Mass. Bay Ins. Co. v. Walflor Indus., Inc.
Decision Date | 17 April 2019 |
Docket Number | CASE NO. C18-0791JLR |
Citation | 383 F.Supp.3d 1148 |
Court | U.S. District Court — Western District of Washington |
Parties | MASSACHUSETTS BAY INSURANCE COMPANY, Plaintiff, v. WALFLOR INDUSTRIES, INC., et al., Defendants. |
Margaret M. Van Valkenburg, Bullivant Houser Bailey PC, Portland, OR, Brendan Hanrahan, Jayme N. Mori, Matthew J. Sekits, Bullivant Houser Bailey, Seattle, WA, for Plaintiff.
Chase Christian Alvord, James M. Bulthuis, Tousley Brain Stephens, Seattle, WA, for Defendants.
ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
Before the court are the parties' cross motions for summary judgment, including: (1) Plaintiff Massachusetts Bay Insurance Company's ("Massachusetts Bay") motion for summary judgment (Plf. MSJ (Dkt. # 33)), and (2) Defendants John Ural, Mike Czerwinski, Jim Hewitt (collectively, "Individual Defendants"), and Walflor Industries, Inc.'s ("Walflor") (collectively, "Defendants") motion for summary judgment (Def. MSJ (Dkt. # 31)). Massachusetts Bay seeks (1) a declaration that it has no duty to defend Defendants in the lawsuit presently pending in King County Superior Court, entitled Stuc-O-Flex International, Inc. v. Low and Bonar, Inc. , et al. , No. 17-2-30700-9 ("the Underlying Lawsuit"), and (2) a ruling that it is entitled to reimbursement of the monies it has already paid to defend Defendants in the Underlying Lawsuit. (Plf. MSJ at 1.) Defendants, on the other hand, seek a declaration that Massachusetts Bay owes them a duty to defend in the Underlying Lawsuit. (Def. MSJ at 1.) If, however, Massachusetts Bay does not owe them a duty to defend, Defendants seek an order that Massachusetts Bay is not entitled to reimbursement of the defense costs it has already incurred in the Underlying Lawsuit, or in the alternative, an order certifying that issue to the Washington Supreme Court. (See id. ) The court has considered the motions, the parties' submissions in support of and opposition to the motions, the relevant portions of the record, and the applicable law. Being fully advised,1 the court GRANTS Massachusetts Bay's motion and DENIES Defendants' motion.
Massachusetts Bay issued a business owners policy to Walflor for the period December 8, 2015, to December 8, 2016. (Compl. (Dkt. # 1) ¶ 3.1 (identifying policy number OD2-A797754-00).) Walflor renewed the policy for the period December 8, 2016, to December 8, 2017. (Id. (identifying policy number OD2-A797754-01).)
The policies provide coverage, in pertinent part, as follows:
The policies further provide:
The policies define "advertisement" as "a notice that is broadcast or published to the general public or specific market segments about your goods, products or services for the purpose of attracting customers or supporters...."
In addition, the policies contain the following exclusion:
Finally, each policy contains an endorsement entitled, "WASHINGTON CHANGES – DEFENSE COSTS ," which provides:
In 2013, Stuc-O-Flex and Waterway Rainscreen entered into a Distributorship Agreement, under which Waterway Rainscreen agreed to produce certain products for Stuc-O-Flex's exclusive distribution in the United States and Canada. 3 In early 2016, Individual Defendants created Walflor, which acquired all of Waterway Rainscreen's assets and began supplying certain products to Stuc-O-Flex for distribution. (Underlying Lawsuit Compl. ¶ 23.) According to the Underlying Lawsuit complaint, "in 2016 and 2017, Stuc-O-Flex ... uncovered evidence that Walflor and [Waterway Rainscreen] sold ... Stuc-O-Flex [t]rade-[n]ame-marked [p]roducts to multiple parties in the United States and Canada for years in violation of the [Distributorship Agreement] and without Stuc-O-Flex's consent, resulting in millions of dollars of lost profit." (Id. ¶ 26.)
As a result, Stuc-O-Flex sued Defendants, Waterway Rainscreen, and Low and Bonar, Inc. (the current owner of Walflor), alleging breach of the Distributorship Agreement, tortious interference with a business expectancy, trade name infringement, and a violation of Washington's Consumer Protection Act ("CPA"), RCW § 19.86.020, et seq. (Underlying Lawsuit Compl. ¶¶ 35-59.) In its claim for tortious interference with a business expectancy, Stuc-O-Flex asserts "[s]pecifically" that "Defendants engaged in the [alleged] ... wrongful conduct by conspiring to wrongfully sell and acquire [Waterway Rainscreen and Walflor] so as to side-step the obligations of the [Distributorship Agreement] and/or without complying with the same in the transitions...." (Id. ¶ 49.) In its claim for violation of the CPA, Stuc-O-Flex alleges that Defendants' "unfair business practices include ... the conduct that constitutes a breach of the [Distributorship Agreement]...." (Id. ¶ 56.)
Stuc-O-Flex later amended the complaint to replace its cause of action for trade name infringement with a cause of action for trademark violation and to add a cause of action for alter ego or piercing the corporate veil. (Colville Decl. ¶ 4, Ex. 2 ("Underlying Lawsuit Am. Compl.").)4 In its amended complaint, Stuc-O-Flex alleges in its tortious interference claim that "Defendants intentionally interfered with ... Stuc-O-Flex's binding [Distributorship Agreement] ... and sought to deny ... Stuc-O-Flex the benefit of its bargain under the [Distributorship Agreement]." (Id. ¶ 5.4; see also id. ¶ 5.5.) Stuc-Flex also alleges that it "has been and will continue to be damaged as a result of Defendants' tortious interference with rights and privileges afforded to ... Stuc-O-Flex pursuant to the [Distributorship Agreement], in an amount to be proven at trial." (Id. ¶ 5.8.)
On January 16, 2018, Individual Defendants tendered the Underlying Lawsuit's original complaint to Massachusetts Bay under Walflor's insurance policy. (Colville Decl. ¶ 5, Ex. 3.) Massachusetts Bay initially concluded that the allegations in the complaint did not fall within the policy's coverage for damages for "bodily injury," "property damage," or "personal or advertising injury," and accordingly, denied the claim. (Id. ¶ 6, Ex. 4.) On April 5, 2018, Individual Defendants responded by asserting that Massachusetts Bay's duty to defend was triggered under the policy's coverage for "personal and advertising injury." (Id. ¶ 7, Ex. 5.) Following this communication, on April 13, 2018, Massachusetts Bay agreed to defend Defendants under a full reservation of rights. (Id. ¶ 8, Ex. 6.) In this reservation of rights letter, Massachusetts Bay specifically informed Defendants that it reserved the right "to seek reimbursement of any defense costs paid if it is later determined that none of the claims or damages sought are covered under the policies," and Massachusetts Bay quoted from the policies' "WASHINGTON CHANGES – DEFENSE COSTS...
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