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6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 JOHN WHITE and SHELLI PARK, CASE NO. C20-841 MJP husband and wife and marital 11 community composed thereof, ORDER DENYING DEFENDANTS’ MOTION FOR 12 Plaintiffs, SUMMARY JUDGMENT 13 v. 14 LIBERTY MUTUAL INSURANCE COMPANY; LIBERTY INSURANCE 15 CORPORATION, 16 Defendants. 17
18 This is an action for a declaratory judgment and damages filed by Plaintiffs John White 19 and Shelli Park (referred to in briefing as “the Whites”) against Defendants Liberty Mutual 20 Insurance Company and Liberty Insurance Corporation (hereinafter referred together as 21 “Liberty”). (Dkt. No. 10.) The Whites claim Liberty breached its duty to defend under a 22 homeowner’s insurance policy when it denied their claim for legal defense after they were sued 23 by the City of Burien, Washington. Id. They allege breach of contract and violations of the 24 1 Insurance Fair Conduct Act (“IFCA”) and the Washington Consumer Protection Act (“WCPA”). 2 (Dkt. No. 10.) 3 The Court denied Plaintiffs’ motion for partial summary judgment. (Dkt. No. 25.) 4 Although Liberty had a duty to defend, Plaintiffs did not prove, at summary judgment, that 5 Liberty unreasonably refused to defend such that the Whites were entitled to a presumption of
6 harm; as a result, Plaintiffs had not proven their claims for breach of the duty to defend, coverage 7 by estoppel, or violation of IFCA. (Dkt. No. 10 at 12.) Defendants now move for summary 8 judgment, arguing that Plaintiffs’ claims should be dismissed. (Dkt. No. 26.) After considering 9 Defendants’ motion, (Dkt. No. 26), Plaintiffs’ response, (Dkt. Nos. 27, 28), Defendants’ reply, 10 (Dkt. Nos. 29, 30), and all relevant papers and proceedings herein, the Court DENIES 11 Defendants’ motion for summary judgment. 12 Background 13 The relevant factual and procedural background is contained in this Court’s decision 14 denying Plaintiffs’ motion for partial summary judgment. (Dkt. No. 25 at 1–5.) Nevertheless, it
15 is worth reciting several facts here. The Whites, who own real estate in Burien, Washington, 16 purchased a homeowner’s insurance policy from Defendant Liberty Insurance Corporation and 17 an umbrella liability policy from Liberty Mutual Insurance Company on October 14, 2015. (Dkt. 18 No. 12, Declaration of John White (“White Decl.”), Ex. A.; Dkt. No. 14 at 9.) Under the policy, 19 Liberty agreed to indemnify the Whites up to the policy limit for liability for any claims of property 20 or personal-injury damages and agreed to pay for legal defense for such claims. (White Decl., Ex. 21 A.) The policy’s most relevant exception is for damage that “is expected or intended by the insured” 22 or “aris[es] out of a premises . . . owned by an insured.” Id. The City of Burien sued the Whites 23 for unpermitted construction at their property and other activity on September 28, 2018, seeking 24 1 equitable and declaratory relief, a money judgment including civil penalties, costs, and attorney 2 fees. (Dkt. No. 13, Declaration of Thomas M. Williams (“Williams Decl.”), Ex. A.) 3 The Whites tendered the lawsuit to Liberty on November 5, 2019. (Williams Decl., Ex. B 4 at 3.) Liberty assigned a claims adjustor but apparently took no action for five months until it 5 informed the Whites, on April 22, 2020, that it could not accept or reject their request for defense
6 because it would have to investigate further. (White Decl., Ex. B.) The Whites sued Liberty on 7 June 3, 2020. (Dkt. No. 1.) On June 12, they served Liberty with an IFCA complaint. (Dkt. No. 8 15, Declaration of Sarah L. Eversole (“Eversole Decl.”), Ex. 4); see Wash. Rev. Code § 9 48.30.015(8)(a). 10 On July 23, 2020, Liberty offered to cover the cost of legal defense for the Burien lawsuit 11 subject to a full reservation of rights, including the right to withdraw defense or deny coverage, 12 as well as the right to seek judicial resolution of coverage issues. (White Decl., Ex. C.) The 13 Whites’ attorneys informed Liberty they were rejecting the offer because it came after this 14 lawsuit, unless Liberty agreed to pay whatever the Whites owed Burien, regardless of policy
15 limits, plus all past defense costs. (Williams Decl., Ex. C.) 16 Discussion 17 A. Legal Standard 18 Summary judgment is proper where “the movant shows that there is no genuine issue as 19 to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 20 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue 21 of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To defeat a motion for 22 summary judgment, the non-movant must point to facts supported by the record which 23 demonstrate a genuine issue of material fact. Lujan v. National Wildlife Foundation, 497 U.S. 24 1 871, 888 (1990). Conclusory, non-specific statements are not sufficient. Id. at 889. Similarly, 2 “a party cannot manufacture a genuine issue of material fact merely by making assertions in its 3 legal memoranda.” S.A. Empresa v. Walter Kidde & Co., 690 F.2d 1235, 1238 (9th Cir. 1982). 4 B. An Insurer’s Duty to Defend 5 Under Washington law, which governs this diversity action, an insurer has a duty to
6 defend if the insurance policy “conceivably covers the allegations in the complaint” against the 7 insured. Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 53 (2007). In other words, the insurer 8 must defend unless a claim is clearly not covered. Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 9 793, 803 (2014). “[A]ny reasonable interpretation” of the policy that invokes coverage for the 10 insured will control the question of whether a duty to defend has arisen, and the insured is 11 entitled to the benefit of any uncertainty, whether legal or factual. Am. Best Food v. Alea 12 London, Ltd., 168 Wn.2d 398, 405 (2010). “The duty to defend is a valuable service paid for by 13 the insured and one of the principal benefits of the liability insurance policy.” Woo, 161 Wn.2d 14 at 54.
15 The duty to defend is distinct from and broader than the duty to indemnify. Am. Best 16 Food, 168 Wn.2d at 404. Ultimately, an insurer must indemnify only for claims covered by the 17 policy. Id. But the insurer must provide legal defense for any complaint that is “conceivably” 18 covered. Id. For this reason, if an insurer believes it will ultimately be relieved of its duty to 19 indemnify, it may choose to defend subject to a reservation of its rights under the policy and may 20 also choose to file a separate action seeking a declaratory judgment that it has no coverage 21 obligation. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 761 (2002) (“A 22 reservation of rights is a means by which the insurer avoids breaching its duty to defend while 23 seeking to avoid waiver and estoppel.”). 24 1 If an insurer breaches its duty to defend, it must put the insured in “as good a position he 2 or she would have been had the contract not been breached.” Kirk v. Mt. Airy Ins. Co., 134 3 Wn.2d 558, 561 (1998). Damages include expenses, including attorney fees in the underlying 4 proceeding, and the amount of the judgment against the insured. Id. However, where an insurer 5 breaches in bad faith, harm to the insured is assumed and the insurer is estopped from denying
6 coverage and is liable for any underlying judgment. Id. at 564. “[T]he insurer can rebut the 7 presumption by showing by a preponderance of the evidence its acts did not harm or prejudice 8 the insured.” Safeco Ins. Co. of Am. v.
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6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 JOHN WHITE and SHELLI PARK, CASE NO. C20-841 MJP husband and wife and marital 11 community composed thereof, ORDER DENYING DEFENDANTS’ MOTION FOR 12 Plaintiffs, SUMMARY JUDGMENT 13 v. 14 LIBERTY MUTUAL INSURANCE COMPANY; LIBERTY INSURANCE 15 CORPORATION, 16 Defendants. 17
18 This is an action for a declaratory judgment and damages filed by Plaintiffs John White 19 and Shelli Park (referred to in briefing as “the Whites”) against Defendants Liberty Mutual 20 Insurance Company and Liberty Insurance Corporation (hereinafter referred together as 21 “Liberty”). (Dkt. No. 10.) The Whites claim Liberty breached its duty to defend under a 22 homeowner’s insurance policy when it denied their claim for legal defense after they were sued 23 by the City of Burien, Washington. Id. They allege breach of contract and violations of the 24 1 Insurance Fair Conduct Act (“IFCA”) and the Washington Consumer Protection Act (“WCPA”). 2 (Dkt. No. 10.) 3 The Court denied Plaintiffs’ motion for partial summary judgment. (Dkt. No. 25.) 4 Although Liberty had a duty to defend, Plaintiffs did not prove, at summary judgment, that 5 Liberty unreasonably refused to defend such that the Whites were entitled to a presumption of
6 harm; as a result, Plaintiffs had not proven their claims for breach of the duty to defend, coverage 7 by estoppel, or violation of IFCA. (Dkt. No. 10 at 12.) Defendants now move for summary 8 judgment, arguing that Plaintiffs’ claims should be dismissed. (Dkt. No. 26.) After considering 9 Defendants’ motion, (Dkt. No. 26), Plaintiffs’ response, (Dkt. Nos. 27, 28), Defendants’ reply, 10 (Dkt. Nos. 29, 30), and all relevant papers and proceedings herein, the Court DENIES 11 Defendants’ motion for summary judgment. 12 Background 13 The relevant factual and procedural background is contained in this Court’s decision 14 denying Plaintiffs’ motion for partial summary judgment. (Dkt. No. 25 at 1–5.) Nevertheless, it
15 is worth reciting several facts here. The Whites, who own real estate in Burien, Washington, 16 purchased a homeowner’s insurance policy from Defendant Liberty Insurance Corporation and 17 an umbrella liability policy from Liberty Mutual Insurance Company on October 14, 2015. (Dkt. 18 No. 12, Declaration of John White (“White Decl.”), Ex. A.; Dkt. No. 14 at 9.) Under the policy, 19 Liberty agreed to indemnify the Whites up to the policy limit for liability for any claims of property 20 or personal-injury damages and agreed to pay for legal defense for such claims. (White Decl., Ex. 21 A.) The policy’s most relevant exception is for damage that “is expected or intended by the insured” 22 or “aris[es] out of a premises . . . owned by an insured.” Id. The City of Burien sued the Whites 23 for unpermitted construction at their property and other activity on September 28, 2018, seeking 24 1 equitable and declaratory relief, a money judgment including civil penalties, costs, and attorney 2 fees. (Dkt. No. 13, Declaration of Thomas M. Williams (“Williams Decl.”), Ex. A.) 3 The Whites tendered the lawsuit to Liberty on November 5, 2019. (Williams Decl., Ex. B 4 at 3.) Liberty assigned a claims adjustor but apparently took no action for five months until it 5 informed the Whites, on April 22, 2020, that it could not accept or reject their request for defense
6 because it would have to investigate further. (White Decl., Ex. B.) The Whites sued Liberty on 7 June 3, 2020. (Dkt. No. 1.) On June 12, they served Liberty with an IFCA complaint. (Dkt. No. 8 15, Declaration of Sarah L. Eversole (“Eversole Decl.”), Ex. 4); see Wash. Rev. Code § 9 48.30.015(8)(a). 10 On July 23, 2020, Liberty offered to cover the cost of legal defense for the Burien lawsuit 11 subject to a full reservation of rights, including the right to withdraw defense or deny coverage, 12 as well as the right to seek judicial resolution of coverage issues. (White Decl., Ex. C.) The 13 Whites’ attorneys informed Liberty they were rejecting the offer because it came after this 14 lawsuit, unless Liberty agreed to pay whatever the Whites owed Burien, regardless of policy
15 limits, plus all past defense costs. (Williams Decl., Ex. C.) 16 Discussion 17 A. Legal Standard 18 Summary judgment is proper where “the movant shows that there is no genuine issue as 19 to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 20 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue 21 of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To defeat a motion for 22 summary judgment, the non-movant must point to facts supported by the record which 23 demonstrate a genuine issue of material fact. Lujan v. National Wildlife Foundation, 497 U.S. 24 1 871, 888 (1990). Conclusory, non-specific statements are not sufficient. Id. at 889. Similarly, 2 “a party cannot manufacture a genuine issue of material fact merely by making assertions in its 3 legal memoranda.” S.A. Empresa v. Walter Kidde & Co., 690 F.2d 1235, 1238 (9th Cir. 1982). 4 B. An Insurer’s Duty to Defend 5 Under Washington law, which governs this diversity action, an insurer has a duty to
6 defend if the insurance policy “conceivably covers the allegations in the complaint” against the 7 insured. Woo v. Fireman’s Fund Ins. Co., 161 Wn.2d 43, 53 (2007). In other words, the insurer 8 must defend unless a claim is clearly not covered. Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 9 793, 803 (2014). “[A]ny reasonable interpretation” of the policy that invokes coverage for the 10 insured will control the question of whether a duty to defend has arisen, and the insured is 11 entitled to the benefit of any uncertainty, whether legal or factual. Am. Best Food v. Alea 12 London, Ltd., 168 Wn.2d 398, 405 (2010). “The duty to defend is a valuable service paid for by 13 the insured and one of the principal benefits of the liability insurance policy.” Woo, 161 Wn.2d 14 at 54.
15 The duty to defend is distinct from and broader than the duty to indemnify. Am. Best 16 Food, 168 Wn.2d at 404. Ultimately, an insurer must indemnify only for claims covered by the 17 policy. Id. But the insurer must provide legal defense for any complaint that is “conceivably” 18 covered. Id. For this reason, if an insurer believes it will ultimately be relieved of its duty to 19 indemnify, it may choose to defend subject to a reservation of its rights under the policy and may 20 also choose to file a separate action seeking a declaratory judgment that it has no coverage 21 obligation. Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 761 (2002) (“A 22 reservation of rights is a means by which the insurer avoids breaching its duty to defend while 23 seeking to avoid waiver and estoppel.”). 24 1 If an insurer breaches its duty to defend, it must put the insured in “as good a position he 2 or she would have been had the contract not been breached.” Kirk v. Mt. Airy Ins. Co., 134 3 Wn.2d 558, 561 (1998). Damages include expenses, including attorney fees in the underlying 4 proceeding, and the amount of the judgment against the insured. Id. However, where an insurer 5 breaches in bad faith, harm to the insured is assumed and the insurer is estopped from denying
6 coverage and is liable for any underlying judgment. Id. at 564. “[T]he insurer can rebut the 7 presumption by showing by a preponderance of the evidence its acts did not harm or prejudice 8 the insured.” Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383, 394 (1992). 9 C. Liberty’s Arguments 10 Liberty offers no new evidence in its moving papers. (See Dkt. No. 26.) Rather, it 11 argues that the Court’s order denying partial summary judgment for the Whites precludes a jury 12 finding in favor of the Whites on any of their claims. Liberty overinterprets the Court’s decision. 13 The Court, construing all evidence in the record before it in favor of Liberty, as it must on 14 summary judgment, found that the Whites failed to prove certain elements of their claims. That
15 is different from holding that the Whites could not prove those elements as a matter of law. 16 More precisely, the Court found that the Whites did not prove they were harmed by 17 Liberty’s conduct or that they were entitled to a presumption of harm because Liberty acted in 18 bad faith. (Dkt. No. 25 at 9–11.) In fairness to the Whites, they had not submitted evidence on 19 the element of harm. (See Dkt. Nos. 11, 12, 13, 16, 17.) The thrust of their argument was that 20 they were entitled to a presumption of harm because Liberty delayed in responding to their 21 claim, constructively denied their claim in the April 22, 2020 letter, and only agreed to defend 22 after the Whites sued. The Whites did not include evidence to show that they were harmed by 23 Liberty’s delay or constructive denial, e.g., because they incurred additional defense costs, their 24 1 position was affected in the underlying litigation, or some other reason. If the Whites had 2 prevailed on the issue of bad faith, they would have necessarily prevailed on breach of the duty 3 to defend. The Court merely found, on the record before it, that Plaintiffs did not show Liberty 4 had acted in bad faith. (Dkt. No. 25 at 10.) 5 However, in opposition to Defendants’ motion here, Plaintiffs have included a
6 declaration from one of their attorneys in the underlying lawsuit stating that the Whites have 7 incurred $255,000 in defense costs from the date Burien sued the Whites (September 28, 2018) 8 to the date Liberty agreed to defend (July 23, 2020). (Dkt. No. 28, Declaration of Rebecca S. 9 Ashbaugh (“Ashbaugh Decl.”) at 2). While Plaintiffs would have benefitted from a more precise 10 accounting of costs, they have at least raised an issue of fact for a jury as to harm attributable to 11 Liberty’s delay in agreeing to defend. Certainly, having to pay defense costs amounts to harm to 12 the insured; even if a court later finds an insurer is not obligated to defend, the insurer cannot 13 recoup defense costs it paid to that point under a reservation of rights. Nat’l Sur. Corp. v. 14 Immunex Corp., 176 Wn.2d 872, 887 (2013).
15 In reply, Defendants argue that they have partially reimbursed the Whites for defense 16 costs as of May 11, 2021. (Dkt. Nos. 29, 30.) In particular, on April 15, 2021, after it was 17 notified of a demand letter from the City of Burien to settle the full amount of recoverable fees 18 and costs against the Whites for $170,000, Liberty offered to pay that amount while its review of 19 their claim continued. (Dkt. No. 29, Declaration of Sarah L. Eversole (“Eversole Decl.”), Ex. 20 10). That payment was apparently made on May 11. Id. at Ex. 12. Whatever the merits of this 21 argument (and even assuming this payment is in partial satisfaction of Liberty’s duty to defend, 22 rather than its duty to indemnify), there is not a sufficient factual basis for the Court to determine 23 the full extent of the defense costs and how much the $170,000 payment would cover. 24 1 Defendants have certainly not shown they have made Plaintiffs whole. See Kirk v. Mt. Airy Ins. 2 Co., 134 Wn.2d 558, 561 (1998). 3 Finally, Liberty also argues that Plaintiffs cannot recover attorney fees for this 4 proceeding because “Liberty did not deny or dispute coverage, or force the Whites to litigate an 5 issue of coverage.” (Dkt. No. 26 at 13.) But Liberty’s offer of defense came on July 23, 2020—
6 only after this lawsuit was filed, on June 3, 2020, and over eight months after the Whites first 7 tendered the lawsuit, on November 5, 2019. While the Court noted the Whites were responsible 8 for some delays (the tender came thirteen months after the City of Burien’s lawsuit was filed), a 9 reasonably jury could find that the Whites were forced to sue before Liberty agreed to defend. 10 See Olympic S.S. Co., Inc. v. Centennial Ins. Co., 117 Wn.2d 37, 52 (1991) (“When an insured 11 purchases a contract of insurance, it seeks protection from expenses arising from litigation, not 12 ‘vexatious, time-consuming, expensive litigation with his insurer.’”). 13 The Court has considered the rest of Defendants’ arguments and finds them to be without 14 merit. The motion is DENIED.
15 The clerk is ordered to provide copies of this order to all counsel. 16 Dated June 14, 2021.
17 A 18 19 Marsha J. Pechman United States Senior District Judge 20
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