Thomas Miller Specialty Offshore v. Electron Hydro LLC

• Court: District Court, W.D. Washington
• Decided: May 8, 2025
• Docket: 2:22-cv-00540
• Status: Unknown

Opinion

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5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 THOMAS MILLER SPECIALTY CASE NO. 2:22-cv-00540-LK 11 OFFSHORE, individually and on behalf of Certain Underwriters Subscribing to Policy ORDER ON MOTIONS FOR 12 UMR B0180ME2017007, SUMMARY JUDGMENT 13 Plaintiff, v. 14 ELECTRON HYDRO, LLC et al., 15 Defendants. 16 17 This matter comes before the Court on the parties’ cross-motions for summary judgment. 18 Dkt. Nos. 67, 70. For the following reasons, the Court denies Plaintiff Thomas Miller Specialty 19 Offshore’s motion for summary judgment and grants in part and denies in part Defendants Electron 20 Hydro and Thom Fischer’s motion for summary judgment. 21 I. BACKGROUND 22 A. The Parties and the Policy 23 Thomas Miller is a private limited company incorporated in the United Kingdom with its 24 1 principal place of business in London, England. Dkt. No. 59 at 1. It is the slip leader subscribing 2 to Policy UMR B0180ME2017007 (the “Policy”) and is consequently authorized by the 3 underwriters subscribing to the Policy to bring and resolve claims under the Policy. Id. at 2, 46.1 4 The Policy includes a “Defence Provisions Endorsement” that imposes a duty to defend lawsuits

5 against the insured subject to a $100,000 deductible. Id. at 23–24. 6 Defendant Electron Hydro, LLC is a Washington corporation that is a named insured under 7 the Policy. Dkt. No. 1 at 2; see also Dkt. No. 59 at 16. Electron Hydro owns and operates a 8 hydroelectric facility on the Puyallup River approximately 25 miles southeast of Tacoma, 9 Washington (the “Facility”). Dkt. No. 71 at 2. The Facility consists of a wood flow diversion 10 structure, a spillway, a water intake, and an approximately 10-mile-long flume that conveys 11 diverted water to the facility’s powerhouse for electricity generation. Id. Electron Hydro’s 12 members are citizens of the State of Washington. Id. Defendant Thom A. Fischer is a citizen of 13 Washington and manager of Electron Hydro, and therefore is considered a named insured under 14 the Policy. Dkt. No. 59 at 2, 34 (specifying that managers of an insured limited liability company

15 are also insured with respect to their duties as managers); see also Dkt. No. 65 at 2. 16 Thomas Miller issued the Policy to various entities, including Defendants, for the period 17 of June 24, 2020 to June 24, 2021. Dkt. No. 59 at 16. Under the Policy, the underwriters agreed to 18 “pay those sums that the insured becomes legally obligated by Washington Law to pay as damages 19 because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” Id. at 51. The 20 Policy defines “bodily injury” as “bodily injury, sickness or disease sustained by a person, 21 including death resulting from any of these at any time.” Id. at 63. “Property damage” includes 22 “[p]hysical injury to tangible property, including all resulting loss of use of that property” and 23

1 Because Thomas Miller is the slip leader subscribing to the Policy, the Court’s references to Thomas Miller’s 24 obligations under the Policy include the other subscribing underwriters’ obligations under the Policy as well. 1 “[l]oss of use of tangible property that is not physically injured.” Id. at 65–66. The general term 2 “damages,” however, is not defined. See id. at 51–84; id. at 63–66 (definitions). 3 Under the Policy, underwriters “have the right and duty to defend the insured against any 4 ‘suit’ seeking . . . damages,” but “have no duty to defend the insured against any ‘suit’ seeking

5 damages for ‘bodily injury’ or ‘property damage to which th[e] insurance does not apply.” Id. at 6 51. The Policy contains a Pollution Endorsement, which excludes from coverage: 7 1) Bodily injury or property damage arising out of the actual or threatened discharge, dispersal, seepage, release or escape of pollutants; [and] 8 2) Any loss, cost or expense, including but not limited to costs of investigation or 9 attorney’s fees, incurred by a governmental unit or any other person or organization to test for, monitor, clean-up, remove, contain, treat, detoxify or 10 neutralize pollutants. 11 Id. at 69.2 “Pollutants” are defined by the Policy to include “any solid, liquid, gaseous or thermal 12 contaminant.” Id. The Pollution Endorsement further provides, as relevant here, that the “exclusion 13 does not apply to bodily injury or property damage arising out of . . . [a]ny discharge, dispersal, 14 seepage, migration, release or escape of pollutants” that meets five conditions: 15 a. It was accidental and neither expected nor intended by the insured. . . . ; and b. It was demonstrable as having commenced on a specific date during the term 16 of this policy; and 17 c. Its commencement became known to the named insured within 20 calendar days; and 18 d. Its commencement was reported in writing to [the named insured] within 80 19 calendar days of becoming known to the finance department; and 20 e. Reasonable effort was expended by the named insured to terminate the situation as soon as conditions permitted. 21 Id. at 69. However, if these exceptions were to apply, the Policy specifies that “there is no coverage 22 23

2 The Pollution Endorsement replaced the Policy’s original pollution exclusion in its entirety. Id. at 69; see also id. at 24 53–54 (original pollution exclusion). 1 with respect to” the following: 2 a. Any site or location principally used by the insured, or by others on the insured’s behalf, for the handling, storage, disposal, dumping, processing or 3 treatment of waste material; 4 b. Any fines or penalties; 5 c. Any clean up costs ordered by . . . any federal, state, or local governmental authority . . . ; 6 d. Acid rain; [or] 7 e. Clean up, removal, containment, treatment, detoxification or neutralization of pollutants situated on premises the insured owns, rents or occupies at the time 8 of the actual discharge, dispersal, seepage, migration, release or escape of said pollutants. 9 Id. at 69–70. 10 B. The Underlying Litigation 11 Beginning in late 2019, Electron Hydro began planning for a Diversion Repair and 12 Spillway Replacement Project (the “Project”), which involved repairing the Facility’s wooden 13 diversion structure, replacing the spillway, and reinforcing existing shoreline protection 14 infrastructure. Dkt. No. 71 at 2. Between July 20 and 27, 2020, as part of the Project, Electron 15 Hydro constructed a bypass channel to divert water away from the work area adjacent to the 16 Facility. Id. Electron Hydro then lined the bypass channel with high density polyethylene 17 (“HDPE”) liner, and set geotextile fabric, artificial grass turf, and crumb rubber underneath the 18 HDPE liner in an effort to prevent any rough material in the bypass channel from damaging the 19 HDPE liner. Id. 20 On July 29, 2020, shortly after diversions into the temporary spillway began, the HDPE 21 liner unexpectedly tore for an unknown reason. Id. at 2–3. The water flowing through the spillway 22 came into contact with the substrate under the HDPE liner, causing the water to carry geotextile 23 fabric, crumb rubber, artificial turf, and HDPE downstream. Id. at 2. 24 1 On November 25, 2020, the United States filed a complaint in United States v. Electron 2 Hydro, LLC, No. 2:20-cv-01746-JCC (the “Underlying Litigation”) under the Clean Water Act 3 (“CWA”) against Defendants, alleging that Defendants (1) violated Section 301(a) of the CWA 4 for discharging waste field turf and its component crumb rubber, as well as other rock, gravel,

5 and/or other fill material, into the Puyallup River, Dkt. No. 69 at 30–32, 34–35, (2) violated the 6 conditions of their Section 404 permits by placing waste field turf and component crumb rubber 7 in the bypass channel, id. at 32–33, and (3) violated various conditions of Electron Hydro’s Section 8 202 permit, id. at 33–34. 9 On May 26, 2021, two nonprofit corporations—Citizens for a Healthy Bay and Puget 10 Soundkeeper Alliance (together, the “Conservation Groups”)—intervened in the United States’ 11 action.3 Their complaint brought similar Section 301(a) claims, Dkt. No. 69 at 101–03, but also 12 asserted violations of Section 401 of the CWA for violating CWA permits specific to construction 13 activities at the Facility and by failing to apply for and obtain a site-specific Section 401 14 certification, id. at 101. On September 14, 2021, the Puyallup Tribe of Indians, a federally

15 recognized Indian tribe, also intervened in the United States’ action, alleging similar Section 16 301(a), 401, 402, and 404 violations, id. at 39–75. 17 C. Thomas Miller’s Investigation 18 On October 8, 2020, Thomas Miller received notice from third party Howden Insurance 19 Brokers—the London-based agent for Electron Hydro and other insureds under the Policy—of a 20 “contamination” event in the Puyallup River. Dkt. No. 74 at 2; see also id. at 12.4 Howden attached 21 3 Prior to their intervention in the United States’ suit, the Conservation Groups filed a separate action against Electron 22 Hydro alleging similar violations under the CWA. See Citizens for a Healthy Bay v. Electron Hydro, LLC, No. 2:21- cv-05171-JCC, Dkt. No. 1 (W.D. Wash. Mar. 9, 2021). This action was consolidated with the United States’ suit on 23 April 28, 2021 before the Conservation Groups intervened in the United States’ suit. See Citizens for a Healthy Bay v. Electron Hydro, LLC, No. 2:21-cv-05171-JCC, Dkt. No. 14 (W.D. Wash. Apr. 28, 2021); United States v. Electron Hydro, LLC, No. 2:20-cv-01746-JCC, Dkt. No. 17 (W.D. Wash. Apr. 28, 2021). 24 4 Thomas Miller represents that “[i]t is customary and expected for the insured’s London broker to act as agent for a 1 to its notice three letters—one each from the Puyallup Tribe, the Washington Attorney General’s 2 Office Environmental Protection Division, and Puget Sound Energy, Inc.—that threatened to file 3 suit against Electron Hydro pursuant the CWA due to the alleged contamination event. Dkt. No. 4 74 at 2, 12; see also id. at 15, 24 (letter from Washington Attorney General’s Office), 16–23 (letter

5 from the Puyallup Tribe), 25–26 (letter from Puget Sound Energy). 6 On October 12, 2020, Thomas Miller provided a written response to Howden, 7 acknowledging receipt of the claim and recommending that Electron Hydro retain counsel. Id. at 8 2; see also id. at 10–11. Thomas Miller specifically recommended that Electron Hydro appoint the 9 law firm Schwabe, Williamson & Wyatt, P.C. (“Schwabe”) as counsel in the matter and offered to 10 appoint Schwabe on Electron Hydro’s behalf. Id. at 2; see also id. at 10. Thomas Miller also asked 11 Howden to provide additional information on the claims, including what steps Electron Hydro had 12 taken to rectify the matter, whether a pollution response plan was in place, whether there was any 13 indication of a reserve value, and why there was a delay in notifying Thomas Miller of the matter 14 when Electron Hydro was aware of it as early as August 2020. Id. at 2; see also id. at 10–11. On

15 October 16, 2020, Howden responded that Electron Hydro had already retained a different law 16 firm—Nossaman LLP—as counsel but did not yet have any information regarding Thomas 17 Miller’s other inquiries. Id. at 3; see also id. at 10. 18 On October 27, 2020, Howden emailed Thomas Miller, indicating that Electron Hydro was 19 considering Thomas Miller’s recommendation to appoint Schwabe as defense counsel and 20 requesting information from Thomas Miller regarding Schwabe’s qualifications in handling 21 environmental matters, which Thomas Miller provided on November 2, 2020. Id. at 28–29, 32. 22 Thomas Miller followed up later that day requesting any permits and licenses for the installation 23

foreign-based insured like Electron Hydro[.]” Id. Electron Hydro does not dispute this representation. See generally 24 Dkt. Nos. 70, 76. 1 of artificial turf at the Facility, as well as any other work performed at the Facility. Id. at 32. 2 Howden acknowledged Thomas Miller’s request on the same day. Id. at 38. 3 Two weeks later, on November 16, 2020, Thomas Miller followed up with Howden, 4 inquiring whether it had an “updated position on counsel” and whether “there [had] been any

5 progress on receiving any permits/licensing documents [that] were in place to state the approval 6 of the turf[.]” Id. at 3; see also id. at 37. Howden responded that Electron Hydro had not yet made 7 a decision on counsel and promised to “provide further updates as they became available.” Id. at 8 3–4; see also id. at 48–49. 9 On December 11, 2020, Howden notified Thomas Miller that the United States had filed a 10 lawsuit against Electron Hydro. Id. at 4. Howden also informed Thomas Miller that Electron Hydro 11 did not want to be represented by a law firm that had represented any local Tribes and therefore 12 was formally requesting Thomas Miller’s consent to have Nossaman continue to defend the 13 lawsuits. Id. Thomas Miller and Howden discussed the issues on a December 18, 2020 conference 14 call, but did not reach a resolution. Id.

15 On January 6, 2021, Howden notified Thomas Miller that the Puyallup Tribe had filed suit. 16 Id. He also pressed Thomas Miller to agree to consent to Electron Hydro’s pre-retained counsel 17 (Nossaman), indicating for the first time that “the insured are prepared to accept funding the 18 differential [in hourly rates] in order to overcome the current disagreement.” Id. 19 On January 18, 2021, Thomas Miller, Electron Hydro, and Howden convened on a 20 conference call. Id. at 4, 64–65. On this call, Thomas Miller indicated that it wished to work with 21 Electron Hydro “to ensure that the matter is handled in the best interest of the insured [and] 22 insurers,” and further pushed for Electron Hydro to consider using Schwabe for lead counsel 23 despite its preference for Nossaman. Id. at 4, 64. On February 2, 2021, Electron Hydro responded

24 that it spoke with Schwabe and concluded that, because its “current strategy is to settle the court 1 cases,” it still needed to have Nossaman as lead counsel and would retain Schwabe as a supporting 2 role—a role which would “potentially increase if [and] when discovery continues.” Id. at 4, 65. 3 Howden requested that Thomas Miller confirm that this counsel arrangement was acceptable and 4 consequently agree to pay the respective fees incurred, including any fees “over [and] above the

5 insured’s deductible.” Id. at 65. A week later, on February 9, 2021, Thomas Miller consented to 6 Electron Hydro’s retention of Nossaman as lead counsel on the litigation and advised Howden that 7 it would be separately retaining Schwabe to provide advice on “coverage and strategy of the case 8 moving forwards, should [it] wish to obtain [Schwabe’s] clarification on any aspect of the claims 9 raised.” Id. at 4–5, 62. On the same day, Thomas Miller indicated that it “look[ed] forward to 10 receiving updated communication as soon as available as it w[ould soon] be a year” since 11 Howden’s original notification. Id. at 5, 61. Howden responded with assurances that it would 12 provide “all defense reports as they are issued by Nossaman, in order to keep [Thomas Miller] 13 fully updated.” Id. 14 Thomas Miller represents that it made “multiple requests for information and status updates

15 on the claims” over the following months, but Nossaman did not provide any updates to Thomas 16 Miller “or any of the other information Thomas Miller requested” until July 9, 2021, when it 17 provided “a 12-page summary letter from counsel without any further documentation.” Id. at 5. 18 This letter concluded that “the cases related to Electron’s spillway replacement project are in early 19 stages and none of the plaintiffs have made specific demands for civil penalties or injunctive 20 relief.” Id. 21 On October 19, 2021, Howden sent Thomas Miller a message requesting reimbursement 22 for legal defense invoices amounting to $318,434.52 (after deduction of non-reimbursable 23 expenses and a $100,000 deductible). Id. at 5, 78; see also id. at 75 (spreadsheet summarizing

24 litigation expenses). On October 25, 2021, Thomas Miller confirmed receipt of the legal bills, but 1 explained that in the absence of “advices and reports” from counsel, it was not in a position to 2 comment on the past year of invoices provided, and sought “clarification as to why the advices 3 [referenced in the invoices] have not [been] provided to Underwriters for their 4 comment/consideration to date[.]” Id. at 5–6, 77. Thomas Miller avers that it never received the

5 requested advices. Id. at 6. 6 A little over a month later, on November 23, 2021, Thomas Miller received an update on 7 the litigation, which consisted of a four-page letter from counsel summarizing the status of the 8 litigation, noting that the cases “are in early stages and none of the plaintiffs have made specific 9 demands for civil penalties or injunctive relief.” Id. at 6; see also Dkt. No. 72-12 at 3. This update 10 did not include any of the underlying advices or documentation that Thomas Miller had previously 11 requested. Dkt. No. 74 at 6. 12 On December 3, 2021, Thomas Miller participated in a conference call with Howden, in 13 which they discussed Thomas Miller’s reservation of rights with respect to the “lack of claims for 14 damages for property damage and the pollution exclusion and the status of payment on the

15 Nossaman invoices[.]” Id.; see also Dkt. No. 72-12 at 2. Thomas Miller and Howden also discussed 16 the lack of information from Electron Hydro and its chosen counsel regarding the claims. Dkt. No. 17 74 at 6. On January 6, 2022, Thomas Miller informed Howden that it “had advised [Schwabe] of 18 this decision” and was “currently waiting on their formal wording.” Dkt. No. 72-12 at 2. 19 On January 17, 2022, Thomas Miller once again wrote to Howden stressing the need for 20 “greater detail and clarity on what actions” Nossaman had taken apart from the reports that had 21 been provided to Thomas Miller. Dkt. No. 74 at 81. In the same correspondence, Thomas Miller 22 requested copies of all reports issued to Electron Hydro, answers to pleadings, and litigation 23 strategies that had been formulated and provided to Electron Hydro, explaining that “there is

24 1 reference to same within the invoices but [Thomas Miller] ha[s] not been provided with the same 2 for consideration/comment.” Id. 3 Thomas Miller paid its share of Nossaman’s first round of invoices on February 17, 2022. 4 Id. at 6–7. On the same day, Electron Hydro sent another round of Nossaman’s invoices to Thomas

5 Miller for reimbursement. Id. at 7. 6 D. Thomas Miller’s Reservation of Rights and Initiation of Lawsuit 7 On March 11, 2022, Thomas Miller sent Electron Hydro a letter agreeing to “provide 8 Electron Hydro with a defense against the [Underlying Litigation],” but “subject to a full 9 reservation of rights.” Dkt. No. 68 at 4; Dkt. No. 72-13 at 2. Thomas Miller “concluded that the 10 Policy might not provide coverage, and accordingly, there might be no duty [on Thomas Miller’s 11 part] to defend or indemnify” Electron Hydro. Dkt. No. 68 at 13; Dkt. No. 72-13 at 11. The letter 12 asserted two primary grounds for disputing Electron Hydro’s right to coverage: (1) that plaintiffs 13 in the Underlying Litigation “are not seeking ‘damages because of ‘bodily injury’ or ‘property 14 damage,’” and instead “seek civil penalties, declaratory judgment, injunctive relief, and orders of

15 compliance,” and (2) that the pollution exception otherwise bars coverage. Dkt. No. 68 at 11–13; 16 Dkt. No. 72-13 at 9–11.5 Defendants did not respond to, object to, or oppose Thomas Miller’s 17 positions in the letter at that time. See Dkt. No. 68 at 16. 18 Four weeks after sending the reservation of rights letter, Thomas Miller paid Nossaman’s 19 second round of defense invoices. Dkt. No. 74 at 7. 20 21

22 5 The March 2022 letter maintained that the underwriters would “not provide a defense to or indemnify” Fischer. Id. at 2–3. After Defendants filed their initial answer and counterclaim for declaratory judgment on behalf of both Electron 23 Hydro and Fischer, Dkt. No. 7, and after learning from Defendants that Fischer was only a manager of Electron Hydro as opposed to a member-manager, Thomas Miller agreed in a supplemental September 2022 letter to defend Fischer in the Underlying Litigation as well, subject to the same reservation of rights indicated in the March 2022 letter, Dkt. 24 No. 68 at 16–17. 1 Thomas Miller proceeded to file the instant action against Electron Hydro, seeking a 2 declaratory judgment that it has “no duty to defend or indemnify Electron Hydro and . . . Fischer” 3 against the claims in the Underlying Litigation. Dkt. No. 59 at 12.6 Defendants filed their answer, 4 raising among other affirmative defenses coverage by estoppel due to Thomas Miller’s “breach

5 . . . of the duty of good faith and fair dealing and/or common law insurance bad faith toward 6 [Defendants].” Dkt. No. 65 at 11–12. Defendants also filed a counterclaim against Thomas Miller 7 for a declaration that Thomas Miller is obligated to fully defend both Electron Hydro and Fischer 8 in the Underlying Litigation, “including all necessary attorney’s fees and defense costs, any 9 liabilities ultimately imposed on Electron Hydro and/or Mr. Fischer, the cost of any settlement 10 payments or compromises, and the cost of complying with any injunctive relief or non-monetary 11 settlements or compromises entered or reached in the Underlying Lawsuit.” Id. at 13–14. 12 E. Consent Decree 13 On November 20, 2023, the United States and Defendants lodged a proposed consent 14 decree (“Consent Decree”) in the Underlying Litigation that would settle the United States’ claims

15 against Defendants. Dkt. No. 72-16; see also United States v. Electron Hydro, LLC, No. 2:20-cv- 16 01746-JCC, Dkt. No. 154 at 1 (W.D. Wash. Nov. 20, 2023).7 In addition to requiring Defendants 17

18 6 This matter suffered from several procedural setbacks. Thomas Miller originally filed its complaint on April 22, 2022. Dkt. No. 1. On July 22, 2022, Electron Hydro answered the complaint and counterclaimed for declaratory 19 judgment on behalf of both it and Fischer. Dkt. No. 7 at 11–13. After the parties filed their initial cross-motions for summary judgment, the Court observed that Fischer was not properly joined in the action and did not move to intervene; therefore, the counterclaims involving him constituted impermissible third-party claims. Dkt. No. 46 at 5– 20 7. The parties filed a stipulated motion to allow Thomas Miller leave to amend its complaint to cure jurisdictional defects and add Fischer as a party defendant, Dkt. No. 50 at 4; Dkt. No. 57 at 1; see also Dkt. No. 46 at 3–5, which 21 the Court granted, Dkt. No. 55 at 4; Dkt. No. 58. Thomas Miller proceeded to file an amended complaint seeking the same declaratory relief as before, but this time against both Electron Hydro and Fischer. Dkt. No. 59. 22 7 The Court entered a separate consent decree earlier in the Underlying Litigation on May 20, 2022 that resolved the previously independent claims of the Conservation Groups. Dkt. No. 69 at 2, 4–12; see also United States v. Electron 23 Hydro, LLC, No. 2:20-cv-01746-JCC, Dkt. Nos. 102–103 (W.D. Wash. May 20, 2022). This consent decree, however, neither settled nor resolved the Conservation Groups’ substantive claims as plaintiff-intervenors in the United States’ case against Electron Hydro. United States v. Electron Hydro, LLC, No. 2:20-cv-01746-JCC, Dkt. No. 75 at 2 (W.D. 24 Wash. Mar. 3, 2022). 1 to comply with the CWA, all permits obtained pursuant under the CWA, and all applicable law, 2 the Consent Decree imposed several obligations on Defendants. First, Defendants would be 3 required to pay a $1.025 million civil penalty. Dkt. No. 72-16 at 8–9. Second, they would be 4 required to place a conservation easement on a 72-acre portion of Electron Hydro’s property along

5 the Puyallup River. See id. at 10–11; see also id. at 50–54 (proposed declaration of restrictive deed 6 for conservation). The conservation easement would require Defendants to ensure that all features 7 on that parcel “including air space and subsurface, will be preserved in their natural condition[.]” 8 Id. at 10. Defendants would also be required to “make reasonable and good faith efforts to 9 cooperate with any organization that seeks to conduct watershed restoration, fish recovery, and/or 10 fish protection projects and associated activities” on the parcel. Id. at 11. Third, Defendants would 11 be required to implement a turf removal and recovery program, requiring routine and semi-annual 12 monitoring of the affected portion of the river, aerial surveys of the river, and compliance with 13 strict record-keeping and reporting requirements. Id. at 10, 40–44. And fourth, Defendants would 14 be required to obtain all necessary permits for the temporary rock spillway at the Facility, including

15 without limitation a CWA Section 404 permit. Id. at 11, 59–61. 16 On March 29, 2024, the United States moved for entry of a marginally modified version of 17 the Consent Decree in the Underlying Litigation. See United States v. Electron Hydro, LLC, No. 18 2:20-cv-01746-JCC, Dkt. No. 161 (W.D. Wash. Mar. 29, 2024). In July 2024, the Court granted 19 the United States’ motion and entered the modified Consent Decree. Id., Dkt. Nos. 174–75 (W.D. 20 Wash.). Both the Puyallup Tribe and Conservation Groups subsequently stipulated to dismissal of 21 their claims as plaintiff-intervenors to the United States’ suit. Id., Dkt. Nos. 177–78 (W.D. Wash.). 22 II. DISCUSSION 23 On February 23, 2024, Thomas Miller moved for summary judgment, seeking a declaratory

24 judgment from this Court that there is no coverage for the Underlying Litigation under the Policy. 1 Dkt. No. 67 at 2. Thomas Miller specifically contends that “(1) the claims in the underlying lawsuit 2 against the defendants do not seek compensatory damages for bodily injury or property damage, 3 (2) cleanup costs are excluded from coverage, (3) fines and penalties are excluded from coverage, 4 and (4) there is no coverage for claims arising from any site that is used from the handling, storage,

5 or disposal of waste material.” Id. 6 Defendants filed a response and cross-motion for summary judgment seeking a declaration 7 that Thomas Miller is obligated to defend and indemnify Defendants in the Underlying Litigation, 8 in whole or in part. Dkt. No. 70 at 2. Defendants contend that they are entitled to coverage by 9 estoppel due to Thomas Miller’s “gross violation of Washington insurance law” and “bad faith” 10 in handling Defendants’ claim. Id. They also contend that, even if they are not entitled to coverage 11 by estoppel, the claims in the Underlying Litigation are nonetheless covered by the Policy, either 12 pursuant to Washington’s “efficient proximate cause” rule or due to the “compensatory mitigation” 13 remedies contemplated by the Consent Decree. Id. at 2–3. Defendants finally request that, “[i]f 14 nothing else, the Court should resolve this dispute by issuing a declaratory judgment providing the

15 parties with guidance about how [Thomas Miller’s] policy should apply to any underlying 16 judgment.” Id. at 3. 17 A. Jurisdiction 18 Defendants’ complaint seeks declaratory judgment under 28 U.S.C. §§ 2201 and 2022 to 19 determine whether Thomas Miller has a duty to defend and indemnify Defendants, which is an 20 actual controversy between the parties. Dkt. No. 59 at 2–3. The complaint also alleges that Thomas 21 Miller is a United Kingdom citizen, Defendants are Washington citizens, and the amount in 22 controversy exceeds $75,000. Id. at 2; see also Dkt. No. 65 at 2. Based on those allegations and 23 the supporting evidence in the record, this Court has subject matter jurisdiction over this action

24 pursuant to 28 U.S.C. § 1332(a). 1 B. Applicable Law and Legal Standard 2 Because this Court sits in diversity jurisdiction, it will apply Washington state substantive 3 law and federal procedural law. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 4 (1996).8

5 Summary judgment is appropriate only when “the movant shows that there is no genuine 6 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 7 Civ. P. 56(a). The Court does not make credibility determinations or weigh the evidence at this 8 stage. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The sole inquiry is “whether the 9 evidence presents a sufficient disagreement to require submission to a jury or whether it is so one- 10 sided that one party must prevail as a matter of law.” Id. at 251–52. And to the extent that the Court 11 resolves factual issues in favor of the nonmoving party, this is true “only in the sense that, where 12 the facts specifically averred by that party contradict facts specifically averred by the movant, the 13 motion must be denied.” Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888 (1990). 14 The Court will, however, enter summary judgment “against a party who fails to make a

15 showing sufficient to establish the existence of an element essential to that party's case, and on 16 which that party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 17 (1986). Once the moving party has carried its burden under Rule 56, “the nonmoving party must 18 come forward with specific facts showing that there is a genuine issue for trial.” Matsushita Elec. 19 20 8 The Policy includes a Choice of Law and Jurisdiction clause stating that it “shall be subject to the Law and Practice of New York[.]” Dkt. No. 59 at 19. However, as the parties pointed out in their supplemental briefing, Dkt. No. 79 at 21 1; Dkt. No. 80 at 2, Dkt. No. 81 at 2–3, Washington law renders this choice of law provision inapplicable. See Wash. Rev. Code § 48.18.200(1)(a) (providing that “no insurance contract delivered or issued for delivery in [Washington] 22 and covering subjects located, resident, or to be performed in [Washington], shall contain any condition, stipulation, or agreement . . . requiring it to be construed according to the laws of any other state”); id. § 48.18.200(2) (“Any such 23 condition, stipulation, or agreement in violation of this section shall be void, but such voiding shall not affect the validity of the other provisions of the contract.”); see also Wash. Cities Ins. Auth. v. Ironshore Indem., Inc., 443 F. Supp. 3d 1218, 1223 (W.D. Wash. 2020) (voiding choice-of-law provision pursuant to Wash. Rev. Code § 48.18.200). 24 The parties therefore agree that Washington law applies. Dkt. No. 79 at 1. 1 Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986) (cleaned up). Metaphysical doubt 2 is insufficient, id. at 586, as are conclusory, non-specific allegations, Lujan, 497 U.S. at 888–89. 3 Summary judgment in an insurance coverage case is warranted when “(1) there are no facts 4 in dispute and (2) coverage depends solely on the language of the insurance policy.” Akins Foods,

5 Inc. v. Am. & Foreign Ins. Co., No. C04-2195-JLR, 2005 WL 2090678, at *2 (W.D. Wash. Aug. 6 30, 2005) (citing Stouffer & Knight v. Cont’l Cas. Co., 982 P.2d 105, 109 (Wash. Ct. App. 1999)). 7 Under Washington law, “[i]nterpretation or construction of an insurance contract is a question of 8 law and may properly be determined on motion for summary judgment.” Wampold v. Safeco Ins. 9 Co. of Am., 409 F. Supp. 3d 962, 967 (W.D. Wash. 2019) (quoting Gerken v. Mut. of Enumclaw 10 Ins. Co., 872 P.2d 1108, 1112 (Wash. Ct. App. 1994)). 11 Determining whether coverage exists under a policy is a two-step process. “The burden 12 first falls on the insured to show its loss is within the scope of the policy’s insured losses. If such 13 a showing has been made, the insurer can nevertheless avoid liability by showing the loss is 14 excluded by specific policy language.” Overton v. Consol. Ins. Co., 38 P.3d 322, 329 (Wash. 2002)

15 (internal citation omitted). In the insurance context, the duty to defend is broader than the duty to 16 indemnify. Woo v. Fireman’s Fund Ins. Co., 164 P.3d 454, 459 (Wash. 2007). “An insurance 17 company has the duty to indemnify if the insurance policy actually covers the insured, while the 18 duty to defend arises if the insurance policy conceivably covers the insured.” Robbins v. Mason 19 Cnty. Title Ins. Co., 462 P.3d 430, 435 (Wash. 2020). 20 “The criteria for interpreting insurance contracts in Washington are well settled.” Quadrant 21 Corp. v. Am. States Ins. Co., 110 P.3d 733, 737 (Wash. 2005). The “primary goal” is to ascertain 22 and give effect to the parties’ intent at the time of the policy’s execution—not “the interpretations 23 the parties are advocating at the time of the litigation.” Int'l Marine Underwriters v. ABCD Marine,

24 LLC, 313 P.3d 395, 399–400 (Wash. 2013). In doing so, the Court “construe[s the] insurance 1 polic[y] as a whole and give[s] the language a fair, reasonable, and sensible construction as would 2 be given to the contract by the average person purchasing insurance.” Seattle Tunnel Partners v. 3 Great Lakes Reinsurance (UK) PLC, 516 P.3d 796, 800 (Wash. 2022) (cleaned up); Certification 4 from U.S. Dist. Ct. ex rel. W. Dist. of Wash. (Kroeber) v. GEICO Ins. Co., 366 P.3d 1237, 1239

5 (Wash. 2016) (“This court views an insurance contract in its entirety, does not interpret a phrase 6 in isolation, and gives effect to each provision.”). Undefined terms are thus given “their popular 7 and ordinary meaning[.]” Kut Suen Lui v. Essex Ins. Co., 375 P.3d 596, 601 (Wash. 2016). But 8 when the policy expressly defines a term, the Court is bound by that definition. Overton, 38 P.3d 9 at 327. 10 Ambiguities in the policy are strictly construed against the insurer. Findlay v. United Pac. 11 Ins. Co., 917 P.2d 116, 119 (Wash. 1996). This rule “applies with added force to exclusionary 12 clauses,” id.; policy exclusions are “most strictly construed against the insurer,” Am. Best Food, 13 Inc. v. Alea London, Ltd., 229 P.3d 693, 697 (Wash. 2010) (cleaned up). When determining 14 whether ambiguity exists, the Court—as is the case generally—views the policy language as it

15 would be read by the average insurance purchaser. Allstate Ins. Co. v. Peasley, 932 P.2d 1244, 16 1246–47 (Wash. 1997). The Washington Supreme Court has repeatedly emphasized that policy 17 language is ambiguous only “if, on its face, it is fairly susceptible to two different but reasonable 18 interpretations.” Seattle Tunnel Partners, 516 P.3d at 800. Where, however, the policy language 19 “is clear and unambiguous, the court must enforce it as written and may not modify the contract 20 or create ambiguity where none exists.” Transcon. Ins. Co. v. Wash. Pub. Utilities Dists.’ Util. 21 Sys., 760 P.2d 337, 340 (Wash. 1988). “[W]here multiple reasonable definitions of an undefined 22 term in an insurance policy exist . . . courts adopt the definition that most favors the insured.” Hill 23 & Stout, PLLC v. Mut. of Enumclaw Ins. Co., 515 P.3d 525, 531 (Wash. 2022) (quoting

24 McLaughlin v. Travelers Com. Ins. Co., 476 P.3d 1032, 1037 (Wash. 2020). 1 C. Duty to Defend 2 “The duty to defend arises when a complaint against the insured, construed liberally, 3 alleges facts which could, if proven, impose liability upon the insured within the policy’s 4 coverage.” Am. Best Food, 229 P.3d at 696 (cleaned up). “An insurer is relieved of the duty to

5 defend only if the policy clearly does not cover the claim,” and “[i]f the complaint is ambiguous, 6 it will be liberally construed in favor of triggering the insurer’s duty to defend.” Robbins, 462 P.3d 7 at 435 (quoting Truck Ins. Exch. v. VanPort Homes, Inc., 58 P.3d 276 (2002)). 8 As detailed above, Thomas Miller agreed under the Policy to “pay those sums that the 9 insured becomes legally obligated by Washington Law to pay as damages because of ‘bodily 10 injury’ or ‘property damage’ to which this insurance applies.” Dkt. No. 59 at 51. The Policy also 11 states that Thomas Miller “will have the right and duty to defend the insured against any ‘suit’ 12 seeking those damages,” but “will have no duty to defend the insured against any ‘suit’ seeking 13 damages for ‘bodily injury’ or ‘property damage’ to which this insurance does not apply.” Id. The 14 Policy defines “property damage” to mean “[p]hysical injury to tangible property, including all

15 resulting loss of use of that property” and “[l]oss of use of tangible property that is not physically 16 injured,” id. at 65, and “suit” is defined as “a civil proceeding in which damages because of ‘bodily 17 injury,’ property damage’ or ‘personal and advertising injury’ to which this insurance applies are 18 alleged,” id. at 66. The policy does not specifically define what it means to have sums awarded 19 “as damages.” 20 The Court begins its analysis by examining the policy’s provisions to determine if the 21 complaint’s allegations are conceivably covered. Hayden v. Mut. of Enumclaw Ins. Co., 1 P.3d 22 1167, 1172 (Wash. 2000). If the allegations are conceivably covered, the Court must determine 23 whether a policy exclusion clearly and unambiguously applies to bar coverage. Id.

24 1 1. At Least Some Relief Sought by Plaintiffs in the Underlying Litigation Conceivably Qualifies as Sums that the Defendants Could be Legally Obligated by Washington Law 2 to Pay as Damages Because of Property Damage Within the Meaning of the Policy 3 Thomas Miller contends that because the Underlying Litigation is not a suit to recover 4 “damages” for “property damage” suffered by the plaintiffs in the Underlying Litigation, the 5 plaintiffs’ claims in the Underlying Litigation do not fall within the initial scope of Policy 6 coverage. Dkt. No. 67 at 12–15; Dkt. No. 73 at 14–17. Defendants counter that “the plaintiffs in 7 the Underlying Litigation plainly allege physical damage to tangible property” and have asked the 8 Court “to issue a judgment that, among other things, will require Electron Hydro to pay money,” 9 so the Underlying Litigation “plainly falls within the Policy’s initial coverage grant.” Dkt. No. 76 10 at 9; see also Dkt. No. 70 at 21 (stating that “the underlying complaints by DOJ and the Puyallup 11 Tribe both expressly allege damage to tangible property”). 12 Both dictionaries and precedent define the word “damages” as “[t]he value, estimated in 13 money, of something lost or withheld; the sum of money claimed or adjudged to be paid in 14 compensation for loss or injury sustained.” Damages, Oxford English Dictionary,

15 https://www.oed.com/dictionary/damage_n; see also Damages, Merriam-Webster, 16 https://www.merriam-webster.com/dictionary/damages (“compensation in money imposed by law 17 for loss or injury”); Boeing Co. v. Aetna Casualty & Surety Company, 784 P.2d 507, 511 (Wash. 18 1990) (consulting both standard and technical dictionaries to define “damages” in a similar 19 commercial general liability contract as “the estimated reparation in money for detriment or injury 20 sustained” or “[t]he amount required to pay for a loss”). Therefore, to fall within the initial scope 21 of Policy coverage, Defendants must demonstrate that the Underlying Litigation qualifies as a 22 “suit” seeking compensation because of “property damage,” i.e., “[p]hysical injury to tangible 23 property, including all resulting loss of use of that property.” Dkt. No. 59 at 65.

24 1 Both parties rely extensively on the Washington Supreme Court’s decision in Boeing Co. 2 v. Aetna Casualty & Surety Company, 784 P.2d 507 (Wash. 1990) to support their respective 3 arguments. Dkt. No. 67 at 13, 16–17, 18; Dkt. No. 70 at 21; see also Dkt. No. 73 at 15–17; Dkt. 4 No. 76 at 9–11. In that case, policyholders were sued by the United States Environmental

5 Protection Agency (“EPA”) in federal district court pursuant to the Comprehensive 6 Environmental, Response, Compensation, and Liability Act of 1980 (“CERCLA”), 42 U.S.C. 7 § 9601 et seq. Boeing, 784 P.2d at 509. The federal district court entered a consent decree between 8 the EPA and the policyholders, requiring the policyholders to pay environmental response costs. 9 Id. The policyholders carried insurance with a provision nearly identical to the one at issue here 10 providing that the insurers would “pay on behalf of the insured all sums which the insured shall 11 become obligated to pay as damages because of . . . property damage to which this policy 12 applies[.]” Id. at 509–10. The policyholders subsequently sued their insurers for indemnification 13 of their response costs. Id. at 510. The Washington Supreme Court held that money paid or to be 14 paid by the policyholders for response costs constituted “damages” within the ordinary meaning

15 of the term as it was used in a comprehensive general liability policy. Id. at 510, 516. The court 16 reasoned that even though response costs “may be characterized as seeking ‘equitable relief,’” they 17 were still “essentially compensatory damages for injury to property” because such “duty to pay 18 money is no different from the legal obligation that burdens a party who has been held liable to 19 restore property to the condition it was in prior to the occurrence of the tortfeasor’s conduct or 20 damages consisting of amounts necessary to restore property to its status quo.” Id. at 511, 516 21 (citations omitted). In other words, “coverage does not hinge on the form of action taken or the 22 nature of relief sought, but on an actual or threatened use of legal process to coerce payment or 23 conduct by a policyholder.” Id. at 511 (quoting Fireman’s Fund Ins. Cos. v. Ex–Cell–O Corp., 662

24 F. Supp. 71, 75 (E.D. Mich. 1987)); see also Tsakopoulos v. Am. Mfrs. Mut. Ins. Co., No. 1 CIV.S990853 GEB JFM, 2003 WL 22595248, at *4 (E.D. Cal. Aug. 9, 2000) (because the 2 California Supreme Court had previously held that injunctions requiring environmental response 3 costs are “damages” given the “purposes addressed” through the imposition of the injunctive relief, 4 it would also likely hold that “the phrase ‘damages’ in the relevant policies encompasses injunctive

5 restorative relief imposed under the CWA” (quoting AIU Ins. Co. v. Superior Ct., 799 P.2d 1253, 6 1276–78 (Cal. 1990)). 7 Here, as in Boeing, the Court concludes that the words “as damages” are not so limiting as 8 Thomas Miller argues. Boeing, 784 P.2d at 510–11. Indeed, the portion of the Pollution 9 Endorsement in the Policy which specifically excludes any “loss, cost, or expense . . . incurred by 10 a governmental unit or any other person or organization to test for, monitor, clean-up, remove, 11 contain, treat, detoxify or neutralize pollutants,” Dkt. No. 59 at 69, would be rendered largely 12 superfluous if such “loss[es], cost[s], or expense[s]” were not “damages” otherwise covered under 13 the policy. See Tsakopoulos, 2003 WL 22595248, at *5. An insurance policy provision should not 14 be construed so that another policy provision is rendered mere surplusage. Snohomish Cnty. Pub.

15 Transp. Benefit Area Corp. v. FirstGroup Am., Inc., 271 P.3d 850, 856 (Wash. 2012) (“An 16 interpretation of a contract that gives effect to all provisions is favored over an interpretation that 17 renders a provision ineffective, and a court should not disregard language that the parties have 18 used.”). 19 Furthermore, the Court sees no reason to depart from the Washington Supreme Court’s 20 holding in Boeing that even though response costs “may be characterized as seeking ‘equitable 21 relief,’” they were still “essentially compensatory damages for injury to property” because such 22 “duty to pay money is no different from the legal obligation that burdens a party who has been 23 held liable to restore property to the condition it was in prior to the occurrence of the tortfeasor’s

24 1 conduct or damages consisting of amounts necessary to restore property to its status quo.” 784 2 P.2d at 511, 516.9 As the Ninth Circuit aptly observed in Aetna Cas. & Sur. Co. v. Pintlar Corp., 3 Dictionary definitions indicate that in the lexicon of the ordinary person, the plain meaning of the term “damages” would include response costs. This is so because 4 the term “damages”, in common thought, does not distinguish between equitable and nonequitable relief. 5 948 F.2d 1507, 1513 (9th Cir. 1991) (footnote omitted). 6 At least some of the relief sought by the United States’ complaint in the Underlying 7 Litigation required Defendants to, “at [their] own expense,” “restore and/or mitigate the damages 8 caused by their unlawful activities,” Dkt. No. 69 at 15; Dkt. No. 72-7 at 3; see also Dkt. No. 69 at 9 36; Dkt. No. 72-7 at 18–19. The Puyallup Tribe’s complaint alleged that its treaty fishing rights 10 and reserved water rights “have been irreversibly impacted by [Defendants’] actions and violations 11 of the Clean Water Act,” Dkt. No. 72-3 at 5; Dkt. No. 69 at 42, and sought an order requiring 12 Defendants to, among other things, “take immediate steps to remediate and mitigate the harm 13 caused by the discharge of the waste artificial turf and crumb rubber” and “take specific actions to 14 remediate the environmental harm caused by its violations,” Dkt. No. 72-3 at 34–35; Dkt. No. 69 15 at 73, 75. If awarded to the plaintiffs, such relief would constitute “sums that the insured bec[ame] 16 legally obligated by Washington Law to pay as damages[.]” Dkt. No. 59 at 51. 17 The next issue is whether Defendants’ liability for such damages was “because of . . . 18 ‘property damage[.]’” Dkt. No. 59 at 51. The Policy defines “property damage” to mean 19 20 9 See also id. at 511 (“Numerous federal and sister-state decisions . . . agree that ‘damages’ include cleanup costs.”); Weyerhaeuser Co. v. Aetna Cas. & Sur. Co., 874 P.2d 142, 146 (Wash. 1994) (“[U]nder Washington law ‘damages’ 21 under a CGL insurance policy include environmental cleanup costs.”); Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1563 (9th Cir. 1991) (under California law, “costs incurred to comply with an injunction mandating cleanup 22 or to reimburse a government agency for cleanup expenses the agency has incurred are ‘damages’ within the meaning of the [CGL] insurance policy.”); United States v. Conservation Chem. Co., 653 F. Supp. 152, 193 (W.D. Mo. 1986) 23 (“The great weight of authority equate ‘equitable’ response or cleanup costs with property damage.” (collecting cases)); U.S. Aviex Co. v. Travelers Ins. Co., 336 N.W.2d 838, 843 (Mich. Ct. App. 1983) (finding that remediation costs were “damages” where insured caused contamination of subterranean and percolating water and observing that 24 “[t]he damage to the natural resources is simply measured in the cost to restore the water to its original state”). 1 “[p]hysical injury to tangible property, including all resulting loss of use of that property” and 2 “[l]oss of use of tangible property that is not physically injured.” Id. at 65. Thomas Miller argues 3 that the Underlying Litigation did not involve property damage because (1) the United States lacks 4 any property right or “proprietary interest” in the river; (2) the other plaintiffs in the Underlying

5 Litigation are not suing for any injuries (such as injuries to the Puyallup Tribe’s treaty rights) but 6 are instead stepping into the United States’ shoes as private attorneys general; and (3) “[m]itigation 7 is intended to compensate for environmental harm through restoration elsewhere in the 8 environment.” Dkt. No. 73 at 4–5. The Court again disagrees with Thomas Miller. 9 First, the Policy language does not include any limitation that the property allegedly 10 damaged must belong to the plaintiff who sues the insured; instead, it more broadly covers “those 11 sums that the insured becomes legally obligated by Washington Law to pay as damages because 12 of . . . ‘property damage’ to which this insurance applies,” i.e., “physical injury to tangible 13 property.” Dkt. No. 59 at 51, 65. Thus, while Thomas Miller argues that “[t]he phrase ‘as damages’ 14 requires some form of action that compensates the plaintiff for their loss,” Dkt. No. 73 at 14

15 (emphasis added), the Policy language requires only some form of action that compensates for a 16 loss. 17 Second, this Court finds persuasive those decisions that have found that contamination or 18 pollution of waters constitutes “physical injury to tangible property.” See, e.g., Port of Portland v. 19 Water Quality Ins. Syndicate, 796 F.2d 1188, 1194 (9th Cir. 1986) (“[T]he ‘reasonable, 20 enlightened view’ that the Oregon Supreme Court would adopt would be that discharge of 21 pollution into water causes damage to tangible property and hence cleanup costs are recoverable 22 under a property damage liability clause.”); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 23 F.2d 1023, 1030 (2d Cir. 1991) (holding that “[t]he presence of the pollution in the drainage stream

24 and Ottauquechee River and groundwater clearly represent actual damage to the surface and 1 groundwater” and constituted property damage within the meaning of the policy at issue); Douglas 2 Ridge Rifle Club v. St. Paul Fire & Marine Ins. Co., No. CV 08-29-AC, 2010 WL 98942, at *6 3 (D. Or. Jan. 8, 2010) (finding that insurer had a duty to defend against action seeking remediation 4 of contaminated river because such relief “would necessarily constitute property damage in the

5 form of cleanup costs covered by the Policy”); Hartford Fire Ins. Co. v. Guide Corp., No. IP 01- 6 572-C-Y/F, 2005 WL 5899840, at *8 (S.D. Ind. Feb. 14, 2005) (“The White River and the fish and 7 other wildlife that were in it are tangible property and they were physically injured by the pollutant 8 releases.”); Kutsher’s Country Club Corp. v. Lincoln Insurance Co., 465 N.Y.S.2d 136, 139 (N.Y. 9 Sup. Ct. 1983) (holding that an oil spill into water constituted property damage as defined in an 10 insurance policy providing for liability for damage to property); Lansco, Inc. v. Dep’t of Env’t 11 Prot., 350 A.2d 520, 524 (N.J. Super. Ch. Div. 1975) (rejecting the argument that “the term 12 ‘property damage’ must be read as meaning measurable damage to identifiable physical property” 13 in case involving accidental oil spill into a river because “[i]t has long been established that the 14 sovereign’s interest in the preservation of public resources and the environment enables it to

15 maintain an action to prevent injury thereto”). In Washington State, “[s]ubject to existing rights[,] 16 all waters within the state belong to the public[.]” Wash. Rev. Code § 90.03.010. Existing rights 17 in the Puyallup River include those of the Puyallup Tribe.10 “The Government uses its sovereign 18 power in actions under the [CWA] to protect the public interest.” United States v. Telluride Co., 19 146 F.3d 1241, 1245 n.3 (10th Cir. 1998); see also 33 U.S.C. § 1251 (stating the objective of the 20 CWA is to “restore and maintain the chemical, physical, and biological integrity of the Nation’s 21

22 10 The Puyallup Tribe owns the “bed and banks of the Puyallup River within its reservation,” and its “rights to fish in these waters are reserved and protected by the Treaty of Medicine Creek.” Dkt. No. 72-3 at 4; see also Puyallup Tribe 23 of Indians Settlement Act of 1989, Pub. L. No. 101-41, § 3(b)(6), 103 Stat. 83, 85; Treaty of Medicine Creek, 10 Stat. 1132 (1855); United States v. Washington, 384 F. Supp. 312, 370–71 (W.D. Wash. 1974); United States v. Washington, 626 F. Supp. 1405, 1441–42 (W.D. Wash. 1981). Such tribal water rights “necessarily carry a priority date of time 24 immemorial.” United States v. Adair, 723 F.2d 1394, 1414 (9th Cir. 1983). 1 waters”). The CWA also empowers citizens to protect the public interest by enforcing the CWA. 2 33 U.S.C. § 1365. To do so, a citizen plaintiff must have an Article III injury and “an interest 3 which is or may be adversely affected.” Id. § 1365(g). 4 In its complaint in the Underlying Litigation, the United States averred that Defendants’

5 “unlawful activities” caused “damages” to the Puyallup River, which is “home to several species 6 of fish protected by the Endangered Species Act and subject to treaty rights [of] the Puyallup 7 Tribe.” Dkt. No. 72-7 at 3; Dkt. No. 69 at 15.11 As Defendants contend, this alleges physical injury 8 to tangible property within the meaning of the Policy. Dkt. No. 70 at 21; see Aetna Cas. & Sur. 9 Co. v. Pintlar Corp., 948 F.2d 1507, 1514 (9th Cir. 1991) (noting that contamination caused the 10 government to “sustain[] ‘property damage’ to its quasi-sovereign interest in environmental 11 resources”). The Puyallup Tribe’s complaint alleged that its treaty fishing rights and reserved water 12 rights “have been irreversibly impacted by [Defendants’] actions and violations of the Clean Water 13 Act[.]” Dkt. No. 72-3 at 5; Dkt. No. 69 at 42. Treaty rights are property rights, Menominee Tribe 14 of Indians v. United States, 391 U.S. 404, 413 (1968), and this allegation sufficed to demonstrate

15 Article III injury and an interest which was adversely affected by the Defendants’ actions. See 16 Inland Empire Waterkeeper v. Corona Clay Co., 17 F.4th 825, 832 (9th Cir. 2021). This also 17 alleges physical injury to tangible property within the meaning of the Policy, as Defendants argue. 18 Dkt. No. 70 at 21. Both the United States and the Tribe sought, among other relief, an order 19 requiring Defendants to mitigate and remediate the injury caused by Defendants’ actions. Dkt. No. 20 72-7 at 3, 18–19 (United States’ Complaint); Dkt. No. 69 at 15, 36 (United States’ Amended 21

22 11 Notably, the United States holds the bed and banks of the Puyallup River in trust for the Tribe and is also its trustee with respect to the Tribe’s fishing and water rights. See Puyallup Tribe Settlement Agreement, § I.B (Aug. 27, 1988), 23 available at https://www.puyalluptribe-nsn.gov/wp-content/uploads/Land-Claims-Settlement-Agreement.pdf; United States v. Washington, 853 F.3d 946, 958 (9th Cir. 2017) (noting that the United States enforces treaty fishing rights on its own behalf and as trustee on behalf of tribes); Winters v. United States, 207 U.S. 564, 574 (1908) (United States 24 enforcing tribal water rights). 1 Complaint requesting same); Dkt. No. 72-3 at 34–35 (Puyallup Tribe’s Complaint); Dkt. No. 69 2 at 73, 75 (Puyallup Tribe’s Amended Complaint). Absent the physical injury to the Puyallup River 3 described above, there would be nothing to remediate or mitigate. Thus, Defendants’ liability for 4 such damages was “because of” physical injury to tangible property within the meaning of the

5 Policy. Dkt. No. 59 at 51. 6 2. The Pollution Endorsement Conceivably Covers Some of the Relief Sought by Plaintiffs in the Underlying Litigation 7 The next issue is whether the plaintiffs’ claims in the Underlying Litigation are excluded 8 by the Policy’s Pollution Endorsement. As discussed above, there are three components to this 9 Endorsement. First, the Policy does not cover as a general matter “[b]odily injury or propery 10 damage arising out of the actual or threatened discharge, dispersal, seepage, release or escape of 11 pollutants[.]” Dkt. No. 59 at 69. Second, under the buyback, the Policy will nevertheless apply if 12 such “discharge, dispersal, seepage, migration, release or escape of pollutants” meets five 13 conditions: (1) “[i]t was accidental and neither expected nor intended by the insured”; (2) “[i]t was 14 demonstrable as having commenced on a specific date during the term of th[e] Policy”; (3) [i]ts 15 commencement became known to the named insured within 20 calendar days; (4) “[i]ts 16 commencement was reported in writing to [the underwriters] within 80 days of becoming known 17 to the finance department”; and (5) “[r]easonable effort was expended by the named insured to 18 terminate the situation as soon as conditions permitted.” Id. And third, notwithstanding the above, 19 the Policy will not provide coverage with respect to, as relevant here, “[a]ny site or location 20 principally used by the insured . . . for the handling, storage, disposal, dumping, processing or 21 treatment of waste material,” “[a]ny fines or penalties,” and “[a]ny clean up costs ordered by . . . 22 any federal, state or local governmental authority.” Id. 23 24 1 There is no dispute of material fact that the first two components of the Pollution 2 Endorsement apply here. See Dkt. No. 67 at 19–22 (Thomas Miller’s motion for summary 3 judgment advancing arguments under the Pollution Endorsement’s exclusions to the buyback, 4 which assumes the applicability of the buyback); Dkt. No. 72-4 at 21–25; Dkt. No. 70 at 22–23.12

5 Turning to the third component of the Pollution Endorsement, Thomas Miller contends that the 6 relief sought by plaintiffs in the Underlying Litigation—i.e., remediation of environmental harm 7 and fines and penalties under the CWA—is expressly excluded by the Pollution Endorsement as 8 “clean up costs ordered by . . . any federal, state, or local governmental authority” or as “fines or 9 penalties.” Dkt. No. 67 at 20–22.13 14 Defendants concede that “any fines, civil penalties, or clean- 10 12 For the first time in its opposition to Defendants’ motion for summary judgment, Thomas Miller argues that 11 Defendants’ “placement of a pollutant in a water of the United States” is excluded under the Policy because (1) “intentional placement of waste field turf is ‘expected or intended’”; (2) “it was property Electron Hydro owned, rented, or occupied by its contractors or subcontractors”; and (3) “it was arising out of or related to Electron Hydro’s 12 work.” Dkt. No. 73 at 23–24. Thomas Miller cites no record evidence to support these arguments. See id. at 23–25. Indeed, the record—along with the plain language of the Policy and Thomas Miller’s own arguments—directly 13 undermine these assertions. First, Thomas Miller’s assigned claims handler testified at deposition that Thomas Miller “ha[d] no information” indicating that the alleged discharges giving rise to the Underlying Litigation were not 14 accidental or were expected or intended by Defendants. Dkt. No. 72-4 at 21; see also id. at 25. Thomas Miller points to no record evidence contradicting its claims handler’s opinion. 15 Second, the Policy excludes “property damage” to “property [the insured] own[s], rent[s], or occup[ies.]” Dkt. No. 59 at 54. Nowhere in the record—or elsewhere in Thomas Miller’s briefing—does it indicate that the damage in this case was to Defendants’ property. Instead, as Thomas Miller emphasizes, the alleged injury in this case is to the Puyallup 16 River and its bed and banks—not to any property owned by Defendants. Dkt. No. 73 at 3–4. Third, Thomas Miller raised none of these potential bases for denial of coverage until the eleventh hour of litigation. 17 As Defendants point out, Thomas Miller “cannot now raise new exclusions[.]” Dkt. No. 76 at 7 n.2. Not only were these exclusions entirely absent from Thomas Miller’s coverage determinations, see, e.g., Dkt. Nos. 72-13, 72-14, its 18 assigned claims handler made no mention of these exclusions when asked various questions regarding Thomas Miller’s coverage position and determinations, see generally Dkt. No. 72-4. It would be highly prejudicial to 19 Defendants to permit Thomas Miller to advance new bases for denial of coverage for the first time in summary judgment opposition briefing after Defendants were not alerted to these bases during discovery and where there is no reason that Thomas Miller could not have raised these bases at the time it issued its reservation of rights letter. See 20 Karpenski v. Am. Gen. Life Companies, LLC, 999 F. Supp. 2d 1235, 1245 (W.D. Wash. 2014) (Washington’s “mend the hold” doctrine “precludes an insurer from changing the basis for avoiding liability after the onset of litigation”); 21 Hayden, 1 P.3d at 1170 (doctrine applies when the insured “suffered prejudice or the insurer acted in bad faith when the insurer failed to raise all its grounds for denial in its initial denial letter”); Bosko v. Pitts & Still Inc., 454 P.2d 229, 234 (Wash. 1969) (Where “an insurer denies liability under the policy for one reason, while having knowledge of 22 other grounds for denying liability, it is estopped from later raising the other grounds in an attempt to escape liability, provided that the insured was prejudiced by the insurer’s failure to initially raise the other grounds.”). 23 13 Thomas Miller does not argue that any other exclusion in this five-part list (Dkt. No. 1 at 69–70) applies and has therefore waived the argument. Dkt. No. 67 at 19–22; see generally Dkt. No. 73. 24 14 Thomas Miller also contends in conclusory fashion that the Underlying Litigation alleges that Defendants “handled, 1 up costs imposed in the Underlying Litigation fall within the scope” of the Pollution 2 Endorsement’s buyback exclusions, Dkt. No. 70 at 23, but argue that any award of compensatory 3 mitigation damages—such as restoration of degraded habitat or conservation of critical habitat— 4 would not constitute “fines,” “penalties,” or “cleanup costs.” Dkt. No. 70 at 9, 12, 23; see also Dkt.

5 No. 76 at 11. 6 Again, in evaluating whether the insurer owes a duty to defend, the Court must liberally 7 construe the underlying complaints to determine whether the policy could conceivably cover the 8 claims. Expedia, Inc. v. Steadfast Ins. Co., 329 P.3d 59, 64 (Wash. 2014); Am. Best Food, 229 P.3d 9 at 696. As Thomas Miller acknowledges, the United States and the Puyallup Tribe both sought 10 mitigation in their complaints. Dkt. No. 72-7 at 19 (United States’ Complaint requesting that the 11 Court order Electron Hydro “to mitigate the effects of each of its violations”); Dkt. No. 69 at 36 12 (United States’ Amended Complaint requesting same); Dkt. No. 72-3 at 34 (Puyallup Tribe’s 13 Complaint requesting that the Court order Defendants to “mitigate the harm caused by the 14 discharge of the waste artificial turf and crumb rubber”); Dkt. No. 69 at 73 (Puyallup Tribe’s

15 Amended Complaint requesting same). Defendants have established that such mitigation could be 16 compensatory such that it constitutes “sums that the insured becomes legally obligated by 17 Washington Law to pay as damages because of . . . ‘property damage.’” Dkt. No. 59 at 51. 18

19 stored, and disposed of waste crumb rubber, yarn, and plastic as the foundation for [the Underlying Litigation plaintiffs’] claim,” and therefore “there is no coverage under the Policy.” Dkt. No. 67 at 22. However, as Defendants 20 point out, this exclusion requires that the subject site or location be “principally used by the insured . . . for the handling, storage, disposal, dumping, processing or treatment of waste material” to bar coverage. Dkt. No. 59 at 69 (emphasis added). Defendants aver that “the principal purpose of Electron Hydro’s [F]acility is producing 21 hydropower,” not handling waste material, as reflected in the Policy language. Dkt. No. 70 at 24; see also Dkt. No. 59 at 42–43 (describing the Electron Hydroelectric Project and noting that “[t]he owners [of Electron Hydro] are 22 engineers that specialize in design/build of hydro diversion dams for electric utilities” who purchased the facility “from the utility they built [it] for.”). Thomas Miller does not present any evidence to rebut this argument; indeed, 23 Thomas Miller’s assigned claims handler testified that he would not have any reason to disagree with the proposition. Dkt. No. 72-4 at 4 (“I wouldn’t have any reason to disagree. . . . And just based on the title of the company, I would – I believe that to be the case.”). The Court finds that the Pollution Endorsement does not bar coverage for the claims 24 in the Underlying Litigation on this basis. 1 Specifically, Defendants point to (1) federal regulations governing compensatory mitigation to 2 offset adverse impacts to aquatic resources, and (2) the disclosure of the United States’ expert 3 witness in the Underlying Litigation. Dkt. No. 70 at 9. The federal regulations explain that 4 “compensatory mitigation is a critical tool in helping the federal government to meet the

5 longstanding national goal of ‘no net loss’ of wetland acreage and function.” 73 Fed. Reg. 19594- 6 01, 19594. Compensatory mitigation “can be carried out through four methods: the restoration of 7 a previously-existing wetland or other aquatic site, the enhancement of an existing aquatic site’s 8 functions, the establishment (i.e., creation) of a new aquatic site, or the preservation of an existing 9 aquatic site.” Id. Consistent with these regulations, the expert witness’s disclosure states that she 10 expected to present evidence in the Underlying Litigation on “[t]he remedies appropriate under the 11 federal Clean Water Act . . . to provide restoration and mitigation to the [affected] resources and 12 processes”; and that she had determined “[t]hat appropriate and commensurate compensatory 13 mitigation is required to provide for temporal and habitat replacement of direct and indirect 14 impacts to aquatic resources affected by the construction activities at the Electron Hydro Facility.”

15 Dkt. No. 72-9 at 2–3 (noting that compensatory mitigation “may include restoration of degraded 16 or impaired aquatic and riparian habitat, and/or the conservation of critical habitat needed for the 17 spawning, rearing and foraging of federal listed fish species”). 18 Based on the potential forms the mitigation requested in the plaintiffs’ complaints could 19 take, the ultimate relief could be compensatory yet fall outside the scope of excluded “clean up 20 costs.” This conclusion is supported by the plain language of the Policy. Specifically, the Pollution 21 Endorsement excludes from the buyback “[a]ny clean up costs ordered by . . . any federal, state or 22 local governmental authority,” and in a separate exclusion it uses other terms alongside “clean up” 23 to describe potential damages incurred by the insured for pollution, including losses, costs, or

24 expenses associated with “test[ing] for, monitor[ing], remov[ing], contain[ing], treat[ing], 1 detoxify[ing] or neutraliz[ing] pollutants.” Dkt. No. 59 at 69–70. The use of these different terms 2 in the Policy language indicates that “clean up costs” has a narrower breadth than Thomas Miller 3 argues; at a minimum, it does not encompass losses, costs, or expenses associated with testing for, 4 monitoring, removing, containing, treating, detoxifying or neutralizing pollutants, and it also may

5 not encompass compensatory mitigation. As the Court found above, losses, costs, or expenses that 6 are “essentially compensatory damages for injury to property,” constitute “sums that the insured 7 bec[ame] legally obligated by Washington Law to pay as damages[.]” Id. at 51. Thus, any 8 mitigation damages that are compensatory in nature and are not “clean up costs,” fines, or penalties 9 would conceivably be covered by the Policy. The burden accordingly shifts to Thomas Miller to 10 “show[] the loss is excluded by specific policy language.” Overton, 38 P.3d at 329. 11 Thomas Miller does not do so. Instead, it concedes that plaintiffs in the Underlying Lawsuit 12 sought mitigation in their initial complaints, Dkt. No. 73 at 5, and that whether such relief 13 constitutes compensatory mitigation such that it may be covered by the Policy involves “factual 14 issues” that “cannot be resolved on summary judgment,” id. at 13. These concessions demonstrate

15 that the requests for relief in the Underlying Lawsuit could conceivably be covered under the 16 Pollution Endorsement, and that the exceptions to the buyback in the Pollution Endorsement do 17 not clearly and unambiguously apply to completely bar coverage. See Dkt. No. 76 at 11 n.4. Where, 18 as here, “coverage is not clear from the face of the complaint but coverage could exist, the insurer 19 must investigate and give the insured the benefit of the doubt on the duty to defend.” Expedia, Inc., 20 329 P.3d at 65. 21 3. Allocation Between Covered and Uncovered Claims 22 Finally, Defendants argue that “because DOJ’s damages theories all rest on the same 23 liability and causation arguments, there is no reasonable basis for [Thomas Miller] to apportion

24 [Defendants’] defense costs between covered and covered claims.” Dkt. No. 70 at 25. As Thomas 1 Miller points out, it has not sought this relief. Dkt. No. 73 at 25. Therefore, the Court finds that 2 defense costs shall not be allocated. 3 * * * 4 For the above reasons, the Court grants Defendants’ motion for summary judgment that

5 Thomas Miller had a duty to defend them in the Underlying Litigation. 6 D. Duty to Indemnify 7 Because “the duty to indemnify arises when an insured is actually liable to a claimant and 8 that claimant’s injury is covered by the language of the policy,” Mut. of Enumclaw Ins. Co. v. USF 9 Ins. Co., 191 P.3d 866, 873 n.7 (Wash. 2008), Thomas Miller’s duty to indemnify did not arise 10 until the Court entered the consent decree in the Underlying Litigation on July 11, 2024. United 11 States v. Electron Hydro, LLC, No. 2:20-cv-01746-JCC, Dkt. No. 175; see also Weyerhaeuser Co. 12 v. Ins. Co. of State of Pennsylvania, No. C08-1037Z, 2009 WL 2461163, at *4 (W.D. Wash. Aug. 13 10, 2009) (finding that insurer’s duty to indemnify did not arise until the underlying litigation was 14 settled); see also Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1564–65 (9th Cir.

15 1991) (consent decree costs can be “damages”); Emps. Ins. of Wausau v. California Water Serv. 16 Co., No. C-06-03002 RMW, 2008 WL 3916096, at *15 (N.D. Cal. Aug. 25, 2008) (same); 17 Maryland Cas. Co. v. Wausau Chem. Corp., 809 F. Supp. 680, 692 (W.D. Wis. 1992) (same). Due 18 to the timing of their briefing in this matter, the parties have not yet had an opportunity to address 19 the applicability of the Policy language to the relief awarded in the consent decree. Therefore, 20 before the Court can determine whether Thomas Miller has a duty to indemnify Defendants, it 21 requires further input from the parties. The parties appear to agree on this outcome: as noted above, 22 Thomas Miller argues that whether the relief in the consent decree constitutes compensatory 23 mitigation such that it may be covered by the Policy involves factual issues that cannot be resolved

24 at this stage, Dkt. No. 73 at 13, while Defendants “agree[] that further briefing will be necessary 1 to determine the scope of [Thomas Miller]’s obligations in relation to the Consent Decree i[f] and 2 when it is ultimately entered[.]” Dkt. No. 76 at 13 n.6. 3 E. Coverage by Estoppel 4 Defendants contend in their cross-motion that they are entitled to coverage under the Policy

5 because Thomas Miller acted in bad faith as a matter of law by breaching numerous duties required 6 of insurers under Washington law and functionally denying their claim. Dkt. No. 70 at 14–17. 7 Under Washington law, “[i]f an insured prevails on a bad faith claim, the insurer is 8 estopped from denying coverage . . . even where coverage never in fact existed.” Aecon Bldgs., 9 Inc. v. Zurich N. Am., 572 F. Supp. 2d 1227, 1234 (W.D. Wash. 2008) (internal citations omitted). 10 “Claims of insurer bad faith are analyzed applying the same principles as any other tort: duty, 11 breach of that duty, and damages proximately caused by any breach of duty.” St. Paul Fire & 12 Marine Ins. Co. v. Onvia, Inc., 196 P.3d 664, 668 (Wash. 2008) (cleaned up). “[T]o succeed on a 13 bad faith claim, the policyholder must show the insurer’s breach of the insurance contract was 14 unreasonable, frivolous, or unfounded.” Smith v. Safeco Ins. Co., 78 P.3d 1274, 1277 (Wash.

15 2003). Washington courts have repeatedly emphasized that the test for bad faith “is not whether 16 the insurer’s interpretation [of the policy] is correct, but whether the insurer’s conduct was 17 reasonable.” Wright v. Safeco Ins. Co., 109 P.3d 1, 10 (Wash. Ct. App. 2004); see also Anderson 18 v. State Farm Mut. Ins. Co., 2 P.3d 1029, 1033 (Wash. Ct. App. 2000) (“The determinative 19 question is reasonableness of the insurer’s actions in light of all the facts and circumstances of the 20 case.”). Thus, coverage by estoppel does not apply if an insurer commits only a “procedural 21 misstep”; rather, an insurer must breach its duty of good faith in order for the insured to be entitled 22 to coverage. St. Paul & Marine Ins. Co., 196 P.3d at 669. 23 Whether the insurer acted reasonably is often a question of fact. Smith, 78 P.3d at 1277;

24 Hell Yeah Cycles v. Ohio Sec. Ins. Co., 16 F. Supp. 3d 1224, 1235 (E.D. Wash. 2014) (“Bad faith 1 claims generally raise fact issues preventing a determination on summary judgment.”). But this is 2 not a free ticket to trial, as the insured “has the burden of proof” and “must come forward with 3 evidence that the insurer acted unreasonably.” Smith, 78 P.3d at 1277; Overton, 38 P.3d at 329 4 (“Claims of bad faith are not easy to establish and an insured has a heavy burden to meet.”). The

5 Court will therefore grant summary judgment “only if there are no disputed material facts 6 pertaining to the reasonableness of the insurer’s conduct under the circumstances, or the insurance 7 company is entitled to prevail as a matter of law on the facts construed most favorably to the 8 nonmoving party.” Smith, 78 P.3d at 1277. The insurer’s ability to point to a reasonable basis for 9 its action is “significant evidence that it did not act in bad faith and may even establish that 10 reasonable minds could not differ that its denial of coverage was justified.” Id. at 1278. 11 Defendants argue that Thomas Miller handled their claims in bad faith by (1) failing to 12 acknowledge Defendants’ claim within 10 days of notification in violation of Section 284-30-360 13 of the Washington Administrative Code, Dkt. No. 70 at 14–16; (2) failing to defend Defendants, 14 adopt and implement reasonable standards for the prompt investigation of Defendants’ claims,

15 investigate the claim within 30 days, and provide written updates in accordance with Washington 16 regulations, id. (citing Wash. Admin. Code §§ 284-30-330(4), -370, -380(3)); and (3) failing to 17 provide Defendants a written coverage determination for nearly 18 months, including the basis for 18 a reservation of rights, id. (citing Wash. Admin. Code § 284-30-330(13)). The Court examines 19 each of these in turn. 20 1. Washington Administrative Code Section 284-30-360 21 Defendants aver that Thomas Miller “did not acknowledge Electron Hydro’s claim in 22 writing to Electron Hydro within 10 days” in violation of Section 284-30-360(1) of the Washington 23 Administrative Code. Dkt. No. 70 at 15–16 (emphasis omitted). This assertion is without merit.

24 1 Section 284-30-360(1) provides that “[w]ithin ten working days after receiving notification 2 of a claim under an individual insurance policy . . . the insurer must acknowledge its receipt of the 3 notice of claim.” Defendants do not clearly state—nor can the Court discern—how Thomas Miller 4 violated this regulation. Thomas Miller first received notice from Howden of a “contamination”

5 event in the Puyallup River on October 8, 2020. Dkt. No. 72-5 at 2–3; Dkt. No. 74 at 2, 12. It 6 provided a written response to Howden two business days later on October 12, 2020, 7 acknowledging receipt of the claim and recommending that Electron Hydro retain counsel. Id. at 8 2; see also id. at 10–11. And on October 19, 2021, Howden sent Thomas Miller a message 9 requesting reimbursement for legal defense invoices amounting to $318,434.52 (after deduction 10 of non-reimbursable expenses and a $100,000 deductible), id. at 5, 78; Thomas confirmed receipt 11 of the invoices four business days later on October 25, 2021, id. at 5–6, 77. 12 Defendants appear to claim that Thomas Miller was required to acknowledge Defendants’ 13 claim in writing to Defendants directly—as opposed to Defendants via Howden. Dkt. No. 70 at 7 14 (“[Thomas Miller] did not send any correspondence directly to Electron Hydro acknowledging its

15 claim for coverage[.]”), 10 (“[Thomas Miller] did not acknowledge Electron Hydro’s claim in 16 writing to Electron Hydro within 10 days.” (emphasis removed)); see also id. at 7, 9; Dkt. No. 76 17 at 3, 5. But Section 284-30-360(1) imposes no such requirement; in fact, it provides that “[i]f an 18 acknowledgment is made by means other than writing, an appropriate notation of the 19 acknowledgment must be made in the claim file of the insurer describing how, when, and to whom 20 the notice was made.” Wash. Admin. Code § 284-30-360(1)(b). Defendants do not claim that this 21 procedure was not followed. And Defendants point to no authority that states that the 22 acknowledgment must be to the insured directly and not to a broker. Therefore, Defendants’ 23 allegations that Thomas Miller breached its duties under Section 284-30-360 are meritless.

24 1 2. Duty to Defend and Failure to Investigate 2 Defendants next contend that Thomas Miller “failed to conduct any reasonable 3 investigation into Electron Hydro’s claim or request any additional documentation other than the 4 initial notices of claim Electron Hydro tendered through its broker” in violation of Sections 284-

5 30-330(4) and 284-30-370 of the Washington Administrative Code. Dkt. No. 70 at 15; Wash. 6 Admin. Code §§ 284-30-330(4) (defining as an unfair claims settlement practice the “[r]efus[al] 7 to pay claims without conducting a reasonable investigation”), 284-30-370 (requiring that “[e]very 8 insurer must complete its investigation of a claim within thirty days after notification of claim, 9 unless the investigation cannot reasonably be completed within that time”). Defendants appear to 10 contend that these failures amounted to a violation of Thomas Miller’s duty to defend in good faith 11 as an insurer under Washington law. See Dkt. No. 70 at 16. 12 When the duty to defend attaches, an insurer “may not desert policyholders and allow them 13 to incur substantial legal costs while waiting for an indemnity determination.” Expedia, Inc., 329 14 P.3d at 64 (quoting Truck Ins. Exch. v. Vanport Homes, Inc., 58 P.3d 276, 282 (Wash. 2002)). The

15 insurer then must defend the insured “until it is clear that a claim is not covered under the policy.” 16 Id. (citing Am. Best Food, 229 P.3d at 696). “The entitlement to a defense may prove to be of 17 greater benefit to the insured than indemnity.” Am. Best Food, 229 P.3d at 696 (citing Truck. Ins. 18 Exch., 58 P.3d at 284). Again, “if coverage is not clear from the face of the complaint but coverage 19 could exist, the insurer must investigate and give the insured the benefit of the doubt on the duty 20 to defend.” Expedia, Inc., 329 P.3d at 65. Such investigation must be “reasonable and prompt,” 21 but insurers “need not necessarily investigate every discrete element.” Bridgham-Morrison v. Nat’l 22 Gen. Assurance Co., No. C15-927-RAJ, 2016 WL 2739452, at *6 (W.D. Wash. May 11, 2016) 23 (citation omitted), aff’d, 739 F. App'x 381 (9th Cir. 2018). And although “[i]t is an insurer’s

24 affirmative duty to investigate a claim before it denies coverage, not the insured’s duty to continue 1 supplementing the record to an uninquisitive insurer,” Aecon Bldgs., 572 F. Supp. 2d at 1236 2 (internal citation omitted), an insurer should not be held responsible for delays in investigation that 3 are attributable to the insured, see Am. Mfrs. Mut. Ins. Co. v. Osborn, 17 P.3d 1229, 1233 (Wash. 4 Ct. App. 2001) (upholding summary judgment in favor of insurer on bad faith claim where trial

5 court “noted that [the policyholder] failed to produce any evidence showing that the delays, which 6 she claimed harmed her, were the result of [the insurer’s] actions rather than her own or to produce 7 other evidence supporting a cause of action for unreasonable investigation and claim adjustment”). 8 Without weighing the evidence or making any credibility determinations, Anderson, 477 9 U.S. at 255, the Court finds that Defendants have not demonstrated that Thomas Miller acted in 10 bad faith. Upon receiving notices of investigation from Puget Sound Energy, the Washington 11 Attorney General’s Office, and the Puyallup Tribe in September and October 2020, Defendants 12 provided Thomas Miller with a notice of loss via its local broker HUB International and its U.K. 13 broker Howden Group on October 8, 2020. Dkt. No. 72-4 at 13, 23; Dkt. No. 72-5 at 2–3; Dkt. 14 No. 74 at 12. Thomas Miller first internally acknowledged the claim, noted that it involved the

15 “installation of some artificial turf [that] ha[d] caused pollution to the river,” and notified the 16 insurance carrier of a “pending large loss.” Dkt. No. 72-5 at 2; see also Dkt. No. 72-4 at 5–7; Dkt. 17 No. 72-6 at 2. Thomas Miller then provided a written response to Howden two business days later 18 on October 12, 2020, acknowledging receipt of the claim; recommended that Electron Hydro retain 19 Schwabe as counsel; and began inquiring “what the assured has done to rectify the matter,” 20 whether “there [has] been a liability/pollution response plan in place,” and “why there has been a 21 delay in informing the relevant parties of this matter.” Dkt. No. 74 at 2, 10–11. 22 Despite this prompt initial response, Defendants contend that Thomas Miller “appears to 23 have done virtually nothing in response to Electron Hydro’s claim for the next 17-plus months”

24 and “did not request any information or conduct any additional investigation about the underlying 1 loss or the underlying claims.” Dkt. No. 70 at 7–8 (emphasis omitted). Thomas Miller characterizes 2 these arguments as “revisionist history,” and recounts how it “sent Defendants at least seven 3 written requests for further information and documentation about the claims, each of which 4 Defendants ignored” and how “Defendants’ counsel provided no substantive information about

5 the claims beyond two curated procedural updates with no underlying documentation.” Dkt. No. 6 73 at 18. This is at least partially corroborated by the evidence. See Dkt. No. 74 at 28 (requesting 7 “relevant permits/licenses for the installation of the turf and the work performed” on November 2, 8 2020), 37 (following up with same request on November 16, 2020), 48 (requesting information on 9 agency agreements for use of artificial turf and reserve values); see also id. at 5 (discussing Thomas 10 Miller’s “multiple requests for information and status updates on the claims”). 11 Defendants criticize Thomas Miller’s proffered evidence as “a transparent attempt to invert 12 the parties’ respective duties under Washington law in order to manufacture a post hoc justification 13 for [Thomas Miller’s] conduct.” Dkt. No. 76 at 5 (emphasis omitted). But Defendants do not 14 contest that the delays in Thomas Miller’s investigation were at least in part due to their own delay

15 and lack of prompt communication. See, e.g., Dkt. No. 74 at 37 (failing to provide documents 16 requested by Thomas Miller for at least two weeks after initial request), 49 (stating on November 17 16, 2020 that Electron Hydro staff “has been meeting with resource agency staff on-site” and 18 “[would] be following up with information requests as they come in”); see also id. at 5 (discussing 19 alleged failure of Electron Hydro’s counsel to provide updates to Thomas Miller until July 9, 2021 20 despite “multiple requests for information and status updates on the claims”). Such a delay does 21 not establish a functional denial of Defendants’ claim, as they aver, especially given that Thomas 22 Miller ultimately paid its share of the invoices. Dkt. No. 70 at 14–17; cf. Bridgham-Morrison v. 23 Nat'l Gen. Assurance Co., No. C15-927-RAJ, 2016 WL 2739452, at *4 (W.D. Wash. May 11,

24 2016) (a delay does not amount to a denial of payment under IFCA when the dispute is over the 1 amount owed, “particularly . . . where [the insurer] cannot assess the entirety of [the insured’s] 2 claimed damages without additional information”); Country Preferred Ins. Co. v. Hurless, No. 3 C11-1349-RSM, 2012 WL 2367073, at *4 (W.D. Wash. June 21, 2012) (finding that a delay 4 caused by a dispute between the parties over amount of wage loss suffered by insured did not

5 establish a “denial of payment”). 6 Additionally, while Defendants contend that Thomas Miller “falsely claim[ed] that 7 Electron Hydro ‘ignored’ its requests for information,” Dkt. No. 76 at 5, they provide no evidence 8 to rebut this claim or Thomas Miller’s supporting evidence, Dkt. No. 73 at 10–11. They also do 9 not challenge Thomas Miller’s characterization of Nossaman’s “status updates” as “two curated 10 procedural updates with no underlying documentation.” Id. And despite describing Thomas Miller 11 as an “uncommunicative insurer,” id., they do not address Thomas Miller’s assertions and 12 corroborating evidence that Defendants themselves were the uncommunicative parties, Dkt. No. 13 73 at 10–11, 20–21. 14 With the benefit of hindsight, the Court finds that Thomas Miller could certainly have

15 conducted its handling of Defendants’ claim more diligently or promptly, including by inquiring 16 more consistently for updates from Nossaman or by issuing its reservation of rights letter sooner. 17 However, this does not mean that Thomas Miller’s investigation was unreasonable as a matter of 18 law. Amini v. Crestbook Ins. Co., No. C21-1377-KKE, 2023 WL 6389341, at *9 (W.D. Wash. Oct. 19 2, 2023). Defendants appear to claim that Thomas Miller erroneously “based its coverage position 20 solely on the complaints in the Underlying Litigation” and did not conduct any additional 21 investigation, Dkt. No. 70 at 11; see also Dkt. No. 72-4 at 26–27, but they do not explain what 22 additional investigation was supposedly needed. The dispute between the parties was not about 23 underlying facts, but rather Policy interpretation.

24 1 Furthermore, Thomas Miller is hardly the “uninquisitive insurer” that relied upon the 2 insured to provide constant updates on the litigation without Thomas Miller’s active participation. 3 Aecon Bldgs., 572 F. Supp. 2d at 1236. The record shows that it consistently sought litigation 4 updates from Defendants’ counsel so it could evaluate the extent of Policy coverage and counsel’s

5 invoices. See, e.g., Dkt. No. 74 at 5–6, 77, 81. The substance of these inquiries from November 6 2020 to July 2021, as well as the quality of the updates provided to Thomas Miller by Defendants’ 7 counsel, are, at minimum, outstanding factual questions bearing upon the overall reasonableness 8 of Thomas Miller’s investigation. 9 For these reasons, “issues of fact remain as to whether any additional investigation was 10 reasonably necessary or warranted” and whether the investigation could have been completed 11 within 30 days. Gamble v. State Farm Mut. Auto. Ins. Co., No. 3:19-CV-05956-RJB, 2020 WL 12 5081706, at *4 (W.D. Wash. Aug. 27, 2020); Allstate Indem. Co. v. Lindquist, No. C20-1508-JLR, 13 2022 WL 1607925, at *13 (W.D. Wash. May 20, 2022).15 Because a reasonable juror could weigh 14 the evidence and decide that Thomas Miller’s investigation was reasonable, or that the

15 investigation could not have been reasonably completed in 30 days, summary judgment on this 16 issue is not appropriate at this time. Gamble, 2020 WL 5081706, at *4.16 17 18

19 15 Thomas Miller does not address Defendants’ allegation that Thomas Miller violated Section 284-30-370 of the Washington Administrative Code by failing to complete its investigation in 30 days. See Dkt. No. 70 at 15; see 20 generally Dkt. No. 73. However, that regulation provides that such an investigation need only be completed within 30 days if it can “reasonably be completed within that time.” Wash. Admin. Code § 284-30-370. It also requires the 21 insured to “provide reasonable assistance to the insurer in order to facilitate compliance with this provision.” Id. As established above, there is an issue of material fact as to whether Defendants provided the necessary assistance to Thomas Miller to facilitate compliance with this regulation. The Court therefore cannot award summary judgment to 22 Defendants on this issue. See Amini, 2023 WL 6389341, at *10. 23 16 Defendants also contend that Thomas Miller “did not provide any written explanation as to why it was unable to complete its investigation,” or any continuous updates, in violation of Section 284-30-380(3) of the Washington Administrative Code. Dkt. No. 70 at 15–16. They do not, however, provide evidence supporting this alleged violation, 24 and Thomas Miller does not address it. Summary judgment on this issue is therefore also precluded. 1 3. Delay in Coverage Determination 2 Lastly, Defendants claim that Thomas Miller failed to provide Defendants a written 3 coverage determination for nearly 18 months, including the basis for any reservation of rights, in 4 violation of Section 284-30-330(13) of the Washington Administrative Code. Dkt. No. 70 at 15–

5 16; Wash. Admin. Code § 284-30-330(13) (defining as an unfair claims settlement practice the 6 “[f]ail[ure] to promptly provide a reasonable explanation of the basis in the insurance policy in 7 relation to the facts or applicable law for denial of a claim or for the offer of a compromise 8 settlement”). 9 Defendants rely on this Court’s decision in Rushforth Construction Co. v. Wesco Insurance 10 Co., in which the Court found that an insurer had engaged in bad faith through unreasonable delay 11 when it received the insured’s tender in July 2016 and then opened a claim, set reserves, gathered 12 information, and prepared a reservation of rights in the first two months, but subsequently 13 effectively “failed to act on the claim for ten months.” No. C17-1063-JCC, 2018 WL 1610222, at 14 *5 (W.D. Wash. Apr. 3, 2018). The Court noted that the insured sent the insurer “four letters

15 inquiring about the status of the claim,” and while “an adjuster sent internal email inquiries about 16 the status of the claim,” the insurer “took no further action” until after the insurer filed a lawsuit. 17 Id. 18 However, Rushforth is easily distinguishable from this case. Specifically, the insurer in 19 Rushforth “provid[ed] no specific facts to supply a reasonable basis for its delay that would allow 20 it to survive summary judgment.” Id. (citing Smith v. Safeco Ins. Co., 78 P.3d 1274, 1277–78 21 (Wash. 2003)). That is not the case here. Defendants again disregard their own contributions to the 22 delay in coverage determination. As discussed above, Thomas Miller sent Defendants multiple 23 requests for further information regarding both the initial incident and the ongoing Underlying

24 Litigation, but received no or untimely responses to those requests. See Dkt. No. 73 at 18; Dkt. 1 No. 74 at 5, 28, 37, 48. Defendants provide no evidence indicating that these assertions are 2 inaccurate. Defendants also do not address the delay in selecting defense counsel—a four-month 3 delay for which they share the blame. Dkt. No. 74 at 4–5, 61–62. And, unlike the plaintiffs in 4 Rushforth, Defendants provide no evidence supporting their allegation that inquiries about the

5 status of their claim went unanswered. 6 Defendants therefore fail to meet their burden to establish that Thomas Miller handled their 7 claim in bad faith. The Court accordingly denies their motion for summary judgment that they are 8 owed coverage by estoppel. 9 F. Efficient Proximate Cause Rule 10 In a final attempt to avoid the limits of the Pollution Endorsement, Defendants argue that 11 coverage is warranted under Washington’s “efficient proximate cause rule.” Dkt. No. 70 at 18–20. 12 This rule provides for coverage “where a covered peril sets in motion a causal chain the last link 13 of which is an uncovered peril.” Xia v. ProBuilders Specialty Ins. Co., 400 P.3d 1234, 1240 (Wash. 14 2017) (cleaned up). “If the initial event, the efficient proximate cause, is a covered peril, then there

15 is coverage under the policy regardless whether subsequent events within the chain, which may be 16 causes-in-fact of the loss, are excluded by the policy.” Id. (internal quotation marks and citation 17 omitted). The rule “applies only when two or more perils combine in sequence to cause a loss and 18 a covered peril is the predominant or efficient cause of the loss.” Id. at 1241–42 (cleaned up). 19 Defendants contend that “every source of available information makes clear that the tear 20 in the HDPE liner was a separate and distinct event from the subsequent release of crumb rubber 21 and artificial turf into the Puyallup River.” Dkt. No. 70 at 19. And because “the tear in the HDPE 22 liner, standing alone, is a covered peril for which [Thomas Miller] would be obligated to provide 23 coverage in the absence of related allegations of pollution,” and the tear “set into motion the causal

24 chain leading to the alleged pollution at issue,” they are entitled to coverage. Id. at 20. 1 Thomas Miller challenges Defendants’ framing of the causal chain. In its view, it was not 2 the tear in the HDPE liner that set into the motion the sequence of events that ultimately led to the 3 release of pollutants, but rather Electron Hydro’s “intentional placement” of pollutants into the 4 Puyallup River, which is addressed by the Pollution Endorsement. Dkt. No. 73 at 23. And because

5 the intentional placement of pollutants in the water is not covered by the Policy, Thomas Miller 6 argues that the efficient proximate cause rule does not provide coverage for Defendants. 7 Thomas Miller analogizes the causal chain in this case to that in Dolsen Companies v. 8 Bedivere Insurance Company, 264 F. Supp. 3d 1083 (E.D. Wash. 2017). In that case, the 9 policyholders operated concentrated animal farm operations (“CAFOs”) and stored millions of 10 gallons of liquid manure in holding ponds. Id. at 1086. After the ponds leaked, two environmental 11 groups sued the CAFO policyholders under state and federal environmental laws, alleging that the 12 policyholders “over-applied manure” and caused “significant environmental contamination of the 13 soil and groundwater.” Id. at 1086–87. The policyholders submitted a tender for defense and 14 indemnity to its insurers, but the insurer denied coverage, citing a pollution exclusion in their

15 policies similar to the one at issue in this case. Id. at 1087. The Court concluded that there was no 16 coverage under the policy because “[i]t was the inadequate storage of the manure that caused the 17 seepage—and the negligent construction is necessarily intertwined with the storage.” Id. at 1094. 18 It noted that the focal point of the analysis “is the relation between the initial act and the pollutant 19 causing harm—viz., whether the initial peril was the polluting act (i.e., whether the incident 20 involved pollutants in the first place) or whether the initial peril was some other act that 21 incidentally led to a polluting harm.” Id. at 1093. 22 Importantly, “[t]he efficient proximate cause rule applies only where two or more 23 independent forces operate to cause the loss”; when the evidence shows that “the loss was in fact

24 occasioned by only a single cause, albeit one susceptible to various characterizations, the efficient 1 proximate cause analysis has no application,” and an insured may therefore “not avoid a 2 contractual exclusion merely by affixing an additional label or separate characterization to the act 3 or event causing the loss.” Kish v. Ins. Co. of N. Am., 883 P.2d 308, 311 (Wash. 1994) (emphasis 4 added) (cleaned up). Here, the record shows that within roughly a one-week period, Electron

5 Hydro (1) “constructed a bypass channel to divert water away from the work area adjacent to the 6 facility, which was lined with [HDPE] liner,” and (2) “set geotextile fabric and artificial grass 7 turf/crumb rubber underneath the HDPE in a deliberate effort to prevent any rough material in the 8 bypass channel from damaging the HDPE liner.” Dkt. No. 71 at 2. Once diversions began, the liner 9 failed almost immediately; “shortly after diversions into the temporary spillway began, the HDPE 10 liner unexpectedly tore.” Id. This was not a situation where the handling of pollutants was merely 11 “incidental[]” to the initial peril, Dolsen, 264 F. Supp. 3d at 1093; rather, it is undisputed that 12 Electron Hydro placed the eventual pollutants in the river to prevent damage to the HDPE liner, 13 Dkt. No. 71 at 2. Because the two events are “intimately tied,” the tear in the liner cannot be 14 characterized as an entirely separate event that has no relation to the alleged discharge of pollutants

15 at issue in this case. See Dolsen, 264 F. Supp. 3d at 1094; see also Country Mut. Ins. Co. v. Jackson, 16 No. 2:20-CV-00150-SAB, 2022 WL 187808, at *8 (E.D. Wash. Jan. 20, 2022) (determining that 17 explosion of metal cylinder that, unbeknownst to policyholders, contained pressurized chlorine 18 gas was not covered by insurance policy with pollution exclusion because the initial event was the 19 agreement to dispose of the cylinder, even if policyholders did not know cylinder’s contents). 20 Furthermore, “the purpose of the efficient proximate cause rule is to provide a workable 21 rule of coverage that provides a fair result within the reasonable expectations of both the insured 22 and the insurer”; it does not supplant “the intentions and expectations of the parties[.]” Kish, 883 23 P.2d at 312; see also Graham v. Pub. Emps. Mut. Ins. Co., 656 P.2d 1077, 1081 (Wash. 1983)

24 (adopting the efficient proximate cause rule so as to “allow inquiry into the intent and expectations 1 of the parties to the insurance contract”). With this principle in mind, the Court finds that the plain 2 language of the Policy already addresses coverage when pollution is caused by an “accident[.]” 3 Specifically, save for certain exceptions (e.g., clean up costs, fines, or penalties), property damage 4 caused by pollution is covered if, among other things, “[i]t was accidental and neither expected

5 nor intended by the insured.” Dkt. No. 59 at 69. Thus, the Policy expressly reflects the parties’ 6 intentions and expectations regarding coverage for pollution in the event of an accidental, 7 unexpected, and unintended event such as the tear in the liner. See Findlay v. United Pac. Ins. Co., 8 895 P.2d 32, 35 (Wash. Ct. App. 1995) (finding that policy “does not improperly circumvent the 9 efficient proximate cause rule because its language and structure communicate an intent to exclude 10 coverage when weather conditions combine with earth movement to cause a loss”; “the plain 11 language of the provision clearly states that coverage for weather conditions is excluded except in 12 certain circumstances and that coverage is always excluded when weather conditions and earth 13 movement act together”). 14 For these reasons, the Court denies Defendants’ motion for summary judgment that

15 coverage is warranted under the efficient proximate cause rule. 16 G. Fees Under Olympic Steamship 17 Defendants ask the Court to award them fees under Olympic Steamship Co. v. Centennial 18 Insurance Co., 811 P.2d 673 (Wash. 1991). Dkt. No. 70 at 25–26. Entitlement to fees under 19 Olympic Steamship depends on whether, and to what extent, Thomas Miller compelled Defendants 20 to assume the burden of litigation to obtain the full benefit of its policy. The Court defers ruling 21 on Defendants’ request until the remaining substantive issues in this case are resolved. 22 III. CONCLUSION 23 For the foregoing reasons, the Court DENIES Thomas Miller’s motion for summary

24 judgment, Dkt. No. 67, and GRANTS IN PART and DENIES IN PART Defendants’ cross-motion 1 for summary judgment, Dkt. No. 70. The Court further ORDERS the parties to meet and confer 2 and, within 30 days of the date of this Order, submit to the Court a joint status report setting forth 3 a proposal regarding disposition of the remaining issues in this case. 4 Dated this 8th day of May, 2025. A 5 Lauren King 6 United States District Judge

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