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Arch Insurance Co. v. Safeco Insurance Company of America

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

July 16, 2019

ARCH INSURANCE CO., a Missouri corporation, Plaintiff,
v.
SAFECO INSURANCE COMPANY OF AMERICA, a New Hampshire corporation, et al., Defendants.

          ORDER

          JOHN C. COUGHENOUR UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendant Mutual of Enumclaw Insurance Co.'s (“MOE”) motion for partial summary judgment (Dkt. No. 21), Defendant Country Mutual Insurance Company's (“Country”) joinder and motion for partial summary judgment (Dkt. No. 24), and Defendant Safeco Insurance Company of America's (“Safeco”) motion for partial summary judgment (Dkt. No. 28). Having thoroughly considered the parties' briefing and the relevant record, the Court finds oral argument unnecessary and hereby GRANTS in part and DENIES in part the motions for the reasons explained herein.

         I. BACKGROUND

         A. Plaintiff's Policies

         Lummi Island Scenic Estates Community Club (“LISECC”) is a residential community with approximately 400 dues-paying lots, which share a water supply system and community marina. (Dkt. No. 35 at 2-3.) LISECC's bylaws provide that members of its board of directors (the “LISECC board”) “shall not be individually liable except for a Director's own bad faith, dishonesty, or fraud.” (Dkt. No. 23 at 13.)

         Plaintiff Arch Insurance Company issued four successive Water District Insurance Program Policies (collectively, “Plaintiff's policies”) to LISECC. (Dkt. No. 35 at 2; see Dkt. Nos. 37-1-37-4.) Plaintiff's policies were in effect from May 16, 2011 to May 16, 2015. (See Dkt. Nos. 37 at 2, 37-1-37-4.) Plaintiff's policies' definition of “insured” included LISECC as the named insured and “All persons who were, now are or shall be elected, appointed or employed as members of your board, commission or agency while acting within the scope of their duties.” (See Dkt. Nos. 37-1 at 13, 37-2 at 14.)

         Plaintiff's policies obligated Plaintiff to “pay on behalf of the Insured those sums that the Insured becomes legally obligated to pay as damages because of ‘bodily injury', ‘property damage', ‘personal injury', ‘advertising injury', ‘professional liability', ‘wrongful acts' or ‘acts, errors or omissions' to which” Plaintiff's policies applied. (See Dkt. Nos. 37-1 at 10, 37-2 at 11.)[1] “Wrongful Act” was broadly defined, and included any actual or alleged error, omission, misstatement, misleading statement, neglect or breach of duty by any Insured in the discharge of his/her duties for [LISECC].” (Dkt. Nos. 37-1 at 20, 37-2 at 21.) The definition excluded “willful commission of a crime or other dishonest, fraudulent, or malicious act[s], ” wrongful financial gain, or erroneous preparation or approval of “maps, plans, reports, surveys, designs, bid documents, or specifications . . . .” (Id.) LISECC paid $8, 967.00 in premiums for Plaintiff's policy covering May 16, 2014 to May 16, 2015. (See Dkt. No. 23 at 95.)

         B. MOE's Policy

         MOE issued personal lines homeowners policies to J. Timothy Slater and Kiersten Slater (collectively, the “Slaters”) from 2002 to 2013. (Dkt. No. 21 at 6.) The policy covering the period of April 25, 2012 to April 25, 2013 (the “MOE policy”) applied to the Slaters and certain residents of their household. (Dkt. No. 22 at 9.) The MOE policy's personal liability section covered “bodily injury” and “property damage” caused by a qualifying “occurrence, ” and obligated MOE to defend and indemnify the Slaters (Id. at 23.)[2] The Slaters' total premium for the MOE policy was $856.62. (Dkt. No. 22 at 5.)

         C. Country's Policies

         Beginning on March 15, 2013, Country issued successive 12-month homeowners insurance (the “Country homeowner policy”) and personal umbrella liability insurance (the “Country umbrella policy”) policies (collectively, the “Country policies”) to the Slaters. (Dkt. Nos. 25 at 1-2, 25-1, 25-2.) The Country homeowner policy covered “bodily injury” or “property damage” resulting from a qualifying “occurrence, ” and obligated Country to defend and indemnify the Slaters. (Dkt. No. 25-1 at 19.)[3] The Country umbrella policy granted Country the right to join an insured and an underlying insurer in defending a claim or suit that could involve Country, and obligated Country to “assume control of the defense or settlement . . .[w]hen underlying insurance is exhausted for an occurrence; and . . . [n]o other excess insurance applies to the claim or suit.” (Dkt. No. 25-2 at 11-12) (alteration omitted).[4] The Slaters' total premium for the Country homeowner policy commencing in March 2015 was $591.14, and their total premium for the Country umbrella policy commencing in March 2015 was $505. (Dkt. Nos. 25-1 at 2, 25-2 at 2.)

         D. Safeco Policy

         Beginning on October 1, 2012, Safeco issued annual individual homeowners policies to Bridged Lott. (Dkt. No. 29-3 at 2.) Under the policy issued by Safeco commencing on October 1, 2014 (the “Safeco policy”), the personal liability section obligated Safeco to defend or indemnify Ms. Lott for “bodily injury” or “property damage” arising out of a qualifying occurrence. (Dkt. No. 29-5 at 26) (alterations omitted).[5] The Safeco policy applied to Ms. Lott and qualifying residents of the residence premises. (Id. at 36.) Ms. Lott's total premium for the Safeco policy was $1, 536. (Id. at 8.)

         E. The Underlying Litigation

         In December 2014, a group of LISECC homeowners sued LISECC and various past and present members of the LISECC board, including Ms. Lott and Mr. Slater (the “underlying litigation”). See Ortego v. LISECC, No. C14-1840-RSL, Dkt. Nos. 1, 13 (W.D. Wash. 2014). The complaint primarily alleged that LISECC and the LISECC board improperly collected dues and misused collected dues to subsidize LISECC's water supply, which only benefitted a minority of LISECC's lot owners. See generally Ortego, No. C14-1840-RSL, Dkt. No. 13. The complaint brought claims under the federal Racketeer Influenced and Corrupt Organization Act, 18 U.S.C. §§ 1961 et seq.; the Washington Consumer Protection Act, Wash. Rev. Code §§ 19.86 et seq.; and state law claims of breach of fiduciary duties, negligence, intentional infliction of emotional distress, and unjust enrichment. See id. at 51-66. The complaint sought dissolution of LISECC and various forms of damages. Id. at 66.[6]

         In February 2015, Plaintiff agreed to defend LISECC and the directors named as defendants in the underlying litigation pursuant to Plaintiff's policies. (See Dkt. No. 38-1 at 2.) Plaintiff reserved its right to limit or deny coverage for the underlying litigation. (Id.) Ms. Lott and Mr. Slater were named as individual defendants. See Ortego, No. C14-1840-RSL, Dkt. No. 1 at 1. Plaintiff ultimately ...


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