HB Dev., LLC v. W. Pac. Mut. Ins., Co.

Decision Date06 February 2015
Docket NumberNo. 2:13–CV–5050–RMP.,2:13–CV–5050–RMP.
Citation86 F.Supp.3d 1164
PartiesHB DEVELOPMENT, LLC, a Washington limited liability corporation; Fraser Hawley, an individual; Sharon Brown, an individual and the marital estate thereof; Ms. Jolene K. Boughton, a married person, as assignee of HB Development, LLC; and Mr. John B. Crook, a married person, as assignee of HB Development, LLC, Plaintiffs, v. WESTERN PACIFIC MUTUAL INSURANCE, a foreign insurance company; Lockton Risk Services, a foreign insurance company; Does 1–10, insurance companies; Does 11–25, insurance brokers, claims administrators and insurance agents, Defendants.
CourtU.S. District Court — District of Washington

John Richard Herrig, Herrig Vogt & Stoll LLP, Kennewick, WA, Maury A. Kroontje, Leah S. Snyder, Kroontje Law Office PLLC, Seattle, WA, for Plaintiffs.

Lowell P. McKelvey, McKelvey Kozuma PC, Patrick J. Kurkoski, Mitchell Lang & Smith, Portland, OR, Alan Bradford Hughes, Alan B. Hughes PS, Seattle, WA, for Defendants.

ORDER DENYING DEFENDANTS' MOTION TO STRIKE AND GRANTING DEFENDANTS' MOTIONS FOR SUMMARY JUDGMENT

ROSANNA MALOUF PETERSON, Chief Judge.

BEFORE THE COURT are Defendants' Motions for Summary Judgment, ECF Nos. 47 and 49, and a related Motion to Strike, ECF No. 67. The Court heard oral argument on the motions on January 12, 2015, in Richland, WA. Plaintiffs HB Development, LLC, Fraser Hawley, and Sharon Brown were present and represented by John Herrig. Plaintiffs Jolene Boughton and John Crook were present and represented by Maury Kroontje. Lowell McKelvey represented Defendant Western Pacific, and Alan Hughes represented Defendant Lockton Risk Services.

The Court has considered the parties' arguments, pleadings, all related filings, and is fully informed. This order memorializes the Court's oral rulings and issues new rulings on motions for which the Court reserved ruling.

This case involves an insurance dispute over coverage of a construction defect claim brought by Plaintiffs Jolene Boughton and John Crook regarding defects in their home built by Plaintiffs HB Development, LLC (hereinafter HB), Fraser Hawley, and Sharon Brown, in West Richland, Washington. Defendant Western Pacific Mutual Insurance has denied coverage and duties to defend or indemnify HB, Hawley, and Brown for Boughton and Crook's claims against them. For the reasons stated below, the Court denies the motion to strike and grants Defendants' motions for summary judgment.

I. BACKGROUND
A. Factual History1

HB was a Washington limited liability corporation licensed as a general contractor. ECF No. 27 at 2. Plaintiffs Fraser Hawley and Sharon Brown, husband and wife, were members of HB. ECF No. 27 at 2. HB joined the RWC Insurance Advantage Program in 2003, ECF No. 75 at 3, and carried a general liability insurance policy provided by Westport Insurance Corporation. ECF No. 75 at 14. However, the insurance provider changed in 2004, and beginning on September 4, 2004, HB's general liability insurance was provided by Western Pacific Mutual Insurance (hereinafter Western) through the RWC program. ECF No. 75 at 3–5. Lockton Risk Services (hereinafter Lockton) served as the underwriting administrator and agent for Western from August 2004 until September 2007 when Integrity Underwriters, Inc. (Integrity) took over. ECF No. 75 at 4.

In addition to a change in insurance providers, the type of insurance policy offered under the RWC program changed as well. Prior to these changes, Lockton sent a letter to Mr. Hawley on July 7, 2004, signed by Joe Perkins, Account Manager. The letter read:

As you know, the insurance market place is constantly changing including the appetite of carriers on certain classes of business. Please be advised that we are no longer able to use the current carrier for your insurance coverage. Enclosed is a notice of non-renewal from your current insurance carrier. However, we will be providing you with a replacement policy underwritten by Western Pacific Mutual Insurance Company, a Risk Retention Group.
You can expect to receive your new policy within the next couple of weeks. Your policy will be sent along with a “Policy Holder Notice” that explains the differences in coverage from your current policy. You will also receive a “Coverage Update Questionnaire”. The new insurance carrier requires that this questionnaire be completed and returned.
If you have any questions, please contact our office toll-free at 888662–3649.
Thank you for your participation in the RWC Insurance Advantage. We do appreciate your business.

ECF No. 50–7.

HB's previous policy through Westport was an occurrence-based policy. ECF No. 76 at 34. The new Western policy was a claims-made policy.2 ECF No. 50–8 at 11.

On July 25, 2004, Mr. Hawley signed the form entitled “Important Policy Holder Information,” which included “Important Notice—Claim Made Coverage Applies” and “Important Notice Claim Made Coverage—Additional Explanation.” ECF No. 75 at 5. These forms explained that claims-made coverage applies, and warned of a “potential coverage gap” after the termination of the policy's extended claim reporting period “if prior acts coverage is not subsequently provided by another insurer.” ECF No. 50–8 at 11. The Claim Made Notice stated in bold that it strongly encouraged the insured to call its insurance representative with questions and provided a toll free phone number. Id.

Thereafter, HB's first policy purchased from Western through Lockton began on September 4, 2004. ECF No. 75 at 5. HB renewed its policy from Western, first through Lockton and later through Integrity, five times, with its last term ending on September 4, 2010. ECF No. 75 at 6. Each year that HB procured insurance through Lockton, Certificates of Insurance with the “claim made” box checked under “type of insurance” were sent to the Washington Department of Labor & Industries showing that HB was insured. ECF No. 76 at 6; ECF No. 5011 at 1.

While insured under the claims-made policy, HB contracted with Plaintiffs John Crook and Jolene Boughton, husband and wife, to construct a house in West Richland, Washington, in March of 2006. ECF No. 75 at 11; ECF No. 52–1 at 5. Beginning in September 2007 and continuing through September 2010, Crook and Boughton wrote to HB, Hawley, and Brown about problems with the quality and timeliness of the construction. ECF No. 75 at 8. No one from HB informed Western of these complaints.

On August 11, 2008, Hawley and Brown resolved to dissolve HB, effective that day. ECF No. 75 at 2, 6; ECF No. 52–4 at 16. HB filed a Certificate of Cancellation with the Washington Secretary of State on December 18, 2009. ECF No. 75 at 2–3; ECF No. 52–4 at 17.

Despite being offered extended reporting period plans, neither HB nor its members ever purchased any form of extended tail coverage. ECF No. 75 at 6–8.

B. Procedural History

On January 23, 2012, Crook and Boughton served written notice of their construction defect, property damage, and loss of use claims to HB, pursuant to RCW 64.50.020, and provided a copy to Western. ECF No. 75 at 2; ECF No. 48 at 21. On February 1, 2012, Diane Esser, a claim representative for Integrity Administrators, denied coverage for Crook and Boughton's claim. ECF No. 48 at 58–59. On March 12, 2012, Crook and Boughton filed a lawsuit against HB, Hawley, and Brown in Benton County Superior Court. ECF No. 75 at 2. The parties reached a settlement agreement in which HB, Hawley, and Brown confessed judgment in the amount of $600,000 to Crook and Boughton. ECF No. 48 at 9–13. Benton County Superior Court Judge Mitchell found the settlement to be reasonable in the amount of $420,000. ECF No. 48 at 16–19. HB and its members agreed to pay to Crook and Boughton all settlement funds obtained from subcontractors or insurers and to “assign all rights, claims, and defenses it has, including but not limited to claims for a defense of the Litigation, claims for coverage under the Policies and any extra-contractual damages or claims.” ECF No. 48 at 9–13.

On March 28, 2013, HB, Hawley, and Brown commenced an action in Benton County Superior Court against Western, Lockton, First Mercury Insurance Company, Clarendon National Insurance Company, and Western World Insurance Company.3 ECF No. 1 at 2. Western removed the case to this Court on April 26, 2013. ECF No. 1. On August 12, 2013, Plaintiffs filed their Second Amended Complaint, which added Crook and Boughton as plaintiffs. ECF No. 27.

Plaintiffs bring three causes of action against both Western and Lockton: (1) negligence, (2) bad faith, and (3) violation of the Washington State Consumer Protection Act. Additionally, Plaintiffs claim two additional causes of action against Western alone: (1) declaratory judgment, and (2) breach of contract.4

Western and Lockton filed separate motions for summary judgment, ECF Nos. 47 and 49, which Plaintiffs oppose, ECF Nos. 51 and 56. Lockton, joined by Western, also filed a motion to strike the declarations of Flo Brown, ECF No. 67, which Plaintiffs also oppose, ECF No. 72.

II. DEFENDANTS' MOTION TO STRIKE

Lockton moved the Court to strike the declarations of Flo Brown,5 and Western joined in the motion. ECF Nos. 67 and 71. The Court denied this motion orally at the hearing on January 12, 2015.

Plaintiffs filed two declarations by Flo Brown in support of their response briefs. ECF Nos. 52–2 and 58. The declarations were filed immediately before and after the discovery cut-off.6 ECF No. 67 at 4. In her declarations, Flo Brown states that as an employee of HB her responsibilities included procuring insurance.7 ECF No. 52–2 at 2; ECF No. 58 at 2.

Plaintiffs' Rule 26(a)(1)(A)(i) disclosures adopted the witness disclosures filed by the parties in the underlying construction defect litigation in Benton County Superior Court. ECF No. 67 at 2. These disclosures listed Flo Brown and stated that “Ms. Brown was the bookkeeper for HB Development, LLC. Ms. Brown will testify as to the settlement amount, amount unpaid, personal delivery of the warranty...

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