Opinion ID: 2585591
Heading Depth: 1
Heading Rank: 8

Heading: Duty to DefendStringfellow

Text: Shortly before filing this suit, Weyerhaeuser notified CU of 95 sites for which it was seeking coverage. The Stringfellow site included civil claims by local residents as well as the cleanup action brought by the Environmental Protection Agency and the State of California. CP at 4497-501. Six months after this suit was filed, Weyerhaeuser settled its coverage disputes with the primary insurer, Fireman's Fund. Pursuant to this settlement, Fireman's Fund paid Weyerhaeuser an amount agreed to be the then-present value of the remaining policy limits for property damage claims under all the Fireman's Fund policies at issue. CP at 4452-81. This settlement did not include payment for Weyerhaeuser's environmental defense costs nor did it include payment for bodily injury claims. Id. Pursuant to its policies, Fireman's Fund subsequently reimbursed Weyerhaeuser for some of its attorneys' fees incurred in defending the Stringfellow claims. CP at 4708-13. On November 26, 1993, Weyerhaeuser notified CU the settlement had exhausted the Fireman's Fund aggregate property damage limits and asked CU to assume the costs of defending the environmental claims, including those at Stringfellow. CU refused to pay these costs. At trial, Weyerhaeuser moved for partial summary judgment requesting CU be required to pay Weyerhaeuser's reasonable defense costs at Stringfellow. CP at 4316. The trial court granted the motion and ordered CU to pay these costs as the underlying policy has been tendered, that it is exhausted, and the duty to defend becomes the excess carrier's responsibility on the date of notification. CP at 4747. The trial court subsequently awarded Weyerhaeuser Olympic Steamship attorneys' fees incurred in establishing CU's defense obligation. CP at 11057-59; 10459-60; 11095 ¶ 18. Although CU does not deny its duty to defend, it contends its duty had not been triggered because Fireman's Fund's obligation to defend was still in force. [16] [A] primary insurer's duty to defend continues until the suit it is defending is resolved by settlement or judgment, and ... the primary insurer may not relieve itself of its defense obligation by tendering its policy limits prematurely. Reply/Resp. Br. of Appellant/Cross-Resp't at 34. The duty to defend and the duty to indemnify are distinct obligations, Weyerhaeuser I, 123 Wash.2d at 902, 874 P.2d 142, the former being broader. Viking Ins. Co. v. Hill, 57 Wash.App. 341, 346, 787 P.2d 1385 (1990). An excess insurer's obligation to defend is generally defined by the excess policy. Lathrop Insurance Coverage § 8.03[3] at 8-39. Here, the supplemental policy is silent regarding CU's duty to defend. But an excess insurer's duty to defend may also arise when: (1) the claim is covered under the language of the excess policy; (2) the excess policy does not expressly eliminate any defense obligation; and (3) the coverage and obligations of the underlying insurers have been validly exhausted. Id., § 8.03[1][c], at 8-33; Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd's of London, 56 Cal.App.3d 791, 800, 129 Cal.Rptr. 47, 53 (1976). If an excess insurer were required to defend before exhaustion of an underlying carrier's duty, then the primary carrier would profit from its wrongful failure to defend. Truck Ins. Exch. of Farmers Ins. Group v. Century Indem. Co., 76 Wash. App. 527, 531, 887 P.2d 455 (1995). In this case, the underlying policy required Fireman's Fund to defend in the name and on behalf of the insured any such suit or other proceeding in the event no settlement thereof is made.... Def.'s Trial Ex. 2592 at WEY4 XXXXXX-XX. But the policy also required Fireman's Fund to go beyond its limit of liability, if necessary, to pay defense costs prior to settlement. Id. at WEY4 418668(1)(c). The majority of jurisdictions adhere to the following rule: once the underlying insurer has paid its limits in settlements or judgments, the supplemental insurer's obligation to defend arises. Perez Trucking, Inc. v. Ryder Truck Rental, Inc., 76 Wash. App. 223, 233-34, 886 P.2d 196 (1994); Zurich Ins. Co. v. Raymark Indus., Inc., 118 Ill.2d 23, 53, 112 Ill.Dec. 684, 514 N.E.2d 150, 163 (1987); Colorado Farm Bureau Mut. Ins. Co. v. N. Am. Reinsurance Corp., 802 P.2d 1196, 1198 (Colo.Ct.App.1990). However, a mere tendering of policy limits does not abrogate an underlying insurer's duty to defend. Perez Trucking, Inc., 76 Wash.App. at 233-34, 886 P.2d 196. Although the trial court order provides the Fireman's Fund policy had been exhausted, it does not state how this exhaustion occurred. CP at 4747. Weyerhaeuser contends the policy was exhausted by consent decrees entered into at the Stringfellow site. However, with the exception of one sample decree, which does not show a dollar amount (CP at 4676-77), and Weyerhaeuser's offer to submit more detailed information (CP at 4663 n. 4), there is no complete accounting of the costs of these consent decrees. CU does not dispute the existence of these decrees, but questions whether they constitute settlements for the purpose of exhausting the underlying policy. When determining issues of coverage, the relationship of an administrative action to a lawsuit is a major concern. See Abraham, supra at 264-66 (noting advantages and disadvantages of equating an administrative action to a lawsuit for purposes of compelling coverage). However, Washington resolved this issue in Weyerhaeuser I where we held the insurers were obligated to pay for the hazardous waste cleanup costs imposed by law, even if a lawsuit had not been filed. When an insured engages in the cleanup of pollution damages in cooperation with an environmental agency, coverage exists. Weyerhaeuser I, 123 Wash.2d at 896-97, 874 P.2d 142. Thus Fireman's Fund had an obligation to pay for cleanup costs imposed via consent decrees, and the exhaustion of its policy through such cleanup costs is the equivalent of exhaustion by settlement. If this occurred, Fireman's Fund's legal obligation to defend was similarly exhausted, thus triggering CU's obligation to pay the defense costs at Stringfellow. Still, the question remains whether these consent decrees and other covered obligations exhausted the Fireman's Fund policy. Weyerhaeuser is entitled to prevail on summary judgment only if there is no genuine issue as to any material fact. CR 56(c). The total coverage amount of the underlying Fireman's Fund policy is $3,000,000. CP at 13888. The estimated costs for Stringfellow alone were more than this amount and the actual costs far exceeded this amount. CP at 9004. However, construing all the facts in the light most favorable to CU, we conclude CU demonstrates a genuine question of material fact exists as to whether Fireman's Fund's settlement with Weyerhaeuser was a premature tender and thus did not discharge Fireman's Fund's duty to defend. [17] We hold the payment of funds for costs of complying with a consent decree is the functional equivalent of a settlement, and the underlying insurer's duty to defend ceases once its policy has been exhausted by payments made for this purpose. When an underlying insurer's policy is exhausted in this manner, the supplemental insurer's duty to defend is triggered. However, because a question of material fact remains as to whether the Fireman's Fund policy was properly exhausted, we reverse the trial court's order granting Weyerhaeuser partial summary judgment and remand for further proceedings. We also reverse the trial court's award of Olympic Steamship attorneys' fees to Weyerhaeuser on this issue pending remand.