Mutual of Enumclaw Ins. Co. v. Usf Ins. Co.

• Citation: 164 Wn.2d 411,191 P.3d 866
• Decision Date: 04 September 2008
• Docket Number: No. 80199-1.,80199-1.
• Court: United States State Supreme Court of Washington
• Parties: MUTUAL OF ENUMCLAW INSURANCE COMPANY and Commercial Underwriters Insurance Company, Respondents, v. USF INSURANCE COMPANY, Petitioner.

191 P.3d 866

164 Wn.2d 411

MUTUAL OF ENUMCLAW INSURANCE COMPANY and Commercial Underwriters Insurance Company, Respondents, v. USF INSURANCE COMPANY, Petitioner.

No. 80199-1.

Supreme Court of Washington, En Banc.

Argued March 20, 2008.

Decided September 4, 2008.

James Morton Beecher, David R. Collins, Law Offices of Hackett, Beecher, & Hart, Seattle, WA, for Respondents.

John Earl Lenker, Shelley Movae Buckholtz, Mikkelberg Broz Wells & Fryer PLLC, Seattle, WA, for Petitioner.

OWENS, J.

¶ 1 Petitioner USF Insurance Company and respondents Mutual of Enumclaw Insurance Company (MOE) and Commercial Underwriters Insurance Company (CUIC) all insured Dally Homes, Inc., a homebuilder and developer, for a condominium development called Windsong Arbor. After the Windsong Arbor Homeowners' Association (Homeowners) sued Dally for construction defects, Dally settled with MOE and CUIC. Dally intentionally did not tender a claim to USF. MOE and CUIC later brought an action for contribution and subrogation against USF. At issue is whether the "selective tender" rule applies to bar MOE and CUIC's claims or whether the "late tender" rule applies to allow them. Also at issue is whether USF has shown that it was prejudiced as a matter of law by late notice of the claims.

¶ 2 The trial court granted summary judgment to USF on both of the claims, reasoning that "selective tender" applied. The Court of Appeals reversed, holding that the "late tender" rule applied and that summary judgment was improper. We reverse the Court of Appeals as to the contribution claim and hold that the "selective tender" rule applies to bar MOE and CUIC's claim. We then affirm the Court of Appeals insofar as it holds that "late tender" applies to the subrogation claim. We also hold that USF has not shown that late notice prejudiced it as a matter of law.

I. FACTS

¶ 3 In the late 1990s, Dally developed and built a condominium complex in Kent known as Windsong Arbor. Dally obtained a general insurance policy from USF, which bound on January 18, 2000. Prior to that, CUIC insured Dally, and Dally also had coverage from MOE through one of its subcontractors on the Windsong Arbor project. In late 1999, the Homeowners' board became aware that it was nearing the end of the statute of limitations period for a suit against Dally for construction defects in the development. James Skeen, the board president, began to look for an attorney to represent the Homeowners.

¶ 4 Skeen called Richard Beal, an attorney who represented Dally on an ongoing basis, to ask if Beal might represent the Homeowners in a suit against Dally. Beal declined due to his existing professional relationship with Dally, and he received permission to notify Dally of the potential suit.

¶ 5 In the spring of 2000, the Homeowners sued Dally. Beal advised Dally not to tender the claim to USF. Beal felt that tender was improper because he knew of the potential suit before the USF policy bound. Dally tendered the claim to other insurers but not to USF.

¶ 6 In January 2002, Dally, MOE, and CUIC entered into an agreement to fund the settlement of the Homeowners' suit against Dally. In the agreement, Dally assigned its rights "against non-participating primary or Additional Insured insurers [sic]" to MOE and CUIC. Clerk's Papers (CP) at 445. The assignment of rights did not specifically name USF.

¶ 7 MOE and CUIC instituted contribution litigation against all of Daily's other known insurers, but they were unaware of the USF policy until that litigation was complete. MOE and CUIC discovered the USF policy, and in February 2004, they sent a letter to USF demanding partial reimbursement of their indemnity and defense costs. The letter marked the first time that USF had any notice of the claim.

¶ 8 MOE and CUIC filed an action against USF for subrogation and equitable contribution in the King County Superior Court.¹ USF moved for summary judgment on both claims. The trial court adopted the so-called "selective tender" rule, which states that where an insured has not tendered a claim to an insurer, that insurer is excused from its duty to perform under the policy or to contribute to a settlement of the claim. CP at 579; see Cas. Indem. Exch. Ins. Co. v. Liberty Nat'l Fire Ins. Co., 902 F.Supp. 1235, 1239 (D.Mont.1995). The trial court granted the motion for summary judgment in full without distinguishing between the subrogation and equitable contribution claims. CP at 576-79.

¶ 9 The Court of Appeals, Division One, reversed. Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 137 Wash.App. 352, 363, 153 P.3d 877 (2007) (MOE v. USF I). It concluded that Washington's "late tender" rule was incompatible with the "selective tender" rule. Id. at 359-61, 153 P.3d 877. "Late tender" provides that an insurer must perform under the insurance contract even where an insured breaches the timely notice provision of the contract unless the insurer can show actual and substantial prejudice due to the late notice. See Unigard Ins. Co. v. Leven, 97 Wash.App. 417, 427, 983 P.2d 1155 (1999). The Court of Appeals reasoned that the "selective tender" rule could not apply where there had been an assignment of rights. MOE v. USF I, 137 Wash.App. at 360, 153 P.3d 877. The court did not individually analyze the subrogation and equitable contribution claims.² Upon USF's petition, we granted review. 162 Wash.2d 1019, 178 P.3d 1033 (2008).

II. ANALYSIS

A. Standard of Review

¶ 10 This court reviews an order granting summary judgment de novo. City of Seattle v. Mighty Movers, Inc., 152 Wash.2d 343, 348, 96 P.3d 979 (2004). Under CR 56(c), a court may grant summary judgment if the record presents no genuine issue of material fact and the law entitles the moving party to judgment. Id. "In conducting this inquiry, this court must view all facts and [draw] reasonable inferences in the light most favorable to the nonmoving party." Hisle v. Todd Pac. Shipyards Corp., 151 Wash.2d 853, 860, 93 P.3d 108 (2004).

B. Do the "late tender" and "selective tender" rules apply to MOE and CUIC's claims?

¶ 11 USF's central contention is that because Dally had not tendered its claim to USF at the time of the settlement agreement, MOE and CUIC now have no right to seek payment from USF. MOE and CUIC's rights turn on whether the "late tender" rule or the "selective tender" rule applies to their claims.

¶ 12 MOE and CUIC made claims for both subrogation and equitable contribution. The trial court granted summary judgment as to both claims. Though the Court of Appeals recognized that there had been two claims, MOE v. USF I, 137 Wash.App. at 358, 153 P.3d 877, it did not do separate analyses of the claims, and it held only that MOE and CUIC could "maintain an action ... for contribution,"³ id. at 361, 153 P.3d 877. However, the distinction between subrogation and contribution is critical to our analysis. The type of subrogation presented in this case involves the assignment of the insured's rights to an insurer, while the contribution here is one insurer's right against another liable insurer, and thus different rules apply to each claim.⁴

1. Equitable Contribution

¶ 13 Equitable contribution refers to the right of one party to recover from another party for a common liability. Fireman's Fund Ins. Co. v. Md. Cas. Co., 65 Cal.App.4th 1279, 1293, 77 Cal.Rptr.2d 296 (1998). In the context of insurance law, contribution allows an insurer to recover from another insurer where both are independently obligated to indemnify or defend the same loss.⁵ Importantly, contribution is a right of the insurer and is independent of the rights of the insured. See Signal Cos., Inc. v. Harbor Ins. Co., 27 Cal.3d 359, 369, 612 P.2d 889, 165 Cal.Rptr. 799 (1980) ("`The reciprocal rights and duties of several insurers who have covered the same event do not arise out of contract, for their agreements are not with each other.... Their respective obligations flow from equitable principles designed to accomplish ultimate justice in the bearing of a specific burden.'" (alteration in original) (quoting Am. Auto. Ins. Co. v. Seaboard Sur. Co., 155 Cal.App.2d 192, 195-96, 318 P.2d 84 (1957))).

¶ 14 In deciding whether one insurer is liable for equitable contribution to another, "the inquiry is whether the nonparticipating coinsurer `had a legal obligation ... to provide [a] defense [or] indemnity coverage for the .. . claim or action prior to [the date of settlement].'" Safeco Ins. Co. of Am. v. Superior Court, 140 Cal.App.4th 874, 879, 44 Cal.Rptr.3d 841 (2006) (second emphasis added) (alterations in original) (quoting Am. Cont'l Ins. Co. v. Am. Cas. Co., 86 Cal. App.4th 929, 938, 103 Cal.Rptr.2d 632 (2001)), review denied, 2006 Cal. LEXIS 10468.⁶ Equity provides no right for an insurer to seek contribution from another insurer who has no obligation to the insured. See Aetna Cas. & Sur. Co. v. Mut. of Enumclaw Ins. Co., 121 Idaho 603, 605-06, 826 P.2d 1315 (1992) (recognizing that equitable contribution arises in cases where an insurer has breached its obligation to defend the insured against liability (citing Forum Ins. Co. v. Ranger Ins. Co., 711 F.Supp. 909 (N.D.Ill. 1989); Marwell Constr., Inc. v. Underwriters at Lloyd's, London, 465 P.2d 298 (Alaska 1970); Cont'l Cas. Co. v. Zurich Ins. Co., 57 Cal.2d 27, 366 P.2d 455, 17 Cal.Rptr. 12 (1961))); Nat'l Indem. Co. v. St. Paul Ins. Cos., 150 Ariz. 458, 459, 724 P.2d 544 (1986) ("When an insurer has a duty to defend the insured, there should be no reward to the insurer for breaching that duty." (emphasis added)).

¶ 15 Washington courts have said that an insurer's duty to defend "arises when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy's coverage." Leven, 97 Wash.App. at 425, 983 P.2d 1155. However, "`[A]n insurer cannot be expected to anticipate when or if an insured will make a claim for coverage; the insured must...