Zurich American Ins., Resp/cross-apps v. Ledcor Industries, Inc., App/cross-resp

|N THE COURT OF APPEALS OF THE STATE OF WASH|NGTON ZUR|CH AMER|CAN iNSURANCE COMPANY, a foreign insurance company1 Respondent/Cross-Appei|ant, V. !_EDCOR !NDUSTR|ES (USA) |NC., a Washington corporation, ADIV||RAL WAY, LLC, a Washington iimited iiabi|ity company, and SQ[, iNC., a Washington corporation Appei|ants/Cross-Respondents. LEDCOR |NDUSTREES (USA) INC., a Wash§ngton corporation, Appe||ants, v. AMER!CAN iNTERNATiONAL SPEC|ALTY L|NES iNSURANCE COJVIPANY, INC., a foreign insurance company; CAIV|BREDGE |NTEGRATED SERVICES GROUP, |NC., a foreign corporation; LIBERT¥ !NSURANCE UNDERVVR|TERS, |NC., a foreign insurance company; AEU NO` 76490-0~¥ D|V|SEON ONE UNPUBL|SHED OP|N!ON FELED: December 10, 20?8 NO. 76490-0~|/2 COMMERC|AL li\ESUFiANCE CO|V|PANY OF CANADA, a foreign insurance company; LEX|NGTON |NSURANCE COMPANY, a foreign insurance company; i_lBERTY SUFlPLUS INSURANCE CORPOF{AT|ON, a foreign insurance company; HARTFORD PROPERTY ANE) CASUALTY COMPANY, a foreign insurance company; and CONT|NENTAL WESTERN iNSUFiANCE COMPAN¥, a foreign insurance company, Third-Party Defendants, VlFiG|NlA SURETY CO|V!PANY, ENC., a foreign insurance company; TRANSPORTATJON lNSUFiANCE COMPANY, a foreign insurance company; TRANSCONT|NENTAL lNSUFiANCE COMPANY, a foreign insurance company; NORTH PAC£F|C lNSUFiANCl-E CO|V|PANY, a foreign insurance company; and FlFiST MEF{CUFtY lNSUFiANCE COMPANY, a foreign insurance company, Respcndents. i\/|ANN, A.C.J. _ This is one of two closely connected insurance coverage appeals arising out of the construction of “The Adrnirai,” a mixed use condominium building in West Seattie.1 The appeilant in this case was the general contractoi, Ledcor industries (USA), Enc. (i_edcor). The building owner and deveioper, Adrniral Way LLC (Adrnira| Way), contracted with Ledcor for construction of the buiiding. Ledcor in turn contracted with several subcontractors including The Painters, |nc. (The Painters) and SO|, lnc. (soi). 1 See Admiral Wav. LLC v. Zurich American |ns. Co.. No. 76405-5-i (Wash. Ct. App. Dec. 10, 2018) (unpub|ished). _2_ No. 76490~0-|/3 After the Adrnirai Way Condominiurn Owners’ Association (COA) sued Adrniral Way and Ledcor in 2007 for construction defects, Ledcor tendered the claim to its insurers and its subcontractors insurers. After responding and defending against tne COA’s claims under a reservation of rights, Zuricn Arnerican |nsurance Company (Zurich) filed a declaratory judgment action against Ledcor ciaiming it did not owe coverage under its poiicies. Ledcor responded by fiiing counterclaims and third-party causes against multipte insurers claiming bad faith and vioiations of the Consumer Protection Act (CPA)?, and the insurance Fair Conduct Act (iFCA)3. Ledcor appeals the trial court’s decision granting summary judgment and dismissing Zurich, Virginia Surety Cornpany (VSC), First Nlercury insurance Cornpany (i`-`NilC), North Pacific insurance Company (i\iorth Pacific), and Transportation insurance Company (Transportation). We reverse dismissal of Ledcor’s claims against VSC and Transportation. We affirm dismissal of Zurich, FiVi|C, and North Pacific. _E_é\£§ Admirai Way is the owner and deveioper of “The Adrniral” a mixed use, four~story building in West Seattie with street level retaii, 60 condominiums and an underground parking garage. On Apri| 3, 2001 , Admiral Way and Ledcor entered into a construction contract for construction of the building. Ledcor Was the general contractor. Ledcor in turn contracted with various specialty subcontractors Fie|evant to this appeal, Ledcor subcontracted with SQl to instaii the originai roof, and in 2005, Ledcor again subcontracted with SO| to conduct substantial roofing repair. Ledcor subcontracted with 2 Ch. 19.86 RCW 3 FiCW 48.30.010~.015 NO. 76490-0-|/4 The Painters to provide labor, materiais, and equipment for a “Gacoflex” waterproofing system on the baiconies and courtyards of The Adrniral. The contract between Ledcor and Adrnira| Way required Ledcor to obtain commercial general iiability (CGL) insurance naming Adrnirai Way as an additional insured The contract between Ledcor and its subcontractors required that the subcontractors each obtain CGi_ insurance naming Ledcor as an additional insured Ledcor purchased a CGL insurance poiicy from VSC for the policy period of December 1, 2003 through December i, 2004. Ledcor also purchased two consecutive annuai CGL policies from Zurich, for the policy periods from December 1, 2005 through December 1, 2007. 801 purchased three consecutive annual CGi_ policies frorn Transportation covering the period from Nlay 1, 2000 through |Vtay 1, 2003. SQi also purchased CGL policies from FiV|iC for the policy period of May 1, 2006 to lViay 'i, 2008. `i'he Painters purchased CGL poiicies from North Pacific for the period cf December 26, 2001 to December 26, 2002. Construction of The Admiral began in 2001. The City of Seatt|e issued a certificate of occupancy in March 2003. `i“he sate of condominiums began in Aprii 2013. After a contract dispute, on February 10, 2004, Ledcor and Admira| Way executed a contract addendum that resoived their remaining disputes about payment and performance of Ledcor's work. The parties agreed in the addendum that the project was complete other than specific items in an attached punch list that Were to be completed by February 20, 2004. in 2001, Admiral Way retained i\/lorrison i-Iershfie|d (l\/iorrison) as a building envelope consuitant to provide recommendations to the project architect on baicony and NO. 76490-0-|/ 5 wall interface detaiis. Ledcor also retained Morrison and received a report from the firm in December 2002. l\/lorrison concluded there were significant areas where there was “inappropriate design, and to a lesser degree inappropriate construction that in our opinion makes the building high risk for premature building envelope faiiure." in i\/iarch 2003, Morrison recommended substantial repairs to the building’s brick veneer and pre- cast column caps. i\/lorrison believed that if the recommended work was not done, the walls would “remain susceptible to water entry” that “wouid lead to deterioration ot the sheathing and corrosion of the framing,” and “result in a compromise of the structural integrity." i\/iorrison further reported, “[wje are of the opinion that if not addressjedj at this time, these as-bui|t detaits wii| require remediation within the next five years.” i\/lorrison expressed similar concerns with other recommended work. On February 28, 2007, the COA sent Admira| Way a notice of construction defect claim alleging that the buiiding, or components of the buiiding, Were defectively designed and/or constructed, resulting in water intrusion that affected residential units, commercial spaces, and common areas throughout the project. `i'his notice was followed by the fiiing of a complaint in the King County Superior Court. in its complaint, the COA alleged that damage to the building began after the compietion ot construction: As a result of Deciarant’s acts and omissions, property damage to the Condominium has occurred to that pari of real property on which contractors or subcontractors working on Declarant’s behalf have completed their operations Such property damage has also occurred to that part of real property that rnust be restored, repaired or replaced because of the work of others performed on Declarant’s behaif. The property damage is continuous and ongoing throughout the Condominium. Damage rnay have commenced at or shortly after the completion of each building or element of infrastructure, and may be continuing to the present No. 76490-G-i/ 6 in response to the COA compiaint Admirai Way fiied a third-party complaint against Ledcor alieging Ledcor and its subcontractors were responsibie for the defective work. Ledcor initiaiiy tendered defense of the action to its own insurers Zu rich and VSC. Zurich accepted Ledcor's tender and assigned counsel. Zurich defended Ledcor in the underlying case, from 2007 through settlement in duly 2009, while expressiy reserving its right to contest coverage under a reservation of rights. Ledcor also tendered the action to FlViiC, `t'ransportation, and i\iorth Pacific, for defense and indemnity for damages arising from SQi's and The Painters' work. Fivi|C accepted SOl’s tender under a reservation of rights and contributed to SQl's defense FM|C did not defend nor indemnify Ledcor. Transportation and North Pacific denied coverage VSC originally denied coverage, then agreed to defend Ledcor under a reservation of rights just as the final settlement was being reached VSC did not pay any defense costs and did not indemnify. Zurich fiied the underlying action in iViarch 2009 seeking declaratory judgment of its obligations to defend and indemnify its named insured, Ledcor, and the additional insured Admirai Way. Ledcor filed counterclaims for declaratory relief, insurance bad taith, and vioiations of the CPA and the lFCA. i_edcor’s counterclaims inciuded third parties FMIC, 'i`ransportation, North Paciiic, and VSC, as well as muitiple other insurers l\/leanwhiie, the COA, Admiral Way, and l_edcor settied their dispute over the condominium damage on duty 28, 2009. The COA’s claims against Admiral Way and i_edcor settled for $4,700,000. The settiement was contingent upon AiG, another of NO. 76490-0-|/7 Ledcor’s insurers funding $2,550,000. Ledcor agreed to pay $150,000, and iviarc Gartin on behaif of Admiral Way agreed to pay $2,000,000. The underlying declaratory judgment action proceeded with discovery and motions in June 2010, the trial court granted Zurich’s motions for partial summary judgment on (i) coverage under the poiicy in effect between December t, 2006 and December 1, 2007 and (2) dismissing Ledcor’s counterclaims for insurance bad faith, CF’A, and lFCA violations The trial court also denied Ledcor’s motion for partial summary judgment against Zurich for insurance bad faith and CPA violations At the same time, the triat court granted VSC’s motion for summary judgment and dismissed Ledcor’s ciaims against VSC. in l\/iarch 2011, the triai court dismissed Ledcor’s remaining counterclaims against Zurich, concluding that Zurich had no duty to defend or indemnify t.edcor with respect to the COA’s construction defect claims in Apri| 201 t, the trial court granted Fi\/iiC’s motion for summary judgment conciuding i_edcor Was not entitled to coverage under the poiicy issued by FivliC to SQ! as a matter of law. in duty 201i, the trial court granted North Pacific’s motion for summary judgment and dismissed Ledcor’s third party claims related to its poiicy issued to The Painters in February 2014, the trial court granted Transportation’s motion for partial summary judgment and dismissed Ledcor’s breach of contract claims for policies issued to SQI. in a separate action, Ledcor sued its subcontractors Through a settiement between Ledcor and SQi, Ledcor took assignment of SOl’s direct claims against Fl\/iiC. NO. 76490-0-|/ 8 On October 31, 2016, the trial court granted FM|C’s motion for summary judgment agreeing that FlVllC did not have an obligation to cover SOi‘s defense against Ledcor’s claim and that the policy FivltC issued to SQi was not applicabie, and even if it were, the continuous or progressive injury or damage exclusion barred recovery. Ledcor appeals ANALYSlS We review summary iudgrnent orders de novo, engaging in the same inquiry as the trial court. l