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Canal Indemnity Co. v. Global Development, LLC

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

January 26, 2015

CANAL INDEMNITY COMPANY, a foreign insurer; ST. PAUL SURPLUS LINES INSURANCE COMPANY, a foreign insurer, ARCH SPECIALTY INSURANCE COMPANY, a foreign insurer, Plaintiffs,
v.
GLOBAL DEVELOPMENT, LLC, a/k/a G & M INVESTMENTS, INC.; MICHAEL K. MASTRO and JANE DOE MASTRO, husband and wife; MICHAEL R. MASTRO and LINDA MASTRO, husband and wife; PAUL STEPHANUS and BARBARA STEPHANUS, husband and wife; JOHN STEPHANUS, an individual; PARK EDMONDS APARTMENTS, LLC; WEST MALL PLACE APARTMENTS, LLC; PARK 212 APARTMENTS, LLC; and PARK 210 APARTMENTS, LLC, Defendants/Third Party Plaintiffs, AND RELATED CROSS ACTIONS

ORDER GRANTING MOTION FOR CONTRIBUTION BAR AND GRANTING MOTION TO COMPEL IN PART

RICARDO S. MARTINEZ, District Judge.

THIS MATTER comes before the Court upon Motion for a Contribution Bar by Defendants Paul and Barbara Stephanus, West Mall Place Apartments LLC, Park Edmonds Apartments LLC, Park 210 Apartments LLC, and Park 212 Apartments LLC (collectively, the "Stephanuses"). Dkt. #56. Also pending are Motions for Joinder in the Motion for a Contribution Bar by Third-party Defendants United National Insurance Company ("United National") (Dkt. #69), Interstate Fire & Casualty Company and National Surety Corporation (collectively, "Fireman's Fund") (Dkt. #80), and Chubb Custom Insurance Company ("Chubb") (Dkt. #82), as well as Intervenor Plaintiff St. Paul Surplus Lines Insurance Company ("St. Paul") (Dkt. #86). Plaintiff Canal Indemnity Corporation ("Canal") as well as Intervenors/Third-Party Defendants General Star Management Company, General Star National Insurance Company and General Star Indemnity Company (collectively, "General Star") have filed notices of joinder in the Stephanuses' Motion. Dkt. ##72, 77. The instant Order further considers the pending Motion to Compel by Defendants the Stephanuses. Dkt. # 121. The Court deems oral argument unnecessary. Having considered the parties' moving papers and supporting exhibits as well as the remainder of the record, and for the reasons stated herein, the Court grants the Stephanuses' Motion for a Contribution Bar and the various Joinders therein and grants in part and denies in part the Stephanuses' Motion to Compel.

BACKGROUND

This is an insurance coverage action brought by Canal and consolidated with a related coverage action by Plaintiff Arch Specialty Insurance Company ("Arch"). Canal and Arch both seek declaratory judgment regarding their coverage obligations for the claims asserted against their named insured, Global, related to alleged construction defects in various properties developed by Global together with the Michael R. Mastro and Michael K. Mastro (the "Mastros") for the Stephanuses. See Dkt. #1 ("Canal Compl."); Case No. 14-1181RSM, Dkt. #1 ("Arch Compl."). The Stephanuses, having settled with Canal and four excess insurance carriers, now seek this Court's entry of a contribution bar in order to prevent nonsettling insurer, Arch, from pursuing contribution claims against the settling carriers.

The factual details underlying these consolidated suits are complex and well-known to the parties. In brief, the Stephanuses filed four lawsuits in Snohomish County related to apartment complexes developed and constructed by Global and the Mastros and sold to the Stephanuses: West Mall Place, Park Edmonds, Park 210, and Park 212 Apartments (the "Projects"). The Stephanuses allegedly discovered construction defects at several of the Projects, whereupon they entered into a Memorandum of Understanding (the "MOU") in 2008 with the Mastros, through which the Mastros promised to remedy any known construction defects on any properties constructed for the Stephanuses. See Canal Compl., ¶ 51 & Ex. C; Dkt. #42, ¶ 51. After the Mastros failed to perform ( see Dkt. #42, ¶ 52), the Stephanuses brought four lawsuits seeking to recover on the original constructions contracts as well as the MOU. See Park Edmonds Apartments LLC, et al. v. Global Development LLC, et al., Snohomish County Case No. 10-2-070140-0; West Place Apartments, LLC, et al. v. Global Development LLC, et al., Snohomish County Superior Court, Case No. 10-2-07013-2; Park 210 Apartments LLC, et al., Snohomish Cause Superior Court, Case No. 12-2-09963-2; Park 212 Apartments LLC, et al. v. Global Development LLC, Snohomish County Superior Court, Case No. 12-2-09964-1 (collectively, the "underlying lawsuits").

The insureds tendered their defense in the underlying lawsuits to primary insurers Canal and Arch under a full reservation of rights and defenses, and the insurance companies provided defense through the law firm Scheer & Zehnder LLP. See Canal Compl. ¶ 17; Dkt. # 57.[1] The Stephanuses contend that the costs to repair the four properties at issue in the underlying lawsuits is $15, 547, 131 (Dkt. #42-2), while defense counsel for the insureds recommended a maximum settlement value of $2, 000, 000 for all four suits (Dkt. #47, Ex.'s 18-21). The trial judge ultimately ruled in all four underlying lawsuits that Michael K. was a signator to the MOU and granted summary judgment for plaintiffs in the Park 210 case. See Dkt. #29, Ex.'s 5-6.

On June 30, 2014, the Mastros and Global entered into a CR 2A Agreement with the Stephanuses. Dkt. #42-1. The Stephanuses therein agreed to settle any and all claims against the Mastros and Global arising out of the projects along with any claims arising out of the MOU in exchange for a covenant judgment against all defendants in the underlying lawsuits for $8, 000, 000. Id. at ¶¶ 2-4. The Mastros further agreed to assign any and all claims against their insurers to the Stephanuses. Id. On August 21, 2014, Global and the Mastros entered into a settlement agreement with Fireman's Fund, General Star, Chubb, and United National (the "Excess Insurers"), in which they consented to entry of judgment in favor of the Stephanuses for $8, 239, 540. Dkt. #42-2, ¶ 1. The four Excess Insurers further agreed to pay the Stephanuses the collective sum of $2, 000, 000 on behalf of the Mastros, and the Stephanuses agreed to move the underlying state court for a reasonableness hearing as to the settlement amount[2] and to seek a contribution bar in this Court in order to prevent non-settling insurers from seeking contribution from the Excess Insurers. Id. at ¶¶ 5, 11. Shortly thereafter, the Stephanuses entered into a settlement with Canal, in which Canal agreed to pay $800, 000 to resolve the claims against the insureds, contingent on the Stephanuses obtaining a similar contribution bar. Dkt. #63-3. Canal also therein agreed to assign all contribution claims and rights against non-settling insurers to the Stephanuses. Id. at ¶ 7.

Canal filed the instant lawsuit on June 5, 2014 ( see Canal Compl.), and Arch filed its Complaint on August 4, 2014 ( see Arch Compl.). Both Complaints seek declaratory judgment that Canal and Arch, respectively, have no duty to defend or indemnify, or to provide any benefits or coverage under their policies for claims asserted in the underlying actions. Soon after these cases were consolidated ( see Dkt. #51), Defendants the Projects and the Stephanuses brought the instant Motion for a Contribution Bar, in which Canal, the Excess Insurers, and intervening Plaintiff St. Paul all join. Arch alone opposes the entry of a contribution bar.

DISCUSSION

I. Contribution Bar

A. Legal Standard

This Court has inheritable equitable authority to enter an order precluding subsequent claims for contribution and indemnity by non-settling parties, so long as the non-settling parties receive notice and have their rights protected. Cadet Mfg. Co. v. American Ins. CO., 2006 WL 910000, *1 (W.D. Wash. 2006); Zidell Marine Corp. v. Beneficial Fire and Casualty Ins. Co., C03-5131RBL, at Dkt. #254 (W. D. Wash. May 24, 2004). Such bar orders can be an essential to multi-party litigation. Absent such a mechanism,

Any single defendant who refuses to settle, for whatever reason, forces all others to trial. Anyone foolish enough to settle without barring contribution is courting disaster. They are allowing the total damages from which their ultimate share will be derived to be determined in a trial where they are not even represented.

Franklin v. Kaypro Corp., 884 F.2d 1222, 1229 (9th Cir. 1989) (internal quotations omitted); Bank of America v. Travelers Indem. Co., 2009 WL 529227, *1 (W.D. Wash. 2009). Washington courts thus recognize contribution bar orders as "consistent with the public policy in Washington of encouraging settlement." Puget Sound Energy v. Certain Underwriters at Lloyd's, 134 WN. App. 228, 250, 138 ...


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