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Grange Insurance Association v. Lund

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

February 13, 2014

DARYL LUND, et al., Defendants,


RONALD B. LEIGHTON, District Judge.

THIS MATTER is before the Court on Third Party Defendant Century Surety Company's Motion for Summary Judgment [Dkt. #15] and on Century's related Motion for Protective Order [Dkt. #38].

This is the third lawsuit arising from a bar fight in which Defendant Dvojack was severely injured by a fellow patron, Defendant Abbott. The procedural history is long and complicated-"tortured, " as Century aptly describes it-and will not be fully repeated here. However, some flavor and context is required.


Dvojack (through his Guardian, Spurgitis) sued Abbott, the Star Tavern's owners (Jo & Ja, Inc., and its owner, Daryl Lund), and the bartender (Laurie Rager) in Thurston County Superior Court. Jo & Ja's insurer, Century, defended Jo & Ja, Lund, and Rager under a reservation of rights. Century's policy included a general liability coverage with a $1 million limit, and an "assault" endorsement with a $250, 000 "wasting" limit.

Unsurprisingly, a dispute arose over the policy limits available for Dvojack's claims against Jo & Ja and Lund, and Century brought a Declaratory Judgment Action in this Court [Cause No. 12-cv-5731RBL], seeking a determination that (only) the smaller limit applied. Jo & Ja and Lund claimed that the $1 million limit applied, and asserted counterclaims for breach of contract, violations of the Washington Consumer Protection Act, and bad faith, all based primarily on Century's claim that the limit was less. They also alleged related claims that Century had violated its duties by "misrepresenting" the limits, and by failing to communicate and take advantage of an opportunity to settle the underlying claim within policy limits. [Dkt. #14 in Cause No. 12-5731RBL]

The parties filed cross Motions for Summary Judgment in that case, which they now refer to as "the First Action." Century's Motion sought only a determination that only the wasting limit applied. [Dkt. #20 in Cause No. 12-5731RBL]. It did not directly seek dismissal of (or any other ruling on) the bad faith/breach of contract counterclaims. The Lund parties' cross Motion for Summary Judgment sought a determination as a matter of law that the larger limit applied. It also sought a determination that Century's insistence on the smaller limit was a breach of its duty to defend, and that that breach entitled them to attorneys' fees under Olympic Steamship Co. v. Centennial Ins. Co., 117 Wn.2d 37, 811 P.2d 673 (1991). [ See Dkt. #35 in Cause No. 12-5731RBL, and the Lund parties' Proposed Order granting its Motion, attached thereto]. Finally, they sought a stay of the First Action pending the resolution of the Thurston County tort action, claiming that that case would resolve factual issues that, in their view, required resolution before the "limits" issue could be determined.

In March of 2013, this Court determined as a matter of law that the $250, 000 wasting limit applied (and that the $1 million limit did not). [ See Dkt. # 46 in that case]. It declined to stay the action, and held that Century's assertion of the smaller limit was not bad faith as a matter of law. It granted Century's Motion on the only issue it presented-the applicable limit. It denied Jo & Ja and Lund's Motion on the limited issues it presented-the claim that the larger limit applied, and that Century had violated its duties by insisting on the smaller one. It entered a judgment [Dkt. #47] in Century's favor, and Jo & Ja and Lund appealed [Dkt. #48].

This Court's Order apparently triggered a "covenant judgment settlement"[1] between Dvojack and the Thurston County tort action defendants-Century's insureds. Those defendants consented to judgment, and assigned their rights and bad faith claims against Century to Dvojack. Dvojack agreed not to execute on the judgments.

Meanwhile, Rocky Mountain Grange (which insured Lund under two fire policies, a homeowner's policy and an umbrella policy) had filed its own Declaratory Judgment Action in Lewis County, seeking a determination that its policies did not obligate it to defend or indemnify Lund, or anyone else, from the claims asserted by Dvojack in the Thurston County tort litigation. It nevertheless had been defending Lund under a reservation of rights, and it apparently paid Dvojack some amount as part of the covenant judgment settlement.

That Lewis County case became this case when Dvojack (standing in the shoes of underlying tort defendants) asserted[2] there his newly-acquired third-party bad-faith claims against Century, and Century removed the case to this Court. Because the only remaining claims in this entire litigation were, and are, Dvojack's bad faith claims[3] against Century, this Court agreed that Century had properly removed the case. [ See Dkt. #s 30 & 35 in this case]. Thus- except for the appeal of this Court's final Order and judgment in the First Action-the last remnants of this litigation are in this Court, in this case. The current Motions require the Court to ascertain the scope and breadth of what is left.


Century seeks Summary Judgment on Dvojack's bad faith/breach of contract claims [Dkt. #15]. As it did in seeking an "indicative ruling" in the First Action, Century argues that the merit of its position on the available limits was already determined by this Court in the First Action. It argues that this Court's Order in that case necessarily adjudicated the bad faith/breach of contract claims that had been (or could have been) asserted against it by Jo & Ja and Lund prior to the time they assigned those claims to Dvojack. It claims that the resulting judgment is res judicata as to all of the bad faith claims asserted here. [ See Dkt. #15].

Dvojack's current bad faith claims include allegations that Century:

• failed to communicate with its insureds regarding his ($1 million) settlement demand;
• failed to settle within the (allegedly larger) policy limit;
• used extrinsic evidence to support its claim that the smaller, wasting limit applied;
• generally placed its own monetary interests above the interests of its insured;
• after the judgment, offered less than the available wasting limit to settle the underlying claims; and
• improperly conditioned its post-judgment settlement offer of the "rest" of its wasting limit on a release of not only its ...

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