Gauthier et al v. Twin City Fire Insurance Company et al
Filing
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ORDER denying defendant's 14 Motion for Summary Judgment by Judge Ricardo S Martinez.(PM)
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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE
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Case No. C14-693RSM
MADELINE GAUTHIER, a single woman,
and GAUTHIER & ASSOCIATES INC.,
P.S., a Washington professional services
corporation,
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Plaintiffs,
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ORDER DENYING DEFENDANT TWIN
CITY FIRE INSURANCE COMPANY’S
MOTION FOR PARTIAL SUMMARY
JUDGMENT REGARDING COVERAGE
v.
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TWIN CITY FIRE INSURANCE
COMPANY, a foreign corporation, and THE
HARTFORD FINANCIAL SERVICES
GROUP, INC., a foreign corporation,
Defendants.
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I.
INTRODUCTION
This matter comes before the Court on Defendant Twin City Fire Insurance Company
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(“Twin City”)’s Motion for Partial Summary Judgment Regarding Coverage.
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Defendant Twin City moves the Court for an order stating that it has no contractual duty to
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Dkt. #14.
indemnify or defend Plaintiff Madeline Gauthier for civil contempt sanctions, and argues for
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summary judgment dismissal of Plaintiffs’ claims for breach of contract. Id. Defendant denies
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liability for Plaintiffs’ other claims, including bad faith, negligence, and alleged violations of
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the Washington Consumer Protection Act, but does not move to dismiss these claims in the
ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 1
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instant motion. Dkt. #14 at 1-2. Plaintiffs argue in opposition that this motion is premature,
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that contract estoppel should apply, and that uncertainty under Washington law created a duty
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to defend. Dkt. #21. Having reviewed the parties’ briefing and oral arguments, the Court
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agrees with Plaintiffs in part and DENIES Defendant’s motion.
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II.
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BACKGROUND
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Plaintiff Madeline Gauthier and the firm Gauthier & Associates Inc., P.S., filed this
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insurance case on April 1, 2014, in King County Superior Court, and Defendant Twin City
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removed it to this Court on May 8, 2014. Dkt. #1. Ms. Gauthier is an attorney who practices in
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estate planning, probate, will, and tax related issues through her firm. See Dkt. #49 at 2.
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Although this dispute concerns coverage under an attorney malpractice policy, the incident
requiring coverage relates to an underlying action briefly detailed below.
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A. Events Precipitating the Insurance Claim
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Ms. Gauthier and the Firm represented a woman named Patricia Caiarelli in a Trust and
Estate Dispute Resolution Act (TEDRA) matter originally filed in state court in 2006. In re
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Estate of Taylor, 2010 Wash. App. LEXIS 2794 (Wash. Ct. App. Dec. 20, 2010). Plaintiffs
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eventually obtained a $1.9 million judgment for their client. Dkt. #49 at 3. One of the
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defendants against whom the judgment was obtained filed for Chapter 11 bankruptcy in
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Illinois. Id. at 3. This bankruptcy filing initiated a discharge injunction under 11 USC §
524(a)(2).1 Id. at 3; Dkt. #16-1 at 30. Plaintiffs “challenged the assignment of the Washington
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judgment in the Illinois Bankruptcy court,” and on March 19, 2013, the bankruptcy judge
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dismissed Ms. Caiarelli’s claims against the debtor in bankruptcy. Dkt. #49 at 3. Plaintiffs
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allege that, based on comments made by the bankruptcy judge at the hearing, they “came away
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11 USC § 524(a)(2) states “a discharge in a case under this title operates as an injunction against the
commencement or continuation of an action… to collect, recover or offset any such debt as a personal liability of the
debtor…”
ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 2
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with the understanding that it would be acceptable for them to go back to the King County
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Superior for court ratification of the questioned assignment. Id. Plaintiffs returned to state
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court to seek ratification of the assignment, which the court granted. Id. at 3-4. On April 4,
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2013, the underlying defendant debtor brought a motion in the Illinois bankruptcy court to
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enforce the discharge injunction and to hold Ms. Caiarelli and her attorneys in civil contempt
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for this action. Dkt. #16-1 at 29. The motion sought relief in the form of compensatory and
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punitive damages. Dkt. #49 at 4. On July 23, 2013, the bankruptcy court granted this motion,
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found Plaintiffs in contempt, and awarded “sanctions in the form of compensatory damages.”
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Dkt. #16-1 at 49-50. The bankruptcy court found that Plaintiffs’ violation of the discharge
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injunction was willful because they knew of the post-discharge injunction and intended the acts
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that violated the injunction. Id. at 48-49. The court declined to award punitive damages,
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finding that the debtor had failed to establish “malevolent intent.” Id. at 49. Compensatory
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damages were determined to be the debtor’s reasonable attorney fees and costs, in the amount
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of $165,662.36, and judgment was entered awarding that amount. Dkt. #16-1 at 121-122.
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B. The Insurance Claim
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Ms. Gauthier tendered the above motion to Twin City for defense and indemnity under
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a malpractice insurance policy. Dkt. #49 at 4. This policy, numbered LT1616807, is issued on
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“The Hartford” letterhead but clearly states “Name of Insurer: Twin City Fire Insurance
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Company”.
Dkt. #16-1 at 125. The policy states that it covers “such damages and claim
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expenses in excess of the applicable deductible…. The damages must arise out of a negligent
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act, error, omission or personal injury in the rendering of or failure to render professional legal
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services for others by you.” Dkt. #49 at 4-5; Dkt. #16-1 at 127. The term “damages” is defined
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in the policy as not including “[a]ny fines, sanctions or penalties, or punitive or exemplary
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ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 3
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damages,” among other limitations. Dkt. #16-1 at 128. “Professional legal services” is defined
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as “services performed or advice given by you… for others in the conduct of your practice…”
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Id. at 129.
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In response to Ms. Gauthier’s claim, she received correspondence under “The Hartford”
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letterhead indicating that the insurer Twin City would be issuing a reservation of rights and had
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no duty to indemnify her for the above sanctions. See Dkt. #16-1 at 155-57. However, on
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October 31, 2013, Twin City changed course and accepted tender of defense and agreed to
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reimburse the reasonable and necessary past defense fees and costs incurred by Plaintiffs,
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subject to terms and conditions in the policy. Id. at 158-59.
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C. The Appeal
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Plaintiffs appealed the bankruptcy court’s order and judgment awarding contempt
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sanctions to a district court in Illinois. Dkt. #49 at 8. The Illinois district court eventually
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overturned the bankruptcy court’s holding of contempt, and the bankruptcy debtor appealed
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this decision to the Seventh Circuit. Id. at 17. On July 20, 2015, the Seventh Circuit affirmed
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the district court’s order. Id. Plaintiffs do not currently owe any of the compensatory damages
originally at issue in this case.
III.
DISCUSSION
A. Legal Standard on Summary Judgment
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Summary judgment is appropriate where “the movant shows that there is no genuine
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dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
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R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986).
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summary judgment, a court does not weigh evidence to determine the truth of the matter, but
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In ruling on
“only determine[s] whether there is a genuine issue for trial.” Crane v. Conoco, Inc., 41 F.3d
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ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 4
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547, 549 (9th Cir. 1994) (citing Federal Deposit Ins. Corp. v. O’Melveny & Meyers, 969 F.2d
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744, 747 (9th Cir. 1992)). Material facts are those which might affect the outcome of the suit
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under governing law. Anderson, 477 U.S. at 248.
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The Court must draw all reasonable inferences in favor of the non-moving party. See
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O’Melveny & Meyers, 969 F.2d at 747, rev’d on other grounds, 512 U.S. 79 (1994). However,
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the nonmoving party must make a “sufficient showing on an essential element of her case with
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respect to which she has the burden of proof” to survive summary judgment. Celotex Corp. v.
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Catrett, 477 U.S. 317, 323 (1986). Further, “[t]he mere existence of a scintilla of evidence in
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support of the plaintiff's position will be insufficient; there must be evidence on which the jury
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could reasonably find for the plaintiff.” Anderson, 477 U.S. at 251.
B. Twin City’s Duty to Indemnify Plaintiffs under Policy LT1616807
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Defendant first moves for an Order declaring that Twin City had no contractual duty to
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indemnify. See Dkt. # 14 at 13. Plaintiffs argue orally and in briefing that this issue is moot
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given that the contempt sanctions for which they requested indemnification have been
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overturned. See Dkt. #21 at 2. Defendant argues orally that this issue is not moot because the
debtor could still appeal the Seventh Circuit’s decision to the United States Supreme Court.
To invoke the jurisdiction of a federal court, “a litigant must have suffered, or be
threatened with, an actual injury traceable to the defendant and likely to be redressed by a
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favorable judicial decision.” Lewis v. Continental Bank Corp., 494 U.S. 472, 477, 110 S. Ct.
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1249, 108 L. Ed. 2d 400 (1990). “Federal courts may not ‘decide questions that cannot affect
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the rights of litigants in the case before them’ or give ‘opinion[s] advising what the law would
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be upon a hypothetical state of facts.’” Chafin v. Chafin, 133 S. Ct. 1017, 1023 (2013) (quoting
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Lewis, 494 U.S. at 477). It is “not enough that a dispute was very much alive when suit was
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ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 5
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filed;” the parties must “continue to have a personal stake” in the ultimate disposition of the
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lawsuit. Id. (quoting Lewis, 494 U.S. at 477-478) (some internal quotation marks omitted). A
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suit becomes moot, “when the issues presented are no longer live or the parties lack a legally
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cognizable interest in the outcome.” Chafin, 133 S. Ct. at 1023. But a case “becomes moot
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only when it is impossible for a court to grant any effectual relief whatever to the prevailing
party.” Id.
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The Court agrees with Plaintiffs. Plaintiffs no longer suffer an actual injury caused
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solely by Defendant’s alleged breach of contract through a failure to indemnify. A decision
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favorable to the Plaintiff would not redress this nonexistent injury. The Court may not give a
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hypothetical opinion as to whether Twin City would have been required to indemnify Plaintiffs
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under the policy if the sanctions were still being enforced. Because this issue is no longer live
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and the Court cannot grant effectual relief to either party, the Court finds this issue moot, and
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therefore denies Defendant’s Motion as to this issue.
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C. Twin City’s Duty to Defend Plaintiffs under Policy LT1616807
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In Washington, “[a]n insurer’s duty to defend is broader than its duty to indemnify.”
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Truck Ins. Exch. v. VanPort Homes, 147 Wn.2d 751, 760 (2002) (citing Hayden v. Mut. of
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Enumclaw Ins. Co., 141 Wn.2d 55, 64, 1 P.3d 1167 (2000)). The duty is one of the main
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benefits of the insurance contract. Id. (citing Safeco Ins. Co. of Am. v. Butler, 118 Wn.2d 383,
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392, 823 P.2d 499 (1992)). The duty to defend “arises when a complaint against the insured,
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construed liberally, alleges facts which could, if proven, impose liability upon the insured
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within the policy's coverage.” Id. (quoting Unigard Ins. Co. v. Leven, 97 Wn. App. 417, 425,
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983 P.2d 1155 (1999)). “[I]f there is any reasonable interpretation of the facts or the law that
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could result in coverage, the insurer must defend.” Am. Best Food, Inc. v. Alea London, Ltd.,
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ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 6
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168 Wn.2d 398, 405, 229 P.3d 693 (2010). If the alleged claim is ambiguous, “it will be
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liberally construed in favor of triggering the insurer's duty to defend.” Id. (citing R. A. Hanson
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Co. v. Aetna Ins. Co., 26 Wn. App. 290, 295, 612 P.2d 456 (1980)). “Only if the alleged claim
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is clearly not covered by the policy is the insurer relieved of its duty to defend.” Id. (citing
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Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 561, 951 P.2d 1124 (1998)).
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The sole remaining issue before the Court is whether Defendant breached the terms of
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Policy LT1616807 by failing to defend Plaintiffs against the claim for monetary damages in the
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bankruptcy court’s contempt order.2 Defendant argues that “because the relief sought by [the
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bankruptcy debtor] against Gauthier is clearly not covered, Twin City has no duty to defend
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Gauthier against the Contempt Motion.” Dkt. #14 at 19. However, Defendant also admits in
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their briefing that “Washington courts have not yet addressed whether a professional liability
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policy that exempts coverage for sanctions covers judicially-imposed sanctions.” Dkt. #14 at
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16. Plaintiffs agree. Dkt. #21 at 16.
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The Court finds that, drawing all reasonable inferences in favor of the non-moving
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party, there is a reasonable interpretation of the facts and law that could have resulted in
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coverage. The bankruptcy court’s award of $165,662.36 to the debtor was alternately labeled
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“sanctions” and “compensatory damages” by the Court.
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See Dkt. #16-1.
This created
ambiguity under the policy’s broad definition of covered damages; such ambiguity must be
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liberally construed in favor of triggering the insurer's duty to defend. See Truck Ins. Exch.,
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supra. The policy’s definition of damages arising out of “a negligent act, error, omission… in
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the rendering of or failure to render professional legal services for others,” is sufficiently
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ambiguous to apply to this case. Although Defendant points to the alleged willful nature of
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The Court acknowledges Defendant’s argument that the policy exempts injunctive or other non-monetary relief
from coverage, see Dkt. #14 at 18, and notes that this is apparently not disputed by Plaintiffs.
ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 7
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Plaintiffs’ actions as a reason to deny coverage, see, e.g., Dkt. #28 at 5, Plaintiffs have argued
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from the beginning that their actions were based on a misunderstanding of the bankruptcy
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court’s comments at a hearing, see Dkt. #1-1 at 3. Construed liberally, Plaintiffs’ actions could
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reasonably be interpreted as “a negligent act, error, [or] omission.” There is nothing in the
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policy’s definition of damages or professional legal services that explicitly excludes
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compensatory damages awarded by a judge against the insured. Given the above, and by
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admitting that there is no controlling Washington law that closes the door to coverage,
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Defendant has failed to persuade the Court that Plaintiffs’ insurance claim was “clearly not
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covered by the policy” as a matter of law. See Kirk, 134 Wn.2d at 561. Because the Court finds
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Defendant Twin City owed Plaintiffs a duty to defend, dismissal of Plaintiffs’ breach of
contract claim is appropriately denied.
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Having denied summary judgment on this ground, the Court need not address Plaintiffs’
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collateral estoppel argument. Having denied Defendant’s Motion, the Court need not address
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Plaintiff’s request under Rule 56(d).
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IV.
CONCLUSION
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Having reviewed the relevant pleadings, the declarations and exhibits attached thereto,
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and the remainder of the record, the Court hereby ORDERS that Defendant’s Motion for
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Summary Judgment (Dkt. #14) is DENIED.
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DATED this 11 day of August, 2015.
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A
RICARDO S. MARTINEZ
UNITED STATES DISTRICT JUDGE
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ORDER DENYING DEFENDANT’S MOTION FOR
PARTIAL SUMMARY JUDGMENT - 8
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