fiLEO 

### COURT OF APPEALS Di¥ I

STATE OF WASHINGTON 

## 2013APR 29 AH10-15

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON DIVISION ONE
FIRST NATIONAL INSURANCE COMPANY OF AMERICA, an Indiana corporation, Respondent,

MARK DECOURSEY AND CAROL DECOURSEY, husband and wife, Appellants, V&E MEDICAL IMAGING, INC., a Washington dissolved corporation; AUTOMATED HOME SOLUTIONS, INC., a Washington dissolved corporation, Defendants. No. 67906-6-

UNPUBLISHED OPINION FILED: April 29, 2013 Verellen, J. — Mark and Carol DeCoursey appeal the trial court's grant of 

### summaryjudgmentto First National Insurance Company of America, contending First National had a duty to pay the default arbitration award the DeCourseys obtained against V&E Medical Imaging, Inc. An insurer has no duty to pay if its insured untimely 

### tenders a suit, provided the insurer can prove actual and substantial prejudice from the late tender. First National did not receive a propertender ofeitherthe DeCourseys' 

### counterclaim against V&E orthe ensuing arbitration of the counterclaim. First NationalNo. 67906-6-1/2


### has demonstrated itwas actually and substantially prejudiced as a matter of law bythe late tender, as itcould not assert defenses to the DeCoursey's liability claims or pursue its defenses to coverage. We affirm. BACKGROUND The DeCourseys' Lawsuit In 2003, Automated Home Solutions, Inc. (AHS, Inc.) sold its assets, including the trade name ofAutomated Home Solutions, to V&E Medical Imaging Inc., d/b/a 

### Automated Home Solutions (V&E). AHS, Inc. dissolved inJanuary 2004. In 2004, the 

## DeCourseys hired V&E to perform electrical work attheirhouse in Redmond.1 V&E was already operating underthe Automated Home Solutions trade name. On March 29, 2006, V&E sued the DeCourseys in King County District Court for 

### nonpayment.2 The DeCourseys counterclaimed,3 asserting V&E damaged theirhome and did not complete theproject.4 Before the case wenttotrial, thecourtordered the parties to arbitrate the DeCourseys'counterclaim. V&E's counsel withdrew, andV&E
went out of business. 

### The arbitration took place in May 2010. V&E did not appear. On May 11, 2010, the arbitrator awarded the statutory maximum of$50,000 in damages to the 

### DeCourseys, as well as $41,000 in fees and costs. Afterthe court entered the


### 1According to the DeCourseys, they contracteddirectly with V&E for some ofthe work, and their general contractor hired V&E for other work. 

### 2The case was removed to King County Superior Court in August 2006. 3The date ofthe second amended answer and counterclaims is May 22, 2006. 

### 4In the same lawsuit, the DeCourseys also asserted claims against the general 

### contractor and their real estate agent. The DeCourseys prevailed on theirclaim against the agent, obtaining approximately $1 million indamages.No. 67906-6-1/3
arbitration award, the DeCourseys, standing in the shoes of V&E, sought to execute on thejudgment by pursuing First National. Notice to First National First National issued a commercial general liability policy to AHS, Inc. with a 

### policy period ofJune 2004through June 2005.5 Thepolicy states "[t]he following is a complete list ofthe named insureds" and then lists one insured, "Automated Home 

### Solutions Inc."6 When the DeCourseys assertedtheir counterclaim againstV&E in May 2006, V&E did not tender the claim to First National. When the court ordered V&Eand 

### the DeCourseys to arbitrate the DeCourseys' counterclaims, V&E did not notify First National ofthe decision. 

### InApril 2010, the DeCourseys contacted Bordelon Insurance, the agency that 

### had placed the commercial general liability coverage with First National, to inquire whetherAHS had an insurance policy. Bordelon then contacted First National and 

### explained the existence of a claimagainst "AHS" by the DeCourseys. First National's claims office issued a claim number. On April 23, 2010, Travis Tonn of First National 

### spoke with Lester Ellis, the registered agent forV&E. Ellis mentioned a possible lawsuit, but told Tonn he had no information about an active lawsuit. Ellis also told



### 5AHS, Inc. dissolved in January 2004 but, as a dissolved corporation, itcould be sued after dissolution. See RCW 23B. 14.340 

### 6Clerk's Papers at 90. We need not resolve the parties' lengthy debate whether the insured could have been V&E Medical Imaging Inc. d/b/a AHS, ratherthan AHS, 

### Inc. The only issue on appeal is whether the latetender under the subject policy prejudiced First National.No. 67906-6-1/4

Tonn he had received an arbitration notice but instructed First National "not to 

### investigate."7 In late May, Ryan Anderson of First National assumed responsibility for the AHS, Inc. file. On June 4, Anderson contacted the DeCourseys about their claim. The DeCourseys responded via letter, requesting information about AHS's coverage, but did
not mention the lawsuit or the arbitration. In early July 2010, the DeCourseys sought the aid ofthe Office ofthe Insurance Commissioner (Commissioner) to prompt First National to pay the DeCourseys' arbitration award. On July 14, 2010, two months afterthe entry ofthe arbitration award, First National received a call from the Commissioner concerning the DeCourseys' complaint and the arbitration award. The Commissioner then forwarded the DeCourseys' letter to First National, along with the copy ofthe arbitration award. First National received the order entering the arbitration award on July 23, 2010. The Declaratory Judgment Action First National filed this declaratoryjudgment action in October 2010 to resolve its responsibility to pay the arbitration award. The DeCourseys counterclaimed, contending First National had a duty to pay. The parties filed cross motions for 

### summaryjudgment. First National contended itwas entitled tojudgment, as it had not received notice ofthe suit until after entry ofthe arbitration award, prejudicing itas a matter of law. The court granted First National's motion and denied the DeCourseys' motion. The court also denied the DeCourseys' motion for reconsideration.



### 7Clerk's Papers at 243.No. 67906-6-1/5
The DeCourseys also argued First National had not timely answered their counterclaim for declaratoryjudgment and moved to strike. On the same day the court 

### granted summaryjudgmentto First National, the court denied the DeCourseys' motion to strike, finding that "First National's Answer to Defendant's Counterclaims is not an 

### amendment ofPlaintiffs complaint."8 

### Representing themselves, theDeCourseys appeal.9
DISCUSSION 

### Wereview an ordergranting summaryjudgmentde novo.10 Acourt may grant summaryjudgment ifthe record presents no genuine issue of material fact and the law 

### entitles themoving party tojudgment.11 Thecourtviews all facts anddraws all 

### reasonable inferences in thelight mostfavorable tothenonmoving party.12 We may 

### affirm anordergranting summaryjudgmenton any basis supported bytherecord.13 Even ifan insured breaches a notice provision ofan insurance policy, the insurer is not 

### relieved of its duties under the policyunless itshows the late tender caused itactual



### 8Clerk's Papers at 885. 9The DeCourseys moved for discretionary review, and this courtdetermined that, under RAP 2.2(a), itwould treat the motion as a notice ofappeal. 10 Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wn.2d 411. 418, 191 P.3d 866 

### (2008). Although the trial court entered findings, they are superfluous on appeal. Hubbard v. Spokane County. 146 Wn.2d 699, 706 n.14, 50 P.3d 602 (2002) ("Although 

### the trial court entered findings of fact, because summaryjudgment motions are 

### reviewed de novo, these findings are superfluous and need not be considered."). 

### 11 CR56(c); USF Ins. Co.. 164Wn.2d at418. 12 USF Ins. Co.. 164 Wn.2d at 418. 

### 13 LaMon v. Butler. 112Wn.2d 193, 200-01, 770 P.2d 1027(1989).No. 67906-6-1/6 

### andsubstantial prejudice.14 The DeCourseys claim thecourterred by granting summaryjudgment to First National, contending First National received timely tender of their counterclaim and was therefore not prejudiced by late notice. We note at the outset of our discussion that because the DeCourseys sought to enforce AHS, Inc.'s rights under the First National policy, the DeCourseys are subject to any defense that First National could raise against the insured. They are "chargeable with any breach ofcondition as well as failure of proofoffacts on which liability 

### depends."15
Notice and Tender The First National policy includes, as a condition of coverage, a cooperation clause, which requires the insured to give notice of a suit immediately: b. If a claim is made or "suit" is brought against any insured, you must: (2) notify us as soon as practicable. You must see to itthat we receive written notice of the claim or "suit" as soon as practicable.

c. You
... must: (1) Immediately send us copies ofany demands, notices, summonses or legal papers received in connection with the claim or "suit."1161 The notice provisions in an insurance contract exist because an "insurer cannot be 

### expected to anticipate when or if an insuredwill make a claimfor coverage; the insured

14 USF Ins. Co.. 164 Wn.2d at 426; Griffin v. Allstate Ins. Co.. 108 Wn. App. 133, 140, 29 P.3d 777 (2001). 

### 15 Burrv. Lane, 10Wn. App. 661, 670-71, 517 P.2d 988 (1974): see alsoAtlantic Cas. Ins. Co. v. Oregon Mut. Ins. Co., 137 Wn. App. 296, 304-05, 153 P.3d 211 (2007). 

### 16 Clerk's Papers at 320.No. 67906-6-1/7


### mustaffirmatively inform theinsurerthatits participation isdesired."17 The DeCourseys contend First National received notice of their counterclaim before arbitration. The DeCourseys' arguments rest on assertions unsupported by the record. They first argue First National should have known ofthe suit and ensuing arbitration, or could have taken steps to seek information about the lawsuit. The law does not impose such a duty on an insurer to seek out information regarding the 

### existence ofa lawsuit against the insured.18 The DeCourseys also relied on call logs they had allegedly obtained from Bordelon which show that Bordelon had received a subpoena from the DeCourseys 

### requesting production ofthe AHS file, and that First National had issued a claim number to Bordelon before the arbitration date pertaining to the DeCourseys. The trial court 

### excluded the call logs as hearsay, and because the DeCourseys could not authenticate them. Even ifthe call logs were admissible, the content ofthe logs does not demonstrate that either Bordelon or First National received timely tender ofthe lawsuit
or ensuing arbitration by the DeCourseys, as required under the policy. First National, on the other hand, set forth undisputed evidence that the 

### DeCourseys' lawsuit was tendered on July 14, well afterthe arbitration proceeding, when the Commissioner called First National and forwarded the suit papers and 

### 17 Griffin. 108Wn. App. at 140. 18 USFIns. Co.. 164Wn.2d at 421 ("'An insurer cannot be expected to anticipate when or if an insured will make a claim for coverage; the insured must affirmatively 

### informthe insurer that its participation is desired.") (quoting Griffin. 108 Wn. App. 140). 

### "The duties to defend and indemnify do not become legal obligationsuntil a claim for defense or indemnity is tendered." \± Further, the insurance contract itself required the 

### insured to "[ijmmediately send us copies of any demands, notices, summonses or legal 

### papers received in connection with the claim or 'suit.'" Clerk's Papers at 320.No. 67906-6-1/8
arbitration award. Even though Ellis spoke with Tonn on April 23, 2010 and mentioned
an arbitration, Ellis gave insufficient detail for the conversation to function as a tender of the DeCourseys' counterclaim. Further, Ellis instructed Tonn not to investigate. The

- record demonstrates that First National received notice of the counterclaim after entry of the arbitration award, leaving no genuine issue of material fact concerning late tender. Prejudice An insurer is not relieved of its duties under the policy unless itshows the late 

### notice caused it actual andsubstantial prejudice.19 Theexistence ofprejudice caused 

### by late notice istypically a question offact.20 The insurer has theburden ofproving actual andsubstantial prejudice from the breach.21 Theinsurermustprove that an insured's breach of a notice provision had an identifiable and material detrimental effect 

### onits ability todefend its interests,22 including its ability to"evaluate orpresent its defenses to coverage orliability."23 Courts may find prejudice as a matter of law ifthe insurer could have eliminated 

### liability ifgiven timely notice.24 "[I]ftheinsurerclaims thatits own counsel would have defended differently, itmust show that its participation would have materially affected 

### 19 USFIns. Co.. 164Wn.2d at 426; Griffin. 108Wn. App. at 140. 20 USF Ins. Co.. 164 Wn.2d at 427. 

### 21 Id, 22jU at 430. 23 Canron. Inc. v. Fed. Ins. Co.. 82 Wn. App. 480, 491-92, 918 P.2d 937 (1996); see also USF Ins. Co.. 164 Wn.2d at 430. 

### 24 USF Ins. Co.. 164 Wn.2d at 430 (discussing other circumstances that indicate 

### prejudice as a matter oflaw); Unigard Ins. Co. v. Leven. 97Wn. App. 417, 427, 983 P.2d 1155 (1999) (insurerwas prejudiced as a matter of law byinability to argue its insured was not a potentially liable party underthe Model Toxics ControlAct, chapter 70.105D RCW).

8No. 67906-6-1/9 

### theoutcome, eitheras toliability ortheamount ofdamages."25 V&E wasnot represented at arbitration, either by itself, by defense counsel of its choosing, or by insurer-appointed counsel. If, for instance, the DeCourseys' counterclaim and arbitration award could be characterized properly as against AHS, Inc., rather than V&E, First National was prevented from asserting a liability defense based on RCW 23B. 14.340. That statute provides that a Washington corporation has no capacity 

### to sue or be sued two years afterdissolution.26 AHS, Inc. dissolved on January20, 

### 2004, and the DeCourseys assertedtheircounterclaims in April 2006.27 V&E's failure to appear at arbitration also prejudiced First National's ability to investigate and develop its coverage defenses. First National highlights various policy provisions that could preclude coverage for the damage claimed by the DeCourseys, but which it did not have the opportunity to timely investigate before entry ofthe arbitration award. The DeCourseys' counterclaim alleged that V&E failed to complete its electrical work. First National contends the DeCourseys' allegations ofimproper 

### work do not constitute "property damage" caused by an "occurrence" as those terms are defined in its policy. First National also points to the possible applicability ofthe 25 USF Ins. Co.. 164 Wn.2d at 430. 

### 26 RCW 23B.14.340 (providing a two-yearwindow to sue and be suedfor corporations with a dissolution date prior to June 7, 2006). 

### 27 First National alsorelies upon theproposition thatV&E's agreementto arbitrate the DeCourseys' counterclaims prejudiced itas a matter of law. This court in MacLean Townhomes. LLC v. Am. States Ins. Co.. held that an insured's unilateral 

### agreement to binding arbitration constituted prejudice as a matter of lawbecause 

### "[g]iven the extremely limited scope of availablejudicial review, the agreement removed judicial remedies that the insurer might have had." 138 Wn. App. 186,189, 156 P.3d 278 (2007). We do not reach this argument, as itappears from the record that the 

### parties were subjectto mandatory arbitration under chapter 7.06 RCW rather than under the Uniform Arbitration Act, chapter 7.04 RCW, as in MacLean.No. 67906-6-1/10


### exclusion for damage to the insured's own work. More fundamentally, First National also notes the question ofwhetherthe alleged damage occurred withinthe policy period.

### Finally, First National highlights the ambiguity inthejudgment on which the DeCourseys sought to execute. Thejudgment describes thejudgment debtor as "V&E Medical Imaging Services, Inc., aka Automated Home Solutions, a Washington Corporation (also known and doing business under the names .. . "Automated Home 

### Solutions, Inc.").28 As First National correctly notes, ifAHS, Inc., thenamed insured on the policy, and V&E are in fact distinct entities, and thejudgment is against V&E, First National insures only AHS, Inc., and there is a viable defense that First National would 

### not be liable for ajudgment againstV&E.29 The record unambiguously demonstrates that, as a result of the late notice, First National could not assert liability defenses on behalfits insured, nor could it investigate and develop its own coverage defenses. First National was entitled to summary judgment, as itmet its burden to demonstrate the late notice prejudiced itas a matter of
law. Motion to Strike The DeCourseys argue the trial court erred in declining to strike First National's
answer to their counterclaims. The DeCourseys asserted their counterclaims on 

### 28 Clerk's Papers at 423. 29 As we noted above, the issue ofwhetherV&E was a covered entity underthe First National policy is not before us; rather, we note the identity ofthe insured was a viable potential defense to coverage. The First National policy lists AHS, Inc. as the only insured. While V&E did business under the trade name Automated Home Solutions, V&Eand AHS, Inc. never merged. V&E and AHS, Inc. were always distinct corporate entities. The policy identifies only AHS, Inc. as the insured.

10No. 67906-6-1/11 January 12, 2011, and First National answered on September 16, 2011. CR 12(a)(4) provides that "the plaintiffshall serve his reply to a counterclaim in the answer within 20 days after service ofthe answer." First National did not comply with CR 12(a)(4). However, the DeCourseys did not file a motion for entry ofdefault under CR 55(a)(1), the recourse available to litigants ifan opposing party fails to respond to a claim. CR 55(a)(2) provides "[i]fthe party has appeared before the motion [forentry of default] is filed, he may respond to the pleading or otherwise defend at any time before the 

### hearing on themotion."30 Thecourtdid not errin denying the DeCoursey's motion to
strike. Affirmed.

£\A*

# ^
WE CONCUR:



### 30 The DeCourseys argue the court should have applied CR 15,butthatrule applies only to amended pleadings, as the trial court recognized: "First National's Answer to Defendant's Counterclaims is not an amendment of Plaintiffs complaint." Clerk's Papers at 885.

11