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HB Development, LLC v. Western Pacific Mutual Ins.

United States District Court, E.D. Washington

February 6, 2015

HB DEVELOPMENT, LLC, a Washington limited liability corporation; FRASER HAWLEY, an individual; SHARON BROWN, an individual and the marital estate thereof; MS. JOLENE K. BOUGHTON, a married person, as assignee of HB Development, LLC; and MR. JOHN B. CROOK, a married person, as assignee of HB Development, LLC, Plaintiffs,
WESTERN PACIFIC MUTUAL INSURANCE, a foreign insurance company; LOCKTON RISK SERVICES, a foreign insurance company; DOES 1-10, insurance companies; DOES 11-25, insurance brokers, claims administrators and insurance agents, Defendants

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For HB Development LLC, a Washington limited liability corporation, Fraser Hawley, an individual, Sharon Brown, an individual and the marital estate thereof, Plaintiffs: John Richard Herrig, LEAD ATTORNEY, Herrig Vogt & Stoll LLP - WA, Kennewick, WA.

For Ms. Jolene K. Boughton, a married person, as assignee of HB Development, LLC, a Washington limited liability company, Mr. John B. Crook, a married person, as assignee of HB Development, LLC, a Washington limited liability corporation, Plaintiffs: Maury A Kroontje, LEAD ATTORNEY, Kroontje Law Office, PLLC, Seattle, WA; Leah S Snyder, Kroontje Law Office PLLC, Seattle, WA.

For Western Pacific Mutual Insurance, a foreign insurance company, Defendant: Lowell P McKelvey, LEAD ATTORNEY, McKelvey Kozuma PC, Portland, OR; Patrick J Kurkoski, LEAD ATTORNEY, Mitchell Lang & Smith, Portland, OR.

For Lockton Risk Services, a foreign insurance company, Defendant: Alan Bradford Hughes, LEAD ATTORNEY, Alan B Hughes PS, Seattle, WA.

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ROSANNA MALOUF PETERSON, Chief United States District Judge.

BEFORE THE COURT are Defendants' Motions for Summary Judgment, ECF Nos. 47 and 49, and a related Motion to Strike, ECF No. 67. The Court heard oral argument on the motions on January

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12, 2015, in Richland, WA. Plaintiffs HB Development, LLC, Fraser Hawley, and Sharon Brown were present and represented by John Herrig. Plaintiffs Jolene Boughton and John Crook were present and represented by Maury Kroontje. Lowell McKelvey represented Defendant Western Pacific, and Alan Hughes represented Defendant Lockton Risk Services.

The Court has considered the parties' arguments, pleadings, all related filings, and is fully informed. This order memorializes the Court's oral rulings and issues new rulings on motions for which the Court reserved ruling.

This case involves an insurance dispute over coverage of a construction defect claim brought by Plaintiffs Jolene Boughton and John Crook regarding defects in their home built by Plaintiffs HB Development, LLC (hereinafter " HB" ), Fraser Hawley, and Sharon Brown, in West Richland, Washington. Defendant Western Pacific Mutual Insurance has denied coverage and duties to defend or indemnify HB, Hawley, and Brown for Boughton and Crook's claims against them. For the reasons stated below, the Court denies the motion to strike and grants Defendants' motions for summary judgment.


A. Factual History[1]

HB was a Washington limited liability corporation licensed as a general contractor. ECF No. 27 at 2. Plaintiffs Fraser Hawley and Sharon Brown, husband and wife, were members of HB. ECF No. 27 at 2. HB joined the RWC Insurance Advantage Program in 2003, ECF No. 75 at 3, and carried a general liability insurance policy provided by Westport Insurance Corporation. ECF No. 75 at 14. However, the insurance provider changed in 2004, and beginning on September 4, 2004, HB's general liability insurance was provided by Western Pacific Mutual Insurance (hereinafter " Western" ) through the RWC program. ECF No. 75 at 3-5. Lockton Risk Services (hereinafter " Lockton" ) served as the underwriting administrator and agent for Western from August 2004 until September 2007 when Integrity Underwriters, Inc. (Integrity) took over. ECF No. 75 at 4.

In addition to a change in insurance providers, the type of insurance policy offered under the RWC program changed as well. Prior to these changes, Lockton sent a letter to Mr. Hawley on July 7, 2004, signed by Joe Perkins, Account Manager. The letter read:

As you know, the insurance market place is constantly changing including the appetite of carriers on certain classes of business. Please be advised that we are no longer able to use the current carrier for your insurance coverage. Enclosed is a notice of non-renewal from your current insurance carrier. However, we will be providing you with a replacement policy underwritten by Western Pacific Mutual Insurance Company, a Risk Retention Group.
You can expect to receive your new policy within the next couple of weeks. Your policy will be sent along with a " Policy Holder Notice" that explains the differences in coverage from your current policy. You will also receive a " Coverage Update Questionnaire" . The

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new insurance carrier requires that this questionnaire be completed and returned.
If you have any questions, please contact our office toll-free at 888-662-3649.
Thank you for your participation in the RWC Insurance Advantage. We do appreciate your business.

ECF No. 50-7.

HB's previous policy through Westport was an occurrence-based policy. ECF No. 76 at 34. The new Western policy was a claims-made policy.[2] ECF No. 50-8 at 11.

On July 25, 2004, Mr. Hawley signed the form entitled " Important Policy Holder Information," which included " Important Notice--Claim Made Coverage Applies" and " Important Notice Claim Made Coverage--Additional Explanation." ECF No. 75 at 5. These forms explained that claims-made coverage applies, and warned of a " potential coverage gap" after the termination of the policy's extended claim reporting period " if prior acts coverage is not subsequently provided by another insurer." ECF No. 50-8 at 11. The Claim Made Notice stated in bold that it strongly encouraged the insured to call its insurance representative with questions and provided a toll free phone number. Id.

Thereafter, HB's first policy purchased from Western through Lockton began on September 4, 2004. ECF No. 75 at 5. HB renewed its policy from Western, first through Lockton and later through Integrity, five times, with its last term ending on September 4, 2010. ECF No. 75 at 6. Each year that HB procured insurance through Lockton, Certificates of Insurance with the " claim made" box checked under " type of insurance" were sent to the Washington Department of Labor & Industries showing that HB was insured. ECF No. 76 at 6; ECF No.50-11 at 1.

While insured under the claims-made policy, HB contracted with Plaintiffs John Crook and Jolene Boughton, husband and wife, to construct a house in West Richland, Washington, in March of 2006. ECF No. 75 at 11; ECF No. 52-1 at 5. Beginning in September 2007 and continuing through September 2010, Crook and Boughton wrote to HB, Hawley, and Brown about problems with the quality and timeliness of the construction. ECF No. 75 at 8. No one from HB informed Western of these complaints.

On August 11, 2008, Hawley and Brown resolved to dissolve HB, effective that day. ECF No. 75 at 2, 6; ECF No. 52-4 at 16. HB filed a Certificate of Cancellation with the Washington Secretary of State on December 18, 2009. ECF No. 75 at 2-3; ECF No. 52-4 at 17.

Despite being offered extended reporting period plans, neither HB nor its members ever purchased any form of extended tail coverage. ECF No. 75 at 6-8.

B. Procedural History

On January 23, 2012, Crook and Boughton served written notice of their construction defect, property damage, and loss of use claims to HB, pursuant to RCW 64.50.020, and provided a copy to Western. ECF No. 75 at 2; ECF No. 48 at 21. On February 1, 2012, Diane Esser, a claim representative for Integrity Administrators,

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denied coverage for Crook and Boughton's claim. ECF No. 48 at 58-59. On March 12, 2012, Crook and Boughton filed a lawsuit against HB, Hawley, and Brown in Benton County Superior Court. ECF No. 75 at 2. The parties reached a settlement agreement in which HB, Hawley, and Brown confessed judgment in the amount of $600,000 to Crook and Boughton. ECF No. 48 at 9-13. Benton County Superior Court Judge Mitchell found the settlement to be reasonable in the amount of $420,000. ECF No. 48 at 16-19. HB and its members agreed to pay to Crook and Boughton all settlement funds obtained from subcontractors or insurers and to " assign all rights, claims, and defenses it has, including but not limited to claims for a defense of the Litigation, claims for coverage under the Policies and any extra-contractual damages or claims." ECF No. 48 at 9-13.

On March 28, 2013, HB, Hawley, and Brown commenced an action in Benton County Superior Court against Western, Lockton, First Mercury Insurance Company, Clarendon National Insurance Company, and Western World Insurance Company.[3] ECF No. 1 at 2. Western removed the case to this Court on April 26, 2013. ECF No. 1. On August 12, 2013, Plaintiffs filed their Second Amended Complaint, which added Crook and Boughton as plaintiffs. ECF No. 27.

Plaintiffs bring three causes of action against both Western and Lockton: (1) negligence, (2) bad faith, and (3) violation of the Washington State Consumer Protection Act. Additionally, Plaintiffs claim two additional causes of action against Western alone: (1) declaratory judgment, and (2) breach of contract.[4]

Western and Lockton filed separate motions for summary judgment, ECF Nos. 47 and 49, which Plaintiffs oppose, ECF Nos. 51 and 56. Lockton, joined by Western, also filed a motion to strike the declarations of Flo Brown, ECF No. 67, which Plaintiffs also oppose, ECF No. 72.


Lockton moved the Court to strike the declarations of Flo Brown,[5] and Western joined in the motion. ECF Nos. 67 and 71. The Court denied this motion orally at the hearing on January 12, 2015.

Plaintiffs filed two declarations by Flo Brown in support of their response briefs. ECF Nos. 52-2 and 58. The declarations were filed immediately before and after the discovery cut-off.[6] ECF No. 67 at 4. In her declarations, Flo Brown states that as an employee of HB her responsibilities included procuring insurance.[7] ECF No. 52-2 at 2; ECF No. 58 at 2.

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Plaintiffs' Rule 26(a)(1)(A)(i) disclosures adopted the witness disclosures filed by the parties in the underlying construction defect litigation in Benton County Superior Court. ECF No. 67 at 2. These disclosures listed Flo Brown and stated that " Ms. Brown was the bookkeeper for HB Development, LLC. Ms. Brown will testify as to the settlement amount, amount unpaid, personal delivery of the warranty policy and cost issues on the contract." ECF No. 68 at 16. The adopted disclosures also contained a catch-all category of " Past and Present Employees and/or Representatives of HB Development LLC" who were to testify about " the Project and any and all related issues" and " any other topic necessary to rebut the testimony of defense witnesses." ECF No. 6 at 14.

Federal Rule of Civil Procedure 26(a)(1)(A)(i) requires a party to disclose to the other parties " the name . . . of each individual likely to have discoverable information--along with the subjects of that information--that the disclosing party may use to support its claims or defenses . . . ." A party must supplement or correct its disclosure in a timely manner if it learns that the disclosure is incomplete or incorrect in some material respect and " if the additional or corrective information has not otherwise been made known to the other parties during the discovery process or in writing." Fed.R.Civ.P. 26(e)(1)(A). " If a party fails to provide information or identify a witness as required by Rule 26(a) or (e), the party is not allowed to use that information or witness to supply evidence on a motion, at a hearing, or at a trial, unless the failure was substantially justified or is harmless." Fed.R.Civ.P. 37(c)(1). " A district court has wide discretion in controlling discovery" and " particularly wide [discretion] when it comes to excluding witnesses." Ollier v. Sweetwater Union High Sch. Dist., 768 F.3d 843, 862 (9th Cir. 2014) (internal quotations and citations omitted).

Defendants moved to strike Flo Brown's declarations on the basis that Plaintiffs did not accurately disclose the information possessed by Flo Brown in their Federal Rule of Civil Procedure 26(a)(1)(A)(i) initial disclosures. Defendants admitted that Plaintiffs disclosed Flo Brown as an individual likely to have information, ECF No. 67 at 3, but argued at the hearing that they were required to sift through 139 pages of discovery in order to find any mention of Flo Brown. Additionally, Defendants contend that they were not notified that Flo Brown possessed important information about one of the main topics in this case, namely, HB's communications with Lockton and its insurance coverage decisions. ECF No. 67 at 4. As a result, Defendants argue, they were prejudiced by her declarations. ECF No. 67 at 4.

Many of Plaintiffs' claims against Defendants rely on evidence about HB's communications and decisions related to its insurance coverage. If, as she states in her declaration, Flo Brown made insurance decisions for HB, then she likely possesses information important to the claims and defenses in this case. Certainly Plaintiffs' initial disclosures could have been more specific as to the information possessed by Flo Brown and relevant to this particular case. The Court nevertheless found that Plaintiffs' failure to disclose was harmless because Defendants had sufficient notice of Flo Brown's knowledge of material information and importance to the case.

Defendants learned of the details of Flo Brown's role at HB during the depositions of Fraser Hawley and Sharon Brown on April 9, 2014. ECF No. 72-2 at 62, 64-65, 70-72, 74. While a mere passing reference in another witness's deposition testimony to an individual with knowledge does not satisfy a party's disclosure obligations, Ollier, 768 F.3d at 863, here there was more than mere mention of Flo Brown. Mr.

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Hughes, counsel for Lockton, asked Mr. Hawley several questions about Flo Brown including, " Did Flo Brown have authorization from you at HB Development, LLC, to discuss insurance issues with Integrity Underwriters and RWC?" and " Did [Flo Brown] ultimately make the insurance decisions for HB Development . . . ." ECF No. 72-2 at 65.

This case is not like Ollier where the defendants completely failed to timely disclose 38 witnesses and then sought to call them at trial, arguing that the witnesses had been disclosed because they had been mentioned in other witnesses' depositions. Here, Defendants' attorneys demonstrated their knowledge of Flo Brown's role through their deposition questions. In light of their questions, Plaintiffs may have believed that supplemental disclosures about Flo Brown were unnecessary.

Additionally, there was ample time between April 9, 2014, when Defendants deposed Fraser Hawley and Sharon Brown, and the discovery cut-off of October 2, 2014. During that time, Defendants could have deposed Flo Brown or sought additional information about her from Plaintiffs. They also could have sought leave from the Court to conduct limited additional discovery after the discovery cut-off. Yet Defendants failed to pursue any of these avenues.

Finally, there is no evidence that Plaintiffs intentionally concealed this information in bad faith or for the purpose of prejudicing Defendants. Therefore, in light of Defendants' demonstrated knowledge of Flo Brown and their failure to pursue other avenues of expanding this knowledge, the Court declined to strike Flo Brown's declarations, and denied Defendants' motion.


Western argues that Plaintiffs lack standing to bring suit. ECF No. 47 at 7-9. To establish standing to bring a suit, a plaintiff must show three elements: (1) injury in fact, (2) causation, and (3) redressability. See, e.g., Bennett v. Spear, 520 U.S. 154, 167, 117 S.Ct. 1154, 137 L.Ed.2d 281 (1997). Western appears to be attacking the first element, injury in fact, which requires that a plaintiff demonstrate that " he personally has suffered some actual or threatened injury as a result" of the defendant's conduct. Valley Forge ...

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