Goodman v. N.H. Ins. Co.

• Decision Date: 29 November 2010
• Docket Number: CASE NO. C09-1493RSM
• Citation: Goodman v. New Hampshire Ins. Co., CASE NO. C09-1493RSM (W.D. Wash. Nov 29, 2010)
• Parties: MIKE GOODMAN, Plaintiff, v. NEW HAMPSHIRE INSURANCE COMPANY, a Pennsylvania corporation with its principal place of busniess in NEW York, and AMERICAN INTERNATIONAL GROUP, INC., a Delaware corporation with its principal place of business in New York, Defendant.
• Court: U.S. District Court — Western District of Washington

MIKE GOODMAN, Plaintiff,

v. NEW HAMPSHIRE INSURANCE COMPANY, a Pennsylvania corporation with its principal place of busniess inNEW York, and AMERICAN INTERNATIONAL GROUP, INC., aDelaware corporation with its principal place of business in New York, Defendant.

CASE NO. C09-1493RSM

UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

Dated: November 29, 2010.

AMENDED ORDER

This matter comes before the Court on the parties' cross-motions for summary judgment on the issue of insurance coverage (Dkt. ## 64, 74), together with plaintiff's motion for partial summary judgment regarding bad faith (Dkt. # 60). Plaintiff Mike Goodman alleges in his complaint that defendant New Hampshire Insurance Company ("New Hampshire") wrongfully denied insurance coverage for a claim regarding his boat, acted in bad faith by failing to provide coverage, and violated Washington's Insurance Fair Conduct Act ("IFCA") and Consumer Protection Act ("CPA"). He has moved for summary judgment on these claims. Defendant has opposed plaintiff's motions, and contends in its own motion that an exclusion in the policy for corrosion applies to bar coverage for the loss, and also that the coverage was voided by plaintiff's misrepresentations regarding the extent of repairs.

At the parties' request, the Court heard oral argument on the cross-motions for summary judgment on August 30, 2010. For the reasons set forth below, the Court shall grant in part defendant's motion as to coverage, and deny plaintiff's motions on coverage, bad faith, and violation of the CPA and IFCA.

DISCUSSION

A. Background Facts.

Plaintiff Mike Goodman is the owner of the Conundrum, a forty-eight foot motor yacht, insured at all times relevant to this action with defendant New Hampshire. On September 24, 2007, while the yacht was moored at Elliot Bay Marina, a leaking starboard fuel tank triggered the automatic bilge pumps, which pumped the diesel fuel overboard into the water. When the fuel leak was discovered, the bilge pumps were shut off and the spilled fuel was cleaned up at a cost to plaintiff of $4,433.58. Plaintiff contacted New Hampshire to request information regarding coverage for the spill clean-up costs. In the course of investigating the source of the spill, New Hampshire hired a marine surveyor, Dave Cater, who arranged to remove the starboard fuel tank for inspection to determine the cause of the leak. This required removal of the vessel's cockpit and decking. After inspecting and testing the aluminum fuel tank, Mr. Cater determined that the fuel tank leak was due to a hole in the tank caused by corrosion, which is excluded from coverage under the applicable policy.

Plaintiff hired a marine contractor, Driver Marine, to clean the boat, replace both fuel tanks (port and starboard tanks), and to rebuild and replace the vessel's superstructure, cockpit and deck. He then submitted invoices for the work done by Driver Marine to New Hampshire. Declaration of Mike Goodman, Dkt. # 14, ¶¶ 7, 8. Relying on the corrosion exclusion, a claims adjustor for New Hampshire determined that a reasonable amount for covered costs related to the fuel leak was $20,328.96. This amount included $4,433.58 for the cost of the cleanup of the spill (pollution recovery), and $15,895.38 as the reasonable cost of repairing the damage done by Mr. Cater's investigation and removal of the starboard fuel tank. Declaration of Mike Goodman, Dkt. # 14, ¶ 9. Plaintiff asserts that his actual losses, all of which should be covered, are his "out-of-pocket expenses for the repairs to my boat in the amount of approximately $111,122.42," loss of use and enjoyment of his boat in the amount of $52,960.96, and "investigatory costs as a result of New Hampshire's bad faith conduct" in the amount of "approximately $56,043.97." Declaration of Mike Goodman, Dkt. # 75, ¶ 3.

Plaintiff filed this action in King County Superior Court to recover these costs, including the entire costs of repairs to the vessel, the costs of investigating the claim, and the costs of repairs to the fuel tanks. Complaint, Dkt. # 1, p. 6. The complaint asserts causes of action for breach of contract, bad faith, violation of the Washington Consumer Protection Act ("CPA"), and violation of the Washington Insurance Fair Conduct Act ("IFCA"), and seeks attorneys' fees pursuant to Olympic Steamship¹ and the CPA. Defendant New Hampshire removed the case to this Court on the basis of the parties' diversity. Dkt. # 1. Defendant American International Group, Inc., was dismissed from the action on the stipulation of the parties. Dkt. # 24.

Plaintiff filed an early motion for partial summary judgment on coverage, which was denied because the facts were not sufficiently developed at that time. Dkt. # # 13, 66. After defendant filed an amended answer asserting an affirmative defense that the policy coverage was rendered void by misrepresentations made by plaintiff in presenting his claim, plaintiff moved for summary judgment of dismissal of that defense. Dkt. # 41. That motion was also denied. Dkt. # 87. That left the three summary judgment motions now pending: the cross-motions on coverage, and plaintiff's motion on bad faith.

B. The Policy Language.

The issues surrounding coverage are governed by several relevant paragraphs in the policy, which shall be set forth in the order they appear. First, in the section titled "General Conditions and Exclusions," the policy states,

11. CONCEALMENT OR MISREPRESENTATION

Any relevant coverages shall be voided if you intentionally conceal or misrepresent any material fact or circumstance relating to this insurance, or your insurance application, whether before or after a loss.

New Hampshire Insurance Company Yacht Policy, Dkt. # 65, Exhibit 5, p. 66 (emphasis in original).

Under Section A, "Hull Insurance," the policy states,

1. WHAT WE INSURE:

(a) Physical Loss to Your Yacht: We shall pay for direct physical loss to your yacht arising out of all perils unless otherwise excluded herein.

(b) Hidden Defect: We shall pay for indirect physical loss or property damage caused by any hidden defect in the machinery, the hull, or any other area of your yacht. In the event a mast failure is deemed to be caused by a hidden defect in the mast, the mast shall be considered one indivisible unit. We shall not, however, pay for the cost of replacing or repairing the defective part.

....

10. CAUSES OF LOSS THAT ARE NOT COVERED:

....

(b) We shall not cover any loss or damage arising out of:

(1) Any intentional misuse or misconduct, or lack of reasonable care or due diligence, in the operation or maintenance of your yacht or trailer;

(2) Any wear and tear, gradual deterioration, weathering, inherent vice, insects, animals, vermin, mold, marine life, electrolytic or galvanic action, corrosion, dampness of atmosphere, gelcoat or fiberglass blistering, wet or dry rot, or extremes of temperature;...

Id., p. 67-68 (emphasis in original).

Under Section H, "Fuel Spill Liability," the policy states,

1. WHAT WE INSURE: We shall pay those amounts you are legally responsible to pay for the containment, clean-up, property damage and assessments arising out of a fuel spill occurrence which results from the ownership, maintenance, use, or operation of your yacht.

Id., p. 70 (emphasis in original).

C. Summary Judgment Standard.

Summary judgment is appropriate when, viewing the facts in the light most favorable to the nonmoving party, the records show that "there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). Once the moving party has satisfied its burden, it is entitled to summary judgment if the non-moving party fails to designate, by affidavits, depositions, answers to interrogatories, or admissions on file, "specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986).

All reasonable inferences supported by the evidence are to be drawn in favor of the nonmoving party. See Villiarimo v. Aloha Island Air, Inc., 281 F.3d 1054, 1061 (9th Cir.2002). "[I]f a rational trier of fact might resolve the issues in favor of the nonmoving party, summary judgment must be denied." T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 631 (9th Cir.1987). "The mere existence of a scintilla of evidence in support of the non-moving party's position is not sufficient." Triton Energy Corp. v. Square D Co., 68 F.3d 1216, 1221 (9th Cir.1995). "[S]ummary judgment should be granted where the nonmoving party fails to offer evidence from which a reasonable jury could return a verdict in its favor." Id. at 1221.

D. Analysis.

1. Cross-Motions for Summary Judgment on Coverage

Because this is a diversity case, the Court applies Washington's choice of law rules. The parties agree, and the Court finds, that Washington law applies.

In Washington, insurance policies are construed as contracts. An insurance policy is construed as a whole, with the policy being given a fair, reasonable, and sensible construction as would be given to the contract by the average person purchasing insurance. If the language is clear and unambiguous, the court must enforce it as written and may not modify it or create ambiguity where none exists. If the clause is ambiguous, however, extrinsic evidence of intent of the parties may be relied upon to resolve the ambiguity. Any ambiguities remaining after examining applicable extrinsic evidence are resolved against the drafter-insurer and in favor of the insured. A clause is ambiguous when, on its face, it is fairly susceptible to two different interpretations, both of which are reasonable. Panorama Vill. Condo. v. Allstate Ins. Co., 144 Wash.2d 130, 137, 26 P.3d 910 (2001) (quoting Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wash.2d 654, 665-66, 15 P.3d 115 (2000)) (internal quotations omitted).

"The insured bears the burden of showing that...