Opinion

Court: District Court, W.D. Washington
Filed: Sep 9, 2026
Cited by: 0 cases

The opinion

UNITED STATES DISTRICT COURT

6 WESTERN DISTRICT OF WASHINGTON

AT SEATTLE

SCOTTSDALE INSURANCE COMPANY, CASE NO. 25-cv-00728-JHC

Plaintiff, ORDER

CORPORATE RECOVERIES

INCORPORATED,

Defendant.

15 INTRODUCTION

This insurance matter comes before the Court on Plaintiff Scottsdale Insurance

Company’s Motion for Partial Summary Judgment. See Dkt. # 21. Defendant Corporate

Recoveries Incorporated (CRI) sued David Hill and Fortune Tukwila, LLC. Hill and Fortune

Tukwila brought counterclaims against CRI, arguing that CRI’s actions violated the Washington

Collection Agencies Act, the federal Fair Debt Collection Practices Act, the federal Fair Credit

Reporting Act, and the Washington Consumer Protection Act. CRI tendered the counterclaims

to its insurer, Scottsdale. Scottsdale moves for summary judgment, contending that it does not

have a duty to defend or indemnify CRI. CRI responds that there is an issue of material fact as

1 to whether Scottsdale acted in bad faith such that coverage by estoppel applies, which precludes

2 summary judgment. The Court concludes that the underlying lawsuit does not involve an

3 “occurrence” under the commercial general liability (CGL) policy provisions nor an “error or

4 omission” under the error and omissions policy provisions. The Court also concludes that there

5 is an issue of material fact as to whether Scottsdale acted in bad faith while defending CRI.

6 Accordingly, the Court GRANTS IN PART and DENIES IN PART Scottsdale’s motion.

7 II

8 BACKGROUND

9 A. The Underlying Lawsuit

CRI is a debt collections business. Dkt. # 22-1 at 4. In 2024, CRI sent a notice of default

and commencement of third-party collection letter to Hill and Fortune Tukwila, a business in

which Hill has majority ownership. Dkt. # 22-1 at 28-29. The letter stated that Hill’s former

romantic partner had contracted with CRI to collect damages owed to her by Hill and Fortune

Tukwila and had assigned her claims against Hill and Fortune Tukwila to CRI for collection.

Dkt. # 22-1 at 29. The letter stated that her claims included unpaid child support, unpaid

committed intimate partner maintenance, wrongful termination, sexual harassment, domestic

violence, and attempted murder of their child. Dkt. # 22-1 at 28-29.

CRI then sued Hill and Fortune Tukwila, seeking damages for these claims. Dkt. # 1 at

2. Hill and Fortune Tukwila brought several counterclaims against CRI. Dkt. # 22-1 at 2.

21 In their counterclaims, Hill and Fortune Tukwila alleged that CRI engaged in the

22 unauthorized practice of law for Hill’s former romantic partner, intentionally using family law

23 proceedings to prevent Hill from getting access to or custody of his child. Dkt. # 22-1 at 10-12.

24 They contended that CRI “leveraged [Hill’s] desire to immediately bond with and be physically

1 present with his newborn infant daughter to obtain payment with respect to CRI’s claims.” Dkt.

2 # 22-1 at 13. Among other actions, Hill and Fortune Tukwila alleged that CRI caused Hill’s

3 former romantic partner “to sign declarations that CRI either knew were false or should have

4 known were false in connection to the parentage action and related matters.” Dkt. # 22-1 at 11.

5 Additionally, they said that CRI “either ignored or failed to take reasonable efforts to identify

6 and respond to communications from [Hill’s] counsel to obtain a paternity test and establish a

7 parenting plan.” Dkt. # 22-1 at 12. Hill and Fortune Tukwila further stated that CRI intended to

8 take a 33 percent contingency fee from any of Hill’s child support payments to his former

9 romantic partner. Dkt. # 22-1 at 11.

10 Hill and Fortune Tukwila argued that CRI violated the Washington Collection Agencies

11 Act, RCW Chapter 19.16, by threatening to sue (1) for wrongful termination of Hill’s former

12 romantic partner, (2) to collect future child support on her behalf, and (3) to collect future

13 “committed intimate partner maintenance payments” on her behalf, all of which Hill and Fortune

14 Tukwila argued are not legally viable claims. Dkt. # 22-1 at 13-14. Hill and Fortune Tukwila

15 also claimed that several of CRI’s actions constituted the unauthorized practice of law. Dkt. #

16 22-1 at 14-16. These actions included representing Hill’s former romantic partner in various

17 legal capacities, taking assignments of purported debts from creditors on a contingency fee basis,

18 and then filing suit in CRI’s own name. Dkt. # 22-1 at 14-15. Hill and Fortune Tukwila argued

19 that CRI further violated the statute by sending letters with the intent to harass, intimidate,

20 threaten, or embarrass Hill. Dkt. # 22-1 at 16.

Hill and Fortune Tukwila also claimed that CRI violated the federal Fair Debt Collection

Practices Act, 15 U.S.C. §§ 1692 et seq., by “making false, deceptive, or misleading”

representations and taking actions to “harass, oppress, or abuse” Hill in connection with the

1 collection of alleged debt. Dkt. # 22-1 at 19. Hill and Fortune Tukwila also argued that CRI

2 violated the Washington Consumer Protection Act, RCW Chapter 19.86, through “unfair and

3 deceptive acts and practices.” Dkt. # 22-1 at 21. Finally, Hill and Fortune Tukwila claimed that

4 CRI violated the federal Fair Credit Reporting Act, 15 U.S.C. §§ 1681 et seq., by obtaining a

5 credit report for Hill without his authorization and for an impermissible purpose—to support

6 CRI’s “scheme to extract exorbitant and coercive sums from [Hill] that were not owed.” Dkt. #

7 22-1 at 24.

8 B. The Policy

Scottsdale issued an insurance policy to CRI effective December 2023 to December

2024. Dkt. # 1 at 38. The policy includes “Commercial General Liability Coverage,” which

states in pertinent part:

We will pay those sums that the insured becomes legally obligated to pay as

damages because of “bodily injury” or “property damage” to which this insurance

applies. We will have the right and duty to defend the insured against any “suit”

seeking damages for “bodily injury” or “property damage” to which this insurance

does not apply.

Dkt. # 1 at 49.

The policy also provides, “This insurance applies to ‘bodily injury’ and ‘property

damage’ only if: (1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that

takes place in the ‘coverage territory.’” Dkt. # 1 at 49. The policy defines an “occurrence” as

“an accident, including continuous or repeated exposure to substantially the same general

harmful conditions.” Dkt. # 1 at 63.

23 The policy also includes “Errors and Omissions [(E&O)] Coverage,” which states,

1 We will pay those sums that the insured becomes legally obligated to pay as

“damages” as a result of an “error or omission” to which this insurance applies. We

2 will have the right and duty to defend the insured against any “suit” seeking those

“damages.” However, we will have no duty to defend the insured against any “suit”

3 seeking “damages” for an “error or omission” to which this insurance does not

apply.”

5 Dkt. # 1 at 81. The policy defines an “error or omission” as “any negligent act, error or omission

6 while performing those services described” in the policy. Dkt. # 1 at 89. The policy states that

7 E&O coverage does not apply to injuries “arising out of a dishonest, fraudulent, malicious or

8 criminal act by any insured.” Dkt. # 1 at 82.

C. The Current Lawsuit

CRI notified Scottsdale of its lawsuit against Hill and Fortune Tukwila in February 2025.

Dkt. # 23-1 at 147. In April 2025, Scottsdale agreed to defend CRI in this underlying lawsuit

under a reservation of rights, including a “right to file a declaratory judgment action to request

that a court determine it has no duty to defend or indemnify CRI under the Policy and for a

declaration that Scottsdale may withdraw from the defense.” Dkt. # 23-1 at 182. In its letter

accepting CRI’s defense, Scottsdale noted that it did not believe the policy covered the

counterclaims because the counterclaims did not allege an “occurrence” or an “error or

omission” under the relevant sections of the policy. Dkt. # 23-1 at 182. Scottsdale appointed an

independent attorney to represent CRI in its lawsuit against Hill and Fortune Tukwila. Dkt. # 23-

1 at 183.

In June 2025, CRI requested $73,983 in reimbursement for defense costs it incurred

before Scottsdale accepted its defense. Dkt. # 23-1 at 193-98. Scottsdale denied this request,

instead offering to pay $22,245.76. Dkt. # 23-1 at 197-98. Scottsdale said that it had reviewed

CRI’s invoice and deducted time and entries that “were not reasonably related to the defense of

1 the counterclaims, had insufficient detail to assess the work performed[,] and/or were incurred

2 after the date appointed defense counsel appeared in the action.” Dkt. # 23-1 at 197. Scottsdale

3 stated that after making these deductions, it would pay $230 per hour for partner work, $205 for

4 associate work, and $115 for paralegal work. Dkt. # 23-1 at 198.

5 Scottsdale then brought the current suit against CRI, contending that its insurance policy

6 does not provide coverage for Hill and Fortune Tukwila’s counterclaims against CRI. See Dkt. #

7 1. It now moves for partial summary judgment, contending that it does not owe a duty to defend

8 or a duty to indemnify CRI and seeking declaratory relief. See Dkt. # 21.

III

DISCUSSION

A. Legal Standards

Summary judgment is warranted if the movant shows that there is no genuine dispute as

to any material fact and they are entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).

The moving party is entitled to judgment as a matter of law when the nonmoving party fails to

make an adequate showing on an essential element of a claim in the case on which the

nonmoving party has the burden of proof. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1985).

There is no genuine issue of fact for trial when the record, taken as a whole, could not lead a

rational trier of fact to find for the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio

Corp., 475 U.S. 574, 586 (1986) (nonmoving party must present specific, significant probative

evidence, not simply “some metaphysical doubt”); Fed. R. Civ. P. 56(e). Underlying facts are

viewed in the light most favorable to the nonmoving party. Matsushita, 475 U.S. at 587.

23 Under Washington law, the interpretation of an insurance policy involves a question of

24 law. Overton v. Consol. Ins. Co., 145 Wash.2d 417, 424, 38 P.3d 322 (2002). Courts

1 interpreting an insurance policy will give the language its plain meaning, construing the policy as

2 would an “average” person purchasing insurance. Woo v. Fireman’s Fund Ins. Co., 161

3 Wash.2d 43, 52, 164 P.3d 454 (2007). An ambiguity in the policy is interpreted in favor of the

4 insured. Am. Best Food, Inc. v. Alea London, Ltd., 168 Wash.2d 398, 411, 229 P.3d 693 (2010).

5 A clause in an insurance policy is ambiguous if it is “fairly susceptible to two different

6 interpretations, both of which are reasonable.” Quadrant Corp. v. Am. States Ins. Co., 154

7 Wash.2d 165, 171, 110 P.3d 733 (2005).

8 Under Washington law, the duty to defend is broader than the duty to indemnify. Woo,

9 161 Wash.2d at 52. An insurance company has the duty to indemnify if the insurance

10 policy actually covers the insured’s liability, while the duty to defend arises if the insurance

11 policy conceivably covers the claims against the insured. Am. Best Food, 168 Wash.2d at 404.

12 An insurer is relieved of the duty to defend only if the policy clearly does not cover the

13 claim. Truck Ins. Exch. v. VanPort Homes, Inc., 147 Wash.2d 751, 760, 58 P.3d 276 (2002).

The duty to defend is generally determined from the “eight corners” of the insurance

contract and the underlying complaint. Expedia, Inc. v. Steadfast Ins. Co., 180 Wash.2d 793,

803, 329 P.3d 59 (2014), as corrected (Aug. 6, 2014). In determining whether there is a duty to

defend, the question is whether “there is any reasonable interpretation of the facts or the law that

could result in coverage.” Am. Best Food, 168 Wash.2d at 405. Extrinsic evidence cannot be the

basis for the denial of coverage. Expedia, 180 Wash.2d at 804.

There are two steps to determining whether coverage exists: First, “[t]he insured must

show the loss falls within the scope of the policy insured losses.” McDonald v. State Farm Fire

and Cas. Co., 119 Wash.2d 724, 731, 837 P.2d 1000 (1992). Then, “[t]o avoid coverage, the

1 insurer must . . . show the loss is excluded by specific policy language.” Id. As discussed

2 below, CRI does not get past the first step.

3 B. The Underlying Lawsuit Does Not Involve an “Occurrence”

Scottsdale argues that Hill and Fortune Tukwila’s counterclaims do not allege an

“occurrence,” so they are not covered under the CGL policy. Dkt. # 21 at 11-12. The policy

defines an “occurrence” as “an accident, including continuous or repeated exposure to

substantially the same general harmful conditions.” Dkt. # 1 at 63. Scottsdale contends that Hill

and Tukwila Fortune’s counterclaims do not allege occurrences because “[e]ach cause of action .

. . is based on alleged behavior that was deliberate and intentional and/or coercive and

misleading.” Dkt. # 21 at 12. The Court agrees.

When, as here, an insurance policy does not define “accident,” courts look to the

“common sense definition” of the term. See IDS Prop. Cas. Ins. Co. v. Ivanov, 2019 WL

2646112, at *4 (W.D. Wash. June 27, 2019) (citing Roller v. Stonewall Ins. Co., 115 Wash.2d

679, 684-85, 801 P.2d 207 (1990), overruled on other grounds by Butzberger v. Foster, 151

Wash.2d 396, 402, 89 P.3d 689 (2004)). In insurance coverage disputes, Washington courts

define an “accident” as “an unusual, unexpected, and unforeseen happening.” Grange Ins. Co. v.

Brosseau, 113 Wash.2d 91, 95, 776 P.2d 123 (1989) (citing Tieton v. Gen. Ins. Co. of Am., 61

Wash.2d 716, 721-22, 380 P.2d 127 (1963)). “An accident is never present when the insured

performs a deliberate act unless some additional, unexpected, independent and unforeseen

happening occurs which produces the damage.” W. Nat. Assur. Co. v. Hecker, 43 Wash. App.

816, 822, 719 P.2d 954 (1986).

23 The counterclaims against CRI allege solely intentional conduct by CRI that furthered its

24 “scheme to extract exorbitant and coercive sums from [Hill] that were not owed.” Dkt. # 22-1 at

1 24. The counterclaims therefore do not involve “occurrences” under the policy. See Allstate

2 Prop. & Cas. Ins. Co. v. Plautz, 659 F. Supp. 3d 1149, 1155 (W.D. Wash. 2023) (concluding that

3 third-party claims that the insured intentionally failed to reveal the condition of the property

4 regarding water penetration and damage in the home did not allege accidental “occurrences” and

5 were not covered by the policy).

6 CRI argues that some of the counterclaims are “purely negligence claims,” and thus are

7 covered under the policy. Dkt # 27 at 9. It points to Hill and Fortune Tukwila’s statements that

8 “CRI caused [Hill’s former romantic partner] to sign declarations that CRI either knew were

9 false or should have known were false,” and that CRI “either ignored or failed to take reasonable

10 efforts to identify and respond to communications from [Hill’s] counsel to obtain a paternity test

11 and establish a parenting plan.” Dkt. #22-1 at 11 (emphasis added), 12 (emphasis added). These

12 factual allegations are related to the counterclaims regarding CRI’s unauthorized practice of law.

13 Accordingly, the critical intentional conduct at issue is CRI acting as Hill’s former romantic

14 partner’s legal representative. See Jones v. Allstate Ins. Co., 146 Wash.2d 291, 301, 45 P.3d

15 1068 (2002) (“The inquiry into whether an activity constitutes the practice of law has two steps:

16 the determination as to whether the activity is the practice of law and, if so, determining whether

17 the practice is unauthorized.”). These two statements addressing the quality of CRI’s alleged

18 representation of Hill’s former romantic partner are therefore nonessential to the related claim

19 and injury.

CRI further argues that several of the counterclaims under state and federal statutes

include negligence as an element. Dkt. # 31 at 6-7.1 But the CGL policy states that it only

23 1 CRI raised this argument for the first time in its sur-reply. Dkt. # 31. Scottsdale requests that

the Court strike this entry and refuse to consider it because it was filed late and without leave of the

24 Court. See Dkt. # 35. But because CRI’s argument fails, the Court need not address Scottsdale’s request.

1 applies to injuries “caused by an ‘occurrence.’” Dkt. # 1 at 49. And the counterclaims allege

2 deliberate unlawful actions that caused injury. As a result, even if the counterclaims involved

3 negligence as an element, the conduct giving rise to the alleged injuries in the counterclaims does

4 not qualify as an accidental “occurrence.” See State Farm Fire & Cas. Co. v. El-Moslimany, 178

5 F. Supp. 3d 1048, 1058 (W.D. Wash. 2016) (finding no accidental “occurrence” when the facts

6 alleged by the third-party claimant implied that, regardless of whether the insured knew their

7 allegedly defamatory statements were false, “they acted with the intention to cause [her] harm”).

8 The counterclaims allege deliberate acts by CRI, not accidents. Accordingly, the Court

9 concludes that the counterclaims do not involve an “occurrence” under the CGL policy, so the

10 policy does not cover the counterclaims.2

C. The Underlying Lawsuit Does Not Involve Errors or Omissions

Scottsdale also argues that the counterclaims are not covered under CRI’s E&O coverage.

Dkt. # 21 at 13. The E&O section of the policy states that an “error or omission” is “any

negligent act, error or omission while performing those services described” in the policy. Dkt. #

1 at 89. And E&O coverage does not apply to “[i]njury arising out of a dishonest, fraudulent,

malicious or criminal act by any insured.” Dkt. # 1 at 82. Scottsdale contends that the

counterclaims do not allege negligent acts, errors, or omissions, so they are not covered under the

policy. Dkt. # 21 at 13. The Court agrees.

20 Scottsdale cites Scottsdale Insurance Co. v. Mayer, 2018 WL 3352649 (E.D. Wash. July

21 9, 2018), to support its argument that the counterclaims do not involve errors or omissions under

23 2 Scottsdale also argues that the counterclaims do not allege bodily injury or property damage as

required under the CGL policy. See Dkt. # 21. But because the Court concludes that the counterclaims

24 do not allege covered occurrences under the CGL policy, it does not address these arguments.

1 the policy. Dkt. # 21 at 13-14. There, the insured was sued for receiving government payments

2 related to providing housing under a voucher program without forwarding those payments to the

3 actual provider of the housing as contractually agreed. 2018 WL 3352649, at *1. As here, the

4 insured’s policy defined an error or omission as a negligent act, error, or omission. Id. at *2.

5 The policy also excluded errors or omissions for which the insured was liable because of a

6 contract or agreement and injuries arising out of dishonest, fraudulent, malicious, or criminal acts

7 by the insured. Id. The district court concluded that lawsuit against the insured did not include

8 errors or omissions because the allegations in the complaint “relate[d] to an intentional,

9 fraudulent act; no negligence is alleged here.” Id. at *3. Additionally, the court stated that the

10 allegations fell within the exclusions for injuries arising from breach of contract and fraudulent

11 conduct. Id. Accordingly, the court concluded that the allegations in the underlying lawsuit

12 were not covered by the E&O policy. Id. at *4.

13 Here, too, in their counterclaims, Hill and Fortune Tukwila do not claim that CRI acted

14 negligently. They instead contend that CRI intentionally engaged in conduct to harass Hill in

15 connection with the collection of purported debt. See Dkt. # 22-1. Hill and Fortune Tukwila

16 allege that CRI sent a letter and filed a lawsuit to collect debts it knew were not owed and

17 improperly represented Hill’s former romantic partner in family law proceedings in order to

18 alienate Hill from his child, making him more likely to pay those purported debts. And as

19 described above, even if Hill and Fortune Tukwila made some statements that the quality of

20 CRI’s alleged legal representation of Hill’s former romantic partner may have been negligent,

21 the potentially negligent nature of those actions is not central to the claim that CRI intentionally

22 engaged in the unauthorized practice of law in a broader scheme to harm Hill. See Grp.

23 Voyagers, Inc. v. Emps. Ins. of Wausau, 66 F. App’x 740, 741 (9th Cir. 2003) (holding that for

1 E&O coverage related to administration of documents, even if the insured could claim potential

2 negligence in drafting or interpreting documents, this would not negate its deliberate conduct in

3 administering the documents); Baylor Heating & Air Conditioning, Inc. v. Federated Mut. Ins.

4 Co., 987 F.2d 415, 419 (7th Cir. 1993) (“Although [insured’s counsel] may have been mistaken,

5 or even negligent . . . , this does not convert [the insured’s] intentional act in refusing to further

6 honor the collective bargaining agreement into a negligent one.”).

7 Accordingly, because the allegations in the counterclaims do not involve errors or

8 omissions, they are not covered under the policy.

D. Coverage by Estoppel

CRI argues coverage by estoppel, an affirmative defense which would prevent Scottsdale

from denying CRI coverage even if the Court concludes that Scottsdale did not have a duty to

defend or indemnify CRI under its insurance policy. Dkt. # 27 at 15.3

14 “Where an insurer acts in bad faith in failing to defend . . . Washington cases recognize

15 that coverage by estoppel is one appropriate remedy.” Kirk v. Mt. Airy Ins. Co., 134 Wash.2d

16 558, 563, 951 P.2d 1124 (1998). An insurer “who accepts the duty to defend under a reservation

17 of rights but then performs the duty in bad faith, is no less liable than the insurer who accepts but

18 later rejects the duty.” Safeco Ins. Co. of Am. v. Butler, 118 Wash.2d 383, 392, 823 P.2d 499

19 (1992). In fact, “[b]ecause a reservation of rights defense is fraught with potential conflicts, it

20 implicates an enhanced duty of good faith toward the insured.” Nat’l Sur. Corp. v. Immunex

21 Corp., 176 Wash.2d 872, 879, 297 P.3d 688 (2013). Accordingly, if an insurer acts in bad faith

23 3 In its Answer, CRI also pleads the affirmative defense of equitable estoppel. Dkt. # 36 at 3-4.

But it does not seem to argue equitable estoppel in response to Scottsdale’s summary judgment motion,

24 instead specifically referencing only coverage by estoppel.

1 while handling a claim under a reservation of rights, “the insurer is estopped from denying

2 coverage.” Butler, 118 Wash.2d at 392. If an insured establishes that the insurer handled a

3 claim in bad faith, there is a rebuttable “presumption of harm” to the insured. Id. at 394. Thus,

4 if the insured prevails on the bad faith claim and the insurer fails to rebut the presumption of

5 harm, “the insurer is estopped from denying coverage.” Id.

6 In Washington, an insurer’s duty to defend “arises not at the moment of tender, but upon

7 the filing of a complaint alleging facts that could potentially require coverage.” Nat’l Sur. Corp.,

8 176 Wash.2d at 889. A “breach of the duty to defend cannot occur before tender,” but an insured

9 “can recover [pre-tender] fees and costs except where a late tender prejudiced the insurer.” Id.

10 If an insurer accepts defense of an action, with or without a reservation of rights, “the insured

11 receives the benefit of a defense until a court declares none is owed.” Id. at 885. Thus, an

12 insurer “may be held responsible for the reasonable defense costs incurred by its insured until [a]

13 trial court determine[s] [that the insurer] had no duty to defend.” Id. at 695. An insurer is

14 released from its obligation to pay for the defense of an action only “[a]fter obtaining a

15 declaration of noncoverage.” Id. at 887-88.

CRI bears the burden of establishing its affirmative defenses, including coverage by

estoppel. See Jones v. Taber, 648 F.2d 1201, 1203 (9th Cir. 1981) (“[T]he burden is always on

the party advancing an affirmative defense to establish its validity.”). Because CRI bears

the burden of proof on its affirmative defenses, Scottsdale can meet its burden at summary

judgment by “pointing out ... that there is an absence of evidence to support the nonmoving

party’s case.” Celotex, 477 U.S. at 325. Under Rule 56(e), here, CRI as the nonmoving party

must go beyond the pleadings to defeat summary judgment. Id. at 324.

1 To support its coverage by estoppel argument, CRI asserts that Scottsdale’s appointed

2 defense counsel for CRI had undisclosed conflicts of interest and its “conduct, communication,

3 and decisions” in the context of CRI’s defense constituted bad faith. Dkt. # 27 at 6-7. In its

4 answers to Scottsdale’s interrogatories, CRI stated that Scottsdale’s appointed counsel for CRI

5 also worked for Scottsdale and did not disclose that fact. Dkt. # 29 at 10-11. CRI also said that

6 its appointed counsel refused to do legal research for a third-party claim against Hill’s former

7 romantic partner, declined to do discovery on certain issues, delayed issuing an important

8 subpoena, and otherwise did not act promptly based on CRI’s requests. Dkt. # 29 at 12-15.

9 CRI also argues that Scottsdale’s refusal to reimburse the full amount of CRI’s requested

10 defense costs constitutes bad faith sufficient for coverage by estoppel. Dkt. # 27 at 4-6. To

11 support this argument, CRI submits its communications with Scottsdale where Scottsdale refused

12 to fully reimburse CRI for attorney fees incurred before Scottsdale’s acceptance of coverage.

13 See Dkt. # 23-1. Neither party cites cases that clarify whether coverage by estoppel would apply

14 under these circumstances.4

Viewed through the forgiving lens of Rule 56, the combination of CRI’s interrogatory

answers regarding its appointed attorney’s conduct and the communications in which Scottsdale

disputed CRI’s attorney fees incurred before Scottsdale accepted coverage sufficiently

demonstrates a genuine issue of material fact regarding whether Scottsdale acted in bad faith

while defending CRI. See Butler, 118 Wash.2d at 395, 405 (holding that there was an issue of

4 Scottsdale states that coverage by estoppel does not apply here because CRI’s request for

reimbursement is a first-party claim, and coverage by estoppel does not apply to first-party claims. Dkt. #

28 at 9; see Coventry Assocs. v. Am. States Ins. Co., 136 Wash.2d 269, 284, 961 P.2d 933 (1998). But CRI

argues that coverage by estoppel applies because Scottsdale in bad faith breached its duty to defend CRI

from a third-party claim. So Scottsdale’s argument that coverage by estoppel should not apply because

24 this suit involves a first-party claim fails.

1 material fact precluding summary judgment on bad faith and coverage by estoppel where the

2 imsured asserted that the insurer delayed discovery, failed to investigate, and exhibited greater

3 interest in its own financial position than the insured’s). There is thus an issue of material fact as

4 || to whether Scottsdale is estopped from denying CRI coverage for the counterclaims.

5 IV

6 CONCLUSION

7 For the foregoing reasons, the Court GRANTS in part and DENIES in part Scottsdale’s

8 || motion for partial summary judgment. The Court GRANTS summary judgment to Scottsdale on

9 || the issue of whether coverage exists under the policy. But there is an issue of material fact as to

10 || whether Scottsdale is estopped from asserting lack of coverage. Accordingly, the Court DENIES

11 summary judgment as to Scottsdale’s requested declaratory relief.

12 Dated this 9th day of September, 2026.

M ok 4. Chun

15 John H. Chun

16 United States District Judge

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.