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Western National Assurance Company v. Burns Towing, Inc.

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

June 20, 2019

WESTERN NATIONAL ASSURANCE COMPANY and PIONEER SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
BURNS TOWING, INC., a Washington corporation; and KRISTINE A. ZACHARY, an individual, Defendant.

          ORDER GRANTING PLAINTIFFS' MOTION FOR SUMMARY JUDGMENT DKT. #21

          RONALD B. LEIGHTON, UNITED STATES DISTRICT JUDGE

         INTRODUCTION

         THIS MATTER is before the Court on Plaintiffs Western National Assurance Company and Pioneer Specialty Insurance Company's (collectively “The Insurers”) Motion for Summary Judgment. Dkt. #21. The Insurers issued commercial package policies effective from May 1, 2017, to May 1, 2019, to Defendants Burns Towing, Inc., and Kristine A. Zachary (collectively “Burns”). The Insurers now seek a declaratory judgment that they have no duty to defend or indemnify Burns with respect to a lawsuit filed by the Attorney General for the State of Washington. The State's complaint alleges that Burns unlawfully sold impounded vehicles belonging to active duty servicemembers and failed to use proper procedures to ascertain whether a vehicle belongs to a servicemember.

         For the following reasons, the Insurers' Motion is GRANTED.

         BACKGROUND

         1. The Underlying Lawsuit

         Burns is a Tacoma-based corporation that operates a large fleet of tow trucks. Burns has contractual arrangements with private property owners and the Tacoma Police Department to tow and impound unauthorized motor vehicles. Once Burns has taken custody of a vehicle and it is deemed abandoned, it sends a written notice to the owner on record at the Depart of Licensing. If an additional 15 days pass without a response, Burns sells the vehicle at public auction and applies any proceeds to outstanding fees.

         On September 11, 2018, the State brought a lawsuit against Burns under the Washington State Service Members' Civil Relief Act (WSCRA), RCW 38.42. In contrast to the procedures for selling an abandoned vehicle belonging to a civilian, WSCRA and its federal analog, 50 U.S.C. § 3958, require that a towing company obtain a court order before selling a vehicle belonging to an active duty servicemember. Burns failed to do this when it sold the vehicle of Petty Officer Second Class Alex Vaughn while he was deployed at sea and may have sold other vehicles belonging to servicemembers in this manner as well.

         The State's complaint also alleges a cause of action under Washington's Consumer Protection Act, RCW 19.86. This claim concerns Burns' failure to use either the Department of Defense database or a private service to check whether the registered owners of impounded vehicles are on military status. This practice, according to the complaint, creates a risk that every time Burns sells a vehicle the owner may be an active duty servicemember.

         2. The Policies

         The Insurers issued four types of policies to Burns: a Commercial General Liability (CGL) policy, a Garagekeepers endorsement, a Business Auto policy, and a Motor Truck Cargo Legal Liability policy. Western issued these policies effective from May 1, 2017, to May 1, 2018, and Pioneer issued identical policies effective from May 1, 2018, to May 1, 2019.[1]

         The CGL policy covers “bodily injury” and “property damage” resulting from an “occurrence, ” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Dkt. #22, Ex. B, at 9, 15. The definition of “property damage” includes “[l]oss of use of tangible property that is not physically injured.” Id. at 15. The CGL policy excludes injury that was “expected or intended from the standpoint of the insured, ” property damage to “personal property in the care, custody or control of the insured, ” and “punitive or exemplary damages.” Id. at 10, 12, & 17. However, the Insurers are still required to provide a defense if the policyholder is alleged to be liable for both punitive and compensatory damages. Id. at 17.

         The Garagekeepers endorsement provides coverage for “all sums the insured legally must pay as damages for loss to a customer's auto or customer's auto equipment left in the insured's care while the insured is attending, servicing, repairing, parking or storing it in [their] garage operations.” Id. at 27 (internal quotations omitted). “Loss” means “direct and accidental loss or damage and includes any resulting loss of use.” Id. at 29. “Garage operations” is defined in part as “the ownership, maintenance or use of locations for the purpose of a business of selling, servicing, repairing, parking or storing customer's autos . . . .” Id. (internal quotations omitted). The policy includes an exclusion for “theft, ” which is defined as “loss due to theft or conversion caused in any way by you, your employees or by your stockholders.” Id. at 28.

         The Business Auto policy provides coverage for “all sums an insured legally must pay as damages because of bodily injury or property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto. Id. at 21 (internal quotations omitted). Finally, the Motor Truck Cargo Legal Liability policy covers “legal liability for loss to covered property while under [the insured's] care, custody, and control and that [the insured] become[s] legally obligated to pay as a common or contract carrier under a bill of lading, contract ...


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