Northwest Boring Company, Inc. v. Admiral Insurance Company

[7] UNITED STATES DISTRICT COURT [8] WESTERN DISTRICT OF WASHINGTON AT SEATTLE [9] 10 NORTHWEST BORING COMPANY, CASE NO. C24-1310 MJP INC., 11 ORDER ON CROSS-MOTIONS FOR Plaintiff, SUMMARY JUDGMENT [12] v. [13] ADMIRAL INSURANCE COMPANY, [14] Defendant. [16] 17 This matter comes before the Court on Plaintiff’s Motion for Partial Summary Judgment 18 (Dkt. No. 28-1) and Defendant’s Motion for Summary Judgment (Dkt. No. 29). Having reviewed 19 the Motions, the Oppositions (Dkt. Nos. 32 & 35), the Replies (Dkt. Nos. 33 & 39), and all 20 supporting materials, the Court DENIES both Motions. 21 BACKGROUND 22 Plaintiff Northwest Boring Company (NWB) asserts that Defendant Admiral Insurance 23 Company (Admiral) failed to defend it against claims arising out of NWB’s microtunneling work 24 on a water quality project in Seattle. NWB pursues breach of contract and extracontractual 1 claims against Admiral. Admiral admits that there is coverage and that it would have defended 2 against the claims made against NWB, but contends that it cannot face liability because NWB 3 failed to timely tender the counterclaim giving rise to NWB’s liability and violated its 4 contractual duty to cooperate with Admiral. To unpack these arguments, the Court reviews the 5 timeline of events and the communication between the Parties. 6 A. NWB’s Microtunneling Work 7 NWB was hired by Lane Construction Co. as a subcontractor for the City of Seattle’s 8 Ship Canal Water Quality Project. (Second Amended Complaint ¶ 5 (Dkt. No. 19).) Starting in 9 2021, NWB performed microtunneling for the project and experienced two setbacks. (Deposition 10 of Dennis Molvik at 7 (Ex. B to the Declaration of Jared Kiess) (Dkt. No. 31-2).) First, in 11 September 2021, a joint on a pipe NWB installed burst and caused a catastrophic failure that 12 delayed NWB’s work until November 2022. (Id. at 8-10.) Second, on December 8, 2022, a 13 sinkhole was found near NWB’s tunneling site, causing the worksite to close after the City 14 issued a stop-work order. (Id. at 11, 21-24; Kiess Decl. Exs. E-G (Dkt. Nos. 31-5, 31-6, 31-7) 15 (City stop work orders and Lane’s notice of holding NWB responsible).) Lane blamed NWB for 16 the costs incurred in filling the sinkhole and for the delay. (Kiess Decl. Exs. E-G.) 17 The December 8th sinkhole is the only incident relevant to the present dispute, primarily 18 because Admiral’s commercial general policy was only in force between June 1, 2022 to June 1, 19 2023. (SAC ¶ 6.) 20 B. NWB Informs Admiral of the December 2022 Sinkhole 21 Immediately after the December 8th sinkhole was discovered, Lane gave notice to NWB 22 that it would “be held responsible for all additional cost and schedule impact caused by this event 23 if it is determined to be NWB’s fault.” (Molvik Decl. Ex. C (Dkt. No. 28-5).) Eleven days later, [24] 1 NWB’s insurance broker contacted Admiral to notify it of the “12/8/22 sinkhole discovered at 2 Fremont, WA jobsite” and to ask Admiral to “Please open new potential claim and contact 3 insured, per below preliminary information.” (Ex. B to the Declaration of Ruth Cutuli (Dkt. No. 4 30-2).) That same day (December 20, 2022), Admiral retained a third-party adjuster, McLarens, 5 to investigate the claim, and an individual named Crockett Blanchard promptly contacted NWB 6 to discuss. (Cutuli Decl. Exs. C & D (Dkt. No. 30-3, 30-4).) Blanchard prepared a preliminary 7 report dated January 6, 2023, which indicated that “[t]here are currently no damages claimed by 8 any party” and that there had been no tender. (Cutuli Decl. Ex. E (Dkt. No. 30-5).) NWB paid 9 Blanchard for his work, as this was part of the deductible. (Molvik Decl. Ex. D (Dkt. No. 28-6).) 10 And on January 10, 2023, Admiral directed McLarens to close the file “[a]s no claim is being 11 presented[.]” (Hayes Decl. Ex. C at 9-10.) Admiral did not inform NWB that it closed the file. 12 C. Lane and NWB Dispute Impacts Related to December 8th Sinkhole Event 13 In early 2023, Lane informed NWB that it expected about $20,000 to $25,000 in costs 14 associated with the sinkhole. (Kiess Decl. Ex. K (Dkt. No. 31-1).) This sum increased as Lane 15 issued “Change Order 04,” which identified a variety of costs it claimed to have incurred as a 16 result of the December 2022 sinkhole for which it blamed NWB. (Molvik Decl. Ex. E (Dkt. Nos. 17 28-7).) NWB did not necessarily dispute liability for the delay and costs associated with the 18 December 8th sinkhole, but it demanded that Lane provide it with a change order so that it could 19 pursue an incentive payment from the City. (Kiess Decl. Ex. O (Dkt. No. 31-15).) Lane did not 20 comply with NWB’s request. 21 In August 2023, NWB decided to file suit against Lane in an effort to obtain 22 approximately $3.1 million that Lane had withheld from NWB, though these funds were not 23 linked exclusively to the December 2022 sinkhole (aka Change Order 04). (Kiess Decl. Ex. Q [24] 1 (Dkt. No. 31-17).) The allegations against Lane were made in existing litigation between NWB 2 and the pipe manufacturer whose joint failed in 2021. Rather than file a separate suit against 3 Lane, NWB added Lane as a party to its Third Amended Complaint. (Kiess Decl. Ex. Q (Dkt. 4 No. 31-17).) 5 In response to NWB’s claim, Lane filed a counterclaim against NWB on September 7, 6 2023. (Molvik Decl. Ex. F (Dkt. No. 28-8).) In the counterclaim, Lane alleged that NWB 7 breached the construction agreement by installing the pipe which failed and caused damage. (Id. 8 at 17.) Lane identified Change Order 04, which was specific to the December 2022 sinkhole, as 9 one of several change orders that it “incurred due to NWB[’s] . . . failure to perform” according 10 to the construction agreement. (Id.) And it claimed over $4 million in additional costs it incurred 11 as a result. (Id.) 12 D. NWB Provides Admiral Late Notice of its Dispute with Lane 13 Until April 2024, NWB did not apparently reach out to Admiral to discuss the December 14 8th sinkhole or the counterclaim filed against it, and Admiral similarly did not reach out to NWB 15 to follow up on the sinkhole. Admiral’s claim file shows no entries between January 2023 and 16 April 8, 2024. (Hayes Decl. Ex. C at 9 (Dkt. No. 27-3).) On April, 2024, Admiral received 17 “[r]eport from government” and reopened the claim. (Id.) The claim file also shows Admiral 18 reopened the claim in April 2024 after it reviewed “communications from the insured as they 19 relate to this claim previously tendered regarding a sinkhole” and that other information from 20 Lane “may indicate an ongoing loss[.]” (Hayes Decl. Ex. C at 10 (Dkt. No. 27-3).) This is 21 consistent with other documents in the record showing that in April 2024, Admiral reopened the 22 claim for the December 8, 2022 sinkhole after NWB notified its broker that Lane was making 23 new monetary demands related to a new sinkhole at or near the same site. (See Cutuli Decl. Ex. [24] 1 G (Dkt. No. 30-7).) McLarens also reopened its file and continued to work with NWB through 2 the process of assessing the new sinkhole. (See Cutuli Decl. Exs. G & H (Dkt. Nos. 30-7 & 303 8).) 4 On April 12, 2024, NWB’s Molvik reached out to both McLarens and Admiral to notify 5 them that NWB was still awaiting Admiral’s coverage determination on the December 2022 6 sinkhole. (Kiess Decl. Ex. R (Dkt. No. 31-18).) Molvik invited Admiral to participate in the 7 April 23, 2024 mediation, where NWB and Lane were “mediat[ing] the claims between them— 8 including the sinkhole claim[.]” (Id.) Molvik did not identify that the claims were in litigation or 9 forward on a copy of Lane’s counterclaim. Nor did NWB ask for any defense to the 10 counterclaim. Blanchard from McLarens responded to Molvik and asked for “the contract 11 agreement that pertains to Lane Construction” and “any other documents or information related 12 to the Fremont, WA [sic] project.” (Kiess Decl. Ex. T (Dkt. No. 31-19).) On April 22, 2024, 13 counsel for NWB from Ahlers Cressman & Sleight PLLC also invited Admiral to participate in 14 the mediation with Lane set for the following day. (Cutuli Decl. Ex. I (Dkt. No. 30-9).) The 15 email referenced the December 8th sinkhole, but did not indicate that there was active litigation 16 between NWB and Lane (or any other party). Admiral participated in the mediation, but was not 17 requested to make any payment. NWB did not identify the lawsuit at any point during the 18 mediation. And Blanchard from McLarens asked NWB’s attorney from Ahlers to provide “any 19 information and knowledge in regard to our representation as it may pertain to the claim.” 20 (Cutuli Decl. Ex. J (Dkt. No. 30-10).) During the April 23rd mediation, Admiral received no 21 settlement demands and was not asked to contribute to any settlement offers. (Cutuli Decl. ¶ 15.) [24] 1 E. NWB Sues Admiral 2 In August 2024, NWB’s attorneys at Harper Hayes PLLC (who represent NWB in this 3 lawsuit) sent the Washington Insurance Commissioner and Admiral a notice consistent with the 4 Insurance Fair Conduct Act that Admiral had unreasonably denied a claim for coverage and 5 failed to defend NWB. (Cutuli Decl. Ex. K (Dkt. No. 30-11).) NWB filed this lawsuit on August 6 21, 2024. (Compl. (Dkt. No 1).) According to NWB, Admiral had not taken a position on 7 whether there was coverage for the December 8th sinkhole event or whether Admiral had a duty 8 to defend. (Molvik Decl. ¶ 13.) But apparently it was not until September 4, 2024 that NWB 9 (through counsel at Harper Hayes) sent Admiral a copy of Lane’s counterclaim, which Admiral 10 insists it never received before that date. (Cutuli Decl. Ex. J (Dkt. No 30-12).) And NWB’s 11 counsel at Harper Hayes confirmed that he did not have documentation showing NWB sent a 12 copy of Lane’s counterclaim to Admiral. (Id.) Admiral’s primary adjuster also avers that “[i]f 13 Admiral had been provided with a copy of Lane’s demand letters, Admiral would have paid 14 them.” (Cutuli Decl. ¶ 16.) She also avers that had Admiral been asked, it would have provided a 15 defense to the counterclaims Lane asserted against NWB. (Id.) 16 NWB and Lane settled their claims against one another on October 8, 2024. (Molvik 17 Decl. ¶ 14.) NWB incurred over $300,000 in unreimbursed legal and expert fees, though another 18 insurer did pay some of NWB’s defenses costs. (Id. ¶¶ 14-15.) NWB then filed this suit, pursuing 19 breach of contract, bad faith, IFCA, and CPA claims. (SAC.) 20 ANALYSIS 21 A. Legal Standard 22 Summary judgment is proper “if the movant shows that there is no genuine dispute as to 23 any material fact and the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. [24] 1 56(1). In determining whether an issue of fact exists, the Court must view all evidence in the 2 light most favorable to the nonmoving party and draw all reasonable inferences in that party’s 3 favor. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248-50 (1986). A genuine issue of 4 material fact exists where there is sufficient evidence for a reasonable factfinder to find for the 5 nonmoving party. Id. at 248 . The moving party bears the initial burden of showing that there is 6 no evidence which supports an element essential to the nonmovant’s claim. Celotex Corp. v. 7 Catrett, 477 U.S. 317, 322 (1986). Once the movant has met this burden, the nonmoving party 8 then must show that there is a genuine issue for trial. Anderson, 477 U.S. at 250 . If the 9 nonmoving party fails to establish the existence of a genuine issue of material fact, “the moving 10 party is entitled to judgment as a matter of law.” Celotex, 477 U.S. at 323-24 . 11 B. Duty to Defend and Duty to Cooperate 12 Both parties have cross-moved for summary judgment on NWB’s breach of the duty to 13 defend claim. Additionally, Admiral seeks summary judgment on its affirmative defense that 14 NWB breached the cooperation clause in the insuring agreement. Given the disputes of fact 15 material to the claim and defense, the Court DENIES both Motions on the claim and defense. 16 “Washington courts have said that an insurer’s duty to defend ‘arises when a complaint 17 against the insured, construed liberally, alleges facts which could, if proven, impose liability 18 upon the insured within the policy’s coverage.’” Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 19 Wn.2d 411 , 420–21 (2008) (quoting Unigard Ins. Co. v. Leven, 97 Wn. App. 417, 425 (1999), as 20 amended (Apr. 24, 2000)). “However, ‘[A]n insurer cannot be expected to anticipate when or if 21 an insured will make a claim for coverage; the insured must affirmatively inform the insurer that 22 its participation is desired.’” Id. at 421 (quoting Grifin v. Allstate Ins. Co., 108 Wn. App. 133 , 23 140 (2001) (alteration in original) (quotation and citation omitted)). “Thus, ‘breach of the duty to [24] 1 defend cannot occur before tender.’” Id. (quoting Grifin, 108 Wn. App. at 141 ). In other words, 2 “[t]he duties to defend and indemnify do not become legal obligations until a claim for defense 3 or indemnity is tendered.” Id. This recognizes the concept of selective tender—where “[a]n 4 insured may choose not to tender a claim to its insurer for a variety of reasons,” including, for 5 example, avoiding premium increases. USF, 164 Wn.2d at 422. 6 The record before the Court evidences disputes of material fact as to when NWB 7 tendered its defense to Admiral. Although the Court finds no evidence to support NWB’s theory 8 it tendered the claim in 2022, the Court finds that NWB tendered by September 2024 and 9 potentially as early as April 2024. The Court reviews the evidence before it and the evidence 10 concerning Admiral’s affirmative defense. 11 NWB unconvincingly argues that it tendered the claim back in December 2022, when it 12 let Admiral know about the damage from the sinkhole. But there were no claims for indemnity or 13 defense at that time, as there were no damages identified and no threat of a lawsuit. Even if 14 Admiral had some notice that there had been a sinkhole and potential damage associated with 15 NWB’s work, Washington law requires the insured to “affirmatively inform the insurer that its 16 participation is desired”—that is, “specifically ask[] the insurer to undertake the defense of the 17 action.” Leven, 97 Wn. App. at 427 . Aside from asking its broker to file a claim and working 18 with McLarens, NWB did not indicate to Admiral that it sought assistance for indemnity or 19 defense. The record here lacks sufficient evidence of a tender from December 8, 2022 to April 20 2024, when NWB provided some indication that claims might exist (as explained in the 21 following paragraph). NWB argues that by notifying Admiral in 2022, it sufficiently triggered 22 Admiral’s duty to defend the counterclaim even though it was not filed until September 2023 and 23 NWB did not provide notice of the counterclaim until 2024. In support of this argument, NWB [24] 1 invokes Dolsen Companies v. Bedivere Ins. Co., where the Court explained that “a tender for 2 one benefit under a policy is effective as to any pertinent coverage under the policy.” No. 1:163 CV-3141-TOR, 2018 WL 3603059 , at *3 (E.D. Wash. May 16, 2018). But Dolsen remains 4 factually distinct and of no aid to NWB. In Dolsen, the insured “tendered their request for 5 defense and indemnity, which Defendants denied based” on an exclusion the Court found to bar 6 coverage. Id., at *1. But through discovery, the insured learned of a new claim for coverage for 7 first-party coverage that the insurer had failed to disclose, and amended its suit. Id. The Court 8 found that the first tender was effective as to the newly-revealed claims “because the request for 9 benefits triggers the insurer's duty to not only consider the specific benefits requested, but also 10 the duty to disclose pertinent coverage to the insured.” Id., at *3. But here, the facts do not align 11 in any meaningful way. Unlike the plaintiff in Dolsen, NWB did not ask for Admiral to defend it 12 in 2022 when it filed the claim—it just asked that the claim be opened. This put Admiral on 13 notice only that the insured might ask for indemnity, but not a defense. Second, unlike the 14 insurer in Dolsen who withheld information that excused the tender, Admiral is not alleged to 15 have withheld information. Instead, NWB withheld information about Lane’s counterclaim from 16 Admiral. The facts here do not suggest that NWB’s filing of the claim for potential indemnity 17 was sufficient to constitute a tender for defense of the counterclaim. 18 But material facts are in dispute as to whether NWB tendered a request for defense from 19 Lane’s counterclaim in April 2024 when it invited Admiral to participate in the mediation. True, 20 neither NWB nor its outside counsel directly asked Admiral to defend it against the counterclaim 21 or even provided notice that there were such a claim. But there are no magic words necessary to 22 constitute a tender of a defense. See Osborne Constr. Co. v. Zurich Am. Ins. Co., 356 F. Supp. 3d 23 1085, 1094 (W.D. Wash. 2018) (noting that “no particular set of magic words . . . are [24] 1 necessary to invoke an insurer’s duty to defend”). A jury might agree with NWB that by inviting 2 Admiral’s participation in the mediation on an issue involving a previously-filed claim for which 3 NWB paid its deductible, it tendered the request for defense. Evidence in the record supports this 4 position. Notably, Admiral’s claim file shows that it reopened the claim in April 2024 after it 5 reviewed “communications from the insured as they relate to this claim previously tendered 6 regarding a sinkhole” and that other information from Lane “may indicate an ongoing loss[.]” 7 (Hayes Decl. Ex. C at 10 (Dkt. No. 27-3).) But construing the facts in the light most favorable to 8 Admiral, the Court finds it equally possible that a jury would find no tender because NWB did 9 not identify the counterclaim and made no specific request for a defense. Given that both parties 10 move for relief on this claim, the Court finds that material facts preclude summary judgment. A 11 jury must resolve whether the April 2024 events constitute a tender. 12 NWB also points to undisputed evidence that it tendered its defense by September 2024, 13 when it provided a copy of the counterclaim. On this point, there are no disputed facts. Although 14 the tender occurred after this lawsuit was filed, the underlying dispute between Lane and NWB 15 was not settled until October 2024. And there is no evidence that Admiral undertook any defense 16 after September 2024. As such, the Court finds that NWB possesses a valid claim for breach of 17 the duty to defend given this valid tender in September 2024. But, as explained in the following 18 paragraphs, NWB is not entitled to summary judgment because Admiral has identified disputed 19 material facts that support its affirmative defense that NWB breached the cooperation clause by 20 waiting too long between the filing of the counterclaim and the September 2024 tender. 21 Under Washington law, “[t]ypically, an insured that ‘substantially and materially’ 22 breaches a cooperation clause is contractually barred from bringing suit under the policy if the 23 insurer can show it has been actually prejudiced.” Staples v. Allstate Ins. Co., 176 Wn.2d 404 , [24] 1 410. The burden of proving noncooperation is on the insurer. Oregon Auto. Ins. Co. v. Salzberg, [2] 85 Wn.2d 372 (1975). To prevail on this affirmative defense, an insurer must show three things: 3 (1) the insured failed to “substantially comply” with the terms of the cooperation clause; (2) the 4 information at issue was material to the circumstances giving rise to the insurer's liability, (3) the 5 insurer suffered actual prejudiced as a result. See Staples, 176 Wn.2d at 410 . 6 Disputed material facts preclude summary judgment on Admiral’s defense that NWB 7 failed to substantially comply with the policy’s cooperation provision. That contractual provision 8 required NWB to “[n]otify [Admiral] as soon as practicable” of any lawsuit brought against it, 9 and provide copies of all related legal papers. (Cutuli Decl. Ex. A at 20).) Here, NWB failed to 10 promptly notify Admiral of the counterclaim, which was material to Admiral’s liability. The 11 facts here would thus support the first two claim elements. And if the only tender is found to be 12 September 2024, then Admiral possesses a strong defense, particularly since the lawsuit was 13 filed a month before the tender. But as to the final element—actual prejudice—there remains a 14 dispute of material fact. Admiral claims it was prejudiced in helping to defend NWB and that the 15 Court here can presume prejudice given the outcome in Felice v. St. Paul Fire & Marine Ins. Co., [16] 42 Wn. App. 352 (1985), where a six month delay was found sufficient. But as the Washington 17 Supreme Court has noted, “prejudice is an issue of fact and will seldom be established as a 18 matter of law.” Dien Tran v. State Farm Fire & Cas. Co., 136 Wn.2d 214, 228 (1998). Claims of 19 actual prejudice require “affirmative proof of an advantage lost or disadvantage suffered as a 20 result of the [breach], which has an identifiable detrimental effect on the insurer’s ability to 21 evaluate or present its defenses to coverage or liability.” Id. The Court has not been provided 22 with convincing and undisputed evidence of actual prejudice, particularly given the disputes of 23 fact as to the timing of the tender. Moreover, the facts here stray from those in Felice, where the [24] 1 insured ask for a defense only after he lost at trial and after the appeal period ran. Construing the 2 facts in NWB’s favor, NWB notified Admiral by either April or September 2024, before any 3 resolution of the claims had been reached, and there was still time to limit at least some of the 4 claimed damages, expert costs, and litigation expenses. Whether there is prejudice must be 5 resolved at trial. 6 In summary, the Court DENIES summary judgment on the breach of the duty to defend 7 and cooperation clause affirmative defense given the disputed material facts. 8 C. Bad Faith Claim Not Ripe for Summary Judgment 9 NWB argues in its Motion that Admiral breached its duty to conduct a reasonable 10 investigation and that it therefore owes a duty to defend by estoppel. In support of this argument, 11 NWB cites Coventry Assocs. v. Am. States Ins. Co., a case holding that “an insured may 12 maintain an action against its insurer for bad faith investigation of the insured's claim and 13 violation of the CPA regardless of whether the insurer was ultimately correct in determining 14 coverage did not exist.” 136 Wn.2d 269, 279 (1998). But Coventry does not quite align. In 15 Coventry, the insurer denied coverage after performing a cursory investigation of the property 16 damage, considering only a portion of the relevant policy, and without considering whether there 17 were other covered losses. Id. at 274 . Here, however, there was never a denial of coverage, and 18 the facts show that Admiral did conduct an investigation into the sinkhole. While Admiral did 19 not tell NWB that it closed the file in early 2023, it was also never asked to follow up on the 20 initial claim. While NWB may be able to convince a jury that Admiral should have continued to 21 investigate the claim until at least the point Lane filed a counterclaim, it would be improper to 22 construe the facts in NWB’s favor on summary judgment, particularly when there are [24] 1 countervailing facts suggesting that Admiral’s investigation was substantial and prompt. The 2 Court therefore DENIES NWB’s motion on this claim. 3 D. Extracontractual Claims 4 The Court rejects Admiral’s Motion as to NWB’s extracontractual claims. First, as to 5 NWB’s bad faith claim, Admiral argues a jury could not find it liable for denying a claim that 6 was never tendered. (Def. Mot. at 16.) But given the dispute of fact as to the timing of tender and 7 the cooperative clause affirmative defense, this argument cannot be resolved at summary 8 judgment. Second, as to the IFCA claim, Admiral argues that it cannot be liable because it did 9 not unreasonably deny coverage. But if it unreasonably failed to defend, then the claim may still 10 proceed, and resolution of it turns on the disputed facts concerning tender and breach of the 11 cooperation clause. Third, Admiral’s requested dismissal of the CPA claim must be rejected at 12 summary judgment because it, too, is bound up in the same web of disputed facts concerning the 13 nature and timing of the tender. 14 CONCLUSION 15 Material facts exist in the record presented to the Court that prevent summary judgment 16 on any of claims and defenses identified by the Parties in their cross-motions. A jury will need to 17 hear and weigh the evidence concerning the tender of the claims and the relevant facts 18 concerning Admiral’s cooperation clause defense. Accordingly, the Court DENIES both 19 Motions, and the matter will be need to be resolved at trial. 20 The clerk is ordered to provide copies of this order to all counsel. 21 Dated October 21, 2025. A [22] 23 Marsha J. Pechman United States Senior District Judge