Security National Insurance Company v. Urberg

1 2 3 4 5 6 7 UNITED STATES DISTRICT COURT 8 WESTERN DISTRICT OF WASHINGTON AT SEATTLE 9 10 SECURITY NATIONAL CASE NO. 2:21-cv-1287 INSURANCE COMPANY, a Delaware 11 Corporation, ORDER ON CROSS-MOTIONS FOR PARTIAL SUMMARY 12 Plaintiff, JUDGMENT 13 v. 14 MICHELLE URBERG; LEE BAUGH; WILLIAM REEVE; MARISSA 15 MORGAN; HAOTIAN SUN; XIAN GONG; DOUGLAS PYLE, all 16 Washington residents, 17 Defendants. 18 19 20 21 This matter is before the Court on the Parties’ Cross-Motions for Summary Judgment 22 (Dkt. Nos. 17, 24.) Having reviewed Defendants’ Response (Dkt. No. 27), Plaintiff’s Response 23 (Dkt. No. 31), Defendants’ Reply (Dkt. No. 33), Plaintiff’s Reply (Dkt. No. 29), and all other 24 1 supporting materials and documents, the Court GRANTS in part and DENIES in part Plaintiff’s 2 Motion, and DENIES Defendants’ Motion. 3 BACKGROUND 4 This case arises out of the new construction of four homes in the Ballard neighborhood of 5 Seattle. Defendants are the homeowners and original purchases of the homes (“Homeowners”). 6 The Homeowners purchased the homes in 2015 and in 2016 filed suit in state court against the 7 homes’ developer and general contractor alleging construction defects. (Pl. Motion for SJ at 3 8 (“Pl. Mot.”).) The Homeowners also included claims for Breach of Contract, Breach of Express 9 Warranty, and Breach of Implied Warranty. (Id.) In response, the general contractor filed a third- 10 party complaint against LND, a subcontractor for the homes. (Id. at 4.) The third-party complaint 11 alleged that the general contractor entered into a contract with LND Construction (“LND”) “to 12 perform labor and/or supply materials for the construction of the homes that are the subject of 13 this lawsuit.” (Id.; Third-Party Complaint at 7, ¶ 7 (Dkt. No. 1-5).) 14 Plaintiff Security National Insurance Company (“Security National”) insured LND from 15 May 2012 to May 2015. (Pl. Mot. at 4.) Security National issued Commercial General Liability 16 Policies to LND, all of which are subject to Endorsement No. CG2134 NR 0187, Exclusion – 17 Designated Work (“New Construction – Completed Ops Exclusion”), which provides: 18 EXCLUSION – DESIGNATED WORK 19 This endorsement modifies insurance provided under the following: 20 COMMERCIAL GENERAL LIABILITY COVERAGE PART PRODUCTS/COMPLETED OPERATIONS LIABILITY COVERAGE PART 21 SCHEDULE 22 Description of your work: 23 New construction of a dwelling and work within, or on, the premises of a dwelling prior to the certificate of occupancy of the owner, regardless of whether 24 1 the dwelling is a custom home or the dwelling is built as part of a tract or multi- dwelling development; 2 (If no entry appears above, information required to complete this endorsement 3 will be shown in the Declarations as applicable to this endorsement.) 4 This insurance does not apply to “bodily injury” or “property damage” included in the “products-completed operations hazard” and arising out of “your work” 5 shown in the Schedule. 6 (Pl. Mot. at 4-5; Complaint Exhibits A at 59, B at 59, and C at 59 (“the Policies”) (Dkt. No. 1-1; 1-2; 1-3).) 7 “Products-completed operations hazard” is defined in the policies as: “all ‘bodily 8 injury’ and ‘property damage’ occurring away from premises you own or rent and arising 9 out of ‘your product’ or ‘your work’ except: (1) [p]roducts that are still in your physical 10 possession; or (2) [w]ork that has not yet been completed or abandoned.” (Complaint 11 Exs. A, B, and C at 41.) 12 The policies also contain Endorsement No. CG 21 53 NR 01 96, Exclusion – 13 Designated Operations (“New Construction – Ongoing Ops Exclusion”), which provides: 14 EXCLUSION – DESIGNATED ONGOING OPERATIONS 15 This endorsement modifies insurance provided under the following: 16 COMMERCIAL GENERAL LIABILITY COVERAGE PART 17 SCHEDULE 18 Description of Designated Ongoing Operation(s): 19 New construction of a dwelling and work within, or on, the premises of a 20 dwelling prior to the certificate of occupancy of the owner, regardless of whether the dwelling is a custom home or the dwelling is built as part of a tract or a multi- 21 dwelling development; 22 . . . 23 24 1 The following exclusion is added to paragraph 2., Exclusions of COVERAGE A – BODILY INJURY AND PROPERTY DAMAGE LIABILITY ( Section I – 2 Coverages): 3 This insurance does not apply to “bodily injury” or “property damage” arising out of the ongoing operations described in the Schedule of this endorsement, 4 regardless of whether such operations are conducted by you or on your behalf or whether the operations are conducted for yourself or for others. . . 5 (Pl. Mot. at 5-6; Complaint Exs. A, B and C at 60.) 6 Security National refers to these exclusions as the “New Construction Exclusions.” 7 In August 2016, shortly after the Homeowners filed the underlying complaint, the general 8 contractor sought defense by Security National seeking coverage as an “Additional Insured.” (Pl. 9 Mot. at 6.) On November 2, 2016, LND tendered defense of the third-party complaint to Security 10 National. (Id.) On February 10, 2017, Security National denied coverage to both the general 11 contractor and LND citing the “New Construction Exclusions” and denying the general 12 contractor for the additional reason that it was not an “Additional Insured” under the policies. 13 (Id.) 14 The lawsuit continued and the Homeowners ultimately settled with the developer, but 15 agreed not to execute on the judgment and were instead assigned the developer’s rights against 16 the general contractor. (Pl. Mot. at 7.) In October 2017, LND filed for bankruptcy. (Declaration 17 of Todd Skoglund, Exhibit 10 (Dkt. No. 25-10). In 2018, the Homeowners settled with the 18 general contractor for $800,000 and were similarly assigned any and all claims the general 19 contractor had against LND and its insurance carrier, Security National. (Pl. Mot. at 6.) The 20 Homeowners then obtained a default judgment against LND in the amount of $616,650.00 with 21 an additional $20,071.26 in interest as of September 2019. (Id. at 8.) 22 In May 2021, the Homeowners obtained a Writ of Execution from the state court that 23 allowed the Homeowners to levy LND’s insurance policy for the purpose of collecting on the 24 1 default judgment. (Pl. Mot. at 8-9.) The Writ of Execution specifically states that “[t]he sole 2 asset which plaintiffs seek to execute upon and to be levied is LND . . . , AmTrust North 3 America Insurance policy.” (Pl. Mot. at 9.) AmTrust is an agent of Security National. Because of 4 the language in the Writ of Execution, Security National contends that the only property to be 5 levied was LND’s insurance policy, not any extra-contractual causes of action. (Id.) 6 However, the Sheriff’s Notice of Levy and Notice of Sale listed the property to be sold 7 as: 8 “[a]ll rights, privileges, claims and causes of action including but not limited to breached [sic] of the duty to investigation [sic], negotiation, defend, settle, 9 indemnify or, breach of contract, negligence, legal malpractice, fiduciary breach, Consumer Protection Act violations, and bad faith, that … LND … has or had 10 against AmTrust North America, AmTrust Financial Company, Security National Insurance Company, and/or all affiliated companies, brokers and agents and any 11 other insurance carrier which insured LND.” 12 (Pl. Mot. at 10.) 13 At this point Security National intervened in the underlying lawsuit and moved to quash 14 and set aside the Sheriff’s sale. (Pl. Mot. at 10.) Security National argued that the Homeowners 15 lacked standing to bring the extra-contractual claims and that the Sheriff’s sale is invalid because 16 it sold more than the Writ of Execution allowed for. (See generally, Security National’s Mot. to 17 Quasha and Set Aside Sheriff’s Sale (“Mot. to Quash”), Skoglund Decl. Exhibit 34 (Dkt. No. 25- 18 34).) The state court denied Security National’s motion. (Skoglund Decl. Ex. 40 (Dkt. No. 25- 19 40).) Security National now brings this case seeking declaratory relief. 20 ANALYSIS 21 A. Summary Judgment Standard 22 Summary judgment is granted if the movant shows that there is no genuine dispute as to 23 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 24 1 56(a). The moving party is entitled to judgment as a matter of law when the nonmoving party 2 fails to make a sufficient showing on an essential element of a claim in the case on which the 3 nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1985). 4 There is no genuine issue of fact for trial where the record, taken as a whole, could not lead a 5 rational trier of fact to find for the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio 6 Corp., 475 U.S. 574, 586 (1986) (nonmoving party must present specific, significant probative 7 evidence, not simply “some metaphysical doubt.”); Fed. R. Civ. P. 56(e). Conversely, a genuine 8 dispute over a material fact exists if there is sufficient evidence supporting the claimed factual 9 dispute, requiring a judge or jury to resolve the differing versions of the truth. Anderson v. 10 Liberty Lobby, Inc., 477 U.S. 242, 253 (1986); T.W. Elec. Serv. Inc. v. Pac. Elec. Contractors 11 Ass’n, 809 F.2d 626, 630 (9th Cir. 1987). And underlying facts are viewed in the light most 12 favorable to the party opposing the motion. Matsushita, 475 U.S. at 587. 13 When cross motions are at issue, the court must “evaluate each motion separately, giving 14 the nonmoving party in each instance the benefit of all reasonable inferences.” ACLU of Nev. v. 15 City of Las Vegas, 466 F.3d 784, 790-91 (9th Cir. 2006) (internal citations omitted). If the 16 moving party bears the burden of proof on a claim, it “must show that the undisputed facts 17 establish every element of the claim.” Chiron Corp. v. Abbot Lab’ys, 902 F. Supp. 1103, 1110 18 (N.D. Cal. 1995). But “[w]here the non-moving party bears the burden of proof at trial, the 19 moving party need only prove that there is an absence of evidence to support the non-moving 20 party’s case.” In re Oracle Corp. Sec. Litig., 627 F.3d 376, 387 (9th Cir. 2010). Then, the non- 21 moving party bears the burden of designating “specific facts demonstrating the existence of 22 genuine issues for trial.” Id. 23 24 1 B. Security National’s Motion for Partial Summary Judgment 2 Security National seeks summary judgment as to Counts I and III of its Amended 3 Complaint. (Pl. Mot. at 1.) Count I seeks a declaratory judgment the policies issued by Security 4 National did not cover LND for the claims and damages alleged against it by the third-party 5 complaint. (Am. Comp. at 11 (Dkt. No. 9).) Count III seeks a declaratory judgment that the 6 Homeowners are not entitled to damages as a result of the default judgment they received for 7 their claims against LND. (Id. at 12.) Security National also requests the Court dismiss the 8 Homeowners’ counter claims for Breach of Contract, Failure to Act in Good Faith, Bad Faith, 9 Consumer Protection Claims, and “Estoppel & Waiver.” (Pl. Mot. at 1.) The Court address 10 Count I first. 11 1. LND Had No Coverage Under the Policies 12 Under Washington law, the duty to defend is broader than the duty to indemnify. Woo v. 13 Fireman’s Fund Ins. Co., 161 Wn.2d 43, 52 (2007). An insurance company has the duty to 14 indemnify if the insurance policy actually covers the insured, while the duty to defend arises if 15 the insurance policy conceivably covers the insured. Am. Best Food, Inc. v. Alea London, Ltd., 16 168 Wn.2d 398, 404 (2010). An insurer is relieved of the duty to defend only if the policy clearly 17 does not cover the claim. Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wn.2d 751, 760 (2002). 18 Courts interpreting an insurance policy will give the language its plain meaning, construing the 19 policy as the average person purchasing insurance would. Woo, 161 Wn.2d at 52. An ambiguity 20 in the policy is interpreted in favor of the insured. Am. Best Food, 168 Wn.2d at 411. A clause in 21 an insurance contract is ambiguous “only when, on its face, it is fairly susceptible to two 22 different interpretations, both of which are reasonable.” Quadrant Corp. v. Am. States Ins. Co., 23 154 Wn.2d 165, 171 (2005). 24 1 The duty to defend is generally determined from the “eight corners” of the insurance 2 contract and the underlying complaint. Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 803 3 (2014) as corrected (Aug. 6, 2014). In determining whether there is a duty to defend, the question 4 is whether “there is any reasonable interpretation of the facts or the law that could result in 5 coverage.” Am. Best Food, 168 Wn.2d at 405. An insurance company breaches its duty to defend 6 in bad faith as a matter of law if it relies on an arguable legal interpretation of its own policy. Id. 7 at 413. There are two exceptions to this rule, and both favor the insured. Woo, 161 Wn.2d at 53. 8 First, if coverage is not clear from the face of the complaint but coverage could exist, the insurer 9 must investigate and give the insured the benefit of the doubt on the duty to defend. Id. Second, 10 if the allegations in the complaint conflict with facts known to the insurer or if the allegations are 11 ambiguous, facts outside the complaint may be considered. Id. at 54. However, these extrinsic 12 facts may only be used to trigger the duty to defend; the insurer may not rely on such facts to 13 deny its defense of duty. Id. 14 Security National argues that it owed no duty to defend LND pursuant to the New 15 Construction Exclusions that apply to any ongoing operations as well as any completed 16 operations. (Pl. Mot. at 12.) The Court agrees. 17 In claiming the applicability of the New Construction Exclusions, Security National 18 relied on the following allegations contained in the underlying complaint: 19 • “Defendant LLJ Ventures LLC acted as and/or identified itself as Declarant for the community. 20 • Defendant LLJ Ventures LLC . . . sold one or more of the homes [sic] the 21 subject of this litigation. 22 • Defendant Proletariat Services Inc. acted as General Contractor for construction of the homes. 23 • Defendant Proletariat Services, Inc. provided design-build services on behalf 24 of the owner/developers or one of more named Defendants. 1 • The homes the subject of this litigation were sold to Plaintiffs in 2015. 2 • Defendants entered into real estate purchase and sales agreements (“REPSA”) with plaintiffs. 3 • One or more Defendants is a builder-vendor of the homes. 4 • Plaintiffs are original purchasers. 5 • Defendants did not construct and/or sell plaintiffs homes that are safe or fit for 6 their intended purpose, and thus breach the implied warranty or habitability.” 7 (Pl. Reply at 5-6; Underlying Complaint (Dkt. 1-4).) SNIC also points to the fact that the Homeowners brought a Breach of the Implied 8 Warranty of Habitability claim, which can only be brought by the first occupant of a new home 9 purchased from a seller who is a commercial builder. (Id. at 6.) See Stuart v. Coldwell Banker 10 Com. Grp., Inc., 109 Wn.2d 406, 415 (1987) (“[W]hen a vendor-builder sells a new house to its 11 first intended occupant, he impliedly warrants that the foundations supporting it are firm and 12 secure and that the house is structurally safe for the buyer’s intended purpose of living in it.”) 13 Though Security National relies on Washington law in support of its argument, it does not rely 14 on an interpretation of Washington law and there is no debate between courts as to what 15 elements are required to bring an Implied Warranty of Habitability claim. See Klos v. Gockel, 87 16 Wn.2d 567, 571 (noting that “for the purposes of warranty liability, the house purchased must be 17 a ‘new house,’” which is a question of fact). The Court finds that Security National properly 18 relied on the New Construction Exclusions in denying coverage. 19 The Homeowners make several arguments in an attempt to claim that Security National 20 denied coverage in bad faith. None of them are successful. First, the Homeowners argue that 21 Security National could not have determined the construction was “new” based on the third-party 22 complaint. (Def. Response at 18.) In support of this argument, the Homeowners claim that the 23 term “construction” “is extraordinarily vague . . .” and therefore an “average person” could not 24 1 conclude “that the homes in the complaint were “new” construction.” (Def. Response at 18.) The 2 Homeowners rely on Madera W. Condo. Ass’n v. First Specialty Ins. Corp., No. C12-0857-JCC, 3 2013 WL 4015649 (W.D. Wash. Aug. 6, 2013) in support of their contention. But Madera is 4 wholly distinguishable from the facts at hand here. In Madera, an insurance policy contained an 5 exclusion for “[a]ny and all claims, including … claims for … ‘property damage’ … arising out 6 of . . ., the construction of residential properties . . .” 2013 WL 4015649 at *9. The issue before 7 the court in Madera was whether the term ‘construction’ applied to work done “repainting 8 interiors, minor carpentry work, applying new coatings to the decks, and other minor repairs to 9 the decks.” Id. That is completely different from here, where the Homeowners are alleging 10 defects arising from the actual construction of the homes. (See generally, Underlying 11 Complaint.) Further, this work is in fact the very definition of what the Madera court noted the 12 “average person” would reasonably think the term ‘construction’ means: “As the definition of 13 the word construction suggests, the average person purchasing insurance could easily understand 14 this exclusion to apply only to the building or erection of residential properties (i.e., new 15 construction).” Madera, 2013 WL 4015649, at *9. Defendants’ argument runs contrary to the 16 very case they cite to. 17 Second, the Homeowners argue that because there were no dates or timeframes identified 18 in the underlying complaint the claims were conceivably covered. (Def. Response at 17.) This 19 argument is unpersuasive. The date or timeframe is irrelevant to Security National’s denial. 20 Security National issued three policies to LND from 2012-2015, all of which included the New 21 Construction Exclusions. And Security National did not deny LND a defense because the claims 22 occurred outside of the coverage period. Rather, Security National assumed the construction 23 occurred during the coverage period, but denied LND a defense because the claims fell under the 24 1 New Construction Exclusions. Having a date or timeframe in the underlying complaint would 2 not have changed that analysis. 3 Because the underlying complaint makes it clear that the defect with the homes arose 4 from new construction, which is not covered under the policy, and Security National’s reliance 5 on the elements of a Warranty of Habitability claim does not depend on a legal interpretation, the 6 Court finds that Security National properly found no coverage under the policies and therefore 7 had no duty to defend LND. The Court GRANTS Security National’s Motion as to Count I. 8 2. The Homeowners Breach of Contract Claim 9 The Homeowners assert a Breach of Contract counter claim, alleging that Security 10 National breached its contract by “(1) failing to defend, (2) failing to conduct a timely 11 investigation, (3) placing its interests ahead of and above the underlying claimants [sic] interests; 12 and (4) failing to indemnify.” (Am. Answer at 12 (Dkt. No. 12).) Breach of Contract claims 13 depend on proof of four elements: duty, breach, causation, and damages. Northwest Indep. Forest 14 Mfrs. V. Dep’t of Labor & Indus., 78 Wn. App. 707, 712 (1995). 15 The Homeowners Breach of Contract claim fails because Security National did not 16 breach its contract with LND. Security National properly denied coverage and a defense to LND 17 based on the New Construction Exclusions. Because Security National did not breach its contract 18 by failing to defend LND, there cannot be a breach for failing to indemnify. Failing to conduct a 19 timely investigation and placing the insured’s interest before the insurers are impliedly part of 20 every contract under Washington law. But because a technical violation of these Washington 21 regulations may sustain a Bad Faith claim even if coverage was properly denied, the Court 22 addresses these arguments under the Homeowners’ Bad Faith claims. 23 24 1 The Court finds that because Security National did not breach its contract, the 2 Homeowners Breach of Contract claim fails. The Court GRANTS Security National’s Motion as 3 to this counter-claim. 4 3. Homeowners’ Claims for Bad Faith and Failure to Act in Good Faith 5 “It is a cornerstone of insurance law that an insurer may never put its own interests ahead 6 of its insured’s.” Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 803 (2014), as corrected 7 (Aug. 6, 2014). An insurer owes the insured a duty of good faith. Tank v. State Farm Fire & Cas. 8 Co., 105 Wn.2d 381, 385; RCW 483.01.030. This is a “quasi-fiduciary” duty—something less 9 than a true fiduciary duty.” Van Noy v. State Farm Mut. Auto. Ins. Co., 142 Wn.2d 784, 792 10 (2001). In seeking a declaratory judgment, an insurer has “an enhanced obligation of fairness 11 toward its insured” arising out of the “[p]otential conflicts between the interests of insurer and 12 insured, inherent in a reservation of rights defense.” Tank, 105 Wn.2d at 383. 13 Because Security National did not breach its duty to defend, any arguments that the 14 Homeowners make that it did so in bad faith are unsuccessful. The Homeowners remaining 15 arguments for bad faith hinge on technical violations of WAC 284.300-400, specifically that 16 Security National acted in bad faith when it failed to conduct a reasonable and prompt 17 investigation (Def. Response at 21) and that it breached its duty to act in good faith by failing to 18 keep and maintain claim notes and claim files (Id. at 14). 19 a. Failure to Investigate 20 Turning to the first argument, the Homeowners fail to meet their burden in showing that 21 Security National acted in bad faith when it failed to conduct a reasonable and prompt 22 investigation. Both Security National and the Homeowners move for summary judgment on this 23 issue. 24 1 Washington courts recognize the right of the insured to pursue tort claims against the 2 insurer for conduct which violates the duty of good faith. “Claims of insurer bad faith ‘are 3 analyzed applying the same principles as any other tort: duty, breach of that duty, and damages 4 proximately caused by any breach of duty.’” Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., 5 Inc., 161 Wn.2d 903, 916 (2007) (quoting Smith v. Safeco Ins. Co., 150 Wn.2d 478, 485 (2003)). 6 To establish the tort of bad faith in the insurance context the insured must show that the insurer’s 7 actions were “unreasonable, frivolous, or unfounded.” Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 8 560 (1998). “Whether an insurer acted in bad faith is a question of fact.” Smith, 150 Wn.2d at 9 484 (citing Van Noy, 142 Wn.2d at 796). 10 Under Washington law every insurer has a duty to act promptly, in both communication 11 and investigation, in response to a claim or tender of defense. WAC 284-30-330(2)-(4); WAC 12 284-30-360(1), (3); WAC 284-30-370. WAC 284-30-370 governs the standards for a prompt 13 investigation of a claim and requires an insurer to complete the investigation of a claim within 14 thirty days after notification of a claim unless the investigation cannot reasonably be completed 15 within that time. Washington courts have previously found that a violation of the standards set 16 forth in “WACs 284-30-300 through -800 . . . constitutes a breach of the insurer’s duty of good 17 faith.” Rizzuti v. Basin Travel Serv. of Othello, Inc., 125 Wn. App. 602, 615-16 (2005). And “an 18 insured may maintain an action against its insurer for a bad faith investigation of the insurer’s 19 claim and violation of the CPA regardless of whether the insurer was ultimately correct in 20 determining coverage did not exist.” Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 21 279 (1998). But where a reservation of rights or failure to defend is not at issue, there is no 22 rebuttable presumption of harm and coverage by estoppel is not recognized in this context. St. 23 Paul Fire & Marine Ins. Co. v. Onvia, Inc., 165 Wn.2d 122, 133 (2008). Therefore, a claim for 24 1 bad faith that is brought on a technical violation alone must demonstrate actual harm and 2 damages are limited to the amounts it has incurred as a result of the bad faith. Id. (internal 3 quotation and citation omitted). 4 Here, Security National and its agent, AmTrust, became aware of the underlying lawsuit 5 in August 2016 when the general contract sought to be included as an additional insured under 6 LND’s policy. On November 2, 2016, LND alerted AmTrust to the lawsuit and formerly 7 tendered a defense to Security National. (Pl. Response at 15.) AmTrust acknowledged the claim 8 on the same day. (Id.) On February 10, 2017, AmTrust formally issued a declination letter to 9 LND. (Id.) As such, the Homeowners are correct that it took longer than thirty days for Security 10 National to investigate and deny a defense. 11 But the technical breach is all the Homeowners rely on. And the Homeowners make only 12 a perfunctory argument to claim the breach was unreasonable, frivolous, or unfounded. The 13 Homeowners claim that LND told AmTrust that time was of the essence when it tendered the 14 claim to Security National and Security National still failed to promptly conduct an investigation. 15 (Def. Response at 19.) But this argument takes LND’s communication to Security National out 16 of context. In an email from LND’s counsel to AmTrust, LND’s counsel states that he filed an 17 answer to the third-party complaint on behalf of LND as “time was of the essence” and that he 18 would “be happy to email [AmTrust] a copy or to defense counsel if [AmTrust was] going to 19 assign an attorney to defend LND.” (Declaration of David Maynard, Exhibit 3 at 2 (Dkt. No. 19- 20 3).) Time was not of the essence to investigate as the Homeowners claim, but rather time was of 21 the essence to enter an answer to the third-party complaint. The Homeowners’ arguments 22 otherwise are inaccurate and misleading. The Homeowners do not make any other arguments or 23 24 1 submit any evidence to demonstrate the technical breach was unreasonable, frivolous, or 2 unfounded. 3 And the Homeowners similarly submit no evidence to demonstrate the delay in an 4 investigation resulted in any harm or damages. The Homeowners argue that in instances where 5 an insurer breaches its duty to defend in bad faith it is estopped from relying on exclusions and 6 the insured’s costs, attorneys’ fees, and judgment become the presumed damages. (Def. Reply at 7 4 (Dkt. No. 33).) This appears to be the Homeowners’ Estoppel and Waiver counter-claim. But 8 the Homeowners apply the wrong standard. As articulated above, in situations where the insurer 9 properly denies coverage and a defense, the insured is not entitled to a presumption of damages. 10 Onvia, 165 Wn.2d at 133. The Homeowners also attempt to argue that LND was forced into 11 bankruptcy due to Security National’s delay and denial of a defense. (Def. Mot. at 2, 6 and 17 12 (Dkt. No. 24).) But the Homeowners offer no evidence to support this allegation. As such, the 13 Homeowners’ failure to investigate claim fails. The Court GRANTS Security National’s Motion 14 as to this counter-claim. 15 b. Failure to Keep and Maintain Claim Notes and a Claim File 16 The Homeowners’ claim that Security National breached it duty of good faith by failing 17 to keep and maintain claim notes is completely without merit. 18 Security National disclosed the existence of its claim file in its initial disclosures. (See 19 Second Declaration of Michael Guadagno, Exhibit 1, Plaintiff’s Initial Disclosures (Dkt. No. 30- 20 1.) Federal Rule of Civil Procedure 26 requires a party to provide “a copy – or a description by 21 category and location – of all documents . . . that the disclosing party has in its possession . . . 22 and may use to support its claims or defenses . . .” Fed. R. Civ. P. 26(a)(ii). Security National 23 disclosed its claim file as part of this process, but did not provide a copy. (Pl. Reply at 2; 24 Guadagno Decl. Ex. 1.) Following this, the Homeowners issued their First Interrogatories and 1 Requests for Production, which included a request for the claim file. (Guadagno Decl. Exhibit 2, 2 First Interrogatories and Requests for Production at 15.) Security National responded with a 3 letter rather than a response proposing that the parties delay discovery to await a ruling on a 4 summary judgment motion that Security National intended to file. (Guadagno Decl. Ex. 4 (Dkt. 5 No. 30-4.) Security National’s counsel then noted that the local rules require a discovery 6 conference to discuss and told the Homeowners’ counsel that he would call on a certain day to 7 discuss. (Id.) It appears the Homeowners’ counsel did not answer Security National’s call and so 8 Security National’s counsel sent a follow up email stating he had just called and that he would 9 try again the following week. (Guadagno Decl. ¶ 7, Ex. 5 (Dkt. No. 30-5).) The Homeowners 10 counsel did not answer the second time either and never returned the call. (Id. at ¶ 7.) 11 The discovery deadline for this case was November 14, 2022. Neither party made any 12 discovery related motions. But now the Homeowners argue that the claim file is not protected, 13 that Security National did not produce any documents in response to discovery and that Security 14 National does not have a claim file or claim notes. (Def. Response at 2.) Whether or not the 15 claim file is protected is irrelevant, as the timeframe for bringing that argument has passed. 16 Security National demonstrates that it did respond to the first discovery request, and it is patently 17 false for the Homeowners’ counsel to claim Security National does not have a claim file. Further, 18 the Homeowners’ counsel did not participate in a discovery conference and seemingly made no 19 effort to conduct discovery at all for this case. The Homeowners’ claim for Breach of Good Faith 20 fails. 21 Because the Homeowners fail to put forth any evidence or support to demonstrate that 22 Security National’s technical breach was unreasonable, frivolous or unfounded, as well as any 23 actual damages, the Court GRANTS Security Nationals’ request to dismiss the Homeowners’ 24 1 Breach of Good Faith, Bad Faith and Estoppel & Waiver claims, and DENIES the Homeowners 2 Motion as to these claims. 3 4. The Homeowners Consumer Protection Act Claim 4 Security National seeks to dismiss the Homeowners Consumer Protection Act (“CPA”) 5 claim. (Pl. Mot. at 1.) The Homeowners’ Motion for Summary Judgment does not seek summary 6 judgment on this issue. And though Security National seeks to dismiss this claim it does not 7 actually brief its argument as to this claim. 8 In order to prevail on a CPA claim, the claimant must demonstrate: (1) an unfair or 9 deceptive act or practice, (2) in trade or commerce, (3) that impacts the public interest, (4) which 10 causes injury to the party in his business or property, and (5) which injury is causally linked to 11 the unfair or deceptive act. Onvia, 165 Wn.2d at 134. “[A] violation of any regulation 12 enumerated in chapter 284-30 WAC will automatically establish the first element of a CPA 13 claim. (Id.) 14 The Homeowners can meet element one of their CPA claim due to Security National’s 15 technical violation in taking longer than thirty days to investigate. But the same issues with 16 injury and causation in the Homeowners’ Bad Faith claim apply here because there is nothing to 17 suggest actual harm from the delay. That being said, while the Court can speculate on the 18 likelihood of success for the Homeowners’ CPA claim, absent it being addressed in the briefings 19 the Court cannot grant summary judgment one way or the other. The Court therefore DENIES 20 Security National’s Motion as to this counter-claim. 21 5. Whether the Homeowners are Entitled to Damages 22 As an initial matter, part of Security National’s request for relief under Count III has to 23 do with whether the Sheriff’s Notice of Sale and Notice of Levy is null and void. (Am. Compl. at 24 1 12-13 ¶¶ 6.4-6.5.) Security National backtracks in its briefs and claims it is not seeking to 2 overturn the state court’s decision in denying its motion to quash the sale. But the fact that the 3 levy and sale is included in its claim for relief and that Security National took its argument 4 regarding the Homeowners’ standing verbatim from its state court briefs indicates otherwise. It is 5 also disingenuous for Security National to argue collateral estoppel should not apply because it is 6 not seeking to overturn the state court’s decision while it makes the exact same argument it made 7 in state court. (Compare Mot. to Quash at 4-5 and Pl. Mot. at 15.) 8 Further, Security National was not meritorious in state court for a reason. Security 9 National argues that the Homeowners lack the standing to bring any extra-contractual claims 10 related to LND’s policy because third-party claimants have no direct right of action against an 11 insurer for these claims under Washington law. (Pl. Mot. at 15.) What Security National 12 overlooks is that the extra-contractual claims were levied and sold to the Homeowners, which 13 gives them standing to bring them. See RCW 6.17.090 (property liable to execution); Woody’s 14 Olympia Lumber, Inc. v. Roney, 9 Wn. App. 626, 633 (1973) (holding that the Supreme Court 15 has determined that RCW 6.17.090 “is sufficiently broad to include unliquidated tort claims even 16 if of dubious value.”) That is a critical fact that changes the circumstances from a third-party 17 attempting to sue for extra-contractual claims to a party who purchased and owns the right to 18 these claims. And Security National cannot claim ignorance with this regard as it cited to RCW 19 6.17 et seq. in its argument in state court to quash the sale of these claims. (See Mot. to Quash at 20 4.) Security National’s argument that Homeowners lack standing fails. And it is also subject to 21 collateral estoppel as well. But because Security National repeatedly states that it is not trying to 22 relitigate this issue, the Court takes that to mean Security National withdraws any argument 23 related to the Sheriff’s levy and sale. 24 1 With regard to the remainder of Count III of the Amended Complaint, the Court is 2 somewhat perplexed. Security National requests declaratory judgment that the Homeowners are 3 not entitled to damages from Security National. (Am. Compl. at 12.) As part of this claim for 4 relief, Security National alleges that pursuant to the terms of its policy, Security National is not 5 obligated to pay any monies or damages to the underlying claimants (the Homeowners) as a 6 result of the default judgment. (Id. at 12 ¶ 6.3.) Typically, when a declaratory judgment action 7 determines that there is no coverage, the insurer’s obligations to its insured end. Canal Indem. 8 Co. v. Adair Homes, Inc., 737 F. Supp. 2d 1294, 1303 (W.D. Wash. 2010), aff’d, 445 F. App’x 9 938 (9th Cir. 2011). And as the Court noted above, the Homeowners have not demonstrated any 10 actual damages from the minimal delay in Security National issuing a declination letter. As it 11 stands it appears there are no damages that Security National would be liable for. This claim 12 seems part and parcel of Security National’s first claim. If there is no coverage, no duty to 13 defend and no duty to indemnify, then there is no duty to pay damages related to a judgment 14 against the insured. However, the Court notes that this issue was not well briefed, if at all, by the 15 parties. Security National discusses damages as it applies to the Homeowner’s bad faith 16 arguments but not with regards to how it may be liable as a result of the default judgment. And 17 the Court cannot say with absolute certainty that there are no damages because the Homeowner’s 18 CPA claim did not get dismissed. Because this issue was not briefed with specificity, the Court 19 cannot grant summary judgment on it. The Court therefore DENIES Security National’s Motion 20 as to this claim. 21 C. Homeowners’ Motion for Summary Judgment 22 The Homeowners moved for summary judgment on: 23 1. Whether Security National breached its duty to defend LND in bad faith? 24 1 2. Whether the Security National denial letter admits it breached its duty to defend LND? 2 3. Whether AmTrust was a Security Nationals agent? 4. Whether Security National’s statutory, common law, and judicial duties of 3 good faith to LND delegable [sic]? 5. Whether the Court should exclude any reservation of rights that may exist 4 from AmTrust? 6. Whether Security National is estopped from asserting its exclusion, and the 5 Judgment against LND is the presumed damage [sic] in this matter? 7. Whether the Security National [sic] breach [sic] its duty to investigate in bad 6 faith? 7 (Def. Mot. at 8-9.) 8 Though most of these issues have been dealt with already in the Order, the Court will 9 address certain issues to clarify its position. 10 First, whether Security National’s denial or declination letter admits it breached its duty. 11 This argument is premised off the Homeowners’ claim that Security National relied on facts 12 outside the eight corners of the underlying complaint and the policies to deny coverage. It 13 highlights certain words and facts that were not in the underlying complaint in support of this 14 argument. (Def. Mot. at 12.) This argument is unpersuasive. The highlighted “facts,” which are 15 mostly one or two words that refer to dates, were not the facts that Security National relied on in 16 determining that coverage did not apply. And Security National admits that it references various 17 aspects of its investigation in its letter, but points out that these were not the facts that it relied on 18 in making its determination. (Pl. Response at 2.) The Court finds this argument meritless. 19 Second, whether AmTrust is an agent of Security National is not in dispute. (Pl. 20 Response at 3.) And it is not in dispute the Security National’s duties of good faith to LND were 21 non-delegable. (Id.) These are also issues that are more in line with motions in limine than issues 22 appropriate for summary judgment as these are not claims that require judgment as a matter of 23 law. 24 1 Finally, whether the Court should exclude a reservation of rights letter is not at issue. 2 Security National claims that no reservation of rights letter was issued. (Pl. Response at 2.) The 3 Homeowners’ beliefs otherwise appear to stem from Security National’s declination letter which 4 states Security National’s “investigation of this matter is conducted under a full reservation of 5 rights.” (Id.) The Homeowners then argue that Security National did not identify the letter or 6 produce it through discovery and now asks the Court to exclude any reservation of rights letter 7 that Security National may produce during trial. Again, this is not an issue for summary 8 judgment. The Homeowner’s counsel should have made discovery motions or at the very least 9 participated in discovery before making this argument. And the argument also appears to have no 10 basis in fact. 11 For these reasons, the Court DENIES the Homeowner’s Motion to Summary Judgment in 12 its entirety. 13 CONCLUSION 14 The Court finds that no coverage under Security National’s policies existed for LND for 15 the underlying claims against it and that Security National did not breach its duty to defend. The 16 Court GRANTS summary judgment for Security National as to Count I of its Amended 17 Complaint. The Court further finds that the Homeowners’ Breach of Contract, Failure to Act in 18 Good Faith, Bad Faith and Estoppel & Waiver claims fail and GRANTS Security National’s 19 Motion as to these counter-claims. But the Court finds that because the Homeowners CPA claim 20 was not briefed by either party nor Count III, the Court cannot grant summary judgment on these 21 issues. The Court DENIES Security National’s Motion as to these claims. The Court DENIES 22 the Homeowners’ Motion in its entirety. 23 // 24 1 The clerk is ordered to provide copies of this order to all counsel. 2 Dated March 1, 2023. A 3 4 Marsha J. Pechman United States Senior District Judge 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24