The Shaw Group Inc et al v. Zurich American Insurance Company et al

Filing 394

RULING on Motions for Summary Judgment: Zurich's 323 motion for summary judgment is DENIED. Zurich's 305 , 330 , 331 , 332 and 352 motions for partial summary judgment are DENIED. Shaw's 311 motion for partial summary jud gment is DENIED in part and GRANTED in part with respect to Zurichs responsibility for the actions of FARA. Zurich 's 346 motions to strike and 347 motion to defer ruling are MOOT. Signed by Judge James J. Brady on 11/20/2014. (LLH)

UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA
THE SHAW GROUP INC.
SHAW PROCESS FABRICATORS INC.
CIVIL ACTION
VERSUS
NO. 12-257-JJB
ZURICH AMERICAN INSURANCE COMPANY,
ET AL
RULING ON MOTIONS FOR SUMMARY JUDGMENT
This matter is before the Court on numerous motions for summary judgment and partial
judgment filed by both plaintiffs, The Shaw Group and Shaw Process Fabricators (Collectively
“Shaw”), and by Zurich American Insurance Company (Zurich), the defendant. All these
motions are opposed. Zurich filed two additional motions—to strike privileged documents (Doc.
346) associated with Shaw’s motion and a motion to defer ruling or, alternatively, deny (Doc.
347) Shaw’s motion. Oral argument is unnecessary.
BACKGROUND
The following facts are undisputed. Shaw and Zurich agreed to an insurance contract that
granted coverage to Shaw from September 1, 2008 to September 1, 2009. The policy had a
$2,000,000 “per occurrence” limit and a $4,000,000 aggregate cap. Shaw was responsible for a
deductible of $750,000 “per occurrence” as well. By agreement, the parties used a third party
adjustor, F.A. Richard and Associations (FARA), which entered into separate, individual
contracts with Shaw and Zurich. FARA would handle and administrate claims related to the
policy, and Zurich would pay claims. This arrangement—where different entities are responsible
for paying claims and administrating claims, respectively—is known as an “unbundled” policy.
In 2009, REC Solar Grade Silicon (REC) sued Shaw, alleging faulty pipes that REC
received from Shaw had caused damages. Shaw sent the complaint to FARA, and FARA sent it
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to Zurich on June 29, 2009. In September of 2009, FARA determined that Shaw was likely liable
for REC’s claims and informed Zurich. On September 9, 2010, Zurich submitted a letter stating
that it would defend Shaw under a “full reservation of rights.” Prior to this letter, neither FARA
nor Zurich undertook any defense of the claim,1 and Shaw retained, and paid, its own counsel.
Shaw retained three firms at various junctures of the litigation process: Oles Morrison, Griffith
Nixon, and finally, Baker Donelson. Both sides agree that these law firms aggressively and
adequately defended2 Shaw.
The REC lawsuit settled in October of 2011. Several settlement conferences occurred
beforehand. The first settlement conference was in December of 2009, approximately nine
months before Zurich issued the “reservation of rights” letter. Although the other conferences
were after Zurich’s letter, Zurich participated in none of them. Ultimately, the case settled for
$24,554,520.50: $20,750,000 in damages and Shaw’s agreement not to pursue an uncontested
counterclaim valued at $3,804,520.50. Zurich paid $4,000,000 to Shaw toward the settlement
amount in accordance with the policy’s aggregate cap; Shaw paid at least one $750,000
deductible.
CLAIMS
Shaw asserts, essentially, four claims against Zurich. First, Shaw asserts that Zurich
breached the insurer’s duty to defend by failing to promptly pay defense costs. Second, Shaw
asserts that Zurich failed to attempt to settle Shaw’s suit with REC in good faith by refusing to
attend settlement conferences and mediations. Third, Shaw claims that Zurich violated

1

The reasons for this are hashed out across the various memoranda and addressed in the analysis section of this
ruling.
2
The dispute concerns whether Zurich had an obligation to obtain defense counsel and, if that obligation was
breached, whether Shaw suffered any damages from being forced to hire and pay its own counsel.

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Washington’s Consumer Protection Act (CPA). Fourth, Shaw asserts that Zurich violated
Washington’s Insurance Fair Conduct Act (IFCA).
LAW
Summary judgment is appropriate when “the movant shows that there is no genuine
dispute as to any material fact.” Fed. Rule Civ. P. 56(a). The party seeking summary judgment
carries the burden of demonstrating that there is an absence of evidence to support the nonmoving party’s case. Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986). When the burden at
trial rests on the non-moving party, the moving party need only demonstrate that the record lacks
sufficient evidentiary support for the non-moving party’s case. Id. The moving party may do
this by showing that the evidence is insufficient to prove the existence of one or more essential
elements of the non-moving party’s case. Id. A party must support its summary judgment
position by “citing to particular parts of materials in the record” or “showing that the materials
cited do not establish the absence or presence of a genuine dispute.” Fed. Rule Civ. P. 56(c)(1).
Although the Court considers evidence in a light most favorable to the non-moving party,
the non-moving party must show that there is a genuine issue for trial. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248-49 (1986). Conclusory allegations and unsubstantiated assertions
will not satisfy the non-moving party’s burden. Grimes v. Tex. Dep’t of Mental Health, 102
F.3d 137, 139-40 (5th Cir. 1996). Similarly, “[u]nsworn pleadings, memoranda or the like are
not, of course, competent summary judgment evidence.” Larry v. White, 929 F.2d 206, 211 n.12
(5th Cir. 1991), cert. denied, 507 U.S. 1051. If, once the non-moving party has been given the
opportunity to raise a genuine fact issue, no reasonable juror could find for the non-moving
party, summary judgment will be granted for the moving party. Celotex, 477 U.S. at 322.
ANALYSIS

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I.

Choice of Law (Docs. 323, 330, 331, 349, 352)
In several of its memoranda, Zurich argues that Louisiana law applies to the bad faith

failure to attempt to settle claim. It points out that under the dépeçage doctrine, a different state’s
law can apply to different issues in the case. Although Zurich acknowledges the Court has
already ruled on choice of law, it argues that those rulings only applied Washington law to the
duty to promptly defend issue and not the failure to attempt to settle claim. The Court does not
find this argument persuasive; the ruling on the motion for reconsideration conclusively
determined that Washington law applies to Shaw’s claims against Zurich. (Doc. 132 at 10–12).
Zurich’s responsibility for FARA (Doc. 311)

II.

Shaw and Zurich both seek summary judgment on the issue of whether Zurich is
responsible for the actions of FARA, the third party administrator. This liability affects all of
Shaw’s claims. Shaw offers two arguments: first, that under the contract’s language, Zurich
assumes responsibility for all of FARA’s actions, including the essentially non-delegable duties
to act in good faith. See, e.g., Natividad v. Alexsis, Inc., S.W.2d 695, 698 (Tex. 1994). Second,
that FARA is Zurich’s agent, and under Washington’s common law of agency, Zurich, as
principal, is responsible for FARA’s actions. Chicago Title Ins. Co. v. Office of Ins. Comm’r, 309
P.3d 372, 380 (Wash. 2013). The Court agrees with Shaw’s second argument: the duty of good
faith and fair dealing cannot be delegated. The Court holds as a matter of law that Zurich is
responsible for the actions of FARA.
III.

Claim One: Failure to Promptly Pay Defense Costs (Docs. 305, 311)
A.

Breach Due to Failure to Promptly Pay Defense Costs

Shaw’s claims against Zurich include a breach of the insurer’s obligation to defend the
insured. Under Washington law, the duty to defend arises at the time of “filing . . . a complaint

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alleging covered claims.” Griffin v. Allstate Ins. Co., 29 P.3d 777, 780–81 (Wash Ct. App. 2001).
Shaw moves for summary judgment based on the fourteen month delay; Zurich moves for
summary judgment arguing that because of the complex, “unbundled” policy arrangement, Shaw
was to pay its first $750,000 in defense costs. The Court finds that neither party has met its
burden, and therefore a genuine dispute of material fact exists as to whether Zurich breached the
duty promptly pay defense costs.
B. Causation of Damages
Zurich also claims that because it ultimately paid the $4,000,000 policy cap, Shaw
suffered no damages. Though Washington law appears silent, several federal district courts
interpreting general contract principles have found that damages are available even if the insurer
ultimately fulfills its obligation in an untimely manner. See, e.g., Hizer v. Gen. Motors Corp.,
Allison Gas Turbine Div., 888 F. Supp. 1453, 1459 (S.D. Ind. 1995). Shaw points to several
cases holding that the “time value of money” is compensable. Zurich offers distinctions between
those cases and this case,3 but the Court finds Zurich’s argument—that an insurer could fail to
defend for fourteen months and then not be liable for any damages because the insurer paid costs
later—illogical. The Court finds that “time value of money” is sufficient to constitute damages
should Shaw prove its case.
C. Zurich’s Defenses (Doc. 311)
Zurich asserts several “affirmative defenses” in its answer, including allegations that
Shaw was not cooperating with Zurich. (Doc. 311-1 at 29). Shaw argues that because Zurich
breached the duty to promptly defend, Zurich should be prevented from raising these defenses.
Id. These are counterarguments to Shaw’s allegation that Zurich breached the duty to defend, not
affirmative defenses. Regardless, Shaw’s argument hinges on a finding that Zurich breached the
3

For example, Zurich claims that in several of those cases, the defendants failed to defend the insured at all.

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duty to defend by failing to promptly pay defense costs, and the Court, as stated above, has found
that there remains a genuine dispute of material fact as to that question. Therefore, there remains
a genuine dispute of material fact as to whether Shaw’s own actions influenced Zurich’s alleged
failure to promptly defend.
IV.

Claim Two: Bad Faith Failure to Attempt to Settle (Doc. 311)
Under Washington law, if the insured may reasonably be liable, an insurer has an

affirmative duty to attempt to settle the case in good faith. Truck Ins. Exch. of Farmers Ins. Grp.
V. Century Indemn. Co., 887 P.2d 455, 460 (Wash. Ct. App. 1995). It is not required that the
insurer know the extent of liability, as the duty to attempt to settle is distinct from the duty to pay
on the policy. Specialty Surplus Ins. Co. v. Second Chance, Inc., 412 F. Supp. 2d 1152, 1166 n.4
(W.D. Wash. 2006) This duty is rooted in common law, specifically the implied duty of “good
faith and fair dealing,” making it a tort claim. Specialty Surplus Ins. Co., 412 F. Supp. 2d at 1165
n.4. Therefore, contractual language abrogating or ignoring this responsibility does not absolve
the insured of this responsibility. Id.
Shaw claims that Zurich breached this duty because Shaw’s potential liability became
clear in September 2009, and it correctly points out that the extent of liability at this time was not
relevant to Zurich’s legal duty. (Doc. 311-1 at 24). Consequentially, Zurich’s arguments that the
settlement would have been well outside of its $4,000,000 aggregate cap and that liability did not
“fully crystalize” until July of 2011 do not create a genuine issue of material fact. (Doc. 349 at
11–12). However, Zurich’s argument that Shaw failed to alert Zurich to the settlement
negotiations presents a genuine dispute of material fact. A reasonable jury could find that
because Zurich was unaware of many of the opportunities, as well as disinvited to one, Zurich
did not breach its duty to attempt to settle. Therefore, summary judgment must be denied.

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V.

Claim Three: Shaw’s CPA Claims (Docs. 305, 311)
Under Washington’s CPA, a claimant must establish five elements: “(1) an unfair or

deceptive act or practice; (2) occurring in the conduct of trade or commerce; (3) which impacts
the public interest; (4) an injury to business or property; and (5) a causal link between the injury
and deceptive act or practice. Hell Yeah Cycles v. Ohio Sec. Ins. Co., 2014 WL 1671491 at *5
(E.D. Wash. 2014). Shaw claims that it has established elements one, two and three. For element
one, Shaw refers to Industrial Indem. Co. of the Northwest, Inc. v. Kallevig, which notes that the
CPA incorporates provisions of Washington’s Administrative Code (WAC). 792 P.2d 520, 529
(1990). Shaw alleges that Zurich committed an “unfair or deceptive trade practice” by violating
WAC 284-30-330(2), which covers “failing to acknowledge and act reasonably promptly upon
communications with respect to claims arising under insurance policies.” However, “[w]hat is
determinative is the reasonableness of the insurer's action in light of all the facts and
circumstances of the case,” and this is a question for the jury. Industrial Indem. Co. of the
Northwest, Inc., 792 P.2d at 528.
Zurich’s first motion for partial summary judgment seeks to dispose of another CPA
claim: that Zurich misrepresented its policy terms. (Doc. 305-1). The WAC—Provision 284-30330(1)—provides for this cause of action when the insurer misrepresents a “pertinent fact”
relating the policy; it requires more than a difference of opinion on coverage. Michelman v.
Lincoln Nat. Life Ins. Co., 685 F.3d 887 (9th Circuit 2012). Zurich asserts that there was merely
a difference of opinion on coverage, but Shaw argues that Zurich indicated to FARA that there
may not be coverage when Zurich’s internal documents reveal that they knew there was
coverage. Neither side has sufficiently established its position, so summary judgment is
inappropriate at this time.

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VI.

IFCA Claims (Doc. 331)
Shaw made several claims under IFCA, including a claim for treble damages and

attorneys’ fees. Zurich filed a motion for summary judgment arguing that Shaw gave inadequate
notice under the statute’s procedural requirements. (Doc. 331). IFCA requires twenty day notice
before filing suit, both to the insurer and to Washington’s insurance commissioner. RCW
48.30.015(8)(a). Several federal courts interpreting Washington law have granted summary
judgment in favor of insurers based on failure to provide notice. E.g. Hiller v. Allstate Prop. &
Cas. Ins. Co., WL 2325603 at *9 (E.D. Wash. 2012). Federal courts interpreting Washington law
have also, however, allowed for IFCA claims to move forward when the plaintiff filed suit, gave
notice of intent to sue under IFCA, and then filed an amended complaint more than twenty days
later to reflect the IFCA claim. E.g. Jamir v. The Standard Fire Ins. Co. LEXIS 131377 at **4–6
(W.D. Wash. 2010).
Shaw’s first argument, that failure to provide notice is an affirmative defense and that
Zurich should have asserted it in its answer, is not persuasive. Zurich cites Freeman v. State
Farm Mut. Auto. Ins. Co., where that court noted that the notice requirement is clear and
unambiguous before granting summary judgment under IFCA. WL 2891167 at *4 (W.D. Wash
2012). However, Shaw’s second argument is logical. Although Shaw’s first complaint referenced
the statute, they made a pointed effort to give notice to Zurich and amend the complaint before
seeking the additional relief of treble damages. Zurich’s argument that this defeats the purpose of
the notice requirement—time to resolve the claim before litigation—does not hold. This suit had
numerous other claims, meaning litigation irrespective of the disposition of the IFCA claim, and
the notice before amending the complaint gave Zurich time to reduce their exposure. Even if

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Zurich had resolved the IFCA claim in the twenty day window, the majority of the lawsuit would
survive.
VII.

Zurich’s Counterclaims
In its answer, Zurich seeks several types of affirmative relief. Primarily, Zurich seeks to

have a set off from any damage award, including the value of a second $750,000 deductible from
Shaw based on the “per occurrence” language of the contract. Zurich also made claims for
unnecessary defense costs it paid to Shaw.
A. Set off Amounts (Docs. 311, 352)
i.

Set Off for Second Deductible (Docs. 311, 352)

If an insured has not paid a deductible owed, this amount may be set off from a payment
the insurer must make the insured. Bickford v. City of Seattle, 17 P.3d 1240, 1243 (Wash. Ct.
App. 2001). Zurich’s request for a set off requires that Shaw owes, and failed to pay, a second
deductible. Shaw argues first that Zurich waived this by having its witness testify that they did
not know what Shaw owed. (Doc. 311-1 at 31–32). Shaw also argues that Zurich paid
$4,000,000 to gain “leverage” rather than to honor the policy, and Shaw further claims that it
paid enough to match the second deductible obligation, even if it were owed. (Doc. 377 at 6–9).
Zurich argues that because they paid $4,000,000, or the equivalent of two occurrences, they are
entitled to two deductibles. (Doc. 352-12 at 13–14). Zurich disputes both Shaw’s
characterization of the $4,000,000 payment and how much Shaw paid Zurich. (Doc. 390 at 6–8).
At this time, the Court defers ruling on this issue.
ii.

Set Off for Settlements of Excess Insurers (Doc. 352)

Zurich further claims a right to have any damage award offset in the amount of the
settlements received by Shaw from the excess insurers. (Doc. 352-12 at 17). It points to its

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$4,000,000 policy limit and the size of the settlement, arguing that Shaw should be limited to its
“actual damages” because Shaw designed its insurance policies so that certain insurers would be
liable for certain amounts (Doc. 352-12 at 18–19). Shaw counters that it is seeking tort damages
for the failure to defend, not contract, so its contract limitations are not relevant. (Doc. 377).
Shaw also cites case law to support its position that tort remedies are necessary because
otherwise, the insured would have to prove what would have happened; that would be an
extremely difficult burden. Kirk v. Mt. Airy Ins. Co., 951 P.2d 1124, 1126 (Wash. 1998). Zurich
counters that this would remove any incentive for insurance companies to pay in similar
situations, as they would risk exposure of double liability. (Doc. 390 at 17).
Although evidence of the policy limit and the settlements with the excess insurers may
have some bearing on the amount of damages caused by bad faith failures to promptly pay
defense costs and to attempt to settle, the evidence does not afford Zurich a set off. Summary
judgment on this issue is therefore denied.
iii.

Set Off for Payments Made by Zurich Under the Policy (Doc. 352)

The last set off that Zurich seeks is for the $4,000,000 million that it paid to Shaw. (Doc.
352-12 at 19) Zurich argues that otherwise, Shaw will obtain double recovery for the same harm.
Id. at 20. Shaw argues that its bad faith claims are tort claims, not contractual ones. (Doc. 377 at
13). Under Washington law, bad faith claims acknowledge “that traditional contract damages do
not provide for an adequate remedy for a bad faith breach of contract.” Kirk v. Mt. Airy Ins. Co.,
951 P.2d 1124, 1126 (Wash. 1998) (Internal Citations Omitted). Zurich argues neither that the
claims are contractual nor that Shaw has misstated Washington law. Instead, Zurich claims that
courts developed bad faith law as it is with situations where the insurer paid nothing and not for
this “unique” situation. (Doc. 390 at 16). Nonetheless, Zurich can offer no authority for its

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position. Consequently, summary judgment in favor of Zurich should be denied on the issue of a
set off for the $4,000,000 already paid to Shaw.
B. Unnecessary Defense Costs (Doc. 311)
Zurich also seeks to recoup unnecessary defense costs from Shaw. (Doc. 311-1 at 32).
Shaw argues that Zurich should be estopped from doing so because it already audited Shaw’s
bills, Washington law prevents reimbursement, Zurich must have advised Shaw in writing that it
will claim reimbursement when making payments and failed to do so 4, and that Zurich paid the
attorneys, not Shaw, so they are the proper persons from whom to seek reimbursement.
Shaw cites a series of cases excluding reimbursement, but Zurich argues that these cases
are distinguishable because they involve defending claims that later turned out to be excluded.
(Doc. 349 at 27). Zurich also notes that it did not audit the bills from Baker Donelson, and those
are the costs from which Zurich seeks reimbursement. Id. Zurich further argues that when it
issued its letter with full reservation of rights, this advised Shaw in writing that it may seek
reimbursement. Id. at 26–27. Finally, Zurich claims that although they paid law firms and
attorneys, they did so at Shaw’s orders. Id. at 27.
The Court finds estoppel inappropriate at this juncture and that Shaw’s claims for what it
believes are unpaid defense costs have opened the door on what would be a fair award under the
circumstances of this case. Zurich, however, has not established that it is entitled to any amount
of damages at this time. Therefore, summary judgment must be denied.
VIII.

Attorneys’ Fees

Zurich filed a motion for partial summary judgment to prevent Shaw from recovering
attorneys’ fees. (Doc. 330). Zurich’s arguments hinge on that attorneys’ fees could only be

4

See WAC 284-30-350(7).

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available to Shaw under Washington law in three instances: common law, Washington’s IFCA,
and the Washington CPA.
Zurich’s first argument, failure of IFCA notice, has been addressed5 above. The second
IFCA argument, denial of coverage, fails to compel summary judgment as well. Although Zurich
never formally denied coverage, it did fail to pay for an extended period of time—this could
constitute a “constructive denial” of coverage. Zurich, then, has failed to establish that it never
denied coverage. Regarding the CPA claim, a reasonable jury could find that Zurich’s failure to
participate in settlement conferences and communicate with Shaw regarding the case caused
Shaw to suffer the loss of money, time value of money, and a variety of other damages. Zurich’s
causation dispute presents a factual question. As with IFCA, the Washington common law
argument fails to support summary judgment because a genuine dispute of material fact exists as
to whether Zurich constructively denied coverage to Shaw. At this time, summary judgment in
favor of Zurich would be premature.
IX.

REC Settlement’s Reasonableness (Doc. 332)
In August of 2013, Judge Peterson in the Eastern District of Washington accepted the

settlement between Shaw and REC as reasonable. (Doc. 332-1 at 1). Zurich argues that Judge
Peterson only ruled that the $20,750,000 in cash was reasonable, not the waiver of the
$3,804,520.50 counterclaim. Id. at 1–2. Therefore, according to Zurich, Judge Peterson must
have considered the waived claim’s value as unreasonable. Id. at 2. The Court finds that Judge
Peterson’s ruling reflects that the Judge found the entire settlement reasonable. The Court, it
should be noted, makes no finding of its own as to the reasonableness of settlement; it is merely
interpreting Judge Peterson’s decision.
X.
5

Other Motions

See Section II.I, supra.

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A. Motion to Strike Privileged Documents (Doc. 346)
In relation to Shaw’s Motion for Partial Summary Judgment (Doc. 311), Zurich seeks to
strike several documents submitted by Shaw to support this motion. (Doc. 346). Zurich argues
that these are not relevant to the case and include legal advice and other discussions protected by
attorney-client privilege. (Doc. 346-1 at 1–3). This motion is moot, however, because these
documents do not form the basis of the Court’s ruling, and the motion to strike only seeks to
prevent their use in support of the summary judgment motion and the opposition to one of
Zurich’s summary judgment motions.
B. Motion to Defer Ruling (Doc. 347) on Summary Judgment Motion (Doc. 311)
Based on alleged discovery violations and refusals to produce certain documents by
Shaw, Zurich requests that the Court defer ruling on, or deny, the plaintiffs’ Motion for Partial
Summary Judgment. (Doc. 347-1 at 1–2). Such a ruling requires meeting four elements:
Three general requirements can be elicited from International Shortstop that the
non-movant must establish for a continuance of discovery: (i) requesting
extended discovery prior to the court's ruling on summary judgment; (ii) put the
trial court on notice that further discovery pertaining to the summary judgment
motion is being sought; and (iii) demonstrating to the trial court specifically how
the requested discovery pertains to the pending motion. Additionally, the nonmovant must diligently pursue relevant discovery—the trial court need not aid
non-movants who have occasioned their own predicament through sloth.
Wichita Falls Office Associates v. Banc One Corp., 978 F.2d 915, 919 (5th Cir. 1992) (Internal
Citations Omitted). Shaw contests the motion, arguing that Zurich has failed to be appropriately
“diligent” in seeking the desired discovery. (Doc. 368 at 1); Wichita Falls Office Associates, 978
F.2d at 919. With respect to element three, that the pending requests affect the motion, Zurich’s
motion is now moot. The declaration Zurich submitted indicated the information would affect the
duty to promptly defend and bad faith claims, and the Court denied summary judgment on those
claims on the merits. Therefore, the Court finds ruling on this motion unnecessary.
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CONCLUSION
Zurich’s motion for summary judgment (Doc. 323) is DENIED. Zurich’s motions for
partial summary judgment (Docs. 305, 330, 331, 332, and 352) are DENIED. Shaw’s motion for
partial summary judgment (Doc. 311) is DENIED in part and GRANTED in part with respect to
Zurich’s responsibility for the actions of FARA. Zurich’s motions to strike (Doc. 346) and to
defer ruling (Doc. 347) are MOOT.

Signed in Baton Rouge, Louisiana, on November 20, 2014.





JUDGE JAMES J. BRADY
UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF LOUISIANA

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