Absher Constr. Co. v. N. Pac. Ins. Co.

• Decision Date: 20 March 2012
• Docket Number: Case No. C10–5821JLR.
• Citation: 861 F.Supp.2d 1236
• Parties: ABSHER CONSTRUCTION COMPANY, et al., Plaintiffs, v. NORTH PACIFIC INSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — Western District of Washington

861 F.Supp.2d 1236

ABSHER CONSTRUCTION COMPANY, et al., Plaintiffs,

v.NORTH PACIFIC INSURANCE COMPANY, et al., Defendants.

Case No. C10–5821JLR.

United States District Court,

W.D. Washington,

at Seattle.

March 20, 2012.

Lori Nelson Adams, Thorsrud, Cane & Paulich, Russell Charles Love, Thorsrud Cane & Paulich, Seattle, WA, for Plaintiffs.

Geoffrey C. Bedell, Steven Soha, Soha & Lang PS, Joanne Thomas Blackburn, Gordon Thomas Honeywell, Seattle, WA, for Defendants.

ORDER DENYING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT

JAMES L. ROBART, District Judge.

I. INTRODUCTION

Before the court is Plaintiffs Absher Construction Company and Pacific Components, Inc. d/b/a Absher Pacific Joint Venture's (collectively “Absher Pacific”) motion for summary judgment. (Mot. (Dkt. # 24).) This is an insurance coverage action, and Absher Pacific has moved for summary judgment with respect to whether the defendant insurance companies breached their duty to defend in bad faith, whether they are thereby estopped from denying coverage and so are liable for the settlement amount that Absher Pacific agreed to pay in the underlying litigation, and whether they are liable for bad faith claims handling irrespective of their obligations to provide a defense to Absher Pacific. ( See Mot. at 1–2, 6, 18–21.) Having considered the motion, all submissions of the parties both in support and in oppositionto the motion, the remainder of the record, and the relevant law, the court DENIES the motion.¹

II. BACKGROUND

A. The New Holly Development

In 1997 the Seattle Housing Authority (“SHA”) entered into construction contracts with Absher Pacific for the construction of a housing development, known as the New Holly Redevelopment Project (“New Holly”). (Holt Decl. Ex. 3 (SHA Compl.) at 26 ¶ 1.2 and at 27 ¶¶ 3.2–3.3.) New Holly was envisioned to comprise both rental housing and houses that would be for sale. ( See id. Ex. 1 (New Holly Homeowners Association (“HOA”) Compl.) at 5, ¶ 4.) Work began on the for-rent housing on March 5, 1998 and ended on November 30, 1999. (Bedell Decl. (Dkt. # 52) Ex. 1 (Clement Decl.) at 9 (Notice of Completion); Ex. 7 at 50 (Notice of Completion).) Work began on the for-sale units on August 12, 1999 and ended on December 15, 2002. ( Id. Ex. 1 (Clement Decl.) at 10 (Notice of Completion); Ex. 7 at 49 (Notice of Completion).)

B. The PTI Subcontract

In performing its contract with SHA, Absher Pacific subcontracted with Plumbing Today, Inc. (“PTI”) for installation of a hydronic heating system at New Holly. (Bedell Decl. Ex. 2 (Tonningas Decl.) ¶¶ 4–5, 9–10; Compl. (Dkt. # 1) ¶ 3.2.) PTI provided and installed plumbing fixtures as part of the hydronic heating system. ( See Holt Decl. Ex. 3 at 33 (PTI Subcontract).) PTI's subcontract with Absher Pacific required PTI to obtain liability insurance naming Absher Pacific as an additional insured without reservation or limitation.² ( Id. Ex. 3 (PTI Subcontract) at 37 ¶ 10(a).)

C. The New Holly HOA Complaint and the SHA Complaint

In 2008, the New Holly HOA brought an action against SHA alleging defects in the hydronic heating system. (Holt Decl. Ex. 1 (New Holly HOA Compl.).) The New Holly HOA Complaint alleged that the hydronic heating systems had been failing since “at least 2003.” ( Id. Ex. 1 at 7 ¶ 9.).

In 2009, SHA filed a separate suit against Absher Pacific as SHA's general contractor with respect to New Holly.³( Id. Ex. 2 (SHA Compl.).) The SHA Complaint alleges that Absher Pacific breached its duty to defend and indemnify SHA from all claims arising from Absher Pacific's work on the New Holly project, that Absher Pacific failed to obtain insurance coverage for SHA as required by the general contract, that Absher Pacific breached its contract and express warranty, and that Absher Pacific was negligent in performing its work by providing and installing defective components. ( See generally id. Ex. 2.) The SHA Complaint specifically references the New Holly HOA Complaint. ( Id. Ex. 2 at 19 ¶ 3.12.) The SHA Complaint also specifically alleges that the hydronic heating systems began to prematurely fail “[a]fter NewHolly's completion.” ( Id. Ex. 2 at 18 ¶ 3.8.)

D. Absher Pacific's Tender of Defense

In April 2009, Absher Pacific tendered its defense of the SHA Complaint to PTI's insurers. (Holt Decl. Ex. 3 at 22–47 (4/22/09 Absher Pacific tender letter).) The addressees of Absher Pacific's tender letter included Defendants North Pacific Insurance Company (“North Pacific”) and Assurance Company of America (“Assurance”). ( See id. Ex. 3 at 22.) The tender letter included a copy of the SHA Complaint, but not the New Holly HOA Complaint. ( See id.) The tender letter also included incomplete copies of the contracts between Absher Pacific and PTI. ( See id.) Subsequently, Defendant OneBeacon American Insurance Company (“OneBeacon”), which responded to Absher Pacific's tender letter, obtained complete copies of both of these contracts. ( See Blackburn Decl. ¶¶ 3–4, Exs. C, D.)

E. OneBeacon's Denial of Absher Pacific's Tender

On May 13, 2009, OneBeacon responded to Absher Pacific's tender letter on behalf of its insured, PTI, listing policy number OOR 808958 by Defendant Pennsylvania General Insurance Company (“Pennsylvania General”), policy numbers C01–14974 and C02–14974 by North Pacific, and policy number COR808958 by OneBeacon. (Holt Decl. Ex. 4 at 48–51 (5/13/09 OneBeacon denial letter).) In its letter, OneBeacon denied Absher Pacific's tender of defense of the SHA Complaint with respect to all of the foregoing policies. ( See id. at 48.) OneBeacon denied coverage with respect to the North Pacific policies stating that the policies provided “only ongoing operations coverage,” and “[t]he insured had completed their [sic] work and left the site prior to any claim being made.” ( Id. at 49.) OneBeacon denied coverage with respect to Pennsylvania General and OneBeacon policies based on the Additional Insured Endorsements found in those policies. ( Id. at 50–51.) OneBeacon stated that “[a]n organization's status as an additional insured under this endorsement ends when the named insured's work is completed.” ( Id. at 50.) OneBeacon further stated that “all of PTI's work was completed before the policies with these endorsements incepted.” ( Id. at 51.)

F. Assurance's Initial Failure to Respond to Absher Pacific's Tender

Assurance did not initially respond to Absher Pacific's April 2009 tender letter. (Holt Decl. ¶ 6.) On June 10, 2009, having received no response from Assurance, Absher Pacific re-tendered the claims to Assurance and the other carriers, and invited the carriers to attend an upcoming mediation. ( Id. Ex. 5 (6/10/09 Absher Pacific re-tender letter); Bedell Decl. (Dkt. # 52) ¶ 6, Ex. 5.) Assurance likewise failed to respond to this letter. ( See Holt Decl. ¶¶ 6, 8.) Assurance has provided testimony from its claims handler that although the April 2009 letter is in Assurance's file, the claims handler does not recall ever seeing it before July 2010, and has no record of ever receiving the June 2009 letter. (Thatcher Decl. ¶¶ 7–8.)

G. The New Holly Settlement

In September 2009, Absher Pacific, SHA, New Holly HOA, and others entered into a settlement agreement with respect to both the New Holly HOA Complaint and the SHA Complaint. (Love Decl. (Dkt. # 26) Ex. 4 (Settlement Agreement).) On behalf of Absher Pacific, Arrowood Indemnity Company (“Arrowood”), Absher Pacific's carrier, paid $2.5 million to New Holly HOA. ( Id. Ex. 4 at 1363 ¶ 2.1.) On behalf of SHA, the Housing Authority Risk Retention Group, Inc. (“HARRG”), SHA's risk retention group, paid $1 million to New Holly HOA. ( Id.) As part of the settlement, Absher Pacific assigned it claims against PTI and PTI's carriers (who are the defendants in this action) to Arrowood and HARRG.⁴ (Love Decl. Ex. 4 (Settlement Agreement) at 1365 ¶ 2.12.)

H. Assurance's Eventual Denial of Absher Pacific's Tender

In May 2009, Absher Pacific filed a third-party complaint against PTI with respect to the SHA Complaint. ( See Thatcher Decl. (Dkt. # 53) ¶ 2.) PTI tendered its defense to Assurance, and Assurance accepted the tender under a reservation of rights in or about June 2009. ( Id. ¶¶ 2–3.)

In early July 2010, Assurance's claims handler for PTI's claim contacted Absher Pacific's counsel to discuss issues germane to the handling of Absher Pacific's claim against PTI. ( Id. ¶ 4.) During the conversation, counsel for Absher Pacific mentioned that Assurance had never responded to Absher Pacific's additional insured tender. ( Id.) Assurance's claims handler explained that she was unaware of Absher Pacific's tender. ( Id.) Following this conversation, Assurance's claims handlers immediately opened a separate additional insured claims file for Absher Pacific, and sent follow up emails to Absher Pacific's counsel acknowledging the claim, explaining that the insurer could not find any additional insured endorsements for Absher Pacific, and requesting copies of the insurance certificates and/or additional insured endorsements from Absher Pacific. (Thatcher Decl. ¶ 5; Kazarian Decl. (Dkt. # 49) ¶¶ 3–6, Exs. 2–3; see also Bedell Decl. Ex. 6 at 46.) Assurance's claims handler also requested copies of the project completion dates on multiple occasions. (Kazarian Decl. ¶¶ 5–6, Exs. 2, 3.) Although Absher Pacific's counsel eventually sent the notices of completion to Assurance, he did not forward any certificates of insurance or additional insured endorsements during this time period. ( See id. ¶ 6, Ex. 3.)

In September 2010, after Absher Pacific had failed to provide the requested information, Assurance sent a letter denying Absher Pacific's claim because Assurance had not located any evidence at that time that Absher Pacific was an additional insured. ( Id. ¶ 7, Ex. 4.) Notably, counsel for Absher Pacific with respect to the SHA complaint later produced the certificates of insurance and additional insured endorsements in response to a subpoena...