Financial Pacific Leasing Inc v. RVI America Insurance Co

— 1 — — 2 — — 3 — — 4 — — 5 — — 6 — — 7 — UNITED STATES DISTRICT COURT — 8 — WESTERN DISTRICT OF WASHINGTON AT SEATTLE — 9 — — 10 — FINANCIAL PACIFIC LEASING INC., CASE NO. 2:21-CV-00756-LK — 11 — Plaintiff, ORDER ON CROSS-MOTIONS 12 v. FOR SUMMARY JUDGMENT, MOTIONS TO EXCLUDE EXPERT 13 RVI AMERICA INSURANCE CO., OPINIONS, AND MOTION TO SEAL 14 Defendant. — 15 — 16 This matter comes before the Court on Plaintiff Financial Pacific Leasing Inc.’s and 17 Defendant RVI America Insurance Co.’s cross-motions for summary judgment, Dkt. Nos. 85, 99, 18 RVI’s motions to exclude the expert opinions of William Warfel and Gregg Dight, Dkt. Nos. 79, 19 81, and Financial Pacific’s motion to file two exhibits under seal, Dkt. No. 83. For the following 20 reasons, the Court grants in part and denies in part Financial Pacific’s motion for partial summary 21 judgment, grants in part and denies in part RVI’s cross-motion for summary judgment, grants in 22 part and denies in part RVI’s motions to exclude, and denies Financial Pacific’s motion to seal.1 — 23 — 1 Because the Court can decide the matter based on the parties’ filings, it denies RVI’s request for oral argument. Dkt. 24 No. 79 at 1; Dkt. No. 81 at 1; Dkt. No. 99 at 1. 1 I. BACKGROUND 2 A. Financial Pacific’s Asset Acquisition 3 Financial Pacific is an asset-based lender that acquires assets and then leases them to 4 commercial customers. Dkt. No. 64 at 2; Dkt. No. 86 at 1. This includes acquiring assets from 5 manufacturers that have already been leased to a third party. Dkt. No. 86 at 1. When Financial 6 Pacific engages in these transactions, it considers the risk of whether an asset’s value will retain 7 its “residual value” by the end of the lease. Dkt. No. 64 at 2. At times, Financial Pacific will engage 8 in efforts to mitigate the risk of an asset’s value falling below its expected residual value through 9 certain financial structures, such as residual value insurance. Id. at 1. 10 At the center of this dispute are 150 Greenbriar C112 Covered Hopper railcars (the 11 “Halliburton Units”) that Financial Pacific leased to the Halliburton Company (a party not 12 otherwise featured in this case) in 2015 for a five-year term ending on August 31, 2020. Id. at 2, 13 5. These are specialized railcars used mainly for the transportation of “frac sand” (sand used in 14 hydraulic fracturing to facilitate the production of oil and natural gas), cement, and non-metallic 15 minerals and earths. Id. at 7. Financial Pacific purchased these railcars for $81,500 each and 16 expected a residual value of $61,000 per railcar at the end of the lease term. Id. 17 Financial Pacific then initiated the purchase of a Master Residual Value Insurance Policy 18 from RVI—Policy No. 01-01-30-1365 (the “Policy”). Before it would issue a policy for the 19 Halliburton Units, RVI required Financial Pacific to provide a written evaluation detailing key 20 information about the Halliburton Units. Dkt. No. 99 at 11; Dkt. No. 100-3 at 19; Dkt. No. 100-10 21 at 2–8. In response, Financial Pacific submitted a valuation of the Halliburton Units by Vista 22 Consulting Group (“Vista”), which Financial Pacific had hired at the time it was evaluating 23 Halliburton’s lease proposal to determine the “projected . . . future value” for the Halliburton Units 24 at the end of the lease. Dkt. No. 89 at 126; Dkt. No. 100-10 at 3. The Vista appraiser summarized 1 his methodology for these units in an e-mail to Financial Pacific, which was forwarded to RVI in 2 support of Financial Pacific’s application for insurance. Dkt. No. 100-10 at 2–3. According to 3 Vista’s appraiser, he utilized the “Cost Approach” method because “there has been limited sales 4 data available for small cubic foot capacity hopper cars.” Id. at 3; see also Dkt. No. 100-4 at 7 5 (Financial Pacific’s Credit Recommendation in which it repeated this rationale for using the cost 6 approach). He explained that the cost approach “starts with the replacement cost []new of a car 7 and is adjusted for (3) forms of depreciation.” Dkt. No. 100-10 at 3; see also Dkt. No. 100-4 at 7 8 (Financial Pacific’s Credit Recommendation in which it repeated this). “[T]o be more 9 conservative,” the appraiser assumed a useful life of 35 years for physical depreciation. Dkt. No. 10 100-10 at 3. “There was a minor adjustment made for economic obsolescence representing any 11 contingent factor external to the car that could impact value.” Id.; Dkt. No. 100-4 at 7. 12 For the year 2020, the appraiser provided three projected values: a fair market value of 13 $67,500, an orderly liquidation value—or OLV2—of $63,500, and a net orderly liquidation value 14 of $58,250. Dkt. No. 100-10 at 8. Financial Pacific focused on OLV in its communications. See, 15 e.g., id. at 2–3; Dkt. No. 100-4 at 5. In its Credit Recommendation on Halliburton’s request for a 16 lease, it reported that the five-year least term “with 77.9% residual position is supported by the 17 economic useful life of 35 years and the [Vista] analysis showing the [end of term] OLV to match 18 the residual value”; specifically, Vista “found that the OLV in year 5 is $63,500 per car which 19 supports the residual position at the [end of term] of $63,500.” Dkt. No. 100-4 at 5. Financial 20 Pacific also reported that at the end of term, it would be “essentially at a break-even level when 21 comparing the OLV to the [amortizing balance]” of the Hallburton Units. Id. at 7. Noting the 22 fluctuations in the frac sand market and the market for the railcars, Financial Pacific projected that — 23 — 2 OLV is the amount “that may reasonably be expected for property sold on an as is - where is basis, from a liquidation 24 sale of the Railcars[.]” Dkt. No. 100-19 at 37. 1 “the near term prospects still look reasonably favorable for the . . . market” despite a potential 2 “pessimistic scenario” where “demand for frac sand drops off, the residential housing and 3 construction market sectors continue to languish, and the industry is stuck with an oversupply of 4 small cube covered [railcars].” Id. at 9. 5 RVI then issued the Policy to Financial Pacific. Dkt. No. 64. The “Insured Value” per 6 railcar is $51,815.08. Id. at 5, 62 (total insured value of $7,772,262 for 150 Halliburton Units). 7 B. The Market for Frac Sand Changes 8 According to the complaint, frac sand, which is “highly dependent on energy prices, 9 particularly crude oil,” accounts for “over one-half and in some cases two-thirds of loadings for 10 C112 Covered Hoppers.” Id. at 7–8; see also Dkt. No. 89 at 104–05. After oil prices dropped in 11 2016, “there was a dramatic decrease in demand for frac sand and a corresponding dramatic 12 decrease in demand for C112 Covered Hoppers.” Dkt. No. 64 at 8.3 The complaint also avers that 13 starting in 2018, the market for frac sand was further impacted by the use of “in-basin (locally 14 sourced) brown sand” in hydraulic fracturing because in-basin sand “can be delivered to the 15 wellhead for one-third or less of the cost of white silica sand[.]” Id.; see also Dkt. No. 89 at 105. 16 According to Financial Pacific, the market for C112 Covered Hoppers is now “essentially non17 existent,” and “[m]any of the large lessees of C112 Covered Hoppers are facing, or have declared, 18 bankruptcy.” Dkt. No. 64 at 8; see also Dkt. No. 89 at 106. Financial Pacific alleges that because 19 of all this, “the secondary sale market for C112 Covered Hoppers is essentially non-existent and— 20 as a result of the development of in-basin sand—the frac sand market is expected to remain 21 severely depressed even if energy prices recover.” Dkt. No. 64 at 8; Dkt. No. 89 at 106–07. — 22 — — 23 — 3 At the time Financial Pacific chose to enter into the lease with Halliburton, crude oil prices were “at a 5 year low”— a risk Financial Pacific thought would be mitigated by Halliburton’s “strong operating history” and “ab[i]l[ity] to 24 withstand fluctuations in the market.” Dkt. No. 100-4 at 5. 1 C. Relevant Policy Provisions 2 The first page of the Policy states, in capitalized bold font, that it is “an indemnity against 3 loss incurred by the insured due to a fortuitous decline in value of a class of asset to which the 4 insured equipment belongs caused by changes in market conditions when such equipment is used 5 and maintained as intended.” Dkt. No. 64 at 45. Under Article I, RVI agreed to indemnify Financial 6 Pacific “as of the Lease Termination Date against Loss, if any, which shall be payable on the 7 Settlement Date, in respect of all Units subject to a Lease.” Id. The Policy further defines “Loss” 8 as “the amount, if any, by which the sum of the Insured Values of all Units subject to such Lease 9 exceeds the sum of the End [o]f Term Values thereof on the Lease Termination Date, as determined 10 in accordance with Article V., reduced by the Deductible.” Id. at 47. The “Insured Value” of each 11 railcar was $51,815.08, or approximately 60% of the original equipment cost. Id. at 3, 5. 12 As for End of Term Value, the Policy states that it must be “defined and determined in 13 accordance with Section 5.02.” Id. at 46. This is the crux of the parties’ dispute. Section 5.02 of 14 the Policy originally required the End of Term Value to be calculated by determining the greater 15 of three sums. Id. at 51. Two of those sums are not relevant to the dispute at hand. For current 16 purposes, it suffices to note that one of the three values was “[t]he Appraised Value of the Unit 17 determined under the direction of [RVI] but at the Insured’s expense, by a Qualified 18 Inspector/Appraiser selected and approved by [RVI.]” Id. And Section 2.01(d) of the Policy 19 originally defined “Appraised Value” as follows: 20 Appraised Value: with respect to a Unit, the fair retail price (not reduced by the value of any trade-in, allowances or set-offs) that would result from an arm’s-length 21 retail sales transaction, free and clear of mortgages, liens, security interests and other encumbrances, between an informed and willing seller under no compulsion 22 to sell and an informed and willing purchaser (other than a user in possession or a used equipment dealer) under no compulsion to purchase, who is purchasing the 23 Unit for its own usage (not for resale) with the intent of utilizing the Unit in accordance with the Unit’s intended usage, such fair retail price being determined: — 24 — 1 (i) as of the Lease Termination Date; 2 (ii) by a Qualified Inspector/Appraiser in accordance with Section 5.02(a) or Section 6.01(b)(ii), as applicable; — 3 — (iii) with respect to Section 5.02(a), on the basis that such Unit complies 4 with all standards set forth in the Equipment Portfolio Return Conditions Endorsement but with respect to Section 6.01(b)(ii), on 5 the basis of such Unit being in its existing condition; (iv) without deduction of any costs, fees, commissions, charges or — 6 — expenses incurred or expected to be incurred with respect to repossession, storage, remarketing, redelivery or de-installation, if — 7 — applicable, or removal from any location of current use, of such Unit; and — 8 — (v) highest and best use without regard to quantity, location or country — 9 — of registration of such Unit. 10 Id. at 45–46. 11 However, the railcars were added to the Policy through Endorsement D, id. at 60, which 12 deleted Section 5.02 in its entirety and replaced it with the following sentence: “5.02 The End of 13 Term Value of the Unit shall be the Appraised Value (Reproduction Cost New).” Id. at 61. It also 14 deleted Section 2.01(d) of the Policy (the original “Appraised Value” definition) and replaced it 15 with the following definition of “Appraised Value (Reproduction Cost New)”: 16 Appraised Value (Reproduction Cost New): with respect to a Unit, the fair retail price (not reduced by the value of any trade-in, allowances or set-offs) that would 17 result from an arm’s-length retail sales transaction, free and clear of mortgages, liens, security interests and other encumbrances, between an informed and willing 18 seller under no compulsion to sell and an informed and willing purchaser (other than a user in possession or a used equipment dealer) under no compulsion to 19 purchase, who is purchasing the Unit for its own usage (not for resale) with the intent of utilizing the Unit in accordance with the Unit’s intended usage, such fair 20 retail price being determined: 21 (i) by the cost of substituting another asset of comparable utility; 22 (ii) on the basis of the expense necessary to construct an exact duplicate of a subject property considering current prices for identical 23 components, criteria, design, arrangement, and quality meeting current regulatory requirements (i.e., “reproduction cost new” 24 basis); 1 (iii) as of the applicable Lease Termination Date; 2 (iv) by a Qualified Appraiser in accordance with Section 5.02 hereof; 3 (v) on the basis that such Unit complies with all standards set forth in the Return Condition Endorsement; — 4 — (vi) without deduction of any costs, fees, commissions, charges or expenses incurred or expected to be incurred with respect to — 5 — repossession, storage, remarketing redelivery or de-installation, if applicable, or removal from any location of current use, of such — 6 — Unit; and — 7 — (vii) without regard to quantity, location or country of registration of such Unit. — 8 — Id. at 60–61. — 9 — The parties’ dispute implicates two other provisions. First, Article III of the Policy sets — 10 — forth four conditions precedent to filing a claim. See id. at 49. As relevant here, it requires that — 11 — RVI “must receive the Preliminary Notice of Claim and the Notice of Claim as to all Units subject — 12 — to a Lease at the times and with the supporting documentation required by Sections 5.01 and — 13 — 7.03[.]” Id.4 And second, Article V of the Policy establishes a mandatory mechanism for resolving — 14 — disputes over the End of Term Value. Id. at 51. That provision requires the insured to “state in a — 15 — Preliminary Notice of Claim its opinion of the End Of Term Value of each Unit subject to the — 16 — — 17 — 4 The Policy defines “Notice of Claim” and “Preliminary Notice of Claim” as follows: — 18 — Notice of Claim: a written final notice of a Claim executed by the Insured and given to [RVI] which: (i) states the Policy number; (ii) states the amount of the Claim; (iii) identifies the Lease as to which 19 the Claim is made and all the Units subject to the Lease; (iv) states the End Of Term Value of such Units as finally determined in accordance with Article V.; and (v) is accompanied by a certificate 20 executed by an authorized officer of the Insured certifying that, as of the date of such Notice, the conditions precedent set forth in Section 3.01 have been satisfied. 21 Preliminary Notice of Claim: a written preliminary notice of a Claim executed by the Insured and given to [RVI] which: (i) states the Policy number; (ii) states the estimated amount of the anticipated Claim; (iii) identifies the Lease as to which the Claim may be made and all the Units subject to such — 22 — Lease; (iv) states the Insured’s opinion of the End Of Term Value of each such Unit accompanied by an appraisal of each such Unit performed by a Qualified Inspector/Appraiser; and (iv) is 23 accompanied by a certificate executed by an authorized officer of the Insured certifying that, as of the date of such Notice, the conditions precedent set forth in Section 3.01 will be satisfied. 24 Id. at 47–48. 1 Lease and the basis thereof.” Id. Once RVI has “all relevant documentation pertaining to the Units 2 in question,” it must, “in accordance with Section 5.02, determine the End [o]f Term Value of each 3 such Unit.” Id. The Policy makes clear that RVI’s calculation of the End of Term Value binds the 4 parties unless RVI receives, within 30 days, “a written notice of objection accompanied by the 5 Insured’s determination of the End Of Term Value and an appraisal of the Unit performed by a 6 Qualified Inspector/Appraiser.” Id. 7 If the insured submits a written notice of objection, Article V specifies additional processes 8 for resolving the dispute. Id. at 51. The parties thereafter have 30 days to “meet and attempt to 9 arrive at a mutually acceptable determination” and, in the event such attempt fails, they must each 10 choose a Qualified Inspector/Appraiser. Id. at 52. Their Qualified Inspectors/Appraisers must then 11 select a third Qualified Inspector/Appraiser. Id. “If either party fails to choose a Qualified 12 Inspector/Appraiser within fifteen (15) Business Days after having received a written request from 13 the other party to do so, the other party will choose both Qualified Inspectors/Appraisers, and they 14 will choose the third Qualified Inspector/Appraiser.” Id. However the third Qualified 15 Inspector/Appraiser is ultimately selected, he or she must “make an independent determination” 16 of the End of Term Value pursuant to the Policy’s criteria. Id. That determination is “conclusively 17 binding on the parties,” although the third Qualified Inspector/Appraiser’s determination cannot 18 be “less than the lower of the prior two appraisals nor greater than the higher.” Id. 19 D. Financial Pacific Directs RailSolutions to Perform a “Fair Market Value” Appraisal 20 In March 2020, Mark Williams, Financial Pacific’s Vice President of Asset Management 21 who succeeded the Group Manager responsible for purchasing the Policy, reviewed Financial 22 Pacific’s portfolio of leases and concluded that there was a “problem” with the Halliburton lease 23 because “the market value would not support the residual value that was taken on the [Halliburton] 24 Units,” which would cause Financial Pacific to suffer a financial loss. Dkt. No. 100-1 at 12, 15; 1 see also Dkt. No. 89 at 76. On August 11, 2020, Financial Pacific retained Rob Blankemeyer of 2 RailSolutions LLC to appraise the Halliburton Units. Dkt. No. 100-19 at 4. Williams noted to 3 Blankemeyer that “there [wa]s considerable urgency . . . to get a proper valuation along with the 4 conditions impacting the current values if any,” and told Blankemeyer that he “suspect[ed] the 5 most appropriate valuation is the Collateral Value – Current Fair Market Value – Current Orderly 6 Liquidation Value” to determine “what the [fair market value] is now.” Id. at 5. 7 Blankemeyer estimated that, as of August 14, 2020, the fair market value of each 8 Halliburton Unit would be $28,000. Dkt. No. Id. at 17. His report defines “fair market value” as 9 “the amount . . . that may be reasonably expected for property exchanged between a willing buyer 10 and a willing seller, with equity to both, neither under any compulsion to buy or sell, and both 11 fully aware of all relevant, reasonably ascertainable facts.” Id. at 10, 17. Blankemeyer’s appraisal 12 was determined by “us[ing] the market, comparable sales approach (or market approach) and the 13 depreciated replacement cost approach (or cost approach) as the primary methods of valuation 14 along with channel checks of equipment owners.” Id. at 10. He noted that his appraisal was not 15 based on any actual sales in the secondary market, because “[t]he secondary sale market is non16 existent” due to “large surpluses” in inventory resulting from the pandemic and “decline in rail 17 loadings,” and the most recent sales were in 2017 and 2018 and were for “$75,000+.” Dkt. No. 18 100-19 at 8; see also Dkt. No. 100-20 at 4–7.5 19 E. Financial Pacific’s Preliminary Notice of Claim 20 On August 25, 2020, Financial Pacific submitted a Preliminary Notice of Claim to RVI, 21 identifying an End of Term Value of $28,000 per Halliburton Unit and a total Loss of $3,572,262. — 22 — — 23 — 5 Blankemeyer also attributes this decline in value to a “recent collapse in energy prices” and to recent bankruptcy filings by two major sand producers, both of whom were significant lessees of small cube covered hoppers. Dkt. No. 24 100-19 at 7–8. 1 Dkt. No. 100-21 at 2.6 Financial Pacific stated in its Preliminary Notice of Claim that it 2 “anticipate[d] making a Claim” because it “believe[d] the End of Term Value of the [Halliburton] 3 Units to be $28,000 per Unit.” Id. It “enclosed a copy of an appraisal of each [Halliburton] Unit 4 performed by a Qualified Inspector/Appraiser as that term is defined in § 2.01(ll) of the Policy.” 5 Id. In support, Financial Pacific included the August 14 RailSolutions appraisal. Id.; Dkt. No. 1006 25 at 3. Financial Pacific reiterated its “Loss” claim in its Notice of Claim that it sent to RVI on 7 August 31, 2024. Dkt. No. 100-23 at 2. 8 On September 11, 2020, RVI acknowledged receipt of both the Preliminary Notice of 9 Claim and the Notice of Claim. Dkt. No. 100-25 at 3; Dkt. No. 100-26 at 2. It noted in its response, 10 however, that the Preliminary Notice of Claim was “untimely and . . . not compliant with the 11 Policy’s terms and conditions” because it was not submitted at least 180 days prior to the applicable 12 Lease Termination Date. Dkt. No. 100-25 at 3; see also Dkt. No. 64 at 51 (“If [Financial Pacific] 13 wishes to give to [RVI] a Preliminary Notice of Claim as to all Units subject to a Lease, [it] must 14 do so not later than one hundred eighty (180) days . . . prior to the applicable Lease Termination 15 Date.”). It also noted that the RailSolutions Appraisal “was not performed in accordance with the 16 terms and conditions required under the Policy and is therefore deficient,” in part because it did 17 “not determine the End of Term Value of the units in accordance with the Policy definition” 18 requiring the appraisal to “take into account the Appraised Value (Reproduction Cost New) 19 definition found in Endorsement D.” Dkt. No. 100-25 at 4.7 RVI stated, however, that “[i]n spite — 20 — 21 6 While the original appraisal of all 150 Halliburton Units was $4,200,000, Dkt. No. 100-19 at 17, Financial Pacific subsequently reduced its claim to $3,524,631.84 because two of the Halliburton Units “were declared a total loss prior to the termination of the . . . lease[.]” Dkt. No. 64 at 9. Financial Pacific later conceded in discovery that four—not — 22 — two—Halliburton Units were a total loss and that none of the four should be included in its claim. Dkt. No. 100-24 at 3. — 23 — 7 RVI also noted that the RailSolutions appraisal did “not take into account the Equipment Portfolio Return Conditions Endorsement” and was based on the appraisal report date of August 14, 2020 as opposed to the Lease Termination 24 Date of August 31, 2020, as required by the Policy. Id. at 4–5. 1 of these issues” and “subject to [Financial Pacific] providing all relevant documentation relating 2 to the [Halliburton] Units in question,” it would “engage a Qualified Inspector/Appraiser . . . to 3 determine the End of Term Value of all [Halliburton] Units as of the Lease Termination Date of 4 August 31, 2020.” Id. at 5. 5 Financial Pacific confirmed receipt of RVI’s response on September 25, 2020, and noted 6 that it had “provided all of the relevant documents pertaining to the [Halliburton] Units” that RVI 7 asked for. Dkt. No. 100-26 at 2. 8 On October 20, 2020, RVI retained Ed Biggs of Biggs Appraisal to conduct an appraisal 9 of the Halliburton Units. Dkt. No. 100-27 at 2. RVI sent the Policy to Biggs and advised him that 10 his appraisal must consider “the Appraised Value as defined in Endorsement D,” and noted that, 11 pursuant to Endorsement D, “[t]he End of Term Value of the Unit shall be the Appraised Value 12 (Reproduction Cost New)[.]” Id. at 3. On November 18, 2020, Biggs provided RVI with his 13 appraisal report of the Halliburton Units. Dkt. No. 100-28 at 2–15. Biggs noted that “[t]here are 14 three generally accepted valuation approaches to determining value, i.e., the cost approach, the 15 income approach, and the market approach.” Id. at 7. He stated that while “[e]ach valuation 16 approach was considered in preparing” his appraisal report, he elected to use the cost approach 17 because “[a]ll of the subject Rail Equipment are late model cars with no recent sales activity 18 without a lease attached,” and therefore “the cost approach provides the best value for this Rail 19 Equipment currently.” Id. Biggs describes the cost approach as follows: 20 Using the cost approach, the appraiser starts with the current reproduction cost new of the property being appraised, then deducts for the loss of value caused by the 21 physical deterioration, functional obsolescence, and economic obsolescence. The logic behind the cost approach is the principle of substitution: a prudent buyer will 22 not pay more for a property than the cost of acquiring a substitute property of equivalent utility. — 23 — Id. He also stated that his scope of work was to “[d]etermine the Appraised Value (Reproduction — 24 — 1 Cost New) of the Rail Equipment in accordance with the Appraised Value (Reproduction Cost 2 New) . . . provided by RVI.” Id. at 4; see also id. at 5 (defining “Appraised Value (Reproduction 3 Cost New)” consistent with the Policy). Biggs determined that the End of Term Value was “in the 4 range of $67,500 and $69,500 per car.” Id. at 6.8 RVI provided Biggs’ appraisal to Financial Pacific 5 on November 20, 2020. Dkt. No. 100-31 at 2. 6 On December 10, 2020, Williams asked Blankemeyer to update RailSolutions’ August 14, 7 2020 Appraisal to change the “as of” date to August 31, 2020 and to specify that the appraisal 8 assumed that the Halliburton Units would be returned in the condition required under the Policy. 9 Dkt. No. 100-19 at 19. RailSolutions provided Financial Pacific with a revised appraisal report the 10 next day with the requested changes. Id. at 23–39; see also Dkt. No. 100-20 at 18 (confirming that 11 the “appraisal and substance” of the two appraisal reports were the same). Also on December 10, 12 Williams asked Blankemeyer to assist Financial Pacific with disputing the Biggs appraisal “on all 13 levels.” Dkt. No. 100-19 at 22. The next day, Williams provided Blankemeyer with a copy of 14 Endorsement D and the Biggs appraisal. Id. at 38. Blankemeyer refused to assist: 15 [M]y comment to [Williams] was . . . something along the lines of knowing how R.V.I. works, I assumed that somewhere in the policy may have been baked the 16 notion that the cost methodology was to be used in determining fair market value. I believe there is an email that I sent . . . saying that if I was to use the same 17 methodology, I don’t believe I would have a much different opinion than Ed Biggs. 18 Dkt. No. 100-20 at 21.9 — 19 — 8 Because there were no sales in 2019 and 2020, Biggs reviewed the most recent sales from 2017 and 2018 to arrive 20 at that amount. Dkt. No. 100-30 at 3–4; Dkt. No. 84 at 5–6. The sales were for between $76,000 and $87,000, and he arrived at an $81,000 Current Reproduction Cost New by averaging the “selling prices of the cars when last 21 manufactured between 2017 and 2018.” Dkt. No. 84 at 5; see also Dkt. No. 100-30 at 4; Dkt. No. 100-28 at 5. He then applied a depreciation model. Dkt. No. 84 at 12; Dkt. No. 100-30 at 5. Financial Pacific contends that this model was non-linear, Dkt. No. 85 at 2, 7, 18; Biggs and RVI contend that it was not, Dkt. No. 99 at 20; Dkt. No. 100-30 at 5 22 (Biggs used a 3.1% depreciation for the first five years, but “[a]s the car ages, the curve flattens out”). 9 Blankemeyer was referring to a June 10, 2021 email in which he recounted a conversation with Williams: — 23 — Ed Biggs did an appraisal on behalf of RVI and came up with a very high value when compared to current FMV. [Financial Pacific] showed me the RVI contract and it was a theoretical replacement — 24 — 1 On December 17, 2020, Financial Pacific sent RVI a letter objecting to RVI’s reliance on 2 the Biggs appraisal on four grounds: (1) because “the cost to produce new Units will necessarily 3 be higher than the Insured Value of the Units, Endorsement D effectively eliminates coverage and 4 fails to provide insurance for ‘changes in market conditions’ as promised in the opening paragraph 5 of the Policy”; (2) the Biggs appraisal “d[id] not comply with the terms of Endorsement D” because 6 Endorsement D “sets the End of Term Value as the cost to manufacture a new Unit,” while the 7 Biggs appraisal used the cost approach method; (3) the Biggs appraisal did not apply the 8 methodology it claimed to use because it “start[ed] with the cost of a new Unit ($81,000) and 9 applie[d] a linear depreciation schedule,” and therefore did not take into account the non-linear 10 factors of functional obsolescence and economic obsolescence; and (4) “even if the Biggs 11 Appraisal correctly follow[ed] its stated methodology and that methodology [wa]s consistent with 12 Endorsement D,” the linear depreciation method “render[ed] coverage illusory” because “the End 13 of Term Value could never be less than the Insured Value and Financial Pacific would never be 14 entitled to coverage.” Dkt. No. 100-33 at 2–4 (emphasis removed). Financial Pacific also enclosed 15 the December 11 RailSolutions appraisal and requested to meet with RVI to resolve this matter in 16 accordance with Section 5.03(a) of the Policy. Id. at 4.10 17 On December 21, 2020, RVI acknowledged receipt of Financial Pacific’s objections and 18 responded that “[t]he Policy’s terms and conditions, including but not limited to Endorsement D, 19 are clear and unambiguous, apply to the fullest extent to [Financial Pacific’s] [c]laim, and are — 20 — value based upon very specific components and what it would cost a builder to replicate. I advised 21 [Financial Pacific] that I would probably agree with Biggs if I was forced to value under the contract. I also advised that i[n] my opinion that the issue here did not involve FMV but rather the interpretation of the contract terms. — 22 — Dkt. No. 100-32 at 3; see also Dkt. No. 100-20 at 22. 23 10 Section 5.03(a) provides that “[i]f [RVI] receives from [Financial Pacific] a written notice of objection pursuant to Section 5.01, then . . . [t]he respective representatives of [Financial Pacific] and [RVI] will meet and attempt to arrive 24 at a mutually acceptable determination after each gives reasonable consideration to the criteria and reasoning of the other.” Dkt. No. 64 at 52. 1 enforceable.” Dkt. No. 100-34 at 2. It also stated that it was “ready and available to meet to attempt 2 to agree upon the End of Term Value of the Units,” and requested a date and time in January 2021 3 for that meeting. Id. 4 The parties met via Zoom on January 14, 2021. Dkt. No. 100-37 at 2; Dkt. No. 100-38 at 5 2. RVI followed up on the same day, and requested that Financial Pacific “choose a Qualified 6 Inspector/Appraiser in accordance with [Sections] 5.03 (b) and (d) [of the Policy] to continue the 7 process in [Section] 5.03 (c).” Dkt. No. 100-38 at 2. Financial Pacific responded on February 12, 8 2021, stating that it “object[ed] to any appraisal under Section 5.03 of the Policy that is based on 9 the ‘Appraised Value (Reproduction Cost New)’ found in Endorsement D” because “the use of the 10 purported ‘Appraised Value (Reproduction Cost New)’ renders coverage under the Policy 11 illusory[.]” Dkt. No. 100-39 at 2. Financial Pacific refused to “proceed forward under Section 12 5.03” unless RVI agreed to “proceed with the Section 5.03 appraisal process using the original 13 ‘Appraised Value’ found in Section 2.01(d) of the Master Policy[.]” Id. Financial Pacific “further 14 object[ed] to any effort by RVI to invoke the appraisal process until this fundamental legal issue 15 is determined.” Id. 16 F. Financial Pacific’s Complaint and RVI’s Motion to Dismiss 17 On June 8, 2021, Financial Pacific filed suit against RVI in this Court for breach of 18 contract, declaratory relief, insurance bad faith, and violations of Washington’s Consumer 19 Protection Act (“CPA”), Wash. Rev. Code § 19.86.020 , and Insurance Fair Conduct Act (“IFCA”), — 20 — id. § 48.30.015. Dkt. No. 1 at 10–12; Dkt. No. 14 at 10–12. Financial Pacific contended that “[t]he 21 Policy’s definition of Insured Value—specifically including Endorsement D’s definition of 22 Appraised Value (Reproduction Cost New)—is ambiguous and RVI’s interpretation of Insured 23 Value would defeat the purpose of the insurance provided by the Policy.” Dkt. No. 14 at 10. It also 24 sought, among other things, a declaration that it was “entitled to coverage for the amount by which 1 the sum of the Insured Values of the Haliburton Units exceeds the fair market value of the units at 2 the Lease Termination Date.” Id. at 11, 13. 3 On August 23, 2021, RVI moved to dismiss Financial Pacific’s claims, arguing that the 4 “Appraised Value (Reproduction Cost New)” definition is clear and unambiguous, and, under a 5 straightforward application of that definition, Financial Pacific did not suffer a Loss and therefore 6 had no claim under the Policy. Dkt. No. 23 at 20–23. It also maintained that any claim for illusory 7 coverage must fail because “there are examples of when using the Appraised Value (Reproduction 8 Cost New) methodology to calculate the End of Term Value would result in a claim payment 9 obligation.” Id. at 25. RVI also urged wholesale dismissal of Financial Pacific’s action on the 10 ground that the parties failed to complete Article V’s mandatory End of Term Value dispute 11 process—a condition precedent to asserting a claim under the Policy. Id. at 26–27. Finally, RVI 12 contended that Financial Pacific’s CPA and IFCA claims should be dismissed because they were 13 premised on an allegedly unreasonable denial of coverage, and RVI’s interpretation of the Policy 14 was legally correct. Id. at 27. 15 On July 3, 2023, the Court granted in part and denied in part RVI’s motion to dismiss. Dkt. 16 No. 63 at 36. First, the Court held that subsections 2.01(d)(i) and (d)(ii) of Endorsement D rendered 17 the Endorsement ambiguous because the two subsections “call[] for two potentially irreconcilable 18 valuation methods.” Id. at 17–21. Specifically, the operative language of these subsections “creates 19 a potential conflict because the cost of substituting another asset of comparable utility for a rail car 20 is not necessarily the same as the expense of constructing an exact duplicate of a rail car.” Id. at 21 19. Second, the Court dismissed Financial Pacific’s breach of contract claim to the extent that it 22 was premised on Financial Pacific’s unsuccessful theory that Endorsement D’s prefatory language 23 defined the valuation method, but permitted Financial Pacific leave to amend. Id. at 21–22. Third, 24 the Court denied RVI’s motion to dismiss Financial Pacific’s illusory coverage claim because 1 “Section 2.01(d)’s ambiguity makes it impossible for the Court to determine at this juncture 2 whether the Policy is illusory.” Id. at 22–24. Fourth, the Court dismissed (with leave to amend) 3 Financial Pacific’s request for a declaration that it is “entitled to coverage for the amount by which 4 the sum of the Insured Values of the Hal[l]iburton Units exceeds the fair market value of the units 5 at the Lease Termination Date,” because it “relie[d] on the failed argument that Endorsement D’s 6 valuation method is set out in the prefatory language.” Id. at 24. However, it denied the motion to 7 dismiss Financial Pacific’s alternative claim for declaratory relief that “RVI’s calculation of End 8 of Term Value and covered Loss would render coverage under the Policy illusory and is therefore 9 unenforceable[.]” Id. (citation omitted). Fifth, the Court denied RVI’s motion to dismiss Financial 10 Pacific’s bad faith claim because RVI did not put forth argument as to why that claim should be 11 dismissed. Id. at 25. Sixth, the Court denied RVI’s motion to dismiss Financial Pacific’s CPA and 12 IFCA claims except for the portion of those claims alleging that RVI violated Section 284-3013 330(4) of Washington’s insurance regulations. Id. at 26–27; see also Wash. Admin. Code § 284 - 14 30-330(4) (an insurer’s refusal “to pay claims without conducting a reasonable investigation” is 15 an unfair or deceptive act). The Court granted RVI’s motion to dismiss the latter claims because 16 Financial Pacific did not advance facts that, taken as true, demonstrated a deficiency in RVI’s 17 investigation. Dkt. No. 63 at 26–27. Finally, the Court denied RVI’s motion to dismiss Financial 18 Pacific’s claims on the basis that Financial Pacific failed to comply with the Policy’s dispute 19 process because Financial Pacific complied with its obligations under Section 5.01 of the Policy, 20 and RVI did not exercise its right to complete the process pursuant to Section 5.03(b). Id. at 27– 21 30. 22 G. The Parties’ Cross-Motions for Summary Judgment 23 On July 24, 2023, Financial Pacific filed a second amended complaint, Dkt. No. 64, which 24 amended its claims to focus on the alleged differential between RVI’s valuation of the units and 1 Endorsement D’s definition of Appraised Value (Reproduction Cost New) instead of the 2 differential between RVI’s valuation of the units and fair market value (which RVI previously 3 argued was the methodology under Endorsement D’s prefatory language). Financial Pacific 4 continues to advance claims for (1) breach of contract; (2) declaratory judgment that “the 5 determination of End of Term Value under the Policy is ambiguous”; that, alternatively, coverage 6 is illusory under RVI’s interpretation of Endorsement D, and that “Financial Pacific is entitled to 7 coverage for the amount by which the sum of the Insured Values of the Haliburton Units exceeds 8 the End of Term Value of the units, applying Endorsement D’s definition of Appraised Value 9 (Reproduction Cost New), at the Lease Termination Date”; (3) insurance bad faith; (4) violation 10 of the CPA; and (5) violation of IFCA. Dkt. No. 64 at 10–12. 11 On July 23, 2024, Financial Pacific filed its motion for partial summary judgment on its 12 breach of contract claim and the parties’ declaratory judgment claims. Dkt. No. 85 at 16. RVI filed 13 its cross-motion for summary judgment on all claims on August 13, 2024. Dkt. No. 99. Before the 14 parties filed their cross-motions for summary judgment, RVI also filed motions to exclude the 15 opinions of two of Financial Pacific’s proposed experts. Dkt. Nos. 79, 81. 16 II. DISCUSSION 17 The Court first confirms its jurisdiction. It then addresses RVI’s motions to exclude Warfel 18 and Dight’s opinion before turning to the parties’ cross-motions for summary judgment. 19 A. Jurisdiction 20 This Court has subject matter jurisdiction over this action pursuant to 28 U.S.C. § 1332 21 because the amount in controversy exceeds $75,000 and there is complete diversity between the 22 parties. Financial Pacific is a Washington corporation with its principal place of business in Federal 23 Way, Washington. Dkt. No. 64 at 3. RVI is an insurance company incorporated in Delaware with — 24 — 1 its principal place of business in Stamford, Connecticut. Dkt. No. 65 at 2; Dkt. No. 66 at 1.11 2 Financial Pacific is seeking coverage under the Policy for its alleged loss of over $3.5 million. Dkt. 3 No. 64 at 9. 4 B. RVI’s Motions to Exclude the Opinions of Warfel and Dight 5 1. Legal Standard 6 Under Rule 702, a trial court may exercise discretion to allow expert testimony if the 7 proponent “demonstrates to the court that it is more likely than not that” such testimony (1) “will 8 help the trier of fact to understand the evidence or to determine a fact in issue;” (2) “is based on 9 sufficient facts or data;” (3) “is the product of reliable principles and methods;” and (4) “reflects a 10 reliable application of the principles and methods to the facts of the case.” Fed. R. Evid. 702(a)– 11 (d) (2023). “[B]efore admitting expert testimony, the district court must perform a ‘gatekeeping 12 role’ to ensure that the testimony is both ‘relevant’ and ‘reliable.’” United States v. Valencia13 Lopez, 971 F.3d 891 , 897–98 (9th Cir. 2020) (citation modified). “This gatekeeping obligation 14 ‘applies to all (not just scientific) expert testimony.’” Id. at 898 (quoting United States v. 15 Hermanek, 289 F.3d 1076, 1093 (9th Cir. 2002)). A proponent of expert testimony must always 16 “demonstrate each of the requirements of Rule 702 by a preponderance of the evidence,” and the 17 court “cannot abdicate its role as gatekeeper, nor delegate that role to the jury.” Engilis v. Monsanto 18 Co., No. 23-4201, 2025 WL 2315898 , at *6–7 (9th Cir. Aug. 12, 2025) (citation modified). — 19 — 11 Properly alleging an insurance company’s citizenship involves determining whether it should be treated as an 20 incorporated or unincorporated entity based on how the relevant state law treats it. See Mut. Serv. Cas. Ins. Co. v. Country Life Ins. Co., 859 F.2d 548, 550 (7th Cir. 1988) (observing that Texas mutual insurance company was an unincorporated association under Texas law, while Minnesota law treated mutual insurance company as a 21 corporation); see also e.g., S.P. v. Spinks, No. 2:20CV995-MHT, 2021 WL 1383233 , at *1 (M.D. Ala. Apr. 12, 2021) (“Whether State Farm should be considered a corporation for diversity purposes depends on state law.” (citation 22 modified)). An insurance company that is a corporation for diversity purposes is a citizen of not only the state in which it is incorporated, but also the state where it has its principal place of business. 28 U.S.C. § 1332 (c)(1). An insurance 23 company that is unincorporated for purposes of diversity jurisdiction has the citizenship of each of its members. Americold Realty Tr. v. Conagra Foods, Inc., 577 U.S. 378, 381 (2016). Here, RVI is listed as a corporation in Delaware’s Division of Corporations. See State of Delaware Division of Corporations Name Search, 24 https://icis.corp.delaware.gov/ecorp/entitysearch/namesearch.aspx. 1 “Expert opinion testimony is relevant if the knowledge underlying it has a valid connection 2 to the pertinent inquiry.” Primiano v. Cook, 598 F.3d 558, 565 (9th Cir. 2010). And whether 3 testimony is helpful within the meaning of Rule 702 is also “in essence a relevance inquiry.” 4 Hemmings v. Tidyman’s Inc., 285 F.3d 1174 , 1184 (9th Cir. 2002). 5 The reliability inquiry must focus on the basis for the expert’s opinion. Daubert v. Merrell 6 Dow Pharms., Inc., 43 F.3d 1311 , 1316 (9th Cir. 1995). In other words, the inquiry “focuses not 7 on ‘what the experts say,’ or their qualifications, ‘but what basis they have for saying it.’” United 8 States v. Holguin, 51 F.4th 841 , 854 (9th Cir. 2022) (quoting Daubert, 43 F.3d at 1316). Where, 9 as here, the relevant reliability concerns “focus upon personal knowledge or experience,” Kumho 10 Tire Co. v. Carmichael, 526 U.S. 137, 150 (1999), the inquiry may cover “whether the expert’s 11 experience supports the expert’s conclusions,” whether his “reasoning is circular, speculative, or 12 otherwise flawed,” or “whether the expert’s reasoning is adequately explained.” Holguin, 51 F.4th 13 at 854. Although “Daubert and Kumho Tire may be harder to apply when the expert testimony is 14 ‘experience-based’ rather than ‘science-based,’” any such difficulty “cannot simply lead to a ‘that 15 goes to weight, not admissibility’ default”; rather, there is “a strong argument that reliability 16 becomes more, not less, important when the ‘experience-based’ expert opinion is perhaps not 17 subject to routine testing, error rate, or peer review type analysis, like science-based expert 18 testimony.” Valencia-Lopez, 971 F.3d at 898 ; see also Fed. R. Evid. 702, Advisory Committee’s 19 Notes to 2023 amendments (decisions holding “that the critical questions of the sufficiency of an 20 expert’s basis, and the application of the expert’s methodology, are questions of weight and not 21 admissibility. . . . are an incorrect application of Rules 702 and 104(a)”). 22 Finally, although “[a]n opinion is not objectionable just because it embraces an ultimate 23 issue,” see Fed. R. Evid. 704(a), “an expert witness cannot give an opinion as to [their] legal 24 conclusion, i.e., an opinion on an ultimate issue of law,” Nationwide Transp. Fin. v. Cass Info. 1 Sys., Inc., 523 F.3d 1051, 1058 (9th Cir. 2008) (emphasis omitted) (quoting Hangarter v. Provident 2 Life & Accident Ins. Co., 373 F.3d 998, 1016 (9th Cir. 2004)). 3 2. Warfel Opinion 4 The Court first addresses RVI’s motion to exclude the testimony of Dr. William Warfel, 5 Financial Pacific’s proposed rebuttal expert. Dkt. No. 79. RVI seeks to exclude that testimony for 6 four reasons: (1) “Warfel lacks the requisite qualifications to offer admissible opinions” about 7 residual value insurance, the Policy, and industry custom and practice; (2) his opinions “lack the 8 necessary foundation” under Federal Rule of Evidence 702(b) because he “made no effort to 9 investigate relevant facts, did not provide sufficient facts in support of his opinions, and did not 10 review the documents and evidence that RVI’s expert had considered”; and (3) he “proffered 11 inadmissible legal conclusions and interpretations with respect to the Policy.” Dkt. No. 79 at 3–5. 12 As Financial Pacific points out, Dkt. No. 106 at 14, it relies on Dr. Warfel’s opinion only 13 in a single footnote stating that Dr. Warfel confirmed that “Financial Pacific’s interpretation 14 conforms with the Policy as a whole” in his expert report, Dkt. No. 85 at 15 n.3. The footnote goes 15 on to quote the report: 16 “In contrast, however, Financial Pacific Leasing’s interpretation, which results in a covered loss with the End of Term Value falling below the Insured Value, conforms 17 with the stated purpose in the applicable Residual Value Insurance Policy and R.V.I.’s other statements, including statements contained in its website, regarding 18 the purpose of this type of insurance.” (Expert Report of Dr. William Warfel, p. 5). — 19 — Id. Whether Financial Pacific’s interpretation of the Policy conforms with the stated purpose in 20 the Policy and the parties’ intent is a legal question that is not a proper subject of expert testimony. 21 See Crow Tribe of Indians v. Racicot, 87 F.3d 1039, 1045 (9th Cir. 1996) (“The interpretation of 22 a contract is an issue of law[.] . . . Expert testimony is not proper for issues of law.”); Aguilar v. 23 Int’l Longshoremen’s Union Local No. 10, 966 F.2d 443, 447 (9th Cir. 1992) (matters of law, such 24 as contract interpretation, are “inappropriate subjects for expert testimony”); Builders Mut. Ins. 1 Co. v. GCC Constr., LLC, 711 F. Supp. 3d 899 , 921–22 (E.D. Tenn. 2024) (excluding Warfel’s 2 opinion that plaintiffs’ “claim falls within the ambit of coverage provided under the applicable 3 [policy]” because that opinion “impermissibly interprets the policy at issue”). The Court 4 accordingly excludes this portion of Warfel’s testimony and denies as moot RVI’s motion to 5 exclude the remainder of his testimony.12 6 3. Dight Testimony 7 RVI also seeks to exclude the expert testimony of D. Gregg Dight, Financial Pacific’s 8 proposed expert, on four grounds: (1) Dight lacks the requisite qualifications to serve as an expert 9 in this matter, Dkt. No. 81 at 4, 9; (2) he improperly offers legal conclusions, id. at 4–5, 10; (3) his 10 “opinions about whether RailSolutions’ Appraisal of the C112 covered hopper cards would have 11 changed if RailSolutions actually had a copy of Endorsement D prior to performing its appraisal” 12 lacks foundation and is speculative, id. at 5, 11 (emphasis removed); and (4) he did not consider 13 “the RailSolutions work file, Blankemeyer’s testimony, the Financial Pacific documents pursuant 14 to which Blankemeyer was instructed to limit his appraisal . . . , or the deposition testimony of 15 Williams[.]” Id. at 12 . 16 (a) The Court excludes most of the opinions in Dight’s expert reports 17 Even assuming without deciding that Dight is qualified to offer testimony regarding 18 insurance, the Court excludes his opinions regarding Endorsement D and the RailSolutions 19 appraisal. Dight opines that appraisers “must adhere to the appropriate methodologies and 20 approaches that are approved by the governing agencies they obtain their credentials from” and 21 “should never be compelled to limit their analysis to relying on only one approach.” Dkt. No. 8222 1 at 6; Dkt. No. 82-2 at 3. Dight cites no support for these propositions, nor does his opinion change — 23 — 12 The Court notes that even if it had considered this portion of Warfel’s testimony, it would not change the outcome 24 of this Order. 1 the long-established principle that parties are free to contract to the terms they choose, subject to 2 limitations not applicable here. See Preferred Contractors Ins. Co. v. Baker & Son Constr. Inc., — 3 — 514 P.3d 1230 , 1234 (Wash. 2022). In other words, that appraisers “should never be compelled . . . 4 to rely[] on only one approach” does not alter the fact that under the law, parties are free to decide 5 certain valuation approaches, as the parties did here with Endorsement D. See Portland Gen. Elec. 6 Co. v. U.S. Bank Tr. Nat. Ass'n as Tr. for Tr. No. 1, 218 F.3d 1085 , 1090 (9th Cir. 2000) (“[C]ourts 7 play a limited role in construing appraisal agreements, serving only to enforce the parties’ bargain, 8 not ‘to add gloss to the parties’ own language.’” (quoting Raytheon Co. v. Rheem Mfg. Co., 322 9 F.2d 173, 182 (9th Cir. 1963)); Keesling v. W. Fire Ins. Co. of Fort Scott, Kansas, 520 P.2d 622 , 10 625 (Wash. Ct. App. 1974) (“An appraisal provision provides a method for establishing the dollar 11 value of damage sustained. Such a provision is justified in the expectation that it will provide a 12 plain, inexpensive and speedy determination of the extent of the loss.”). Dight’s premise, which 13 disregards this principal of law, is likely to confuse or mislead the jury. Fed. R. Evid. 403. 14 Apparently relying on this flawed premise, Dight proclaims in his “Summary of Opinions” section 15 that RailSolutions’ appraisal “appropriately considers the three approaches to value and makes 16 reasonable value assessments considering the specific circumstances of these assets.” Dkt. No. 8217 1 at 3. This proclamation is supported by nothing more than two paragraphs reciting RailSolutions’ 18 reputation and qualifications and a sentence announcing in conclusory fashion that “[b]ased on a 19 general review of their report, RailSolutions appropriately considered the three approaches to value 20 and made a reasonable assessment considering the specific circumstances of these assets.” Id. at 21 7. “[N]othing in either Daubert or the Federal Rules of Evidence requires a district court to admit 22 opinion evidence that is connected to existing data only by the ipse dixit of the expert.” Gen. Elec. 23 Co. v. Joiner, 522 U.S. 136, 146 (1997)). These opinions are excluded. — 24 — 1 The Court also excludes Dight’s rebuttal report regarding the RailSolutions appraisal, 2 which impermissibly speculates that Blankemeyer “would not have changed his opinion of value” 3 if he had received the specific policy language at issue. Dkt. No. 82-2 at 8. Dight bases this upon 4 an unsupported “assum[ption]” that Blankemeyer’s knowledge regarding “new equipment pricing 5 and how railcars that have come off lease depreciate in value based on their age” was “taken into 6 account as part of his analysis.” Id. Not only does Dight fail to explain how such knowledge would 7 translate into equal valuations for fair market value, reproduction cost, and replacement cost; he 8 also did not review Blankemeyer’s deposition testimony, in which Blankemeyer stated that the 9 cost approach would be a “completely different methodology and result,” Dkt. No. 100-20 at 12, 10 and that if he were “to use the same methodology [as Biggs], [he] d[id]n’t believe [he] would have 11 a much different opinion than Ed Biggs,” id. at 21. Dight’s reliance on assumptions alone, coupled 12 with his failure to review key documents that were considered in the report he was rebutting, see 13 Dkt. No. 94 at 26, also renders Dight’s methodology unreliable. For all of these independent 14 reasons, this opinion is excluded. 15 Dight also opines that subsections (i) and (ii) are “different and irreconcilable valuation 16 concepts for determining the ‘fair retail price.’” Dkt. No. 82-1 at 7. He explains on the prior page 17 of his report how “replacement cost” is different than “reproduction cost,” id. at 6—a basic concept 18 that no expert and no party disputes—but he never attempts to explain how these two things are 19 irreconcilable, see generally Dkt. No. 82-1. Dight’s rebuttal report does not correct this deficiency. 20 See Dkt. No. 82-2 at 4–5. “The trial court’s gatekeeping function requires more than simply ‘taking 21 the expert’s word for it’”; Dight’s unsupported opinion that the valuation concepts are 22 irreconcilable is excluded. Fed. R. Evid. 702, Advisory Committee’s Notes to 2000 amendments. 23 The Court further finds that his opinion that the valuation concepts are different is not helpful 24 because that point is undisputed. See, e.g., Jacobs v. Alexander, No. 105-CV-01625-SAB-PC, — 1 — 2016 WL 4440957 , at *12 (E.D. Cal. Aug. 22, 2016) (expert’s opinion that plaintiff’s “initial 2 symptoms after exposure could have been alleviated by flushing the eyes with water or saline is . . . 3 not helpful to the jury because it is undisputed that providing a person with copious amounts of 4 cool water is part of the decontamination process”); Rich v. Taser Int’l, Inc., No. 2:09-CV-024505 ECR, 2012 WL 1080281 , at *4 (D. Nev. Mar. 30, 2012) (expert’s opinion that plaintiff “had 6 epilepsy and suffered a seizure and subsequent postictal state on January 4, 2008 are undisputed 7 facts in this case, and [the expert’s] testimony is therefore not helpful to the trier of fact”). The 8 Court therefore excludes these opinions. 9 Similarly unhelpful is Dight’s opinion that he “would have expected to see something more 10 akin to th[e] term [‘Depreciated Replacement Cost’] and its definition within the R.V.I insurance 11 policy.” Dkt. No. 82-1 at 7. Neither Dight nor Financial Pacific attempt to explain the relevance 12 of this opinion, and the Court can discern none. Likewise of no help to the jury is the portion of 13 Dight’s “rebuttal” to the Oates report titled “What would I do if a client came to me and asked for 14 an appraisal done based only on FMV, without any reference to a designated valuation approach?” 15 Dkt. No. 82-2 at 5–6. This section does not respond to Oates’ points and exceeds the scope of a 16 rebuttal report, and is not “substantially justified or harmless,” as the time to disclose these 17 opinions was by the due date of the initial report. See Hoffman v. Constr. Protective Servs., Inc., — 18 — 541 F.3d 1175, 1179 (9th Cir. 2008) (quoting Fed. R. Civ. Proc. 37(c)(1)); see also, e.g., Fed. 19 Trade Comm’n v. Amazon.com, Inc., No. C14-1038-JCC, 2016 WL 4154284 , at *4 (W.D. Wash. 20 Feb. 9, 2016). 21 Finally, in both his initial and rebuttal reports, Dight criticizes Biggs’ assumptions (which 22 were based on an “effective date” of August 31, 2020, the end of the lease, Dkt. No. 100-28 at 4) 23 that the railcars were still under lease and in-use when estimating value, explaining without 24 elaboration that “[b]ased on what has been reported to me, that is no longer the case as the assets 1 have been in storage for an extended period of time.” Dkt. No. 82-1 at 8; see also Dkt. No. 82-2 at 2 9. Dight’s reports were written in April 2024 and May 2024, respectively—four years after the end 3 of the lease. Dkt. No. 82-1 at 2, Dkt. No. 82-2 at 2. He does not identify the date the assets were 4 purportedly put into storage, making it impossible to evaluate the basis for his opinion. “In the 5 absence of such an explanation, the district court ha[s] no means to ensure that [Dight’s] 6 conclusions [a]re not mere subjective beliefs or unsupported speculation.” In re Incretin-Based 7 Therapies Prods. Liab. Litig., No. 21-55342, 2022 WL 898595 , at *1 (9th Cir. Mar. 28, 2022) 8 (citation modified). This portion of Dight’s opinion is excluded. 9 Dight’s remaining opinions are (1) his other criticisms of Biggs’ appraisal, Dkt. No. 82-1 10 at 8; Dkt. No. 82-2 at 8–9; (2) his opinion that Oates did not determine Reproduction Cost New, 11 Dkt. No. 82-2 at 7; and (3) his rebuttal to the last “custom and practice” questions addressed by 12 Oates, Dkt. No. 94 at 21–22; Dkt. No. 82-2 at 6. The Court assumes without deciding that these 13 opinions are admissible, as consideration of these opinions does not change the result. The Court 14 therefore grants in part and denies in part RVI’s motion to exclude Dight’s opinions. 15 C. The Parties’ Cross-Motions for Summary Judgment 16 The Court next considers the parties’ cross-motions for summary judgment. Financial 17 Pacific moves for summary judgment on the parties’ declaratory judgment claims and its breach 18 of contract claim. Dkt. No. 85. RVI moves for summary judgment on all claims. Dkt. No. 99. For 19 the following reasons, the Court grants in part and denies in part each party’s motion. 20 1. Legal Standard 21 Summary judgment is appropriate only when “the movant shows that there is no genuine 22 dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. 23 Civ. P. 56(a). The Court does not make credibility determinations or weigh the evidence at this 24 stage. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). The sole inquiry is “whether the 1 evidence presents a sufficient disagreement to require submission to a jury or whether it is so one2 sided that one party must prevail as a matter of law.” Id. at 251–52. And to the extent that the Court 3 resolves factual issues in favor of the nonmoving party, this is true “only in the sense that, where 4 the facts specifically averred by that party contradict facts specifically averred by the movant, the 5 motion must be denied.” Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888 (1990). 6 When parties file simultaneous cross-motions for summary judgment on the same claim, 7 the Court “must consider the appropriate evidentiary material identified and submitted in support 8 of both motions, and in opposition to both motions, before ruling on each of them.” Fair Hous. 9 Council of Riverside Cnty., Inc. v. Riverside Two, 249 F.3d 1132 , 1134 (9th Cir. 2001); see also 10 Tulalip Tribes of Wash. v. Washington, 783 F.3d 1151, 1156 (9th Cir. 2015) (the district court 11 “rule[s] on each party’s motion on an individual and separate basis, determining, for each side, 12 whether a judgment may be entered in accordance with the Rule 56 standard” (citation modified)). 13 The Court “giv[es] the nonmoving party in each instance the benefit of all reasonable inferences.” 14 ACLU of Nev. v. City of Las Vegas, 333 F.3d 1092, 1097 (9th Cir. 2003). However, to the extent 15 the Court resolves factual issues in favor of the nonmoving party, this is true “only in the sense 16 that, where the facts specifically averred by that party contradict facts specifically averred by the 17 movant, the motion must be denied.” Lujan v. Nat’l Wildlife Fed’n, 497 U.S. 871, 888 (1990). 18 To establish that a fact cannot be genuinely disputed, the movant can either cite the record 19 or show “that the materials cited do not establish the . . . presence of a genuine dispute, or that an 20 adverse party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P. 56(c)(1)(B). 21 Once the movant has made such a showing, “the nonmoving party must come forward with specific 22 facts showing that there is a genuine issue for trial.” Matsushita Elec. Indus. Co., Ltd. v. Zenith 23 Radio Corp., 475 U.S. 574, 587 (1986) (citation modified). Metaphysical doubt is insufficient, id. 24 at 586, as are conclusory, non-specific allegations, Lujan, 497 U.S. at 888–89. Nor is it the Court’s 1 job to “scour the record in search of a genuine issue of triable fact”; rather, the nonmoving party 2 must “identify with reasonable particularity the evidence that precludes summary judgment.” 3 Keenan v. Allan, 91 F.3d 1275, 1279 (9th Cir. 1996) (citation modified). The Court will enter 4 summary judgment “against a party who fails to make a showing sufficient to establish the 5 existence of an element essential to that party’s case, and on which that party will bear the burden 6 of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986). 7 2. Financial Pacific’s Breach of Contract Claim and the Parties’ Declaratory Judgment Claims — 8 — As discussed above, Financial Pacific alleges that RVI breached the Policy by “failing to — 9 — pay for the covered Loss incurred by Financial Pacific, applying Endorsement D’s definition of — 10 — Appraised Value (Reproduction Cost New).” Dkt. No. 64 at 10. Relatedly, its declaratory judgment — 11 — claim seeks the following declarations: — 12 — • the determination of End of Term Value under the Policy is ambiguous, id. at 11; — 13 — • “alternatively, RVI’s interpretation and/or application of Endorsement D’s Appraised 14 Value (Reproduction Cost New) would render coverage under the Policy illusory and is therefore unenforceable,” id.; and — 15 — • “Financial Pacific is entitled to coverage for the amount by which the sum of the 16 Insured Values of the Haliburton Units exceeds the End of Term Value of the units, applying Endorsement D’s definition of Appraised Value (Reproduction Cost New), at 17 the Lease Termination Date,” id. 18 RVI filed a counterclaim for declaratory judgment that (1) the Policy is unambiguous; 19 (2) “Fin[ancial] Pac[ific] has no ‘Loss’ under the Policy,” regardless of “any alleged ambiguity”; 20 (3) “[a]ny new appraisal must be performed in accordance with the Policy,” (4) “[t]here is no 21 ‘Loss’ under the Policy if ‘End of Term Value’ is determined based only on Section 2.01(d)(i)”; 22 (5) “[t]here is no ‘Loss’ under the Policy if ‘End of Term Value’ is determined based only on 23 Section 2.01(d)(ii)”; and (6) “‘End of Term Value’ is not determined based on considerations of 24 ‘market value’ or ‘fair market value,’ as those terms are used in Fin[ancial] Pac[ific]’s Second 1 Amended Complaint.” Dkt. No. 65 at 12–13.13 2 Financial Pacific argues that it is entitled to summary judgment on its breach of contract 3 and declaratory judgment claims and on RVI’s declaratory judgment claims because Endorsement 4 D’s “two disparate and irreconcilable valuation methods” constitute an ambiguity that is not 5 resolved through extrinsic evidence, and the Policy must therefore be construed in Financial 6 Pacific’s favor, resulting in a covered loss. Dkt. No. 85 at 2, 7; Dkt. No. 106 at 4–5. Financial 7 Pacific also argues that even if Endorsement D could be interpreted as RVI urges, it still should 8 prevail because “under RVI’s interpretation, the Policy is illusory.” Dkt. No. 85 at 2. 9 RVI contends that the Court should instead grant it summary judgment on all claims 10 because (1) Financial Pacific is seeking summary judgment based on an interpretation of the Policy 11 that “this Court expressly rejected in [its prior] Order”; (2) Financial Pacific did not submit the 12 required appraisal of the Halliburton Units because the RailSolutions appraisal did not conform 13 with Endorsement D; (3) there is no “Loss” under the Policy regardless of whether the Halliburton 14 Units are appraised based on Subsection 2(d)(i), 2(d)(ii), or both; (4) the Policy is not illusory 15 because it provided financial benefits to Financial Pacific and provided protection in the event 16 there was a Loss; and (5) Financial Pacific’s extracontractual claims are predicated on a rejected 17 interpretation of Endorsement D, no evidence supports its CPA claim, and Financial Pacific is 18 barred from offering facts in support of its extracontractual claims because it “simply did not 19 answer five separate interrogatories asking it to set forth ‘all facts’ in support of” those claims. 20 Dkt. No. 99 at 5–6. — 21 — — 22 — — 23 — 13 The parties do not address RVI’s last claim for declaratory judgment that Financial Pacific “is precluded from revising its allegations and filing a Third Amended Complaint to correct deficiencies[.]” Dkt. No. 65 at 12. This is not appropriate subject matter for a declaratory judgment claim, and Financial Pacific is not seeking leave to amend at 24 this point. The Court therefore STRIKES this claim. Fed. R. Civ. P. 12(f)(1). 1 (a) Contract interpretation in Washington 2 Under Washington law, “[i]nterpretation or construction of an insurance contract is a 3 question of law and may properly be determined on motion for summary judgment.” Wampold v. 4 Safeco Ins. Co. of Am., 409 F. Supp. 3d 962 , 967 (W.D. Wash. 2019) (quoting Gerken v. Mut. of 5 Enumclaw Ins. Co., 872 P.2d 1108, 1112 (Wash. Ct. App. 1994)). “The criteria for interpreting 6 insurance contracts in Washington are well settled.” Quadrant Corp. v. Am. States Ins. Co., 110 7 P.3d 733, 737 (Wash. 2005). The “primary goal” is to ascertain and give effect to the parties’ intent 8 at the time of the Policy’s execution, not “the interpretations the parties are advocating at the time 9 of the litigation.” Int’l Marine Underwriters v. ABCD Marine, LLC, 313 P.3d 395 , 399–400 (Wash. 10 2013). The Court therefore “focus[es] on the objective manifestations of the agreement, rather than 11 on the unexpressed subjective intent of the parties.” Hearst Commc’ns, Inc. v. Seattle Times Co., — 12 — 115 P.3d 262, 267 (Wash. 2005). This principle is “quite simple”: the parties’ “[u]nilateral or 13 subjective purposes and intentions about the meanings of what is written do not constitute evidence 14 of [their] intentions.” Lynott v. Nat’l Union Fire Ins. Co., 871 P.2d 146, 149 (Wash. 1994). Thus, 15 although “[a]n interpretation of an insurance clause must be reasonable and take into account the 16 purpose of the insurance at issue,” id. at 152 , the “expectations of the insured cannot override the 17 plain language of the contract,” Quadrant Corp., 110 P.3d at 737. The Court will “not interpret 18 what was intended to be written but what was written.” Hearst, 115 P.3d at 267 . 19 In doing so, the Court “construe[s the] insurance polic[y] as a whole and give[s] the 20 language a fair, reasonable, and sensible construction as would be given to the contract by the 21 average person purchasing insurance.” Seattle Tunnel Partners v. Great Lakes Reinsurance (UK) 22 PLC, 516 P.3d 796 , 800 (Wash. 2022) (citation modified). Undefined terms are given “their 23 popular and ordinary meaning in accord with the understanding of the average purchaser of 24 insurance[.]” Kut Suen Lui v. Essex Ins. Co., 375 P.3d 596, 601 (Wash. 2016). But when the Policy 1 expressly defines terms, the Court is bound by those definitions. Overton v. Consol. Ins. Co., 38 2 P.3d 322 , 327 (Wash. 2002). The Court “will not read ambiguity into a contract where it can 3 reasonably be avoided.” GMAC v. Everett Chevrolet, Inc., 317 P.3d 1074 , 1078 (Wash. Ct. App. 4 2014) (citation modified); see also ABCD Marine, 313 P.3d at 283 (“A court, however, may not 5 interpret a policy in such a way that it creates nonexistent ambiguities that result in the policy being 6 construed in favor of the insured.”). The Washington Supreme Court has emphasized that policy 7 language is ambiguous “if, on its face, it is fairly susceptible to two different but reasonable 8 interpretations.” Seattle Tunnel Partners, 516 P.3d at 800. Ambiguities in the policy are strictly 9 construed against the insurer. Findlay v. United Pac. Ins. Co., 917 P.2d 116, 119 (Wash. 1996). 10 If “the extrinsic evidence does not resolve [an] ambiguity [in an insurance policy], [courts] 11 construe the ambiguity in favor of the insureds.” Pub. Util. Dist. No. 1 of Klickitat Cnty. v. Int’l 12 Ins. Co., 881 P.2d 1020, 1027 (Wash. 1994); see also Hill & Stout, PLLC v. Mut. of Enumclaw 13 Ins. Co., 515 P.3d 525 , 531 (Wash. 2022) (“[W]here multiple reasonable definitions of an 14 undefined term in an insurance policy exist . . . courts adopt the definition that most favors the 15 insured.” (quoting McLaughlin v. Travelers Com. Ins. Co., 476 P.3d 1032, 1037 (Wash. 2020)); 16 Queen City Farms, Inc. v. Cent. Nat. Ins. Co. of Omaha, 882 P.2d 703, 721 (Wash. 1995) 17 (“Unresolved ambiguity in insurance contract language is resolved against the insurer.”). 18 (b) Endorsement D is ambiguous 19 The parties’ dispute continues to center on the meaning of Endorsement D. And for the 20 reasons the Court explained in its prior order, it finds that the text of Endorsement D is ambiguous. 21 Dkt. No. 63 at 17–21. 22 To recap, the Court rejected any interpretation of Endorsement D’s prefatory language as 23 “talismanic language incorporating ‘fair market value’ into the definition [of fair retail price] and 24 superseding any subsequent language purporting to define the valuation approach.” Id. at 18. 1 Instead, the text after the prefatory language (in particular, subsections 2.01(d)(i) and (d)(ii)) 2 defined the specific valuation approach for the “fair retail price.” Id. at 19. However, subsections 3 2.01(d)(i) and (d)(ii) created an ambiguity because they seemed to incorporate both “the cost of 4 substituting another asset of comparable utility for a rail car” and “the expense of constructing an 5 exact duplicate of a rail car,” and those two values are “not necessarily the same[.]” Id. 6 This decision did not, as Financial Pacific claims, go so far as to definitively conclude that 7 subsections 2.01(d)(i) and (d)(ii) contain “disparate and irreconcilable valuation methods.” Dkt. 8 No. 85 at 10; Dkt. No. 106 at 3. The Court instead only observed that the two subsections “call[ed] 9 for two potentially irreconcilable valuation methods.” Dkt. No. 63 at 20 (emphasis added). 10 Because the plain text of Endorsement D is ambiguous, the Court turns to extrinsic 11 evidence to determine the parties’ intent. Am. Star Ins. Co. v. Grice, 854 P.2d 622, 625 (Wash. 12 1993), supplemented, 865 P.2d 507 (Wash. 1994) (“If an ambiguity exists, then the court may 13 attempt to determine the parties’ intent by examining extrinsic evidence.”). 14 (c) Extrinsic evidence does not resolve the ambiguity 15 The Court begins with textual cues. As discussed above, RVI agreed to indemnify Financial 16 Pacific “as of the Lease Termination Date against Loss, if any, which shall be payable on the 17 Settlement Date, in respect of all Units subject to a Lease.” Dkt. No. 64 at 45. The Policy defines 18 “Loss” as “the amount, if any, by which the sum of the Insured Values of all Units subject to such 19 Lease exceeds the sum of the End [o]f Term Values thereof on the Lease Termination Date, as 20 determined in accordance with Article V., reduced by the Deductible.” Id. at 47. End of Term 21 Value must be “defined and determined in accordance with Section 5.02.” Id. at 46. Endorsement 22 D added the Haliburton Units to the Policy and simultaneously replaced Section 2.01(d) and 23 Section 5.02 of the Policy as follows (deletions in strikethrough font, additions in red underline): — 24 — 1 ENDORSEMENT D ESTABLISHMENT OF REPRODUCTION COST NEW APPRAISAL METHODOLOGY FOR TWO 2 HUNDRED FIFTY (250) UNITS ONLY 2.01(d) Appraised Value (Reproduction Cost New): with respect to a Unit, the fair retail price (not reduced by 3 the value of any trade-in, allowances or set-offs) that would result from an arm’s-length retail sales transaction, free and clear of mortgages, liens, security interests and other encumbrances, between an informed and willing seller under no compulsion to sell and an informed and willing purchaser (other than a user in possession or a — 4 — used equipment dealer) under no compulsion to purchase, who is purchasing the Unit for its own usage (not for resale) with the intent of utilizing the Unit in accordance with the Unit’s intended usage, such fair retail price 5 being determined: 6 (i) by the cost of substituting another asset of comparable utility; (ii) on the basis of the expense necessary to construct an exact duplicate of a subject property considering current prices for identical components, criteria, design, arrangement, and quality meeting current 7 regulatory requirements (i.e. “reproduction cost new” basis); (i)(iii) as of the applicable Lease Termination Date; 8 (ii)(iv) by a Qualified Inspector/Appraiser in accordance with Section 5.02(a) or Section 6.0l(b)(ii), as applicable hereof; (iii)(v) with respect to Section 5.02(a), on the basis that such Unit complies with all standards set forth in the — 9 — Equipment Portfolio Return Conditions Endorsement but with respect to Section 6.0l(b)(ii), on the basis of such Unit being in its existing condition; 10 (iv)(vi) without deduction of any costs, fees, commissions, charges or expenses incurred or expected to be incurred with respect to repossession, storage, remarketing, redelivery or de-installation, if applicable, or 11 removal from any location of current use, of such Unit; and (v)(vii) highest and best use without regard to quantity, location or country of registration of such Unit. . . . 12 5.02: The End Of Term Value of each the Unit shall be calculated by determining . . . [t]he Appraised Value of the Unit determined under the direction of the Company but at the lnsured’s expense, by a 13 Qualified Inspector/Appraiser selected and approved by the Company[.]]the Appraised Value (Reproduction Cost New). — 14 — Compare Dkt. No. 64 at 45–46, 51, with id. at 60–61 (highlighting added for emphasis). — 15 — As the highlighting above demonstrates and as the Court previously observed, “the thrust — 16 — of Endorsement D . . . seems to be that the appraisal value of the rail cars is ‘reproduction cost — 17 — new.’” Dkt. No. 63 at 20. The full title of Endorsement D is “Endorsement D Establishment of — 18 — Reproduction Cost New Appraisal Methodology for Two Hundred Fifty (250) Units Only,” Dkt. — 19 — No. 64 at 60 (emphasis added); subsection (d)’s heading is likewise “Appraised Value — 20 — (Reproduction Cost New),” id. (emphasis added); subsection (d)(ii) explains in parentheses that it — 21 — is a “‘reproduction cost new’ basis,” id.; and Endorsement D expressly replaced Section 5.02 of — 22 — the Policy with this sentence: “The End of Term Value of the Unit shall be the Appraised Value — 23 — (Reproduction Cost New),” id. at 61 (emphasis added). But if reproduction cost new was the sole — 24 — 1 basis of appraisal intended by the parties, why include subsection 2.01(d)(i)’s reference to 2 substitution rather than reproduction cost? Dkt. No. 63 at 21 (“cases and articles discussing the 3 different valuation methods suggest that substitution (i.e., replacement) cost and reproduction cost 4 are often two different values”).14 5 While RVI’s expert, Professor Angelina, persuasively explains that Endorsement D adopts 6 a “reproduction cost new” approach and “add[s] two clarifying points of ‘substitution with 7 comparable utility’ and the ‘cost and expense to construct an exact duplicate’” such that “[w]hen 8 combining items (i) and (ii) of Endorsement D together, the appraised value is based on a substitute 9 asset (with comparable utility) at the cost to reproduce an exact duplicate considering current 10 prices, etc.,” Dkt. No. 100-43 at 33, 39, that does not shed light on the intent of either party at the 11 time of contract execution. Nor does it make the text of Endorsement D clear as to how an appraiser 12 should “combine” subsections (i) and (ii). The same is true for all of the parties’ expert opinions: 13 such opinions do not reveal what the parties—who do not aver that they were employing any 14 particular expertise at the time they executed the Policy—intended the Policy to mean. See Kitsap 15 Cnty. v. Allstate Ins. Co., 964 P.2d 1173, 1178 (Wash. 1998) (“If words have both a legal, technical 16 meaning and a plain, ordinary meaning, the ordinary meaning will prevail unless it is clear that 17 both parties intended the legal, technical meaning to apply.”). — 18 — 19 14 See also Robert F. Reilly, Personal Property Appraisal Report Guidelines, 23 Am. Bankr. Inst. J. 46, 67 (July/August 2004) (“It is essential that the appraiser understand the difference between replacement cost new and 20 reproduction cost new. Replacement cost is the current cost of a similar new property having the nearest equivalent utility as the property being appraised, whereas reproduction cost is the current cost of reproducing a new replica of the property being appraised using the same, or closely similar, materials.” (quoting Valuing Machinery and 21 Equipment, American Society of Appraisers, 2000, p. 46)); James A. Amdur, Property Taxation of Regulated Industries, 40 Tax Law. 339 , 359–60 (1987) (“In theory, functional obsolescence [i.e., loss in value resulting from 22 improvements in technology and inadequacy of the property for present needs] is the difference between reproduction cost new and replacement cost new. It reflects the fact that a company ordinarily would not reproduce the property, 23 but rather would replace it with a substitute reflecting the current state of the art.” (footnote omitted)); Farmers Union Cent. Exch. v. FERC, 584 F.2d 408 , 412 n.3 (D.C. Cir. 1978) (differentiating between “the reproduction cost (present cost of reproducing the same physical assets)” and “the replacement cost (present cost of building a like enterprise 24 taking advantage of modern technology)”). 1 As Financial Pacific argues, Dkt. No. 85 at 7, 10, none of the extrinsic evidence submitted 2 by the parties evidences their intent with respect to Endorsement D. RVI points to evidence that 3 the “principal benefit” to Financial Pacific when entering into the Policy was that it would enable 4 Financial Pacific to obtain accounting and other financial benefits, with a secondary benefit of 5 “guarantee[ing] a portion of the residual.” Dkt. No. 99 at 9–10 (citing Dkt. No. 100-3 at 5, 9–12; 6 Dkt. No. 100-7 at 2). Todd Derr—a Group Manager who was “the ‘most knowledgeable’ person 7 at [Financial Pacific] about residual value insurance and the person responsible for purchasing the 8 Policy,” id. at 10—further testified that at the time Financial Pacific purchased the Policy, “we did 9 not think that the [Policy] would be necessary to provide us comfort to what the valuation was 10 going to be at the end of the term” because “the [residual] valuations we got back from . . . our 11 appraisers and our experts . . . were higher than what the amount [the Policy] was providing.” Dkt. 12 No. 100-3 at 10. While this evidence suggests that Financial Pacific did not have a strong incentive 13 to scrutinize the appraisal methodology prescribed by the Policy, it does not shed light on its 14 understanding of that methodology. 15 RVI also asserts that it issued Endorsement D “[b]ased on Vista’s utilization of the Cost 16 Approach” in the appraisal Financial Pacific initially sent to RVI. Dkt. No. 99 at 12. It cites as 17 support its 30(b)(6) witness’s testimony that RVI “received from the client a reproduction cost 18 forecast” and “concluded that if that’s the underwriting information [it] had, the policy should 19 reflect that as the method of settlement.” Id. (quoting Dkt. No. 100-11 at 3) (emphasis removed). 20 But that witness went on to say that RVI actually relied on multiple things: (1) RVI’s own 21 appraiser—who was “unable to provide a forecast utilizing another approach”—sent it a 22 “reproduction cost forecast,” (2) Financial Pacific submitted a “reproduction cost forecast” (the 23 Vista appraisal), and (3) RVI would also have “used the RailSolutions’ guidebook, which includes 24 a forecast of value.” Dkt. No. 100-11 at 3. And if RVI were truly basing Endorsement D on Vista’s 1 appraisal, it does not explain why Endorsement D includes reproduction cost, given that the cost 2 approach used by the Vista appraiser was “the replacement cost []new of a car[.]” Dkt. No. 1003 10 at 3 (emphasis added). This evidence is not probative of the parties’ intent. 4 Finally, RVI submits evidence that when Mark Williams informed RVI in June 2020 that 5 Financial Pacific would “most likely have a claim” with regard to the Halliburton Units, a Manager 6 of Client Services for RVI indicated in RVI’s Salesforce activity log that “the settlement is to RCN 7 new, so we should not have a problem.” Dkt. No. 100-13 at 2. Although this supports that RVI 8 understood the policy to be based on replacement cost new or reproduction cost new, extrinsic 9 evidence can only provide the meaning of an ambiguous term “where that evidence shows that 10 both parties to the policy intended a particular meaning.” Seaway Props., LLC v. Fireman’s Fund 11 Ins. Co., 16 F. Supp. 3d 1240, 1247 (W.D. Wash. 2014) (citing Am. Nat’l Fire Ins. Co. v. B & L 12 Trucking & Constr. Co., 951 P.2d 250, 256 (Wash. 1998)). 13 Likewise unenlightening is Williams’ directive to Blankemeyer regarding the “appropriate 14 valuation.” Dkt. No. 100-19 at 5. Neither party asserts that this communication reflects Financial 15 Pacific’s understanding of the Policy. Indeed, there is no indication that Williams reviewed the 16 Policy before providing the directive to Blankemeyer; Williams’ statement that he “suspect[ed]” 17 that “the most appropriate valuation is the Collateral Value – Current Fair Market Value – Current 18 Orderly Liquidation Value” underscores that his directive was based on suspicion rather than 19 anything else. Id. Furthermore, Williams testified that these three values are dependent on an arm’s 20 length retail sales transaction and are not replacement cost or reproduction cost, and that 21 RailSolutions’ appraisal was not performed in accordance with the terms and conditions required 22 under the Policy. Dkt. No. 100-1 at 16–17, 20–21, 23. 23 The Court accordingly concludes that extrinsic evidence does not resolve the ambiguity. 24 Accordingly, the Court grants summary judgment to Financial Pacific on its claim for declaratory 1 judgment that “the determination of End of Term Value under the Policy is ambiguous,” Dkt. No. 2 64 at 11, and on RVI’s mirror-image declaratory judgment counterclaim, Dkt. No. 65 at 12. 3 (d) Financial Pacific has failed to carry its burden under the summary judgment standard — 4 — As discussed above, where, as here, extrinsic evidence does not resolve an ambiguity, and — 5 — multiple reasonable definitions of an undefined term in an insurance policy exist, “courts adopt — 6 — the definition that most favors the insured.” Hill & Stout, PLLC v. Mut. of Enumclaw Ins. Co., 515 7 P.3d 525 , 531 (Wash. 2022) (quoting McLaughlin v. Travelers Com. Ins. Co., 476 P.3d 1032 , 1037 — 8 — (Wash. 2020)). There are three reasonable meanings here, as indicated by the Court’s prior order. — 9 — Dkt. No. 63. Specifically, Endorsement D could reasonably be construed to require that the railcars — 10 — be appraised based on: — 11 — 1. Subsection 2(d)(i), i.e., by the cost of substituting another asset of comparable — 12 — utility; — 13 — 2. Subsection 2(d)(ii), i.e., on the basis of the expense necessary to construct an exact — 14 — duplicate of a subject property considering current prices for identical components, — 15 — criteria, design, arrangement, and quality meeting current regulatory requirements — 16 — (i.e. “reproduction cost new” basis); or — 17 — 3. A combination of the above two approaches. — 18 — Of the three reasonable meanings, the one that “most favors the insured” is the proper — 19 — valuation method. Hill & Stout, 515 P.3d at 531. — 20 — Financial Pacific does not dispute that the End of Term Value exceeds the Insured Value — 21 — under the “Reproduction Cost New” method. See Dkt. No. 85 at 18–19. RVI has submitted — 22 — evidence that if the End of Term Value is based only on “Replacement Cost New,” it would be — 23 — $76,000 (and above the Insured Value of $51,815.08). Dkt. No. 100-19 at 39 (RailSolutions — 24 — 1 Guidebook). And RVI has submitted evidence that an appraisal based on Subsections 2(d)(i) and 2 (ii) together results in an End of Term Value of $67,500 to $69,500. Dkt. No. 100-28 at 5–6 (Biggs 3 appraisal). RVI has not submitted evidence of the End of Term Value if such value were based on 4 solely “replacement cost” rather than “replacement cost new.” 5 Because RVI has submitted evidence supporting its claim that there is no Loss under the 6 reproduction cost new method, the replacement cost new method, or a combination of the two, 7 Financial Pacific must “come forward with specific facts showing that there is a genuine issue for 8 trial.” Matsushita, 475 U.S. at 587 (citation modified). Financial Pacific argues that the railcars’ 9 value should be determined based only on Subsection 2(d)(i), because that is the valuation that 10 most favors Financial Pacific. Dkt. No. 85 at 15; see also Dkt. No. 106 at 6. It further argues that 11 Subsection 2(d)(i) does not include the concept of “replacement cost new” because “new” is never 12 used in its text; thus, that Subsection “sets forth a unique version of replacement cost based on ‘the 13 cost of substituting another asset of comparable utility.’” Dkt. No. 106 at 7. Financial Pacific 14 argues that this cost can be identified by “the cost to acquire a different 2015 C112 covered hopper 15 railcar,” Dkt. No. 85 at 15, and that the RailSolutions appraisal identifies such cost, Dkt. No. 106 16 at 6 (citing Dkt. No. 89 at 104–18 (the RailSolutions appraisal)). 17 But the RailSolutions appraisal does not do so. Instead, it states that “[i]n determining 18 estimates of current fair market and orderly liquidation value, [it] used the market, comparable 19 sales approach (or market approach) and the depreciated replacement cost approach (or cost 20 approach) as the primary methods of valuation along with channel checks of equipment owners,” 21 and “[t]he income approach was used for the purpose of testing the reasonableness of the valuation 22 findings derived from the market and cost approaches.” Dkt. No. 89 at 108 (emphasis added). The 23 only values it expressly identifies are “Fair Market Value” and “Orderly Liquidation Value.” Id. 24 at 117–18. Even assuming that “depreciated replacement cost” is the same as “the cost of 1 substituting another asset of comparable utility,” as Financial Pacific urges, the fact that 2 RailSolutions used the depreciated replacement cost approach along with the comparable sales 3 approach, channel checks, and an income approach check to arrive at fair market value and orderly 4 liquidation value does not show that the depreciated replacement cost approach by itself would 5 result in the same valuation.15 6 Even assuming that Endorsement D requires that the railcars be valued based on a “unique 7 version of replacement cost based on ‘the cost of substituting another asset of comparable utility,’” 8 Dkt. No. 106 at 7, as Financial Pacific claims, the Court cannot decide that Subsection 2(d)(i) is 9 the most favorable valuation approach for Financial Pacific, or that it would result in a Loss, 10 because Financial Pacific has not provided any valuation under that Subsection. And because 11 Financial Pacific has not submitted any such valuation, it has failed to carry its burden to establish 12 the existence of an essential element to its case—i.e., that it suffered a Loss under the Policy—or 13 a genuine dispute as to whether there was a Loss. Fed. R. Civ. P. 56(c)(1)(B); Celotex, 477 U.S. at 14 322. Therefore, the Court grants summary judgment to RVI with respect to Financial Pacific’s 15 claim that RVI breached the Policy by “failing to pay for the covered Loss incurred by Financial 16 Pacific, applying Endorsement D’s definition of Appraised Value (Reproduction Cost New),” and 17 with respect to Financial Pacific’s third declaratory judgment claim. Dkt. No. 64 at 10–11. 18 (e) The Policy is not illusory 19 As noted above, Financial Pacific argues that even if Endorsement D could be interpreted 20 as RVI urges, it still should prevail on summary judgment because “under RVI’s interpretation, — 21 — 15 The only appraisal that Financial Pacific obtained that was seemingly based only on replacement cost was Vista’s 22 appraisal in 2015. Dkt. No. 100-10 at 3 (“For the projected opinion of future value, the Cost Approach was utilized,” which “starts with the replacement cost []new of a car and is adjusted for (3) forms of depreciation.”); see also Dkt. 23 No. 100-4 at 7 (Financial Pacific’s Credit Recommendation in which it repeated this). But Financial Pacific does not cite this appraisal in its arguments, and the Vista appraiser concluded that based on this approach, the railcars would have a fair market value of $67,500, an orderly liquidation value of $63,500, and a net orderly liquidation value of 24 $58,250. Dkt. No. 100-10 at 8. All of these values are above the Insured Value of $51,815.08. 1 the Policy is illusory.” Dkt. No. 85 at 2. Specifically, Financial Pacific contends that (1) RVI values 2 the “expense necessary to construct an exact duplicate” of the railcars as $81,000, and without 3 depreciation (which is not mentioned in the policy), there can never be a loss; and (2) even if 4 depreciation is considered, RVI applies a straight-line depreciation method of 3.1% that can never 5 result in a loss. Id. at 18–19. RVI responds that the Policy is not illusory because it provided 6 financial benefits to Financial Pacific and provided protection in the event there was a Loss. Dkt. 7 No. 99 at 5–6. 8 An insurance policy is illusory if an insured does not receive some benefit (i.e., coverage) 9 in exchange for the insurance premiums it pays, such as when a policy excludes coverage for all 10 occurrences. Neil Jones Food Co. v. Traveler’s Cas. Ins. Co., No. 3:15-CV-5459-RJB, 2016 WL 11 150382, at *3–4 (W.D. Wash. Jan. 13, 2016) (policies were not illusory because they provided 12 coverage “in at least two circumstances, either of which would be legally sufficient on its own”); 13 Quadrant Corp., 110 P.3d at 743 (“If the absolute pollution exclusion is so broad that it excludes 14 coverage for all occurrences, then the insurance contract would be illusory because it would render 15 the business liability policy meaningless.”). Courts will not give effect to interpretations that would 16 render a contract illusory. SAK & Assocs., Inc. v. Ferguson Constr., Inc., 357 P.3d 671, 675 (Wash. 17 Ct. App. 2015). 18 Financial Pacific’s argument misapprehends the Policy: it relies on the faulty assumption 19 that the starting valuation of $81,000 can never change, but that is precisely the opposite of what 20 the record demonstrates. Whether or not depreciation is factored in, materials costs and other costs 21 could fall during the coverage period such that the cost to either replace or reproduce the railcars 22 falls below the Insured Value. Technological advances or regulatory changes could also effect this 23 result. As RVI’s expert, Professor Angelina, explains, technological advances or regulatory 24 changes rendering an asset obsolete can cause a significant decline in both reproduction cost new 1 and replacement cost, which would result in coverage under the Policy. For example, a personal 2 laptop insured for 3 years that is rendered obsolete by new technology after one year would result 3 in significant decreases in both the cost of substituting another asset of comparable utility (since 4 assets of comparable utility are obsolete) and in reproduction cost new “because the cost to rebuild 5 would utilize many parts that have significantly reduced values (processors, memory, etc.).” Dkt. 6 No. 100-43 at 34. “However, if the reduced value in the personal computer was due to low-cost 7 competitors, or an alternative product (change in customer preferences), there would be no 8 payment as reproduction cost new would be unchanged.” Id. Significantly, Professor Angelina 9 construes Endorsement D in a manner favorable to Financial Pacific in the event reproduction cost 10 new and replacement cost new conflict: even where reproduction cost new does not decrease over 11 the coverage period, coverage could still result if the asset could not be replaced by another asset 12 with comparable utility. For example, if a regulatory change required all school buses to be electric, 13 coverage would result for a customer who had insured a fleet of diesel school buses, even though 14 the reproduction cost new would remain the same. Id. at 35. In an example where regulatory 15 changes required a customer who insured DOT 111 railcars that transported hazardous fuels to 16 retrofit or retire the cars within the coverage period, reproduction cost new remained the same, but 17 because the cars could not be substituted with another asset of comparable utility (“a new DOT 18 111 tank car cannot be used to transport hazardous fuels” under the regulatory change), coverage 19 would result. Id. at 38–39. Contrary to Financial Pacific’s arguments, Dkt. No. 106 at 11, Professor 20 Angelina did address coverage for the railcar assets at issue: he explains that “[a] similar claim 21 situation could have occurred in the Fin[ancial] Pac[ific] coverage matter had the cost to reproduce 22 the Halliburton railcars decreased significantly because of technological and production 23 efficiencies or decreased costs of material used in their production.” Dkt. No. 100-43 at 38. — 24 — 1 Financial Pacific’s experts do not contest this. In his deposition testimony, Dr. Warfel 2 acknowledged that Professor Angelina’s examples are correct. Dkt. No. 100-44 at 4. Dight’s 3 opinion—if the Court were to consider it—also supports this interpretation. He describes 4 replacement cost as “the costs for assets of comparable utility that are currently for sale in the 5 market,” and reproduction cost as “the cost of reproducing th[e] asset with the same or closely 6 similar materials.” Dkt. No. 82-1 at 6. And assuming without deciding that other parts of Dr. 7 Warfel’s opinion are admissible, he similarly describes reproduction cost new as “largely, if not 8 entirely, driven by the cost of inputs in constructing a replica of a C112 Covered Hopper.” Dkt. 9 No. 80-1 at 5. Such costs—of inputs and for assets of comparable utility—can fluctuate 10 significantly based on “changes in market conditions,” Dkt. No. 64 at 45—for instance, if a drop 11 in materials cost made it much cheaper to produce a Ford F150 in Dight’s example, both 12 reproduction and replacement cost could drop precipitously, resulting in coverage. See, e.g., Dkt. 13 No. 82-1 at 6 (“[I]f the asset at issue was a 2017 Ford F150, the appraiser would analyze the cost 14 in the market to replace this vehicle with an asset of comparable utility, such as another 2017 Ford 15 F150 or a similar pickup truck, such as a 2017 Dodge Ram 1500.”). 16 In sum, although Financial Pacific claims that RVI’s interpretation of Endorsement D 17 “mathematically[] can never result in a loss,” Dkt. No. 85 at 2, Financial Pacific fails to show that 18 math. Although Financial Pacific is unhappy with the result, risks bearing upon reproduction or 19 replacement cost are the particular risks that it chose to insure against. The fact that those risks did 20 not materialize here (or at least Financial Pacific has failed to show that they did) does not mean 21 the Policy was illusory. R.V.I. Guar. Co. & Subsidiaries v. Comm'r, 145 T.C. 209, 227 (2015) 22 (“The thrust of respondent’s position is that the RVI policies did not transfer enough risk of loss 23 because losses were relatively unlikely to occur. This argument is unpersuasive on both theoretical 24 and evidentiary grounds.”). Because no genuine dispute exists here, the Court grants summary 1 judgment to RVI on Financial Pacific’s claim for declaratory judgement that “RVI’s interpretation 2 and/or application of Endorsement D’s Appraised Value (Reproduction Cost New) would render 3 coverage under the Policy illusory and is therefore unenforceable.” Dkt. No. 64 at 11. 4 3. Financial Pacific’s Extracontractual Claims 5 RVI also moves for summary judgment on Financial Pacific’s bad faith, CPA, and IFCA 6 claims. Dkt. No. 99 at 41–44. The Court addresses each in turn. 7 (a) Bad Faith Claim 8 As discussed above, Financial Pacific alleges that RVI acted in bad faith by rejecting 9 Financial Pacific’s claim “based on unreasonable, frivolous, or unfounded interpretations of the 10 Policy,” and by “issuing an insurance policy that, under RVI’s proffered post-claim interpretation 11 of the applicable policy language, could not (i) transfer risk from Financial Pacific to RVI or (ii) 12 provide coverage consistent with RVI’s pre-claim representations to Financial Pacific.” Dkt. No. 13 64 at 11. RVI contends that it is entitled to summary judgment on Financial Pacific’s bad faith 14 claim because (1) the Court has rejected Financial Pacific’s interpretation of the Policy and agreed 15 with RVI that End of Term Value is determined by considering (d)(i) and (d)(ii), and (2) because 16 there is no evidence of any pre-claim representation by RVI. Dkt. No. 99 at 41. 17 (i) Legal standard 18 “Claims of insurer bad faith are analyzed applying the same principles as any other tort: 19 duty, breach of that duty, and damages proximately caused by any breach of duty.” St. Paul Fire 20 & Marine Ins. Co. v. Onvia, Inc., 196 P.3d 664, 668 (Wash. 2008) (citation modified). “[T]o 21 succeed on a bad faith claim, the policyholder must show the insurer’s breach of the insurance 22 contract was unreasonable, frivolous, or unfounded.” Smith v. Safeco Ins. Co., 78 P.3d 1274 , 1277 23 (Wash. 2003). Washington courts have repeatedly emphasized that the test for bad faith “is not 24 whether the insurer’s interpretation [of the policy] is correct, but whether the insurer’s conduct 1 was reasonable.” Wright v. Safeco Ins. Co., 109 P.3d 1 , 10 (Wash. Ct. App. 2004); see also 2 Anderson v. State Farm Mut. Ins. Co., 2 P.3d 1029, 1033 (Wash. Ct. App. 2000) (“The 3 determinative question is reasonableness of the insurer’s actions in light of all the facts and 4 circumstances of the case.”). “As long as the insurance company acts with honesty, bases its 5 decision on adequate information, and does not overemphasize its own interests, an insured is not 6 entitled to base a bad faith or CPA claim against its insurer on the basis of a good faith mistake.” 7 Coventry Assocs. v. Am. States Ins. Co., 961 P.2d 933 , 937–38 (Wash. 1998). 8 Whether the insurer acted reasonably is often a question of fact. Smith, 78 P.3d at 1277 . 9 But this is not a free ticket to trial, as the insured “has the burden of proof” and “must come forward 10 with evidence that the insurer acted unreasonably.” Id.; Overton, 38 P.3d at 329 (“Claims of bad 11 faith are not easy to establish and an insured has a heavy burden to meet.”). The Court will 12 therefore grant summary judgment “if reasonable minds could not differ that [the insurer’s] denial 13 of coverage was based upon reasonable grounds.” Smith, 78 P.3d at 1277 . The insurer’s ability to 14 point to a reasonable basis for its action is “significant evidence that it did not act in bad faith and 15 may even establish that reasonable minds could not differ that its denial of coverage was justified.” — 16 — Id. at 1278 . 17 (ii) The Court grants summary judgment to RVI 18 With respect to Financial Pacific’s claim that RVI acted in bad faith by “issuing an 19 insurance policy that, under RVI’s proffered post-claim interpretation of the applicable policy 20 language, could not (i) transfer risk from Financial Pacific to RVI or (ii) provide coverage 21 consistent with RVI’s pre-claim representations to Financial Pacific,” Dkt. No. 64 at 11, the Court 22 grants summary judgment to RVI. For the reasons stated above, the Policy was not illusory. And 23 Financial Pacific’s 30(b)(6) witness explained that the allegation of pre-claim “representations” 24 did not include any representations other than the language of the Policy. Dkt. No. 99 at 42 (citing 1 Dkt. No. 100-2 at 9); see also Dkt. No. 100-24 at 5 (Financial Pacific interrogatory response 2 identifying only “the opening paragraph of the Policy” as the subject of its “pre-claim 3 representations” allegation). Thus, this latter claim is redundant with Financial Pacific’s allegation 4 that RVI acted in bad faith by rejecting Financial Pacific’s claim “based on unreasonable, 5 frivolous, or unfounded interpretations of the Policy.” Dkt. No. 64 at 11. 6 With respect to the latter claim, Financial Pacific argues that RVI “ignored the Policy’s 7 actual language and obtained an appraisal based solely on a reproduction cost new valuation 8 method.” Dkt. No. 106 at 12. RVI also “took into account factors that are absent from the Policy, 9 such as depreciation.” Id. Even assuming without deciding that these things are true, it does not 10 equate to bad faith. This is so because “[a] denial of coverage based on a reasonable interpretation 11 of the policy is not bad faith,” even if a court ultimately holds that the interpretation was incorrect. 12 Transcon. Ins. Co. v. Washington Pub. Utilities Districts’ Util. Sys., 760 P.2d 337, 347 (Wash. 13 1988); see also Spurlock v. State Farm Fire & Cas. Co., No. 2:23-CV-00467-JHC, 2024 WL 14 5008872, at *10 (W.D. Wash. Dec. 6, 2024) (“A denial is not unreasonable simply because the 15 Court determines that the insurer’s interpretation of a contract was incorrect.”). 16 Here, the record does not establish that RVI’s interpretation was unreasonable, frivolous, 17 or unfounded. As the Court observed in its prior order and observes again here, “the thrust of 18 Endorsement D . . . seems to be that the appraisal value of the rail cars is ‘reproduction cost new.’” 19 Dkt. No. 63 at 20. Again: 20 • The full title of Endorsement D is “Endorsement D Establishment of Reproduction Cost 21 New Appraisal Methodology for Two Hundred Fifty (250) Units Only.” Dkt. No. 64 at 22 60 (emphasis added). 23 • Subsection (d)’s heading is likewise “Appraised Value (Reproduction Cost New).” Id. 24 (emphasis added). 1 • Subsection (d)(ii) explains in parentheses that it is a “‘reproduction cost new’ basis.” — 2 — Id. (emphasis added). 3 • Endorsement D expressly replaced Section 5.02 of the Policy with this sentence: “The 4 End of Term Value of the Unit shall be the Appraised Value (Reproduction Cost New).” — 5 — Id. at 61 (emphasis added). 6 Furthermore, the wording of Endorsement D instructs that the fair retail cost should be determined 7 “by the cost of substituting another asset of comparable utility” “on the basis of . . . ‘reproduction 8 cost new[.]’” Id. at 60 . Thus, as the Court held above, an interpretation of Endorsement D to require 9 appraisal based only on reproduction cost new is one of three reasonable interpretations. Even so, 10 RVI did not ignore Subsection 2.01(d)(i), as Financial Pacific claims. It provided the full Policy 11 to Biggs, who reiterated the valuation approach of “Appraised Value (Reproduction Cost New)” 12 in his appraisal, including Subsection 2.01(d)(i). Dkt. No. 100-28 at 5. 13 Finally, even though the text of the Policy does not expressly mention depreciation, (1) it 14 is not unreasonable for RVI to interpret Subsections 2.01(d)(i) and (ii) to inherently include 15 depreciation, see Dkt. No. 106 at 6 (Financial Pacific arguing that RailSolutions’ appraisal satisfied 16 Subsection 2.01(d)(i) because it considered “the cost approach,” i.e., the “depreciated replacement 17 cost” (citing Dkt. No. 89 at 108), and (2) RVI’s application of depreciation could only inure to 18 Financial Pacific’s benefit. 19 For these reasons, “reasonable minds could not differ that [RVI’s] denial of coverage was 20 based upon reasonable grounds.” Farnes v. Metro. Grp. Prop. & Cas. Ins. Co., No. 2:18-CV-188221 BJR, 2019 WL 3501447 , at *4 (W.D. Wash. July 31, 2019) (citing Smith, 78 P.3d at 1277 ). The 22 Court accordingly grants summary judgment to RVI on this claim. 23 (b) CPA Claim 24 Financial Pacific bases its CPA claim on RVI’s alleged bad faith (as detailed above) and 1 violations of two insurance regulations. Dkt. No. 64 at 11–12. Specifically, it alleges that RVI 2 refused to pay its loss claim without conducting a reasonable investigation, see Wash. Admin. 3 Code § 284-30-330(4), and failed to promptly provide a reasonable explanation of the basis in the 4 Policy in relation to the facts or applicable law for denial of its claim, see id. § 284-30-330(13). 5 Dkt. No. 64 at 11–12. RVI counters that its “claims handling and investigation—including its 6 communications with [Financial Pacific]—were thorough and timely[.]” Dkt. No. 99 at 43. 7 (i) Legal standard 8 To establish a CPA claim, a plaintiff must show that (1) the defendant engaged in an unfair 9 or deceptive act or practice (2) occurring in trade or commerce and (3) impacting the public interest 10 that (4) injured the plaintiff’s business or property and (5) was caused by the defendant. Hangman 11 Ridge Training Stables, Inc. v. Safeco Title Ins. Co., 719 P.2d 531, 533 (Wash. 1986). Violations 12 of Washington’s insurance regulations are per se violations of the first three elements of the CPA. 13 Hopkins v. Integon Gen. Ins. Co., No. C18-1723-MJP, 2020 WL 1467346 , at *4 (W.D. Wash. Mar. 14 26, 2020); Naxos, LLC v. Am. Fam. Ins. Co., No. C18-1287-JLR, 2020 WL 777260 , at *22 (W.D. 15 Wash. Feb. 18, 2020). Under Washington’s insurance regulations, it is unfair and deceptive for an 16 insurer to “refus[e] to pay claims without conducting a reasonable investigation” or “[f]ail[] to 17 promptly provide a reasonable explanation of the basis in the insurance policy in relation to the 18 facts or applicable law for denial of a claim or for the offer of a compromise settlement.” Wash. 19 Admin. Code § 284-30-330(4), -(13). 20 (ii) Summary judgment is granted to RVI on Financial Pacific’s CPA claim 21 RVI points to record evidence supporting that Financial Pacific “cannot produce admissible 22 evidence to support” its CPA claims. Fed. R. Civ. P. 56(c)(1)(B). One week after receiving 23 Financial Pacific’s Notice of Claim, RVI acknowledged receipt and sent Financial Pacific a 24 detailed report addressing specific deficiencies in the submitted claim materials. Dkt. No. 100-25. 1 RVI then retained Biggs to conduct an independent appraisal “in accordance with the Policy.” Dkt. 2 No. 100-27 at 3. One day after RVI retained Biggs, it advised Financial Pacific that it had engaged 3 a qualified appraiser, informed Financial Pacific of the directives RVI had given the appraiser, and 4 told Financial Pacific that RVI would “promptly provide [it] with a copy to review” once RVI 5 received it. Dkt. No. 100-29 at 3. That letter also reiterated the bases for RVI’s assessment that 6 Financial Pacific’s claim was deficient. Id. at 2–3. Two days after RVI received the Biggs 7 appraisal, it sent the appraisal to Financial Pacific along with a cover letter informing Financial 8 Pacific that “the Appraised Value for the Units, $10,125,000 to $10,425,000, exceeds the Insured 9 Value of the Units, resulting in no Loss under the Policy,” and that “[p]ursuant to Section 5.01 of 10 the Policy, RVI’s determination of the End of Term Value for the Units will be deemed 11 conclusively binding” unless Financial Pacific objected within 30 days. Dkt. No. 100-31 at 2–3. 12 Two days after Financial Pacific objected to the Biggs appraisal, RVI advised Financial Pacific 13 that it was “ready and available to meet to attempt to agree upon the End of Term Value” pursuant 14 to Section 5.03 of the Policy. Dkt. No. 100-34 at 2. And finally, RVI took affirmative steps to 15 implement the Policy’s dispute resolution process, and only stopped after Financial Pacific refused 16 to “proceed forward under Section 5.03 . . . until th[e] fundamental legal issue” of appraisal value 17 “[wa]s resolved.” Dkt. Nos. 100-36, 100-38, 100-39. Williams, who was the person at Financial 18 Pacific responsible for managing its claim, testified that he had no complaints about the claims 19 handling process (aside from RVI not paying the claim), that RVI representatives always made 20 themselves available for discussions when requested by Financial Pacific, and that RVI 21 communicated its position to Financial Pacific clearly. Dkt. No. 100-1 at 13–14. 22 In response, Financial Pacific has not carried its burden to show “specific facts showing 23 that there is a genuine issue for trial.” Matsushita, 475 U.S. at 587 (citation modified). It does not 24 deny that RVI took the steps listed above, but instead argues that “[t]hese limited acts fail to show 1 a meaningful investigation.” Dkt. No. 106 at 13. Insurers, however, are only required to “conduct 2 reasonable and prompt investigations,” and “need not necessarily investigate every discrete 3 element.” Bridgham-Morrison v. Nat’l Gen. Assurance Co., No. C15-927-RAJ, 2016 WL 4 2739452, at *6 (W.D. Wash. May 11, 2016) (citation omitted), aff’d, 739 F. App'x 381 (9th Cir. 5 2018). “The focus is not on what could have been done, but on what was actually done by the 6 insurer.” Id. Financial Pacific does not articulate what more would be required to make the 7 investigation “meaningful,” and instead simply takes issue with RVI’s interpretation and 8 application of the Policy as opposed to its predicate investigation. For example, in response to 9 RVI’s interrogatory asking it to “[s]et forth each and every fact in support of the allegation that 10 RVI violated . . . WAC §§ 284-30- 330(4) and 284-30-330(13),” Financial Pacific complained that 11 (1) “RVI failed to make any effort to determine the fair retail price” under the Policy, which is 12 demonstrably false, see Dkt. No. 100-28 at 5; (2) “RVI improperly calculated the End of Term 13 Value of the insured Units by applying a straight-line depreciation of 3.1% per year”; and 14 (3) “RVI’s position regarding the End of Term Value of the insured Units would render coverage 15 under the Policy illusory[.]” Dkt. No. 100-24 at 3–4. The crux of this dispute is not about RVI’s 16 investigation but rather its application of Endorsement D to the facts identified in its investigation. 17 “A denial of coverage based on a reasonable interpretation of the policy . . . even if incorrect, does 18 not violate the Consumer Protection Act if the insurer’s conduct was reasonable.” Transcon. Ins. 19 Co., 760 P.2d at 347 . In response to RVI’s record evidence, Financial Pacific has failed to establish 20 a genuine dispute that RVI refused to pay its claim without conducting a reasonable investigation. 21 See Amini v. Crestbrook Ins. Co., No. C21-1377-KKE, 2023 WL 6389341 , at *9–10 (W.D. Wash. 22 Oct. 2, 2023) (denying summary judgment to insured where insurer presented evidence that it 23 “regularly communicated” with the insured “both as to the status of his claim and the basis for [the 24 insurer’s] respective valuation of said claim”); Young v. Safeco Ins. Co. of Am., No. 20-CV-018161 LK, 2022 WL 4017893 , at *15 (W.D. Wash. Sept. 2, 2022) (granting summary judgment to insurer 2 on bad faith claim where “the crux of this dispute is not the sufficiency of Safeco’s underlying 3 investigation—it is Safeco’s application of the vandalism provision to the facts uncovered during 4 that investigation.”). 5 Furthermore, Financial Pacific has not rebutted RVI’s evidence that it promptly provided 6 a reasonable explanation of the basis in the Policy in relation to the facts for denial of Financial 7 Pacific’s claim. Wash. Admin. Code § 284-30-330 (13). As discussed above, RVI sent Biggs’ 8 appraisal to Financial Pacific two days after Biggs submitted it to RVI. RVI’s cover letter 9 explained the basis for its denial of Financial Pacific’s claim, and the Biggs appraisal laid out the 10 methodology for the appraised value of the railcars. Dkt. Nos. 100-28, 100-31. 11 Summary judgment is therefore granted in favor of RVI on Financial Pacific’s CPA claim. 12 (c) IFCA Claim 13 IFCA authorizes a first-party claimant to an insurance policy “who is unreasonably denied 14 a claim for coverage or payment of benefits by an insurer” to bring an action for damages. Wash. 15 Rev. Code § 48.30.015(1). The statute creates two circumstances under which an insurer may be 16 liable: when it unreasonably denies a claim for coverage or when it unreasonably denies a payment 17 of benefits. Ainsworth v. Progressive Cas. Ins. Co., 322 P.3d 6, 20 (Wash. Ct. App. 2014). An 18 insurer also violates IFCA when it violates any of the insurance regulations. See Wash. Rev. Code 19 § 48.30.015(5)(a). But the Washington Supreme Court has clarified that IFCA “does not create an 20 independent cause of action for regulatory violations” absent an underlying unreasonable denial 21 of coverage or payment of benefits. Perez-Crisantos v. State Farm Fire & Cas. Co., 389 P.3d 476 , 22 483 (Wash. 2017). Because RVI did not unreasonably deny coverage to Financial Pacific, 23 Financial Pacific’s IFCA claim lacks merit, and summary judgment is granted to RVI on this claim. — 24 — 1 D. Motion to Seal 2 Finally, Financial Pacific moves to seal unredacted versions of two exhibits in support of 3 its motion for partial summary judgment: Exhibit 65 – Appraisal Report of Edward Biggs (Dkt. 4 No. 84); and Exhibit 87 – RVI Underwriting Spreadsheet (Dkt. No. 84-1). Dkt. No. 83 at 1. Both 5 documents were designated as “Confidential” by RVI under the parties’ Confidentiality 6 Agreement. Id. 7 Courts have recognized a “general right to inspect and copy public records and documents, 8 including judicial records and documents.” Kamakana v. City & Cnty. of Honolulu, 447 F.3d 1172 , 9 1178 (9th Cir. 2006) (quoting Nixon v. Warner Commc’ns, Inc., 435 U.S. 589 , 597 & n.7 (1978)). 10 Accordingly, when a district court considers a sealing request, “a strong presumption in favor of 11 access is the starting point.” Id. (citation modified). This presumption, however, “is not absolute 12 and can be overridden given sufficiently compelling reasons for doing so.” Foltz v. State Farm 13 Mut. Auto. Ins. Co., 331 F.3d 1122, 1135 (9th Cir. 2003) (citing San Jose Mercury News, Inc. v. 14 U.S. Dist. Ct., 187 F.3d 1096 , 1102 (9th Cir. 1999)). Additionally, in this District, parties moving 15 to seal documents must comply with the procedures established by Local Civil Rule 5(g). Under 16 that rule, the party who designates a document as confidential must provide a “specific statement 17 of the applicable legal standard and the reasons for keeping a document under seal, including an 18 explanation of: (i) the legitimate private or public interests that warrant the relief sought; (ii) the 19 injury that will result if the relief sought is not granted; and (iii) why a less restrictive alternative 20 to the relief sought is not sufficient.” LCR 5(g)(3)(B). 21 Financial Pacific avers that because RVI “designated the above-referenced documents as 22 ‘Confidential,’ Local Rule 5(g)(3)(B) is not applicable.” Dkt. No. 83 at 2. This is not the case. 23 Local Civil Rule 5(g)(3)(B) specifically provides that “[w]here parties have entered a litigation 24 agreement . . . governing the exchange in discovery of documents that a party deems confidential, 1 . . . the party who designated the document confidential must satisfy subpart 3(B) in its response 2 to the motion to seal or in a stipulated motion.” Financial Pacific provides no other support for 3 sealing the exhibits. See generally Dkt. No. 83. And although Financial Pacific noted its motion 4 for August 13, 2024 in accordance with the Local Civil Rules, see id. at 1, RVI failed to file a 5 response as required by Rule 5(g)(3)(B). Accordingly, the Court DENIES Financial Pacific’s 6 motion to seal. 7 III. CONCLUSION 8 For the foregoing reasons, the Court ORDERS the following: 9 1. RVI’s Motion to Exclude Opinions of Plaintiff’s Proposed Expert William Warfel, 10 Dkt. No. 79, is GRANTED IN PART and DENIED IN PART. 11 2. RVI’s Motion to Exclude Opinions of Plaintiff’s Proposed Expert D. Gregg Dight, 12 Dkt. No. 81, is GRANTED IN PART and DENIED IN PART. 13 3. Financial Pacific’s Motion for Partial Summary Judgment, Dkt. No. 85, is 14 GRANTED IN PART and DENIED IN PART. Specifically, 15 a. The Court DENIES the motion as to Financial Pacific’s breach of contract claim 16 and second and third declaratory judgment claims (illusory coverage and 17 entitlement to coverage for Loss). Dkt. No. 64 at 10–11. 18 b. The Court GRANTS the motion as to Financial Pacific’s first declaratory 19 judgment claim that the determination of End of Term Value under the Policy 20 is ambiguous. Dkt. No. 64 at 10–11. 21 4. RVI’s Cross-Motion for Summary Judgment, Dkt. No. 99, is GRANTED IN PART 22 and DENIED IN PART. Specifically, 23 a. The Court GRANTS the motion as to Financial Pacific’s breach of contract 24 claim, second and third declaratory judgment claims (illusory coverage and 1 entitlement to coverage for Loss), bad faith claim, CPA claim, and IFCA claim. 2 Dkt. No. 64 at 10–12. 3 b. The Court DENIES the motion as to Financial Pacific’s first declaratory 4 judgment claim that the determination of End of Term Value under the Policy 5 is ambiguous and RVI’s mirror-image counterclaim. Dkt. No. 64 at 10–11; Dkt. 6 No. 65 at 12. 7 c. The Court further DENIES the remainder of RVI’s motion for summary 8 judgment as moot. Dkt. No. 65 at 12–13. Specifically, the remainder of RVI’s 9 counterclaims for declaratory judgment are mere “mirror image” 10 counterclaims, and are moot given the rulings above. See Perez v. Roofing, No. 11 3:15-CV-05623-RJB, 2016 WL 898545 , at *2 (W.D. Wash. Mar. 9, 2016) 12 (noting that mirror image counterclaims do not serve “any useful purpose” 13 because “they raise no issues not also raised by the [c]omplaint,” and because 14 any decision on the complaint’s merits “would render the [c]ounterclaims for 15 declaratory judgment moot”). 16 5. Financial Pacific’s Motion to Seal, Dkt. No. 83, is DENIED. The Clerk is directed 17 to unseal docket entries 84 and 84-1. 18 Dated this 30th day of September, 2025. 19 A 20 Lauren King United States District Judge — 21 — — 22 — — 23 — — 24 —