Indian Harbor Ins. Co. v. City of Tacoma

• Citation: 354 F.Supp.3d 1204
• Decision Date: 03 December 2018
• Docket Number: CASE NO. C18-5390 RJB
• Parties: INDIAN HARBOR INSURANCE COMPANY, a Delaware Corporation Doing Business in Washington, Plaintiff, v. CITY OF TACOMA, WASHINGTON DEPARTMENT OF PUBLIC UTILITIES, a Municipal Corporation, Defendant.
• Court: U.S. District Court — Western District of Washington

354 F.Supp.3d 1204

INDIAN HARBOR INSURANCE COMPANY, a Delaware Corporation Doing Business in Washington, Plaintiff,

v.CITY OF TACOMA, WASHINGTON DEPARTMENT OF PUBLIC UTILITIES, a Municipal Corporation, Defendant.

CASE NO. C18-5390 RJB

United States District Court, W.D. Washington, At Tacoma.

Signed December 3, 2018

Tracy Yvette Williams, Brian C. Armstrong, James Paul Murphy, Murphy Armstrong & Felton LLP, Seattle, WA, for Plaintiff.

Kasey D. Huebner, Mills Meyers Swartling, Seattle, WA, Millard Joseph Sloan, Jr., Tacoma City Attorney's Office (Pub. Util.), Dept. of Public Utilities-Administration, Tacoma, WA, for Defendant.

ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT

ROBERT J. BRYAN, United States District JudgeThis matter comes before the Court on Plaintiff Indian Harbor Insurance Company's ("Indian Harbor") Motion for Summary Judgment (Dkt. 20) and the City of Tacoma, Washington, Department of Public Utilities' ("Tacoma Utilities") Partial Cross Motion for Summary Judgment (Dkt. 22). The Court has considered the pleadings filed in support of and in opposition to the motions and the file herein.

Plaintiff Indian Harbor filed this case for declaratory relief, seeking an order that it has no duty to defend or indemnify Tacoma Utilities under an insurance policy with respect to a complaint filed against Tacoma Utilities by U.S. Oil & Refining Co. ("U.S. Oil"): U.S. Oil Refining Co. v. City of Tacoma, Washington Department of Public Utilities , Pierce County, Washington Superior Court Case number 18-2-07232-2 ("underlying lawsuit"). Dkt. 1. Tacoma Utilities counterclaims for: (1) declaratory relief that Indian Harbor has a duty to defend and indemnify it in the underlying lawsuit, and (2) damages for claims of bad faith and violations of Washington's Consumer Protection Act, RCW 19.86 et seq. , ("CPA"). Dkt. 13. Indian Harbor now moves for summary judgment and Tacoma Utilities moves for partial summary judgment on the duty to defend only. For the reasons provided, Indian Harbor's Motion for Summary Judgment (Dkt. 20) should be denied, in part, denied, without prejudice, in part, and granted, in part, and the City's Partial Motion for Summary Judgment (Dkt. 22) should be granted.

I. RELEVANT FACTS AND PENDING MOTIONS

A. THE INSURANCE POLICY AT ISSUE

Indian Harbor issued a Public Officials and Employment Practices Liability Policy, number POI9516127-04, effective December 1, 2015 to December 1, 2016, to Tacoma Utilities ("the policy"). Dkt. 21-3. The policy has a limit of liability of $1.3 million, and has a $200,000 deductible. Id. The policy was purchased as part of a comprehensive general liability insurance program. Dkt. 24, at 2. Tacoma Utilities has additional insurance with a $1.5 million dollar self-insured limit (Dkt. 21-5), and so, the policy at issue here was acquired to help fill the $1.5 million insurance coverage gap (Dkt. 25, at 1-2).

During the applicable policy period, an event occurred which Tacoma Utilities asserts triggered coverage under the policy. This event culminated in the underlying lawsuit, and the facts of the event are taken from that case's amended complaint for purposes of this motion alone. No findings here are intended to bind the parties in the underlying suit.

B. FACTS ALLEGED IN THE UNDERLYING CASE'S AMENDED COMPLAINT

According to the amended complaint in the underlying case, before 2000, U.S. Oil, a company that operates an oil refinery at the Port of Tacoma, Washington, received its power supply from Tacoma Utilities which was "unreliable" and "subject to intermittent and unexpected disruptions." U.S. Oil Refining Co. v. City of Tacoma, Washington Department of Public Utilities , Pierce County, Washington Superior Court Case number 18-2-07232-2, Amended Complaint for Damages, (filed in the record here at Dkt. 21-1, further references to this amended complaint will be Dkt. 21-1). The underlying case's amended complaint alleges that:

A source of consistent and reliable electric power is essential to around the clock operation of the refinery. Proper shutdown and startup of the sophisticated mechanical equipment that drives the refinery's operational processes can take weeks. The machinery at the refinery is particularly sensitive to sudden and unexpected reductions in power or power outages. Any sudden or unexpected reductions in power or power outages can lead to unanticipated shut downs or unstable operations of the refinery. Unanticipated shut downs pose a substantial risk of harm and damage to the refinery's sophisticated equipment and production output.

Dkt. 21-1, at 4. According to the amended complaint, in an effort to secure a more reliable source of power for the refinery, U.S. Oil and Tacoma Utilities entered into a written agreement for Tacoma Utilities to supply power to U.S. Oil through a separate and dedicated substation, the Lincoln Substation, for which U.S. Oil helped pay. Dkt. 21-1, at 2-5. This agreement provided that Tacoma Utilities agreed to "construct, own and operate" the Lincoln Substation and to "promptly notify U.S. Oil when Tacoma [Utilities] scheduled ... maintenance on any portion of Lincoln Substation ..." Dkt. 21-1, at 6. The amended complaint in the underlying lawsuit asserts that the other named defendant in the case, ABB, Inc., manufactured components used in the Lincoln Substation. Dkt. 21-1, at 8. (U.S. Oil asserts a products liability claim, under the Washington Product Liability Act, and a negligence claim against ABB, Inc. in the underlying lawsuit. Dkt. 21-1, at 15.)

The amended complaint in the underlying lawsuit asserts that, "[o]n April 28, 2016, without notice and through no fault of U.S. Oil and solely because of Tacoma [Utilities'] actions, the U.S. Oil refinery suffered a complete loss of power, which caused an unanticipated total shutdown of the refinery's operations." Dkt. 21-1, at 7. It maintains that "[d]uring the process of restoring power, a second outage occurred, causing another complete loss of power to the U.S. Oil refinery." Dkt. 21-1, at 7. The amended complaint asserts that the complete loss of electrical power "caused a refinery-wide emergency shutdown," and "prohibited the refinery from going through the systematic process it follows for planned shutdowns that allows U.S. Oil to minimize emissions," "ensure safe operations," and "protect equipment." Dkt. 21-1, at 8. It asserts that "[b]ecause the April 28, 2016 shutdown was abrupt and unforeseen to U.S. Oil, heavy flaring and equipment damage occurred once the refinery lost power." Dkt. 21-1, at 8. By the time power was restored, more than two hours passed since the initial interruption. Dkt. 21-1, at 8.

The amended complaint in the underlying lawsuit alleges that because "some refinery equipment had been damaged and/or plugged during the unexpected power loss, U.S. Oil did not return to pre-power outage conditions until July 2016," and "production yields did not return to pre-power outage levels." Dkt. 21-1, at 9. It maintains that, "[u]nscheduled shutdowns can not only damage refinery equipment, but also commercial obligations such as purchase and sales agreements which in turn affects profitability." Dkt. 21-1, at 13. It further asserts that:

U.S. Oil has suffered substantial damages including, but not limited to, lost profits from refinery products that were not able to be produced, costs associated with managing the excess inventory of crude stock that had been purchased on contract but which could not be processed following the outage, and increased costs and fees associated with the interruption of refinery operations... U.S. Oil believes ... that the refinery also suffered some damage to its equipment. The damages suffered by U.S. Oil are described further in the Notice of Claim submitted to the City of Tacoma on or around May 26, 2017.

Dkt. 21-1, at 9. U.S. Oil asserts claims against Tacoma Utilities for breach of contract, breach of implied contract, breach of the covenant of good faith and fair dealing, and negligence. Dkt. 21-1, at 9-14. As it relates to the negligence claim against Tacoma Utilities, U.S. Oil alleges that Tacoma Utilities breached its duty of care by, among other things:

A. Failing to provide notice to U.S. Oil about the work taking place at the Lincoln Substation on April 28, 2016 that could result in the loss of power to the U.S. Oil refinery;

B. Failing to take preventative steps to prevent the incident, including reasonable steps to ensure that an employee's attempt to change passwords did not disrupt power service to the entire port;

C. Failing to design, construct, inspect, maintain and operate the sources of power supplying the refinery in a manner to avoid unexpected power failure;

D. Failing to train and supervise employees in order to avoid operational and/or equipment failure; and

E. Failing to design, construct and implement a plan that would ensure the continued provision of electrical power to the U.S Oil refinery in the event that transmission from the Lincoln Substation was lost on April 28, 2016.

Dkt. 21-1, at 14. U.S. Oil asserts that it sustained "damages in an amount to be proven at trial, but no less than $9,127,981." Dkt. 21-1, at 15.

C. EVENTS AFTER THE POWER OUTAGE AND PENDING MOTIONS

After the April 28, 2016 power shutdown, U.S. Oil sent a demand letter to Tacoma Utilities on May 26, 2017. Dkt. 21-2. Although no court case had yet been filed, Indian Harbor agreed to defend the claim, subject to a reservation of rights, in a letter dated August 9, 2017. Dkt. 21-2, at 2-10. On April 4, 2018, U.S. Oil filed the underlying lawsuit. Dkt. 23, at 9-23. Indian Harbor filed this case for declaratory relief on May 16, 2018. Dkt. 1.

Parties now file cross motions for summary judgment, and have both filed responses and replies. Dkts. 20, 22, 30, 32, and 33. Their arguments will be considered by claim.

II. DISCUSSION

A. SUMMARY JUDGMENT STANDARD

Summary judgment is proper only if the pleadings, the discovery and disclosure materials on file, and any...