Western Heritage Insurance Company v Hoover et al, No. 2:2015cv01154 - Document 39 (W.D. Wash. 2016)
Court Description: ORDER denying defendant Slater's 31 Cross Motion for Summary Judgment; granting in part and denying in part plaintiff's 24 Motion for Summary Judgment by Judge Ricardo S Martinez.(RS)
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Western Heritage Insurance Company v Hoover et al Doc. 39 1 2 3 4 5 UNITED STATES DISTRICT COURT WESTERN DISTRICT OF WASHINGTON AT SEATTLE 6 7 8 9 WESTERN HERITAGE INSURANCE COMPANY, an Arizona corporation, 10 11 Plaintiff, v. 12 14 CYRIL HOOVER DBA OKANOGAN VALLEY TRANSPORTATION; ERIC MALKUCH; and ALBERT SLATER, 15 Case No. C15-1154RSM ORDER GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT SLATER’S CROSS-MOTION FOR SUMMARY JUDGMENT Defendants. 13 16 I. INTRODUCTION 17 THIS MATTER comes before the Court on Plaintiff Western Heritage Insurance 18 19 Company’s (“WHIC”) and Defendant Albert Slater’s (“Slater”) Cross-Motions for Summary 20 Judgment. Dkts. #24 and #31. These parties both seek judgments as a matter of law with 21 respect to coverage under a Commercial General Liability (“CGL”) policy issued by WHIC to 22 Defendant Cyril Hoover d/b/a/ Okanogan Valley Transportation (hereinafter collectively “Mr. 23 Hoover” or “Defendant Hoover”). Defendant Hoover has opposed Plaintiff’s Motion for 24 25 Summary Judgment, arguing that issues of material fact preclude judgment as a matter of law, 26 or, in the alternative, that further discovery must occur and therefore a stay of the motion under 27 Federal Rule of Civil Procedure 56(d) is appropriate. Dkt. #29. 28 ORDER PAGE - 1 Dockets.Justia.com 1 Having reviewed the record before it, and having determined that oral argument is not 2 necessary on these motions, the Court now GRANTS IN PART and DENIES IN PART 3 Plaintiff’s Motion for Summary Judgment and DENIES Defendant Slater’s Cross-Motion for 4 Summary Judgment for the reasons discussed herein. 5 II. BACKGROUND 6 7 The sequence of events leading up to this action is largely undisputed. In August of 8 2010, Mr. Hoover applied for a Commercial General Liability policy with WHIC to cover the 9 business premises located at 32156 Hwy 97, Tonasket, WA 98855. Dkt. #26, Ex. B at 3-12. 10 Mr. Hoover provides cab services to, inter alia, those with medical needs. Id. at 7 and 11. 11 WHIC issued CGL Policy No. SCP0817517 to named Insured Okanogan Valley 12 13 Transportation/Cyril K. Hoover DBA effective August 26, 2010 to August 26, 2011. Dkt. #26, 14 Ex. C, at 1 and 43-44. The WHIC Policy had limits of $1 million per occurrence. Id. at 9. The 15 Policy contained a “Limitation to Designated Premises or Project” Endorsement which purports 16 to limit coverage under the policy to the Tonasket property listed in the Declarations Page and 17 18 in the schedule on that Endorsement. Id. at 31. The policy required Mr. Hoover to “have auto 19 limits equal to or greater then [sic] the GL limits.” Dkt. #26, Ex. B at 2. In addition, the policy 20 excluded products-completed operations coverage (which generally covers losses away from 21 the insured premises), and Mr. Hoover was required to secure separate coverage for 22 commercial auto risks. Id. at 2, 13, and 16. The WHIC Policy also contained an “auto 23 24 exclusion” that precluded coverage for liability arising from the “use” of an auto loaned to an 25 “insured.” Dkt. #26, Ex. C at 16. The policy defined the term “insured” to include, inter alia, 26 employees of Mr. Hoover acting within the course and scope of their employment. Id. at 21. 27 28 ORDER PAGE - 2 1 On March 10, 2011, Defendant Eric Malkuch was driving a 2000 Subaru Outback that 2 he borrowed from his step father-in-law, Randy Stevenson. Mr. Malkuch’s wife, Becky, and 3 Defendant Slater were passengers in the vehicle. See Dkt. #25, Ex. D. Mr. Malkuch was 4 driving southbound on Road SR 31, at Mile Post 88 near Lakeview, Oregon. The vehicle was 5 involved in a single-vehicle rollover accident. Id., Ex. D at ¶ 13. The cause of the accident is 6 7 in dispute; however, for the reasons discussed below, the cause is immaterial to the instant 8 matter. Mr. Slater alleges that he sustained serious and ongoing injuries in the accident, 9 totaling more than $400,000 in medical costs to date. Id., Ex. D at ¶ 18 and Dkt. #31 at 3. 10 According to Mr. Slater, Mr. Hoover is liable for the underlying auto accident because the 11 accident occurred while Mr. Malkuch and Mr. Slater were on their way to Arizona to pick up a 12 13 tow truck, which Mr. Slater alleges was for the benefit of Mr. Hoover. Dkt. #25, Ex. D at ¶ 15. 14 PEMCO issued an Auto Liability Policy No. CA 0555071 to named Insured Randy 15 Stevenson, effective from June 10, 2010 to June 10, 2011. Dkt. #26, Ex. A and 1 and 3-27. By 16 its terms, the PEMCO Policy was primary. Id. at 25. It covered the 2000 Subaru Legacy 17 18 Outback involved in the accident. Id. at 3. The “bodily injury” limits were $250,000 per 19 person. Id. The PEMCO Policy contained an “omnibus” provision under which permissive 20 users of the auto and those alleged to be legally liable for such permissive user’s acts qualified 21 as Insureds. Id. at 10. 22 On January 9, 2013, Mr. Slater filed a Complaint against Mr. Hoover, Mr. Malkuch, 23 24 and others in Snohomish County Superior Court. See Albert Slater v. Eric Malkuch, et al., 25 Case No. 13-2-01938-6.; Dkt. #25, Ex. A. The Complaint alleged that Mr. Slater was a 26 passenger lying on the rear seat of the vehicle that Mr. Malkuch was driving in Oregon when 27 Mr. Malkuch fell asleep at the wheel. Dkt. #25, Ex. A at ¶ 11. It further alleged that Mr. 28 ORDER PAGE - 3 1 Malkuch, as the agent and/or employee of Mr. Hoover, was to drive Mr. Slater to purchase a 2 tow truck and drive the truck back to Washington. Dkt. #25 at ¶ 13. Mr. Slater alleged that 3 Mr. Hoover arranged this for his own business interests. Id. Mr. Hoover disputes that. Dkt. 4 #24 at 3 fn. 5. The Complaint set forth a single cause of action for Negligence. Dkt. #25 at ¶ ¶ 5 11-18. Mr. Slater alleged that Mr. Malkuch was working for Mr. Hoover at the time of the 6 7 accident such that the doctrine of vicarious liability applied. Id. at ¶ 15. 8 On February 6, 2015, Mr. Slater filed an Amended Complaint (“FAC”). Dkt. #25, Ex. 9 D. It alleged that Mr. Malkuch borrowed the vehicle from Mr. Stevenson “for the purpose of 10 driving down to Arizona on behalf of and in connection with Mr. Malkuch’s business, 11 defendant Okanogan Valley Transportation.” Id. at ¶ 14. The FAC further alleged that Mr. 12 13 Hoover and his business entered into an independent contractor agreement with Mr. Slater to 14 provide maintenance to the fleet of business vehicles, to loan him money to purchase a tow 15 truck, and “by and through its partner, agent and/or employee, defendant Eric Malkuch, to drive 16 plaintiff Slater in Mr. Stevenson’s vehicle. . . to purchase the tow truck and to drive it back to 17 18 Washington.” Id. at ¶ 15. Mr. Slater also alleged that “[a]ll acts of negligence by defendant 19 Malkuch are the acts of all other and remaining defendants by virtue of all theories of vicarious 20 liability including but not limited to Partnership, Master/Servant Liability, Agent/Principal 21 liability, Owner/Operator liability, Joint Venture liability and Negligent Entrusting holding 22 defendants, and each of them, jointly and severally liable for plaintiff's injuries.” Id. at ¶ 17. 23 24 PEMCO agreed to defend all defendants in the underlying state court action under a 25 reservation of rights, and is currently defending. See Dkt. #25, Ex. C. WHIC also elected to 26 retain separate defense counsel for Mr. Hoover under a reservation of rights. Id. In its original 27 reservation, WHIC indicated that if Mr. Malkuch is found not to have acted in the course and 28 ORDER PAGE - 4 1 scope of employment for Mr. Hoover, there can be no liability on Mr. Hoover’s part and 2 therefore no duty to indemnify. Dkt. #25, Ex. C at 12, ¶ 2. WHIC further indicated that if Mr. 3 Malkuch is found to have acted in the course and scope of his employment for Mr. Hoover, the 4 “auto exclusion” applies to bar coverage. Id., Ex. C, p. 12, ¶ 2 and Dkt. #26, Ex. C at 16 and 5 21. WHIC further reserved rights under the Designated Premises Limitation Endorsement, on 6 7 the ground the policy was not intended to cover offsite auto accidents like the one in question. 8 Dkt. #25, Ex. C at 12, ¶ 4 – 13, ¶ 1. On March 5, 2015, WHIC sent an amended reservation of 9 rights letter regarding the FAC, reiterating the same bases for its reservation. Dkt. #25, Ex. G. 10 WHIC also noted that its policy could at best be excess to auto policies issued by PEMCO and 11 GEICO. Id. at 12, ¶ ¶2-3 and 13, ¶ 2. 12 13 In the meantime, WHIC brought the instant Declaratory Relief Action against 14 Defendants Hoover, Malkuch and Slater in this Court, on July 20, 2015. Dkt. #1. WHIC 15 alleges that it owes no coverage for the offsite accident in Oregon based on, inter alia, its “auto 16 exclusion” and “designated premises limitation.” Dkt. #1 at ¶ ¶ 24, 26 and 27. WHIC further 17 18 alleges that, as of right, it voluntarily elected to defend the underlying action despite the lack of 19 coverage. Id. at ¶ 14. In addition, WHIC alleges that even if the Court were to find it owed 20 coverage, such coverage would be strictly excess to that of PEMCO and GEICO. Id. at ¶ 29. 21 WHIC seeks a declaration that it owes no duty to defend or indemnify. Dkt. #1, Section VIII. 22 Defendant Slater has Answered the Complaint and brings a Counterclaim alleging that 23 24 the WHIC policy does provide coverage for the underlying auto accident, and asking the Court 25 to issue a declaratory judgment that WHIC has a duty to indemnify in the underlying action 26 regardless of any coverage by PEMCO or GEICO. Dkt. #10, Section III. 27 28 ORDER PAGE - 5 1 Defendant Hoover has Answered the Complaint and brings a Counterclaim alleging that 2 the WHIC policy does provide coverage for the underlying auto accident, and asking the Court 3 to issue a declaratory judgment that WHIC has a duty to defend and indemnify in the 4 underlying action regardless of any coverage by PEMCO or GEICO. Dkt. #13, Counterclaim 5 at ¶ ¶ 1-4. 6 7 8 Mr. Malkuch has been voluntarily dismissed as a Defendant to this action under an agreement that he will be bound by any final judgment issued in this matter. Dkt. #28. 9 10 III. DISCUSSION A. Summary Judgment Standard 11 Summary judgment is appropriate where “the movant shows that there is no genuine 12 13 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. 14 R. Civ. P. 56(a); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247 (1986). 15 summary judgment, a court does not weigh evidence to determine the truth of the matter, but In ruling on 16 “only determine[s] whether there is a genuine issue for trial.” Crane v. Conoco, Inc., 41 F.3d 17 18 547, 549 (9th Cir. 1994) (citing Federal Deposit Ins. Corp. v. O’Melveny & Meyers, 969 F.2d 19 744, 747 (9th Cir. 1992)). Material facts are those which might affect the outcome of the suit 20 under governing law. Anderson, 477 U.S. at 248. 21 B. Hoover’s Rule 56(d) Motion 22 As an initial matter, the Court addresses Mr. Hoover’s motion for a stay to conduct 23 24 25 26 further discovery under Federal Rule of Civil Procedure 56(d). The Court DENIES Mr. Hoover’s motion for his failure to meet the standard set forth under Rule 56(d). Rule 56(d) states: 27 If a nonmovant shows by affidavit or declaration that, for specified reasons, it cannot present facts essential to justify its opposition, the court may: 28 ORDER PAGE - 6 1 (1) defer considering the motion or deny it; 2 (2) allow time to obtain affidavits or declarations or to take discovery; or 3 4 (3) issue any other appropriate order. 5 The Ninth Circuit Court of Appeals has explained that a party requesting relief pursuant to Rule 6 7 56(d) “must identify by affidavit the specific facts that further discovery would reveal, and 8 explain why those facts would preclude summary judgment.” Tatum v. City and County of San 9 Francisco, 441 F.3d 1090, 1100 (9th Cir. 2006). Mr. Hoover has failed to do so. See Dkt. #30. 10 Moreover, for the reasons discussed below, the additional information apparently sought by 11 Mr. Hoover in this matter would not change the Court’s decision regarding coverage. 12 C. Motions to Strike 13 14 The Court next addresses the parties’ motions to strike. 15 1. Plaintiff’s Motion to Strike 16 Plaintiff seeks to strike the Declaration of Mr. Slater filed in support of his cross-motion 17 18 for summary judgment. Dkt. #34 at 3. Plaintiff argues that it should be stricken on the basis 19 that it is made without personal knowledge, that it contains impermissible hearsay, that it 20 contains pure speculation and conjecture, and that it is irrelevant. Id. The Court DENIES the 21 motion. Mr. Slater testifies that his statements are made based on personal knowledge, and 22 Plaintiff presents no specific evidence to the contrary. Nor does Plaintiff provide evidence 23 24 contradicting that Mr. Hoover made certain decisions regarding the tow truck from his business 25 premises. Further, as discussed below, the statements provided by Mr. Slater are relevant to the 26 coverage analysis. 27 /// 28 ORDER PAGE - 7 1 2. Defendant Slater’s Motion to Strike 2 Defendant Slater seeks to strike Exhibits C and G to the Declaration of Alan Yuter, 3 which were filed in support of Plaintiff’s motion for summary judgment and its opposition to 4 Defendant Slater’s cross-motion for summary judgment. Dkt. #38 at 8-9. Mr. Slater argues 5 that these letters contain hearsay and double hearsay, are irrelevant, and contain improper 6 7 conclusions of law which are in the province of the Court. Id. The Court DENIES Defendant 8 Slater’s motion to strike the exhibits completely, but notes that it will only consider the exhibits 9 to the extent that they evidence a claim denial by Plaintiff and the bases for the denial, but not 10 for any other purpose. 11 D. Interpretation of Insurance Contracts 12 13 The Court now turns to the substantive questions raised in these motions. Under 14 Washington law, “[i]nsurance policies are to be construed as contracts, and interpretation is a 15 matter of law.” State Farm General Ins. Co. v. Emerson, 102 Wn.2d 477, 480, 687 P.2d 1139 16 (1984). “The entire contract must be construed together in order to give force and effect to 17 18 each clause,” and be enforced “as written if the language is clear and unambiguous.” 19 Washington Pub. Util. Districts’ Utils. Sys. v. Pub. Util. Dist. No. 1 of Clallam County 20 (“Washington Pub.”), 112 Wn.2d 1, 10, 771 P.2d 701 (1989); see also Transcon. Ins. Co. v. 21 Washington Pub. Utils. Dists.’ Util. Sys., 111 Wn.2d 452, 456 (1988) (explaining that if 22 insurance contract language is clear and unambiguous, court “may not modify the contract or 23 24 create ambiguity where none exists”). If, on the other hand, “a policy provision on its face is 25 fairly susceptible to two different but reasonable interpretations, the policy is ambiguous and 26 the court must attempt to discern and enforce the contract as the parties intended.” Transcon. 27 28 ORDER PAGE - 8 1 2 3 4 Ins. Co., 111 Wn.2d at 456-57; see also Kish v. Ins. Co. of N. Am., 125 Wn.2d 164, 171, 883 P.2d 308 (1994). An insurance contract “will be given a practical and reasonable interpretation that fulfills the object and purpose of the contract rather than a strained or forced construction that 5 leads to an absurd conclusion, or that renders the contract nonsensical or ineffective.” 6 7 Washington Pub., 112 Wn.2 at 11; see also Transcon. Ins. Co., 111 Wn.2d at 457. Further, 8 insurance contracts are interpreted “as an average insurance purchaser would understand them 9 and give undefined terms in these contracts their ‘plain, ordinary, and popular’ meaning.” 10 Kish, 125 Wn.2d at 170 (quoting Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wn.2d 869, 877, 11 784 P.2d 507 (1990)); see also Emerson, 102 Wn.2d at 480 (stating that an insurance contract 12 13 should be interpreted “according to the way it would be understood by the average insurance 14 purchaser”). If, after attempting to discern the parties’ intent, the insurance contract language 15 remains ambiguous, “the court will apply a meaning and construction most favorable to the 16 insured, even though the insurer may have intended another meaning.” Transcon. Ins. Co., 111 17 18 Wn.2d at 457; see also Washington Pub., 112 Wn.2d at 10-11. 19 The determination of coverage under an insurance contract “is a two-step process.” 20 Diamaco, Inc. v. Aetna Cas. & Sur. Co., 97 Wn. App. 335, 337, 983 P.2d 707 (1999). “The 21 insured must first establish that the loss falls within the ‘scope of the policy’s insured losses.’” 22 Id. (quoting Schwindt v. Underwriters at Lloyd’s of London, 81 Wn. App. 293, 298, 914 P.2d 23 24 119 (1996)). “Then, to avoid responsibility for the loss, the insurer must show that the loss is 25 excluded by specific language in the policy.” Id.; see also Pub. Employees Mut. Ins. Co. v. 26 Rash, 48 Wn. App. 701, 703, 740 P.2d 370 (1987) (“[W]hen an insured establishes a prima 27 facie case giving rise to coverage under the provisions of his policy, the burden is then upon the 28 ORDER PAGE - 9 1 insurer to prove that the loss is not covered because of an exclusionary provision in the 2 policy.”). While an exclusionary clause is “strictly construed against the insurer,” its meaning 3 “must be determined in view of the policy as a whole.” Allstate Ins. Co. v. Calkins, 58 Wn. 4 App. 399, 402, 793 P.2d 452 (1990) (citing Rodriguez v. Williams, 107 Wn.2d 381, 384, 729 5 P.2d 627 (1986)); Hecker, 43 Wn. App. at 824 (citing Shotwell v. Transamerica Title Ins. Co., 6 7 91 Wn.2d 161, 166, 588 P.2d 208 (1978)). 8 1. Coverage 9 Plaintiff moves this Court for an Order declaring that it owes no coverage or duty to 10 indemnify because the losses alleged by Defendants do not fall within the coverage under the 11 CGL policy, and even if they did, the policy contains an auto exclusion that excludes the losses 12 13 claimed by Defendants. Dkt. #24 at 1. As noted above, the determination of coverage under an 14 insurance contract “is a two-step process.” Diamaco, Inc. v. Aetna Cas. & Sur. Co., 97 Wn. 15 App. 335, 337, 983 P.2d 707 (1999). “The insured must first establish that the loss falls within 16 the ‘scope of the policy’s insured losses.’” Id. (quoting Schwindt v. Underwriters at Lloyd’s of 17 18 London, 81 Wn. App. 293, 298, 914 P.2d 119 (1996)). 19 The CGL policy pays “those sums that the insured becomes legally obligated to pay as 20 damages because of “bodily injury” or “property damage” to which the insurance applies. Dkt. 21 #26, Ex. C at 13. Plaintiff argues that this coverage is limited only to bodily injury arising out 22 of the designated premises in Tonasket, WA, and therefore the losses from the auto accident 23 24 500 miles away in Oregon do not fall within the scope of coverage. Plaintiff argues that this is 25 evidenced by the inclusion of a Limitations to Designated Premises Endorsement, which 26 demonstrates the intent of the policy coverage. Dkt. #24 at 8-12. 27 28 ORDER PAGE - 10 1 Defendant Hoover argues that the policy cannot be restricted to a mere premises 2 liability policy as Plaintiff seeks. Dkt. #29 at 9-12. Defendant Slater argues that coverage is 3 provided because it does not exclude losses claimed under either a vicarious liability theory or 4 under an agency theory. Dkt. #31. The Court now finds that the Limitations to Designated 5 Premises Endorsement clause is ambiguous, and therefore does not exclude coverage. 6 7 8 9 It is true, as Plaintiff argues, that the Endorsement specifically modifies the insurance provided: 10 This endorsement modifies Insurance provided under the following: COMMERCIAL GENERAL LIABILITY COVERAGE PART 11 ... 12 Premises: 32156 Hwy 97 Tonasket, WA 98855 13 14 ... 15 16 This insurance applies only to “bodily injury”, “property damage”, “personal and advertising injury” and medical expenses arising out of: 17 18 1. The ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises; 19 ... 20 21 Dkt. #26, Ex. C at 31. However, how the Endorsement modifies the insurance is ambiguous. 22 Washington courts do not appear to have interpreted the specific language at issue. 23 Indeed, Defendant Slater points to a Washington case that interprets a clause pertaining to 24 “business conducted at or from the premises,” which is not the same language contained in the 25 policy at issue here. See, e.g., Am. Nat’l Fire Ins. Co. v. B&L Trucking & Constr. Co., 82 Wn. 26 27 App. 646, 920 P.2d 192 (1996), aff’d, 134 Wn.2d 413, 951 P.2d 250 (1998). However, 28 ORDER PAGE - 11 1 2 3 4 Defendant Slater also points to other states that have interpreted identical language to that at issue in this case, finding the language to be ambiguous. For example, in C. Brewer & Co. v. Marine Indem. Ins. Co. of Am., 135 Haw. 190, 347 P.3d 163 (2015), the Supreme Court of Hawai’i addressed a CGL policy containing a 5 Limitation of Coverage to Designated Premises Endorsement purporting to limit coverage to a 6 7 specified premises. The lower court had granted summary judgment in favor of the Insurer, 8 finding that the Endorsement precluded coverage to an off-site injury. Id at 192. The Hawai’i 9 Supreme Court ultimately reversed that decision, stating: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 We hold that the James River DPE provides coverage for injury and damage that occurs on premises not listed in the Schedule if the injury or damage arises out of the ownership, maintenance or use of a designated premises. In determining whether an injury or damage arose out of the use of a designated premises, we adopt the legal interpretation of “arising out of” in American Guarantee and Liability Insurance Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997): “The phrase ‘arising out of’ is ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or ‘flowing from.’ In the insurance context, this phrase is often interpreted to require a causal connection between the injuries alleged and the objects made subject to the phrase.” 129 F.3d at 807. We therefore hold that the DPE unambiguously provides coverage for negligence claims against C. Brewer arising out of the use of designated premises. We further hold that language in a designated premises endorsement “must be clear and unequivocal[]” to convert a CGL policy to a premises liability policy that limits coverage to injuries occurring on specific premises. American Empire Surplus Lines Insurance Co. v. Chabad House of North Dade, Inc., 771 F. Supp. 2d 1336, 1343 (S.D. Fla. 2011), aff’d, 450 F. App’x 792 (11th Cir. 2011). In this case, the DPE is not sufficiently “clear and unequivocal” to limit coverage to injuries occurring on the designated premises, as argued by James River. Thus, the DPE does not limit liability to injury and damage occurring on designated premises. C. Brewer & Co., 135 Haw. at 193 (footnote omitted). The Hawai’i court explained its reasoning in reaching that conclusion: The DPE, titled, “Limitation of Coverage to Designated Premises,” states: “This insurance applies only to ’bodily injury’, ‘property damage’, or ORDER PAGE - 12 1 2 3 4 5 6 7 8 ‘personal and advertising injury’ arising out of the ownership, maintenance or use of the premises shown in the above Schedule.” The DPE lists “Locations 1-3.” The parties are in agreement that “Locations 1-3” includes C. Brewer’s corporate headquarters at 311 Pacific Street, but not the Dam site. James River and C. Brewer present conflicting interpretations of the DPE. James River argues that the DPE unambiguously limits coverage under the policy to liability for injury and damage on premises listed in the Schedule, and thus it has no obligation to defend or indemnify C. Brewer against the Pflueger lawsuit because the Dam site is not listed. C. Brewer argues that the DPE is ambiguous as to whether injury and damage “arising out of” the “use” of listed premises is covered, contending that the “arising out of” language in the DPE requires broad construction in its favor. 9 10 11 12 13 We have held that “[a] contract is ambiguous when its terms are reasonably susceptible to more than one meaning.” Hawaiian Ass’n of Seventh-Day Adventists v. Wong, 130 Haw. 36, 45, 305 P.3d 452, 461 (2013). We therefore begin by analyzing whether the positions advanced by the parties are reasonable interpretations of the policy’s language. 27 James River cites to Union American Insurance Co. v. Haitian Refugee Center/Sant Refijie Ayisyin, Inc., 858 So.2d 1076 (Fla. Dist. Ct. App. 2003), in support of its argument that the DPE must be construed to limit liability to designated premises. In Union American, a Haitian Refugee Center (“Center”) allegedly failed to provide adequate security at a street rally it sponsored located far from and unrelated to the Center’s headquarters, the designated premises, which led to the shooting of an individual at the rally by another individual in the crowd. 858 So.2d at 1077. The policy’s designated premises endorsement limited coverage to “bodily injury . . . arising out of [t]he ownership, maintenance or use of the premises shown in the [s]chedule and operations necessary or incidental to those premises[.]” Id. (first and second bracket in original; third bracket added) (quoting insurance policy at issue). The District Court of Appeal of Florida for the Third District (“appeals court”) reversed the lower court’s holding that the policy provided coverage, concluding that the designated premises endorsement effectively converted the CGL policy into a premises liability policy despite the words “commercial lines policy” on the policy’s cover sheet. 858 So.2d at 1078 n.1, 1079 (reversing judgment). The appeals court explained that providing coverage on the ground that the event was an operation necessary or incidental to the Center’s business involved a judicial rewriting of the policy by substituting “business” for the policy word “premises.” 858 So.2d at 1078. The appeals court stated: “This is a process in which we may not engage.” Id. 28 ... 14 15 16 17 18 19 20 21 22 23 24 25 26 ORDER PAGE - 13 1 2 In this case, however, the injury and damage arguably relate to C. Brewer’s “use” of its corporate headquarters to make negligent business decisions. Union American is therefore distinguishable. 3 4 5 6 7 8 C. Brewer contends that the policy provides coverage for injury and damage arising out of its “use” of its corporate headquarters to make negligent corporate decisions even though the resulting damage happened at the unlisted Dam site. In support, C. Brewer relies on American Guarantee and Liability Insurance Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997) (applying Mississippi state law), a case in which the court construed a designated premises endorsement with language similar to the James River DPE, to include coverage for injuries and damages occurring on a premises not listed in the endorsement. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 In American Guarantee, an insurer sought a judgment that the CGL policy it sold to a Coca-Cola Bottling Company (“Coke Company”) afforded no coverage or defense for injuries arising out of a photography studio, whollyowned and operated as a division of the Coke Company, in which the Coke Company chief executive officer’s (CEO) son, also an employee, surreptitiously videotaped female customers changing their clothes. 129 F.3d at 804. The designated premises endorsement at issue limited coverage to “‘bodily injury,’ ‘property damage,’ ‘personal injury,’ ‘advertising injury’ and medical expenses arising out of . . . [t]he ownership, maintenance or use of the premises shown in the Schedule and operations necessary or incidental to those premises[.]” 129 F.3d at 806 (quoting insurance policy at issue). The studio, located a mile away from the Coke Company, was not a designated premises. The Fifth Circuit held that the designated premises endorsement did not preclude coverage for negligence claims arising out of the use of the Coke Company headquarters, a designated premises, regarding supervisory actions over the studio and the CEO’s son. 129 F.3d at 808. The Fifth Circuit concluded that the designated premises endorsement unambiguously covered injuries occurring at uncovered premises if a causal connection between the injuries and “use” of a designated premises existed. See 129 F.3d at 807 (“[T]he phrase ‘arising out of’ the ‘use’ of the designated premises requires that there be a causal connection between the injuries . . . and the designated premises . . . .”). In construing a causal connection, the Fifth Circuit opined as follows: “The phrase ‘arising out of’ is ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or ‘flowing from.’ In the insurance context, this phrase is often interpreted to require a causal connection between the injuries alleged and the objects made subject to the phrase.” Id. (internal citation omitted). 28 ORDER PAGE - 14 1 2 3 4 5 6 7 The Fifth Circuit reasoned that the studio was owned and operated as a division of the Coke Company, the studio and Coke Company shared the same general checking account, employees of the studio were considered Coke Company employees, and all major business decisions concerning the studio, from the purchase of the equipment to the scope and ultimate termination of the business, were made at the Coke Company’s headquarters, a designated premises. 129 F.3d at 807-08. The Fifth Circuit held that “[u]nder the circumstances, a factfinder could find a causal connection between [the Coke Company] and [the CEO’s] supervisory activities, the operation of the designated premises, and the injuries that resulted from [the CEO’s son’s] intentional and tortious actions at [the studio].” 129 F.3d at 808. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 Similarly, in this case, the System was owned and operated by KIC, a C. Brewer subsidiary, KIC’s employees were considered employees of C. Brewer, and all major business decisions concerning the System, including the alleged failure to capitalize KIC, the entrance into various agreements to maintain the System, and the eventual sale of the land underlying the Reservoir, were apparently made at C. Brewer’s corporate headquarters. Therefore, a causal connection could possibly be found between C. Brewer and its entrustment of the System to KIC, the operation of the designated premises, and the injuries that resulted from C. Brewer’s allegedly negligent corporate decisions. In addition, by relying on Union American, James River seeks to rewrite the term “arising out of” to limit liability to injury and damage occurring on designated premises. Such a construction of the DPE would effectively convert the James River policy from a CGL policy to a premises liability policy that limits coverage to certain premises. James River’s argument contradicts the policy, which specifically states that it is a “commercial general liability” policy. In addition, such a construction contravenes general principles of insurance construction, which provide that policy language “must be construed liberally in favor of the insured and [any] ambiguities [must be] resolved against the insurer.” Dairy Rd. Partners, 92 Hawai’i at 412, 992 P.2d at 107 (alteration in original). 22 23 24 25 26 27 In our view, American Empire Surplus Lines Insurance Co. v. Chabad House of North Dade, Inc., 771 F. Supp. 2d 1336 (S.D. Fla. 2011), correctly analyzes the requirements for converting a CGL policy to a premises liability policy. The policy at issue in Chabad House is similar to the James River policy. Chabad House involved a “commercial general liability” policy that covered injury and damage occurring anywhere in the “coverage territory,” defined in the policy as encompassing, at minimum, the United States, Canada, and Puerto Rico, and also contained a similarly worded designated premises endorsement. 771 F. Supp. 2d at 1339, 1343. 28 ORDER PAGE - 15 1 2 3 4 5 Citing to American Guarantee, in which the designated premises were specifically incorporated into the policy on the declarations page so as to put the insured on notice that coverage was limited to certain premises, the Chabad House court held that language in a DPE used to convert a CGL to a premises liability policy “must be clear and unequivocal.” 771 F. Supp.2d at 1343. We likewise hold that a DPE “must be clear and unequivocal[]” to convert a CGL policy to a premises liability policy in order to effectively limit coverage to injury or damage that occurs on undesignated premises. Id. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 In this case, the James River DPE does not clearly convert the policy into a premises liability policy. The DPE is similarly incorporated by reference into the policy on the declarations page; however, the declarations page does not list the designated premises. Therefore, the DPE is not sufficiently clear and unequivocal to put the insured on notice and convert the policy. Accordingly, we reject James River’s argument to construe the DPE as limiting coverage to injury and damage occurring on designated premises. See Dairy Rd. Partners, 92 Hawai’i at 412, 992 P.2d at 107 (holding that policy language “must be construed liberally in favor of the insured and [any] ambiguities [must be] resolved against the insurer.”). In further support of its position, C. Brewer contends that the inclusion of “personal and advertising injury” in the DPE “suggests that the parties may have intended to include coverage for negligent decisions made at a designated premises that resulted in injury and damages elsewhere.” (quoting C. Brewer, mem. op. at 36). C. Brewer also notes that Chabad House found that the policy’s broad coverage territory, which included the United States, Canada, Puerto Rico, and, under certain circumstances, other parts of the world, contradicted the designated premises endorsement. James River asserts that Brewer’s interpretation is overly broad and renders the “arising out of” language meaningless. As the ICA reasoned, decisions made at C. Brewer’s corporate headquarters would likely be the cause of any advertising injury; however, the resulting injury would not occur on designated premises. In addition, the James River policy’s broad coverage territory similarly encompasses the United States, Canada, Puerto Rico, and, under certain circumstances, other parts of the world. Therefore, C. Brewer’s arguments further support its interpretation of the DPE. C. Brewer & Co., 135 Haw. at 196-199. Likewise, in State Auto & Casualty Underwriters v. Beeson, 183 Colo. 284, 516 P.2d 623 (1973), the Supreme Court of Colorado used similar rationale to find coverage for a 28 ORDER PAGE - 16 1 personal injury that occurred when a man dropped a set of keys out of an apartment window, 2 which hit his niece in the eye and ultimately resulted in the loss of her eye. The court 3 explained: 4 5 6 7 8 9 10 11 12 13 Each of the apartment house policies provides coverage when the insured becomes legally obligated to pay damages as a result of personal injuries that arise out of the ownership, maintenance or use of the premises, and all operations necessary or incidental thereto. These insurers contend that there was not a sufficient causal connection between Holly’s injury and the ownership, maintenance, use or incidental operation of the apartments. On the contrary, we agree with the trial court, which in turn was affirmed by the Court of Appeals, in its conclusion that the keeping of the keys to the pickup at the Race Street apartments was incidental to the operation of that apartment house; that it was the duty of David Olsen as real estate manager to keep the keys there; and that the act of throwing them out the window was incidental to the operation of the apartments. We affirm the Court of Appeals in its determination as a matter of law that the policy on the Washington Street apartment house provides coverage. State Auto & Casualty Underwriters v. Beeson, 183 Colo. at 289-291. 14 The same rationale applies to the instant action. Here, the policy includes the same 15 16 language as analyzed by the Hawai’i court. Using the common legal definition of the term 17 “arising out of,” the decision to purchase the tow truck is sufficiently connected to the premises 18 such that it could fall within the scope of the policy. See Dkt. #33. Moreover, the policy at 19 issue in this case also contains the same “personal and advertising injury language” that 20 21 supports an interpretation of the clause such that it contemplates injury stemming from a 22 decision made on the premises but occurring elsewhere. Finally, the coverage territory in the 23 policy is defined as the United States of America, Dkt. #26, Ex. C at 13, which further supports 24 a broad interpretation of the policy. See C. Brewer & Co., 135 Haw. at 199. 25 While Plaintiff relies on the case of Westport Ins. Co. v. Anderson, 31 Fed. Appx. 362 26 27 (9th Cir. Feb. 14, 2002), which affirmed the District Court’s conclusion that coverage had not 28 been improperly denied under a Designated Premises Endorsement, that case is an unpublished ORDER PAGE - 17 1 memorandum, with no precedential value, that fails to discuss the policy language or the 2 District Court’s reasons for its conclusion. Accordingly, this Court cannot find that the case 3 provides any persuasive authority to the contrary of those discussed above. 4 For all of these reasons, the Court will deny Plaintiff’s motion for summary judgment to 5 the extent it seeks an order declaring that Defendants’ alleged injuries are excluded from 6 7 coverage. 8 2. Auto Exclusion 9 Having determined that the alleged injuries may fall within the scope of coverage, the 10 Court next turns to whether they are excluded by the auto exclusion contained in the policy. 11 Plaintiff argues that since the injury arose out of an auto accident, the policy’s auto exclusion 12 13 bars coverage. Dkt. #24 at 13-15. The policy at issues contains the following exclusion: 14 2. 15 16 This insurance does not apply to: ... 17 g. 18 “Bodily injury” or “property damage” arising out of the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft owned or operated by or rented or loaned to any insured. Use includes operation and “loading or unloading”. 19 20 21 22 23 24 Exclusions Aircraft, Auto Or Watercraft This exclusion applies even if the claims against any insured allege negligence or other wrongdoing in the supervision, hiring, employment, training or monitoring of others by that insured, if the “occurrence” which caused the “bodily injury” or “property damage” involved the ownership, maintenance, use or entrustment to others of any aircraft, “auto” or watercraft that is owned or operated by or rented or loaned to any insured. 25 Dkt. #26, Ex. C at 16. The policy defines an “Insured” as an employee acting within the course 26 27 and scope of employment. Id. at 21. Plaintiff asserts that if Defendant Hoover is correct in the 28 state court action that Mr. Malkuch was not acting in the course and scope of his employment ORDER PAGE - 18 1 while driving the vehicle, there can be no liability imputed to Mr. Hoover and therefore no 2 coverage; but that, even if Mr. Malkuch was acting in the course and scope of his employment 3 while driving the vehicle, the auto exclusion would specifically preclude coverage. Id. 4 Defendant Hoover argues that there are questions of fact, including the status of Mr. 5 Malkuch (whether he was an employee or not) at the time he was driving and the cause of the 6 7 8 accident itself, which preclude the Court from determining whether the exclusion applies at this time. Dkt. #29 at 12-13. 9 10 Defendant Slater argues that Plaintiff’s arguments ignore the fact that if Mr. Malkuch is not an employee, he is not an “Insured” and the exclusion does not apply at all. Dkt. #31 at 19- 11 20. 12 13 The Court agrees with Defendant Hoover that there are questions of fact as to the status 14 of Mr. Malkuch that preclude summary judgment at this time. There is no way for this Court 15 to properly analyze the exclusion without a factual determination of whether Mr. Malkuch was 16 an “employee” and whether he was acting within the course and scope of his employment at the 17 18 time of the accident. Accordingly, the Court finds that summary judgment for any party as to 19 this exclusion is not appropriate at this time. 20 3. Efficient Proximate Cause 21 Defendant Hoover also argues that the efficient proximate cause doctrine precludes 22 summary judgment. Dkt. #29 at 8-9. Having determined that there are other reasons to 23 24 25 26 27 preclude summary judgment at this time, the Court need not address this argument. B. Defendants’ Counterclaims Plaintiff has also moved this Court for an Order declaring that Defendant Slater’s Counterclaim seeking an affirmative determination of coverage and Defendant Hoover’s 28 ORDER PAGE - 19 1 2 3 4 Counterclaims for Bad Faith and Insurance Fair Conduct Act (“IFCA”) violations fail as a matter of law. Dkt. #24 at 15-18. The Court addresses those Counterclaims in turn, below. 1. Hoover’s Bad Faith and IFCA Counterclaims As an initial matter, the Court finds in favor of Plaintiff on Mr. Hoover’s Bad Faith and 5 IFCA Counterclaims, and dismisses those claims. Plaintiff argues that Mr. Hoover’s breach 6 7 of contract/bad faith claim is premature because it is defending Mr. Hoover in the underlying 8 action under a reservation of rights, and because there is no judgment yet in the underlying 9 action that could trigger the duty to indemnify. Dkt. #24 at 17. Plaintiff also argues that 10 Defendant Hoover’s IFCA claim is without merit because there has been no denial of coverage 11 yet and because Mr. Hoover has failed to comply with the administrative requirements prior to 12 13 bringing such a claim. Id. at 17-18. 14 Mr. Hoover fails to respond to Plaintiff’s motion on these Counterclaims. See Dkt. #29. 15 Accordingly, Mr. Hoover has also failed to raise any legal authority demonstrating that his 16 Counterclaims have merit, or raise any evidence to the contrary of Plaintiff’s assertions. Under 17 18 19 the legal authority discussed by Plaintiff in support of its motion, the Court agrees that Mr. Hoover’s Counterclaims lack merit. Therefore, the Court dismisses those claims. 20 2. Slater’s Coverage Counterclaim 21 Plaintiff also seeks to dismiss Defendant Slater’s Counterclaim asking for an 22 affirmative declaration of coverage. Dkt. #24 at 15-17. Plaintiff argues that Mr. Slater is a 23 24 third party who is a stranger to the insurance contract and therefore has no standing to bring his 25 claim. Id. Defendant Slater responds that under Ninth Circuit case law, Defendant Slater does 26 have standing. Dkt. #31 at 20-22. The Court disagrees with Defendant Slater. 27 28 ORDER PAGE - 20 The cases argued by Defendant Slater do not stand for the proposition that he has 1 2 standing to raise a Counterclaim. Rather, they stand for the proposition that, as an injured third 3 party, he has the right to defend against the declaratory action. See, e.g., Westchester Fire Ins. 4 Co. v. Mendez, 585 F.3d 1183, 1190 (9th Cir. 2009) (“Default was not entered against 5 Northwest, so there is no valid basis to deny it the opportunity to try to defend against 6 7 Westchester’s claim for declaratory relief.”). On the other hand, where an injured third party 8 has not received a judgment in an underlying action, courts have found that such parties lack 9 standing to bring an affirmative claim against an Insurer1: 10 The only standing [a claimant] has to obtain a declaration of his rights, status, and legal relationship under [insurance] contracts is if he is a party to the contracts or he is a third party beneficiary to the contracts. Being neither, [claimant] has no standing to maintain a direct action for declaratory judgment against [an insurance company]. The only exception to this rule is where the liability of the insured to pay an injured party has been established by judgment or written agreement among the injured party, the insured and the insurer, in which case a declaratory judgment action in the nature of an equitable garnishment action may be maintained. 11 12 13 14 15 16 Evanston Ins. Co. v. Harris Med. Assocs., LLC, 2013 U.S. Dist. LEXIS 96031, *6-7 (E.D. Mo. 17 18 July 10, 2013) (quoting Carden v. Missouri Intergovernmental Risk Mgt. Ass'n, 258 S.W.3d 19 547, 558 (Mo. App. 2008) (internal citations omitted)). The Missouri case is consistent with 20 cases in the Ninth Circuit discussing third party standing in the insurance context. See, e.g., 21 Chandler v. State Farm Mut. Auto. Ins. Co., 598 1115, 1123 (9th Cir. 2010) (explaining that at 22 this stage, Plaintiff’s claims involve future events that are too uncertain and speculative to 23 24 permit Plaintiff to proceed with his lawsuit); Factory Sales & Eng’g, Inc. v. Factory Mut. Ins. 25 Co., 2015 U.S. Dist. LEXIS 79413, *15-17 (W.D. Wash. June 18, 2015) (explaining that 26 someone who is a third party to the insurance contract or that has shown injury in fact, has 27 1 28 It does not appear that either Washington state courts or the Ninth Circuit Court of Appeals has addressed this question directly. ORDER PAGE - 21 1 standing to bring a claim under Washington state and federal declaratory judgment law). 2 Accordingly, the Court agrees that Defendant Slater lacks standing at this time to bring his 3 Counterclaim and it should be dismissed. 4 IV. CONCLUSION 5 Having reviewed the parties’ cross-motions for summary judgment, the responses 6 7 8 9 thereto and replies in support thereof, along with all supporting declarations and exhibits and the remainder of the record, the Court hereby finds and ORDERS: 1. Plaintiff’s Motion for Summary Judgment (Dkt. #24) is GRANTED IN PART and 10 DENIED IN PART for the reasons discussed above. 11 2. Defendant Slater’s Cross-Motion for Summary Judgment (Dkt. #31) is DENIED for 12 the reasons discussed above. 13 14 3. Defendant Hoover’s bad faith and IFCA Counterclaims are DISMISSED in their 15 entirety for the reasons discussed above. 16 4. Defendant Slater’s Counterclaim for an affirmative declaration of coverage is 17 DISMISSED in its entirety for the reasons discussed above. 18 19 DATED this 30th day of March 2016. 20 A 21 RICARDO S. MARTINEZ CHIEF UNITED STATES DISTRICT JUDGE 22 23 24 25 26 27 28 ORDER PAGE - 22
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