to Order on Discovery Motion 4 The Court now turns to Judge Vaughan’s order denying RVI America’s request to stay

5 discovery or, alternatively, for a protective order. Dkt No. 51. Where, as here, a non-dispositive 6 pretrial matter is referred to a magistrate judge, the Court must “modify or set aside any part of the 7 order that is clearly erroneous or is contrary to law.” Fed. R. Civ. P. 72(a); 28 U.S.C. 8 § 636(b)(1)(A) (“A judge of the court may reconsider any pretrial matter . . . where it has been 9 shown that the magistrate judge’s order is clearly erroneous or contrary to law.”). The Court 10 reviews Judge Vaughan’s factual determinations for clear error, Nichols v. Geico Gen. Ins. Co., 11 No. 2:18-CV-01253-RAJ-MAT, 2020 WL 2832514, at *2 (W.D. Wash. June 1, 2020), a 12 “significantly deferential” standard that “is not met unless the reviewing court is left with a definite 13 and firm conviction that a mistake has been committed,” Fisher v. Tucson Unified Sch. Dist., 652 14 F.3d 1131, 1136 (9th Cir. 2011) (cleaned up). As for Judge Vaughan’s legal conclusions, the Court

15 reviews those de novo to determine whether they are contrary to law. Nichols, 2020 WL 2832514, 16 at *2. 17 RVI America cabins its objections to Judge Vaughan’s ambiguity finding. Dkt. No. 52 at 18 2–4; see id. at 1 (“[B]ecause the Magistrate Judge’s prior finding of ambiguity was erroneous, it 19 follows that such reliance on that same prior finding in denying the Protective Order Motion is 20 also erroneous.”). It points to the Washington Supreme Court’s recent decision in Seattle Tunnel 21 Partners, 516 P.3d 796 (Wash. 2022), as further support for its position that the Policy is 22 unambiguous. Dkt. No. 52 at 5–6, 9–24. RVI America contends that if the Court “reverse[s]” Judge 23

24 8 The cutoff for amended pleadings is February 23, 2024. Dkt. No. 62 at 1. 1 Vaughan’s Report and Recommendation, “the case will be over, the First Amended Complaint 2 will be dismissed for failure to state a claim, and the Protective Order Motion will be moot.” Id. at 3 7. But the Court is not dismissing this case, and Financial Pacific will have the opportunity to file 4 a second amended complaint. RVI America anticipated this outcome. It argues in the alternative

5 that, “if the case remains alive, the Court should still grant the Protective Order Motion because 6 the Policy is unambiguous and discovery into an individual’s views about unambiguous insurance 7 policy terms is not appropriate.” Id.; see also Dkt. No. 36 at 8; Dkt. Nos. 37-1, 37-2. 8 1. Discovery Stay 9 RVI America moved to stay discovery pending the Court’s ruling on its motion to dismiss. 10 See Dkt. No. 36 at 1–2. Since the Court has now ruled on the motion to dismiss, RVI America’s 11 request is denied as moot. 12 2. Protective Order 13 Although the Court has a different basis for its finding of ambiguity, Judge Vaughan’s 14 order denying RVI America’s request for a protective order was not contrary to law.

15 a. Legal Standard 16 Parties generally have the right to discover “any nonprivileged matter that is relevant to 17 any party’s claim or defense and proportional to the needs of the case[.]” Fed. R. Civ. P. 26(b)(1). 18 The Court may, however, limit discovery “for good cause . . . to protect a party or person from 19 annoyance, embarrassment, oppression, or undue burden or expense[.]” Fed. R. Civ. P. 26(c)(1). 20 Among other options, the Court may protect the resisting party by “forbidding the disclosure or 21 discovery” sought, “forbidding inquiry into certain matters, or limiting the scope of disclosure or 22 discovery to certain matters[.]” Fed. R. Civ. P. 26(c)(1)(A), (c)(1)(D). “Rule 26(c) confers broad 23 discretion on the trial court to decide when a protective order is appropriate and what degree of

24 protection is required.” Seattle Times Co. v. Rhinehart, 467 U.S. 20, 36 (1984). 1 To establish good cause for a protective order, “the party seeking protection bears the 2 burden of showing specific prejudice or harm will result if no protective order is granted.” Phillips 3 ex rel. Ests. of Byrd v. Gen. Motors Corp., 307 F.3d 1206, 1210–11 (9th Cir. 2002). “Under the 4 liberal discovery principles of the Federal Rules, a party seeking a protective order carries a heavy

5 burden of showing why discovery should be denied.” Klopman-Baerselman v. Air & Liquid Sys. 6 Corp., No. 3:18-CV-05536-RJB, 2019 WL 5227332, at *2 (W.D. Wash. Oct. 16, 2019) (citing 7 Blankenship v. Hearst Corp., 519 F.2d 418, 429 (9th Cir. 1975)). Rule 26(c) thus requires more 8 than broad allegations of harm; the resisting party must supply specific examples and articulated 9 reasoning. Beckman Indus., Inc. v. Int’l Ins. Co., 966 F.2d 470, 476 (9th Cir. 1992); see also Doe 10 v. Trump, 329 F.R.D. 262, 270 (W.D. Wash. 2018) (“The party who resists discovery has the 11 burden to show that discovery should not be allowed, and has the burden of clarifying, explaining, 12 and supporting its objections with competent evidence[.]” (cleaned up)). 13 b. RVI America is Not Entitled to a Protective Order 14 As Judge Vaughan noted, RVI America makes no showing that the information Financial

15 Pacific seeks will annoy, embarrass, oppress, or impose an undue burden or expense. Dkt. No. 51 16 at 5–6. It instead argues that the interrogatories and requested documents target information that 17 is “wholly irrelevant because FinPac’s claims for breach of contract and ‘illusory’ coverage are 18 pure questions of law that are to be decided by the Court based on the clear and unambiguous 19 Policy language.” Dkt. No. 36 at 8 (“The requested document discovery and interrogatories seek 20 . . . information that [is] impermissible to show an ambiguity or that coverage is ‘illusory.’”). 21 “District courts have broad discretion in determining relevancy for discovery purposes.” 22 Surfvivor Media, Inc. v. Survivor Prods., 406 F.3d 625, 635 (9th Cir. 2005). And information need 23 not be admissible in evidence to be discoverable. Fed. R. Civ. P. 26(b)(1). The party seeking the

24 discovery has the burden of establishing that its requests are relevant. Doe, 329 F.R.D. at 270. 1 Even a cursory glance at the challenged interrogatories reveals that they request 2 information bearing directly on Financial Pacific’s surviving claims. They ask RVI America to do 3 the following: 4 • (No. 1) “describe with specificity the full basis, including any supporting facts, for [its]

5 contention that there is no covered loss under the Policy for the Hal[l]iburton Units” 6 (relevant to all claims); 7 • (No. 2) “describe with specificity the full basis, including any supporting facts, for [its] 8 contention that the End of Term Value of the Hal[l]iburton Units is between $67,500.00 9 and $69,500.00” (relevant to all claims); 10 • (No. 3) “describe . . . what [it] contend[s] the End of Term Value is for the Hal[l]iburton 11 Units and how [it] reached this figure” (relevant to all claims); 12 • (No. 4) “identify all persons involved in underwriting the Policy for the Hal[l]iburton 13 Units” (at least relevant to illusory coverage, bad faith, and CPA claims); 14 • (No. 5) “identify all persons involved in the claims handling of Financial Pacific’s

15 claim under the Policy related to the Hal[l]iburton Units” (relevant to all claims); 16 • (No. 6) “identify all persons involved in the appraisal process for Financial Pacific’s 17 claim under the Policy related to the Hal[l]iburton Units” (relevant to all claims); and 18 • (No. 7) “identify specific instances of when RVI paid a loss covered under a residual 19 value insurance policy that contained the same language found in ‘Endorsement D’ of 20 the Policy” (at least relevant to illusory coverage, bad faith, and CPA claims). 21 Dkt. No. 37-1 at 6–7. 22 The challenged document requests are likewise relevant to Financial Pacific’s claims. For 23 example, Financial Pacific seeks any documents and communications (No. 3) “comprising the 24 underwriting file for the Policy” (at least relevant to illusory coverage, bad faith, and CPA claims); 1 (No. 4) “depicting or containing the information [RVI America] considered while underwriting 2 the Policy” (at least relevant to illusory coverage, bad faith, and CPA claims); (No. 5) “that refer 3 or relate to [RVI America’s] claim and/or investigation file(s) for any claim made by Financial 4 Pacific that refers or relates to the Hal[l]iburton Units” (relevant to all claims); (No. 6) “that refer

5 or relate to any appraisal of the Hal[l]iburton Units” (relevant to all claims); and (No. 7) “that refer 6 or relate to the application of ‘Endorsement D’ to the Policy” (relevant to all claims). Dkt. No. 37- 7 2 at 6. 8 RVI America categorically resisted Financial Pacific’s requests based on its belief that the 9 motion to dismiss would wholesale resolve this case and obviate the need for any discovery. 10 Because RVI America’s motion for a protective order is based on its now-rejected argument that 11 Endorsement D is not ambiguous, and because Financial Pacific’s requests are relevant, the Court 12 overrules RVI America’s objections to Judge Vaughan’s order. 13 III. CONCLUSION 14 The Court MODIFES IN PART Judge Vaughan’s Report and Recommendation, Dkt. No.

15 43, and GRANTS IN PART and DENIES IN PART RVI America’s Motion to Dismiss, Dkt. No. 16 23. The Court further OVERRULES RVI America’s Partial Objections to the September 9, 2022 17 Order Denying Motion for a Stay and Protective Order. Dkt. No. 52. Financial Pacific shall file its 18 second amended complaint no later than 21 days from the date of this Order. 19 Dated this 3rd day of July, 2023. 20 A 21 Lauren King United States District Judge 22 23 24