Rsui Indemnity Co. v. Vision One, LLC

• Decision Date: 28 February 2012
• Docket Number: 41021-4-II,38411-6-II
• Court: Washington Court of Appeals
• Parties: RSUI INDEMNITY COMPANY, Intervenor Below and Appellant, v. VISION ONE, LLC, Plaintiff and Respondent, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant and Respondent, And D&D CONSTRUCTION, INC., Defendant, Third-Party Plaintiff, and Respondent, v. BERG EQUIPMENT & SCAFFOLDING CO., INC., Third-Party Defendant and Respondent.

RSUI INDEMNITY COMPANY, Intervenor Below and Appellant, v. VISION ONE, LLC, Plaintiff and Respondent, v. PHILADELPHIA INDEMNITY INSURANCE COMPANY, Defendant and Respondent, And D&D CONSTRUCTION, INC., Defendant, Third-Party Plaintiff, and Respondent, v. BERG EQUIPMENT & SCAFFOLDING CO., INC., Third-Party Defendant and Respondent.

Nos. 38411-6-II, 41021-4-II

Court of Appeals of Washington, Division 2

February 28, 2012

UNPUBLISHED OPINION

ORDER GRANTING MOTION FOR RECONSIDERATION IN PART AND AMENDING OPINION

Appellant has moved for reconsideration of the opinion in this case. After due consideration, this court grants the motion in part and amends the opinion as follows.

On page 12, at the end of the second complete paragraph, the court adds this footnote:

1. After RSUI made this claim of prejudice in its opening brief, the federal court ruled that RCW 48.30.015 does not apply because RSUF's denial of coverage occurred before the statute's effective date. Clerk's Papers at 149-51. This ruling weakens RSUF's claim of prejudice.

The remaining footnotes are renumbered accordingly. The motion for reconsideration is denied in all other respects. It is

SO ORDERED.

Armstrong, P. Judge.

RSUI the excess insurance carrier for Berg Equipment &amp Scaffolding, intervened in the lawsuit between Vision One LLC and Vision Tacoma, Inc. (collectively Vision) Philadelphia Indemnity Insurance Company, D&D Construction, and Berg to challenge the reasonableness of a settlement between Vision and Berg. The trial court denied RSUI's motion to continue the reasonableness hearing and upheld the settlement. Almost 19 months later, RSUI moved to vacate the settlement under CR 60(b)(4) and (11). The trial court denied RSUF's motion to vacate and imposed CR 11 sanctions. RSUI appeals each ruling; we affirm.

FACTS

RSUI issued a $1 million policy of excess insurance to Berg for July 1, 2005 to July 1, 2006. The policy excluded coverage for "any liability arising out of Berg's operations or work "on any 'residential project.'" Clerk's Papers (CP) at 12, 390. The policy's definition of "residential project" included "condominiums." CP at 12, 390. Berg also had a $1 million policy with its primary insurer, Admiral Insurance Company.

I. Accident and Litigation

During the course of developing a condominium in Tacoma, Vision contracted concrete work to D&D and D&D leased shoring equipment from Berg to support the concrete while it was poured and until it cured. On October 1, 2005, a section of newly poured concrete collapsed and injured several workers.

After Vision's insurer, Philadelphia Indemnity, denied coverage, Vision sued Berg, D&D, and Philadelphia; Philadelphia and D&D sued Berg; and Berg counterclaimed against D&D. Vision settled with D&D, which assigned its claims against Berg to Vision. Matthew Thompson, a subcontractor's employee, sued for personal injuries. His lawsuit was consolidated with the Vision-Philadelphia-Berg lawsuit, and issues of causation and damages were severed for later trial. Vision, Berg, and D&D stipulated that Thompson was not at fault and that any jury allocation of fault between Vision, Berg, and D&D would be binding for purposes of liability to Thompson.

After Vision settled with D&D, Vision sued Philadelphia for losses allegedly covered under its insurance policy for bad faith and attorney fees; Vision sued Berg for all actual, incidental, and consequential damages resulting from the collapse in its own right (under tort and product liability theories) and as the assignee of D&D's claims; and Berg sued D&D for breach of contract damages.

Berg notified RSUI of the incident and the resulting litigation. RSUI informed Berg in April 2007 that it was denying coverage under the policy's residential work exclusion. Despite that denial, Berg continued to send information and reports about the litigation to RSUI.

II. Unsuccessful Mediation

In January 2008, after extensive discovery and motion practice and with the March trial date approaching, the parties agreed to mediate. Berg informed RSUI of the upcoming mediation and of its expectation that RSUI would fully participate. RSUI responded that it would attend even though it did not believe there was coverage. Before the mediation, RSUI's coverage counsel, David East, spent approximately two hours in the office of Michael Mullin, Berg's defense attorney, reviewing and copying documents.

At the February 2008 mediation, Vision sought $5.7 million in damages, not including Thompson's $4 million personal injury claim. RSUI attorney Michael Helgren attended the mediation, which was unsuccessful. Peter Petrich, Berg's corporate counsel, told Helgren after the mediation that Berg would likely assign its rights against RSUI if it settled with Vision.

On February 19, 2008, Berg received a settlement demand from Vision. It included a stipulated judgment against Berg for $2.5 million that was broken down as follows: $1 million payable by Admiral; $500, 000 payable by Berg personally; and the remaining $1 million payable by RSUI with a covenant not to execute on any of Berg's assets. The demand also provided that Vision's liability insurers would be responsible for all bodily injury claims and that all of Berg's claims against Vision and D&D would be dismissed with prejudice. Berg forwarded a copy of the settlement demand to RSUI, and when RSUI asked whether its terms were acceptable, Berg replied that they were not.

Helgren made no inquiries about the litigation or possible settlement after February 2008. He did write to Petrich in April and June 2008, however, asking whether Berg had any legal authority that would challenge RSUI's denial of coverage, and he also left phone messages pertaining to the letters. Petrich did not respond.

Following the failed mediation, Vision and Berg continued to battle over Berg's liability, with each side moving for summary judgment. The contract claims against Berg survived. Vision's claims against Berg based on product liability law also withstood summary judgment challenge, as did its delay of damages claims. Berg was able to eliminate Vision's $500, 000 claim for lost sales but the trial court refused to rule that Vision, as the general contractor, was liable for the collapse as a matter of law. The trial court also denied Vision's motion for summary dismissal of the bodily injury claims. The trial date was then reset for September 8, 2008.

In early September, another personal injury lawsuit was filed against Berg with a demand for $800, 000 in damages. Eight or nine additional bodily injury claimants had yet to sue and the statute of limitations had not expired. By September 4, Vision was preparing to prove clean-up expense damages of about $500, 000 and consequential (construction and project delay) damages of about $4 million. The trial court had yet to rule on whether a substantial portion of Vision's claimed delay losses qualified as losses covered by Philadelphia's policy, which raised the prospect of Berg being at risk for those losses. Consequently, Berg was facing approximately $10 million of exposure with only $1 million of primary coverage available.

III. Settlement Agreement and RSUI Intervention

With the assistance of a mediator, Vision and Berg settled for $3.3 million on September 5, 2008. Berg's primary insurer, Admiral, agreed to pay Vision its policy limits of $1 million, and the parties agreed to a $2.3 million covenant judgment enforceable against RSUI. Vision pledged its own assets and liability insurance for all bodily injury liabilities and agreed to indemnify and hold Berg harmless against such claims. Vision's liability insurance came from Gemini, its primary liability carrier, and ICSOP (AIG), its excess carrier. The settlement was conditioned on the court finding it reasonable.

Vision reported to the trial court on Monday, September 8, that a settlement was imminent but needed one additional party's approval. The court observed that because 100 potential jurors were on hand, it would proceed with jury selection until any settlement was final. When the proceedings resumed the next day, Vision reported that the settlement was waiting for Berg's final approval. A short time later, Vision informed the court that a settlement had been reached. The court delayed impaneling a jury and set a reasonableness hearing for Friday, September 12. Vision and Berg notified RSUI of the settlement and the reasonableness hearing.

RSUI moved to intervene and to continue the September 12 hearing to September 26. RSUI asserted that it knew nothing of the claims against Berg that were included in the settlement, nor of the factors and considerations that went into the settlement, and it argued it had been excluded from settlement negotiations. It also sought the continuance because Helgren, allegedly the only RSUI attorney with knowledge of the litigation, was vacationing until September 15.

Philadelphia also protested the timing of the reasonableness hearing and asked the court to delay it until Philadelphia could address legal issues arising from the proposed settlement. Philadelphia refused, however, to agree to postpone the trial pending a reasonableness hearing.

Berg and Vision did not object to RSUF's intervention but did object to a two-week continuance of the reasonableness hearing. They advised the court that RSUI had refused to participate in settlement negotiations in February and that it had not sought information about the litigation since.

At the September 12 hearing, the court granted RSUF's motion to intervene. East represented RSUI. Claiming to know nothing of the case, he protested that RSUI had no basis for contesting the settlement. The court was concerned about putting the jury "on hold"...