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Atlantic Casualty Insurance Co. v. Earth M S & Junk Co.

United States District Court, W.D. Washington, Seattle

February 12, 2014

ATLANTIC CASUALTY INSURANCE COMPANY, Plaintiff,
v.
EARTH M S & JUNK COMPANY, et al., Defendants.

ORDER

THOMAS S. ZILLY, District Judge.

THIS MATTER comes before the Court on Plaintiff's Motion for Summary Judgment, docket no. 21. Having reviewed all papers filed in support of, and in opposition to, Plaintiff's motion, the Court GRANTS Plaintiff's Motion for Summary Judgment.

Discussion

The Court may grant summary judgment if no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The moving party bears the initial burden of demonstrating the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). A fact is material if it might affect the outcome of the suit under the governing law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To survive a motion for summary judgment, the adverse party must present affirmative evidence, which "is to be believed" and from which all "justifiable interferences" are to be favorably drawn. Id. at 255, 257.

Interpretation of an insurance contract is a question of law appropriate for resolution on summary judgment. Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165, 171, 110 P.3d 733 (2005). The Court should consider the policy as a whole and give it a "fair, reasonable, and sensible construction, as would be given to the contract by the average person purchasing insurance." Id. at 171. If the policy language is clear and unambiguous, the court must enforce it as written; it may not modify the language or create ambiguity where none exists. Id.

An insurance company has a duty to defend when there is a potential for coverage. Truck Ins. Co. v. VanPort Homes, Inc., 147 Wn.2d 751, 760 (2002). The duty arises when a complaint, construed liberally, against the insured alleges facts that could, if proven, impose liability upon the insured within the policy's coverage. Id. at 760. If the claims are clearly not covered by the policy, an insurer has no duty to defend. Nat'l Surety Co. v. Immunex Corp., 176 Wn.2d 872 (2013).

Johnston and M s West (collectively "M s West"), the plaintiffs in the underlying liability action, brought suit against Defendants Earth M s NW, LLC, M s & Junk Company and Richard and Deborah Pezzner (collectively "Earth M s") alleging six separate claims: breach of contract, violation of the Uniform Trade Secrets Act, unjust enrichment, violation of Washington's Consumer Protection Act, tortious interference with a business or contractual expectancy, and conversion. Pl.'s Complaint, docket no. 26-1 at 6-9. Plaintiff in this Declaratory Judgment Act matter, Atlantic Casualty Insurance Company ("Atlantic"), argues that Earth M s's insurance policy does not provide protection for any of the alleged claims. Pl.'s Mot. for Summary Judgment, docket no. 21 at 10, 12, 15.

Breach of Contract

The first cause of action in the underlying complaint (the "Complaint") is breach of contract. Pl.'s Complaint, docket no. 26-1 at 6. The policy provides that "property damage" coverage excludes liability for damages resulting from a breach of contract. Def.'s Ex. B, docket no. 26-2.

Violation of Uniform Trade Secrets Act & Unjust Enrichment

Next, the Complaint alleges trade secret infringement. Pl.'s Complaint, docket no. 26-1 at 6. However, Coverage B specifically excludes "personal and advertising injury arising out of the infringement of copyright, patent, trademark, trade secret or other intellectual property rights." Def.'s Ex. B, docket no. 26-2 (emphasis added).

The Complaint further alleges that Earth M s was unjustly enriched by utilizing M s West's trade secrets, trade name and good will. Pl.'s Complaint, docket no. 26-1 at 8. Again, Atlantic's argument is consistent with the language of the insurance policy: the policy does not include protection for unjust enrichment liability. Def.'s Ex. B, docket no. 26-2.

Violation of Consumer Protection Act

The Complaint also alleges that Earth M s violated the Consumer Protection Act. However, the insurance policy does not provide coverage for liability under the Consumer Protection Act. Def.'s Ex. B, docket no. 26-2.

Tortious Interference with a Business or Contractual Expectancy

The Complaint alleges that Earth M s intentionally interfered with contractual relationships existing between M s West and its customers. Atlantic correctly argues that the insurance policy does not include coverage for liability for tortious interference with a business or contractual expectancy. Def.'s Ex. B, docket no. 26-2.

Conversion

The Complaint alleges conversion of trade secrets, goodwill, funds, and personal property. Pl.'s Complaint, docket no. 26-1 at 9. Liability for the conversion of trade secrets and goodwill is not covered by the policy because the policy only provides protection for damage to tangible property. See Def.'s Ex. B, docket no. 26-3 at 5. Furthermore, if Earth M s was found liable for conversion of funds or personal property, this liability would still not fall within the policy's coverage because conversion is an intentional tort, and intentional acts of property damage are specifically excluded from the policy's coverage. Def.'s Ex. B, docket no. 26-2 at 2.

Claims not alleged in the Complaint

Earth M s also argues that Atlantic is obligated to defend Earth M s against claims of Trade Dress Infringement and Slander. Def.'s Response, docket no. 25. Earth M s argues that, while the "underlying liability lawsuit does not (yet) specifically designate Infringement of Trade Dress or Slander as causes of action in the case, " the claims are implied in the Complaint's statement of facts. Id. at 9. However, hypothetical unpleaded claims "do not create potential coverage' entitling the insured to a defense." Chicago Ins. Co. v. The Ctr. for Counseling & Health Res., 2011 WL 1221019 (W.D. Wash. 2011).

Conclusion

For the foregoing reasons, the Court hereby GRANTS Plaintiff's Motion for Summary Judgment, docket no. 21. The Clerk is DIRECTED to enter judgment in favor of plaintiff Atlantic Casualty Insurance Company and against defendants Earth M s & Junk Company, Richard and Deborah Pezzner, and Earth M s NW, LLC, declaring that plaintiff has no duty to defend or indemnify said defendants for the claims stated in the Complaint filed in King County Superior Court, docket no. 26-1. As the prevailing party plaintiff is entitled to costs, which may be taxed in the manner set forth in Local Civil Rule 54(d).

IT IS SO ORDERED.

The Clerk is further directed to send a copy of this Order to all counsel of record and to CLOSE this case.


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