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Peder v. Scottsdale Indemnity Co.

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

August 8, 2019

SUSAN PEDER, Plaintiff,



         This matter comes before the Court on cross-motions for summary judgment filed simultaneously[1] 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.


         A. Alex Peder's Employment with X10

         Plaintiffs 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 ¶¶ 13-14.

         Peder 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.

         B. Plaintiffs Action before the King County Superior Court

         Peder's 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.

         At the 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.

         On 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.

         On 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.

         Plaintiff 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.


         A. Legal Standard

         The 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).

         “Under 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)).

         “Insurance 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)). ÔÇťOverall, a policy should be given a practical and reasonable interpretation rather than a strained or forced construction that leads to an absurd conclusion, or ...

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