Mid-Century Ins. Co. v. Zanco

Decision Date27 April 2020
Docket NumberNO. 2:20-CV-00045-SAB,2:20-CV-00045-SAB
CourtU.S. District Court — District of Washington
Parties MID-CENTURY INSURANCE COMPANY, Plaintiff, v. Vernice ZANCO, Defendant.

Misty A. Edmundson, Cristin A. Cavanaugh, Jennifer P. Dinning, Soha & Lang PS, Seattle, WA, for Plaintiff.

Peter Steven Schweda, Waldo Schweda & Montgomery PS, Spokane, WA, for Defendant.


Stanley A. Bastian, United States District Judge

Before the Court are Defendant's Motion to Stay Proceedings, ECF No. 13, and Rule 12(b)(6) Motion to Dismiss, ECF No. 6, and Plaintiff's Motion for Summary Judgment, ECF No. 7. The motions were originally noted for hearing on April 24, 2020, but due to Court closures related to the ongoing COVID-19 pandemic the Court considered the motions without oral argument. Having considered the briefing on the motions and the applicable caselaw and for the reasons discussed herein, the Court denies Defendant's Motion to Stay, denies Defendant's Motion to Dismiss, and grants Plaintiff's Motion for Summary Judgment.

Facts and Procedural History
1. The Insurance Policy

Defendant owns and operates an apartment complex in Spokane Valley, Washington, known as University South & East. Id. at 2.2. Plaintiff issued Defendant an Apartment Owners Liability Insurance policy from December 30, 2014 through December 30, 2015 for liability coverage arising out of the ownership, maintenance, or use of the University apartment building premises. ECF No. 1-1.

Relevant here are three provisions of the Policy: (1) the Designated Premises Endorsement; (2) the "Who Is an Insured" (WIAI) Clause; and (3) the Apartment Owners Common Policy Conditions.

The Designated Premises Endorsement provides as follows:

"This insurance applies only to ‘bodily injury’ ... arising out of the ownership, maintenance, or use of the premises shown in the Schedule and operations necessary or incidental to those premises. This endorsement is part of your policy. It supersedes and controls anything to the contrary. It is otherwise subject to all the terms of the policy."

ECF No. 1-1 at 92. The Policy defines the covered "premises" as 11009 E. 3rd Avenue, Spokane Valley, Washington, otherwise known as the University South & East apartment complex.

The WIAI Clause provides that the policy insures "Vernice Zanco University South & East LLC." ECF No. 1-1 at 84. As an LLC, the policy considers the LLC and its members as insureds, but only with respect to the conduct of the LLC's business. Id.

Finally, the Apartment Owners Common Policy Conditions provide in relevant part that:

"This policy is void in any case of fraud by you as it relates to this policy at any time. It is also void if you or any other insured, at any time, intentionally conceal or misrepresent a material fact concerning: (1) This policy; (2) The Covered Property; (3) Your interest in the Covered Property; or (4) A claim under this policy."

ECF No. 1, Ex. A at 100.

2. State Tort Liability Action, Quartararo v. Zanco

On June 25, 2018, Kimberly Quartararo filed a personal injury lawsuit against Defendant in King County Superior Court, which was then transferred to Spokane County Superior Court on March 7, 2019 ("the Liability Action"). ECF No. 1-2 (state tort complaint). In the Liability Action, Quartararo alleges that she was an invited social guest at Defendant's home (not the University apartment complex) on Liberty Lake at 615 S. Shoreline Drive, Spokane County, Washington on June 27, 2015. Quartararo alleges that while she was a social guest, she was injured when she dove off the dock at Defendant's residence and hit her head on cement blocks attached to the dock. Quartararo further alleges that Defendant's son (and co-defendant in the Liability Action) either co-owned or co-occupied the residence with Defendant.

The Liability Action is ongoing. Defendant is currently being defended by Safeco Insurance Company pursuant to a homeowner's policy. Nearly a year into the Liability Action, Safeco tendered the complaint to Plaintiff, alleging that Defendant maintained a home office that implicated coverage under Plaintiff's Apartment Owner policy. ECF No. 1 at 2.8. Plaintiff agreed to defend Defendant in the Liability Action, but only pursuant to a full reservation of its rights. Id.

After Plaintiff agreed to defend, Defendant made further allegations that the social gathering at which Quartararo was injured served a "dual purpose" of business and pleasure. Id. at 2.9. However, Quartararo's complaint does not allege that the party had a dual purpose, nor does she allege that she was injured in connection with Defendant's home office or any operations necessary or incidental to the University apartment complex. Instead, Quartararo's complaints have consistently maintained that she was injured due to a latent defect in the dock at Defendant's home, and that Defendant is liable as a homeowner. Id. at 2.10; ECF No. 1-2 at ¶¶ 47-53.

3. Federal Declaratory Relief Action

Plaintiff filed the instant action on January 29, 2020, seeking a declaratory judgment that it has no duty to defend or indemnify Defendant in the Liability Action because Defendant breached one or more policy conditions and requiring it to defend and indemnify would cause actual prejudice. ECF No. 1 at 3.1-3.4. Defendant filed her Motion to Dismiss, ECF No. 6, on February 19. Plaintiff filed its Motion for Summary Judgment, ECF No. 7, on March 5. Defendant filed her Motion to Stay Proceedings, ECF No. 13, on March 25.

Defendant's Motion to Stay Proceedings

The Court first considers Defendant's request that the Court stay this declaratory action until the completion of the Liability Action in state court. ECF No. 13. Defendant argues that not staying these proceedings would allow Plaintiff to engage in forum shopping and would require her to engage in piecemeal litigation, as other insurers who may not have a duty to defend are not party to these proceedings. Plaintiff argues that a stay is not warranted because there are no parallel state proceedings and resolving its Complaint would not involve unnecessary determinations of state law.

28 U.S.C. § 2201 provides that "any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration." However, a district court is not required to exercise jurisdiction over all declaratory judgment actions. Wilton v. Seven Falls Co. , 515 U.S. 277, 287, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995). A federal court should not exercise its discretion to grant declaratory relief "where another suit is pending in a state court presenting the same issues, not governed by federal law, between the same parties." Chamberlain v. Allstate Ins. Co. , 931 F.2d 1361, 1366-67 (9th Cir. 1991), abrogated on other grounds by Wilton , 515 U.S. at 289-91, 115 S.Ct. 2137. In this context, the district court may either dismiss, abstain, or stay the federal action. R.R. Street & Co. Inc. v. Transp. Ins. Co. , 656 F.3d 966, 975 (9th Cir. 2011).

In determining whether to exercise its jurisdiction, the Court should consider the following factors: (1) the avoidance of needless determinations of state law issues; (2) discouragement of forum shopping; and (3) avoidance of duplicative litigation. Brillhart v. Excess Ins. Co. , 316 U.S. 491, 495, 62 S.Ct. 1173, 86 L.Ed. 1620 (1942) ; Gov't. Employees Ins. Co. v. Dizol , 133 F.3d 1220, 1225 (9th Cir. 1998) (en banc). Where there is no parallel state proceeding, "the court must balance concerns of judicial administration, comity, and fairness to the litigants in determining whether to exercise jurisdiction over a declaratory judgment action." Evanston Ins. Co. v. Workland & Witherspoon, PLLC , No. 2:14-CV-00193-RMP, 2014 WL 4715879 at *3 (E.D. Wash. Sept. 22, 2014).

Courts have discretion to abstain or stay from considering a declaratory judgment action if the federal case does not require resolution of legal or factual issues in dispute in the state court proceeding. To the contrary, the Washington Supreme Court routinely approves of insurers filing declaratory judgment actions during the pendency of state court actions where their coverage liability is uncertain. Woo v. Fireman's Fund Ins. Co. , 161 Wash.2d 43, 54, 164 P.3d 454 (2007). Indeed, "there is no presumption in favor of abstention in declaratory actions generally, nor in insurance coverage cases specifically." Dizol , 133 F.3d at 1225.

1. Avoidance of Needless Determination of State Law Issues

The first factor does not weigh in favor of staying this case. Plaintiff's declaratory judgment action does not raise any federal claims, and instead raises only state law breach of contract and insurance claims. However, federal courts sitting in diversity—as here—frequently rule on issues of state law, and there is no presumption of abstention in insurance coverage cases. Id. Furthermore, where, as here, the state tort proceeding does not involve the same legal issues as the federal declaratory action, there is no requirement to abstain on this ground. Am. Cas. Co. of Reading, Penn. v. Krieger , 181 F.3d 1113, 1119 (9th Cir. 1999). The instant federal action is not a parallel proceeding to the Liability Action because the same legal issues are not at play. Id. Thus, there is no presumption that these issues of state law should be determined in state court. There are no implications that the Court be required to decide unsettled issues of state law by considering Plaintiff's claims. See Atl. Cas. Ins. Co. v. Bellinger , 2:16-CV-00422-SAB, 2017 WL 1843714 at *1 (E.D. Wash. May 8, 2017). Thus, this factor weighs against staying the case.

2. Discouragement of Forum Shopping

The second factor is a closer call, but on balance does not weigh in favor of granting Defendant's motion and issuing a stay. Defendant's motion incorporates by reference the extensive history of the...

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