Travelers Property Casualty Co. of America v. Northwest Pipe Co.

          ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT'S MOTION TO BIFURCATE

          BENJAMIN H. SETTLE UNITED STATES DISTRICT JUDGE.

         This matter comes before the Court on the motion to bifurcate of Defendant Norwest Pipe Company (“NPC”). Dkt. 52. Plaintiffs Travelers Property Casualty Company of America (“Travelers”) and The Phoenix Insurance Company (“Phoenix”) (collectively “Plaintiffs”) oppose the motion. Dkt. 57. The Court has considered the pleadings filed in support of and in opposition to the motion and the remainder of the file and hereby grants the motion in part and denies it in part for the reasons stated below.

         I. FACTUAL BACKGROUND AND PROCEDURAL HISTORY

         On August 7, 2015, Defendant Greater Vancouver Water District (“Water District”) commenced an action against NPC in the Supreme Court of British Columbia. Dkt. 18-12. In that action, the Water District alleges that it suffered damages in the construction of a large water pipeline, referred to as the “Twin Tunnels” project, arising from the alleged failure of circumferential welds that were being used to attach grout plugs to a large steel pipe liner. Id. Both the grout plugs and steel liner were manufactured and supplied to the Water District by NPC. Id. at 5.

         On August 5, 2016, NPC tendered a claim to Plaintiffs based on this underlying lawsuit. Dkt. 18-13 at 1. On August 9, 2016, Plaintiffs acknowledged NPC's claim. Id.

         On October 26, 2016, Plaintiffs assumed the defense of NPC under a reservation of rights, including the right “to withdraw from the defense of NPC in regard to the Underlying Lawsuit.” Dkt. 18-15. Plaintiffs' reservation of rights letter highlighted potential coverage issues based on the theory that the damage alleged in the underlying litigation may not constitute “property damage” as covered by the policy. Dkt. 18-15 at 8. Additionally, Plaintiffs' reservation of rights letter stated that coverage may be precluded by any of several exclusions, including: (1) the “Your Product” exclusion, (2) the “Impaired Property” exclusion, and (3) the “Recall” exclusion. See Dkt. 18-15 at 8-16.

         On February 8, 2017, Plaintiffs filed their complaint in this case. Dkt. 1. Plaintiffs seek a declaratory judgment that they owe no duty to defend or indemnify in the underlying dispute between NPC and the Water District. Id. at 21.

         On March 30, 2017, NPC moved for partial summary judgment on whether Plaintiffs have a duty to defend NPC in the underlying lawsuit. Dkt. 14. On April 13, 2017, Plaintiffs moved for summary judgment. Dkt. 17. On April 20, 2017, NPC also moved for a partial stay of this case and the summary judgment proceedings on the issue of whether Plaintiffs have a duty to indemnify NPC for the damages alleged in the underlying litigation. Dkt. 21.

         On May 4, 2017, NPC filed a motion for leave to amend its answer to the complaint and to assert extra-contractual counterclaims for bad faith and violations of the Washington Consumer Protection Act. Dkt. 26.

         On June 22, 2017, the Court entered an order denying NPC's motion to stay the issue of indemnity. Dkt. 38. In reaching its decision to deny the requested stay, the Court stated:

[W]hile the duty to defend is distinctly broader than the duty to indemnify, both are derivative of the same underlying concept: coverage under the applicable policy. “When the facts or the law affecting coverage is disputed, the insurer may defend under a reservation of rights until coverage is settled in a declaratory action.” Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 405 (2010), as corrected on denial of reconsideration (June 28, 2010) (emphasis added). Because this is just such a declaratory action, the issue before the Court is whether coverage exists under the applicable policy for the various claims in the underlying litigation. This issue is dispositive of both the duty to defend and the duty to indemnify.

Indeed, the fact that the duty to defend is implicated by the timing of this lawsuit is important to the Court's analysis, as it refines the lens through which the Court may view the issue of coverage. For instance, because the underlying litigation is unresolved, the duty to defend is ongoing and the Court's review must generally be limited to “look[ing] at the ‘eight corners' of the insurance contract and the underlying complaint.” Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. Coinstar, Inc., 39 F.Supp.3d 1149, 1156 (W.D. Wash. 2014). Nonetheless, the distinction between the duties to defend or indemnify is not so profound, by itself, to justify staying the Court's analysis of one duty while addressing the other. Contrary to the Defendants' assertions, analysis of whether the allegations in the underlying lawsuit implicate covered property damage will not prejudice them in any way. Accordingly, the motion to stay is denied.

Id. at 8.

         On July 20, 2017, the Court entered an order granting in part and denying in part the parties' motions for summary judgment and granting NPC's motion for leave to amend. ...