Absher Construction Company et al v. North Pacific Insurance Company et al

Filing 82

ORDER denying 24 Plaintiffs' Motion for Summary Judgment by Judge James L. Robart.(MD)

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UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF WASHINGTON
AT SEATTLE

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ABSHER CONSTRUCTION
COMPANY, et al.

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Plaintiffs,
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CASE NO. C10-5821JLR
ORDER DENYING PLAINTIFFS’
MOTION FOR SUMMARY
JUDGMENT

v.
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NORTH PACIFIC INSURANCE
COMPANY, et al.,
Defendants.

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I.

INTRODUCTION

Before the court is Plaintffs Absher Construction Company and Pacific
Components, Inc. d/b/a Absher Pacific Joint Venture’s (collectively “Absher Pacific”)
motion for summary judgment. (Mot. (Dkt. # 24).) This is an insurance coverage action,
and Absher Pacific has moved for summary judgment with respect to whether the
defendant insurance companies breached their duty to defend in bad faith, whether they

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ORDER- 1

1 are thereby estopped from denying coverage and so are liable for the settlement amount
2 that Absher Pacific agreed to pay in the underlying litigation, and whether they are liable
3 for bad faith claims handling irrespective of their obligations to provide a defense to
4 Absher Pacific. (See Mot. at 1-2, 6, 18-21.) Having considered the motion, all
5 submissions of the parties both in support and in opposition to the motion, the remainder
6 of the record, and the relevant law, the court DENIES the motion. 1
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II.

BACKGROUND

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A. The New Holly Development

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In 1997 the Seattle Housing Authority (“SHA”) entered into construction contracts

10 with Absher Pacific for the construction of a housing development, known as the New
11 Holly Redevelopment Project (“New Holly”). (Holt Decl. Ex. 3 (SHA Compl.) at 26 ¶
12 1.2 and at 27 ¶¶ 3.2-3.3.) New Holly was envisioned to comprise both rental housing
13 and houses that would be for sale. (See id. Ex. 1 (New Holly Homeowners Association
14 (“HOA”) Compl.) at 5, ¶ 4.) Work began on the for-rent housing on March 5, 1998 and
15 ended on November 30, 1999. (Bedell Decl. (Dkt. # 52) Ex. 1 (Clement Decl.) at 9
16 (Notice of Completion); Ex. 7 at 50 (Notice of Completion).) Work began on the for-sale
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No party has requested oral argument. Federal Rule of Civil Procedure 56 does not
require a hearing where the opposing party does not request it. See, e.g., Demarest v. United
20 States, 718 F.2d 964, 968 (9th Cir. 1983). The parties have fully briefed the matter and
submitted various declarations and documentary evidence. (See, e.g., Dirk Decl. (Dkt. # 25);
21 Love Decl. (Dkt. # 26); Blackburn Decl. (Dkt. # 48); Schlenker Decl. (Dkt. # 50); Kazarian Decl.
(Dkt. # 51); Bedell Decl. (Dkt. # 52); Thatcher Decl. (Dkt. # 53).) Accordingly, the court
determines that this matter is appropriate for disposition without oral argument.

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ORDER- 2

1 units on August 12, 1999 and ended on December 15, 2002. (Id. Ex. 1 (Clement Decl.) at
2 10 (Notice of Completion); Ex. 7 at 49 (Notice of Completion).)
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B. The PTI Subcontract

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In performing its contract with SHA, Absher Pacific subcontracted with Plumbing

5 Today, Inc. (“PTI”) for installation of a hydronic heating system at New Holly. (Bedell
6 Decl. Ex. 2 (Tonningas Decl.) ¶¶ 4-5, 9-10; Compl. (Dkt. # 1) ¶ 3.2.) PTI provided and
7 installed plumbing fixtures as part of the hydronic heating system. (See Holt Decl. Ex. 3
8 at 33 (PTI Subcontract).) PTI’s subcontract with Absher Pacific required PTI to obtain
9 liability insurance naming Absher Pacific as an additional insured without reservation or
10 limitation. 2 (Id. Ex. 3 (PTI Subcontract) at 37 ¶ 10(a).)
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C. The New Holly HOA Complaint and the SHA Complaint

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In 2008, the New Holly HOA brought an action against SHA alleging defects in

13 the hydronic heating system. (Holt Decl. Ex. 1 (New Holly HOA Compl.).) The New
14 Holly HOA Complaint alleged that the hydronic heating systems had been failing since
15 “at least 2003.” (Id. Ex. 1 at 7 ¶ 9.).
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Subcontractor [PTI] shall submit to Absher Pacific a Certificate of Insurance (i)
naming Absher Pacific and the Owner [SHA] as additional Insureds without
limitation, qualification or reservation, (ii) endorsed to be primary and noncontributory with any insurance maintained by Absher Pacific; (iii) containing a
waiver of rights of subrogation against Absher Pacific and the Owner, and (iv)
containing a Severability of Interest in favor of Absher Pacific and the Owner.

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The PTI Subcontract states, in pertinent part:

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ORDER- 3

1

In 2009, SHA filed a separate suit against Absher Pacific as SHA’s general

2 contractor with respect to New Holly. 3 (Id. Ex. 2 (SHA Compl.).) The SHA Complaint
3 alleges that Absher Pacific breached its duty to defend and indemnify SHA from all
4 claims arising from Absher Pacific’s work on the New Holly project, that Absher Pacific
5 failed to obtain insurance coverage for SHA as required by the general contract, that
6 Absher Pacific breached its contract and express warranty, and that Absher Pacific was
7 negligent in performing its work by providing and installing defective components. (See
8 generally id. Ex. 2.) The SHA Complaint specifically references the New Holly HOA
9 Complaint. (Id. Ex. 2 at 19 ¶ 3.12.) The SHA Complaint also specifically alleges that
10 the hydronic heating systems began to prematurely fail “[a]fter NewHolly’s completion.”
11 (Id. Ex. 2 at 18 ¶ 3.8.)
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D. Absher Pacific’s Tender of Defense

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In April 2009, Absher Pacific tendered its defense of the SHA Complaint to PTI’s

14 insurers. (Holt Decl. Ex. 3 at 22-47 (4/22/09 Absher Pacific tender letter).) The
15 addressees of Absher Pacific’s tender letter included Defendants North Pacific Insurance
16 Company (“North Pacific”) and Assurance Company of America (“Assurance”). (See id.
17 Ex. 3 at 22.) The tender letter included a copy of the SHA Complaint, but not the New
18 Holly HOA Complaint. (See id.) The tender letter also included incomplete copies of the
19 contracts between Absher Pacific and PTI. (See id.) Subsequently, Defendant
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SHA also sued the two entities that comprised the joint venture Defendant Absher
Construction Company and Defendant Pacific Components, Inc. (Holt Decl. Ex. 2 (SHA
22 Compl.).)
ORDER- 4

1 OneBeacon American Insurance Company (“OneBeacon”), which responded to Absher
2 Pacific’s tender letter, obtained complete copies of both of these contracts. (See
3 Blackburn Decl. ¶¶ 3-4, Exs. C, D.)
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E. OneBeacon’s Denial of Absher Pacific’s Tender

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On May 13, 2009, OneBeacon responded to Absher Pacific’s tender letter on

6 behalf of its insured, PTI, listing policy number OOR 808958 by Defendant Pennsylvania
7 General Insurance Company (“Pennsylvania General”), policy numbers C01-14974 and
8 C02-14974 by North Pacific, and policy number COR808958 by OneBeacon. (Holt
9 Decl. Ex. 4 at 48-51 (5/13/09 OneBeacon denial letter).) In its letter, OneBeacon denied
10 Absher Pacific’s tender of defense of the SHA Complaint with respect to all of the
11 foregoing policies. (See id. at 48.) OneBeacon denied coverage with respect to the North
12 Pacific policies stating that the policies provided “only ongoing operations coverage,”
13 and “[t]he insured had completed their [sic] work and left the site prior to any claim being
14 made.” (Id. at 49.) OneBeacon denied coverage with respect to Pennsylvania General
15 and OneBeacon policies based on the Additional Insured Endorsements found in those
16 policies. (Id. at 50-51.) OneBeacon stated that “[a]n organization’s status as an
17 additional insured under this endorsement ends when the named insured’s work is
18 completed.” (Id. at 50.) OneBeacon further stated that “all of PTI’s work was completed
19 before the policies with these endorsements incepted.” (Id. at 51.)
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F. Assurance’s Initial Failure to Respond to Absher Pacific’s Tender

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Assurance did not initially respond to Absher Pacific’s April 2009 tender letter.

22 (Holt Decl. ¶ 6.) On June 10, 2009, having received no response from Assurance, Absher
ORDER- 5

1 Pacific re-tendered the claims to Assurance and the other carriers, and invited the carriers
2 to attend an upcoming mediation. (Id. Ex. 5 (6/10/09 Absher Pacific re-tender letter);
3 Bedell Decl. (Dkt. # 52) ¶ 6, Ex. 5.) Assurance likewise failed to respond to this letter.
4 (See Holt Decl. ¶¶ 6, 8.) Assurance has provided testimony from its claims handler that
5 although the April 2009 letter is in Assurance’s file, the claims handler does not recall
6 ever seeing it before July 2010, and has no record of ever receiving the June 2009 letter.
7 (Thatcher Decl. ¶¶ 7-8.)
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G. The New Holly Settlement

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In September 2009, Absher Pacific, SHA, New Holly HOA, and others entered

10 into a settlement agreement with respect to both the New Holly HOA Complaint and the
11 SHA Complaint. (Love Decl. (Dkt. # 26) Ex. 4 (Settlement Agreement).) On behalf of
12 Absher Pacific, Arrowood Indemnity Company (“Arrowood”), Absher Pacific’s carrier,
13 paid $2.5 million to New Holly HOA. (Id. Ex. 4 at 1363 ¶ 2.1.) On behalf of SHA, the
14 Housing Authority Risk Retention Group, Inc. (“HARRG”), SHA’s risk retention group,
15 paid $1 million to New Holly HOA. (Id.) As part of the settlement, Absher Pacific
16 assigned it claims against PTI and PTI’s carriers (who are the defendants in this action) to
17 Arrowood and HARRG. 4 (Love Decl. Ex. 4 (Settlement Agreement) at 1365 ¶ 2.12.)
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The court has previously ruled that HARRG and Arrowood are the real parties in
interest with respect to this lawsuit. (Order (Dkt. # 65) at 11-12.) Pursuant to Federal Rule of
Civil Procedure 17(a)(3), HARRG and Arrowood have properly ratified PTI’s action herein.
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ORDER- 6

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H. Assurance’s Eventual Denial of Absher Pacific’s Tender

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In May 2009, Absher Pacific filed a third-party complaint against PTI with respect

3 to the SHA Complaint. (See Thatcher Decl. (Dkt. # 53) ¶ 2.) PTI tendered its defense to
4 Assurance, and Assurance accepted the tender under a reservation of rights in or about
5 June 2009. (Id. ¶¶ 2-3.)
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In early July 2010, Assurance’s claims handler for PTI’s claim contacted Absher

7 Pacific’s counsel to discuss issues germane to the handling of Absher Pacific’s claim
8 against PTI. (Id. ¶ 4.) During the conversation, counsel for Absher Pacific mentioned
9 that Assurance had never responded to Absher Pacific’s additional insured tender. (Id.)
10 Assurance’s claims handler explained that she was unaware of Absher Pacific’s tender.
11 (Id.) Following this conversation, Assurance’s claims handlers immediately opened a
12 separate additional insured claims file for Absher Pacific, and sent follow up emails to
13 Absher Pacific’s counsel acknowledging the claim, explaining that the insurer could not
14 find any additional insured endorsements for Absher Pacific, and requesting copies of the
15 insurance certificates and/or additional insured endorsements from Absher Pacific.
16 (Thatcher Decl. ¶ 5; Kazarian Decl. (Dkt. # 49) ¶¶ 3-6, Exs. 2-3; see also Bedell Decl.
17 Ex. 6 at 46.) Assurance’s claims handler also requested copies of the project completion
18 dates on multiple occasions. (Kazarian Decl. ¶¶ 5-6, Exs. 2, 3.) Although Absher
19 Pacific’s counsel eventually sent the notices of completion to Assurance, he did not
20 forward any certificates of insurance or additional insured endorsements during this time
21 period. (See id. ¶ 6, Ex. 3.)
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ORDER- 7

1

In September 2010, after Absher Pacific had failed to provide the requested

2 information, Assurance sent a letter denying Absher Pacific’s claim because Assurance
3 had not located any evidence at that time that Absher Pacific was an additional insured.
4 (Id. ¶ 7, Ex. 4.) Notably, counsel for Absher Pacific with respect to the SHA complaint
5 later produced the certificates of insurance and additional insured endorsements in
6 response to a subpoena issued in the present litigation. (Bedell Decl. ¶ 9, Ex. 8.) In
7 addition, Assurance produced several additional insured endorsements that list “Absher8 Pacific Joint Venture” as a scheduled additional insured. (Love Decl. Ex. 2 at 388, 390,
9 392.)
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III.

ANALYSIS

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A. Standards

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Summary judgment is appropriate if the evidence, when viewed in the light most

13 favorable to the non-moving party, demonstrates “that there is no genuine dispute as to
14 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ.
15 P. 56(a); see Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); Galen v. Cnty. of L.A.,
16 477 F.3d 652, 658 (9th Cir. 2007). The moving party bears the initial burden of showing
17 there is no genuine issue of material fact and that he or she is entitled to prevail as a
18 matter of law. Celotex, 477 U.S. at 323. If the moving party meets his or her burden,
19 then the non-moving party “must make a showing sufficient to establish a genuine
20 dispute of material fact regarding the existence of the essential elements of his case that
21 he must prove at trial” in order to withstand summary judgment. Galen, 477 F.3d at 658.
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ORDER- 8

1 The court is “required to view the facts and draw reasonable inferences in the light most
2 favorable to the [non-moving] party.” Scott v. Harris, 550 U.S. 372, 378 (2007).
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B. Bad Faith and the Duty to Defend

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In Washington, the duty to defend is different from and broader than the duty to

5 indemnify. Am. Best. Foods, Inc. v. Alea London, Ltd., 229 P.3d 693, 696 (Wash. 2010)
6 (citing Safeco Ins. Co. of Am. v. Butler, 823 P.2d 499, 504-05 (Wash. 1992)). “The duty
7 to defend arises when a complaint against the insured, construed liberally, alleges facts
8 which could, if proven, impose liability upon the insured within the policy’s coverage.”
9 Id. (internal quotations omitted; citing Truck Ins. Exch. v. Vanport Homes, Inc., 58 P.3d
10 276, 281-82 (Wash. 2002)). If the complaint is ambiguous, a court will construe it
11 liberally in favor of “triggering the insurer’s duty to defend.” Id. However, if the claim
12 is clearly outside the policy’s coverage, the insurer has no duty to defend. Kirk v. Mt.
13 Airy Ins. Co., 951 P.2d 1124, 1126 (Wash. 1998) (“Although an insurer has a broad duty
14 to defend, alleged claims which are clearly not covered by the policy relieve the insurer
15 of its duty.”); Holly Mountain Res. v. Westport Ins. Corp., 104 P.3d 725, 731 (Wash Ct.
16 App. 2005) (citing Vanport Homes, 58 P.3d at 282 (“Only if the alleged claim is clearly
17 not covered by the policy is the insurer relieved of its duty to defend.”)).
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An insurance company must look beyond the allegations in the complaint if

19 “coverage is not clear from the face of the complaint but may exist.” Vanport Homes, 58
20 P.3d at 282. Similarly, an insurer “may” consider facts outside the complaint, “if (a) the
21 allegations are in conflict with facts known to or readily ascertainable by the insurer or
22 (b) the allegations of the complaint are ambiguous or inadequate.” Id. (quoting E-Z
ORDER- 9

1 Loader Boat Trailers, Inc. v. Travelers Indem. Co., 726 P.2d 439, 444 (Wash. 1986)).
2 However, an insurer may not rely on facts extrinsic to the complaint in order to deny its
3 duty to defend. Vanport Homes, 58 P.3d at 282.
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An insurer acts in bad faith if its breach of the duty to defend is “unreasonable,

5 frivolous, or unfounded.” Alea London, Ltd., 229 P.3d at 700. When an insurer acts in
6 bad faith by improperly refusing to defend, Washington cases recognize a rebuttable
7 presumption of harm and that coverage by estoppel is one appropriate remedy. Kirk v.
8 Mt. Airy Ins. Co., 951 P.2d 1124, 1126-27 (Wash. 1998) (citing Butler, 823 P.2d at 505).
9 The duty of good faith, however, “is broad and all-encompassing, and is not limited to an
10 insurer’s duty to pay, settle, or defend.” St. Paul Fire and Marine Ins. v. Onvia, Inc., 196
11 P.3d 664, 669 (Wash. 2008). Thus, even where there would be no coverage or right to a
12 defense under the policy terms, if an insurer mishandles a claim in bad faith, a cause of
13 action based on this conduct remains viable. Id. at 668. Where coverage or a duty to
14 defend would not be available under the policy terms, however, a rebuttable presumption
15 of harm and coverage by estoppel are not available with respect to a cause of action for
16 bad faith claims handling. Id. at 669.
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Absher Pacific asserts both types of bad faith claims against Defendants. Absher

18 Pacific asserts that Defendants’ denial of a duty to defend was unreasonable, frivolous or
19 unfounded based on the policy language. (See Mot. at 8-16.) Absher Pacific also asserts
20 that Defendants’ handling of its claims was in bad faith because Defendants variously did
21 not conduct a proper investigation, improperly relied upon extrinsic evidence in
22 evaluating their duty to defend, or unreasonably delayed in responding to Absher
ORDER- 10

1 Pacific’s tender. (See Mot. at 18-21.) Because the two types of bad faith claims
2 referenced above result in different consequences with respect to the presumption of
3 harm and coverage by estoppel, the court will consider the claims separately. The court
4 will begin its analysis with Absher Pacific’s claims for bad faith based on Defendants’
5 denial of the duty to defend, and then turn to Absher Pacific’s claims for bad faith based
6 on Defendants’ various alleged claims handling practices.
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C. Defendants’ Denial of a Duty to Defend Absher Pacific

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1. North Pacific Policies
Both North Pacific policies contain the following additional insured endorsement

10 amending Section II of the policy, entitled “Who Is An Insured.” (Love Decl. Ex. 3a at
11 493, Ex. 3b at 714.) The endorsement states:
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1. WHO IS AN INSURED (Section II) is amended to include as an
insured the person or organization (called “additional insured”) shown
in the Schedule, 5 but only with respect to:

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(a) Vicarious liability arising out of your ongoing operations
performed for the additional insured; or

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(b) Liability arising out of any act or omission of the additional
insured for which you have entered into an enforceable “insured
contract” which obligates you to indemnify the additional
insured, or to furnish insurance coverage for the additional
insured, arising out of your ongoing operations for that
additional insured.

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Defendants note in their briefing that the organization named in the schedule is
Defendant Absher Construction Company and not the joint venture Absher Pacific. (OneBeacon
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Resp. (Dkt. # 47) at 3.) However, OneBeacon did not deny coverage on this basis and did not
assert in the course of their response to this motion that this discrepancy justified its denial.

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ORDER- 11

1 (Id. (footnote added).)
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An “insured contract” is defined in the policies (in relevant part) as “[t]hat part of

3 any other contract or agreement pertaining to your business . . . under which you assume
4 the tort liability of another party to pay for “bodily injury” or “property damage” to a
5 third person or organization.” (Id. Ex. 3a at 458, Ex. 3b at 693.) The parties do not
6 appear to dispute that the contractual agreements between Absher Pacific and PTI
7 requiring PTI to obtain insurance on Absher Pacific’s behalf constitute an “insured
8 contract.” (See Mot. at 13 (Absher Pacific asserts that its subcontract with PTI is an
9 “insured contract, citing Holt Decl. Ex. 3 at 37 (PTI 3/99 subcontract at 5); see
10 OneBeacon Resp. at 7 (“Specifically at issue in the motion [is] . . . the ‘insured contract’
11 portion of the policy.”).)
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Defendants assert that paragraph one of the endorsement constitutes a grant of

13 coverage to Absher Pacific as an additional insured, but limits that grant to “ongoing
14 operations” even when addressing an insured contract. (OneBeacon Resp. at 9.)
15 Accordingly, Defendants assert that because the SHA Complaint specifically alleges that
16 the hydronic heating systems began to prematurely fail “[a]fter NewHolly’s completion”
17 (Holt Decl. Ex. 2 at 18 ¶ 3.8), the claim was clearly outside of the scope of policy’s
18 coverage for “ongoing operations” based on the unambiguous language of the SHA
19 Complaint. (See OneBeacon Resp. at 11-12.)
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The policy does not define “ongoing operations,” but Washington courts have

21 interpreted similar “ongoing operations” clauses in a manner consistent with Defendants’
22 interpretation. In Hartford Insurance Co. v. Ohio Casualty Insurance Co., 189 P.3d 195
ORDER- 12

1 (Wash. Ct. App. 2008), the Washington Court of Appeals found that “the endorsement
2 evinces an intent to provide coverage to the additional insured only for liability that arises
3 while the work is still in progress,” such as in “a course of construction work site
4 accident involving bodily injury or property damages.” Id. at 201-02 (quoting and
5 relying upon Pardee Constr. Co. v. Ins. Co. of the W., 92 Cal. Rptr. 2d 443, 454 (Cal. Ct.
6 App. 2000)). Indeed, in evaluating the Hartford decision, a court in the Western District
7 of Washington recently stated that it was “convinced that, if the issue were before the
8 Washington Supreme Court, its decision would be consistent with Hartford.” Davis v.
9 Liberty Mutual Group, 814 F. Supp. 2d 1111, 1120-21 (W.D. Wash. 2011); see also
10 Evanston Ins. Co. v. Westchester Surplus Lines Ins., No. 10-36133, 2011 WL 4543059, at
11 *2 (9th Cir. Oct. 3, 2011) (unpublished) (relying upon the interpretation of the “ongoing
12 operations” clause found in Hartford); Arch Ins. Co. v. Scottsdale Ins. Co., No. C09-0602
13 RSM, 2010 WL 4365817, at *3 (W.D. Wash. Oct. 27, 2010) (relying upon the
14 interpretation of the “ongoing operations” clause found in Hartford). 6
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The court notes that, although the decision in Valley Ins. Co. v. Wellington Cheswick,
LLC, No. C05-1886RSM, 2006 WL 3030282, at *4-*5 (W.D. Wash. Oct. 20, 2006) comes to a
different conclusion with respect to the interpretation of an “ongoing operations” clause, it was
decided prior to the Washington Court of Appeals decision in Hartford, 189 P.3d at 201-02. In
light of the decision in Hartford, the court cannot conclude that Wellington Cheswick would be
decided in the same manner today. In addition, in Tri-Star Theme Builders, Inc. v. OneBeacon,
No. 09–17167, 2011 WL 1361468, at *2-*6 (9th Cir. Apr. 11. 2011), the Ninth Circuit also
declined to follow the rationale in Hartford, 189 P.3dat 201-02. The court notes, however, that
the Tri-Star opinion was decided under Arizona law and thus has limited, if any, value here.
Further, as noted above, a later Ninth Circuit opinion, interpreting Washington law, expressly
relied upon Hartford for its interpretation of an “ongoing operations” clause. See Evanston Ins.
Co., 2011 WL 4543059, at * 2. Accordingly, despite this limited foreign and outdated contrary
authority, the court does not believe that Hartford, 189 P.3d at 201-02, Davis, 814 F. Supp. 2d at
1120-21, Evanston Ins. Co, 2011 WL 4543059, at *2, and Arch Ins. Co., 2010 WL 4365817, at
ORDER- 13

1

Despite the forgoing authority, Absher Pacific nevertheless asserts that it was

2 entitled to a defense under the North Pacific policies. First, Absher Pacific asserts that
3 OneBeacon’s denial of coverage with respect to the North Pacific policies did not comply
4 with the general requirement in Washington that an insurer may not rely on facts extrinsic
5 to the complaint to deny a duty to defend. (Mot. at 9 (citing Truck Ins. Exch., 58 P.3d at
6 281), 12.) In its denial letter to Absher Pacific, OneBeacon stated that “[t]he
7 endorsement provides only ongoing operations coverage,” that “[t]he insured had
8 completed their [sic] work and left the site prior to any claims being made,” and that “the
9 housing units had been put to their intended use.” (Holt Decl. Ex. 4 at 49.) These
10 statements are consistent with the policy language and the allegation in the SHA
11 Complaint that the hydronic heating systems began to prematurely fail “[a]fter
12 NewHolly’s completion.” (Id. Ex. 2 at 18 ¶ 3.8.) Thus, the court cannot conclude merely
13 on the basis of the statements in OneBeacon’s denial letter that OneBeacon improperly
14 considered any extrinsic material.
15

Second, Absher Pacific asserts that, even if the court were to interpret the

16 “ongoing operations” clause in the manner suggested by the Hartford decision, North
17 Pacific would still owe Absher Pacific a duty to defend because the New Holly HOA
18 complaint and the SHA complaint contain allegations against Absher Pacific “that were
19 potentially covered.” (See Mot. at 17.) Indeed, Absher Pacific asserts that the New
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*3, represent the type of “equivocal” authority that the Washington Supreme Court indicated in
Woo v. Fireman’s Fund Ins. Co., 164 P.3d 454, 462-63 (Wash. 2007) and Alea London, 229 P.3d
22 at 701, would be inappropriate for an insurer to rely upon when denying a duty to defend.
ORDER- 14

1 Holly HOA complaint alleges property damage “which may have begun as soon as its
2 installation.” (Id.) Although Absher Pacific did not provide a copy of the New Holly
3 HOA Complaint with its tender, Absher Pacific asserts that had OneBeacon “done a
4 good-faith investigation prior to declining the tender, OneBeacon would have obtained
5 that complaint. . . .” (Reply (Dkt. # 56) at 3.) To review the specific allegations at issue,
6 the SHA Complaint alleged that the hydronic heating systems did not begin to fail until
7 “[a]fter New Holly’s completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8), whereas the New Holly
8 HOA complaint alleged that the hydronic heating systems had been failing since “at least
9 2003” (id. Ex. 1 at 7). As the court understands the argument, Absher Pacific is asserting
10 either that (1) due to the indefinite allegation in the New Holly HOA Complaint with
11 respect to the timing of the heating systems’ failure, Defendants were required to ignore
12 the definite allegation in the SHA Complaint when rendering a decision on their duty to
13 defend, or (2) despite the definite allegation in the SHA Complaint, the less definite
14 allegation in the New Holly HOA Complaint created an ambiguity regarding the timing
15 of the property damage that under Washington law Defendants were required to construe
16 in Absher Pacific’s favor.
17

The court is not persuaded by either argument. The only complaint that names

18 Absher Pacific as a defendant is the SHA Complaint, and it plainly alleges that the
19 hydronic heating systems began to fail “[a]fter NewHolly’s completion.” (Holt Decl. Ex.
20 2 at 18 ¶ 3.8.) This unambiguous language rendered the allegations in the SHA
21 Complaint clearly outside the scope of the policy’s coverage in light of the “ongoing
22 operations” clause. See Truck Ins. Exch., 58 P.3d at 282 (generally, “the duty to defend
ORDER- 15

1 must be determined only from the complaint”). Under these circumstances, the insurer
2 has no duty to defend. Holly Mountain, 104 P.3d at 731 (citing Truck Ins. Exch., 58 P.2d
3 at 282).
4

Further, in light of these unambiguous allegations, the insurer was under no

5 obligation to look beyond the complaint to determine its duty to defend. Washington
6 courts have carved out limited exceptions to the general rule that the duty to defend must
7 be determined from the face of the complaint. An insurer must conduct an investigation
8 beyond the allegations contained in the complaint where coverage is not clear from the
9 face of the complaint, and may consider facts outside the complaint if the allegations in
10 the complaint are ambiguous or if facts outside the complaint are known to or readily
11 ascertainable by the insurer. Truck Ins. Exch., 58 P.3d at 282; see also E-Z Loader Boat
12 Trailers, 726 P.2d at 444. None of the foregoing exceptions apply. The allegations in the
13 complaint that the hydronic heating systems began to fail after New Holly’s completion
14 unambiguously negated coverage in light of the “ongoing operations” clause in the
15 policy’s endorsement.
16

Even if one were to conclude that the insurer should have obtained a copy of the

17 New Holly HOA Complaint because it was “readily ascertainable,” the outcome would
18 be no different. The allegation in the New Holly HOA Complaint that the hydronic
19 heating systems had been failing since “at least 2003” (Holt Decl. Ex. 1 at 7), is not in
20 conflict with the allegation in the SHA Complaint that the hydronic heating systems
21 began to fail “[a]fter NewHolly’s completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8). The two
22 allegations are readily harmonized as describing property damage that has occurred since
ORDER- 16

1 at least 2003, but after New Holly’s completion. There is no inconsistency, and thus no
2 reason to conclude that the allegations in the two complaints create any ambiguity that
3 might require the insurer to assume a duty to defend. It is true that if all the court were
4 considering were the allegations in the New Holly HOA Complaint, it would impossible
5 to determine if the property damage occurred during the insured’s “ongoing operations”
6 or not. This fact, however, does not mean that the insurer or the court must ignore the
7 specific allegation in the SHA Complaint, which is the only complaint to which Absher
8 Pacific is a defendant, that the hydronic heating systems began to fail “[a]fter
9 NewHolly’s completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8).
10

Next, Absher Pacific asserts that even if the SHA Complaint alleged property

11 damage outside of PTI’s “ongoing operations,” the North Pacific polices contain an
12 exception to the “ongoing operations” clause “that permits coverage for liabilities
13 assumed under an insured contract.” (Mot. at 13.) The exclusion relied upon by Absher
14 Pacific occurs immediately following the language quoted in paragraph one of the
15 endorsement above, and reads, in pertinent part:
16

2. Additional Exclusion. This insurance does not apply to . . . “property
damage” occurring after:

17
(a) All work, including materials, parts or equipment furnished in
connection with such work, on the project . . . to be performed
by or on behalf of the additional insured(s) at the site of the
covered operations has been completed; or

18
19
20

(b) That portion of “your work” out of which the injury or damages
arises has been put to its intended use by any person or
organization other than another contractor or subcontractor
engaged in performing operations for a principal as a part of the
same project.

21
22
ORDER- 17

1
This exclusion does not apply to the extent that an “insured contract”
requires that you assume the tort liability of the additional insured
arising out of a risk that would otherwise be excluded by this
exclusion.

2
3

4 (Love Decl. Ex. 3a at 493, Ex. 3b at 714.) The final sentence provides an exception to
5 the forgoing exclusion for property damage occurring after Absher Pacific’s work at the
6 site “has been completed” or after PTI’s work “has been put to its intended use” for
7 liability arising from an “insured contract.” (Id.) In other words, the exclusion in
8 paragraph two is not applicable if an “insured contract” requires the named insured (PTI)
9 to assume the tort liability of the additional insured (Absher Pacific).
10

Absher Pacific argues that the exception in the final sentence of the exclusion

11 applies, not only to the exclusion found in paragraph two of the endorsement, but also to
12 the original insuring language for “ongoing operations” found in paragraph one of the
13 endorsement. (See Mot. at 12-13; Reply at 4-5.) Accordingly, under Absher Pacific’s
14 interpretation, the policy would provide coverage with respect to liability arising out of
15 an “insured contract” irrespective of whether the liability was also related to the insured’s
16 “ongoing operations.” The plain language of the exception, however, states (twice) that it
17 applies to “this exclusion.” Because paragraph two is entitled “Additional Exclusion,”
18 the court cannot conclude that the exception contained within paragraph two applies to
19 anything other than the exclusion found in paragraph two.
20

Further, Absher Pacific’s interpretation is contrary to Washington law concerning

21 the interpretation of insurance policies. If there is no coverage under the terms of the
22 insuring clause, coverage cannot be created based on the exceptions or qualifications
ORDER- 18

1 contained in the policy’s exclusions. In Harrison Plumbing & Heating, Inc. v. New
2 Hampshire Ins. Group, 681 P.2d 875 (Wash. Ct. App. 1984), the insured argued that an
3 exception to an exclusion effectively amended the coverage paragraph extending
4 coverage to breach of contract claims. Id. at 879. The court held that the exception to the
5 exclusion “did not enlarge upon the coverages to encompass nonaccidental contractual
6 claims,” because “[e]xclusion clauses do not grant coverage; rather they subtract from it.”
7 Id. at 880; see also Nat’l Union Fire Ins. Co. v. NW Youth Serv., 983 P.2d 1144 (Wash.
8 Ct. App. 1999) (ruling that exception to exclusion did not provide coverage because
9 “[e]xclusion clauses do not grant coverage,” but rather “subtract from it.”).
10

Finally, Absher Pacific asserts that the “ongoing operations” clause in the North

11 Pacific policies is distinguishable from the “ongoing operations” clause in the Hartford
12 decision because the “ongoing operations” clause in the North Pacific policies contains
13 the phrase “arising out of” your “ongoing operations.” (See Reply at 7-8.) The “arising
14 out of” language did not appear in the clause considered by the court in Hartford. See
15 Hartford, 189 P.3d at 201. Relying on Toll Bridge Auth. v. Aetna Ins., 773 P.2d 906, 908
16 (Wash. Ct. App. 1989), Absher Pacific asserts that under Washington law the phrase
17 “arising out of” must be construed broadly. (Reply at 6.) In Toll Bridge, the Washington
18 Court of Appeals broadly construed the phrase “arising out of” to mean “originating
19 from,” “having its origin in,” “growing out of,” or “flowing from.” 773 P.2d at 908.
20 Accordingly, Absher Pacific asserts that coverage would exist for liability “flowing
21 from” and merely causally connected to its ongoing operations. (Reply at 6.) As such, if
22 property damage could simply be causally connected to work performed during PTI’s
ORDER- 19

1 ongoing operations, it would be covered under Absher Pacific’s interpretation of the
2 policy.
3

The court sees at least two problems with Absher Pacific’s position. First, the

4 Washington Supreme Court has recently indicated the Toll Bridge court’s broad
5 interpretation of the phrase “arising out of” may not be appropriately applied in some
6 contexts. In Alea London, the insurer denied a duty to defend its insured based on an
7 exclusion that stated that the insurance did not apply to any claim “arising out of” certain
8 types of assaults or acts related to an assault. Alea London, 229 P.3d at 696. In justifying
9 its decision, the insurer relied in part on the expansive definition of the phrase “arising
10 out of” contain in the Toll Bridge decision. Id. at 698. The Washington Supreme Court
11 rejected the application of the Toll Bridge court’s definition of “arising out of” because
12 the Toll Bridge court had not considered the specific factual situation and allegations at
13 issue in Alea London. See id. (“. . . Toll Bridge did not consider an allegation that
14 postaccident negligence by the insured caused injuries.”). Ultimately, the insurer’s
15 interpretation of Washington law, including the Toll Bridge decision, failed to persuade
16 the Washington Supreme Court their interpretation of the insurance contract was correct.
17 Id. at 699.
18

Second, if the court were to accept the broad construction of the phrase advocated

19 by Absher Pacific, it would effectively write the word “ongoing” out of the policy. The
20 construction that Absher Pacific advocates is really equivalent to the phrase “arising out
21 of your operations.” Yet, if this were the parties’ intent, there would be no need to
22 include the word “ongoing” as a modifier of the word “operations.” Thus, like the
ORDER- 20

1 Washington Supreme Court in Alea London, Absher Pacific’s interpretation of
2 Washington law, including its advocacy for a broad definition of “arising out of” based
3 on the Toll Bridge decision, fails to persuade the court that its interpretation of the
4 insurance contract is correct. See also Davis, 814 F. Supp. 2d at 1121 (rejecting similar
5 argument that the phrase “arising out of” requires that damage that has a causal
6 connection to the named insured’s work while on the property is covered). Based on the
7 foregoing, the court cannot conclude that Absher Pacific is entitled to summary judgment
8 that Defendants’ denial of a duty to defend based on the language of the North Pacific
9 polices and the allegations contained within the SHA complaint was “unreasonable,
10 frivolous, or unfounded,” Alea London, Ltd., 229 P.3d at 700, and therefore in bad faith.
11

2. Pennsylvania General and OneBeacon Policies

12

The Pennsylvania General and OneBeacon policies both contain “ongoing

13 operations” clauses similar, but not identical, to the clauses found in the North Pacific
14 policies. (Love Decl. Ex. 3c at 906, Ex. 3d at 1235.) The additional insured endorsement
15 amending Section II of these policies, entitled “Who Is An Insured,” states, in relevant
16 part:
17

A. Section II – Who Is An Insured is amended to include as an insured any
person or organization for whom you are performing operations when
you and such person or organization have agreed in writing in a
contract or agreement that such person or organization be added as an
additional insured on your policy. Such person or organization is an
additional insured only with respect to liability arising out of your
ongoing operations performed for that insured. A person’s or
organization’s status as an insured under this endorsement ends when
your operations for that insured are complete.

18
19
20
21
22 (Id.)

ORDER- 21

1

The OneBeacon policy’s additional-insured endorsement uses the same language

2 above, but adds the following exclusion:
3

B. With respect to the Insurance afforded to these additional insured, the
following additional exclusions apply:

4
3. Exclusions
5
This insurance does not apply to:
6
**************
7
b. “Bodily injury” or “property damage” occurring after:
8
(1) All work, including materials, parts or equipment furnished in
connection with such work, on the project . . . to be performed
by or on behalf of the additional insured(s) at the site of the
covered operations has been completed; or

9
10
11

(2) That portion of “your work” out of which the injury or damage
arises has been put to its intended use by any person or
organization other than another contractor or subcontractor
engaged in performing operations for a principal as a part of the
same project.

12
13

14 (Love Decl. Ex. 3d at 1235.)
15

The primary differences between these policies and the North Pacific policies are

16 that the Pennsylvania General policy does not contain any relevant exclusions to the
17 endorsement at issue, and although the One Beacon America policy contains an exclusion
18 that is similar to the one in the North Pacific policies, the exclusion does not contain the
19 exception for “insured contracts” that produced so much argument by the parties with
20 respect to the North Pacific policies. (Compare Love Decl. Exs. 3a at 493 and 3b at 714
21 with Exs. 3c at 906 and 3d at 1235.) Without this exception, based on the allegation in
22 the complaint that the hydronic heating systems did not begin to fail until “[a]fter
ORDER- 22

1 NewHolly’s completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8), the grounds for denial of
2 coverage under the OneBeacon policy would include not only the “ongoing operations”
3 clause, but also the exclusions for “operations” that had been “completed” and for work
4 that “has been put to its intended use.” (Love Decl. Ex. 3d at 1235.) The court’s analysis
5 above concerning the “ongoing operations” clause in the North Pacific policies applies
6 equally here with respect to the Pennsylvania General and OneBeacon policies.
7 Accordingly, the court also denies summary judgment with respect to Absher Pacific’s
8 claim that Defendants denial of a duty to defend based on the language of these policies
9 and the allegations contained in the SHA Complaint was “unreasonable, frivolous, or
10 unfounded,” Alea London, Ltd., 229 P.3d at 700, and therefore in bad faith.
11

3. Assurance Policy

12

Assurance issued a policy to PTI encompassing policy periods from June 14, 1998

13 to June 14, 1999 and from June 14, 1999 to July 29, 1999. (Love Decl. Ex. 1 at 10, 182,
14 385-86.) The grant of coverage states, in relevant part, that “[t]his insurance applies
15 to . . . property damage only if . . . [t]he property damage occurs during the policy
16 period.” (Love Decl. Ex. 1 at 73.) The Assurance policy also contains additional insured
17 coverage where a “work contract” so requires. Specifically, the policy provides:
18

SECTION II – WHO IS AN INSURED

19

***********

20

f. Any person or organization . . . which requires in a “work contract” that
such person or organization be made an insured under this policy.
However, such person or organization shall be insured only with respect to
covered . . . “property damage” . . . which results from “your work” under
that “work contract.”

21
22

ORDER- 23

1
2

The coverage afforded to such person or organization does not apply to . . .
“property damage” occurring after the earliest of the following times:

3

(1) When “your work” under the “work contract” . . . has been completed.

4

(2) When that portion of “your work” under the “work contract” out of
which any injury or damage arises has been put to its intended use by
any person or organization other than another contractor or
subcontractor engaged in performing operations for a principal as part
of the same project.

5
6
7

(3) When our coverage for you under this policy or a renewal of this policy
terminates and is not continued by other insurance provided by us.

8
(Love Decl. Ex. 1 at 80.) 7
9
Based on the allegation in the SHA Complaint that the hydronic systems began to
10
prematurely fail “[a]fter NewHolly’s completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8),
11
Assurance could have denied coverage under the “completed” work exclusion or the
12
exclusion for work that “has been put to its intended use.” (See Love Decl. Ex. 1 at 80.)
13
In its denial letter, Assurance mentions that it can find no additional insured endorsement
14
for “completed operations” coverage, but does not reference any specific policy
15
language. (Holt Decl. Ex. 7 at 55.) Instead, Assurance states that it is denying coverage
16
because it was unable, as of that time, to find an additional insured endorsement that
17
named Absher Pacific. (Id.) Endorsements and/or certificates of insurance naming
18
Absher Pacific were eventually located in the course of this litigation (see Bedell Decl.
19
20
7

The policy defines a “work contract” as “a written agreement into which you enter for
work performed by you or on your behalf.” (Love Decl. Ex. 1 at 265.) The parties do not raise
any dispute concerning whether the contract between PTI and Absher Pacific constituted a “work
22 contract.”

21

ORDER- 24

1 Ex. 8 at 52-61; Love Decl. Ex. 2 at 388, 390, 392), but Assurance has not altered its
2 position that, based on the allegations in the SHA Complaint and the language of its
3 policy, it did not owe a duty to defend to Absher Pacific for completed operations (see
4 Assurance Resp. (Dkt. # 49) at 14-15). The court agrees, and accordingly also denies
5 Absher Pacific’s motion for summary judgment that Assurance’s declination of a duty to
6 defend was “unreasonable, frivolous, or unfounded,” Alea London, Ltd., 229 P.3d at 700,
7 and therefore in bad faith.
8

D. Coverage by Estoppel

9

The court has denied Absher Pacific’s motion for summary judgment that

10 Defendants’ denials of a duty to defend under the various provisions of the policies at
11 issue were in bad faith. (See supra § III.C.) As a result, the court must also deny
12 summary judgment with respect to Absher Pacific’s claims for coverage by estoppel. As
13 noted above, where coverage or a duty to defend are not available under the policy terms,
14 a rebuttable presumption of harm and coverage by estoppel are likewise unavailable with
15 respect to claims for bad faith claims handling. Onvia, 196 P.3d at 669. Because the
16 court has denied summary judgment with respect to Absher Pacific’s claims for bad faith
17 denial of the duty to defend based on the language of the policies, it cannot grant
18 summary judgment with respect to Absher Pacific’s claims for coverage by estoppel.
19

E. Bad Faith Claims Handling

20

In addition to its claims that Defendants denied their duties to defend in bad faith,

21 Absher Pacific also moves for summary judgment with respect to its allegations that
22 Defendants engaged in acts of bad faith claims handling. As noted above, even where
ORDER- 25

1 there is no coverage under a policy and an insurer is not obligated to defend its insured, a
2 cause of action based on bad faith claims handling remains available to the insured.
3 Onvia, 196 P.3d at 668. In Washington, bad faith handling of an insurance claim is a tort
4 and is analyzed under general tort principles: duty, breach of that duty, and damages
5 proximately caused by the breach. Mut. Of Enumclaw Ins. Co. v. Dan Paulson Constr.
6 Co., 169 P.3d 1, 8 (Wash. 2007). To establish bad faith, an insured is required to show
7 that the breach was unreasonable, frivolous, or unfounded. Kirk, 951 P.2d at 1126.
8 Ordinarily, whether an insurer acts in bad faith is a question of fact for the jury, unless
9 reasonable minds could reach but one conclusion. See Smith v. Safeco Ins. Co., 78 P.3d
10 1274, 1277 (Wash. 2003). The facts concerning OneBeacon’s handling of Absher
11 Pacific’s claim with respect to the North Pacific, Pennsylvania General, and OneBeacon
12 policies are disparate from the facts concerning Assurance’s handling of OneBeacon’s
13 claim under its own policy. Accordingly, the court will deal with these claims separately.
14

1. OneBeacon’s Claims Handling

15

Absher Pacific’s alleges that OneBeacon mishandled its claim by improperly

16 considering materials extrinsic to the complaint and by failing to conduct a reasonable
17 investigation, including correctly determining applicable policy language, before
18 declining to defend. (See Mot. at 11-12, 18-19.) The court has already considered
19 Absher Pacific’s assertion that OneBeacon improperly relied upon extrinsic materials and
20 concluded that Absher Pacific failed to submit evidence upon which the court could
21 conclude on summary judgment that Absher Pacific had indeed considered any such
22 materials. (See supra § III.C.1.) Accordingly, the court also denies Absher Pacific’s
ORDER- 26

1 motion for summary judgment that OneBeacon’s alleged consideration of extrinsic
2 materials constituted bad faith claims handling.
3

Absher Pacific also asserts that OneBeacon mishandled its claim in bad faith by

4 conducting an inadequate investigation. An insured may sue an insurer for a bad faith
5 investigation even where the insurer ultimately correctly determines there is no coverage.
6 Onvia, 196 P.3d at 668 (relying on Coventry Assocs. v. Am. States Ins. Co., 961 P.2d 933
7 (Wash. 1998)). Here, Absher Pacific asserts that OneBeacon failed to conduct a
8 reasonable investigation prior to denying a defense because it did not first obtain a copy
9 of the New Holly HOA Complaint and did not accurately quote policy language in its
10 denial letter. (See Mot. at 18-19; Reply at 2-3.)
11

First, as the court explained above (see supra § III.C.1), OneBeacon was not

12 obligated to obtain a copy of the New Holly HOA Complaint because the allegations in
13 the SHA complaint “were neither ambiguous nor inadequate” with respect to
14 OneBeacon’s duty to defend. See Am. Best Food, Inc. v. Alea London, Ltd, 158 P.3d 119,
15 129-30 (Wash. Ct. App. 2007), rev’d in part and aff’d in relevant part, 229 P.3d 693
16 (Wash. 2008). 8 Accordingly, no such investigation of materials extrinsic to the SHA
17 complaint was necessary. Id.
18
19

8

Although the Washington Supreme Court reversed portions of Court of Appeals’
20 decision in Alea London, 158 P.3d 119, it expressly approved of the portion of the Court of
Appeals’ decision concerning the duty to investigate and bad faith . See Alea London, 229 P.3d
21 at 699 n.4 (“We also accepted review of [plaintiff’s] claim that Alea failed to do an adequate
investigation. However, it does not appear that any failure to investigate was relevant to Alea’s
legal representation or rejection of its duty to defend. We do not disturb the Court of Appeals
22 holding on this issue.”)
ORDER- 27

1

The court also is unpersuaded by Absher Pacific’s argument with respect to the

2 variation in policy language that OneBeacon cited in its denial letter. In its denial letter,
3 OneBeacon implicitly acknowledged that it was not quoting directly from the actual
4 policy language of the Pennsylvania General and OneBeacon policies when it stated that
5 “[t]here are slight differences in the form on each policy,” but “[t]hey generally read as
6 follows . . . .” (Holt Decl. Ex. 4 at 50 (5/13/09 denial letter).) Absher Pacific, however,
7 has failed to assert that the variations in policy language were material to the insurer’s
8 decision regarding its duty to defend or that quoting the actual language would have led
9 OneBeacon (or Absher Pacific) “to a different understanding of the facts, or a different
10 result.” Alea London, 158 P.3d at 129-30. In Alea London, the Washington Court of
11 Appeals affirmed the trial court’s dismissal on summary judgment of the insured’s claim
12 for bad faith investigation because the insured had not demonstrated that further
13 investigation would have led to a different result. Id. Likewise, here, Absher Pacific has
14 failed to produce any evidence that had OneBeacon quoted the language accurately the
15 analysis with respect to its duty to defend would have changed.
16

Further, an essential element of the tort of bad faith claims handling is harm to the

17 insured or damages. See Dan Paulson Constr. Co., 169 P.3d at 8; Coventry, 961 P.2d at
18 935-36 (“As an element of every bad faith or CPA action, however, an insured must
19 establish it was harmed by the insurer's bad faith acts.”) (citing Butler, 823 P.2d at 503).
20 Because the court has denied Absher Pacific’s motion for summary judgment with
21 respect to Defendants’ bad faith denial of their duty to defend, the court cannot conclude,
22 at this point in the litigation, that Absher Pacific’s damages are presumed. See Onvia,
ORDER- 28

1 196 P.3d at 669. Absher Pacific, however, has submitted no evidence that OneBeacon’s
2 alleged mishandling of its claim resulted in any damages. Without such evidence, this
3 court cannot conclude that Absher Pacific is entitled to summary judgment on this issue.
4

In addition to the foregoing, OneBeacon has asserted that it did conduct an

5 investigation of Absher Pacific’s claims. For example, OneBeacon has submitted
6 evidence that although Absher Pacific failed to produce complete copies of its contracts
7 with PTI in its tender letter (see Holt Decl. Ex. 3), Absher Pacific nevertheless obtained
8 complete copies (see, e.g., Balckburn Decl. Exs. C, D). Accordingly, the court finds that
9 a jury is entitled to consider evidence with respect to OneBeacon’s actual investigation of
10 Absher Pacific’s claim, and denies Absher Pacific’s motion for summary judgment on
11 this issue.
12

2. Assurance’s Claims Handling

13

Absher Pacific seeks summary judgment with respect to Assurance’s initial 15-

14 month delay in responding to Absher Pacific’s tender. The court acknowledges that this
15 is an extraordinarily long period of time for an insurer to fail to respond to its insured’s
16 tender. Absher Pacific relies primarily on Truck Insurance Exchange v. Vanport Homes,
17 Inc., 58 P.3d 276 (Wash. 2002), to support its motion for summary judgment with respect
18 to its claim for bad faith claims handling. (See Mot. at 20; Reply at 9.) In Vanport
19 Homes, the Washington Supreme Court found a similar delay of over a year to be bad
20 faith as a matter of law. Id. at 283-84. The court, however, finds Vanport Homes to be
21 distinguishable here. In Vanport Homes, there is no indication that the insurer offered
22 any explanation for its year-long delay. See generally id. Further, once the insurer in
ORDER- 29

1 Vanport Homes did respond and deny coverage, it misrepresented to its insured that it
2 had conducted a thorough investigation even though an internal memorandum indicated
3 that there was little or no investigation. Id. at 280. In addition, the insured twice
4 requested an explanation of the denial letter with no response from the insurer. Id.
5

Unlike the insurer in Vanport Homes, Assurance has offered explanations for its

6 delay and asserted that the delay was not done in bad faith but rather was due to a mistake
7 or mere inadvertence. (Assurance Resp. at 9-10 (citing Thatcher Decl.).) Once
8 Assurance’s claims handler learned of the mistake, Assurance responded promptly to the
9 tender. One of Assurance’s claims handlers has submitted testimony that she first
10 became aware of Absher Pacific’s April 22, 2009 tender letter on July 8, 2010. (Thatcher
11 Decl. ¶ 4, Ex. 3.) She has also testified that had she been aware of the April 22, 2009
12 tender she would have set up a separate additional insured file, and in fact did so as soon
13 as she learned of the April 22, 2009 tender in July 2010. (Id. ¶ 6.) Assurance responded
14 in writing to Absher Pacific’s tender on July 19, 2010, acknowledging the claim,
15 indicating that it had established a claims file, and seeking information with respect to the
16 claim. (Kazarian Decl. ¶ 5, Ex. 2.) When Absher Pacific failed to respond, Assurance
17 contacted Absher Pacific again on August 16, 2010, seeking the same information. (Id. ¶
18 6, Ex. 3.) Assurance ultimately sent its denial letter on September 20, 2010. (Id. ¶ 7, Ex.
19 4.)
20

The question of bad faith is ordinarily a question of fact. See Smith, 78 P.3d at

21 1277. Further, as long as an insurance company acts with honesty, bases its decision on
22 adequate information, and does not overemphasize its own interests, a claim for bad faith
ORDER- 30

1 claims handling will not lie against an insurer on the basis of a good faith mistake.
2 Coventry, 961 P.2d at 937-38. Although the delay here was long, the foregoing facts
3 regarding Assurance’s delay in responding to Absher Pacific’s tender should be weighed
4 by the jury. See Butler, 823 P.2d at 506 (explaining that because the insurer advances
5 explanations for each act of alleged bad faith, there are material issues of fact in dispute).
6 Accordingly, the court declines to grant summary judgment with respect to whether
7 Assurance’s delay in responding to Absher Pacific’s tender constituted bad faith claims
8 handling.
9

Absher Pacific also alleges that Assurance failed to conduct an adequate

10 investigation when it denied coverage based on its inability to find an additional insured
11 endorsement that specifically named Absher Pacific. (Mot. at 19-20.) Assurance
12 describes the electronic search it conducted for the additional insured endorsements
13 (Kazarian Decl. ¶¶ 3-4), but does not otherwise provide an explanation as to why it was
14 unable to uncover the endorsements with respect to its own policy (see id.).
15 Nevertheless, Assurance did ask Absher Pacific twice if it had any information
16 concerning the applicable additional insured endorsements. (Kazarian Decl. ¶¶ 5-6, Exs.
17 2-3.) Absher Pacific did not respond to these requests. (See id. ¶¶ 5-6.) Because it could
18 find no evidence of the additional insured endorsements at the time, Assurance ultimately
19 denied coverage on this basis on September 20, 2010. (Kazarian Decl. ¶ 7, Ex. 4.)
20 Subsequently, however, during the course of the present litigation, both Absher Pacific
21 and Assurance ultimately discovered and produced evidence of Absher Pacific’s status as
22
ORDER- 31

1 an additional insured under the Assurance policies. 9 (See Bedell Decl. ¶ 9, Ex. 8; Love
2 Decl. Ex. 2 at 388, 390, 392.) The court finds that under these facts Assurance has raised
3 a triable issue of fact with respect to the reasonableness of its investigation. See, e.g.,
4 Torino Fine Homes, v. Mut. Of Enumclaw, 74 P.3d 648, 650-51 (Wash. Ct. App. 2003)
5 (denying summary judgment with respect to the carrier’s duty to conduct a reasonable
6 investigation where the carrier’s mistake was in good faith and invited by the insured’s
7 implicit representation and withholding of documents).
8

Finally, Absher Pacific argues that it is entitled to summary judgment with respect

9 to its claim that Assurance acted in bad faith when it considered materials outside the
10 complaint with respect to its coverage decision. (Mot. at 15.) Once it realized that
11 Absher Pacific had tendered a claim with respect to the SHA Complaint, Assurance asked
12 Absher Pacific to provide copies of the notices of completion with respect to PTI’s work
13 at New Holly, and Absher Pacific complied with this request. (Kazarian Decl. ¶¶ 5-6,
14 Ex. 2.) Based on the dates of completion in the notices, along with the allegation in the
15 SHA Complaint that the hydronic heating systems began to fail “[a]fter NewHolly’s
16 completion” (Holt Decl. Ex. 2 at 18 ¶ 3.8), Assurance determined that the alleged
17 property damage did not occur with its policy periods. (Assurance Resp. at 6-7.) Absher
18 Pacific argues that Assurance’s reliance on the information contained in the notices of
19 completion violated the rule in Washington that ordinarily an insurer’s duty to defend is
20 to be determined from the face of the complaint. (Mot. at 15.)
21
9

The documents were produced by Absher Pacific’s attorneys in the underlying lawsuit

22 with respect to the SHA complaint in response to a subpoena. (See Bedell Decl. ¶ 9, Ex. 8.)
ORDER- 32

1

Once again, however, Absher Pacific fails to show how the absence of this

2 information would have led “to a different understanding of the facts, or a different
3 result,” Alea London, 158 P.3d at 129-30, with respect to Assurance’s response to its
4 claim. Even if Assurance had not obtained or considered this information, it could have
5 denied Absher Pacific’s tender of its defense based on other grounds in the policy and
6 solely on the allegations in the SHA Complaint. (See supra § III.C.3.) As noted above,
7 harm is an essential element of Absher Pacific’s claim, see Dan Paulson Constr. Co., 169
8 P.3d at 8; Coventry, 961 P.2d at 935-36, and at this point in the litigation the court cannot
9 find that Absher Pacific’s damages are presumed (see supra § III.E.1). Absent evidence
10 of harm or damages as a result of Assurance’s alleged improper consideration of the
11 notices, which Absher Pacific has not supplied, the court cannot grant summary judgment
12 with respect to this claim. 10
13
14

IV. CONCLUSION
Based on the foregoing analysis and because the court has found that there are

15 genuine issues of material fact for trial, the court DENIES Absher Pacific’s motion for
16
17
18
19
20
10

Because the court has denied Absher Pacific’s motion for summary judgment with
respect to its claim against Defendants for bad faith denial of its tender of defense and bad faith
claims handling, the court does not reach issues concerning the proper measure of damages. Any
22 such rulings, at this point in the litigation, would be premature.

21

ORDER- 33

1 summary judgment (Dkt. # 24).
2

Dated this 20th day of March, 2012.

3

5

A

6

JAMES L. ROBART
United States District Judge

4

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8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
ORDER- 34