AMERICAN BEST FOOD v. ALEA LONDON

• Decision Date: 18 March 2010
• Docket Number: No. 80753-1.,80753-1.
• Citation: 168 Wash.2d 398,229 P.3d 693
• Parties: AMERICAN BEST FOOD, INC., a Washington corporation d/b/a/ Café Arizona; and Myung Chol Seo and Hyun Heui Seo-Jeong, Respondents, v. ALEA LONDON, LTD., a foreign corporation, Petitioner.
• Court: Washington Supreme Court

229 P.3d 693

168 Wash.2d 398

AMERICAN BEST FOOD, INC., a Washington corporation d/b/a/ Café Arizona; and Myung Chol Seo and Hyun Heui Seo-Jeong, Respondents, v. ALEA LONDON, LTD., a foreign corporation, Petitioner.

No. 80753-1.

Supreme Court of Washington, En Banc.

Argued October 21, 2008.

Decided March 18, 2010.

J.C. Ditzler, Melissa O'Loughlin White, Molly Siebert Eckman, Cozen O'Connor, Seattle, WA, Philip Albert Talmadge, Talmadge/Fitzpatrick, Tukwila, WA, for Petitioners.

Scott R. Sleight, Ahlers & Cressman P.L.L.C., Benjamin I. VandenBerghe, Scott Easter, Montgomery Purdue Blankenship & Austin, Seattle, WA, for Respondents.

Karen Southworth Weaver, Soha & Lang, P.S., Seattle, WA, for Amicus Curiae on behalf of Professor Karen Weaver and Others.

Pamela A. Okano, Michael Simpson Rogers, Reed McClure, Seattle, WA, for Amicus Curiae on behalf of State Farm Fire & Casualty Company.

Bryan Patrick Harnetiaux, Spokane, WA, David Merritt Beninger, Luvera, Barnett, Brindley, Beninger, et al., Seattle, WA, for Amicus Curiae on behalf of Washington State Association For Justice Foundation and Washington State Trial Lawyers.

CHAMBERS, J.

¶ 1 This court is called upon to decide whether a complaint alleging that postassault negligence caused or exacerbated injuries falls under an insurance policy's assault and battery exclusion. We find it does not. We are also asked whether an insurer breached its duty to defend as a matter of law when, relying upon an equivocal interpretation of case law, it gave itself the benefit of the doubt rather than give that benefit to its insured. We find that it has. We affirm the Court of Appeals in part and remand for further proceedings consistent with this opinion.

FACTS

¶ 2 American Best Food, Inc., operates Café Arizona, a Federal Way nightclub.¹ On January 19, 2003, after they apparently brushed against each other on the dance floor, George Antonio confronted Michael Dorsey inside Café Arizona. Club security escorted Antonio out of the building. When security later let Antonio return, he confronted Dorsey again. This time security escorted both men outside. Once outside the nightclub, Antonio pulled a gun and shot Dorsey nine times. A club security guard returned fire, wounding Antonio. Dorsey apparently staggered to the alcove of the club, where security guards carried him inside. Myung C. Seo instructed club employees to remove Dorsey from the establishment. According to Dorsey's complaint, the employees "dumped him on the sidewalk." Clerk's Papers (CP) at 42.

¶ 3 Later that year, Dorsey sued, alleging that Café Arizona failed to take reasonable precautions to protect him against criminal conduct despite considerable notice of the potential harm given the history of violence at the club and the specific conduct of Antonio. In an amended complaint, Dorsey also explicitly contended that the security guards exacerbated his injuries by dumping him on the sidewalk after he was shot. Café Arizona promptly sought protection from its insurer, Alea London, Ltd., by notifying it of Dorsey's lawsuit and asserting rights to defense and indemnity. Alea refused, citing exclusion in its policy for injuries or damages "arising out of" assault or battery. CP at 107-09. Café Arizona's counsel protested, contending that the complaint contained factual allegations of additional injuries caused by the negligence of Café Arizona's employees, injuries to which the assault and battery exclusion may not necessarily apply, including claims of employee postassault negligence. Alea still refused, relying on McAllister v. Agora Syndicate, Inc., 103 Wash. App. 106, 11 P.3d 859 (2000), for an expansive reading of the exclusion and contending that under "McAllister, Washington courts would likely find the allegations of negligence not sufficient" to trigger coverage. CP 110-11. Café Arizona's counsel responded again, arguing that at least some question of coverage existed, thus entitling the insured to a defense. Counsel especially called the insurer's attention to an out-of-state case that clearly supported coverage, citing Western Heritage Insurance Co. v. Estate of Dean, 55 F.Supp.2d 646 (E.D.Texas, 1998) (finding that a tavern owner's failure to render aid to an injured patron was a covered occurrence, not excluded by an assault and battery exclusion). CP at 274. Alea again declined. Further correspondence from Café Arizona to Alea, including provision of an expert witness report, failed to change Alea's position.

¶ 4 Café Arizona sued Alea in May 2005 for breach of contract, bad faith, and violation of the Consumer Protection Act, chapter 19.86 RCW. On cross motions for summary judgment, the King County Superior Court found for Alea and dismissed Café Arizona's claims. Café Arizona appealed. The Court of Appeals partially reversed, holding that Alea breached its duty to defend and that summary dismissal of the bad faith refusal to defend and indemnification claims was inappropriate. Am. Best Food, Inc. v. Alea London, Ltd., 138 Wash.App. 674, 689, 691, 158 P.3d 119 (2007). It affirmed dismissal of Café Arizona's consumer protection act and insurance regulation claims. We granted review. Am. Best Food, Inc. v. Alea London, Ltd., 163 Wash.2d 1039, 187 P.3d 268 (2008).

ANALYSIS

¶ 5 This case comes to this court on review of the Court of Appeals' partial reversal of a summary dismissal of respondents' claims. Summary judgment is reviewed de novo. Liberty Mut. Ins. Co. v. Tripp, 144 Wash.2d 1, 10, 25 P.3d 997 (2001). We interpret insurance policy provisions as a matter of law. Kitsap County v. Allstate Ins. Co., 136 Wash.2d 567, 575, 964 P.2d 1173 (1998).

A. Duty To Defend

¶ 6 We have long held that the duty to defend is different from and broader than the duty to indemnify. Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 392, 823 P.2d 499 (1992) (citing 1A ROWLAND H. LONG, THE LAW OF LIABILITY INSURANCE § 5B.15, at 5B-143 (1986)). The duty to indemnify exists only if the policy actually covers the insured's liability. The duty to defend is triggered if the insurance policy conceivably covers allegations in the complaint. Woo v. Fireman's Fund Ins. Co., 161 Wash.2d 43, 53, 164 P.3d 454 (2007). "The duty to defend `arises when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy's coverage.'" Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wash.2d 751, 760, 58 P.3d 276 (2002) (quoting Unigard Ins. Co. v. Leven, 97 Wash.App. 417, 425, 983 P.2d 1155 (1999)). An insurer may not put its own interests ahead of its insured's. Mut. of Enumclaw Ins. Co. v. T & G Const., Inc., 165 Wash.2d 255, 269, 199 P.3d 376 (2008) (citing Butler, 118 Wash.2d at 389, 823 P.2d 499). To that end, it must defend until it is clear that the claim is not covered. The entitlement to a defense may prove to be of greater benefit to the insured than indemnity. Truck Ins. Exch., 147 Wash.2d at 765, 58 P.3d 276.

¶ 7 The insurer is entitled to investigate the facts and dispute the insured's interpretation of the law, but if there is any reasonable interpretation of the facts or the law that could result in coverage, the insurer must defend. Id. at 760, 58 P.3d 276 ("Only if the alleged claim is clearly not covered by the policy is the insurer relieved of its duty to defend.") (citing Kirk v. Mt. Airy Ins. Co., 134 Wash.2d 558, 561, 951 P.2d 1124 (1998)). When the facts or the law affecting coverage is disputed, the insurer may defend under a reservation of rights until coverage is settled in a declaratory action. See id. at 761, 58 P.3d 276 (citing Grange Ins. Co. v. Brosseau, 113 Wash.2d 91, 93-94, 776 P.2d 123 (1989)). "Once the duty to defend attaches, insurers may not desert policyholders and allow them to incur substantial legal costs while waiting for an indemnity determination." Id. Instead,

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. A reservation of rights is a means by which the insurer avoids breaching its duty to defend while seeking to avoid waiver and estoppel. "When that course of action is taken, the insured receives the defense promised and, if coverage is found not to exist, the insurer will not be obligated to pay."

Id. (citation omitted) (quoting Kirk, 134 Wash.2d at 563 n. 3, 951 P.2d 1124). With these principles in mind, we turn to the assault and battery exclusion.

B. Exclusion

¶ 8 Alea argues that the Court of Appeals erred when it held that Alea had a duty to defend. It contends the assault and battery exclusion clearly bars coverage of the claim as alleged in the complaint, and therefore, it had no duty to defend its insured. The assault and battery exclusion reads:

¶ 9 This insurance does not apply to any claim arising out of—

A. Assault and/or Battery committed by any person whosoever, regardless of degree of culpability or intent and whether the acts are alleged to have been committed by the insured or any officer, agent, servant or employee of the insured or by any other person; or

B. Any actual or alleged negligent act or omission in the:

1. Employment;

2. Investigation;

3. Supervision;

4. Reporting to the proper authorities or failure to so report; or

5. Retention; of a person for whom any insured is or ever was legally responsible, which results in Assault and/or Battery; or

C. Any actual or alleged negligent act or omission in the prevention or suppression of any act of Assault and/or Battery.

CP at 62. Alea argues that absent the assault, Dorsey would have no cause of action against Café Arizona and thus, his entire claim, including his claim for any injuries sustained when club security guards allegedly dumped him on the sidewalk on orders of the club owner, is excluded under the policy.

¶ 10 "Exclusionary clauses are to be most strictly construed against...