Unigard Ins. Co. v. Metro Metals Nw., Inc.

Unigard Insurance Company, Plaintiff, v. Metro Metals Northwest, Inc., Pacific Coast Shredding, LLC,and Port of Vancouver, USA, Defendant.

CASE NO. 17-cv-05743

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT TACOMA

October 11, 2018

HONORABLE RONALD B. LEIGHTON

ORDER GRANTING MOTION FOR SUMMARY JUDGMENT

INTRODUCTION

THIS MATTER is before the Court on Plaintiff Unigard Insurance Company's Motion for Summary Judgment regarding its duty to defend and indemnify Metro Metal Northwest, Inc. and Pacific Coast Shredding, LLC, in a separate lawsuit. Dkt. #20. Metro/PCS entered into an agreement with the Port of Vancouver to use a dock for loading scrap metal onto ships. The dock was damaged, and the Port demanded reimbursement for repairs, consistent with their agreement. Metro/PCS refused, the Port sued, and Metro/PCS tendered defense to their insurers.¹Unigard asks the Court to issue a declaratory judgment that it has no duty to defend or indemnify Metro/PCS.

Unigard argues that the underlying allegations do not constitute an "occurrence," which is defined in the policy as an "accident." The Port and Metro/PCS had an agreement regarding the latter's use of the Terminal 2 dock, including a provision that Metro/PCS was responsible for repairing any damage. Consequently, Unigard contends that the damage alleged in the underlying complaint was anticipated and thus could not be accidental. Unigard also asserts that coverage is excluded because the alleged damage arose from Metro/PCS's "operations," and occurred on property that Metro/PCS "own[ed], lease[d], or occup[ied]."

Metro/PCS assert a number of arguments in opposition. Most importantly, Metro/PCS argue that the underlying complaint contains a negligence claim and can be liberally read to allege facts constituting accidental damage. In addition, Metro/PCS contend that the ongoing operations exclusion is narrower than Unigard presents, and that mere permission to use the Terminal 2 dock involves insufficient control to constitute "occupy[ing]" the dock.

BACKGROUND

The following facts are derived from the Port of Vancouver's underlying complaint against Metro/PCS, as well as the attached agreement and demand letter. See Dkt. #21, Ex. 2. In 2009, the Port entered into an agreement with Metro regarding use of the Port's Terminal 2 dock for scrap metal loading. Id. at 11. This additional "staging space" for Metro's operations was provided in consideration of Metro's obligation to increase the amount of metal it exported through the Port. Id. The agreement also outlined other responsibilities of the parties, includingMetro's responsibility to "[r]epair damage to the terminal areas used for scrap steel operations." Id. at 12.

Metro and its subsidiary, PCS, began using Terminal 2 for their operations, but in 2011 the Longshore and Warehouse Union expressed concerns about the structural integrity of the dock. Id. at 3. The Port performed short-term repairs, and subsequently contracted with a consultant to evaluate the extent of the damage. Id. at 4. The consultant reported that the damage to the dock included "degradation of the concrete surface, exposed reinforcing steel rebar, and missing reinforcing steel rebar." Id.

In October of 2011, The Port received a proposal for repairs and contacted Metro to discuss the plans. Id. However, Metro/PCS was unresponsive and continued their operations at the dock, causing additional damage. Id. The Port eventually accepted a bid for permanent repairs to the dock, which took place between September and December of 2012. Id. at 5. During and after the repairs, Metro/PCS continued to load scrap metal at the dock. Id.

In October of 2016, the Port sent a letter to Metro/PCS demanding reimbursement for the cost of repairs, which totaled $1,558,141.68. Id. Metro/PCS did not respond, and the Port sued Metro/PCS in June of 2017. The amended complaint alleged breach of contract, unjust enrichment, and an alternative cause of action for negligence against PCS in the event that PCS was found not to be an agent, assignee, or alter ego of Metro. Id. at 5-7. Metro/PCS tendered defense and indemnity to Unigard, which agreed to defend under a reservation of rights. Dkt. #1, at 3. Unigard subsequently brought this declaratory judgment action to determine coverage. Id.

Unigard issued primary general liability and commercial umbrella coverage policies to Metro/PCS in 2010. Dkt. #20, at 6. The policies were effective from August 22, 2010 to August 22, 2011. Id. Both policies provide coverage and a duty to defend suits alleging "propertydamage" caused by an "occurrence," and contain exclusions for damage to property the insured owns, rents, or occupies; damage arising out of the insured's operations; and expected or intended damage. Id. at 7-8.

DISCUSSION

A. Legal Standards

1. Summary Judgment

Summary judgment is proper "if the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In determining whether an issue of fact exists, the Court must view all evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Anderson Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986) (emphasis added); Bagdadi v. Nazar, 84 F.3d 1194, 1197 (9th Cir. 1996). A genuine issue of material fact exists where there is sufficient evidence for a reasonable factfinder to find for the nonmoving party. Anderson, 477 U.S. at 248. The inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Id. at 251-52. The moving party bears the initial burden of showing that there is no evidence which supports an element essential to the nonmovant's claim. Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). Once the movant has met this burden, the nonmoving party then must show that there is a genuine issue for trial. Anderson, 477 U.S. at 250. If the nonmoving party fails to establish the existence of a genuine issue of material fact, "the moving party is entitled to judgment as a matter of law." Celotex, 477 U.S. at 323-24.

2. Declaratory Judgment regarding the Duty to Defend

"Interpretation of an insurance contract is a question of law." Woo v. Fireman's Fund Ins. Co., 161 Wash. 2d 43, 52 (2007). Terms are to be interpreted as the "average person purchasing insurance" would understand them. Id. While the insured has the burden of proving that claims fall within a grant of coverage, the insurer has the burden of proving that an exclusion bars coverage. See McDonald v. State Farm Fire & Cas. Co., 119 Wn.2d 724, 731 (1992). The duty to defend is broader than the duty to indemnify, and arises at the time the action is filed based on the potential for liability. Woo, 161 Wash. 2d at 52. "If the insurer is unsure of its obligation to defend in a given instance, it may defend under a reservation of rights while seeking a declaratory judgment that it has no duty to defend." Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wash. 2d 751, 761 (2002).

In Washington, in a declaratory judgment action, the duty to defend is determined by the facts alleged in the complaint.² Indian Harbor Ins. Co. v. Transform LLC, 2010 WL 3584412, at *3 (W.D. Wash. Sept. 8, 2010) (citing Holland Am. Ins. Co. v. Nat'l Indem. Co., 75 Wash. 2d 909, 911 (1969)). "[I]f a complaint is ambiguous, a court will construe it liberally in favor of triggering the insurer's duty to defend." Woo, 161 Wash. 2d at 53. Although an insurer may look outside the complaint if the allegations are contradictory or ambiguous, or if coverage is unclear, the insurer may only rely on extrinsic facts to trigger the duty to defend. Grange Ins. Ass'n v. Roberts, 179 Wash. App. 739, 752 (2013) (quoting Woo v. Fireman's Fund Ins. Co., 161 Wash.2d 43, 52-54 (2007)). "After obtaining a declaration of noncoverage, an insurer will not be obligated to pay from that point forward." Nat'l Sur. Corp. v. Immunex Corp., 176 Wash. 2d 872, 885 (2013) (internal quotations omitted).

Unigard stated in its complaint that Oregon law may apply, and Metro/PCS argue that Oregon law is not identical to Washington with respect to considering extrinsic evidence to determine the duty to defend. However, in Oregon, the duty to defend is likewise largely determined by looking to the allegations in the complaint. In North Pacific Insurance Co. v. Wilson's Distributing Service, Inc., the Oregon Court of Appeals addressed "whether an insurer may avoid its duty to defend by developing evidence in a declaratory judgment proceeding, commenced before the underlying action is concluded, to show that its policy does not cover the claim being asserted in the underlying tort action." 138 Or. App. 166, 170 (1995). The court held that it may not rely on such evidence unless it has been uncontrovertibly established in a separate proceeding. Id. at 174.

B. The Underlying Complaint's Allegation of an "Occurrence"

The policies state that Unigard "will have the right and duty to defend the insured against any 'suit' seeking . . . damages because of . . . 'property damage' . . . ." Dkt. #20, at 7. The policies also require that "property damage" be caused by an "occurrence," which is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id. at 7-8. Unigard argues that the damage alleged in the underlying complaint does not qualify as an "occurrence" because it was anticipated in the agreement between Metro/PCS and the Port. See Dkt. #21, Ex. 2, at 12 (stating that Metro has a responsibility to "[r]epair damage to the terminal areas used for scrap steel operations").

In opposition, Metro/PCS argue that the claim of negligence against PCS in the underlying complaint means that the damage to...