United States District Court, W.D. Washington, Seattle
ORDER ON PLAINTIFF AND DEFENDANTS' CROSS-MOTIONS
FOR SUMMARY JUDGMENT
S. LASNIK, UNITED STATES DISTRICT JUDGE
matter comes before the Court on cross-motions for summary
judgment filed simultaneously by plaintiff Susan Peder, Dkt.
#24, and defendants Scottsdale Indemnity Company
(“Scottsdale”) and Freedom Specialty Insurance
Company (“Freedom Specialty”). Dkt. #26. For the
reasons that follow, the Court grants plaintiffs
cross-motion, and denies defendants' cross-motion.
Alex Peder's Employment with X10
ex-husband, Alex Peder (“Peder”), was hired in
August 1996 to work with X10 USA, Inc. (“X10
USA”). Ex. A, Dkt. #28-1 (Peder Dep.) at 24:11-18. X10
USA was wholly owned by X10 Limited, and George Stevenson was
the head of X10 Limited. Id. at 26:22-25. Peder
reported to Stevenson. Id at 24:19-20. Eventually,
Peder was made the president of X10 Wireless Technology, Inc.
(“X10”), a new company formed to develop their
internet sales business. Id at 27:9-28:2. Stevenson
was also the chairman of X10. Id at 28:20. Plaintiff
alleges that, in 2008, Stevenson expressed dissatisfaction
with the company's direction and a desire to make major
changes, including possibly terminating senior executives.
Ex. G, Dkt. #28-2 at ¶ 13. However, Stevenson did not
want Peder to leave X10 until a decision had been made
regarding these changes. Id. at ¶ 14. To induce
him to stay, Stevenson offered Peder a severance package of
one year's salary and benefits if he remained with X10
until the end of the year, or until X10 made certain
decisions regarding its senior executives. Ex. A, Dkt. #28-1
at 83:22-84:6; see Ex. A, Dkt. #27 at ¶¶
stayed with X10 and received his last paycheck on December
24, 2008. Ex. A, Dkt. #27 at ¶ 16. It was company policy
to pay a departing employee the cash equivalent of the
vacation time that they had accrued at the time of their
final paycheck. Ex. B, Dkt. #28-1 at ¶ 8. Peder had by
that time accrued 559.88 hours of unused vacation time, and
his hourly rate of pay was $158.65 per hour accrued. However,
his final paycheck from X10 did not include his severance pay
or his cashed-out vacation time. Ex. C, Dkt. #28-1 (Mayer
Dep.) at 42:13-20; Ex. E, Dkt. #28-2 (Schott Dep.) at
49:19-50:12, 106:9-23; see Ex. A, Dkt. #27 at
¶¶ 17-19. Peder also continued to act as X10's
president and director between January 2009 and June 2010. He
was not paid a salary during that time. Ex. A, Dkt. #28-1 at
113:3-6, 114:18-116:11. He expected to be compensated for his
services, but he was not. Id. at 112:9-114:6;
see Ex. A, Dkt. #27 at ¶¶ 20-21.
Plaintiffs Action before the King County Superior
rights and claims were assigned to plaintiff as part of their
divorce. Plaintiff accordingly filed a lawsuit against X10
and others. Ex. G, Dkt. #28-2; see Peder v. X10 USA, Inc.
et al., No. 11-2-44104-1-KNT (King County Sup. Ct.)
(“the Underlying Action”). She brought four
claims: failure to pay wages under RCW 49.48 et seq.
and RCW 49.52 et seq., id. at ¶¶ 22-24,
breach of an oral contract to pay severance, id. at
¶¶ 25-27, quantum meruit or unjust enrichment,
id at ¶¶ 28-30, and promissory estoppel,
as an alternative to the breach of oral contract claim,
id at ¶¶ 31-33. She requested payment for
all wages due, double damages for all wages owed under
Washington law, attorney's fees and costs, see
RCW 49.48.030; RCW 49.52.070, and prejudgment and post
judgment interest. Ex. G, Dkt. #28-2 at 27.
time, X10 was insured under Business and Management Indemnity
Policy Number EK13036412 issued by Scottsdale (“the
Policy”). Ex. H, Dkt. #28-2 at 28-89. X10 tendered the
Underlying Action to Scottsdale. In a letter dated January
18, 2012, Freedom Specialty, acting on behalf of Scottsdale,
see Dkt. #26 at 1, agreed to defend Scottsdale under
a reservation of rights. Ex. I, Dkt. #28-3 at 3. Plaintiffs
Underlying Action was characterized as an “Employment
Practices Claim based on [an] alleged Employment Practices
Wrongful Act against an insured… brought on behalf of
a former Employee within the meaning of the Policy.”
Id. The letter specified that plaintiffs actions for
quantum meruit and promissory estoppel did not constitute
“Employment Practices Wrongful Acts” within the
meaning of the Policy. Id. at 5. It also stated that
damages sought by plaintiff for amounts owed under an
employment contract or wages were excluded from the
definition of “Loss” under the Policy.
Id. at 6. Scottsdale reserved the right to deny
coverage for “such amounts that do not constitute Loss,
pursuant to Section 8.10 of the Employment Practices Coverage
Section of the Policy.” Id.
December 4, 2012, in response to a Request for Statement of
Damages from counsel for the defendants in the Underlying
Action, plaintiffs counsel indicated that plaintiff was
seeking damages of $88, 824 for cashed-out vacation time,
$310, 000 for severance, $117, 401 for unjust enrichment,
$516, 225 for double damages, and attorney's fees/costs
and prejudgment interest in an amount to be determined. She
also expressed plaintiffs interest in mediating. Ex. J, Dkt.
#28-3 at 10. The first attempt at mediation on March 22, 2013
failed. On April 10, 2013, Scottsdale sent X10's counsel
another letter reiterating that there was “no coverage
for  Peder's unpaid wages or vacation pay, or any
severance promised by [X10], ” because Scottdale's
Policy provided no coverage for “wages.” Ex. K,
Dkt. #28-3 at 14. The second attempt at mediation took place
on June 27, 2013. Ex. L, Dkt. #28-3 at 22. The parties
arrived at “a settlement agreement subject to funding
in the amount of $550, 000.” Id The agreement
was conditioned upon Scottsdale providing a written
commitment to fund the entire $550, 000 settlement by July
22, 2013 and delivering payment by August 23, 2013.
Id at 24. Counsel for defendants in the Underlying
Action communicated this settlement to Scottsdale on July 1,
2013 and expressed their hope that Scottsdale would fund the
settlement. Id at 22-23. They also expressed their
belief that an adverse judgment “[would] likely drive
X10 into bankruptcy and out of business.” Id.
at 23. In a letter dated July 22, 2013, Scottsdale reaffirmed
its position that “the definition of ‘Loss'
in its [P]olicy excluded both ‘amounts owed under any
employment contract' and ‘any amount owed as
wages.'” Ex. M, Dkt. #28-3 at 31. It expressed a
willingness to contribute to a reasonable settlement of the
“covered aspects” of the Underlying Action and
offered $150, 000 towards the settlement. Id. at 32.
August 2, 2013, shortly after the deadline for funding the
$550, 000 settlement had passed, X10 filed a Chapter 7
bankruptcy petition. Ex. N, Dkt. #28-5 at 2-62. On August 31,
2015, plaintiff and the Chapter 7 Bankruptcy Estate of X10
(“the Estate”) entered into a “Settlement,
Assignment of Claims, and Release Agreement.” Ex. P,
Dkt. #28-6 at 14-22. The Estate stipulated to entry of a
$550, 000 judgment against it and assigned to plaintiff all
of X10's rights and claims against Scottsdale.
Id. at 17. The Bankruptcy Court approved the
settlement on February 4, 2016. Ex. W, Dkt. #28-7 at 15-16.
On April 5, 2017, the King County Superior Court entered an
order finding the settlement reasonable. Ex. X, Dkt. #28-7 at
18-19; see Ex. Y, Dkt. #28-7 at 22-24. Plaintiff
demanded that Scottsdale pay the settlement amount in a
letter dated July 28, 2017. Ex. Z, Dkt. #28-7 at 26-27. In
its response on August 21, 2017, Scottsdale refused,
reiterating that plaintiffs demands for cashed-out vacation
time, severance pay, and wages earned by Peder for work
performed following his termination by X10 were excluded from
coverage under the Policy by “one or more carve-outs in
the definition of Loss for wages, amounts owed under
contract, and insurable relief (i.e., restitution).”
Ex. Q, Dkt. #28-6 at 24.
filed a complaint against Scottsdale and Freedom Specialty in
the King County Superior Court on November 14, 2017. Dkt.
#1-2 at 1-12. She brought claims for declaratory judgment,
id at ¶¶ 40-45, breach of contract,
id ¶¶ 46-48, insurance bad faith,
id at ¶¶ 49-54, violations of
Washington's Insurance Fair Conduct Act
(“IFCA”), id at ¶¶ 55-61, and
violations of Washington's Consumer Protection Act
(“CPA”), id at ¶¶ 62-67.
See RCW 48.30.010 et seq; see RCW 19.86.010
et seq. The case was removed to this Court on
December 14, 2017. Dkt. #1 at 1-5; see 28 U.S.C.
§§ 1332, 1441, 1446. Cross-motions for partial
summary judgment were filed on November 21, 2018 only on
coverage and policy interpretation issues. Dkt. #24; Dkt.
#26. Plaintiff requests a declaration that the full amount of
the $550, 000 judgment is covered under the Policy, or, in
the alternative, that the Policy's “Wage and Hour
Claim Endorsement” applies and $250, 000 of the
judgment is covered. Dkt. #24 at 30. Defendants request a
declaration that Scottsdale had no duty to indemnify X10 for
damages arising from claims for unpaid wages, breach of oral
contract, quantum meruit, unjust enrichment, and promissory
estoppel. Dkt. #26 at 1.
Court “shall grant summary judgment 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). “Because federal jurisdiction in
this case is based on diversity of citizenship, we apply the
substantive law of the state of Washington.” Conrad
v. Ace Prop. & Cas. Ins. Co., 532 F.3d 1000, 1004
(9th Cir. 2008) (citing Erie R.R. v. Tompkins, 304
U.S. 64, 78 (1938)); see MKB Constructors v. Am. Zurich
Ins. Co., 49 F.Supp.3d 814, 832-33 (W.D. Wash. 2014).
Washington law, the interpretation of an insurance contract
is a matter of law.” Am Home Assur. Co. v.
Cohen, 815 F.Supp. 365, 368 (W.D. Wash. 1993), affd
and remanded, 67 F.3d 305 (9th Cir. 1995) (citing
McDonald v. State Farm Fire and Cas. Co., 119 Wn. 2d
724, 730 (1992)). “Summary judgment is proper unless an
ambiguity in the contract exists and contradictory evidence
is introduced to clarify the ambiguity.” Id
(citing Time Oil Co. v. Cigna Property and Cas. Ins.
Co., 743 F.Supp. 1400, 1406-07 (W.D. Wash. 1990)).
policies are construed as contracts.” Weyerhaeuser
Co. v. Commercial Union Ins. Co., 142 Wn. 2d 654, 665
(2000), as amended (Jan. 16, 2001) (quoting Am.
Nat. Fire Ins. Co. v. B & L Trucking & Const.
Co., 134 Wn. 2d 413, 427 (1998)). “An insurance
policy is construed as a whole, with the policy being given a
fair, reasonable, and sensible construction as would be given
to the contract by the average person purchasing
insurance.” Id at 666 (quoting B & L
Trucking & Const. Co., 134 Wn. 2d at 427) (internal
quotation marks omitted). “The language of insurance
policies is to be interpreted in accordance with the way it
would be understood by the average man, rather than in a
technical sense.” Boeing Co. v. Aetna Cas. &
Sur. Co., 113 Wn. 2d 869, 881 (1990) (quoting
Dairyland Ins. Co. v. Ward, 83 Wn. 2d 353, 358
(1974)). “Overall, a policy should be given a practical
and reasonable interpretation rather than a strained or
forced construction that leads to an absurd conclusion, or