Trinity Universal Ins. Co. of Kan. v. Ohio Cas. Ins. Co., 67832–9–I.

• Decision Date: 19 August 2013
• Docket Number: No. 67832–9–I.,67832–9–I.
• Citation: 312 P.3d 976,176 Wash.App. 185
• Court: Washington Court of Appeals
• Parties: TRINITY UNIVERSAL INSURANCE COMPANY OF KANSAS, Respondent, v. OHIO CASUALTY INSURANCE COMPANY, Appellant.

176 Wash.App. 185

312 P.3d 976

TRINITY UNIVERSAL INSURANCE COMPANY OF KANSAS, Respondent,

v.OHIO CASUALTY INSURANCE COMPANY, Appellant.

No. 67832–9–I.

Court of Appeals of Washington,

Division 1.

Aug. 19, 2013.

Alfred E. Donohue, Wilson, Smith, Cochran & Dickerson, Seattle, WA, Philip Albert Talmadge, Talmadge/Fitzpatrick, Tukwila, WA, for Appellant.

Brent William Beecher, Hackett Beecher & Hart, Seattle, WA, for Respondent.

APPELWICK, J.

¶ 9 Trinity defended and settled a personal injury claim made against Ohio's insured. Trinity then sued Ohio for subrogation, equitable contribution, and insurer bad faith under the CPA ¹ and IFCA.² When Ohio failed to appear, Trinity obtained a default order and judgment for defense and indemnification costs, as well as treble damages under the CPA and IFCA. Trinity claims that under the principle of equitable subrogation, it was entitled to assert the insured's CPA and IFCA claims against Ohio, even without express agreement. We reverse the portions of the judgment based upon the CPA and IFCA claims. We affirm the judgment for defense and indemnification costs.

FACTS

¶ 10 In September 2007, Philip Riley was injured when he fell off scaffolding at a construction site in Kitsap County. Riley was employed by a subcontractor, Cascade Construction Company. Riley sued the worksite's general contractor, Millennium Building Company Inc. Trinity Universal Insurance Company of Kansas insured Cascade, while Ohio Casualty Insurance Company insured Millennium.

¶ 11 Millennium tendered defense of the lawsuit to Ohio. Ohio initially accepted tender and appointed an attorney to represent Millennium. But, Ohio then tendered Millennium's defense to Trinity, claiming that Millennium was an additional insured under the policy Trinity issued to Cascade. Though Riley's complaint alleged only Millennium's acts or omissions, Trinity acknowledged it was conceivable that some act or omission by Cascade could have played a role in Riley's injury. Therefore, in January 2009, Trinity accepted tender and took over defense of the lawsuit without a reservation of rights.

¶ 12 In August 2009, Trinity attempted to tender Millennium's defense back to Ohio. Trinity contended that, under the circumstances of complaint, Trinity and Ohio were at least coprimary insurers. Trinity reminded Ohio that, under Washington law, an insurer's duty to defend is triggered if the insurance policy conceivably covers allegations in the complaint.³ Trinity pointed out that the complaint alleged only Millennium's acts or omissions, triggering Ohio's duty to defend. In other words, if Millennium's acts or omissions were found to be the cause of the accident, Ohio would be entirely responsible for defense and indemnification.

¶ 13 But, Ohio refused to accept the retender. Ohio cited an “ ‘other insurance’ ” provision in Millennium's policy, which stated that Ohio's insurance is primary except if “ ‘any other primary insurance [is] available to you covering liability for damages arising out of the premises or operations.’ ” Based on this provision, Ohio insisted that its coverage was excess to Trinity's.

¶ 14 In December 2009, Trinity notified Ohio and the Washington State Insurance Commissioner that it planned to sue unless Ohio agreed to participate in Millennium's defense. Trinity explained that it would be asserting its equitable contribution rights as Cascade's insurer, as well as the direct, subrogated rights of Millennium. Ohio again refused.

¶ 15 Trinity continued defense and ultimately settled Riley's claims for $225,000 in January 2010. Millennium and Cascade received a full and complete release of all Riley's claims.

¶ 16 Trinity served the insurance commissioner on May 12, 2010,⁴ with a summons and complaint against Ohio for subrogation, equitable contribution, and insurer bad faith. On May 13, 2010, the commissioner forwarded the summons and complaint by certified mail to Ohio's registered agent for service, Corporation Service Company (CSC). The commissioner received a return receipt stamped and dated by CSC. CSC has no record of receiving Trinity's summons and complaint. The parties do not dispute that Trinity did not provide notice of the lawsuit to Ohio's claims representative or its outside counsel.

¶ 17 Trinity filed its complaint with the court on July 7, 2010. Trinity alleged that Ohio improperly relied on its “other insurance” exclusion to deny defense, because Riley's complaint did not specify the cause of the accident. Trinity asserted five causes of action against Ohio. First, Trinity argued that by withdrawing from and refusing to contribute to Millennium's defense, Ohio breached its contractual duty to defend Millennium. Second, Trinity claimed that Ohio breached its duty of good faith and fair dealing by unreasonably refusing to defend Millennium, in violation of IFCA. Third, Trinity claimed that Ohio failed to respond to pertinent communications from a claimant within 10 days, as required by WAC 284–30–360(3). Fourth, Trinity argued that the same conduct constituted per se violations of the CPA. Lastly, Trinity claimed it was entitled to equitable contribution for Ohio's share of Millennium's defense, because both Trinity and Ohio had obligations to defend.

¶ 18 When Ohio failed to appear or answer, Trinity moved ex parte for a default order and judgment. Trinity requested the full cost of defending and indemnifying Millennium, attorney fees, and treble damages under IFCA and the CPA, totaling $764,271. Trinity provided declarations and other exhibits supporting its request for damages. On July 14, 2010, a court commissioner granted the motion and entered judgment in the full amount.

¶ 19 Trinity waited a year and five days before collecting on the judgment. Trinity admitted that it purposefully waited a year to collect in order to gain a procedural advantage over Ohio. On August 24, 2011, Ohio filed a motion to vacate the default order and set aside the judgment. Ohio argued the default judgment should be overturned, because (1) Ohio was not served; (2) Trinity had no standing to bring the claims; (3) the court commissioner failed to enter findings of fact and conclusions of law necessary to support the judgment; (4) Ohio's failure to appear was inadvertent, because it was unaware of the lawsuit; and (5) Ohio could assert prima facie defenses to liability and damages. The court denied Ohio's motion to vacate and this appeal followed.

DISCUSSION

¶ 20 Ohio makes several arguments on appeal. Ohio argues that the default judgment should be vacated under CR 60(b)(1), because its failure to appear was due to inadvertence or excusable neglect and it can assert prima facie defenses. Ohio contends that Trinity either waived or is estopped from asserting the one year time limitation for CR 60(b)(1) motions, because Trinity purposefully delayed in collecting the default judgment.

¶ 21 Ohio argues that the default order and judgment are void due to lack of subject matter jurisdiction, because Trinity did not have standing to bring statutory insurer bad faith claims against Ohio. Ohio maintains that Trinity lacked standing to assert the IFCA and CPA claims, because those claims belong to Millennium and Trinity never received express assignment from Millennium.

¶ 22 Ohio also argues that Trinity improperly obtained the default judgment through misrepresentation or misconduct, so the judgment should be vacated under CR 60(b)(4). Ohio asserts that Trinity's alleged damages were uncertain and speculative, so the trial court erred by entering default without holding an evidentiary hearing and making findings. Lastly, Ohio argues that the trial court should not have granted Trinity's supplemental attorney fees, because Trinity had no legal right to them.

¶ 23 Default judgments are generally disfavored in Washington. Griggs v. Averbeck Realty, Inc., 92 Wash.2d 576, 581, 599 P.2d 1289 (1979). Courts prefer to determine cases on their merits rather than by default. Id. In reviewing an entry of default, the court's principal inquiry should be whether the default judgment is just and equitable. Id. at 581–82, 599 P.2d 1289. A default judgment may be set aside in accordance with CR 60(b). CR 55(c)(1). Resolution of a motion to vacate a default judgment is within trial court's sound discretion. Hwang v. McMahill, 103 Wash.App. 945, 949, 15 P.3d 172 (2000). As such, we review a trial court's decision on a motion to vacate a default judgment for abuse of discretion. Morin v. Burris, 160 Wash.2d 745, 753, 161 P.3d 956 (2007). A trial court abuses its discretion when it is exercised on untenable grounds or for untenable reasons. Id. On the other hand, whether a judgment is void is a question of law that we review de novo. Dobbins v. Mendoza, 88 Wash.App. 862, 871, 947 P.2d 1229 (1997).

I. CR 60(b)(1) Mistake, Inadvertence, or Excusable Neglect

¶ 24 Grounds for vacating a default judgment under CR 60(b)(1) include mistake, inadvertence, surprise, and excusable neglect. A defendant moving to vacate under CR 60(b)(1) must show four factors: (1) its failure to timely appear was due to mistake, inadvertence, surprise, or excusable neglect; (2) there is substantial evidence supporting a prima facie defense; (3) it acted with due diligence after notice of the default judgment; and (4) vacating the default judgment would not cause the plaintiff substantial hardship. Little v. King, 160 Wash.2d 696, 703–04, 161 P.3d 345 (2007).

¶ 25 A CR 60(b) motion must be brought within one year after the default order or judgment is entered. This one year time limit is strictly enforced and the trial court may not extend the deadline. SeeCR 6(b). Here, the court commissioner entered the default order and judgment against Ohio on July 14, 2010. Ohio filed its motion to vacate on August 24, 2011, more than a year later.

¶ 26 Ohio argues that, because Trinity purposefully delayed executing on the judgment, Trinity should be barred from...