In re Feature Realty Litigation

• Decision Date: 25 July 2007
• Docket Number: No. CV-05-0333-WFN.,CV-05-0333-WFN.
• Parties: In re FEATURE REALTY LITIGATION.
• Court: U.S. District Court — District of Washington

634 F.Supp.2d 1163

In re FEATURE REALTY LITIGATION.

No. CV-05-0333-WFN.

United States District Court, E.D. Washington.

July 25, 2007.

Michael Alexander Patterson, Patterson Buchanan Fobes Leitch Kalzer & Waechter, PS, Franklin D. Cordell, Michael Rosenber, Gergordon Tilden Thomas & Cordell LLP, Seattle, WA, C. Blaine Morley, C. Blaine Morley Law Office, Portland, OR.

ORDER GRANTING FEATURE'S MOTION FOR PARTIAL SUMMARY JUDGMENT RE: ALLOCATION; GRANTING IN PART FEATURE'S MOTION RE: COVERAGE LIABILITY; DENYING USF & G'S MOTION RE: POLICY CONDITIONS

WM. FREMMING NIELSEN, Senior District Judge.

This Order Also Relates to: CV-05-0165-AAM; CV-05-0222-AAM

Before the Court are Defendant Feature Realty's [Feature] Motion for Partial Summary Judgment Re: USF & G's Coverage Liability (Ct.Rec.122), United States Fidelity & Guaranty Company's [USF & G] Cross-Motion for Partial Summary Judgment for Failure to Satisfy Policy Conditions (Ct.Rec.136), and Feature's Motion for Partial Summary Judgment Re: Allocation (Ct.Rec.173). Having considered the parties' arguments and submissions, and for the reasons set forth below, the Court enters the following order.

I. FACTS

This consolidated declaratory judgment action concerns the duties owed under USF & G's excess liability policy issued to the City of Spokane in regards to the 2005 settlement and consent judgment the City reached with Feature relating to the City's alleged delays in the permitting process for the development known as the Canyon Bluffs PUD. The Court will not reiterate the extensive factual and procedural background summarized in the Court's previous summary judgment decisions, familiarity with which is assumed. Additional facts, as necessary, will be related in the Court's analysis of the summary judgment arguments.

II. LEGAL STANDARD

The Federal Rules of Civil Procedure provide for summary adjudication when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the party is entitled to a judgment as a matter of law." FED. R.CIV.P. 56(c). In a motion for summary judgment, "[i]f the party moving for summary judgment meets its initial burden of identifying for the court those portions of the materials on file that it believes demonstrate the absence of any genuine issues of material fact," the burden of production then shifts so that "the nonmoving party must set forth, by affidavit or as otherwise provided in Rule 56, `specific facts showing that there is a genuine issue for trial.'" T.W. Elec. Service, Inc. v. Pacific Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir.1987) (citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)); Kaiser Cement Corp. v. Fischbach & Moore, Inc., 793 F.2d 1100, 1103-04 (9th Cir.), cert. denied, 479 U.S. 949, 107 S.Ct. 435, 93 L.Ed.2d 384 (1986).

On cross motions for summary judgment, the burdens faced by the opposing parties vary with the burden of proof they will face at trial. When the moving party will have the burden of proof at trial, "his showing must be sufficient for the court to hold that no reasonable trier of fact could find other than for the moving party." William W. Schwarzer, SUMMARY JUDGMENT UNDER THE FEDERAL RULES: DEFINING GENUINE ISSUES OF MATERIAL FACT, 99 F.R.D. 465, 487-488 (1984). In contrast, a moving party who will not have the burden of proof at trial need only point to the insufficiency of the other side's evidence, thereby shifting to the nonmoving party the burden of raising genuine issues of fact by substantial evidence. T.W. Electric, 809 F.2d at 630 (citing Celotex, 477 U.S. at 323, 106 S.Ct. 2548); Kaiser Cement, 793 F.2d at 1103-04. In judging evidence at the summary judgment stage, the Court does not make credibility determinations or weigh conflicting evidence, and draws all inferences in the light most favorable to the nonmoving party. T.W. Electric, 809 F.2d at 630-31 (citing Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)); Ting v. United States, 927 F.2d 1504, 1509 (9th Cir.1991). The evidence the parties present must be admissible. FED.R.CIV.P. 56(e). Conclusory, speculative testimony in affidavits and moving papers is insufficient to raise genuine issues of fact and defeat summary judgment. Thornhill Pub. Co., Inc. v. GTE Corp., 594 F.2d 730, 738 (9th Cir.1979).

The parties agree that Washington state law governs this diversity dispute. Under Washington law, insurance policies are construed as contracts, and interpretation of policies is a matter of law. State Farm Gen. Ins. Co. v. Emerson, 102 Wash.2d 477, 687 P.2d 1139, 1141-42 (1984). Policies are to "be given a fair, reasonable, and sensible construction" that comports with how the average purchaser of insurance would view the policy. Grange Ins. Co. v. Brosseau, 113 Wash.2d 91, 776 P.2d 123, 125 (1989). Generally, the burden is on the insured in an action on an indemnity policy to show that the loss suffered comes within the terms of the insurance policy. Waite v. Aetna Casualty & Sur. Co., 77 Wash.2d 850, 467 P.2d 847, 850 (1970).

III. DISCUSSION

The Court has previously determined that the terms of the insurance contract relieved USF & G of any duty to defend its insured. Ct. Rec. 31 [Dec. 16, 2005 Order Granting USF & G's Motion for Partial Summary Judgment Re: No Duty to Defend]. However, the question remains as to whether USF & G owes any duty to pay Feature, on behalf of its insured, sums for which the City is legally obligated to pay because of injury caused to Feature by acts of the City.¹ In the insurance context, the duty to pay or indemnify exists if the facts of the case demonstrate a right to coverage under the insurance policy. Now pending before the Court are cross-motions for summary judgment raising numerous issues regarding whether coverage exists under USF & G's excess liability insurance policy issued to the City.

The determination as to whether coverage exists hinges upon 1) whether there is a loss covered under the insuring agreement² and if such exists, 2) whether that potential coverage would be specifically excluded under the exclusions or policy conditions expressed in the City's policy. Wright v. Safeco Ins. Co. of America, 124 Wash.App. 263, 270, 109 P.3d 1 (2004). The Court has already issued three separate decisions substantively addressing certain aspects of both facets of coverage. On March 7, 2006, the Court declared that the USF & G policy specifically excludes coverage of the settled statutory claim, rendering Feature's tortious interference claim the only claim included in the settlement and potentially covered by the policy. Ct. Rec. 60. The Court's December, 2006 order interpreted certain language in the insuring agreement to find the underlying tortious interference claim arose from a single, continuous "wrongful act" which "was committed during the policy period." Ct. Rec. 107. Finally, on May 10, 2007, the Court held that coverage was not precluded under the "known risk" doctrine. Ct. Rec. 186.

A. Contentions of the Parties. Feature's motion regarding coverage liability against USF & G seeks to have the Court hold that: 1) the right to coverage has been established as a matter of law for the tortious interference claim included in the 2005 settlement with City of Spokane under the USF & G policy; 2) USF & G has a duty to indemnify the City; and 3) USF & G has breached this duty. In response, USF & G has asserted various defenses that it claims preclude coverage of the settlement under the policy. USF & G's cross motion seeks a denial of Feature's motion and a judicial declaration that it has no coverage or indemnity obligation under the USF & G insurance contract with respect to the 2005 settlement. USF & G specifically claims that coverage is precluded by the City's failure to fulfill the policy conditions and thus, USF & G has no duty to indemnify. Furthermore, even if coverage is deemed to exist and the duty to indemnify triggered, USF & G claims it has not been breached because it has not yet been required to make payment under the policy. Given that USF & G challenges both elements of coverage here, the Court will address the arguments regarding the insuring agreement first and the affirmative defenses relating to policy provisions last.

B. The Insuring Agreement and Feature's Prima Facie Case. The burden of demonstrating the loss is covered under the insuring agreement falls upon the insured or in this case, the assignee of the insured, Feature. The relevant portion of the insuring agreement in this case states as follows: ". . . We will pay `ultimate net loss' on behalf of any insured (including the `Public Entity') in excess of the `self-insured retention' for any civil claim because of injury caused by a `wrongful act' to which this insurance applies." Ct. Rec. 47, Ex. B [USF & G Policy] at 18. Furthermore, the insuring agreement provides that coverage only applies if "the `wrongful act' was committed in the `coverage territory' during the policy period." Id. Accordingly, in order to prove its prima facie case of coverage, Feature must be able to demonstrate: 1) an "ultimate net loss" in excess of the self-insured retention amounts and 2) the existence of a civil claim because of injury caused by a wrongful act occurring during the policy period.

The Court's December 13, 2006 order addressed only the second element of Feature's prima facie case: whether the act creating liability was a covered event, which, as explained in the order, is only one part of the broader question of whether coverage exists. The USF & G insurance policy clearly imposes additional requirements before the insurer is required to pay. That a loss is occasioned by a covered act does not alone mean the insurer is liable, but rather "triggers"³ the insurance policy (and...