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LLC v. Houston Specialty Insurance Co.

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

February 5, 2018

2FL ENTERPRISES, LLC, Plaintiff,
v.
HOUSTON SPECIALTY INSURANCE COMPANY, Defendant.

          ORDER ON MOTION FOR PARTIAL SUMMARY JUDGMENT

          MARSHA J. PECHMAN, UNITED STATES DISTRICT JUDGE

         The above-entitled Court, having received and reviewed:

1. Plaintiff's Motion for Partial Summary Judgment (Dkt. No. 16);
2. Defendant's Response to Plaintiff's Motion for Partial Summary Judgment (Dkt. No. 19);
3. Plaintiff's Reply in Support of Plaintiff's Motion for Partial Summary Judgment (Dkt. No. 22); all attached declarations and exhibits, and relevant portions of the record, rules as follows:

         IT IS ORDERED that the motion is GRANTED; Plaintiff is granted summary judgment on its claims that Defendant breached its duty to defend and that the breach constituted an act of bad faith on Defendant's part.

         I. Background

         Plaintiff (a construction company) was covered by a series of commercial general liability (“CGL”) policies issued by Houston Specialty Insurance Company (“HSIC”), for periods running from

• August 23, 2011 to August 23, 2012 (“the 2011 policy”)
• August 23, 2012 to August 23, 2013 (“the 2012 policy”)
• August 23, 2015 to August 23, 2016 (“the 2015 policy”)

         On June 27, 2012, Plaintiff entered into a contract with MCS for the improvement of a building called the Williams Court Apartments (“Williams Court”). In July of 2013, MCS contacted Plaintiff regarding some leaks in the building. Although Plaintiff's investigation lead it to believe it was not at fault, it made some repairs and recommended some further measures to address the problem. Afterwards, Plaintiff was informed that the leaks continued.

         In light of the unresolved nature of the problem, Plaintiff tendered a claim to Defendant on March 1, 2016. Defendant delegated investigation of the claim to a third-party administrator, Tri-Star Risk Management (“Tri-Star”), which contacted Plaintiff's counsel on March 3, requesting information and documents. (Davis Decl., Dkt. No. 18-1, Ex. A at 16 of 26.) Plaintiff provided documents and information on March 7. (Id. at 12 of 26.)

         On April 20, 2016, MCS filed suit against 2FL, alleging that “the Williams Court Apartments” had suffered water damage resulting from 2FL's work. (Floren Decl., Dkt. No. 17- 1, Ex. B at 80-85 of 115.) Plaintiff contacted Defendant, which acknowledged tender of the lawsuit (but nothing else) on April 26. (Id., Ex. C at 87 of 115.) For approximately the next five months, Defendant took no position regarding defense or coverage and hired no counsel to defend Plaintiff. (Dkt. No. 17, Floren Decl. at ¶ 15.) Meanwhile, on May 17, 2016, MCS was granted an order of default (Id., Ex. E at 106-108 of 115), an action of which Plaintiff received no notice. (Id. at ¶ 21.)

         On September 23, 2016, Defendant sent a letter to Plaintiff denying all coverage. The letter contained multiple grounds for Defendant's position that no coverage or obligation to defend existed. (Id., Dkt. No. 17-1, Ex. D at 90-105 of 115.)[1] Following the denial of coverage or defense, Plaintiff tendered defense of the underlying lawsuit to another insurer, International Insurance Company of Hannover SE (“Hannover”), which accepted the tender. (Id. at ¶ 18.)

         On March 17, 2017, the court in the underlying litigation granted MCS's motion for default judgment in the amount of $452, 905.51 plus fees and costs. (Id., Ex. F at 109-111 of 115.) Plaintiff received notice of the default judgment via letter from counsel for MCS on March 21, 2017 and notified both Defendant and Hannover. (Id. at ¶ 21.) Hannover assigned an attorney (Justin Bolster of Preg O'Donnell & Gillett) to the case. (Id. at ¶ 22.) Without notice to Plaintiff or Plaintiff's current counsel, Defendant contacted Hannover's lawyer in April of 2017 and offered to join in Plaintiff's defense. (Id. at ¶ 23.)

         In May of 2017, apparently believing that Hannover's counsel would not adequately represent Defendant's interests, Defendant decided to retain its own attorney. (Davis Decl., Dkt. No. 18-1, Ex. A at 4 of 26.) HSIC informed Plaintiff by letter dated May 8, 2017 of that decision. (Id., Ex. B at 20-22 of 26.) Plaintiff responded the following day by rejecting Defendant's offer of defense. (Id., Ex. C at 24-26 of 26.)

         On June, 5, 2017, the default judgment in the underlying litigation was vacated (Floren Decl., Dkt. No. 17-1, Ex. G at 110) and the MCS lawsuit is proceeding with ...


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