j-\ iL uT 'V'1, 0 i'!\;'- U; ! •
2015 AUG 2U AM 10=
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
ZHAOYUN XIA, a single person; No. 71951-3-1
ISSAQUAH HIGHLANDS 48, LLC, a
Washington limited liability company; DIVISION ONE
ISSAQUAH HIGHLANDS 50, LLC, a
Washington limited liability company;
GOTTLIEB ISSAQUAH HIGHLANDS 48,
LLC, a Washington limited liability
company; and GOTTLIEB ISSAQUAH
HIGHLANDS 50, LLC, a Washington
limited liability company,
Appellants/
Cross Respondents,
v.
UNPUBLISHED
PROBUILDERS SPECIALTY
INSURANCE COMPANY, RRG, a FILED: August 24, 2015
foreign insurance company authorized to
conduct business within the state of
Washington; OLYMPIC ADVANTAGE,
INC., a Washington corporation;
TREACY DUERFELDT and JANE DOE
DUERFELDT, husband and wife, and the
marital community composed thereof;
LAMBIN INSURANCE SERVICES, INC.,
a Nevada corporation doing business in
the state of Washington; FLYING EAGLE
INSURANCE SERVICES, INC., a
Nevada corporation licensed to do
business in the state of Washington; and
DAVID W. LAMBIN and JANE DOE
LAMBIN, husband and wife, and the
marital community composed thereof,
Respondents/
Cross Appellants.
No. 71951-3-1/2
Cox, J. — Zhaoyun Xia appeals the summary judgment order in favor of
ProBuilders Specialty Insurance Company that also denies her motion for
summary judgment and dismisses this action. There are no genuine issues of
material fact whether ProBuilders, the insurer, had a duty to defend under the
pollution exclusion of the policy of insurance applicable to Xia's claim against
Issaquah Highlands 48, LLC, the named insured, and related entities (collectively
"Issaquah Highlands"). ProBuilders had no duty to defend and was entitled to
judgment as a matter of law. But there are genuine issues of material fact
regarding Xia's Consumer Protection Act and Insurance Fair Conduct Act claims
against ProBuilders. Accordingly, we affirm in part, reverse in part, and remand
for further proceedings.
Issaquah Highlands 48, LLC was the general contractor of the "Villaggio
TownHomes" a housing development in Issaquah. It purchased a $1,000,000
general liability insurance policy for the development from ProBuilders. The
policy term was from July 7, 2005 to July 7, 2006.
In May 2006, Xia purchased one of the homes at the Villaggio
TownHomes. After moving in, she began experiencing dizziness, fatigue, limb
numbness, and other symptoms. She was diagnosed as suffering from carbon
monoxide poisoning. The Social Security Administration later determined that
she was disabled. In December 2006, Puget Sound Energy determined that
toxic levels of carbon monoxide were leaking within her home from a gas water
heater. The exhaust vent of the water heater was never connected to an exterior
vent.
No. 71951-3-1/3
In June 2007, Xia informed Issaquah Highlands, in writing, of her claim
based on her carbon monoxide poisoning. Issaquah Highlands forwarded her
letter to its insurance broker. The broker submitted the claim to the claims
administrator for ProBuilders, NBIS Claims & Risk Management, Inc., in July
2007.
By letter dated January 17, 2008, NBIS notified Issaquah Highlands that
ProBuilders "wfpuld] neither defend nor indemnify" it and "any judgment or
settlement obtained by [Xia] predicated upon damages that fall outside the
[policy]" would be the responsibility of Issaquah Highlands.1 By letter dated June
12, 2008, NBIS also notified counsel for Xia that ProBuilders "will neither defend
nor indemnify" Issaquah Highlands in language and scope virtually identical to
the January 17, 2008 letter to the insured.2
In January 2009, Xia commenced a personal injury action against
Issaquah Highlands 48, LLC and others. In that action, she claimed damages for
injuries caused by her carbon monoxide poisoning. Xia sent a courtesy copy of
the pleadings to NBIS, the agent for ProBuilders.
In December 2010, Xia notified ProBuilders through its agent NBIS that
she planned to enter into a settlement with Issaquah Highlands in her personal
injury action. The letter also stated that if they did not receive written
correspondence within 30 days stating that ProBuilders would provide coverage
1 Clerk's Papers at 285.
2 Id. at 292.
No. 71951-3-1/4
and defend Issaquah Highlands, she would have no option but to enter into the
settlement.
Thereafter, Xia entered into a settlement agreement with Issaquah
Highlands in the amount of $2,000,000. The agreement provided that Xia would
take an assignment of Issaquah Highlands' rights against ProBuilders, its insurer.
In exchange, Xia covenanted not to execute a judgment against Issaquah
Highlands.
Xia gave ProBuilders notice of the motion for determination of
reasonableness of the settlement. ProBuilders elected not to attend the hearing.
The trial court found the settlement agreement to be reasonable. It
entered judgment against Issaquah Highlands in favor of Xia in the amount of
$2,000,000.
In May 2011, Xia, as assignee of Issaquah Highlands, sent NBIS and
ProBuilders a 20-day notice of intent to commence Insurance Fair Conduct Act
litigation. Later that month, ProBuilders, through its agent NBIS, reiterated in
writing its prior statements of position that it would neither defend nor indemnify
on the asserted basis that Xia's claim was not covered by the policy.
Xia commenced this action against ProBuilders. She asserted claims of
breach of the insurance contract, bad faith, and violations of the Consumer
Protection Act (CPA) and the Insurance Fair Conduct Act (IFCA). She sought a
declaratory judgment that ProBuilders had a duty under the policy to defend and
indemnify its insured in connection with her personal injury action.
No. 71951-3-1/5
Following cross-motions for summary judgment, the trial court orally
granted ProBuilders' motion. Sometime later, following Xia's motion for
reconsideration, the court entered its summary judgment order in favor of
ProBuilders. The order also denied Xia's motion for summary judgment and
dismissed this action.
Xia appeals. ProBuilders cross-appeals the trial court's denial of its
summary judgment motion that the pollution exclusion provision of its policy
barred coverage.
DUTY TO DEFEND
Xia argues that the trial court erred by granting summary judgment to
ProBuilders, denying her motion, and dismissing this case. She claims that
ProBuilders had a duty to defend its insured against her personal injury claim.
We hold that there were no genuine issues of material fact regarding the
insurer's duty to defend under the pollution exclusion provision. ProBuilders was
entitled to judgment as a matter of law.
"The standard of review of an order of summary judgment is de novo."3
The court must consider all facts submitted and all reasonable inferences from
the facts in the light most favorable to the nonmoving party.4 Summary judgment
is appropriate only if there is no genuine issue of material fact, and the moving
3 Smith v. Safeco Ins. Co., 150 Wn.2d 478, 483, 78 P.3d 1274 (2003).
4 Graff v. Allstate Ins. Co., 113 Wn. App. 799, 802, 54 P.3d 1266 (2002).
No. 71951-3-1/6
party is entitled to judgment as a matter of law.5 A "material fact" is a fact upon
which the outcome of the litigation depends, in whole or in part.6
"Language in an insurance policy is interpreted as a matter of law, and
construction of that language is reviewed de novo."7 "'In construing the language
of an insurance policy, the policy should be given a fair, reasonable, and sensible
construction as would be given to the contract by the average person purchasing
insurance.'"8 Where terms are undefined, they "'must be given their plain,
ordinary, and popular meaning.'"9 In determining this meaning, a court may look
to standard English dictionaries.10
Exclusions are interpreted narrowly.11 They "'are to be most strictly
construed against the insurer.'"12
5 CR 56(c).
6 Barber v. Bankers Life & Cas. Co., 81 Wn.2d 140, 144, 500 P.2d 88 (1972).
7 Expedia. Inc. v. Steadfast Ins. Co.. 180 Wn.2d 793, 802, 329 P.3d 59
(2014).
8 Tyrrell v. Farmers Ins. Co. of Wash., 140Wn.2d 129, 133, 994 P.2d 833
(2000) (quoting Roller v. Stonewall Ins. Co., 115 Wn.2d 679, 682, 801 P.2d 207
(1990)).
9 jd. (internal quotation marks omitted) (quoting Kitsap County v. Allstate Ins.
Co., 136Wn.2d567, 576, 964 P.2d 1173(1998)).
10
Id.
11 Am. Best Food. Inc. v. Alea London, Ltd., 168 Wn.2d 398, 413, 229 P.3d
693(2010).
12 la\ at 406 (quoting Phil Schroeder. Inc. v. Roval Globe Ins. Co., 99 Wn.2d
65, 68, 659 P.2d 509 (1983)).
No. 71951-3-1/7
The duty to defend is one of the main benefits of the insurance contract.13
The duty to defend is different from and broader than the duty to indemnify.14
The duty to indemnify exists only if the policy "actually covers" the insured's
liability.15 The duty to defend is triggered if the insurance policy "conceivably
covers" allegations in the complaint.16
"The duty to defend arises when a complaint against the insured,
construed liberally, alleges facts which could, if proven, impose liability upon the
insured within the policy's coverage.'"17 "[I]f there is any reasonable
interpretation of the facts or the law that could result in coverage, the insurer
must defend."18 Ifthe complaint is ambiguous, it will be liberally construed in
favor of triggering the insurer's duty to defend.19 "In deciding whether to defend,
an insurer may not put its own interest above that of its insured."20
13 Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 760, 58 P.3d 276
(2002).
14 Am. Best Food. Inc.. 168 Wn.2d at 404.
15 Id (emphasis omitted).
16 |d. (emphasis omitted).
17 la\ (internal quotation marks omitted) (quoting Truck Ins. Exch., 147 Wn.2d
at 760).
18lg\at405.
19 Truck Ins. Exch., 147 Wn.2d at 760.
20 Am. Best Food. Inc.. 168 Wn.2d at 414.
7
No. 71951-3-1/8
"An insurer is relieved of its duty to defend only if the claim alleged in the
complaint is 'clearly not covered by the policy.'"21 "Once the duty to defend
attaches, insurers may not desert policyholders and allow them to incur
substantial legal costs while waiting for an indemnity determination."22 "When the
facts or the law affecting coverage is disputed, the insurer may defend under a
reservation of rights until coverage is settled in a declaratory action."23
The duty to defend is generally determined from the "eight corners" of the
insurance contract and the underlying complaint.24 There are two exceptions to
this rule and both favor the insured.25 First, if it is not clear from the face of the
complaint but coverage could exist, the insurer must investigate and give the
insured the benefit of the doubt.26 Second, if allegations in the complaint conflict
with facts known to the insurer or if the allegations are ambiguous, facts outside
the complaint may be considered.27 But "extrinsic facts may only be used to
trigger the duty to defend; the insurer may not rely on such facts to deny its
defense duty."28
21 Woo v. Fireman's Fund Ins. Co., 161 Wn.2d 43, 60, 164 P.3d 454 (2007)
(quoting Truck Ins. Exch., 147 Wn.2d at 760).
22 Truck Ins. Exch.. 147 Wn.2d at 761.
23 Am. Best Food. Inc., 168 Wn.2d at 405.
24 Expedia. Inc., 180 Wn.2d at 803.
25 jd,
26 id,
27 id, at 803-04.
28 id, at 804.
8
No. 71951-3-1/9
In its summary judgment order, the trial court granted summary judgment
to ProBuilders on two bases. First, because Xia's home fell within the
"townhouse exclusion" in the insurance contract. Second, because Issaquah
Highlands did not request ProBuilders to defend it from Xia's lawsuit. The trial
court declined to grant relief based on ProBuilders' argument that the "pollution
exclusion" of its policy also barred coverage of Xia's claim.
Pollution Exclusion
We first consider whether the trial court erred by denying Xia's motion for
summary judgment that the "pollution exclusion" was inapplicable as a matter of
law.29
The controlling question is whether it is clear from examining the face of
the complaint and the insurance policy that the policy does not provide
coverage.30 We conclude by examining both that the pollution exclusion clearly
excludes coverage for Xia's claim. Accordingly, there was no duty to defend.
The court properly denied summary judgment to Xia on this alternative basis.
The "pollution exclusion" excludes from coverage:
Bodily injury, property damage, or personal injury caused
by, resulting from, attributable to, contributed to, or aggravated by
the actual, alleged or threatened discharge, dispersal, seepage,
migration, release or escape of pollutants, or from the presence
of, or exposure to, pollution of any form whatsoever, and regardless
of the cause of the pollution or pollutants.
This Exclusion applies regardless of the cause of the
pollution and whether any other cause of said bodily injury, property
damage, or personal injury acted jointly, concurrently or in any
29 Brief of Appellant at 34-35.
30 See Expedia. Inc.. 180 Wn.2d at 803.
No. 71951-3-1/10
sequence with said pollutants or pollution. This Exclusion applies
whether any other cause of the bodily injury, property damage, or
personal injury would otherwise be covered under this insurance.
. . ,[31]
The policy defines "pollutant" as:
[A]ny solid, liquid, gaseous or thermal irritants or contaminants,
which include but are not limited to smoke, vapor, soot, fumes,
acids, alkalis, chemicals, waste, biological elements and agents,
and intangibles such as noise, light and visual esthetics, the
presence of any or all of which adversely affects human health or
welfare, unfavorably alters ecological balances or degrades the
vitality of the environment for esthetic, cultural or historical
purposes, whether such substances would be or are deemed or
thought to be toxic, and whether such substances are naturally
occurring or otherwise.
Pollution as used herein means any form of pollutant which
forms the basis for liability, whether the pollution is said to cause
physical injury or not, which by volume or timing or any other factor
is said to give rise to liability.!321
In her amended complaint in her personal injury action against Issaquah
Highlands, Xia alleged that upon moving into her home she "began to feel ill and
started to experience unusual symptoms."33 She also alleged:
On December 8, 2006, Puget Sound Energy found an indoor
leak of Carbon Monoxide into Ms. Xia's town home.
Puget Sound Energy discovered that the exhaust hose for
Ms. Xia's hot water tank had never been connected and thus was
allowing carbon monoxide to flow freely into Ms. Xia's town
homeJ341
31 Clerk's Papers at 375 (emphasis added) (emphasis omitted).
32 jd, at 389 (emphasis added) (emphasis omitted).
33 Jd, at 83.
34 Jd,
10
No. 71951-3-1/11
She further alleged cognitive impairment and other bodily injuries caused
by exposure to carbon monoxide.
We note that these allegations in Xia's personal injury action mirror those
in the recitation of "Facts" in the January 17, 2008 letter in which ProBuilders
declined to either defend or indemnify its insured. Specifically, there was no
material change of facts between ProBuilders' decision to deny a defense before
the action and the action that followed.
It is clear from the definition in the policy that carbon monoxide is a
"pollutant." It is a gas and these fumes escaped from the hot water heater,
adversely affecting Xia's health. Moreover, this gas was toxic, at the levels of
exposure in this case. Thus, Xia's allegations fall within the plain language of
this exclusion.
Moreover, the policy twice expressly states that the exclusion applies
"regardless of the cause of the pollution."35 And it expressly states that the
exclusion applies "whether any other cause of said bodily injury . . . acted jointly,
concurrently or in any sequence with said pollutants."36 It also expressly states
that it applies "whether any other cause of the bodily injury . . . would otherwise
be covered under this insurance."37 Thus, even ifthe negligence of the installer
of the water heater was a cause of the pollution or Xia's injuries, such underlying
negligence is immaterial to the application of this exclusion.
35 jd, at 375.
36 id,
37 Id.
11
No. 71951-3-1/12
Accordingly, liberally construing the allegations of Xia's amended
complaint in her personal injury action does not show facts that could, if proven,
impose liability upon the named insured within the policy's coverage.
Heavily relying on Kent Farms, Inc. v. Zurich Insurance Co.,38 Xia argues
that her underlying cause of action is rooted in negligence, not the release of
pollutants.39 According to her, whether an exclusion applies is necessarily a fact-
specific inquiry.40 And she claims the trial court erred in refusing on summary
judgment "to resolve the ambiguity in the pollution exclusion in favor of
coverage."41
We see no ambiguity in the pollution exclusion provision of this policy for
reasons we have already discussed. We conclude that an insured would
reasonably read the policy in the same way we do.
Xia's claim that her cause of action is rooted in negligence does not help
her. As we observed earlier in this opinion, the plain language of the policy
states that the exclusion applies "regardless of the cause of the pollution and
whether any other cause of said bodily injury . . . acted jointly, concurrently or in
any sequence with said pollutants."42 Regardless of her characterization of "the
cause," this wording makes clear that the existence of other causes is immaterial.
38 140 Wn.2d 396, 998 P.2d 292 (2000).
39 Brief of Appellant at 36-40.
40 Jd, at 36, 40.
41 Id, at 40.
42 Clerk's Papers at 375.
12
No. 71951-3-1/13
The essence of Xia's argument is that Kent Farms controls this case, not
Quadrant Corp. v. American States Insurance Co.43 After a careful review of
these authorities, we also conclude that Quadrant dictates that the pollution
exclusion provision in this policy bars coverage of Xia's claim.
In Quadrant, the supreme court held that a pollution exclusion provision
applied to preclude coverage for claims for injuries caused by fumes from
waterproofing material that entered the plaintiff's apartment building.44 In doing
so, the court reaffirmed the continuing validity of Cook v. Evanson, a decision
from this court.45 Cook involved fumes from a sealant applied by a contractor.46
The contractor failed to properly seal off the fresh air intake, and fumes were
drawn into the building, injuring the occupants.47
The Quadrant court first rejected the plaintiff's argument that absolute
pollution exclusions apply only to environmental harms, not personal injuries
arising from ordinary negligence.48 It stated that "a majority of courts has
concluded that absolute pollution exclusions unambiguously exclude coverage
for damages caused by the release of toxic fumes."49
43154Wn.2d 165, 110 P.3d 733 (2005).
44 Jd, at 167.
45 Jd, (citing Cook v. Evanson. 83 Wn. App. 149, 920 P.2d 1223 (1996),
review denied. 131 Wn.2d 1016 (1997)).
46 Cook, 83 Wn. App. at 151.
47 Jd,
48154 Wn.2d at 173-74.
49 Id, at 173.
13
No. 71951-3-1/14
The court then examined what it called "Absolute Pollution Exclusions in
Washington."50 It started with this court's decision in Cook and traced the line of
cases that followed.51 When it reached Kent Farms, the court noted that the
decision in that case did not mention this court's decision in Cook.52 In applying
the pollution exclusion provision in Quadrant, the court noted that this court's
holding in Cook was based on the underlying injury and cause of action being
primarily the result of the toxic character of the pollutant.53
The supreme court also noted that the "fumes" cases were factually
distinguishable from Kent Farms.54 Thus, it stated, "[W]hen fumes caused injury
and where the pollutant was being used as it was intended," the Cook reasoning
controls.55
Accordingly, the Quadrant court concluded that the pollution exclusion
applied to bar coverage.56 The tenant in the apartment building was injured by
fumes coming from toxic water proofing material that was being used as intended
outside the building.57 The air in the tenant's apartment was "polluted" when the
50 Jd, at 174.
51 Jd, at 174-79.
52 Jd, at 178.
53 Jd, at 179.
54 Jd,
55 Jd,
56 Jd,
57 Id.
14
No. 71951-3-1/15
fumes entered the building because the contractor had not properly vented the
area where the toxic material was drying.58
The present case most closely resembles Quadrant. Here, Xia was
injured by fumes from toxic levels of carbon monoxide coming from the
improperly vented gas water heater in her home. The carbon monoxide rose to
toxic levels within the home because the installer failed to properly vent the water
heater to the outside. Thus, the air in Xia's home was polluted. The exclusion
applies. Liability imposed on the named insured is not within this policy's
coverage. Denial of summary judgment to Xia was correct on the alternative
basis of this reasoning.
Xia argues that the facts of this case are analogous to Kent Farms, not
Quadrant. We disagree.
She argues that unlike the sealant in Quadrant, carbon monoxide occurs
naturally and is not harmful in small quantities. She further argues that the
carbon monoxide in this case was never "used." And she argues that she would
not have been injured if the water heater was used as intended.
But all of these arguments go to causation, which is immaterial under the
express language of the pollution exclusion provision in this case. As already
discussed, the language of the pollution exclusion in this case expressly applies
"regardless of the cause of the pollution and whether any other cause of said
58 Jd,
15
No. 71951-3-1/16
bodily injury . . . acted jointly, concurrently or in any sequence with said
pollutants."59
Further, these arguments do not materially distinguish this case from
Quadrant. This case, like Quadrant, involved a pollutant causing injury because
it is a pollutant. Xia's reliance on Kent Farms is misplaced, because Kent Farms
is factually distinguishable. In that case, a fuel deliveryman was injured when the
fuel storage tank's intake valve malfunctioned and diesel fuel began to spill from
the tank.60 While attempting to prevent the spill, the deliveryman was doused
with fuel, which went down his throat and into his lungs and stomach.61 Kent
Farms' insurance company denied coverage based on a pollution exclusion.62
On review, the supreme court determined that the pollution exclusion was
inapplicable, stating that the cause of action was "rooted in negligence, not in
environmental harm caused by pollution" because the plaintiff alleged
"negligence in the maintenance and design of a fuel storage facility that resulted
in immediate bodily injury when a high-pressure jet of liquid struck him."63
As Quadrant later noted, Kent Farms "distinguished between cases in
which the substance at issue was polluting at the time of the injury and cases in
59 Clerk's Papers at 375 (emphasis added) (emphasis omitted).
60 Kent Farms, 140 Wn.2d at 397-98.
61 Jd, at 398.
62 Jd,
63 Jd, at 399.
16
No. 71951-3-1/17
which the offending substance's toxic character was not central to the injury."64
In Kent Farms, the court reasoned, "[The deliveryman] was not polluted by diesel
fuel. It struck him; it engulfed him; it choked him. It did not pollute him. Most
importantly, the fuel was not acting as a 'pollutant' when it struck him . . . ,"65
Quadrant later distinguished Kent Farms on this basis.
We distinguish this case from Kent Farms on the same basis. The carbon
monoxide was "acting as a pollutant" at the time of Xia's injury and the
substance's toxic character is central to her injury. That the negligent installation
of the water heater caused the toxic levels of gas to escape is immaterial. Like in
Cook and Quadrant, this case arises from a toxic substance, acting as such,
causing physical injury. That negligence was also involved is not material for the
reasons explained in those cases. Quadrant controls.
Finally, we note that there is no argument here that the policy is illusory
because of its terms and conditions. Likewise, there is no insurance legislation
that has been called to our attention to address the breadth of the pollution
exclusion in this case. Both points were discussed in Quadrant.66 Neither is at
issue here.
To summarize, the pollution exclusion applies. The toxic levels of gas in
Xia's home polluted the air. There was no duty to defend on the basis of this
64 Quadrant Corp., 154 Wn.2d at 182.
65 Kent Farms, 140 Wn.2d at 401.
66 Quadrant Corp., 154 Wn.2d at 184-86.
17
No. 71951-3-1/18
exclusion. On this alternative basis, we hold that the trial court properly denied
summary judgment to Xia.
Townhouse Exclusion
Xia argues that the trial court erred when it concluded that ProBuilders
had no duty to defend based on the insurance policy's Condominium or
Townhouse Liability Exclusion ("townhouse exclusion"). We agree.
Here, the trial court ruled, in part, that when ProBuilders denied coverage
in its January 17, 2008 letter "itwas correct because the townhouse exclusion
properly applied and excluded all coverage."67 This was incorrect.
As we stated earlier in this opinion, the threshold question in determining
whether there is a duty to defend is whether Xia's amended complaint in her
personal injury action, construed liberally, alleges facts that could, if proven,
impose liability covered by the ProBuilders policy.
As counsel for Xia properly acknowledged during oral argument of this
case before this court, the subject property is not a condominium. Thus, that part
of the exclusion in the policy is not material to this case. ProBuilders does not
argue otherwise.
The townhouse exclusion excludes from coverage:
Property damage or bodily injury within the products-
completed operations hazard arising from, related to or in any way
connected with your work or your work product which is, is part of
or is incorporated into or upon a . . . townhouse project, or to
personal injury or advertising injury arising or resulting from your
operations performed upon, at or for a . . . townhouse project.1681
67 Clerk's Papers at 1299.
68 Clerk's Papers at 379 (emphasis added) (emphasis omitted).
18
No. 71951-3-1/19
Thus, the question is whether Xia's home was part of a "townhouse
project." The policy does not define the term "townhouse project." ProBuilders
contends that Xia's home constitutes a "townhouse" within the meaning of the
exclusion. Xia disagrees, asserting that she owns a "zero lot line" home and that
it does not fall within the ordinary meaning of the policy exclusion for townhouse.
She further asserts that to the extent the term is ambiguous, this ambiguity
imposed on ProBuilders the duty to defend.
Where terms are undefined, they "'must be given their plain, ordinary, and
popular meaning.'"69 In determining this meaning, a court may look to standard
English dictionaries.70 "If words have both a legal, technical meaning and a plain,
ordinary meaning, the ordinary meaning will prevail unless it is clear that both
parties intended the legal, technical meaning to apply."71
The Merriam-Webster Online Dictionary defines "townhome" or "town
house" as: "[A] house that has two or three levels and that is attached to a similar
house by a shared wall."72 And Black's Law Dictionary defines "townhouse" or
"townhome" as: "A dwelling unit having usu[ally] two or three stories and often
69 Tyrrell, 140 Wn.2d at 133 (internal quotation marks omitted) (quoting Kitsap
County. 136 Wn.2d at 576).
70 Jd,
71 Kitsap County. 136 Wn.2d at 576.
72 Merriam-Webster Online Dictionary, httpV/www.merriam-
webster.com/dictionary/town+house (last visited July 31, 2015) (emphasis added).
19
No. 71951-3-1/20
connected to a similar structure by a common wall and (particularly in a planned-
unit development) sharing and owning in common the surrounding grounds."73
These definitions explain that the plain meaning of a townhouse is a
structure that has either a "shared" or a "common" wall with adjacent units.
Looking to Xia's complaint on its face, it is not clear whether her home falls within
the plain meaning of this definition. Whether Xia's home had shared or common
walls is the determinative question for purposes of applying this exclusion.
Accordingly, because coverage was not clear from examining the face of the
complaint but might have existed, ProBuilders had a duty to investigate the claim
and give the insured the benefit of the doubt.
Further, we note that the allegations in Xia's complaint conflicted with facts
either known or that should have been known to ProBuilders. Specifically,
ProBuilders knew that Xia's home was marketed as a "zero lot line" home. A
zero lot line townhouse must have "independent structural walls."74 Specifically,
an air gap must exist between the structural walls of the units.
Presumably, when underwriting the policy it issued in this case,
ProBuilders either knew or should have known of the physical characteristics of
the units in this development. In either event, at minimum, the insurer had a duty
to investigate to verify whether the home had shared or common walls in order to
apply the townhouse exclusion. There is no evidence in this record to show that
it did so.
73 Black's Law Dictionary 1720 (10th ed. 2014) (emphasis added).
74 Clerk's Papers at 177.
20
No. 71951-3-1/21
In sum, on examining the "eight corners" of Xia's amended complaint and
the policy, it was unclear whether the townhouse exclusion applied. Because of
the uncertainty, the proper course of action for ProBuilders was to investigate
and defend under a reservation of rights and commence a declaratory judgment
action to obtain a court ruling on the applicability of the exclusion.75 ProBuilders
was not entitled to make this judgment on its own, leaving its insured to
undertake its defense at its own expense.
ProBuilders makes several arguments why we should accept its reading of
the word "townhouse." But these are arguments that should have been made to
the trial court in a declaratory judgment action following the acceptance of a
tender of defense under a reservation of rights and investigation.
ProBuilders argues that Xia consistently referred to her house as a "town
home" or "town house" in her original and amended complaints. ProBuilders also
argues that photographs of the Villaggio townhouses reveal that they are
connected by shared walls with no visible air space between the units and thus,
they fall within the definition of "townhouse." These are factual matters to be
resolved by a court in a declaratory action, following acceptance of a tender of
defense under a reservation of rights.
ProBuilders argues that American States Insurance Co. v. Delean's Tile
and Marble LLC "disposes of" Xia's argument that the air gap between the units
indicates that her home is not a "town home."76 In that case, this court stated
75 See Truck Ins. Exch.. 147 Wn.2d at 761.
76179 Wn. App. 27, 319 P.3d 38 (2013).
21
No. 71951-3-1/22
that contractors were "incorrect in their contention that the one inch air space
between the inner walls of the buildings legally separates the units."77
ProBuilders asserts, "As in Delean's, the Villaggio townhouse units at issue here
were not noticeably separate from one another and were for all appearances part
of a single building with shared siding and a shared roof."78 Had this argument
been made to the trial court in a declaratory judgment action following
acceptance of defense under a reservation of rights, we believe the court would
have rejected it.
The Delean's court was considering whether townhouse buildings with a
one inch air space between them fell within the plain meaning of the term
"detached."79 The court was not considering whether such homes fell within the
plain meaning of the term "townhouse."
To summarize, to the extent the townhouse exclusion was a basis for the
refusal to defend, the refusal to defend was incorrect. Acceptance of the tender
of defense with a reservation of rights, followed by investigation and a
declaratory judgment action to obtain a court ruling on this exclusion was the
proper course of action.
77 Brief of Respondent PBSIC Specialty Insurance Company RRG at 25
(quoting Delean's, 179 Wn. App. at 39)).
78 Jd,
79 Delean's, 179 Wn. App. at 38-40.
22
No. 71951-3-1/23
Thus, to the extent the trial court granted summary judgment to
ProBuilders on this basis, it erred. Because we have decided that the pollution
exclusion provided a basis to decline to defend, this error was harmless.
Formal Tender
We next consider whether the trial court properly granted summary
judgment to ProBuilders based on the named insured's failure to formally tender
defense against Xia's personal injury action. We hold that granting summary
judgment on this basis was also incorrect.
Here, the trial court ruled, in part, that "there was no request for a defense
of the suit from or on behalf of the named insured to the insurer.
An insurer's duty to defend "'arises when a complaint against the insured,
construed liberally, alleges facts which could, if proven, impose liability upon the
insured within the policy's coverage.'"80 But "'[a]n insurer cannot be expected to
anticipate when or if an insured will make a claim for coverage; the insured must
affirmatively inform the insurer that its participation is desired.'"81 "Thus, 'breach
of the duty to defend cannot occur before tender.'"82 "The duties to defend and
indemnify do not become legal obligations until a claim for defense or indemnity
is tendered."83
80 Expedia, Inc.. 180 Wn.2d at 802-03 (internal quotation marks omitted)
(quoting Am. Best Food, Inc., 168 Wn.2d at 404-05).
81 Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wn.2d 411, 421, 191 P.3d
866 (2008) (internal quotation marks omitted) (quoting Griffin v. Allstate Ins. Co., 108
Wn. App. 133, 140, 29 P.3d 777, 36 P.3d 552 (2001)).
82 Jd, (quoting Griffin, 108 Wn. App. at 141).
83 id, (emphasis omitted).
23
No. 71951-3-1/24
Here, ProBuilders argues that it had no duty to defend because its named
insured failed to tender defense when Xia commenced her personal injury action.
In doing so, it relies on policy language that states:
[ProBuilders] will have the right and duty to defend you, the Named
Insured, against any suit seeking those damages provided that no
other insurance affording a defense against such a suit is available
to you.'841
In response, Xia makes several arguments. First, she argues that the
facts of this case do not permit ProBuilders to rely on a formal tender where that
would have been a useless act. Second, she argues that ProBuilders may not
rely on tender as a condition precedent to its duty to defend where it cannot show
prejudice from any lack of notice. Third, she argues that ProBuilders may not
now rely on this reason since it advanced the exclusions in the policy as the sole
bases for refusing to defend. Finally, she argues that the selective tender rule is
inapplicable to this case. We address the first and last arguments and need not
address the others.
With respect to the first argument, Moratti v. Farmers Insurance Co. of
Washington is instructive.85 There, the attorney for an injured claimant "made
several demands to the insurance adjuster" who ultimately responded and
"denied any negligence for the injury."86 The claimant's attorney then called the
insurance adjuster to ask if he should send the settlement package.87 The
84 Clerk's Papers at 372 (emphasis added) (emphasis omitted).
85162 Wn. App. 495, 254 P.3d 939 (2011).
86 jd, at 499-500.
87 id, at 500.
24
No. 71951-3-1/25
adjuster told him not to bother and informed him that the decision on no liability
was final.88
There was a settlement between the claimant and the insured.89 The
insured agreed to pay a substantial sum and stipulated to entry of judgment
against him in exchange for a covenant not to execute on the judgment against
him.90 He assigned to the claimant his claims against his insurer.91 The court
approved the settlement at a reasonableness hearing.92
The claimant/assignee of rights against the insurer commenced an action
against the insurer.93 At the conclusion of trial, the trial judge entered judgment
against the claimant.94
On appeal, this court reversed.95 This court rejected the insurance
company's claim that the failure to make a formal demand for a defense barred
the plaintiff's claims.96 It stated:
We can give no credence to Farmers' assertion that it did not have
to respond until 2004 because no settlement offer or demand was
88 Id,
89 id.
90 id.
91 id. at 501.
92 Id,
93 id.
94 id.
95 id. at 512.
96 Id. at 504.
25
No. 71951-3-1/26
made or suit filed until then. Farmers' argument conveniently
ignores that in October 2002, when [the claimant's] counsel
inquired as to whether Farmers would reconsider its position if he
sent the demand letter, he was told that Farmers' decision was
final. Relying on Farmers' stated position, [the claimant's]
counsel did not undertake the expense of submitting a futile
demand letter to Farmers. Nor was he required to do so as the
law does not require someone to do a useless act Since it was
Farmers' own representation that prevented a formal demand letter,
it cannot now argue that failure to make the demand bars [the
claimant's] claim.[97]
Here, like in Moratti, ProBuilders unambiguously stated to its named
insured by letter dated January 17, 2008 that it would not defend its insured.
Specifically, it stated it "will neither defend nor indemnify" the named insured and
"any judgment or settlement obtained by [Xia] predicated upon damages that fall
outside the [policy]" would be the responsibility of the named insured.98 It also
asked for pleadings in the event of a lawsuit. These were provided, albeit by Xia.
The plain words of this pre-suit communication indicate ProBuilders would
not be involved even if either a settlement or a lawsuit followed. Otherwise, there
would have been no reason to mention "judgment" or "settlement" in this letter.
And this record makes plain this statement of position did not change when the
suit was filed, despite the lack of any material change in the allegations of Xia's
amended complaint. The record is equally clear that Xia provided pleadings and
other materials to ProBuilders to keep it apprised of developments.
It is noteworthy that ProBuilders, by letter dated June 12, 2008 to counsel
for Xia, reiterated the statement of position in its prior letter to its named insured.
97 jd, at 504-05 (emphasis added).
98 Clerk's Papers at 285.
26
No. 71951-3-1/27
Specifically, it repeated that it "will neither defend nor indemnify" the named
insured, using language that is substantially similar to the January 17, 2008 letter
to the named insured.99
Why ProBuilders deemed it necessary to communicate with Xia, who was
never its named insured, is left unexplained in this letter. But it is inconsistent
with the argument that ProBuilders now makes that the lack of notice of Xia's
"suit" from its named insured is fatal to its duty to defend.
ProBuilders asserts that "Xia is not [ProBuilders'] insured and has no
authority under Washington law to tender a defense to an insurer with which she
has no contractual relationship."100 And it asserts that Xia's communications with
ProBuilders "are wholly irrelevant to the issue of tender—an issue that turns
entirely on [the named insured's] communications with its insurer."101
ProBuilders provides no authority to support these assertions. We must
conclude that this lack of citation to authority means there is none.
We note that ProBuilders received notice of Xia's subsequent lawsuit
when Xia sent a courtesy copy of the summons and complaint to ProBuilders in
January 2009. And in December 2010, Xia's attorney sent a letter to ProBuilders
with the stated purpose of "providpng] notice that your insureds have entered into
a tentative agreement to assign claims to Ms. Xia that they have against you."102
99 id, at 292.
100 Brief of Respondent PBSIC Specialty Insurance Company RRG at 12.
101 id, at 13.
102 Clerk's Papers at 912.
27
No. 71951-3-1/28
The letter stated, "The defense of Ms. Xia's claims was tendered to you and
rejected on June 12, 2008."103 It asserted that ProBuilders was "wrongfully
relying on [the] pollution exclusion" and that the "townhouse exclusion is not a
valid basis to deny coverage or defense."104 It further stated:
A hearing on a motion to approve the settlement and its
reasonableness has been scheduled for February 7, 2010. Unless
we receive written correspondence within 30 days of the date
of this letter stating that you will provide coverage and defend
[Issaquah Highlands], Ms. Xia will be left with no other option
but to enter into the settlement and move forward with the
hearing to approve its reasonableness. Once the settlement is
executed and approved, Ms. Xia will immediately bring actions
against [ProBuilders] based [on] its failure to defend and the
theories referenced above.[1051
Given these facts, we conclude that ProBuilders' argument is
unpersuasive. The pre-suit letter to its named insured clearly states it would not
be involved even if a settlement or a lawsuit followed. Otherwise, there would
have been no reason to mention "judgment" or "settlement" in this letter. As
Moratti indicates, the law does not require a useless act.
Moreover, ProBuilders dealt with Xia, just as the insurer in Moratti did.
The stream of communication included sending copies of the pleadings to
ProBuilders, notice of a potential settlement, and notice of the reasonableness
hearing once settlement was achieved. We simply cannot envision what more
103 Jd,
104 Jd, at 913, 914.
105 Jd, at 914 (emphasis added).
28
No. 71951-3-1/29
could have been done to get the insurer to withdraw its statement of position in
the January 2008 letter and participate in the settlement.
In sum, the lack of the named insured formally tendering defense after
filing of the lawsuit did not relieve ProBuilders of its duty to defend.
Xia also claims that the "selective tender" is inapplicable to this case. We
conclude that a genuine issue of material fact exists with respect to this
argument.
The supreme court explained the selective tender rule in Mutual of
Enumclaw Insurance Co. v. USF Insurance Company.106 The "selective tender"
rule stands for the proposition that when an insured has not tendered a claim to
an insurer, the insurer is excused from its duty to contribute to a settlement of the
claim.107 This rule "preserves the insured's right to invoke or not to invoke the
terms of its insurance contracts," as "[a]n insured may choose not to tender a
claim to its insurer for a variety of reasons."108 The supreme court relied on
Casualty Indemnity Exchange Insurance Co. v. Liberty National Fire Insurance
Co. for these principles.109 In that case, the court applied the select tender rule
because equity dictated it based on the circumstances.110 With respect to the
106164 Wn.2d 411,421, 191 P.3d 866 (2008).
107 Jd,
108 Jd, at 421-22.
109 902 F. Supp. 1235 (D. Mont. 1995).
110 Jd, at 1239.
29
No. 71951-3-1/30
facts of this case, it is highly implausible that the select tender rule is applicable,
given the communications between the parties.
ProBuilders argues that the named insured's intent not to tender the suit to
ProBuilders is evidenced by the fact that it formally tendered the suit to another
insurance company. The intent of the named insured is clearly a material factual
question.
It is true that this name insured sent a formal tender letter to another
insurance company for Xia's claim. But this letter was sent after ProBuilders
plainly stated that it would not defend against the claim. Thus, on this record, we
believe it likely that any reasonable finder of fact would decide that the tender to
another insurer was a decision to try to obtain insurance coverage from
somewhere, given the express refusal of ProBuilders to provide coverage.
In short, there was, at least, a genuine issue of material fact of the intent
of the named insured in tendering the defense elsewhere.
Nevertheless, to the extent the trial court granted summary judgment on
this basis, its ruling was harmless. That is because the pollution exclusion
applied to bar coverage.
BAD FAITH
Xia argues that ProBuilders breached its common law duty of good faith.
Specifically, she contends the insurer's reading of the policy was done in bad
faith.111 We disagree.
111 Brief of Appellant at 40-46.
30
No. 71951-3-1/31
"[A]n insurer has a duty of good faith to its policyholder and violation of
that duty may give rise to a tort action for bad faith."112 "An insurer acts in bad
faith if its breach of the duty to defend was unreasonable, frivolous, or
unfounded."113 "An insurer may not refuse to defend based upon an equivocal
interpretation of case law to give itself the benefit of the doubt rather than its
insured."114 A party's refusal to defend based on an arguable interpretation of
the policy is bad faith.115 But "[w]hen an insurer correctly denies a duty to
defend, there can be no bad faith claim based on that denial."116
Here, as we discussed earlier in this opinion, ProBuilders correctly
determined that it had no duty to defend based on the pollution exclusion.
Summary judgement dismissing this common law claim was proper on this basis.
Accordingly, there can be no bad faith claim on the basis of the refusal based on
the pollution exclusion.
CPA & IFCA CLAIMS
Xia next argues that summary dismissal of its statutory claims against
ProBuilders under the Consumer Protection Act (CPA) and the Insurance Fair
Conduct Act (IFCA) was improper. We agree.
112 Smith, 150Wn.2dat484.
113 Am. Best Food Inc.. 168 Wn.2d at 412.
114 Jd, at 414.
115 Jd,
116 United Servs. Auto. Ass'n. v. Speed. 179 Wn. App. 184, 203, 317 P.3d
532, review denied. 180 Wn.2d 1015 (2014).
31
No. 71951-3-1/32
These statutory claims are separate from the common law claim. Xia's
CPA claim appears to be premised on the alleged violation of certain insurance
regulations. These regulations also provide the basis for Xia's IFCA claims.
There are genuine issues of material fact whether ProBuilders violated these
regulations.
Xia argues that ProBuilders acted unreasonably in denying a claim for
coverage or payment of benefits under IFCA, RCW 48.30.015(2). Xia also relies
on two insurance regulations, WAC 284-30-330(4) and WAC 284-30-370, to
argue that ProBuilders had a duty to conduct a reasonable investigation before
denying coverage. WAC 284-30-330(4) provides that refusing to pay claims
"without conducting a reasonable investigation" constitutes an unfair or deceptive
act of the insurer. WAC 284-30-370 provides standards for a prompt
investigation of a claim, including that an insurer must complete its investigation
within 30 days unless the investigation cannot reasonably be completed within
that time. Under RCW 48.30.015(5), a violation of either of those regulations
constitutes a violation for purposes of RCW 48.30.015(2).
Xia argues that, at a minimum, this court should remand to a jury to
determine whether ProBuilders acted unreasonably in its investigation and
whether it timely communicated with its insured. ProBuilders argues that this
court should decline to consider Xia's arguments based on IFCA because they
are raised for the first time on appeal. ProBuilders asserts that Xia's summary
judgment argument was limited to a claim for bad faith breach of the duties to
defend and indemnify and were not based on IFCA.
32
No. 71951-3-1/33
But Xia's complaint alleged violations of the CPA and IFCA, and in doing
so, it specifically cited WAC 284-30-330 and WAC 284-30-370. Further, Xia
expressly referenced these insurance violations in her response brief in
opposition to ProBuilders' motion for summary judgment. Accordingly, we
conclude that these arguments were preserved for appeal.
We also conclude that there are genuine issues of material fact with
respect to these issues. Specifically, the record shows that there are genuine
issues of material fact about the reasonableness and promptness of ProBuilders'
investigation. Summary judgment on the CPA and IFCA claims was improper.
ATTORNEY FEES
Xia argues that she is entitled to attorney fees in the trial court and on
appeal on both statutory and equitable grounds. We hold that she is not entitled
to fees under Olympic Steamship Co. Inc. v. Centennial Insurance Co.117
Determination of whether she is entitled to fees based on her statutory claims is
premature.
Attorney fees may be awarded to a litigant when authorized by contract,
statute, or a recognized ground of equity.118 Xia first requests fees as a
prevailing party under the CPA, RCW 19.86.090, and under IFCA, RCW
48.30.015(1), (3). Both of these statutes provide for an award of fees to the
prevailing party. Because these claims are not yet properly adjudicated, a
prevailing party has not yet been determined. The request is premature.
117117Wn.2d37, 811 P.2d 673 (1991).
118 Durland v. San Juan County. 182 Wn.2d 55, 76, 340 P.3d 191 (2014).
33
No. 71951-3-1/34
Xia also requests fees under Olympic Steamship. Under that case "an
award of fees is required in any legal action where the insurer compels the
insured to assume the burden of legal action, to obtain the full benefit of [the]
insurance contract. . . ."119 Because Xia is not the prevailing party on the duty to
defend claim, she is not entitled to fees based on that case.
Finally, Xia requests fees "under the equitable rule for the 'bad faith
conduct of the losing party.'" This also requires Xia to be the prevailing party.
We decline to award Xia fees on any of the grounds she asserts. That is
without prejudice to her right to seek fees on remand for those matters remanded
to the court for further proceedings.
We affirm the grant of summary judgment to ProBuilders on the alternative
basis that there was no duty to defend because of the pollution exclusion. We
reverse the dismissal of the Consumer Protection Act claim and the Insurance
Fair Conduct Act claim. The request for an award of attorney fees based on the
two statutory claims is premature. There is no basis for an award of fees based
on Olympic Steamship. We remand for further proceedings.
4ar,J
WE CONCUR:
\/)tir^-^^ C. J w
119 Olympic Steamship, 117 Wn.2d at 53.
34