Canyon Estates Condo. Ass'n v. Atain Specialty Ins. Co.
| Decision Date | 31 March 2021 |
| Docket Number | Case No. 2:18-cv-01761-RAJ |
| Court | U.S. District Court — Western District of Washington |
| Parties | CANYON ESTATES CONDOMINIUM ASSOCIATION, a Washington non-profit corporation, Plaintiff, v. ATAIN SPECIALTY INSURANCE COMPANY; INDIAN HARBOR INSURANCE COMPANY; WESTCHESTER SURPLUS LINES INSURANCE COMPANY; GREAT LAKES INSURANCE, SE, Defendants. |
HONORABLE RICHARD A. JONES
This matter comes before the Court on Defendant Indian Harbor's Motion for Summary Judgment (Dkt. # 147) and Plaintiff's Motion for Summary Judgment (Dkt. # 155). Having considered the submissions of the parties, the relevant portions of the record, and the applicable law, the Court finds that oral argument is unnecessary. For the reasons below, Defendant's motion is DENIED and Plaintiff's motion is GRANTED in part and DENIED in part.
In ruling on the parties' previous cross motions for summary judgment, the Court summarized the facts of this case. Dkt. # 119. To avoid duplication, the Court refers the parties to that order for background information.
Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). Where the moving party will have the burden of proof at trial, it must affirmatively demonstrate that no reasonable trier of fact could find other than for the moving party. Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir. 2007). On an issue where the nonmoving party will bear the burden of proof at trial, the moving party can prevail merely by pointing out to the district court that there is an absence of evidence to support the non-moving party's case. Celotex Corp., 477 U.S. at 325. If the moving party meets the initial burden, the opposing party must set forth specific facts showing that there is a genuine issue of fact for trial to defeat the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986). The court must view the evidence in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. Reeves v. Sanderson Plumbing Prods., 530 U.S. 133, 150-51 (2000).
In their respective motions for summary judgment, the parties raise several issues: coverage, bad faith, violation of Washington's Consumer Protection Act ("CPA"), violation of the Insurance Fairness Conduct Act ("IFCA"), and offset. The Court addresses each in turn.
Under Washington law, "[i]nsurance policies are to be construed as contracts, and interpretation is a matter of law." State Farm General Ins. Co. v. Emerson, 687 P.2d1139 (Wash. 1984). "The entire contract must be construed together in order to give force and effect to each clause" and must be enforced "as written if the language is clear and unambiguous." Washington Pub. Util. Districts' Utils. Sys. v. Pub. Util. Dist. No. 1 of Clallam County, 771 P.2d 701, 706-07 (Wash. 1989). If, on the other hand, "a policy provision on its face is fairly susceptible to two different but reasonable interpretations, the policy is ambiguous and the court must attempt to discern and enforce the contract as the parties intended." Transcon. Ins. Co. v. Washington Pub. Utilities Districts' Util. Sys., 760 P.2d 337, 340 (Wash. 1988). An insurance contract "will be given a practical and reasonable interpretation that fulfills the object and purpose of the contract rather than a strained or forced construction that leads to an absurd conclusion, or that renders the contract nonsensical or ineffective." Washington Pub., 771 P.2d at 707.
Further, insurance contracts are interpreted "as an average insurance purchaser would understand them," and courts must "give undefined terms in these contracts their 'plain, ordinary, and popular' meaning." Kish v. Ins. Co. of N. Am., 883 P.2d 308, 311-12 (Wash. 1994) (quoting Boeing Co. v. Aetna Cas. & Sur. Co., 784 P.2d 507 (Wash. 1990)); see also State Farm Gen. Ins. Co. v. Emerson, 687 P.2d 1139, 1142 (Wash. 1984) ().
A determination of coverage under an insurance contract is a two-step process. McDonald v. State Farm Fire & Cas. Co., 837 P.2d 1000, 1003-04 (Wash. 1992). First, [t]he insured must show the loss falls within the scope of the policy's insured losses." Id. Second, "[t]o avoid coverage, the insurer must then show the loss is excluded by specific policy language." Id.; see also Pub. Employees Mut. Ins. Co. v. Rash, 740 P.2d 370 (Wash. Ct. App. 1987) (). Though an exclusionary clause is "strictly construed against the insurer," its meaning "must bedetermined in view of the policy as a whole." Allstate Ins. Co. v. Calkins, 793 P.2d 452 (Wash. Ct. App. 1990) (citing Rodriguez v. Williams, 729 P.2d 627 (Wash. 1986)).
Defendant Indian Harbor's insurance policy is an "all-risk" policy. Dkt. # 38. Plaintiff Canyon Estates Condominium Association ("Association") argues that, as such, the policy insures any risk not specifically excluded. Dkt. # 155 at 11-16. Because the peril of "water intrusion damage" is not specifically excluded, the argument goes, it is a covered peril under the policy. Id. Indian Harbor disagrees, calling the Association's argument a "semantics game." Dkt. # 157 at 15. Though it concedes that the policy contains no express exclusion for "water intrusion," Indian Harbor says that the policy excludes equivalent perils that are "functionally identical" to water intrusion. Id. Among them are exclusions for "perils of faulty workmanship or maintenance, wear and tear, gradual deterioration, rot and seepage or leakage of water." Id. at 7, 15. The Association seeks a ruling from the Court that water intrusion damage is covered under the policy and that coverage is owed here because Indian Harbor admits to water intrusion damage at the property. Dkt. # 155 at 11-16.
There are two steps to determine insurance coverage; the Association does not make it past the first. Factual issues prevent it from establishing that the loss incurred at the property falls within the policy's scope. The Association is thus not entitled to summary judgment on its coverage claim. That said, the Court rules as a matter of law that water intrusion damage to a building's exterior is a covered peril under the all-risk policy.
i. All-Risk Policy
Generally, there are two types of property insurance policies: named-peril and all-risk. Vision One, LLC v. Philadelphia Indem. Ins. Co., 276 P.3d 300, 306 (Wash. 2012). Named-peril policies "provide coverage only for the specific risks enumerated in the policy and exclude all other risks." Id. (). Contrast all-risk policies, which "provide coverage for all risks unless the specific risk is excluded." Id. Under an all-risk policy, the risk of loss is generally allocated to the insurer. Id.
The Association characterizes the damage at the property as "water intrusion damage" or "damage resulting from penetration by water through the building's exteriors." Dkt. # 155 at 13-16. Because the policy does not specifically exclude either, the Association says that such damage must be covered under the all-risk policy. Id.
Indian Harbor responds with two arguments. First, it says that "water intrusion" is not a "distinct peril" but instead the functional equivalent of other, excluded perils. Dkt. # 157 at 13-16. Second, it says that the Association has failed to prove that the water intrusion was fortuitous given that it knew of the property's "construction deficiencies" years before it made a claim. Id. at 16-17.
(1) Distinct Peril
The Court begins with the language of the policy, which contains a "Perils Excluded" section. Dkt. # 38 at 18-22. That section does not contain a specific exclusion for "water intrusion damage" or "damage resulting from penetration by water through the buildings' exteriors." See id. Under an all-risk policy, because it is not explicitly excluded, this type of peril is generally covered.
According to the Association, other policy provisions support this interpretation. The policy expressly excludes coverage for damage to "[t]he interior of any building or structure caused by or resulting from rain, snow, sleet, ice, sand or dust, whether driven by wind or not." Id. at 22 (emphasis added). There is no analog, the Association says, for such harm done to a building's exterior. Dkt. # 155 at 13-14. In the Association's view, the exclusion shows that Indian Harbor knew how to exclude losses by "rain/wind-driven rain" but simply failed to do so for the exterior of a building. Id. The Association finds additional support in a policy endorsement. Dkt. # 99-3 at 10. Under that endorsement, the Association must pay a $50,000 deductible for loss caused by "water orliquid damage resulting from . . . penetration by water or liquid through the building exterior." Dkt. # 99-3 at 10. The implication is that where there is a deductible there must be coverage. Dkt. # 155 at 4-5.
In response, Indian Harbor argues that the exclusion and the deductible cannot be used to "create coverage." Dkt. # 157 at 16. They do not grant coverage, Indian Harbor, but "subtract from it." Id.
The Court finds the Association's arguments more convincing. As the Association observes, the policy itself treats water intrusion damage (whether to the interior...
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