Expedia, Inc. v. Steadfast Ins. Co.
| Decision Date | 06 August 2014 |
| Docket Number | No. 88673–3.,88673–3. |
| Citation | 180 Wash.2d 793,329 P.3d 59 |
| Court | Washington Supreme Court |
| Parties | EXPEDIA, INC., a Washington corporation; Expedia, Inc., a Delaware corporation; Hotels.Com, L.P., a Texas limited liability partnership; Hotels.Com, GP, LLC, a Texas limited liability company; Hotwire, Inc., a Delaware corporation; Travelscape, a Nevada limited liability company, Petitioners, v. STEADFAST INSURANCE COMPANY, a Delaware corporation; Zurich American Insurance Company, a New York corporation; Royal & Sun Alliance, a foreign corporation; Arrowpoint Capital Corp., a Delaware corporation; Arrowood Surplus Lines Insurance Company, a Delaware corporation; Arrowood Indemnity Company, a Delaware corporation, Respondents. |
OPINION TEXT STARTS HERE
Mark Steven Parris, Paul Francis Rugani, Orrick Herrington & Sutcliffe LLP, Seattle, WA, for Petitioner.
Michael Patrick Hooks, Matthew Stuart Adams, Forsberg & Umlauf PS, Seattle, WA, Joanne L. Zimolzak, Washington, DC, James Randolph Evans, Atlanta, GA, for Respondent.
Jeffrey Iver Tilden, Franklin Dennis Cordell, Gordon Tilden Thomas & Cordell LLP, Seattle, WA, Amicus Curiae on behalf of Associated General Contractors of Washington, Amicus Curiae on behalf of Avista Corporation, Amicus Curiae on behalf of Building Industry Association of Washington, Amicus Curiae on behalf of Mainstreet Property Group, LLC, Amicus Curiae on behalf of Pacific Seafood Group, Amicus Curiae on behalf of Puget Sound Energy, Amicus Curiae on behalf of Weyerhaeuser Company, Amicus Curiae on behalf of Boeing Company.
Craig Richard Watson, Attorney at Law, Seattle, WA, Amicus Curiae on behalf of Port of Seattle.
George M. Ahrend, Ahrend Albrecht PLLC, Ephrata, WA, Bryan Patrick Harnetiaux, Attorney at Law, Spokane, WA, Amicus Curiae on behalf of Washington State Association for Justice Foundation.
Stephen T. Lecuyer, Office of the Tribal Attorney, La Conner, WA, Amicus Curiae on behalf of Swinomish Indian Tribal Community.
Howard Mark Goodfriend, Smith Goodfriend PS, Seattle, WA, Amicus Curiae on behalf of Georgia-pacific, LLC.
¶ 1 Petitioners seek adjudication of their summary judgment motion concerning their insurers' duty to defend them in cases brought by local taxing authorities. They further request a stay of discovery in the coverage action that may prejudice them in the underlying litigation.
¶ 2 We hold that the trial court erred by delaying adjudication of Zurich's 1 duty to defend Expedia. We accordingly vacate the trial court's August 22, 2012 order.2 We remand to the trial court to determine Zurich's duty to defend Expedia in each of the 54 underlying cases subject to Expedia's motion.3 The trial court is further ordered to stay discovery in the coverage action until it can make a factual determination as to which parts of discovery are potentially prejudicial to Expedia in the underlying actions. All discovery logically related to the underlying claims should be stayed until such claims are fully adjudicated.
¶ 3 Expedia has been subject to approximately 80 underlying lawsuits by states, counties, and municipalities (collectively, taxing authorities) for purportedly failing to collect the right amount of local occupancy taxes from its hotel customers. Expedia tendered most of the suits to Zurich, although some were tendered late. Zurich refused to defend Expedia on a number of grounds, including late tender and that the underlying suits may be excluded from the policies' coverage. The trial court has declined to make a determination of Zurich's duty to defend Expedia, instead ordering discovery that Expedia claims may be prejudicial to the underlying actions.
¶ 4 Expedia applies local occupancy tax rates to the discounted rate it negotiates with hotels rather than the total price paid by the customer, including fees. Whether this is the proper calculation for local occupancy taxes is central to the underlying actions. Many taxing authorities have claimed that Expedia should have applied the tax rate to the retail rate charged to customers rather than the net rate paid to the hotels. The taxing authorities generally seek damages, compensatory damages, or other monetary relief, although some seek equitable relief such as the imposition of constructive trusts.
¶ 5 Expedia procured liability insurance from a number of insurers between May 2006 and October 2009. Only two of the policies are still at issue: EOL 5329302–02, issued for the October 1, 2005 to October 1, 2006 policy period, and EOL 5329302–03, issued for the October 1, 2006 to October 1, 2007 policy period. The policies provide Expedia with coverage for any liability for “[d]amages arising out of a negligent act or negligent omission ... in the conduct of Travel Agency Operations.” Clerk's Papers (CP) at 4147, 4180. The policies further specify that Zurich has a “duty to defend any Suit against [Expedia] seeking Damages.” Id. at 4147. Under the policies' definitions sections,
Damages means the monetary portion of any judgment, award or settlement provided.... Damages do not include:
1. Punitive, exemplary, or multiple damages;
2. Criminal or civil fines, penalties (statutory or otherwise), fees or sanctions;
3. Matters deemed uninsurable;
4. Any form of non-monetary; equitable or injunctive relief; or
5. Restitution, return or disgorgement of any fees, funds or profits.
Id. at 4152–53, 4185. The policies require Expedia to notify Zurich “as soon as practicable of an Occurrence, a negligent act or negligent omission or an offense.” Id. at 4158, 4189. The policies also contain a number of exclusions, including claims relating to the underpayment of applicable taxes and fraud.4
¶ 6 By 2002, Expedia was aware that taxing authorities were questioning its merchant model for collecting occupancy taxes. Expedia specifically disclosed this potential problem to its shareholders in its 2002 and 2003 United States Securities and Exchange Commission Form 10–K filings. The first case was filed against Expedia on December 30, 2004. Expedia tendered the action to its insurers on June 10, 2005. On June 23, 2005, the insurers denied coverage and refused to provide a defense on a number of grounds, including that Expedia's actions were potentially willfully dishonest and thus excluded by specific policy language.
¶ 7 In 2010 and 2011, Expedia tendered approximately 62 additional lawsuits to its insurers, who again refused the tender. Expedia filed this action in November 2010 against Zurich for declaratory judgment; insurance bad faith; and a violation of Washington's Consumer Protection Act, chapter 19.86 RCW. Zurich responded with a counterclaim for declaratory judgment that no coverage exists and that there is no duty to defend or indemnify. Zurich also asserted various defenses, including late tender, known loss, material misrepresentation, and mistake.
¶ 8 Zurich moved for summary judgment, claiming that as a matter of law, the lawsuits against Expedia do not seek damages on account of negligent acts or omissions. Expedia moved for a CR 56(f) continuance in order to conduct discovery concerning the meaning of the insurance contracts. Expedia specifically sought depositions from the insurers' underwriters and claims handlers who were likely to have information regarding the meaning of key policy terms at issue in the summary judgment motions. Zurich agreed to the requested continuance and produced four witnesses for deposition on underwriting and claims issues. Zurich also sought discovery at this time.
¶ 9 The trial court denied Zurich's motion for summary judgment with respect to Zurich American Insurance Company policy numbers EOL 5329302–02 and EOL 5329302–03. Expedia then filed a motion for an order providing that Zurich American Insurance Company had a duty to defend under the two remaining policies because the underlying lawsuits contain one or more claims that are potentially covered. The trial court declined to enter this order and instead entered an order on March 2, 2012 denying Zurich American Insurance Company's motion for summary judgment with respect to the two policies.
¶ 10 Expedia then filed a motion for summary judgment, seeking an adjudication that Zurich has a duty to defend it. This motion was filed on March 30, 2012 and has not yet been heard. Zurich moved for a CR 56(f) continuance to seek discovery relating to, among other things, Zurich's alleged late notice, misrepresentation, mistake, and known loss defenses. The trial court granted the CR 56(f) motion and took Expedia's motion off the calendar. Expedia subsequently provided some additional discovery to Zurich but declined to provide other discovery on the grounds that the requested information is potentially prejudicial to Expedia's interests in the underlying actions. Expedia then asked the trial court to set a hearing date for its duty to defend motion while protecting it from overlapping and potentially prejudicial discovery.
¶ 11 The trial court “agree[d] with Expedia that there is a dangerous overlap between the discovery seeking Expedia's knowledge or intent regarding its liability for the payment of the certain occupancy tax amounts.” Report of Proceedings (RP) (June 15, 2012) at 31. The court further noted that “[t]he discovery that Expedia might be forced to give with regard[ ] to that issue could be injurious to its interests” in the underlying cases. Id. The trial court, however, ultimately declined to hear Expedia's duty to defend motion until discovery was complete because it could not “conclude, as a matter of law, that this discovery is not relevant to the [insurance] company's defenses.” Id. at 31–32. On August 22, 2012, the trial court entered an order denying Expedia's motion to adjudicate its summary judgment motion.
¶ 12 Expedia filed a motion for discretionary review in Division One of the Court of Appeals. On March 11, 2013, the Court of Appeals denied discretionary review of the...
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