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Evanston Insurance Co. v. Rells Fire Protection Inc.

United States District Court, E.D. Washington

July 11, 2018

EVANSTON INSURANCE COMPANY, Plaintiff,
v.
RELLS FIRE PROTECTION INC., a Washington corporation; JAC'S MOUNTAIN GROUP LLC; and OREGON MUTUAL INSURANCE COMPANY, a foreign insurer, Defendants.

          ORDER DENYING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT

          SALVADOR MENDOZA, JR. UNITED STATES DISTRICT JUDGE

         Plaintiff Evanston Insurance Company (Evanston) seeks declaratory judgment that it has no duty to defend or indemnify subrogation claims asserted by its insured, Rells Fire Protection, in an underlying state court action. In the underlying action, Jac's Mountain Group (Jac's) and Oregon Mutual Insurance Company allege that Rells negligently and in breach of contract failed to properly inspect fire suppression equipment at a diner owned by Jac's, resulting in a fire that destroyed the diner. Evanston moves for summary judgment that it has no duty to defend the underlying action because the claims fall within the applicable insurance policy's (the policy) breach of contract and professional liability exclusions.

         Evanston further argues that because it has no duty to defend, it necessarily also has no duty to indemnify and summary judgment should be granted in its favor on all claims.

         The underlying breach of contract claim plainly falls within the policy's breach of contract exclusion. But that exclusion cannot bar coverage for claims of negligence. Whether the negligence claim falls within the professional liability exclusion cannot be resolved based on the allegations in the underlying complaint. It is at least conceivable that the underlying negligence claim is covered by the policy. Evanston therefore has a duty to defend. Accordingly, Evanston's motion for partial summary judgment is denied.

         I. BACKGROUND

         A. Factual and procedural background

         As alleged in the underlying action, Defendant Jac's Mountain Group owned a diner in Leavenworth, Washington. ECF No. 28-3 at 3. Jac's property and casualty insurance provider, Oregon Mutual Insurance Company, contracted with Rells Fire Protection (Rells) to inspect the diner's fire suppression and exhaust system. ECF No. 28-3 at 3. Following each service inspection, Jac's “received notice that the restaurant's suppression and exhaust system exhibited no deficiencies.” ECF No. 28-3 at 3.

         In June 2016, a grease fire started at the diner, the fire suppression system failed to stop the fire, and the diner was destroyed. ECF No. 28-3 at 3. An inspection revealed that the restaurant's fire suppression and exhaust system was deficient and prevented the flames from being extinguished. ECF No. 28-3 at 3.

         Oregon Mutual and Jac's filed a lawsuit in state court alleging negligence and breach of contract against Rells. ECF No. 28-3. The amended complaint alleges that “prior to the fire, there were neither reasonable nor adequate measures taken by Rells's Fire in order to notify [Jac's] about the system's deficiencies.” ECF No. 28-3 at 3. With respect to the negligence claim, the amended complaint alleges that “Rells's Fire was negligent in its inspection and diagnosis of the fire suppression and exhaust system because it failed to (1) notify Plaintiff that the system did not conform to applicable code/regulations, and (2) instruct Plaintiff about the need for repairs.” ECF No. 28-3 at 3-4. With respect to breach of contract, the amended complaint alleges that “Rells's Fire entered into a contract with Plaintiff to inspect and service the building's fire suppression and exhaust system for the express purposes of maintaining safety and compliance with state and local requirements.” ECF No. 28-3 at 4. The amended complaint further alleges that “Rells's Fire breached its contract and/or warranties when it failed to properly inspect the fire suppression and exhaust system, identify the deficiencies, notify Plaintiff of the deficiencies, and recommend repairs.” ECF No. 28-3 at 4.

         Rells provided notice of the lawsuit to its commercial general liability insurer, Evanston, which agreed to defend under a reservation of rights. ECF No. 1-3 at 3. Evanston subsequently filed this declaratory judgment action asserting that the claims in the underlying action are not covered because they fall within Rells's policy's (the policy) breach of contract and professional liability exclusions. ECF No. 1 at 3; ECF No. 1-4 at 5-6.

         B. Relevant policy provisions

         Evanston issued an insurance policy to Rells covering the period from November 10, 2015, to November 10, 2016. ECF No. 26-1 at 4. The policy contains three primary areas of coverage: (A) bodily injury and property damage; (B) personal and advertising injury; and (C) medical payments. ECF No. 26-1. The policy contains two specific exclusions to coverages A and B that are relevant here. First, the coverage excludes “[c]laims arising out of breach of contract, whether written or oral, express or implied, implied-in-law, or implied-in-fact contract.” ECF No. 26-1 at 52. Second, the coverage excludes “[p]rofessional liability, errors, omissions, negligent acts, malpractice or acts of any type including rendering or failure to render any type of professional service, unless such coverage is specifically endorsed onto the policy.” ECF No. 26-1 at 53.

         LEGAL STANDARD

         Summary judgment is appropriate if the “movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). When considering a motion for summary judgment, the Court does not weigh the evidence or assess credibility; instead, “the evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor.” Sgt. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). “In short, what is required to defeat summary judgment is simply evidence ‘such that a reasonable juror drawing all inferences in favor of the respondent ...


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