Canyon Estates Condominium Association v. Atain Specialty Insurance Company et al

Filing 160

ORDER denying Defendant Indian Harbor's 147 Motion for Summary Judgment; granting in part and denying in part Plaintiff's 155 Motion for Partial Summary Judgment. Signed by Judge Richard A. Jones.(MW)

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HONORABLE RICHARD A. JONES

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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CANYON ESTATES CONDOMINIUM
ASSOCIATION, a Washington non-profit
corporation,
Plaintiff,

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Case No. 2:18-cv-01761-RAJ
ORDER

v.
ATAIN SPECIALTY INSURANCE
COMPANY; INDIAN HARBOR
INSURANCE COMPANY;
WESTCHESTER SURPLUS LINES
INSURANCE COMPANY; GREAT
LAKES INSURANCE, SE,

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Defendants.

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I.

INTRODUCTION

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This matter comes before the Court on Defendant Indian Harbor’s Motion for
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Summary Judgment (Dkt. # 147) and Plaintiff’s Motion for Summary Judgment (Dkt.
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# 155). Having considered the submissions of the parties, the relevant portions of the
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record, and the applicable law, the Court finds that oral argument is unnecessary. For the
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reasons below, Defendant’s motion is DENIED and Plaintiff’s motion is GRANTED in
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part and DENIED in part.
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ORDER – 1

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In ruling on the parties’ previous cross motions for summary judgment, the Court

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summarized the facts of this case. Dkt. # 119. To avoid duplication, the Court refers the

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parties to that order for background information.
II. LEGAL STANDARD

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Summary judgment is appropriate if there is no genuine dispute as to any material

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fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P.

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56(a). The moving party bears the initial burden of demonstrating the absence of a

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genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986).

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Where the moving party will have the burden of proof at trial, it must affirmatively

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demonstrate that no reasonable trier of fact could find other than for the moving party.

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Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where

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the nonmoving party will bear the burden of proof at trial, the moving party can prevail

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merely by pointing out to the district court that there is an absence of evidence to support

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the non-moving party’s case. Celotex Corp., 477 U.S. at 325. If the moving party meets

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the initial burden, the opposing party must set forth specific facts showing that there is a

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genuine issue of fact for trial to defeat the motion. Anderson v. Liberty Lobby, Inc., 477

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U.S. 242, 250 (1986). The court must view the evidence in the light most favorable to

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the nonmoving party and draw all reasonable inferences in that party’s favor. Reeves v.

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Sanderson Plumbing Prods., 530 U.S. 133, 150-51 (2000).
III. DISCUSSION

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In their respective motions for summary judgment, the parties raise several issues:

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coverage, bad faith, violation of Washington’s Consumer Protection Act (“CPA”),

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violation of the Insurance Fairness Conduct Act (“IFCA”), and offset. The Court

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addresses each in turn.

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A.

Coverage

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Under Washington law, “[i]nsurance policies are to be construed as contracts, and

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interpretation is a matter of law.” State Farm General Ins. Co. v. Emerson, 687 P.2d

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ORDER – 2

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1139 (Wash. 1984). “The entire contract must be construed together in order to give

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force and effect to each clause” and must be enforced “as written if the language is clear

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and unambiguous.” Washington Pub. Util. Districts’ Utils. Sys. v. Pub. Util. Dist. No. 1

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of Clallam County, 771 P.2d 701, 706-07 (Wash. 1989). If, on the other hand, “a policy

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provision on its face is fairly susceptible to two different but reasonable interpretations,

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the policy is ambiguous and the court must attempt to discern and enforce the contract as

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the parties intended.” Transcon. Ins. Co. v. Washington Pub. Utilities Districts’ Util.

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Sys., 760 P.2d 337, 340 (Wash. 1988). An insurance contract “will be given a practical

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and reasonable interpretation that fulfills the object and purpose of the contract rather

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than a strained or forced construction that leads to an absurd conclusion, or that renders

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the contract nonsensical or ineffective.” Washington Pub., 771 P.2d at 707.

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Further, insurance contracts are interpreted “as an average insurance purchaser

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would understand them,” and courts must “give undefined terms in these contracts their

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‘plain, ordinary, and popular’ meaning.” Kish v. Ins. Co. of N. Am., 883 P.2d 308, 311-

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12 (Wash. 1994) (quoting Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507 (Wash.

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1990)); see also State Farm Gen. Ins. Co. v. Emerson, 687 P.2d 1139, 1142 (Wash. 1984)

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(insurance contract interpreted “according to the way it would be understood by the

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average insurance purchaser”).

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A determination of coverage under an insurance contract is a two-step process.

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McDonald v. State Farm Fire & Cas. Co., 837 P.2d 1000, 1003-04 (Wash. 1992). First,

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[t]he insured must show the loss falls within the scope of the policy’s insured losses.” Id.

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Second, “[t]o avoid coverage, the insurer must then show the loss is excluded by specific

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policy language.” Id.; see also Pub. Employees Mut. Ins. Co. v. Rash, 740 P.2d 370

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(Wash. Ct. App. 1987) (“[W]hen an insured establishes a prima facie case giving rise to

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coverage under the provisions of his policy, the burden is then upon the insurer to prove

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that the loss is not covered because of an exclusionary provision in the policy.”). Though

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an exclusionary clause is “strictly construed against the insurer,” its meaning “must be

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ORDER – 3

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determined in view of the policy as a whole.” Allstate Ins. Co. v. Calkins, 793 P.2d 452

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(Wash. Ct. App. 1990) (citing Rodriguez v. Williams, 729 P.2d 627 (Wash. 1986)).
Defendant Indian Harbor’s insurance policy is an “all-risk” policy. Dkt. # 38.

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Plaintiff Canyon Estates Condominium Association (“Association”) argues that, as such,

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the policy insures any risk not specifically excluded. Dkt. # 155 at 11-16. Because the

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peril of “water intrusion damage” is not specifically excluded, the argument goes, it is a

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covered peril under the policy. Id. Indian Harbor disagrees, calling the Association’s

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argument a “semantics game.” Dkt. # 157 at 15. Though it concedes that the policy

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contains no express exclusion for “water intrusion,” Indian Harbor says that the policy

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excludes equivalent perils that are “functionally identical” to water intrusion. Id. Among

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them are exclusions for “perils of faulty workmanship or maintenance, wear and tear,

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gradual deterioration, rot and seepage or leakage of water.” Id. at 7, 15. The Association

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seeks a ruling from the Court that water intrusion damage is covered under the policy and

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that coverage is owed here because Indian Harbor admits to water intrusion damage at the

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property. Dkt. # 155 at 11-16.
There are two steps to determine insurance coverage; the Association does not

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make it past the first. Factual issues prevent it from establishing that the loss incurred at

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the property falls within the policy’s scope. The Association is thus not entitled to

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summary judgment on its coverage claim. That said, the Court rules as a matter of law

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that water intrusion damage to a building’s exterior is a covered peril under the all-risk

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policy.
i.

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All-Risk Policy

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Generally, there are two types of property insurance policies: named-peril and all-

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risk. Vision One, LLC v. Philadelphia Indem. Ins. Co., 276 P.3d 300, 306 (Wash. 2012).

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Named-peril policies “provide coverage only for the specific risks enumerated in the

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policy and exclude all other risks.” Id. (quoting Steven Plitt, Daniel Maldonado &

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Joshua D. Rogers, Introductory Concepts of the Risk; Public Policy Insurability, and

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ORDER – 4

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Causation, in 7 Couch on Insurance 3d § 101:7, at 101–17 (2006)). Contrast all-risk

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policies, which “provide coverage for all risks unless the specific risk is excluded.” Id.

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Under an all-risk policy, the risk of loss is generally allocated to the insurer. Id.

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The Association characterizes the damage at the property as “water intrusion

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damage” or “damage resulting from penetration by water through the building’s

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exteriors.” Dkt. # 155 at 13-16. Because the policy does not specifically exclude either,

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the Association says that such damage must be covered under the all-risk policy. Id.

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Indian Harbor responds with two arguments. First, it says that “water intrusion” is
not a “distinct peril” but instead the functional equivalent of other, excluded perils. Dkt.

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# 157 at 13-16. Second, it says that the Association has failed to prove that the water

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intrusion was fortuitous given that it knew of the property’s “construction deficiencies”

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years before it made a claim. Id. at 16-17.
(1) Distinct Peril

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The Court begins with the language of the policy, which contains a “Perils

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Excluded” section. Dkt. # 38 at 18-22. That section does not contain a specific exclusion

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for “water intrusion damage” or “damage resulting from penetration by water through the

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buildings’ exteriors.” See id. Under an all-risk policy, because it is not explicitly

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excluded, this type of peril is generally covered.

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According to the Association, other policy provisions support this interpretation.

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The policy expressly excludes coverage for damage to “[t]he interior of any building or

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structure caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven

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by wind or not.” Id. at 22 (emphasis added). There is no analog, the Association says,

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for such harm done to a building’s exterior. Dkt. # 155 at 13-14. In the Association’s

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view, the exclusion shows that Indian Harbor knew how to exclude losses by “rain/wind-

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driven rain” but simply failed to do so for the exterior of a building. Id. The Association

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finds additional support in a policy endorsement. Dkt. # 99-3 at 10. Under that

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endorsement, the Association must pay a $50,000 deductible for loss caused by “water or

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ORDER – 5

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liquid damage resulting from . . . penetration by water or liquid through the building

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exterior.” Dkt. # 99-3 at 10. The implication is that where there is a deductible there

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must be coverage. Dkt. # 155 at 4-5.

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In response, Indian Harbor argues that the exclusion and the deductible cannot be

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used to “create coverage.” Dkt. # 157 at 16. They do not grant coverage, Indian Harbor,

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but “subtract from it.” Id.

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The Court finds the Association’s arguments more convincing. As the Association

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observes, the policy itself treats water intrusion damage (whether to the interior or

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exterior of a building) as a distinct peril. For example, the policy expressly excludes rain

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damage “whether driven by wind or not” done to “[t]he interior of any building or

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structure.” Dkt. # 38 at 22. And it has a deductible for water damage caused by

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“penetration . . . through the building exterior.” Dkt. # 99-3 at 10. The policy treats

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water intrusion damage (whether to the interior or exterior of a building) as a distinct

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peril—one that may be covered, excluded, or subject to a deductible. Here, water

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intrusion damage to a building’s interior is a distinct peril that is excluded, whereas water

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intrusion damage to a building’ exterior is a distinct peril that is covered and subject to a

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deductible.

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Indian Harbor’s argument is unpersuasive because the cases it cites do not address

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all-risk policies. Dkt. # 159 at 3-4. In the all-risk context, the risk of loss is on the

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insurer, and coverage is defined by what is not specifically excluded. The Court thus

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rejects Indian Harbor’s premise: Exclusions indeed define the scope of Indian Harbor’s

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coverage. What is covered is what is not excluded.

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Separately, Indian Harbor argues that the Association plays a “semantics game.”

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Dkt. # 157 at 15. Characterizing the damage as “water intrusion,” Indian Harbor says,

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ignores that there are “functionally identical” perils that are excluded under the contract.

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Id. For example, the policy’s “Perils Excluded” section contains exclusions for damage

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caused by “[f]aulty, inadequate or defective design,” “faulty materials, faulty

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ORDER – 6

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workmanship or maintenance”; “rust,” “wear and tear, or gradual deterioration”; and

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“[c]ontinuous or repeated seepage or leakage of water, or the presence or condensation of

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humidity, moisture or vapor.” Dkt. # 38 at 19-20.

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The Court concedes that these excluded perils could feasibly include “water

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intrusion” damage. For example, damage caused by “rust” or the “presence . . . of

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moisture” could conceivably encompass water intrusion damage to a building’s exterior.

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The issue turns on whether the Court construes the exclusion broadly (in favor of the

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insurer) or narrowly (against the insurer). Washington law is resolute: exclusions must

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be construed narrowly against Indian Harbor. Dewitt Const. Inc. v. Charter Oak Fire Ins.

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Co., 307 F.3d 1127, 1134 (9th Cir. 2002) (“[In Washington,] [e]xclusions are strictly

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construed against the insurer because they are contrary to the protective purpose of

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insurance.” (citing Diamaco, Inc. v. Aetna Cas. & Sur. Co., 983 P.2d 707, 711 (Wash. Ct.

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App. 1999)).

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In sum, the Court makes the following rulings: The Indian Harbor policy is an all-

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risk policy. “Water intrusion damage and/or damage resulting from penetration by water

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through the buildings’ exteriors” is a distinct peril not expressly excluded under that

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policy. Given that it must construe exclusions against Indian Harbor, the Court holds that

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the peril does not fall under the policy’s excluded perils. Because “water intrusion

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damage and/or damage resulting from penetration by water through the buildings’

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exteriors” is distinct and not expressly excluded, it is thereby a covered peril under the

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Indian Harbor policy.
(2) Damage to the Property

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To establish coverage, the Association must prove that the loss incurred at the

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property falls within the policy’s scope. So far, it has established that water intrusion is a

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covered peril. It has not, however, proven that the loss at the property was in fact caused

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by water intrusion.

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Whether the damage at the condominium is attributable to “water intrusion” or
ORDER – 7

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instead to other, excluded perils is a disputed issue of fact. Reasonable minds could

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disagree. The Association suggests that the loss at the property was caused by water

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intrusion; Indian Harbor says that it was caused by “construction deficiencies,” “poor

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maintenance,” and “failure of building materials,” among other things. Compare Dkt. #

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155 at 5-7 with Dkt. # 157 at 8-9. And the parties have presented conflicting evidence.

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Dkt. # 111-1 at 3-5; Dkt. # 156-6 at 53-56. Because the Association will have the burden

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of proof at trial, to be entitled to summary judgment here, “it must affirmatively

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demonstrate that no reasonable trier of fact could find other than for the moving party.”

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Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). The Association

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fails to meet that burden. Summary judgment as to coverage is denied. 1
(3) Fortuity

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In every all-risk policy is the “unnamed exclusion” of fortuity. Churchill v.

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Factory Mut. Ins. Co., 234 F. Supp. 2d 1182, 1187 (W.D. Wash. 2002). “The

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Washington Supreme Court has not addressed the concept of fortuity as it relates to all

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risks insurance policies.” Ingenco Holdings, LLC v. Ace Am. Ins. Co., 921 F.3d 803, 815

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(9th Cir. 2019). When a state’s highest court has not decided an issue, federal courts

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must “predict how the state high court would resolve it.” Dimidowich v. Bell & Howell,

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803 F.2d 1473, 1482 (9th Cir. 1986). The Ninth Circuit has already made its prediction,

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and the Court will follow its lead. Ingenco, 921 F.3d at 815. It concluded that the

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Washington Supreme Court would “adopt a definition of fortuity consistent with the

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trend” set forth in the Restatement of Contracts, other circuits, and courts in this district

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and state. Id. (collecting cases). Under that trend, a fortuitous event is “one that is

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dependent upon chance, taking into account the knowledge of the parties.” Id. The

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fortuity inquiry should consider, among other things, “whether a particular loss was

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certain to occur, the parties’ perception of risk at the time the policy issued, and whether

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Because factual issues exist, the Court need not reach Indian Harbor’s efficient
proximate cause argument. Dkt. # 157 at 18-20.

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ORDER – 8

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the loss could reasonably have been foreseen.” Id. “[T]he insured bears the burden of

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showing that it suffered a loss and that the loss is fortuitous.” Churchill, 234 F. Supp. 2d

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at 1189; see also Underwriters Subscribing to Lloyd’s Ins. Cert. No. 80520 v. Magi, Inc.,

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790 F. Supp. 1043, 1048 (E.D. Wash. 1991) (“It is [the insured]’s responsibility to prove

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its loss is fortuitous . . . .”).

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To start, the Court rejects the Association’s “mend the hold” argument. Dkt.

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# 159 at 6-9. Recognized under Washington common law, the “mend the hold” doctrine

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intends to “prevent insurers from shifting the grounds for non-performance from the

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reasons stated in the insurer’s declination letter.” Karpenski v. Am. Gen. Life Companies,

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LLC, 999 F. Supp. 2d 1235, 1245 (W.D. Wash. 2014). In Washington, the doctrine may

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be invoked “to preclude insurers from introducing new or changed bases for denying

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insurance coverage once litigation has begun.” Id. According to the Association, Indian

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Harbor did not assert the fortuity doctrine when it first denied coverage, so it should not

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be able to assert it now. Id. The Court declines to apply the doctrine here for the simple

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reason that fortuity is part of the Association’s inherent burden to show coverage under

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an all-risk policy. Frank Coluccio Const. Co. v. King Cty., 150 P.3d 1147, 1156 (Wash.

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Ct. App. 2007) (“As a condition precedent to coverage under an all risk builders’ risk

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insurance policy, the loss-causing instrumentality must have been brought about as the

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result of a fortuitous event.” (emphasis added) (internal quotation marks omitted)); Mkt.

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Place N. Condo. Ass’n v. Affiliated FM Ins. Co., No. 2:17-cv-00625-RSM, 2018 WL

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2095733, at *3 (W.D. Wash. May 7, 2018) (rejecting an insured’s argument that its

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insurer could not raise a fortuity defense during litigation given that it was not the basis

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for denying coverage because “[t]he fortuity requirement is inherent in every all-risk

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policy”).

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According to Indian Harbor, before it issued its policy, the Association knew that

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its condominium was in disrepair. Dkt. # 157 at 17. For example, it says that “the

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Association knew that its roofs, windows and decks (which were original to the

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ORDER – 9

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buildings’ construction 50 years earlier) required replacement, that construction

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deficiencies existed (missing head or sill flashings around windows; lack of ventilation in

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deck construction), and that all of these areas were aged, rotted, and deteriorated.” Id.

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Indian Harbor has offered evidence showing that by at least 1999 the Association

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was informed that it would need to replace its roofs within the next ten years. Dkt.

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## 158-1, 158-2. The Association, however, has failed to do so. Dkt. # 158-1 at 13-14.

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Later, in 2012, the Association was informed that some of its windows were in “fair to

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poor” condition with “[n]o head or sill flashings” and that it was “very common for

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condominiums to have problems with water intrusion due to poor window quality or poor

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installation and flashing details.” Dkt. # 158-4 at 6. Yet, when asked whether it repaired

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any window areas after 2012, the Association responded that it was not sure. Dkt. # 158-

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1. Indian Harbor offers many more examples, each supported by evidence. Dkt. # 157 at

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2-7; see also Dkt. ## 158-1 to -7.

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On this front, Indian Harbor raises important questions of fact defeating summary

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judgment. Frank Coluccio Const., 150 P.3d at 1156 (“The test for fortuity is a subjective,

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not objective, one and involves questions of fact.”). It raises questions such as what the

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parties’ perception of risk was when the policy was issued and whether the loss could

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reasonably have been foreseen by the Association. These questions must be resolved by

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a factfinder.

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B.

Bad Faith

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The parties cross-moved for summary judgment on the Association’s bad faith

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claim before. Dkt. ## 30, 36. Denying the motions, Court previously found that

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reasonable minds could disagree about whether Indian Harbor’s investigation and denial

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of coverage were done in bad faith. Dkt. # 119 at 4-6. In this motion, the Association

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again seeks summary judgment on its bad faith, IFCA, and CPA claims. Dkt. # 155. The

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reason, it says, is that since the Court’s previous ruling, “the facts have crystalized, and,

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based on Indian Harbor’s own admissions, it is no longer feasible for it to dispute the

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ORDER – 10

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reasonableness of its denial and surrounding conduct.” Id. at 17.
“In order to establish bad faith, an insured is required to show the breach was

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unreasonable, frivolous, or unfounded.” St. Paul Fire & Marine Ins. Co. v. Onvia, Inc.,

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196 P.3d 664, 668 (Wash. 2008) (internal quotation marks omitted) (quoting Mut. of

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Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 169 P.3d 1 (Wash. 2007)). The

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determinative question is “the reasonableness of the insurer’s action in light of all the

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facts and circumstances of the case.” Indus. Indem. Co. of the Nw. v. Kallevig, 792 P.2d

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520, 528 (Wash. 1990). “Whether an insurer acted in bad faith is generally a question of

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fact.” Sharbono v. Universal Underwriters Ins. Co., 161 P.3d 406, 410 (Wash. Ct. App.

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2007)). “[A]n insurer is only entitled to . . . dismissal on summary judgment of a

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policyholder’s bad faith claim if there are no disputed material facts pertaining to the

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reasonableness of the insurer’s conduct under the circumstances.” HB Dev. LLC v. W.

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Pac. Mut. Ins. Co., 86 F. Supp. 3d 1164, 1183 (E.D. Wash. 2015) (quoting Sharbono, 161

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P.3d at 410)).

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Since the Court’s previous summary judgment order, the following facts are no

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longer in genuine dispute: On April 6, 2018, the Association submitted a claim to Indian

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Harbor, notifying it of damage discovered on its property and requesting coverage. Dkt.

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# 31-1. Attached to that notice were nine photographs of the damaged property. Id. A

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few days later, Indian Harbor sought advice from the law firm Cozen O’Connor. Dkt.

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# 156-8 at 6-7; Dkt. # 156-9. Based on Cozen O’Connor’s review of the claim, it

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determined that Indian Harbor did not owe the Association coverage. Dkt. # 61-1. It

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believed that the policy’s suit limitation provision “preclude[d] coverage for th[e] entire

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matter.” Id. at 2. Under the belief that “Washington courts have strictly enforced suit

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limitations clauses,” it “recommend denying coverage for the claim as submitted.” Id. at

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3. It also recommended that Indian Harbor note “coverage issues” “based on the notice

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letter and photographs.” Id. at 8. Lastly, it recommended that “since the suit limitation

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clause bars coverage regardless,” Indian Harbor should “declin[e] to conduct any further

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ORDER – 11

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investigation.” Id. at 7. On April 24, 2018, consistent with its recommendations, Cozen

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O’Connor notified the Association that it believed the Indian Harbor policy did not cover

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the Association’s loss. Dkt. # 31-3. At the time, neither Cozen O’Connor nor Indian

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Harbor conducted an onsite investigation. Dkt. # 156-1 at 6-7. Both Indian Harbor and

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Cozen O’Connor drew their conclusions by reviewing the policy, the notice of loss, and

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the photographs attached thereto. Id.; Dkt. # 156-8 at 9-10; Dkt # 156-10 at 7.

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Cozen O’Connor’s legal conclusion proved to be incorrect. As this Court

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explained in its previous order, “Indian Harbor’s coverage obligations were not

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extinguished by the suit limitation provision.” Dkt. # 119 at 5. In 2012, this Court

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decided as much in Yancey v. Hartford, 2012 WL 12878687, at *9 (W.D. Wash. Oct. 23,

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2012). Id. There, this Court held that a suit limitation clause merely places a limitation

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on a plaintiff’s legal remedies for a breach of the policy but does not preclude a claim for

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coverage. See Yancey, 2012 WL 12878687, at *9. At the time, however, “no

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Washington court ha[d] considered precisely the same issue.” Id.

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Six years later (and months after Cozen O’Connor denied the Association’s

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claim), one court in this District affirmed Yancey’s conclusion. Lakewood Shores

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Homeowners Ass’n v. Cont’l Cas. Co., No. 2:18-cv-01353-MJP, 2018 WL 9439866, at

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*3-*4 (W.D. Wash. Dec. 14, 2018). Two years after that, the Washington Court of

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Appeals followed suit in West Beach Condominium v. Commonwealth Insurance Co. of

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America, 455 P.3d 1193, 1199 (Wash. Ct. App. 2020), review denied, 466 P.3d 778

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(Wash. 2020) (“[A] suit limitation clause says nothing about [an insurer’s] underlying

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coverage obligations. It is thus merely a contractual modification to the statute of

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limitations otherwise applicable to [an insured]’s breach of contract claim. This clause

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does not negate coverage or extinguish [the insurer]’s obligations under the all-risk

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policies.”).

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Surely, Cozen O’Connor and Indian Harbor were mistaken. But the question is

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whether that mistake was done in bad faith. The Court cannot say that it was as a matter

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ORDER – 12

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of law. “As long as the insurance company acts with honesty, bases its decision on

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adequate information, and does not overemphasize its own interests, an insured is not

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entitled to base a bad faith or CPA claim against its insurer on the basis of a good faith

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mistake.” Coventry Assocs. v. Am. States Ins. Co., 961 P.2d 933, 937-38 (Wash. 1998)

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(emphasis in original). When Cozen O’Connor issued its recommendation, it appears

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that this Court was the only court to hold that a suit limitation provision does not preclude

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coverage under Washington law. It was only after Cozen O’Connor issued its

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recommendation did other courts agree with Yancey. Indeed, the Washington Court of

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Appeals affirmed the Yancey decision two years after Cozen O’Connor issued its

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recommendation. Given the development of this precedent (and its timing), reasonable

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minds could disagree about whether Cozen O’Connor’s mistaken legal conclusion at the

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time—and Indian Harbor’s eventual denial of coverage—were done in bad faith.

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Finally, like last time the Court cannot rule on the Association’s IFCA and CPA

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claims because they “depend[] upon the reasonableness of Indian Harbor’s conduct,

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which the Court cannot determine as a matter of law.” Dkt. # 119 at 8-9. As to the

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Association’s bad faith, IFCA, and CPA claims, the Association fails to meet its

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summary judgment burden.

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C.

Offset

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The Association sought coverage from seven insurance companies. Dkt. # 147 at

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2; Dkt. # 151at 2, 6. One of those companies admitted coverage. Dkt. # 151 at 2 n.1.

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Five settled. Dkt. # 147 at 2; Dkt. # 151at 2, 6. Indian Harbor is the only remaining

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insurer.

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To date, the Association has received $18,983,380 from the six other insurance

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companies. Dkt. # 148 Exs. D-I; Dkt. # 151 at 6. In its initial disclosures, the

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Association estimated that its damages totaled $16,277,185 “for the overall cost of the

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repair project.” Dkt. # 148 at 14.

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Indian Harbor now moves for summary judgment, arguing that the settlement
ORDER – 13

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payments should be offset from the Association’s claim of actual damages and that

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claims against Indian Harbor should be dismissed. Dkt. # 147. Its argument goes:

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Under Washington law, a party may not obtain double recovery for the same damages.

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Id. at 3. Here, the Association has already recovered the amount it seeks in damages and

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then some. Id. The settlement payments must be offset from the Association’s claim for

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damages. Id. at 4-8. And “[s]ince the Association has already recovered significantly

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more than its claimed actual damages, it cannot seek additional damages against Indian

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Harbor, and this action against Indian Harbor should be dismissed.” Id. at 4.

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The Court will not rule on the issue of offset here: it is premature. But the Court
will say that the burden to prove offset falls on Indian Harbor.
Implied throughout Indian Harbor’s motion is that the Court can and should rule

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on the issue of offset now—before trial, before damages have been proven, and before a

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verdict. Indian Harbor offers no authority explaining why that should be the case. In

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fact, in the case that Indian Harbor principally relies on, Litho Color Inc. v. Pacific

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Employers Insurance Co., the offset was conducted after a jury verdict. 991 P.2d 638,

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643 (Wash. Ct. App. 1999) (“The jury subsequently awarded Litho $366,000 for liability

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under the B & M endorsement. The trial court then granted an offset of $193,000 by

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deducting from the PEIC payment of $335,000 those amounts the court concluded did not

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constitute double recovery.” (emphasis added)). Other courts have done the same. See,

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e.g., Weyerhaeuser Co. v. Com. Union Ins. Co., 15 P.3d 115, 125 (Wash. 2000)

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(“Following the Phase II trial, CU moved to set off settlement funds received by

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Weyerhaeuser from other insurance carriers against the Phase I and Phase II jury

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verdicts.” (emphasis added)). For several reasons, the Court finds that the issue of offset

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is best left for after trial.

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First, an offset ruling would not dispatch this case. Indian Harbor postulates that it

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would, arguing that summary judgment would avoid an unnecessary trial. Dkt. # 153 at

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4-5. But the Association asserts other claims beyond coverage. Dkt. # 26. It asserts

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claims for bad faith and violations of the CPA and IFCA. Id. As discussed above, those

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claims have survived summary judgment (twice now) and must be resolved by a jury. An

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offset ruling would not resolve those factual issues. Separately, Indian Harbor assures

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the Court that it would not be “reward[ed]” should this case be dismissed, for it would

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still be “subject to contribution claims by previously-settling insurers.” Dkt. # 153 at 2, 5

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n.1. That concession is irrelevant. Indian Harbor may well owe indemnity obligations to

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settling insurers. Why that would obviate the need for the Association to prove its case

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against Indian Harbor, however, is a mystery. The Court concludes that it would not.

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Indian Harbor has provided no authority or argument to suggest otherwise.

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Second, the Court cannot rule, as a matter of law, that the nearly $19 million in

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settlement payments would fully compensate the Association, should the Association

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prevail on its remaining claims. For example, if the Association prevails on its IFCA

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claim, Indian Harbor could be liable for treble damages. Wash. Rev. Code § 48.30.015

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(“[A]fter finding that an insurer has acted unreasonably in denying a claim for coverage

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or payment of benefits . . ., [a court may] increase the total award of damages to an

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amount not to exceed three times the actual damages.”). Assuming the Association

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prevailed and was so entitled to treble damages, treble damages would need to be

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calculated using actual damages. Actual damages must be established at trial. The $16

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million figure offered by the Association was merely an estimate provided in the

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Association’s initial disclosures. It has not been proven, and the Court has no reason to

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believe that Indian Harbor stipulates to that figure. These issues are unresolved. On

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summary judgment, the Court will not prophesy how they may turn out. And, at this

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stage, the Court cannot rule that the Association has been made whole.

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The Court will, however, take the opportunity to provide clarity. The parties

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disagree about who carries the burden to prove offset. Dkt. # 151 at 7-10; Dkt. # 153 at

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2. The Washington Supreme Court has clearly resolved the matter: “[The] [i]nsurer[]

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bear[s] the burden of establishing the right to and amount of any offsets necessary to

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ORDER – 15

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avoid double recovery.” Puget Sound Energy, Inc. v. Alba Gen. Ins. Co., 68 P.3d 1061,

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1065 (Wash. 2003). Indian Harbor argues that the holding is limited to “environmental

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coverage cases.” Dkt. # 147 at 6-7. But Indian Harbor’s narrow interpretation of the

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Washington Supreme Court’s holding in Alba is unsupported by the cases that followed

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or the decision itself. The Alba court framed the issue before it as “who carries the

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burden of establishing the extent of an offset for payments received by an insured from

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settling insurers—the insured or the nonsettling insurers[?]” Alba, 68 P.3d at 1062. The

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framing of the issue, and thus Alba’s ultimate holding, were not limited to

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“environmental coverage claims” as Indian Harbor would like the Court to believe. Dkt.

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# 147 at 7. Alba and Weyerhaeuser v. Commercial Union Insurance both apply here.
IV. CONCLUSION

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For the reasons stated above, the Court DENIES Defendant Indian Harbor’s

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Motion for Summary Judgment (Dkt. # 147) and GRANTS in part and DENIES in part

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Plaintiff’s Motion for Summary Judgment (Dkt. # 155).

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DATED this 31st day of March, 2021.

A

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The Honorable Richard A. Jones
United States District Judge

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ORDER – 16