Opinion
C14-1706 TSZ
10-19-2015
THE STANDARD FIRE INSURANCE COMPANY, Plaintiff, v. PORT OF BELLINGHAM, et al., Defendants.
ORDER
THIS MATTER comes before the Court on a motion for partial summary judgment brought by plaintiff The Standard Fire Insurance Company ("Standard"), docket no. 30. Having considered all papers filed in support of and in opposition to the motion, including the supplemental briefs submitted by the parties at the Court's request, as well as the oral arguments of counsel at the hearing held on July 14, 2015, the Court enters the following order. Background
In this action, Standard seeks a declaratory judgment that, under the insurance policy at issue, it owes no duty to defend or indemnify the Port of Bellingham (the "Port") in connection with wrongful death counterclaims asserted against the Port by the estates of Jim (James) A. Langei and Sterling Taylor, husband and wife (collectively, the "Estates"). Langei and Taylor died on March 30, 2012, when their vessel, the M/Y BREAKWIND, on which they were residing, was destroyed by fire and sank into the navigable waters of Bellingham's Squalicum Harbor. At the time, the vessel was moored in the G East Boathouse in the Squalicum Marina, along with eleven (11) other non-commercial yachts, including one christened the MENTAL FLOSS, which was owned by Randle Carr and insured under a yacht policy issued by Travelers Property Casualty Companies through Standard (the "Standard Policy"), Ex. 2 to Purdy Decl. (docket no. 31-2).
In November 2014, the Estates filed wrongful death counterclaims against the Port, alleging that (i) the Port and/or its contractors negligently caused the fire, and/or (ii) the Port was negligent in failing to provide the Squalicum Marina with adequate fire suppression equipment. Am. Answer, Counterclaim, & 3d-Party Compl. (C12-946, docket nos. 110 & 111). The Port, which was identified an "additional insured" on the Standard Policy, tendered defense of these wrongful death counterclaims to Standard. Standard accepted defense under a reservation of rights, and now seeks a ruling that it owes no continuing duty to defend. Discussion
The Estates amended their pleadings after the Court decided the Port's motion seeking a ruling that the Estates' failure to plead the wrongful death claims as compulsory counterclaims in Case No. C12-946 barred the Estates from pursuing such claims in state court. See Order (C12-946, docket no. 74). The Court interpreted the Port's motion as essentially requesting an injunction against the litigation then pending in Whatcom County Superior Court and made clear that the Court could not grant such relief. Id . at 9 (citing the Anti-Injunction Act, 28 U.S.C. § 2283). In light of the risks associated with proceeding forward in both forums simultaneously, the Estates have chosen to prosecute their wrongful death claims here rather than in state court.
To prevail on its motion for summary judgment, Standard must show that no genuine issue of material fact exists and that it is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a); see Celotex Corp . v. Catrett , 477 U.S. 317, 323 (1986). The Court is not persuaded that Standard has demonstrated a right to judgment as a matter of law. In the absence of a federal statute or judicially-fashioned admiralty rule or a need for uniformity in admiralty practice, state law governs with respect to maritime insurance matters. See Certain Underwriters at Lloyds , London v. Inlet Fisheries Inc., 518 F.3d 645, 649 (9th Cir. 2008) (citing Wilburn Boat Co . v. Fireman's Fund Ins. Co., 348 U.S. 310 (1955)); see also Bohemia , Inc. v. Home Ins. Co., 725 F.2d 506, 509-10 (9th Cir. 1984); John Deere Ins . Co. ex rel. Int'l Specialty, Inc. v. Smith Lighterage Co., 948 F. Supp. 947, 949 (W.D. Wash. 1996). The parties appear to agree that Washington law governs in this case.
Washington courts construe insurance policies as a whole, giving the policy the "fair, reasonable, and sensible construction" that an average person purchasing insurance would. Vision One , LLC v. Phila. Indem. Ins. Co., 174 Wn.2d 501, 512, 276 P.3d 300 (2012); see also Panorama Vill . Condo. Owners Ass'n Bd. of Dirs. v. Allstate Ins. Co., 144 Wn.2d 130, 137, 26 P.3d 910 (2001). Inclusionary clauses are liberally construed in favor of coverage, while exclusionary provisions are interpreted strictly against the insurer. Assurance Co . of Am. v. Wall & Assocs. LLC of Olympia , 379 F.3d 557, 560 (9th Cir. 2004) (summarizing Washington law). If the language of a policy is "clear and unambiguous," the Court must "enforce it as written and may not modify it or create ambiguity where none exists." Weyerhaeuser Co . v. Commercial Union Ins. Co., 142 Wn.2d 654, 666, 15 P.3d 115 (2000). On the other hand, if a provision is ambiguous, the Court may rely on extrinsic evidence of the parties' intent to interpret the clause, and may resolve any remaining ambiguities against the insurer as the drafter of the policy. Id . A term of an insurance contract is ambiguous when it is "fairly susceptible" to being interpreted in two different ways, both of which are reasonable. Id . In this case, no argument has been made that the policy provisions at issue are in any way ambiguous.
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); see also Expedia , Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 802, 329 P.3d 59 (2014). 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 , 180 Wn.2d at 802-03; Am . Best Food , 168 Wn.2d at 404-05 (citing Truck Ins . Exch. v. VanPort Homes, Inc., 147 Wn.2d 751, 58 P.3d 276 (2002)). The analysis must ordinarily be performed within the "eight corners" of the insurance contract and the underlying complaint, but this rule has two exceptions: (i) if coverage is not obvious from the face of the complaint but could exist, the insurer must investigate and give the insured the benefit of the doubt concerning the duty to defend; and (ii) if the allegations in the complaint are ambiguous or conflict with facts known to the insurer, facts outside the complaint may be considered. Expedia , 180 Wn.2d at 803-04. Extrinsic facts, however, may only be used to trigger the duty to defend; they may not be used to deny coverage. Id . at 804. 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.
Under the Standard Policy, the insurer is required to "pay those sums that the insured becomes legally obligated to pay as damages because of bodily injury or property damage caused by an occurrence to which this insurance applies." Standard Policy at § 6.A (docket no. 31-2 at 28). The Standard Policy further provides that the insurer "will pay damages for bodily injury or property damage for which an insured is legally responsible arising out of owning, maintaining or using" the MENTAL FLOSS. Id . at § 6.A.1. The term "insured" is defined as Carr, a resident of his household who is related to him by blood, marriage, or adoption, and any person while operating his yacht for private pleasure without charge and with his permission. Id . at Definitions (docket no. 31-2 at 22). The Standard Policy identifies the Port as an additional insured, but "only for the liability arising out of the negligence of the insured." Id . at Additional Insured Endorsement (docket no. 31-2 at 11).
Standard contends that it owes no duty to defend the Port because the claims of the Estates against the Port are not premised on the negligence of Carr. The Estates allege that the Port had a duty to supervise Dutra Construction Co., Inc. ("Dutra") and its subcontractors, including Elite Electrical Contractors, Inc. ("Elite"), that the Port (as well as Dutra and Elite) failed to properly repair, inspect, or have inspected the electrical system at Gate 3 (which is near the G East Boathouse), that the Port "did not take adequate steps to assure a fire in the marina could be adequately addressed by the fire suppression tools available in the marina," and that the Port spoliated certain materials. Am. Answer, Counterclaim, & 3d Party Compl. at ¶¶ 3.1, 3.11, 3.18, 3.19, 3.21, & 4.1-4.7 (C12-946, docket nos. 110 & 111). In essence, the Estates claim that the Port is liable for negligent supervision of Dutra and Elite, negligence with respect to the cause and containment of the fire, and misconduct in connection with the evidence. The Estates make no assertion that the Port is vicariously liable for Carr's acts or omissions. Thus, the "eight corners" of the Standard Policy and the Estates' counterclaims support the conclusion that Standard owes no duty to defend the Port in the wrongful death action.
The Port asserts, however, that the Court should not limit its analysis to the "eight corners" of the Standard Policy and the operative pleading, but rather should consider extrinsic evidence, which can come into play if the allegations in the complaint are ambiguous or conflict with facts known to the insurer. See Expedia , 180 Wn.2d at 803-04. The Port does not rely on the ambiguity prong of this test, but rather contends Standard is aware of information that is inconsistent with what the Estates have alleged in their wrongful death counterclaims, namely evidence tending to place blame for the fire on Carr. To be clear, the Port does not contend that it would have vicarious liability for any negligence on Carr's part. Rather, the Port argues that any liability it might have for failing to provide adequate fire suppression tools would be causally related to Carr's negligence if his actions or omissions started the fire. In essence, the Port reasons that, but for the fire, which might have originated on Carr's vessel, any deficiencies in the fire suppression system would not have resulted in or contributed to the deaths of Langei and Taylor. According to the Port, this "but for" relationship between the Carr's alleged negligence and the Estates' poor-fire-suppression claim against the Port gives rise to a duty on Standard's part to provide a defense.
According to the Port's expert, Abid Kemal, Ph.D., the fire at issue likely originated inside the G East Boathouse on a vessel or slip to the east of the M/Y BREAKWIND, which was in the last slip on the west end of the G East Boathouse. Kemal Decl. at ¶ 10, Ex. 7 to Matison Decl. (C12-1829, docket no. 144-6). The slips in the G East Boathouse were arranged as follows:
Carr is not an agent of the Port, and even if he was found responsible for the fire, the Port would not, as a result, be liable. Rather, the trier of fact would be required to apportion fault, and the Port would be liable for its own negligence and/or misconduct. If the Port was determined to be a joint tortfeasor, then the Estates could collect the entire amount of any judgment from the Port, leaving the Port to seek contribution from the other joint tortfeasors, including conceivably Carr. See Minute Order (C12-946, docket no. 175; C12-1829, docket no. 153) (concluding that McDermott , Inc. v. AmClyde , 511 U.S. 202 (1994), does not govern).
Although the Port also asserts that the fire might have started in the G East Boathouse, because the Port points to the MENTAL FLOSS itself as a possible source of the fire, the Court need not address whether the Standard Policy covers Carr's liability with respect to both the vessel and the G East Boathouse or only as to the vessel.
In advancing this theory, the Port relies on the policy language indicating that Standard will cover the Port for liability "arising out of Carr's negligence. See Standard Policy at Additional Insured Endorsement (docket no. 31-2 at 11). The Port contends that the Court must consider the broad meaning ascribed to the phrase "arising out of" in the insurance context. See Equilon Enters . LLC v. Great Am. Alliance Ins. Co., 132 Wn. App. 430, 437-38, 132 P.3d 758 (2006) (observing that "arising out of" is construed to connote "a 'natural consequence' level of causation," "broadly link[ing] a factual situation with the event creating liability," and requiring "only a minimal causal connection or incidental relationship"). Washington courts consider the words "arising out of" to be clear and unambiguous, and to encompass more than the alternative phrases "caused by" or "resulting from." Australia Unlimited , Inc. v. Hartford Cas. Ins. Co., 147 Wn. App. 758, 774, 198 P.3d 514 (2008). Under Washington law, "arising out of" means "originating from," "having its origin in," "growing out of," or "flowing from," and it is not synonymous with "proximately caused by." Id .
The Court is persuaded that the Port is entitled to introduce Carr's possible fault by way of extrinsic evidence, Expedia , 180 Wn.2d at 803-04, and that the broad inclusionary clause set forth in the additional insured endorsement imposes a duty on Standard to continue to defend the Port as to the Estates' claim that the Port is liable for failing to provide effective fire suppression equipment. Equilon , which involved a similar "additional insured" provision, dictates this result. In Equilon , Great American Alliance Insurance Company ("Great American") issued a commercial general liability ("CGL") policy that covered the additional insured, Equilon Enterprises LLC, doing business as Shell Oil Products US ("Shell"), for "liability arising out of the insured's operations or premises. 132 Wn. App. at 434. The insured was a fuel distributor that contracted with service stations to deliver Shell fuel for retail sale. Id . at 433. The contract between Shell and the fuel distributor allowed the fuel distributor to use Shell signs at service stations selling Shell fuel. Id .
Although involving Maryland, rather than Washington, law, Capital City Real Estate , LLC v. Certain Underwriters at Lloyd's London , 788 F.3d 375 (4th Cir. 2015), supports this conclusion. In Capital City , a contractor engaged a subcontractor, Marquez Brick Work, Inc. ("Marquez"), in connection with renovations to a building. The contractor was later sued for damage to an adjoining building, and it tendered the claim to the Underwriters at Lloyd's London ("Underwriters), which had issued a general commercial liability insurance policy to Marquez, listing the contractor as an additional insured. The underlying complaint against the contractor did not mention Marquez, and the Underwriters denied coverage. The Fourth Circuit concluded that the contractor, "as the additional insured, is entitled to introduce Marquez's involvement by way of extrinsic evidence." Id . at 383.
In contrast, in a related case involving a boat and personal watercraft policy issued by Progressive Classic Insurance Company ("Progressive"), the inclusionary provision did not contain the phrase "arising out of," but rather indicated that Progressive "will pay damages . . . for which an insured person becomes legally responsible because of an accident." Progressive Policy at Part I (C15-473, docket no. 12-5 at 10). The words "arising out of appeared only in the exclusions. Id . at Exclusions (C15-473, docket no. 12-5 at 11-13). Thus, with respect to the Progressive Policy, liberally interpreting the "arising out of" language would not have assisted the Port.
At one of these service stations, namely the South Seattle Market (the "Market"), an adolescent male was severely beaten by several youths loitering in the parking lot. Id . at 434. The assault victim sued the Market and Shell, but not the fuel distributor. Id . at 434-35. Shell tendered the claim to Great American, which denied coverage on the grounds that the underlying complaint did not mention the fuel distributor, refer to the fuel distributor's operations or premises, or make allegations arising out of the fuel distributor's operations or premises. Id . Providing its own defense, Shell moved for summary judgment, but the trial court refused to dismiss the claim against Shell, which was premised on apparent agency, because the evidence suggested that, at the time of the attack, the assault victim believed the Market was a Shell station and would therefore have adequate security. Id . at 435. Shell settled with the assault victim and then filed a declaratory judgment action against Great American. Id . The Washington Court of Appeals ruled that Great American had a duty to defend and indemnify Shell. Id . at 436-41.
In Equilon , Great American argued that Shell's liability did not "arise out of" the fuel distributor's operations, which did not include providing security at the Market, and was therefore not covered. Id . at 439. The Equilon Court disagreed, reasoning that the placing of Shell signs at the Market, pursuant to the contracts between the fuel distributor and Shell and between the fuel distributor and the Market, was an "aspect" of the fuel distributor's "ongoing operations." Id . It further concluded that Shell's liability arose out of the presence of the Shell signs, and therefore arose out of the fuel distributor's operations. Id . In interpreting the phrase "arising out of in this broad way, the Washington Court of Appeals observed that, if Great American had wanted to insure Shell only for injuries (as opposed to liability) arising out of the fuel distributor's operations, it could have worded the additional insured endorsement differently. Id . at 436 & n.2 (noting that other CGL policies have limited coverage to "liability specifically resulting from the conduct of the Named Insured which may be imputed to the Additional Insured" or to "liability arising out of the named insured's ongoing operations performed for the additional insured.").
Given the tenuous connection deemed sufficient in Equilon to satisfy the "arising out of standard, the Court cannot conclude, as a matter of law, that Standard has no duty to defend the Port. In Equilon , as in this case, the injured party did not name the insured as a defendant. In Equilon , however, unlike in this case, the insured was not alleged to have had any direct involvement in causing the injury; the fuel distributor was not responsible for security at the Market and it played no role in instigating or failing to stop or prevent the assault. Carr, on the other hand, is suspected by the Port of being at least partially at fault in starting the fire that led to the deaths of Langei and Taylor. Thus, in comparison to Equilon , in this case, the relationship between the additional insured's potential liability and the named insured's conduct is stronger.
Standard's argument that the Port's alleged negligence in connection with the fire suppression system predated the fire, and thus could not have "arisen out of" Carr's negligence, misses the mark. The Standard Policy covers the Port's liability, not its negligence, and the phrase "arising out of" requires no temporal or causal relationship between Carr's negligence and the Port's liability. Given the Port's theory that, absent a fire, the alleged deficiencies in the fire suppression system would not have contributed to the deaths of Langei and Taylor, the Court cannot say, as a matter of law, that the Port's liability does not "conceivably," see Am . Best Food , 168 Wn.2d at 404, "arise out of" or "flow from," see Australia Unlimited , 147 Wn. App. at 774, negligence on Carr's part. Whether Standard would be required, however, under the terms of the Standard Policy, to indemnify the Port, as opposed to providing it a defense, is a question for another day. Conclusion
In contrast, the Standard Policy covers Carr to the extent that he is "legally obligated to pay" or "legally responsible" for "damages because of [or for] bodily injury or property damage." Standard Policy at §§ 6.A & 6.A.1 (docket no. 31-2 at 28). As is apparent from these inclusionary clauses, Standard knows how to use more narrow and precise language than "liability arising out of the negligence of the insured," but it chose for whatever reason not to do so in the Additional Insured Endorsement. --------
For the foregoing reasons, Standard's motion for partial summary judgment, docket no. 30, is DENIED.
IT IS SO ORDERED.
Dated this 19th day of October, 2015.
/s/_________
Thomas S. Zilly
United States District Judge
| WEST | 2 | 4 | 6 | 8 | 10 | 12 | 14 | 16 | 18 | 20 | 22 | 24 | 26 | EAST |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Langei | Smith | Dodge | Cahalan | Deets | Osterloh | Troupin | Carr | Roberts | Ringler | Schjelderup | Peterson | Ershig |