Court: District Court, E.D. Washington; January 9, 2017; Federal District Court
The court has granted Burlington Insurance Company's Motion for Summary Judgment and dismissed the counterclaims for bad faith against it. The case involves Blind Squirrel, a limited liability company operating a bar called Stubblefields in Pullman, Washington, which is being sued by David Warner for personal injuries sustained during a violent incident at the establishment on March 30, 2013. Warner's original complaint filed in 2014 alleges negligence on the part of Stubblefields, claiming it failed to maintain a safe environment and overserved alcohol, leading to an altercation where Warner was injured.
In a subsequent 2016 complaint, Warner expanded his claims against Blind Squirrel and its members, alleging undercapitalization and inadequate insurance coverage, seeking to impose personal liability on the members. Burlington Insurance, notified of the injury claim before the 2014 complaint, acknowledged coverage limits of $260,000, which included defense costs due to the nature of the claims. Burlington agreed to defend Blind Squirrel with a reservation of rights, indicating it would cover legal fees but would not waive its right to contest coverage issues.
Burlington informed the Defendants that the insurance policy has a total limit of $250,000 for both claims related to the Warner Lawsuits. Burlington is defending the Defendants in these lawsuits, which have seen extensive discovery, including 47 depositions involving key individuals and law enforcement. As of July 31, 2016, Burlington had incurred $140,815.13 in defense costs. On April 29, 2016, Burlington filed a Complaint for Declaratory Judgment, seeking clarification on three main points: (1) coverage is limited to the Limited Assault or Battery Liability Coverage; (2) the $250,000 limit includes attorney fees and costs; and (3) coverage is exhausted after $250,000 in defense and indemnity payments. Defendants responded with an Answer claiming breach of contract, bad faith, and other defenses. The insurance policy includes Commercial General Liability and Liquor Liability coverages, both of which contain exclusions for injuries related to assault or battery, regardless of the nature of the act or the theory of liability. Despite these exclusions, the policy includes Limited Assault or Battery Liability Coverage, which obligates the insurer to pay damages for bodily injury arising from assault or battery, with the limit including defense costs.
Endorsements limit liability to $250,000 per occurrence and in total, irrespective of the number of insured parties, claims, individuals making claims, or legal theories invoked. These limits apply in addition to any existing liability limits in the insurance policy. Summary judgment is appropriate when evidence shows no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. The moving party must demonstrate the absence of genuine factual disputes and that the non-moving party has not sufficiently shown an essential element of their claim. The non-moving party cannot rely solely on conclusory allegations. Courts must accept the non-moving party's evidence as true and draw all reasonable inferences in their favor. Under Washington law, an insurer's duty to defend is triggered at the initiation of a lawsuit and is based on the potential for liability as indicated in the complaint. An insurer must defend if the complaint's allegations, when interpreted liberally, suggest facts that could impose liability under the policy. The duty to defend remains unless it is clear that the claim is not covered. Exceptions to this principle require the insurer to investigate ambiguous allegations or those conflicting with known facts. Warner's 2014 and 2016 complaints clearly indicate he was injured during an assault at Stubblefields on March 30, 2013.
Testimony indicates uncertainty regarding whether Warner was physically struck during an altercation outside a bar, but it is clear that he sustained injuries related to the incident. The evidence shows Warner either fell or was pushed during the altercation, which he was near. Witnesses, including Robert Bean and Josh Nantz, described the chaotic scene, stating that Warner was trying to protect Bean from an incoming punch from McDonald while becoming involved in the fray. Despite claims from the defendants regarding how Warner was injured, the court asserts that the nature of the injury is irrelevant because it arose from Warner's efforts to prevent or intervene in the altercation. The policy in question broadly excludes coverage for injuries resulting from any actual or threatened confrontation. Although the policy allows for coverage up to $250,000, courts adhere to the definitions outlined in such policies. The definitions of assault and battery encompass Warner's injuries, as he was involved in an altercation which led to his injuries. The defendants' concerns about potential prejudice in related legal actions are deemed unconvincing, as they acknowledge Warner's involvement in the altercation. With no genuine issues of material fact presented, the court grants Burlington’s Motion for Summary Judgment.
Defendants have filed counterclaims against Burlington, alleging breach of contract, breach of good faith and fair dealing, bad faith, and a claim under the Washington Consumer Protection Act (WCPA). The facts of the case are largely undisputed, including that Defendants were covered under a policy that provided Commercial General Liability (CGL) and Liquor Liability Coverage. Burlington defended Defendants in two lawsuits initiated by Warner, each time under a reservation of rights. Burlington subsequently sought a declaratory judgment to limit its coverage liability to $250,000, including defense costs, citing Limited Assault or Battery Coverage endorsements.
Defendants argue Burlington is aware that the Warner lawsuits involve negligence claims related to premises and liquor liability and recognizes disputed facts about events from March 30, 2013. They assert Burlington's refusal to pause current litigation and its attempts to restrict its defense and indemnity obligations indicate that the declaratory judgment action was premature and lacking reasonable legal or factual basis, constituting bad faith and breaches of contract and duty, as well as a violation of the WCPA.
The legal standards for a motion to dismiss under Rule 12(b)(6) require that a claim must contain sufficient factual matter to be plausible on its face. A complaint must establish a right to relief that exceeds a speculative level, supported by well-pleaded factual allegations. For a breach of contract claim, four elements must be proven: duty, breach, causation, and damages. Defendants have not identified any specific contractual provision in the policy that Burlington allegedly breached.
Defendants have made vague allegations that Burlington breached its contract and policy with its insureds by taking actions detrimental to them. Despite these claims, Burlington continues to defend Defendants in the Warner Lawsuits while reserving its rights. The court finds these allegations insufficient to establish a plausible claim for relief, granting Burlington's motion to dismiss the breach of contract claim.
Under Washington law, every contract includes an implied duty of good faith and fair dealing, which requires cooperation between parties to achieve the full benefits of the contract. However, this duty is limited to specific contract terms, and a breach of good faith cannot occur if a party merely enforces its contractual rights. The Ninth Circuit has reiterated this principle, stating that without a breach of a specific contract term, there can be no breach of the covenant of good faith and fair dealing.
Defendants assert that Burlington's obligation to provide a defense is unequivocal, yet they fail to identify any specific contractual provision that Burlington has violated. Instead, they claim Burlington anticipatorily breached its obligations by filing a declaratory action. Accepting these allegations as true, the court concludes that Defendants' counterclaim for breach of the duty of good faith and fair dealing lacks a valid legal theory. Courts consistently uphold that a breach of good faith and fair dealing cannot exist without a corresponding breach of a specific contract term. Since Burlington has upheld its duty by providing a defense and following approved procedures, the court grants the motion to dismiss this claim as well.
The tort of bad faith involves a breach of the obligation to deal fairly with the insured, balancing the interests of both parties. The key consideration for a bad faith claim is the reasonableness of the insurer's actions based on the circumstances. Plaintiffs must demonstrate that the insurer's conduct was unreasonable, frivolous, and unfounded for a successful claim.
Defendants' allegations of bad faith are solely based on the timing of Burlington's filing during ongoing underlying actions. To establish bad faith, Defendants must prove Burlington's actions were unreasonable. Washington courts recognize that insurers may file declaratory actions when disputing their duty to defend, as confirmed in Am. Best Food, Inc. v. Alea London, Ltd. Given that Defendants failed to present specific conduct beyond the filing of this action that constitutes bad faith, Burlington's motion to dismiss the bad faith counterclaim is granted.
For a valid claim under the Washington Consumer Protection Act (WCPA), a plaintiff must demonstrate an unfair or deceptive act in commerce that impacts the public interest and causes injury linked to that act. In insurance cases, the WCPA's elements align closely with those of bad faith claims. An insured cannot claim bad faith or WCPA violations based solely on a good faith mistake by the insurer, provided the insurer acted honestly and based on adequate information. Defendants must show they suffered harm due to the insurer's actions. Consequently, because the Court dismisses the bad faith claim, it also dismisses the WCPA claim for failing to meet the required pleading standard.
The Court's order includes: granting Plaintiffs' Motion for Summary Judgment; granting Plaintiffs' Motion to Dismiss Defendants' Counterclaims for Bad Faith; dismissing Defendants' counterclaims; denying Defendants' Motion to Stay; and entering a declaratory judgment affirming limited insurance coverage of $250,000 for two specified lawsuits, which encompasses defense costs until the coverage limit is exhausted. The District Court Executive is instructed to file this Order, enter judgment for Plaintiffs, distribute copies to counsel, and close the case file.
