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Cedar Grove Composting, Inc. v. Ironshore Specialty Insurance Co.

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

June 2, 2015

CEDAR GROVE COMPOSTING, INCORPORATED, Plaintiff,
v.
IRONSHORE SPECIALTY INSURANCE COMPANY, Defendant.

ORDER

RICHARD A. JONES, District Judge.

I. INTRODUCTION

This matter comes before the court on Defendant's motion to dismiss, Plaintiff's motion to file supplemental briefing, and Plaintiff's motion invoking the "first-to-file rule." Defendant requested oral argument as to its motion to dismiss; no party requested oral argument as to any other motion. The court finds oral argument unnecessary. For the reasons stated below, the court DENIES the motion to dismiss (Dkt. # 11), directs the clerk to TERMINATE the motion for supplemental briefing (Dkt. # 27) because it is moot, and GRANTS Plaintiff's motion invoking the first-to-file rule (Dkt. # 35) by ruling that this suit, not the suit between these parties currently pending in the Southern District of New York, is the first-filed action. No later than June 12, 2015, Plaintiff shall file an amended complaint in accordance with this order. After Defendant has reviewed that amended complaint, and no later than June 25, 2015, the parties shall meet and confer and file a joint statement as to the status of the New York action.

II. DISCUSSION

Plaintiff Cedar Grove Composting Incorporated operates two organic waste composting facilities in Western Washington. It was named as a defendant four times in 2013 in suits claiming various injuries as a result of odors emanating from those facilities. Cedar Grove turned to its insurer, Defendant Ironshore Specialty Insurance Company. It has not been happy with the results. In its complaint, it contends that Ironshore defended it only after reserving its right to deny coverage on an improper basis, that Ironshore forced it to expend hundreds of thousands of dollars to fund its own defense, and that Ironshore improperly interfered in the defense of the lawsuits.

Because the court considers Cedar Grove's allegations of wrongdoing on Ironshore's motion to dismiss, it must accept the allegations of Cedar Grove's complaint as true and ignore evidence or assertions to the contrary. That mandate is fatal to Ironshore's motion to dismiss, a conclusion that the court will explain in more detail later in this order. For now, the court summarily rules that Cedar Grove's complaint is adequate to state claims against Ironshore for breach of an insurance policy it issued to Cedar Grove, and for bad faith and a variety of other extra-contractual causes of action, including violations of Washington's Consumer Protection Act ("CPA") and Insurance Fair Conduct Act ("IFCA").

A. The First-to-File Rule Applies Here; This Lawsuit, Not the Suit Ironshore Filed in New York, is the First-Filed Action.

Less remarkable than Ironshore's motion to dismiss is the parties' litigation conduct since Ironshore filed that motion. One of Ironshore's principal assertions in that motion was that there was no live controversy over the policy Cedar Grove identified in the complaint because Ironshore had made payments exhausting that policy's $2 million limit. Among Cedar Grove's responses to the motion to dismiss was that the $2 million limit applied only to the primary insurance policy, and that an excess insurance policy from Ironshore provided up to $10 million in additional coverage.

Ironshore, although it was unquestionably aware of the excess policy it had issued, did not mention that policy in its motion to dismiss. In its reply brief, it explained that it believed it had no obligation to mention the excess policy because Cedar Grove had not identified that policy in its complaint. Moreover, Ironshore announced in that reply brief that it had filed a separate lawsuit regarding its obligations under the excess policy.

Ironshore filed its new lawsuit in the Supreme Court of New York on January 9, 2015, after it filed its motion to dismiss here, but before Cedar Grove opposed it. Cedar Grove has since removed that suit to the United States District Court for the Southern District of New York.

The New York action overlaps substantially with this one. That is no surprise, because the Ironshore excess policy defines its coverage largely by reference to the Ironshore primary policy. The New York complaint requests that the court declare that five clauses from the primary policy operate to bar or exclude coverage under the excess policy. That too, is no surprise, because Ironshore has taken the position, at least since its February 2013 reservation of rights letter, that it may deny coverage under both the excess and primary policies because of coverage definitions and exclusions contained solely in the primary policy.

Cedar Grove did not know that Ironshore had filed the New York action until after it opposed the motion to dismiss. It then filed a motion to supplement its briefing on the motion to dismiss to address the New York action. It then mooted that motion by filing a motion requesting that the court apply the "first-to-file rule" and deem this action, not the New York action, to be the first-filed suit for purposes of that rule.

The court is at a loss to understand the choices that have put the parties in this situation: a suit pending here regarding the primary policy and a suit pending in New York regarding the excess policy. Those choices began with Cedar Grove's decision to exclude the excess policy from the complaint in this action. That exclusion appears deliberate. Cedar Grove named only the primary policy, did not assert the existence of the excess policy, and left no outsider with any basis to conclude that there was more than one policy in controversy. Cedar Grove says that its complaint "did not specifically refer to the secondary layer of coverage provided by Ironshore because it was not clear whether Ironshore had or would pay monies sufficient to exhaust the primary layer at the time Cedar Grove filed the complaint on August 20, 2014." Pltf.'s Opp'n (Dkt. # 20) at 10 n.5. That explanation is unpersuasive. In a letter sent, perhaps coincidentally, on the same day that Cedar Grove sued, Ironshore agreed to make payments bringing its total expenditures on Cedar Grove's defense to more than $2.6 million. Duluc Decl. (Dkt. # 25), Ex. B. Even if Cedar Grove was unaware of that agreement before suing, it certainly knew that it was asking for reimbursements that exceeded the limits of the primary policy. In other words, it knew that the excess policy was at least potentially at issue, and said nothing at all about it in its complaint.

Ironshore's conduct is no easier to understand. Like Cedar Grove, it knew that the excess policy was at issue, and yet filed a motion to dismiss in which it claimed that the dispute between the parties was moot because it had exhausted the limits of the primary policy. It did so without mentioning the excess policy or Ironshore's plan to sue over that policy in New York. When Cedar Grove received the motion to dismiss, it had 21 days in which it could have amended its complaint, without seeking leave of court, to add claims involving the excess policy. Fed.R.Civ.P. 15(a)(1)(B). But it did not, instead informing the court in opposition to the motion to dismiss that it was "more than willing to amend its Complaint" to "the extent that the Court deems it prudent...." Pltf.'s Opp'n (Dkt. # 20) at 10 n.5. Why did Cedar Grove itself not deem an amendment ...


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