considering a similar l\lorth Pacific policy
How later courts described this case
- considering a similar l\lorth Pacific policy
Written by the judges who cited it.
The opinion
|N THE COURT OF APPEALS OF THE STATE OF WASH|NGTON
ZUR|CH AMER|CAN iNSURANCE
COMPANY, a foreign insurance
company1
Respondent/Cross-Appei|ant,
V.
!_EDCOR !NDUSTR|ES (USA) |NC., a
Washington corporation,
ADIV||RAL WAY, LLC, a Washington
iimited iiabi|ity company, and SQ[, iNC.,
a Washington corporation
Appei|ants/Cross-Respondents.
LEDCOR |NDUSTREES (USA) INC., a
Wash§ngton corporation,
Appe||ants,
v.
AMER!CAN iNTERNATiONAL
SPEC|ALTY L|NES iNSURANCE
COJVIPANY, INC., a foreign insurance
company; CAIV|BREDGE |NTEGRATED
SERVICES GROUP, |NC., a foreign
corporation; LIBERT¥ !NSURANCE
UNDERVVR|TERS, |NC., a foreign
insurance company; AEU
NO` 76490-0~¥
D|V|SEON ONE
UNPUBL|SHED OP|N!ON
FELED: December 10, 20?8
NO. 76490-0~|/2
COMMERC|AL li\ESUFiANCE
CO|V|PANY OF CANADA, a foreign
insurance company; LEX|NGTON
|NSURANCE COMPANY, a foreign
insurance company; i_lBERTY
SUFlPLUS INSURANCE
CORPOF{AT|ON, a foreign insurance
company; HARTFORD PROPERTY
ANE) CASUALTY COMPANY, a foreign
insurance company; and
CONT|NENTAL WESTERN
iNSUFiANCE COMPAN¥, a foreign
insurance company,
Third-Party Defendants,
VlFiG|NlA SURETY CO|V!PANY, ENC., a
foreign insurance company;
TRANSPORTATJON lNSUFiANCE
COMPANY, a foreign insurance
company; TRANSCONT|NENTAL
lNSUFiANCE COMPANY, a foreign
insurance company; NORTH PAC£F|C
lNSUFiANCl-E CO|V|PANY, a foreign
insurance company; and FlFiST
MEF{CUFtY lNSUFiANCE COMPANY, a
foreign insurance company,
Respcndents.
i\/|ANN, A.C.J. _ This is one of two closely connected insurance coverage appeals
arising out of the construction of “The Adrnirai,” a mixed use condominium building in
West Seattie.1 The appeilant in this case was the general contractoi, Ledcor industries
(USA), Enc. (i_edcor). The building owner and deveioper, Adrniral Way LLC (Adrnira|
Way), contracted with Ledcor for construction of the buiiding. Ledcor in turn contracted
with several subcontractors including The Painters, |nc. (The Painters) and SO|, lnc.
(soi).
1 See Admiral Wav. LLC v. Zurich American |ns. Co.. No. 76405-5-i (Wash. Ct. App. Dec. 10,
2018) (unpub|ished).
_2_
No. 76490~0-|/3
After the Adrnirai Way Condominiurn Owners’ Association (COA) sued Adrniral
Way and Ledcor in 2007 for construction defects, Ledcor tendered the claim to its
insurers and its subcontractors insurers. After responding and defending against tne
COA’s claims under a reservation of rights, Zuricn Arnerican |nsurance Company
(Zurich) filed a declaratory judgment action against Ledcor ciaiming it did not owe
coverage under its poiicies. Ledcor responded by fiiing counterclaims and third-party
causes against multipte insurers claiming bad faith and vioiations of the Consumer
Protection Act (CPA)?, and the insurance Fair Conduct Act (iFCA)3.
Ledcor appeals the trial court’s decision granting summary judgment and
dismissing Zurich, Virginia Surety Cornpany (VSC), First Nlercury insurance Cornpany
(i`-`NilC), North Pacific insurance Company (i\iorth Pacific), and Transportation insurance
Company (Transportation). We reverse dismissal of Ledcor’s claims against VSC and
Transportation. We affirm dismissal of Zurich, FiVi|C, and North Pacific.
_E_é\£§
Admirai Way is the owner and deveioper of “The Adrniral” a mixed use, four~story
building in West Seattie with street level retaii, 60 condominiums and an underground
parking garage. On Apri| 3, 2001 , Admiral Way and Ledcor entered into a construction
contract for construction of the building. Ledcor Was the general contractor. Ledcor in
turn contracted with various specialty subcontractors Fie|evant to this appeal, Ledcor
subcontracted with SQl to instaii the originai roof, and in 2005, Ledcor again
subcontracted with SO| to conduct substantial roofing repair. Ledcor subcontracted with
2 Ch. 19.86 RCW
3 FiCW 48.30.010~.015
NO. 76490-0-|/4
The Painters to provide labor, materiais, and equipment for a “Gacoflex” waterproofing
system on the baiconies and courtyards of The Adrniral.
The contract between Ledcor and Adrnira| Way required Ledcor to obtain
commercial general iiability (CGL) insurance naming Adrnirai Way as an additional
insured The contract between Ledcor and its subcontractors required that the
subcontractors each obtain CGi_ insurance naming Ledcor as an additional insured
Ledcor purchased a CGL insurance poiicy from VSC for the policy period of
December 1, 2003 through December i, 2004. Ledcor also purchased two consecutive
annuai CGL policies from Zurich, for the policy periods from December 1, 2005 through
December 1, 2007. 801 purchased three consecutive annual CGi_ policies frorn
Transportation covering the period from Nlay 1, 2000 through |Vtay 1, 2003. SQi also
purchased CGL policies from FiV|iC for the policy period of May 1, 2006 to lViay 'i, 2008.
`i'he Painters purchased CGL poiicies from North Pacific for the period cf December 26,
2001 to December 26, 2002.
Construction of The Admiral began in 2001. The City of Seatt|e issued a
certificate of occupancy in March 2003. `i“he sate of condominiums began in Aprii 2013.
After a contract dispute, on February 10, 2004, Ledcor and Admira| Way executed a
contract addendum that resoived their remaining disputes about payment and
performance of Ledcor's work. The parties agreed in the addendum that the project
was complete other than specific items in an attached punch list that Were to be
completed by February 20, 2004.
in 2001, Admiral Way retained i\/lorrison i-Iershfie|d (l\/iorrison) as a building
envelope consuitant to provide recommendations to the project architect on baicony and
NO. 76490-0-|/ 5
wall interface detaiis. Ledcor also retained Morrison and received a report from the firm
in December 2002. l\/lorrison concluded there were significant areas where there was
“inappropriate design, and to a lesser degree inappropriate construction that in our
opinion makes the building high risk for premature building envelope faiiure." in i\/iarch
2003, Morrison recommended substantial repairs to the building’s brick veneer and pre-
cast column caps. i\/lorrison believed that if the recommended work was not done, the
walls would “remain susceptible to water entry” that “wouid lead to deterioration ot the
sheathing and corrosion of the framing,” and “result in a compromise of the structural
integrity." i\/iorrison further reported, “[wje are of the opinion that if not addressjedj at
this time, these as-bui|t detaits wii| require remediation within the next five years.”
i\/lorrison expressed similar concerns with other recommended work.
On February 28, 2007, the COA sent Admira| Way a notice of construction defect
claim alleging that the buiiding, or components of the buiiding, Were defectively
designed and/or constructed, resulting in water intrusion that affected residential units,
commercial spaces, and common areas throughout the project. `i'his notice was
followed by the fiiing of a complaint in the King County Superior Court. in its complaint,
the COA alleged that damage to the building began after the compietion ot construction:
As a result of Deciarant’s acts and omissions, property damage to
the Condominium has occurred to that pari of real property on which
contractors or subcontractors working on Declarant’s behalf have
completed their operations Such property damage has also occurred to
that part of real property that rnust be restored, repaired or replaced
because of the work of others performed on Declarant’s behaif. The
property damage is continuous and ongoing throughout the Condominium.
Damage rnay have commenced at or shortly after the completion of each
building or element of infrastructure, and may be continuing to the present
No. 76490-G-i/ 6
in response to the COA compiaint Admirai Way fiied a third-party complaint
against Ledcor alieging Ledcor and its subcontractors were responsibie for the defective
work.
Ledcor initiaiiy tendered defense of the action to its own insurers Zu rich and
VSC. Zurich accepted Ledcor's tender and assigned counsel. Zurich defended Ledcor
in the underlying case, from 2007 through settlement in duly 2009, while expressiy
reserving its right to contest coverage under a reservation of rights.
Ledcor also tendered the action to FlViiC, `t'ransportation, and i\iorth Pacific, for
defense and indemnity for damages arising from SQi's and The Painters' work. Fivi|C
accepted SOl’s tender under a reservation of rights and contributed to SQl's defense
FM|C did not defend nor indemnify Ledcor. Transportation and North Pacific denied
coverage VSC originally denied coverage, then agreed to defend Ledcor under a
reservation of rights just as the final settlement was being reached VSC did not pay
any defense costs and did not indemnify.
Zurich fiied the underlying action in iViarch 2009 seeking declaratory judgment of
its obligations to defend and indemnify its named insured, Ledcor, and the additional
insured Admirai Way. Ledcor filed counterclaims for declaratory relief, insurance bad
taith, and vioiations of the CPA and the lFCA. i_edcor’s counterclaims inciuded third
parties FMIC, 'i`ransportation, North Paciiic, and VSC, as well as muitiple other insurers
l\/leanwhiie, the COA, Admiral Way, and l_edcor settied their dispute over the
condominium damage on duty 28, 2009. The COA’s claims against Admiral Way and
i_edcor settled for $4,700,000. The settiement was contingent upon AiG, another of
NO. 76490-0-|/7
Ledcor’s insurers funding $2,550,000. Ledcor agreed to pay $150,000, and iviarc Gartin
on behaif of Admiral Way agreed to pay $2,000,000.
The underlying declaratory judgment action proceeded with discovery and
motions in June 2010, the trial court granted Zurich’s motions for partial summary
judgment on (i) coverage under the poiicy in effect between December t, 2006 and
December 1, 2007 and (2) dismissing Ledcor’s counterclaims for insurance bad faith,
CF’A, and lFCA violations The trial court also denied Ledcor’s motion for partial
summary judgment against Zurich for insurance bad faith and CPA violations At the
same time, the triat court granted VSC’s motion for summary judgment and dismissed
Ledcor’s ciaims against VSC.
in l\/iarch 2011, the triai court dismissed Ledcor’s remaining counterclaims
against Zurich, concluding that Zurich had no duty to defend or indemnify t.edcor with
respect to the COA’s construction defect claims
in Apri| 201 t, the trial court granted Fi\/iiC’s motion for summary judgment
conciuding i_edcor Was not entitled to coverage under the poiicy issued by FivliC to SQ!
as a matter of law.
in duty 201i, the trial court granted North Pacific’s motion for summary judgment
and dismissed Ledcor’s third party claims related to its poiicy issued to The Painters
in February 2014, the trial court granted Transportation’s motion for partial
summary judgment and dismissed Ledcor’s breach of contract claims for policies issued
to SQI.
in a separate action, Ledcor sued its subcontractors Through a settiement
between Ledcor and SQi, Ledcor took assignment of SOl’s direct claims against Fl\/iiC.
NO. 76490-0-|/ 8
On October 31, 2016, the trial court granted FM|C’s motion for summary judgment
agreeing that FlVllC did not have an obligation to cover SOi‘s defense against Ledcor’s
claim and that the policy FivltC issued to SQi was not applicabie, and even if it were, the
continuous or progressive injury or damage exclusion barred recovery.
Ledcor appeals
ANALYSlS
We review summary iudgrnent orders de novo, engaging in the same inquiry as
the trial court. l<eck v. Coliins, 184 Wn.2d 358, 370, 357 P.3d 1080 (20i5). Surnrnary
judgment is proper if, after viewing ali facts and reasonable inferences in the light most
favorable to the nonmoving party, there are no genuine issues as to any material fact
and the moving party is entitled to judgment as a matter of law. CR 56(0); Eicon Const.
lnc. v. E. Wash. Univ., 174 Wn.2d 157, 164, 273 P.3d 965 (2012). “The moving party
on summary judgment must produce factual evidence showing that it is entitled to
judgment as a matter of iaw. The burden then shifts to the nonmoving party to set forth
facts showing that there is a genuine issue of material fact in dispute.” i-iartford ins Co,
v. Ohio Cas. lns. Co., 145 Wn. App. 765, 779, 189 P.3d 195 (2008).
A party opposing a motion for summary judgment may not rely on speculation,
argumentative assertions that unresolved factual issues remain, or its affidavits
considered at face value Fiather, “the nonmoving party must set forth specific facts that
sufficientty rebut the moving party's contentions and reveal that a genuine issue as to a
material fact exists.” |-ierman v. Safeco lns. Co. of Am., 104 Wn. App. 783, 787-88, 17
P.3d 63t (2001). “‘Uitimate facts conclusions of fact, conciusory statements of fact or
iegat conclusions are insufficient to raise a question of fact.”' Ainsworth v. Prooressive
l\|O. 76490-0-|/9
Cas. lns. Co., 180 Wn. App. 52, 61 , 322 P.3d 6 (2014) (quoting Snohomish County v.
_F_iggg, 115 Wn. App. 218, 224, 61 P.3d 1184 (2002)). “On summary judgment review,
We may affirm the triai court’s decision on any basis Within the record.” Davidson Ser|es
& Assocs. v. Citv of Kirkland, 159 Wn. App. 616, 624, 246 P.3d 822 (2011).
The outcome of this case depends on a proper interpretation of the various
insurance policies issued to Ledcor and its subcontractors interpretation of insurance
policies is a question of law we review de novo. Overton v. Consol. lns. Co., 145 Wn.2d
417, 424, 38 P.3d 322 (2002). We construe insurance policies as contracts
Weverhaeuser Co. v. Cornmercial Union lns. Co., 142 Wn.2d 654, 665, 15 P.3d 115
(2000). “Every insurance contract shall be construed according to the entirety of its
terms and conditions as set forth in the poiicy, and as amplified, extended, or modified
by any rider, endorsement, or application attached to and made a part of the policy.”
l=iCW 48.18.520. We consider the policy as a whoie, giving it a “tair, reasonable and
sensible construction as would be given to the contract by the average person
purchasing insurance." Am. Nat'i Fire ins. Co. v. B & L Truckino & Constr. Co., 134
Wn.2d 413, 427»28, 951 P.2d 250 (1998). Where possibie, we harmonize ciauses that
seem to conflict in order to give effect to all of the contract's provisions iiiealrnl lnc. v.
City of Olymgia, 168 Wn. App. 1, 5, 277 P.3d 679 (2012).
“if the poiicy language is ciear and unambiguous We must enforce it as written;
we may not modify it or create ambiguity where none exists.” Quadrant Corp. v. Am.
States lns. Co.l 154 Wn.2d 165, 171, 110 P.3d 733 (2005). if a term is defined in a
poiicy, “the term shouid be interpreted in accordance with that policy definition.” _i$jt_§‘,_a_g
County v. Alistate ins Co., 136 Wn.2d 567, 576, 964 P.2d 1173 (1998). A clause is
NO. 76490-0-|/10
ambiguous only “when, on its face, it is fairly susceptibie to two different interpretations
both of Which are reasonable.” Quadrant, 154 Wn.2d at 171. if a clause is ambiguous
we may rely on extrinsic evidence of the intent of the parties to resolve the ambiguity
Weyerhaeuser, 142 Wn.2d at 666 (citing B & i. `i`rucking, 134 Wn.2d at 427-28). Any
ambiguity remaining after examination of the applicable extrinsic evidence is resolved
against the insurer and in favor of the insured Weyerhaeuser, 142 Wn.2d at 666.
However, while exciusions should be strictly construed against the drafter, a strict
application should not trump the piain, clear ianguage of an exclusion such that a
strained or forced construction results Weyerhaeuser Co., 142 Wn.2d at 666.
Zurich
l_edcor contends that the trial court erred in concluding that Zurich did not have a
duty to defend under the CGL policies and in dismissing Ledcor’s claims for insurance
bad faith, and for violations of the CPA and the |FCA. We disagree
A. Duty to Defend
The duty to defend is different from and broader than the duty to indemnify M
Best Food, inc. v. Aiea l.ondon, 168 Wn.2d 398, 404, 229 P.3d 693 (2010); Expediax
lnc. v. Steadfast ins. Co., 180 Wn.2d 793, 802, 329 P.3d 59 (2014). The duty to defend
is one of the main benefits of an insurance contract Safeco ins. Co. of Am. v. Butier,
118 Wn.2d 383, 392, 823 P.2d 499 (1992). “While the duty to indemnify exists oniy if
the policy covers the insured’s liability, the duty to defend is triggered if the insurance
policy conceivably covers ailegations in the complaint." §_)_<p_e_c_i_i_a_, 180 Wn.2d at 802.
“‘The duty to defend arises when a complaint against the insured construed iiberaily,
alleges facts that could, if proven, impose liability upon the insured Within the poiicy’s
_10_
NO. 76490-0-|/11
coverage”’ Expedia, 180 Wn.2d at 803 (quoting Am Best Food, 168 Wn.2d at 404-05).
Exclusionary clauses in the policy are “strictly construed against the insurer.” Exgedia,
180 Wn,2d at 803. “if the complaint is ambiguous it will be liberally construed in favor
of triggering the insurer's duty to defend.” Truck ins Exch. v. Vanport Homes, 147
Wn.2d 751, 760, 5 P.3d 276 (2002).
'fhe duty to defend is generally determined by looking at the “eight corners” of
the insurance contract and the underlying complaint The insurer is permitted to utilize
the “‘eight corners”’ rule to determine Whether, on the face of the complaint and the
insurance poiicy, there is an issue of fact or law that could conceivably result in
coverage under the policy. §xgegja, 180 Wn.2d a1803. “There are two exceptions to
this ruie, and both favor the insured.” _E_)_<p_edj, 180 Wn.2d at 803. First, “if it is not clear
from the face of the complaint that the policy provides coverage but coverage could
exist, the insurer must investigate and give the insured the benefit of the doubt that the
insurer has a duty to defend.” Woo v. Fireman's Fund ins Co., 161 Wn.2d 43, 53, 164
P.3d 454 (2007). Second, “if the allegations in the complaint conflict with facts known to
the insurer or if the allegations are ambiguous facts outside the complaint may be
considered.” _i;E_)_<_pe_g_i_a_, 180 Wn.2d at 803~04 (citing _W_gc_), 161 Wn.2d at 54).
Ledcor was directly insured by Zurich under two general liability insurance
policies The first was effective from December 1, 2005 to December 1, 2006. 'i'he
second was effective from December 1, 2006 to November 30, 2007. Each Zurich
policy contained two endorsements that Zurich argues barred coverage for the COA’s
ciaims: a residential building exclusion and an exclusion for continuing damage that
began before the policy was issued The burden is on the insurer to show that the loss
_11_
No. 76490-0-|/12
is excluded under the policy. Diamaco, inc. v. Aetna Cas. 81 Sur. Co., 97 Wn. App. 335,
337, 983 P.2d 707 (1999).
The policies issued by Zurich to Ledcor contain an exclusion for designated work
on residential buildings The first policy (December 1, 2005 through December 1, 2006)
excluded coverage for property damage caused by “your Work” and defined “your work”
351
This exclusion only applies to “your Work” in connection with the
construction, reconstruction, remodeling, or repair of any “residentiai
building”. For the purpose of this endorsement, "residential building"
means: 1. Any single-family dwelling, including town homes or
townhouses other than military base housingl and 2. Any multi-family
dwelling, including condominiums or cooperatives duplexes, triplexes or
four-piexes; and 3. Any apartments assisted living facilities or resort
timeshares, if made of wood frame or partially made of wood frame
construction; and 4. Any other structure which is attached to any such
"residential buildin .” “l'he determination as to the type of structure will be
made at the time a claim is made or suit is brought.W
The endorsement in Zurich’s second policy (December 1, 2006 through
December 1, 2007) defined “your work” as follows:
This exclusion only applies to “your wori<" in connection with the
construction, reconstruction, remodeling, or repair of any “residential
building”. For the purpose of this endorsement, “residential building"
means: . . .
1. Any single-family dwelling, including but not limited to houses town
homes or townhouses or
2. Any multi-famlly dwelling, including but not limited to condominiums
cooperatives duplexes, triplexes or fourp|exes; or
3. Any structure that combines any other use with residential dwellings
including but not limited to, those listed in 1. or 2. above, or
4. Any other structure or improvement which is attached to or ancillary to
any structure identified in t., 2., or 3. Above, constructed
reconstructed remodeled or repaired with the intent that title to each
individual dwelling or dwelling unit will be transferred separately to
each owner.
4 (Emphasis added.)
_12-
NO. 76490-0-|/13
Notwithstanding the above, “residentiai building" does not include any
structure that functions as apartments time shares a hotei, a motel, a
nursing home, an assisted living senior housing care facility, a college
campus dormitory, or government housing on military bases.l5l
Ledcor argues that The Admira| Was not a residential building, but was instead a
“mixed use” building that included street level retail and thus did not fall under the
designated work exclusion However, the plain language of the residential building
exclusion includes “condominiums” and “[a]ny other structure which is attached to any
l"
such ‘residentiai building The Zurich policy language was broad enough to include
residential buildings that incorporate other “structures.” The Admiral, even With the
attached commercial units at the base, qualifies as a residential building.
Ledcor also argues that because The Admiral includes apartment units the
residential building exclusion does not app|y. While `l`he Admiral does allow 25 percent
of the owners to rent their units out as “apartments,” the units are still within the legal
definition of a condominium. The “intent that title to each individual dwelling or dwelling
unit will be transferred separately to each owner" is still in place, even if some
condominiums are later sublet out as apartments Ledcor’s argument fails Because
The Admirai is a defined residential building under both policies Zurich did not have a
duty to defend or indemnify
B. Bad Faith
An insurer acts in bad faith if its breach of the duty to defend Was unreasonable,
frivolous or unfounded See St. Paul Fire & Marine lns. Co. v. Onvia, |nc., 165 Wn.2d
122, 130, 196 P.3d 664 (2008). Whether an insurer acted in bad faith is generally a
question of fact. Van i\lov v. State Farm lVlut. Auto. lns. Co., 142 Wn.2d 784, 796, 16
5 (Emphasis added.)
_13-
NO. 76490-0-|/14
P.3d 574 (2001). Accordingiy, an insurer is only entitled to dismissal on summary
judgment of a policyholders bad faith claim if there are no disputed material facts
pertaining to the reasonableness of the insurer's conduct under the circumstances or
the insurance company is entitled to prevail as a matter of law on the facts construed
most favorably to the nonmoving party. Smith v. Safeco ins Co., 150 Wn.2d 478, 484,
78 P.Sd 1274 (2003).
“An action for bad faith handling of an insurance claim sounds in toit.” _Mgt_._o_f
Enurnclaw lns. Co. v. Dan Paulson Constr., inc., 161 Wn.2d 903, 915, 169 P,3d 1,
(2007). Claims of insurer bad faith “are analyzed applying the same principles as any
other tort: duty, breach of that duty, and damages proximately caused by any breach of
duty.” §rr_ii_th, 150 Wn.2d at 485. “in order to establish bad faith, an insured is required
to show the breach was unreasonable frivolous or unfounded.” Kirk v. iVit. Airy lns.
Qd, 134 Wn.2d 558, 560-61, 951 P.2d 1124 (1998).
Ledcor first contends Zurich committed bad faith by denying coverage and
defending under a reservation of rights Washington law has long favored defending
under a reservation of rights “When the facts or the law affecting coverage is disputed,"
until coverage is settled in a declaratory action. Arn. Best Food 168 Wn.2d at 405.
When defending under a reservation of rights “the insured receives the defense
promised and, if coverage is found not to exist, the insurer will not be obligated to pay."
lvlut. of Enumciaw, 161 Wn.2d at 914. However, an insurer defending its insured under
a reservation of rights has “an enhanced obligation of fairness toward its insured” lang
v. State Farm Fire & Cas. Co., 105 Wn.2d 381, 388, 715 P.2d 1133 (1986). This
enhanced obligation requires that the insurer must: (1) “thoroughly investigate” the claim
_14-
No. 76490~0~|/15
against the insured (2) “retain competent defense counsel for the insured,” (3) fully
inform the insured of “ali developments relevant to his policy coverage and the progress
of his lawsuit,” and (4) “refrain from engaging in any action which Wouid demonstrate a
greater concern for the insurer's monetary interest than for the insured‘s financial risk."
lsg§, 105 Wn.2d at 388.
After t_edcor tendered the claim to Zurich, Zurich agreed to defend l_edcor in the
underlying case under a reservation of rights. Zurich defended l_edcor from 2007
through the settlement in duly of 2009. Zurich provided the attorney of Ledcor’s own
choosing for their defense There is no evidence that Ledcor was unsatisfied with its
defense during this period The record further demonstrates that Zurich fully
investigated the incident, retained separate counsel to represent both Ledcor and
Admirai Way, and fully informed and participated in settlement activity.6 The only
criteria in dispute in this case is whether Zurich engaged “in any action which would
demonstrate a greater concern for the insurer’s monetary interest than for the insured's
financial risk” during the course of its defense of l_edcor, and in making its later
coverage decision. On this record We hold they did not.
i_edcor argues next that Zurich acted in bad faith by filing its declaratory
judgment action before the underlying case brought by the COA was fully resolved Our
Supreme Court has said “‘jt]he insurer ‘may defend under a reservation of rights while
seeking a declaratory judgment that it has no duty to defend,’ . . . but it must avoid
seeking adjudication of factual matters disputed in the underlying litigation because
advocating a position adverse to its insureds interests would ‘constitute bad faith on its
6 Ledcor at one point argues that Zurich did not do an adequate investigation, however that was
related to coverage and not related to its defense of Ledcor. i\/ioreover, Ledcor’s arguments only
demonstrate it disagrees with Zurich's interpretation of its “residential" clause
_-;5_
l\lo. 76490-0-|/16
part. lVlut. of Enumc|aw, 161 Wn.2d at 914-15 (quoting 1 ALLAN D. WlNDT, lNSUnANCE
CLAir\/is & DisPuTas: FiEPnEsENTATioN oi= iNsur-‘iANcr-_‘ CoMPAr\iras AND iusunsos § 8:3, at 8~
11 to ~12 (5th ed. 2007)). The court did not go so far as to bar filing a motion for
summary judgment during the course of representation
in this case, Zurich did not file its summary judgment motion until discovery in the
underlying litigation with the COA was complete and the parties had mediated. The
summary judgment motion was not argued nor decided until long after the final
settlement had been entered There is no evidence that Zurich’s action filing its motion
for summary judgment interfered with, or sought to adjudicate a factual matter in dispute
in the underlying action to the detriment of l_edcor, l_edcor remained independently
represented by counsel of its choice, funded by Zurich, and Ledcor does not contend its
defense counsel Was ineffective
Ledcor also argues that Zurich committed bad faith in reaching its coverage
decision Speoificaiiy, Ledcor contends that Zurich’s insurance adjuster transferred
information obtained in the underlying claim to coverage counse|, and utilized it to
Ledcor's detriment Ledcor has failed however, to identify any case law that prohibits
using the same adjuster for both claims Ledcor has also failed to demonstrate any
confidential or privileged evidence that was provided to Zurich. Zurich provided a
detailed list showing that it was entitled to all of the evidence it received most of which
was obtainable through the public record Even on appeai, Ledcor does not identify any
confidential documents that Were relied on by Zurich in reaching its coverage decision,
citing the “lviorrison Fieport” and depositions which were ali publicaliy available and
discoverable by Zurich,
_15_
NO. 76490-0-1/17
i'-`inally, Ledcor raises Zurich’s pretrial failure to provide the complete defense file.
Zurich argues that some of the evidence Was privileged however, the trial court
eventually fined Zurich for failing to provide this evidence, and Zurich paid that fine.
Failure to provide this evidence was a discovery violation, however Zurich provided
good faith reasons for its failure to provide the documents in question, and the issue
was resolved by the trial court. A single discovery violation does not rise to the level of
bad faith.7 `l'he insured may not base a bad faith or CPA claim on an insurer‘s good
faith mistake Werlinqerv. Clarendon Nat. lns. Co., 129 Wn. App. 804, 808, 120 P.3d
593 (2005).
C. CPA and lFCA
Ledcor also asserts that Zurich violated the CPA and the iFCA. To successfully
bring an action under the CPA, a private plaintiff must prove five eiements: “(1) unfair or
deceptive act or practice; (2) occurring in trade or commerce; (3) public interest impact;
(4) injury to plaintiff in his or her business or property; and (5) causation.” Ledcor indus
(USA), lnc. v. l\/lut. of Enumciaw lns. Co., 150 Wn. App. 1, 12, 206 P.3d 1255 (2009). A
denial of coverage does not constitute an unfair or deceptive act or practice and does
not violate the CPA as long as it is based on reasonable conduct of the insurer, even if
the denial ultimately is proved incorrect Overton, 145 Wn.2d at 417.
7 Admiral Way and l_edcor make much of Zurich’s attempt to recoup defense costs it paid in the
COA iawsuit. in 2013, the Washington Supreme Court disallowed such reimbursement, holding
“[d]isallowing reimbursement is most consistent with Washington cases regarding the duty to defend
which have squarely placed the rlsl< of the defense decision on the insurer's shoulders." Nat'i Sur. Corp_
v. immunex Corg., 176 Wn.2d 872, 884, 297 P.3d 688 (2013). While reimbursement has been found to
be unavailable neither Admiral Way nor Ledcor make it clear how Zurich briefly requesting such
reimbursement in 2009 contributes to a bad faith claim. There is no evidence that Zurich pursued these
costs in an unreasonable or frivolous way, or that any damage arose out of this minor addition to Zurich’s
claim. Zurich also argues that Ledcor's counsel at one point offered to allow Zurich to cover defense
costs
-17_
No. 76490'0~|/ 18
The lFCA also does not create an independent cause of action for alleged
regulatory violations in the absence of an unreasonable denial of coverage or benefits
Perez-Crisantos v. State Farm Fire & Cas. Co., 187 Wn.2d 669, 680, 389 P.3d 476
(2017). Since Ledcor did not demonstrate Zurich’s actions Were unreasonable or in bad
faith, its extra-contractual claims against Zurich were properly dismissed
VSC
Ledcor next contends that the trial court erred in granting summary judgment and
dismissing its claims against VSC. We agree.
Ledcor’s CGL policy from VSC was effective Decernber 1, 2003 to December 1,
2004. Ledcor tendered the COA’s notice of construction defect to VSC on i\/larch 23,
2007. Carnbridge integrated Services Group, lnc., a third-party administrator ot VSC,
acknowledged receipt of the claim on April 13, 2007 and indicated it was investigating
the matter. On lvlay t6, 2007, VSC responded denying coverage based on several
policy exciusions. After the COA filed its complaint, Ledcor re-tendered the matter to
VSC on Septernber 21, 2007. On July 20, 2009, VSC notified Ledcor that it would be
sending a follow up ietter agreeing to participate in Ledcor's defense under a
reservation of rights. The subsequent letter was never sent. The COA’s claim was
resolved on Ju|y 28, 2009.
VSC moved for summary judgment in i\/lay 2010 seeking a declaratory judgment
that it had no duty to defend Ledcor. At the same time, i_edcor moved for summary
judgment against VSC. The triai court granted VSC's motion for summary judgment as
to Ledcor and denied Ledcor’s motion.8
8 Fieiying on RAP 9.12, VSC moved to strike references in Ledcor’s brief to materials not
specifically listed in the trial court‘s order on summary judgment General|y, “evidence cailed to the
-18-
NO. 76490-0-|/19
A. Duty to Defend
VSC maintains that it did not have a duty to defend nor indemnify under the
“progressive, continuous or intermittent property damage exciusion” (progressive
damage exclusion) and the “other insurance” clause of its policy. We disagree We
address each in turn, strictly construing the exclusion against VSC. Expedia, 180
Wn.2d at 803.
The progressive damage exclusion has three requirements For the exclusion to
app|y, VSC was required to demonstrate that (1) the property damage “existed or
commenced prior to the inception date of th[e] poiicy,” or (2) “arose out of any damage,
defect, deficiency, inadequacy or dangerous condition which existed prior to the
inception date of th[ej policy,” and (3) that the damage was included under the defined
“Products--Comp|eted Operations l-lazard.” Worl< under the Products--Cornpleted
Operations l-iazard would he deemed completed: “When ali of the work to be done at
the job site has been completed” or “When that part of the work done at a iob site has
been put to its intended use by any person or organization other than another contractor
or subcontractor working on the same project.”
Ledcor’s CGL policy with VSC was effective December 1, 2003 to December 1,
2004. Thus, the progressive damage exclusion would exclude damage that existed or
commenced, or arose out of a condition that existed, prior to December ‘l, 2003. The
attention of the trial court is properly before us, whether or not it was considered by the trial coun."
Goodwin v. Wright, 100 Wn. App. 631, 648, 6 P.3d 1 (2000). At the time the trial court considered VSC’s
motion it was also reviewing motions and cross motions related to Ledcor’s claims against Zurich. Due to
the complex nature of this case, we decline to apply RAP 9.12 in a manner that wouid assume that the
trial court granted summaryiudgrnent for VSC in a vacuum without considering Ledcor’s own summary
judgment motion or any other evidence. `l`he appellate “rules will be iiberaliy interpreted to promote
justice and facilitate the decision of cases on the merits. Cases and issues will not be determined on the
basis of compliance or noncompliance with these rules except in compelling circumstances where justice
demands." FiAP 1.2. We deny VSC’s motion to strike.
_19_
No. 76490-0-|/20
COA’s complaint is vague about when the damage began. The complaint lists multiple
claims of water intrusion damages and defects, and states “the property damage is
continuous and ongoing throughout the Condominiurn. Damaoe may have commenced
at or shortly after the completion of each building or element of infrastructure, and mav
be continuing to the present.”9 Thus, the relevant date is the “completion" of each
bullding. lt is undisputed that the certificate of occupancy for The Admira| was issued
by the City of Seattie on lVlarch l4, 2003, and sale of the condominiums began in April
2003. lt is also undisputed that Ledcor and Admirai Way contractually agreed that The
Admiral was not substantially complete until February 2004.
Strictly construing the exception against VSC, because the date of completion
falls within the term of VSC’s policy, VSC had a duty to investigate and give Admiral
Way the benefit of the doubt. W_g_g, 161 Wn.2d at 53. Because a reasonable
interpretation of the facts could result in coverage, the progressive damage exclusion
does not app|y.
The other insured condition in Ledcor’s policy from VSC provides that the
insurance is excess over “[ajny other primary insurance available to you covering
liability for damages arising out of the premises or operations for which you have been
added as an additional insured by attachment of an endorsement.” Ancl further,
When this insurance is excess, we Will have no duty under COVERAGES
A or B to defend the insured against any "suit" it any other insurer has a
duty to defend the insured against that "suit." if no other insurer defends,
we will undertake to do so, but we will be entitled to the insured‘s rights
against all those other insurers
l_edcor was listed as an additional insured under multiple insurance policies, and
was being represented by two insurance companies that undertook its defense at no
9 (Emphasis added.)
-20-
No. 76490-0-|/21
cost to Ledcor. However, there is no evidence that VSC investigated whether other
insurers were “available" for l_edcor at the time of its initial deniai, or that VSC even
believed this provision applied when it denied Ledcor’s claim' VSC did not rely on this
provision in its denia|, and VSC did not rely on this provision When it later suggested it
would join the defense alongside the other carriers. lf it is not clear from the face of the
complaint that the policy provides coverage, but if coverage could exist, the insurer
must investigate and give the insured the benefit of the doubt that the insurer has a duty
to defend. _V_ij'_o_o_, 161 Wn.2d at 53. A question of fact remains whether VSC did the
requisite investigation into whether other insurance Was available for Ledcor before it
denied coverage. Because there is at least a question of fact whether the progressive
loss exclusion and other insurance provision apply, summary judgment and dismissal of
Ledcor’s claims against VSC was not appropriate
B. Extra Contractual C|aims
Ledcor maintains that VSC acted in bad faith. At the outset, Washington courts
have long held the “insured may maintain an action against its insurer for bad faith
investigation of the insured's claim and violation of the CPA regardless of whether the
insurer was ultimately correct in determining coverage did not exist.” Covent[y
Associates v. Am. States lns. Co., 136 Wn.2d 269, 279, 96t P.2d 933 (1998). Only if
the alleged claim is clearly not covered by the policy is the insurer relieved of its duty to
defend ”i$j;k, i34 Wn.2d at 561. The insured bears the burden of demonstrating the
insurer acted in bad faith when it refused to defend its insured by demonstrating that
refusal is “unreasonable, frivolous, or unfounded.” lggg__l;, 147 Wn.2d at 777; §g"l_it_h_, 150
Wn.2d at 486. The insurer is entitled to summary judgment “if reasonable minds could
-21_
l\lo. 76490~0~|/22
not differ that its denial of coverage was based upon reasonable grounds.” _S_i_*_n_ith_, 150
Wn.2d at 486.
Ledcor retained a policy with VSC for primary general liability effective from
December l, 2003 to December l, 2004, The Admiral Was substantially completed on
either April 2003, or l-“ebruary 2004. The original claim provided to VSC did not state a
specific date as to when damages began, or when the defects developed lt can hardly
be said that the alleged claim was “clear|y not covered” by policy. “if the insurer is
unsure of its obligation to defend in a given instance, it may defend under a reservation
of rights While seeking a declaratory judgment that it has no duty to defend.” M, 147
Wn.2d at 761. VSC should have done so in this case
As discussed above, it appears that i.edcor may have been covered under VSC’s
CGl. policy, and there remains at least a question of fact as to Whether VSC reasonably
investigated whether the two exclusions it relies upon actual excluded coverage
Dismissal of Ledcor’s bad faith and CPA claim on summary judgment was erroneous.
North Pacific
Ledcor next contends that the trial court erred in dismissing its claims against
North Pacific for coverage under its policy With The Painters. We disagree
A. Additiona| Facts
The subcontract between Ledcor and The Painters required Ledcor be named as
an additional insured on The Painters’ insurance:
11.1 SUBCONTRACTOR' S lNSURAi\lCE. Prior to the start of the
Subcontract Work, the Subcontractor shall procure for the Subcontract
Work and maintain in force Workers' Compensation lnsurance, Employer's
Liability insurance Comprehensive Automobiie Liabiiity insurance
Comprehensive or Commercial General Liabi|ity insurance on an
_22-
l\lo. 76490~0-|/ 23
occurrence basis and any other insurance required of Subcontractor
under the Subcontract,
. . . lTjhe Contractor, Owner and other parties as required shall be named
as additional insureds on each of these policies except for Workers'
Compensation.
The Subcontractor's insurance shall include contractual liability insurance
covering the Subcontractor's obligations under this Subcontract.
The Painters obtained a CGL policy from North Pacific for the policy period from
December 26, 2001 , through December 26, 2002. The declarations did not name
i_edcor as an additional insured under the policy. lite policy included an automatic
additional insured endorsement that provided:
AUTOlViATlC ADDlTlONAL lNSUFlEDS
lNCLUDll\lG COMPLETED OPEFiAT|Ol\|S TO THE EXTENT
FlEOUlFiED BY AN lNSURED CONTRACT
This endorsement modifies insurance provided under the following:
CONll\/lEFlClAL GEl\lEFlAL LlABiLiTY
COVERAGE PART
The following is added to Wl-lO lS lNSUFiED (Section ll):
l. To the extent it is required by the terms of an "insured contract" which
requires you to add by endorsement as an additional insured or
organization, Wl-lO lS Al\l ll\lSURED (Section ll) is amended to include
as an insured such person or organization ("additlona| insured") but
only with respect to:
(a) Vicarious liability arising out of your ongoing operations
performed for the additional insured; or
(b) Liabi|ity arising out of any actor omission of the additional
insured for Which you have entered into an enforceable “insured
contract" which obligates you to indemnify the additional lnsured, or
to furnish insurance coverage for the additional lnsured, and arising
out of your ongoing operations for that additional insured
With respect to the insurance afforded these additional insureds the
following additional exclusions app|y:
_23_
l\lo. 76490-0~|/24
2. This insurance does not apply to "bodi|y injury," or "groperty damage“
occurring after:
(a) All work, including materials parts or equipment furnished in
connection with such work, on the project (other than service
maintenance or repairs), to be performed by or on behalf of the
additional insured at the site of the coverage operations has been
completed; or
(b) `l“hat portion of l‘your work’l out of which the lnlury or damage
arises has been put to its intended use by any person or
organization other than another contractor or subcontractor
engaged in performing operations for a principal as a part of the
same project
This exclusion does not apply to the extent that an "insured contract"
requires that you assume the tort liability of the additional insured arising
out of a risk that would otherwise be excluded by this exclusion.[mi
l_edcor tendered the COA’s claim to i\lorth Pacific on lVlarch 10, 2009. North
Pacific did not respond On l\/lay 24, 2010, Ledcor’s counsel sent a 20-day notice letter
under the ll`-'CA, demanding that North Pacific defend and indemnify Ledcor for the
underlying construction defect claims as an additional insured under The Painters' CGL
policy. On l\/iay 28, 20t0, North Pacllic responded stating they had no record of the
lVlarch 2009 tender, and that there Was no coverage under The Painters' CGl_ policy
because Ledcor was not identified as an additional named insured and the automatic
additional insured endorsement only applied to “ongoing operations.”
in June 2010, Ledcor amended its third-party complaint to name North Pacific as
a third-party defendant alleging claims for declaratory relief, breach of contract, breach
of the obligation of good faith and fair dealing, bad faith refusal to defend, and lFCA and
CPA violations
10 (Emphasis added.)
-24_
NO. 76490-0»!/25
North Pacific subsequentiy moved for summary judgment and dismissal of
Ledcor’s third-party claims On Juiy 8, 2011, the trial court granted l\lortl‘i Pacific's
motion on each contractual and extra-contractuai claim and dismissed North Pacific
from the lawsuit
B. Duty to Defend
North Pacific contends that their policy with The Painteis only provided automatic
additional insured coverage for “ongoing operations” and not “coinpleted operations."
Consequently, because Ledcor was not a named additional insured, North Pacitic had
no duty to provide a defense to Ledcor as an additional insured because the operations
performed by The Painters were completed operations We agree with North Pacific.
North Paciiic relies on this court’s decision in i-iartford lns. Co. v. Ohio Cas. lns.
Q)_., t45 Wn. App. 765, 778, 189 P.3d 195 (2008), Where we concluded that the term
“ongoing operations” was an express coverage limitation in the policy and endorsement
language that was intended to avoid “t)road coverage for an additionai insured.”
Speciiically, we held “ongoing operations" language excludes “completed operations”
coverage and limits coverage to the “subcontractors’ work in progress only.” Hartford,
145 Wn. App. at 778. The plain language ot the North Pacific policy contains this same
limitation
Section one of the “additional insured” endorsement in The Painters’ policy limits
additional insured coverage to when it “is required by the terms of an ‘insured contract'”
and includes as an insured such person or organization “only with respect to: (a)
Vicarious liability arising out of your ongoing operations performed for the additional
insured; or (b) Liability arising out of any actor omission of the additional insured . . .
-25_
NO. 76490-O-l/26
arising out of your oncioinu operations for that additional insured.”11 Thus, as in
i-lartford, the plain language of the first section explicitly limits coverage to “ongoing
operations.” See Absher Const. Co. v. N. Pac. lns. Co., 861 F. Supp. 2d 1236, 1244
(W.D. Wash. 2012) (considering a similar l\lorth Pacific policy).
The COA’s complaint in the underiying action alieged damages occurring after
compietion of the buildings, long after the Painters ceased their “ongoing operations.”
Accordingiy, we agree With the trial court that the policy did not cover those claims and
North Pacific’s denial of a defense and coverage based on this ianguage was not
“unreasonab|e, frivolous, or unfounded." We affirm summary judgment
Transportation
Ledcor next contends that the trial court erred in dismissing its claims against
Transportation12 based on the policy transportation provided subcontractor SQl. We
agree.
i_edcor contracted with subcontractor SOi to install a roofing system.
Transportation issued policies to SOl for the period frorn lVlay i, 2000 to Nlay t, 2003. lt
is undisputed that SCli was required to name Ledcor as an additional insured under
those policies. Paragraph 11.1 of the subcontract between Ledcor and SQl is the same
as the subcontract with The Painters, and describes the requirements that SOl name
certain parties as additional insureds:
it.i SUBCONTRACTOR’S iNSUi=lANCE. Priorto start of the
Subcontract work, the Subcontractor shall procure for the Subcontract
Work and maintain in force Wori<ers’ Compensation insurance,
Employer‘s t.ialoility lnsurance, Comprehensive Automobile Liability
lnsurance, Comprehensive or Commercial General Liability lnsurance on
an occurrence basis, and any other insurance required of Sui:)contractor
" (Emphasis added.)
12 Ledcor refers to the Transportation insurance Company as CNA.
_26_
No. 76490-0-|/27
under the Subcontract. li required by the Subcontract Documents, mg
Contractor, Owner and other parties as required shall be named as
additional insureds on each of these policies except for Workers’
Comgensation. The Subcontractor’s insurance shall include contractual
iiability insurance covering the Subcontractor’s obligations under this
Subcontract.li3l
Paragraph 11.2 ot the subcontract states the “Subcontractor’s Comprehensive or
Commercial General Liability insurance and Comprehensive Autornobiie Liability
lnsurance, as required by Paragraph ii.1, shall be written with limits of liability not less
than the foliowing: . . .
A. Comprehensive General Liability lnsurance including completed
operations:
1. Combined Singie i_imit Bodily injury and Property Damage:
$1,000,000 Each Occurrence $ 2,000,000 Aggregate
or
2. Bodily lnjury: $ 1.000,000 Each Occurrence $ 2,000,000
Aggregate
3. Property Damage: $ 1,000,000 Each Occurrence $ 2,000,000
Aggregate
B. Commerciai General Liability insurance
1. Each Occurrence l,imit: $ 1,000,000
2, Genera| Aggregate: $2,000,000
3. Products/Compieted Operations Aggregate: $2,000,000. . .”l“‘l
Paragraph t1.4 states the requirements for What insurance policies the
Subcontractors must obtain, and provisions for cancellation and renewal of those
policies. This paragraph includes the requirement that “The Subcontractor shall
maintain completed operations liability insurance for one year after acceptance of the
Subcontract Work, substantial completion of the Project, orto the time required by the
Subcontract Documents, Whichever is longer." The Subcontractor shall furnish the
13 (Emphasis added.)
14 {Emphasis added.)
-27-
NO. 76490~0-l/28
Contractor evidence of such insurance at the time of compietion of the Subcontract
Work.
The issue is whether Ledcor, as an additional insured under SQl’s policy with
Transportation, had completed operations coverage. Of the three annual policies that
Transportation issued to SOI, only the third (l\/lay 1, 2002 through Niay 1, 2003) contains
an endorsement addressing completed operations. the policy includes an
endorsement that modifies the “commerciai general liability coverage." The
endorsement provides an additional-insured coverage for completed operations only it
that coverage is required by written contract
The coverage provided to the additional insured by this endorsement and
paragraph t of the definition ot “insured contrac ” under DEFll\ilTlONS
(section V) do not appiy to “bodily in§ury” or “property damage” arising out
of the “products-completed operations hazard” unless reguired by the
written contractor written aqreement.E15i
Under the policies “products-completed operations hazard,”
a. lnciudes all “bodily injury" and “property damage" occurring away from
premises you own or rent and arising out of ‘your product" or “your work”
except
(1) Products that are still in your physical possession; or
(2) Work that has not yet been completed or abandoned However,
“your work” will be deemed completed at the earliest of the
following times:
(a) When ali of the work calied for in your contract has been
completed
(b) When all ot the work to be done at the job site has been
completed if your contract calis for work at more than one
job site.
(c) When that part ot the work done at a job site has been
put to its intended use by any person or organization other
than another contractor or subcontractor working on the
same project
‘5 (Emphasis added).
-28_
l\|O, 76490-0-1/29
Work that may need service, maintenance, correction, repair or
replacement but which is othenivise complete, will be treated as
completed.llel
in construing a written contract, a court will not read an ambiguity into a contract
that is othenrvise clear and unambiguous. Maver v. Pierce County i\ded. Bureau, inc., 80
Wn. App. 416, 420, 909 P.2d 1323 (i995). When interpreting a contract the contract
will be given a practical and reasonable interpretation that fulfills the object and purpose
of the contract rather than a strained or forced construction that leads to an absurd
conclusion, or that renders the contract nonsensical or ineffective. Washington Pub.
Util. Districts‘ Utilities Sys. v. Pub. Util. Dist i\lo. 1 of Clallarn County, 112 Wn.2d 1, 1t,
771 P.2d 701 (1989). Transportation’s interpretation of the contract asks us to do just
that
Paragraph il.1 of the subcontract required that SQ| obtain several forms of
insurance, including “Comprehensive or Commercial General Liability insurance on an
occurrence basis.” The subcontractor was also to name “the Contractor, Owner and
other parties . . . as additional insureds on each of these policies." lt is undisputed this
paragraph fulfills the requirement of requiring Ledcor to be named as an additional
insured.
Paragraph 11.2 provided the minimum limits of liability for “The Subcontractor's
Comprehensive or Commercial General i_iability insurance and Comprehensive
Automobile Liability lnsurance, as required by Paragraph 11.1.” This reference back to
1t.‘l is not a iimitation, but merely referencing that “Comprehensive or Commercial
General Liabiiity lnsurance" had been required in l1.1. The minimums required under
paragraph 11.2 for CGL insurance include a “product/comp|eted operations aggregate
16 (Emphasis added.)
-29_
No. 76490-0-|/ 30
of $2 millionv Because paragraph 11.i required CGL insurance paragraph l1.2
required the insurance include completed operations coverage
ln addition, paragraph 1i.4 of the subcontract provided the coverage time limits
required under the contract 11.4 includes the requirement that the Subcontractor shall
“rnaintain in effect all insurance coverage required under this Subcontract,” and that the
“Subcontractor shall maintain completed operations liability insurance for one year after
acceptance of the Subcontract Work, substantial completion of the Project, or to the
time required by the Subcontract Documents, whichever is |onger.""'
When read together, and giving effect to paragraphs i1.t, 1t.2, and t1.4, SQL’s
subcontract required l_edcor to be named as an additional insured on the CGL policy,
required the CGL policy to include completed project coverage, and required the
coverage extend through the term of the CGl_ policies issued by Transportation. The
trial court erred in granting summary judgment and dismissing Ledcor's claims against
Transportation.
FMIC
i_edcor contends next that the trial court erred in dismissing its direct claims
against third party FlVllC, another insurer for subcontractor SQ|. We disagree
We first address whether l_edcor was covered under the policies issued by FiVllC
to SQ|. Fi\/llC issued a CGL policy from lVlay 1, 2006 to May t, 2007. That policy was
subsequently renewed from lVlay t, 2007 to May 1, 2008. Both policies contained
separate endorsements for ongoing operations and compieted operations Both
policies also contain nearly identical “additional insured ongoing operations”
endorsements That endorsement provides as follows:
17 (Ernpi'iasis added.)
-30_
NO. 76490-0-|/31
A. Section il - Who is An insured is amended to include as an additional
insured any person or organization for whom you are performing
operations when you and such person or organization have agreed in
writing in a contractor agreement that such person or organization be
added as an additional insured on your policy. Such person or
organization is an additional insured only With respect to liability for “bodily
inlury”, “property damage” or “personai and advertising injury” caused, in
Whole or in part, by:
1. Your acts or omissions or
2. The acts or omissions of those acting on your behaif;
in the performance of your ongoing operations for the additional insured.
A person's or organizations status as an additional insured under this
endorsement ends when your operations for that additional insured are
completed
B. With respect to the insurance afforded to these additional insureds the
following additional exclusions apply:
'l`his insurance does not apply to:
2. “Bodi|y injury" or “property damage” occurring after:
a. Aii work, including materials parts or equipment furnished
in connection with such work, on the project (other than
service, maintenance or repairs) to be performed by or on
behalf of the additional insured(s) at the location of the
covered operations has been completed; or
b. That portion of “your work” out of which the injury or
damage arises has been put to its intended use by any
person or organization other than another contractor or
subcontractor engaged in performing operations for a
principal as a pari of the same projectmill
Thus the oniy question is whether SQ| was engaged in any “ongoing operations”
for the additionally insured--Ledcor--at the time the original policy began on i\Aay 1,
la (Emphasis added).
,31-
No. 76490-0-|/32
2006. lt is undisputed that SQl’s final maintenance at The Adrniral concluded on lVlay
10, 2005. Ledcor does not argue any other “ongoing operations” were continuing at that
time, nor provide any evidence that further operations took place during that period
The contract unambiguously provides “A person’s or organizations status as an
additional insured under this endorsement ends when your operations for that additional
insured are compieted." Consequently, Ledcor has not demonstrated that it qualifies as
an additional insured for ongoing operations under either policy,
Turning to the completed operations endorsement, the 2006 to 2007 and 2007 to
2008 policies differ. The 2006 to 2007 policy specifically identifies each entity covered
as an additional insured for completed operations Ledcor was not identified as an
additionally insured for completed operations on the 2006 to 2007 policy. Ledcor
offered no evidence to the contrary.
The 2007 to 2008 policy, however, includes an additional listing for: “Any person
or organization, . . .to whom or to which the Named lnsured is obligated by virtue of
written contract to provide lnsurance, such as is afforded by this policy.”19
The same Ledcor and SOl subcontract is at issue here as in the claims brought
against Transportation. As discussed above, when read together, paragraphs 11.1,
11.2, and ll.4 required SOl to maintain completed operations coverage and identify
Ledcor as an additionally named SQl’s obligation, however, was limited in time
Paragraph 1i.4 of the subcontract requires that: “The Subcontractor shall maintain
completed operations liability insurance for one year after acceptance of the
Subcontract Work, substantial completion of the Project, or to the time required by the
Subcontract Documents whichever is longer." Under this provision, the latest
19 (Emphasis added.)
-32-
l\lo. 76490~0-|/33
reasonable interpretation of this provision is lVlay 2006, one year after SQl performed
maintenance on The Admiral.
We hold that Ledcor was not an additionally insured under the policy issued to
SQi by FM|C. ln addition, because Ledcor was not covered as an additional insured
under the policies l_edcor has failed to demonstrate that Fi\/i|C’s denial of coverage was
“unreasonabie, frivolous or unfounded.” Q_y"g”r"t_g_g, 145 Wn.2d at 433.
Ledcor’s Assfgneo' Cl'aims Against FMIC
SQi assigned its direct claim against Fl\/llC to Ledcor, i_edcor asserts finally that
the trial court erred in dismissing its assigned claims against FlVllC. We disagree
A. Additiona| Facts
On August 29, 2008, while the COA’s construction defect action was pending,
Ledcor filed a separate lawsuit against all subcontractors involved in 'l`he Admiral
project (subcontractor action). SQl was named in the subcontractor action. The
subcontractor action sought to recover against the subcontractors any amounts that
Ledcor Was ultimately obligated to pay to the COA.
SQl tendered that lawsuit to FlVllC seeking defense and indemnity as a Named
insured under the Fi\/llC Policies. FlyllC agreed to defend SQi pursuant to a reservation
of rights One of SQl’s other insurers Cornhusker insurance Company (Cornhusker),
also agreed to participate in SQl's defense Cornhusker and Fi\/llC jointly provided SQ|
with a fully funded and complete defense Ledcor sent a settlement demand letter in
lVlarch 2014. Beginning in February 2014, FlVliC participated in mediations and offered
to contribute to settlement demands on behalf of SQl. i\lo settlement was reached at
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NO. 76490-0-|/34
this time After the mediations failed to reach a settlement Fl\/llC sent letters requesting
updates on the settlement negotiations
On April 8, 2014, FM|C was informed by the assigned defense counsel that SQl,
through its personal counsel, had reached a settlement agreement with Ledcor. On
April 11, 2014, Fl\/llC was provided with a copy of the consent judgment that was
entered against SO! in the subcontractor action. The consent judgment indicated that it
was filed in compliance with a lViarch 21, 2014 settlement agreement between Ledcor
and SO|. FlVl|C sent a follow up letter requesting information about the |etter, and
expressing concern that it had not been included in the settlements or been asked to
contribute to the settlement After entering into the consent judgment settlement
Ledcor pursued all contractual and extra-contractual causes of action against Fl\/llC as
the assignee of SQl.
in November 2013, FM|C filed a declaratory judgment action in federal court
seeking a judicial determination that it was not obligated to cover SQl in the
subcontractor action. After the case was remanded to the King County Superior Court
Fl\/ilC was granted leave to file a third-party complaint in this action seeking declaratory
judgment against SOl. SQl (through Ledcor) responded adding counter claims for
breach of duty, bad faith, and violations of the CPA and the lFCA.
On October 26, 2016, the trial court granted l:lVllC‘s motion for summary
judgment dismissing SQl/Ledcor’s counter claims On October 31 , 2016, the court
granted Fl\/liC’s motion for summary judgment agreeing that the policy FlVllC issued to
SQi was not applicable and even if it were, the continuous or progressive injury or
_34_
l\lO. 76490-0-|/35
damage exclusion barred recover. The trial court subsequently denied Ledcor’s
motions for reconsideration
B. Duty to Defend
`l“he FlVllC policy issued to SQl provides coverage for “property damage” caused
by an “occurrence” during the Fi\/llC policy period, so long as the insured does not
know, in whole or in part about the “property damage” or any continuation, change, or
resumption of such “property damage” prior to the inception of the FiVllC poiicy.
Specitically, the policy states
a. 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 those damages However, we will have no duty to
defend the insured against any “suit” seeking damages for “bodily injury" or
“property damage” to which this insurance does not apply. . . .
b. This insurance only applies to “bodily injury” and “property damage” only if:
1) The “bodily injury" or “property damagell is caused by an “occurrence"
that takes place in the "coverage territory"; and
2) The “bodily injury" or “property damage” occurs durinq the policy
penod;and
3) Prior to the policy period, no insured listed under Paragraph 1 of
Section ll - Who is An insured and no “employee” authorized by you to
give or receive notice of an “occurrence” or ciaim, knew that the “bodily
injury" or “property damaqe“ had occurred in whole or in part if such
a listed insured or authorized "employee” knew, prior to the policy
period, that the “bodily injury" or “property damage” occurred then Ly
continuation, change or resumption of such “bodily iniury” or “property
damage” durinq or after the policy period will be deemed to have been
known prior to the policy period
d "Bodily injury" or “property damage” will be deemed to have been known to
have occurred at the earliest time when any insured listed under Paragraph 'l.
of Section ll - Who is An insured or any "employee" authorized by you to give
or receive notice of an "occurrence“ or claim:
1) Ftepons all, or any part, of the l‘bodily injury" or “property damage” to
us or any other insurer;
2) Fieceives a written or verbal demand or claim for damages because of
the “bodily injury‘l or “property damage"; or
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NO. 76490~0-1/36
3) Becomes aware by any other means that l‘i:)odily injury" or “property
damage” has occurred or has begun to occur.[?°i
As discussed above, in determining coverage, this court considers a two~step
process First, the insured must establish that the loss falis within the “scope of the
policy's insured losses.” Then, the burden shifts to the insurer to show that the loss is
excluded by specific language in the policy. Diamaco, 97 Wn. App. at 337. Atthough
this policy uses exciusionary language, the burden is still on SO! to demonstrate the
damage took place during the coverage period, and that SQi did now know ot the
damage before the policy period.
Fl\/liC provided substantial evidence that SQl knew, at least in part, that the
damage to the roofing had occurred at The Admiral as of at least 2004. FlVllC further
provided evidence that SQl failed to repair the damage that it was asked to repair in
2005, and that some of the claims arose of that damage. SOI only presented evidence
that SQi rnay have believed that they had fixed all ot the damage when they returned to
do further maintenance in .2005.21 Moreover, the evidence showed the damage
occurring after 2005 would have been a “continuation, change or resumption" of the
original damages22 Because there is no reasonable dispute that SQ| knew ot the
damages before it purchased the FNl|C policies in 2006 and in 2007, summary
judgment was appropriate concluding that SOl’s damages were not covered under the
Fi\lliC policies
20 (Emphasis added.)
21 Ledcor cites several cases considering the common law “known loss" principai, however these
cases do not support his argument See Pub. Util. Dist. No. t of Klict<itat County v. lnt'| ins Co., 124
Wn.2d 789, 806, 881 P.2d 1020 (1994).
22 (Emphasis added.)
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NO. 76490~0*|/37
C. Extra Contract Claims
Again, to succeed on a bad faith claim, the policyholder must show the insurer's
breach of the insurance contract was unreasonabie, frivolous or unfounded Ov_ertgn_,
145 Wn.2d at 433. “The insured may not base a bad faith or CPA claim on an insurer's
good faith mistake, which occurs when the insurer acts honestly, bases its decision on
adequate inlormation, and does not overemphasize its own interest.” Werlinger, 129
Wn. App. at 808.
l-iere, based on the allegations in the subcontractor action, l`-`NllC accepted the
defense of SQi under a reservation of rights. Fl\/l|C then assigned counsel, participated
in settlement negotiations and finally brought a declaratory relief action. SOl did not
pay any defense fees or incur damages FMiC did not act in bad faith in its defense of
SQ|. §g_g lr_g_g_ig, 147 Wn.2d at 761.
SGi also raised various CPA violations including that FlVl|C failed to investigate
its claims and again that FlvllC “commingled” the coverage and defense claims Even it
these actions rise to the ievel ot “(1) unfair or deceptive act or practice,” under the CPA,
there is no presumption of harm. SQi needed to prove it was harmed by FlVliC’s
actions and SQ| did not present evidence of harm. SQl did not pay defense fees or
incur any costs.
Finally, in the absence of an unreasonabie denial of coverage or benefits the
iFCA does not create an independent cause of action for alleged regulatory violations
Perez-Crisantos, 187 Wn.2d at 680.
Summary judgment and dismissal of Ledcor’s assigned claims against Fi\lliC was
appropriate
_37_
No. 76490~0~1/38
We reverse the dismissal of Ledcor’s claims against VSC and Transportation.
Mww-, /l._(_.»:r"
WECONCUR:
»-/' r""' l ii
l\/`lC#L<Q`\{ 1 :T-` ‘) ° VJNMJ /
l l
We affirm in all other respects
_33-