Homesite Ins. Co. v. Zajac

481 F.Supp.3d 1198

HOMESITE INSURANCE COMPANY, Plaintiff,

v.Joseph M. ZAJAC, et al., Defendants.

C19-1034 TSZ

United States District Court, W.D. Washington, at Seattle.

Signed August 25, 2020

Eliot M. Harris, Erin J. Varriano, Williams Kastner, Seattle, WA, for Plaintiff.

James DeWitt McBride, II, Law Offices of James D. McBride, Carnation, WA, for Defendants Joseph M. Zajac, The Joseph M. Zajac and Susan P. Zajac Trust Dated April 12 2017.

David M. Von Beck, Jonathan X. Shi, Katie J. Comstock, Levy Von Beck Comstock PS, Seattle, WA, for Defendant Susan P. Zajac.

Stephan Douglas Wakefield, Hecker Wakefield Feilberg PS, Seattle, WA, for Defendants William Feldmann, Janet Feldmann.

ORDER

Thomas S. Zilly, United States District Judge

THIS MATTER comes before the Court on Plaintiff and Counter Defendant Homesite Insurance Company's ("Homesite") Motion for Partial Summary Judgment, docket no. 27. Having reviewed all papers filed in support of and in opposition to the motion, the Court enters the following order.

Background

A. 8059 West Mercer Way

In 2005, Susan and Joseph Zajac ("the Zajacs") purchased a residential property, 8059 West Mercer Way ("the Property"). Ex. B to Second Amended Complaint,¹ docket no. 24-2 at ¶ 2.2. The Zajacs submitted a permit application with the City of Mercer Island to build a 450 square foot addition to the Property over the existing garage. Id. at ¶ 2.4. The City issued at least two correction rounds in which they informed the Zajacs that they needed to fix an existing garage encroachment and other structural deficiencies in the existing garage before the City would issue the permits. Id. at ¶ 2.5. The Zajacs did not fix all of the deficiencies, cancelled their permit application in 2005 before it was approved, and built the addition anyway. Id. at ¶¶ 2.6-2.7.

On April 27, 2017, Zajacs quitclaimed the Property to The Joseph M. Zajac and Susan P. Zajac Trust Dated April 12, 2017 ("the Trust")² and listed it for sale. Id. at ¶¶ 2.8-2.9. On March 8, 2018, the Zajacs, through the Trust, entered into a Residential Real Estate Purchase and Sale Agreement for the Property with Janet and William Feldmann ("the Feldmanns") for a purchase price of $2,595,000. Id. at ¶ 2.10. The Zajacs completed and signed a seller disclosure statement to make "disclosures of existing material facts or material defects" related to the Property. Id. at ¶ 2.11. In the statement, the Zajacs represented that there were no encroachments and that they did not know whether all building permits or final inspections for permits had been obtained. Id. at ¶ 2.12. The sale closed on April 4, 2018, and the Feldmanns took title to the Property through a statutory warranty deed. Id. at ¶ 2.13. The Feldmanns sought a permit from the City to repair and expand a deck on their new home but discovered that they could not do so until they resolved the deficiencies identified in the Zajacs’ previous permit application and obtained a permit for the unpermitted 450 square foot addition above the garage. Id. at ¶¶ 2.14-15.

The Feldmanns sued Joseph M. Zajac, Susan P. Zajac, and the Joseph M. Zajac and Susan P. Zajac Trust in King County Superior Court in the case captioned William and Janet Feldmann v. Joseph M. and Susan P. Zajac and The Joseph M. Zajac and Susan P. Zajac Trust Dated April 12, 2017 , Cause No. 19-2-07340-3 SEA (the "Underlying Action"). The Feldmanns brought claims for negligent and fraudulent misrepresentation, rescission, unjust enrichment, and fraudulent concealment. Id. at ¶¶ 3.1-7.4. The Zajacs tendered defense of these claims to Homesite Insurance. On April 10, 2019, Homesite agreed to provide a defense in the Underlying Action subject to a full reservation of rights pertaining to coverage. Ex. D to Second Amended Complaint, docket no. 24-4. Homesite has, at all relevant times, defended the Zajacs and the Trust in the Underlying Action under a reservation of rights. On July 3, 2019, Homesite commenced this action for a declaratory judgment that it has no duty to defend or indemnify the Zajacs for any of the claims in the Underlying Action. Docket no. 1.

Homesite filed the Amended Complaint, docket no. 19, in response to the Feldmanns’ newly alleged fraudulent concealment claim. Susan Zajac answered the Amended Complaint, asserting counterclaims for breach of contract for failing to assign separate counsel for the Trust and Joseph Zajac and for violations of Washington's Insurance Fair Conduct Act ("IFCA"), RCW 48.30.015. Docket no. 20. Homesite filed a Second Amended Complaint, docket no. 24, to add a claim for declaratory judgment on the issue of whether the Trust and its trustees are "an Insured" entitled to coverage under the policy in response to Susan Zajac's counterclaims. Susan Zajac answered the Second Amended Complaint, reasserting the IFCA and breach of contract claims. Docket no. 25. Defendants Joseph Zajac, the Trust, and the Feldmanns have not answered any of Homesite's three complaints.

B. The Policy

For the period April 1, 2017 – April 1, 2018, Homesite issued a Homeowners 3 Special Form Policy No. 34542855 (the "Policy") to the Zajacs that provided liability coverage. Ex. C to Second Amended Complaint,³ docket no. 24-3 at 4. The relevant portion of the Policy, "Coverage E – Personal Liability" provides that

If a claim is made or a suit is brought against an "insured" for damages because of "bodily injury" or "property damage " caused by an "occurrence " to which this coverage applies, we will ... [p]ay up to our limit of liability for the damages for which an "insured" is legally liable ... [and] [p]rovide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent.

Id. at 39 (emphasis added). "Property damage" is defined as "physical injury to, destruction of or loss of use of tangible property." Id. at 23. "Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in ... ‘property damage.’ " Id.

The Policy itself, as well as an addendum, exclude intentional acts from coverage. See id. at 41 (exclusion for "property damage" which is expected or intended by an "insured"); id. at 50 (exclusion for intentional and malicious acts, which are defined in pertinent part as " ‘property damage’ arising out [of] an intentional and malicious act by or at the direction of any ‘insured.’ "). The addendum to the Policy also contains an exclusion for claims "[a]rising out of any written or oral statement made by you or others on your behalf which is material to the sale of any property." Id.

Discussion

A. Standard of Review

The Court shall grant summary judgment if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). To survive a motion for summary judgment, the adverse party must present affirmative evidence, which "is to be believed" and from which all "justifiable inferences" are to be favorably drawn. Id. at 255, 106 S.Ct. 2505. When the record, however, taken as a whole, could not lead a rational trier of fact to find for the non-moving party, summary judgment is warranted. See Beard v. Banks , 548 U.S. 521, 529, 126 S.Ct. 2572, 165 L.Ed.2d 697 (2006) (" Rule 56(c) ‘mandates the entry of summary judgment, after adequate time for discovery and upon motion, against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial.’ " (quoting Celotex , 477 U.S. at 322, 106 S.Ct. 2548 )).

B. An Insurer's Duty to Defend and Indemnify

Under Washington law, the duty to defend is different from and broader than the duty to indemnify. Am. Best Food, Inc. v. Alea London, Ltd. , 168 Wn.2d 398, 404, 229 P.3d 693 (2010). Although the duty to indemnify arises only if the policy "actually covers " the insured's liability, the duty to defend is triggered if the policy "conceivably covers " the allegations in the underlying complaint. Id. (emphasis in original). In evaluating whether the insurer owes a duty to defend, the Court must liberally construe the underlying complaint to determine whether the alleged facts could, if proven, impose liability on the insured that would be covered under the policy. Expedia, Inc. v. Steadfast Ins. Co. , 180 Wn.2d 793, 802-03, 329 P.3d 59 (2014). If "any reasonable interpretation of the facts or the law" could result in coverage, the insurer must defend. Am. Best Food , 168 Wn.2d at 405, 229 P.3d 693. Whether an indemnitor has a duty to defend must be determined from the facts known at the time the indemnitee requests a defense. See Knipschield , 74 Wn. App. at 216, 872 P.2d 1102.

In a declaratory action, the issue before the Court is whether coverage exists under the applicable policy for the various claims in the Underlying Action. This issue is dispositive of both the duty to defend and duty to indemnify. See Travelers Property Cas. Co. of America v. Northwest Pipe Co. , 2017 WL 2687652, at *4 (W.D. Wash 2017). The Court finds that there is no genuine dispute of material fact precluding summary judgment that Homesite has no duty to defend or indemnify the Zajacs in the Underlying Action.

C. The Zajacs’ Coverage Under the Policy

a. There is no "property damage" caused by an "occurrence"

The Policy provides liability coverage for "property damage" caused by an "occurrence." Ex. C to Second Amended Complaint, docket no. 24-3 at 39. Property damage is defined in the Policy as "physical...