Shangri-la Llc, V. Eagle West Insurance Company

CourtCourt of Appeals of Washington
DecidedAugust 26, 2024
Docket86117-4
StatusUnpublished

This text of Shangri-la Llc, V. Eagle West Insurance Company (Shangri-la Llc, V. Eagle West Insurance Company) is published on Counsel Stack Legal Research, covering Court of Appeals of Washington primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Shangri-la Llc, V. Eagle West Insurance Company, (Wash. Ct. App. 2024).

Opinion

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

SHANGRI-LA LLC, a Washington limited liability company, No. 86117-4-I

Appellant, DIVISION ONE

v. UNPUBLISHED OPINION

EAGLE WEST INSURANCE COMPANY, a foreign insurance company,

Respondent.

BIRK, J. — Shangri-La LLC sent a notice of claim to Eagle West Insurance

Company requesting coverage under its policy for damage to the roof of its

apartment building. Eagle West denied coverage and Shangri-La filed and served

a summons and complaint on Eagle West. Eagle West never filed an answer or

appeared in the lawsuit. A superior court commissioner entered an order finding

Eagle West in default and a default judgment awarding Shangri-La approximately

$8 million in damages and attorney fees. Fifteen months after the default

judgment’s entry, Eagle West filed a motion to vacate the default judgment, which

the commissioner denied. Finding an informal appearance, a superior court judge

granted Eagle West’s motion for revision and vacated the default order and

judgment. We reverse and remand for the default judgment to be reinstated.

Eagle West failed to appear in the lawsuit, it was not entitled to notice of the default No. 86117-4-I/2

motions, and its remaining arguments are time barred because it filed its motion to

vacate over a year after its entry.

I

Shangri-La is the owner of the Shangri-La apartment building located in

Bothell, Washington. Eagle West is Shangri-La’s property insurance company.

The coverage agreement is a blanket policy covering multiple structures at 13

locations, including Shangri-La’s building.

On February 19, 2021, Wetherholt and Associates Inc. completed and

dated a roof condition evaluation report. According to the report, Fields Roof

Service maintenance personnel noticed a soft spot on the roof “deck” during repair

work on October 7, 2020. The maintenance workers had encountered a

“significant amount of deterioration in the oriented strand board (OSB) sheathing

and concluded the repair work without addressing a second similar location.” After

summarizing its general observations of the building, Wetherholt stated, “[T]he roof

appears to be suffering from lack of balanced air circulation under the OSB

sheathing which has led to condensation.” “The lack of ventilation intake,

obstructed air movement and exhaust, not having a vapor retarder and the

installation of a white reflective, and mechanically attached, roof membrane

contributed to the deterioration of the OSB sheathing.” Wetherholt recommended

the sheathing be removed and replaced due to the existing sheathing’s

deterioration and organic growth. Wetherholt believed that providing an insulated

and unvented “ ‘compact roof assembly’ ” would be the best option in mitigating

the risk of condensation.

2 No. 86117-4-I/3

On May 21, 2021, Shangri-La sent a notice of claim under its policy to Eagle

West seeking coverage for the damaged roof. The letter attached a copy of

Wetherholt’s report. Eagle West retained the services of Kip Gatto, PE, of Young

& Associates Engineering Services LLC to provide an opinion as to the reported

cause(s) of adverse conditions. Gatto’s findings are summarized as being (1) the

pattern of staining and OSB decay, corrosion, and moisture was consistent with a

condensation problem in the roof system, and (2) this condition was a result of the

original building design and construction and had likely been developing since the

building was first occupied. On August 26, 2021, Eagle West claims representative

Ken Gotchall sent a letter to Shangri-La, informing it that Eagle West denied

coverage for its claim.

On March 17, 2022, Shangri-La filed a complaint against Eagle West.

Shangri-La alleged breach of contract arising out of Eagle West’s alleged

obligations under the insurance policy. The same day, Shangri-La’s attorney dated

a letter to Eagle West to provide notice under RCW 48.30.015(8)(a) that Shangri-

La intended to assert a cause of action against Eagle West under the Insurance

Fair Conduct Act (IFCA), RCW 48.30.015. The letter did not reference any existing

lawsuit or the March 17, 2022 complaint. On April 14, 2022, Shangri-La filed an

amended complaint, adding an IFCA claim against Eagle West. On April 18, 2022,

the Washington Office of the Insurance Commissioner (OIC) accepted service

upon Eagle West of the amended complaint and a summons.

In a letter dated April 21, 2022, Gotchall confirmed receipt and

acknowledged Shangri-La’s March 17, 2022 letter, which he described as a “letter

3 No. 86117-4-I/4

of representation.” Gotchall made no acknowledgement of Shangri-La’s intention

to pursue an IFCA claim or the existence of a coverage dispute. Gotchall

requested a copy of counsel’s letter of designation or authorization of

representation with a signature from a representative of Shangri-La. Gotchall

stated that after receiving that requested documentation, Eagle West would e-mail

a certified copy of the applicable policy and endorsements along with any

requested documents. Gotchall indicated a wish for a telephone conversation.

According to documents Shangri-La later obtained from the OIC, the day

after Gotchall’s letter, April 22, 2022, the OIC’s forward of service to Eagle West

was retrieved at a postal facility in Monterey, California. Eagle West later

acknowledged that the OIC’s certificate of service indicated that the OIC sent the

service papers, but with attention to an employee who was by then “no longer

employed” by it and to an address it said it had by that time “vacated.” Eagle West

never claimed that the OIC sent the service papers to an addressee or address

other than the ones it provided. While denying it received the service papers, an

Eagle West vice president later explained, “The only explanation I can reach based

upon the facts revealed by my investigation to date is that if the envelope

containing the summons and complaint were indeed delivered to the [Eagle West]

offices, then it was likely mistakenly considered to be personal mail to the former

employee . . . and set aside and forwarded to her.” Eagle West never filed an

answer or other responsive pleading to Shangri-La’s lawsuit.

On June 6, 2022, Shangri-La filed a motion for default under CR 55(a) for

Eagle West’s failure to timely answer or appear in the lawsuit. Shangri-La argued

4 No. 86117-4-I/5

Eagle West’s answer was due no later than May 31, 2022—40 days after the date

that the summons and first amended complaint were served on the OIC. And

because Eagle West failed to “appear, plead, or otherwise defend within forty days

of the date it was served,” the court “should therefore enter default against Eagle

West under CR 55(1)(a) and RCW 48.02.200(4).” On the same day, a superior

court commissioner granted Shangri-La’s motion for default.

On July 14, 2022, Shangri-La filed a motion for the entry of default judgment

under CR 55(b). Shangri-La noted Eagle West still had not answered or appeared.

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