Midmountain Contractors Inc. v. Am. Safety Indem. Co.

893 F.Supp.2d 1096

MIDMOUNTAIN CONTRACTORS INC., Plaintiff,

v.AMERICAN SAFETY INDEMNITY COMPANY, et al., Defendants.

Case No. C10–1239JLR.

United States District Court,

W.D. Washington,

at Seattle.

Sept. 5, 2012.

Charles K. Davis, Gregory L. Harper, Harper & Hayes PLLC, Seattle, WA, for Plaintiff.

Daniel Francis Mullin, John A. McHugh, Tracy A. Duany, Mullin Law Group PLLC, Donald J. Verfurth, Gordon & Rees, Stephanie M. Ries, Lether & Associates PLLC, Patrick N. Rothwell, Davis Rothwell Earle & Xochihua, Seattle, WA, for Defendants.

ORDER ON MOTIONS FOR SUMMARY JUDGMENT

JAMES L. ROBART, District Judge.

I. INTRODUCTION

This matter comes before the court on Plaintiff MidMountain Contractors, Inc.'s (“MidMountain” or “MM”) motion for partial summary judgment regarding Defendant American Safety Indemnity Company's (“ASIC”) duty to defend (MM Mot. (Dkt. # 70)) and ASIC's cross-motion for summary judgment (ASIC Mot. (Dkt. # 101)). Having considered the submissions of the parties, the balance of the record, and the relevant law, and no party having requested oral argument, the court GRANTS in part and DENIES in part MidMountain's motion for partial summary judgment regarding ASIC's duty to defend (Dkt. # 70) and GRANTS in part and DENIES in part ASIC's cross-motion for summary judgment (Dkt. # 101). The court orders MidMountain and ASIC to file a joint status report within 14 days of the date of this order identifying any claims remaining for trial in light of the court's rulings herein.

II. BACKGROUND

This is an insurance coverage dispute. MidMountain served as the general contractor to King County for construction of a new wastewater conveyance pump station in Kirkland, Washington, known as the Juanita Bay Pump Station (“the Project”). (Mills Decl. (Dkt. # 90) ¶ 3.) The general contract between King County and MidMountain provided that MidMountain “shall be responsible for the acts and omissionsof Subcontractors.” ( Id. Ex. C § 3.7(F).)

MidMountain subcontracted with Mattila Painting, Inc. (“Mattila”) to supply and install a Multi Component Bentonite (“MCB”) waterproofing system around the exterior of the pump station. ( Id. ¶ 3.) The subcontract provided that Mattila would provide insurance naming MidMountain and King County “as additional insureds for claims arising out of subcontractor's work....” ( Id. Ex. A ¶ R.)

A. The Policies

ASIC issued Mattila a series of Commercial General Liability (“CGL”) insurance policies with successive annual policy periods spanning August 1, 2005, to August 1, 2010 (“the Policies”).¹ (Fisher Decl. (Dkt. # 95) ¶ 2.) The Policies include the following additional insured endorsement (“the Additional Insured Endorsement”):

WHO IS AN IN INSURED (SECTION II) is amended to include as an insured the person or organization, trustee, estate or Governmental entity to whom or to which you are obligated, by virtue of a legally enforceable written contract ... to provide insurance such as is afforded by this policy, but only with respect to operations performed by you or on your behalf or to facilities used by you ....

Coverage under this Endorsement applies only as respects a legally enforceable written contract or permit with the Named Insured under this policy and only for liability arising out of or relating to the Names [sic] Insured's negligence.

(Fisher Decl. Ex. 1 at ASIC0108.) Another endorsement to the Policies amended the Insuring Agreement to provide in relevant part:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “bodily injury” or “property damage” to which this insurance applies. We will have the right and duty to defend the Insured against any “suit” seeking those damages. However, we will have no duty to defend the insured or any Additional Insured against any “suit,” “loss,” “claim,” “occurrence,” or incident to which this insurance does not apply.

%* * * * * *

This insurance applies to “bodily injury” and “property damage” only if:

(1) The “bodily injury” and “property damage” is caused by an “occurrence” that takes place in the “coverage territory”; and

(2) The “bodily injury” and “property damage” first manifests during the policy period.....

( Id. Ex. 1 at ASIC0091–92.) “Property damage” is defined to mean “[p]hysical injury to tangible property, including all resulting loss of use of that property.” ( Id. Ex. 1 at ASIC0081.) “Occurrence” is defined to mean “an accident.” ( Id.) “Suit” is defined to mean “a civil proceeding in which damages because of ‘bodily injury,’ [or] ‘property damage’ ... to which this insurance applies are alleged. ‘Suit’ includes ... [a]ny other alternative dispute resolution proceeding in which such damages are claimed and to which the insured submits with our consent.” ( Id.)

The Policies exclude “property damage” to “[t]hat particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the ‘property damage’ arises out of those operations” (“Exclusion j(5)”), as well as “property damage” to “[t]hat particular part of any property that must be restored, repaired or replaced because ‘your work’ was incorrectly performed on it” (“Exclusion j(6)”). ( Id. Ex. 1 at ASIC0073.) Exclusion j(6), however, “does not apply to ‘property damage’ included in the ‘products-completed operations hazard.’ ” ( Id.) The “products-completed operations hazard” (“PCOH”) “[i]ncludes all ‘bodily injury’ and ‘property damage’ occurring away from premises you own or rent and arising out of ‘your product’ or ‘your work’ except: ... Work that has not yet been completed or abandoned....” ² ( Id. Ex. 1 at ASIC0081.) The Policies were also endorsed to exclude cross-claims or suits: “This insurance does not apply to: Any claim or ‘suit’ for damages by any Insured against another Insured. All other terms, conditions and exclusions under the policy are applicable to this Endorsement and remain unchanged” (“Cross–Claim Exclusion”). ( Id. Ex. 1 at ASIC0090.)

Among the duties placed on insureds under the Policies is the duty to “[c]ooperate with us in the Investigation or settlement of the claim or defense against the ‘suit.’ ” ( Id. Ex. 1 at ASIC0078.) The Policies further provide, “No insured will, except at that Insured's own cost, voluntarily make a payment, assume any obligation, or incur any expense ... without our consent.” ( Id.)

B. The Underlying Dispute

On April 19, 2010, King County sent a letter to MidMountain alleging that MidMountain and its subcontractors performed defective work. (Mills Decl. Ex. B.) MidMountain tendered King County's allegations and claims to ASIC, among other insurers. ( Id.) Upon receipt of MidMountain's tender, ASIC contacted Mattila and its agent to obtain information. (Fisher Decl. ¶ 4.)

On July 2, 2010, MidMountain initiated the instant declaratory judgment action against its insurer, National Fire Insurance Company of Hartford (“National Fire”), and ASIC in the King County Superior Court for the State of Washington. (Compl. (Dkt. # 1).) ASIC timely removed the action to this court. (Not. of Removal (Dkt. # 1).) ASIC then moved to stay this proceeding because MidMountain's lawsuit was premature. (Dkt. # 12.) The court agreed and stayed the proceedings for seven months. (Dkt. 14, 17.)

While the insurance coverage action was stayed, the parties proceeded with the underlying dispute. On July 29, 2010, ASIC sent a letter to MidMountain acknowledging receipt of the May 5, 2012 tender and reserving all rights under the terms and conditions of the policies issued to Mattila. (Fisher Decl. Ex. 3.) Among other things, ASIC stated its position that no “suit” had been filed that would trigger any duty to defend or indemnify. ( Id. Ex. 3 at ASIC2270.) ASIC also asked to be apprised of any significant developments and notified of any mediation. ( Id. Ex. 3 at ASIC2274.)

On February 16, 2011, MidMountain and King County mediated their dispute. (Fisher Decl. ¶ 6.) National Fire representedMidMountain at the mediation, which ASIC also attended. ( Id.) The mediation was unsuccessful. ( Id.)

On March 4, 2011, MidMountain filed suit against King County, Mattila, and subcontractor Johnson Western Genuite Co. (“JWG”) in the King County Superior Court for the State of Washington (“the Underlying Action”). (Harper Decl. (Dkt. # 71) Ex. E.) MidMountain brought claims for breach of contract, warranty, indemnity and defense, and duty to procure insurance against the defendants, as well as a claim for default on contract against Mattila. ( Id.) MidMountain's complaint included the allegation that “[n]ear the end of Mattila's work on the project, but before Mattila completed its contractual obligations, Mattila refused to complete its work and walked off the Project in breach of its contractual obligations....” ( Id. Ex. E ¶ 2.24.)

King County answered MidMountain's complaint (“the Answer”) and counterclaimed (“the Counterclaim”), alleging that MidMountain was liable for property damage arising out of the subcontractors' work. (Harper Decl. Ex. F.) In its Answer, King County admitted that “the MCB installation by Mattila was defective and has led to water entry and resulting property damage to completed components other than Mattila's own work.” ( Id. Ex. F ¶ 2.25.) The Counterclaim alleged that “Mattila's waterproofing installation was determined to have been faulty causing the product to fail in its essential purpose....” ( Id. Ex. F ¶ 10.7.) Additionally, the Counterclaim alleged that “[w]aterproofing-related damages were caused by MidMountain's acts and omissions” and that “[d]ue to the negligent waterproofing work, King County has incurred and will incur costs for repair and mitigation....” ( Id. Ex. F. ¶ 10.12.)

On April 12, 2011, MidMountain tendered the Counterclaim to ASIC. ( Id. Ex. G.) On May 19, 2011, MidMountain wrote to ASIC, claiming that ASIC had violated various regulatory provisions governing...