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Evanston Insurance Co. v. Certain Underwriters at Lloyd's, London

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

May 4, 2017

EVANSTON INSURANCE COMPANY, Plaintiff,
v.
CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, Defendant.

          ORDER GRANTING MOTION TO STAY

          JAMES L. ROBART United States District Judge

         I. INTRODUCTION

         Before the court is Defendant Certain Underwriters at Lloyd's, London's (“Underwriters”) motion to stay the current proceedings pending the resolution of an underlying state court action involving the parties' insureds. (Mot. (Dkt. # 26).) The court has considered Underwriters' motion, Plaintiff Evanston Insurance Company's (“Evanston”) opposition to the motion (Resp. (Dkt. # 30)), Underwriters' reply (Reply (Dkt. # 34)), the relevant portions of the record, and the applicable law. Being fully advised, [1] the court GRANTS Underwriters' motion to stay for the reasons discussed below.

         II.BACKGROUND[2]

         Evanston brings the present action to recover from Underwriters a portion of the costs Evanston allegedly incurred between January 1, 2014, and January 21, 2016, to defend a mutual insured and several of Underwriters' insureds in Washington State. (See Compl. (Dkt. # 1) ¶¶ 63-84.) From October 26, 2011, to April 1, 2013, Evanston and Underwriters both insured Scott Clarke, who allegedly owns, operates, and controls a group of companies collectively referred to as the “Clarke Group.” (Id. ¶¶ 4, 12-14, 24-25, 27-28.) In addition to insuring Mr. Clarke, Evanston also insured Clartre, Inc. (“Clartre”). (Id. ¶ 3.) Underwriters insured the following Clarke Group entities: Blue Mountain Log Sales, Ltd. (“Blue Mountain”), Green River Log Sales Ltd. (“Green River”), The Clarke Group Shake Division, Inc. (“Shake Division”), and Gold Band Shake and Shingle Ltd. (“Gold Band”). (Gilkes Decl. (Dkt. # 10) ¶ 5, Ex. A at 113, 116, 131, 134, 183.)

         In 2013, Mr. Clarke, Clartre, and Blue Mountain were named as defendants in separate Washington State Superior Court and federal district court actions. (Compl. ¶ 30-41.) In 2014, the various actions were consolidated into a single proceeding in Whatcom County Superior Court (the “underlying action”). (Scheer Decl. (Dkt. # 9) ¶ 5.) In April 2015, Gold Band and Shake Division were added as defendants in the underlying action. (Compl. ¶ 42.) Green River was also a defendant in the underlying action. (Id. ¶ 44.)

         Evanston agreed to defend its insureds, Mr. Clarke and Clartre, beginning January 1, 2014. (Id. ¶ 58.) However, Evanston reserved the right to withdraw its defense if a court determined that Mr. Clarke's and Clartre's insurance policies did not cover the claims brought against Mr. Clarke and Clartre. (Id. ¶¶ 48-49, 56-57.) Evanston then filed a declaratory judgment action against its insureds in federal district court for the Western District of Washington. See Evanston Ins. Co. v. Clartre, Inc., 158 F.Supp.3d 1110 (W.D. Wash. 2016). On January 21, 2016, the court held that Evanston had no duty to defend the underlying action. Id. at 1123.

         Mr. Clarke and Blue Mountain also tendered their defense of the underlying actions to Underwriters. (Gilkes Decl. ¶ 5, Ex. A at 203-16.) Underwriters responded to Mr. Clarke and Blue Mountain with a reservation of rights letter dated June 12, 2014. (Scheer Decl. ¶ 6, Ex. 1.) In that letter, Underwriters acknowledges, subject to a reservation of rights, its duty to defend Mr. Clarke and Blue Mountain with respect to three of eight counterclaims brought against those insureds in Washington State.[3] (Id. at 3.) Underwriters found the five remaining counterclaims outside the policies' scope of coverage. (Id. at 3, 9-11.) After learning of this tender, Evanston requested that Underwriters contribute to the defense costs it was incurring. (Mintzer Decl. (Dkt. # 13) ¶ 5.) Underwriters initially declined to contribute, claiming it did not insure the same risk as Evanston. (Id. ¶¶ 6, 8, Exs. A-C.) When the district court found Evanston did not have a duty to defend, however, Underwriters began paying the defense costs of the underlying action. (Answer (Dkt. # 24) ¶¶ 55 (“Underwriters' defense cost incepted concurrent upon Evanston being relieved of its obligation to defend.”), 72 (same), 82 (same)). Underwriters is currently defending the insureds under a reservation of rights. (Bergh Decl. (Dkt. # 27) ¶ 2.)

         Evanston alleges that a single law firm defended Mr. Clarke, Clartre, Blue Mountain, and other Clarke Group entities in the underlying action. (Compl. ¶ 58.) Evanston states that “because the Clarke Group was jointly defended” in the underlying action, the “defense costs attributable to Mr. [Clarke] and Clartre could not be segregated.” (Mintzer Decl. ¶ 4.) Thus, Evanston alleges that it funded the defense costs for all of its and Underwriters' insureds from January 2014 until January 2016. (Compl. ¶ 58.) Evanston, therefore, asserts three claims. First, Evanston seeks equitable contribution from Underwriters for portions of the expenses it allegedly incurred to defend Mr. Clarke, Blue Mountain, and other Underwriters-insured entities that were added as defendants in the underlying actions after Evanston had begun covering the defense expenses of Mr. Clarke and Clartre. (Id. ¶¶ 63-84.) Second, Evanston requests a finding that Underwriters has been unjustly enriched by its refusal to contribute to the defense of Mr. Clarke, Blue Mountain, and their other insureds. (Id. ¶¶ 74-78.) Third, Evanston seeks a declaration that Underwriters owes Evanston an equitable share of the costs Evanston allegedly incurred to defend their mutual and non-mutual insureds in the underlying actions. (Id. ¶¶ 79-84.)

         A discovery dispute is also relevant to the stay motion. Following a discussion between Evanston and Underwriters regarding an exchange of documents in the current proceeding, Evanston advised the Clarke Group, through counsel, of Evanston's intent to provide claim documents to Underwriters. (Landreth Decl. (Dkt. # 31) ¶ 4.) In response, Mr. Clarke sent a letter to the court and counsel, objecting to the production of documents in Evanston's possession from the Clarke Group's defense counsel. (Clarke Letter (Dkt. # 25).) In the letter, Mr. Clarke expressed concern about providing confidential information to Underwriters, which is “defending [him] with reservations and limitations.” (Id. at 1.) Additionally, Mr. Clarke feared that opposing counsel in the underlying action might receive such confidential material, stating that it “may be damaging to [his] defense in that case.” (Id. at 2.) Based on this letter, “Evanston has not produced to Underwriters documents detailing the defense of the Clarke Group in the underlying litigation.” (Landreth Decl. ¶ 6.)

         Underwriters requests that the court stay these proceedings pending the outcome of the underlying lawsuit against the insureds. (See generally Mot.) Underwriters argues that it will face hardship moving forward without the documents from the Clarke defense and that production of those documents would prejudice their insureds. (Id. at 7.) In its opposition, Evanston proposes that the court allow the parties to litigate Evanston's third claim for a declaratory judgment of a right to contribution, and then, if needed, stay the proceedings on the other two claims. (Resp. at 5.) Evanston argues that the declaratory judgment claim could be resolved without the documents from the Clarke defense because it is a legal question as to whether Underwriters had a legal obligation to defend. (Id.) The court now addresses Underwriters' motion.

         III. ANALYSIS

         A. The Court's Authority to Issue a Stay

         “[T]he power to stay proceedings is incidental to the power inherent in every court to control disposition of the cases on its docket with economy of time and effort for itself, for counsel, and for litigants.” Landis v. N. Am. Co., 299 U.S. 248, 254 (1936). “The exertion of this power calls for the exercise of sound discretion.” CMAX, Inc. v. Hall, 300 F.2d 265, 268 (9th Cir. 1962); see Clinton v. Jones, 520 U.S. 681, 706 (1997) (“The District Court has broad discretion to stay proceedings as an incident to its power to control its own docket.”); Lockyer v. Mirant Corp., 398 F.3d 1098, 1109 (9th Cir. 2005) (citing Landis, 299 U.S. at 255, for the same proposition). “A trial court may, with propriety, find it is efficient for its own docket and the fairest course for the parties to enter a stay of an action before it, pending resolution of independent proceedings which bear upon the ...


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