Opinion ID: 2714929
Heading Depth: 1
Heading Rank: 4

Heading: analysis

Text: 1. Duty to defend This court has long held that the duty to defend is different from and broader than the duty to indemnify. Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398, 404, 229 P.3d 693 (2010) (citing Safeco Ins. Co. ofAm. v. Butler, 118 Wn.2d 383, 392, 823 P.2d 499 (1992)). While the duty to indemnify exists only ifthe policy covers the insured's liability, the duty to defend is triggered if the insurance policy conceivably covers allegations in the complaint. I d. (citing Woo v. Fireman's Fund Ins. Co., 161 Wn.2d 43, 53, 164 P.3d 454 (2007)). '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.' Am. Best Food, 168 Wn.2d at 404-05 (internal quotation 8 No. 88673-3 marks omitted) (quoting Truck Ins. Exch. v. Vanport Homes, Inc., 147 Wn.2d 751, 760, 58 P.3d 276 (2002)). Furthermore, exclusionary clauses in the insurance contract 'are to be most strictly construed against the insurer.' !d. at 406 (quoting Phil Schroeder, Inc. v. Royal Globe Ins. Co., 99 Wn.2d 65, 68, 659 P.2d 509 (1983)). It is a cornerstone of insurance law that an insurer may never put its own interests ahead of its insured's. !d. at 405 (citing Mut. of Enumclaw Ins. Co. v. T&G Constr., Inc., 165 Wn.2d 255, 269, 199 P.3d 376 (2008)). '[T]he duty to defend requires an insurer to give the insured the benefit of the doubt when determining whether the insurance policy covers the allegations in the complaint.' !d. at 412 (quoting Woo, 161 Wn.2d at 60). A court will construe an ambiguous complaint liberally in favor oftriggering the duty to defend. Woo, 161 Wn.2d at 52 (quoting Truck Ins. Exch., 147 Wn.2d at 760). In Truck Insurance Exchange, we held that [ o]nee the duty to defend attaches, insurers may not desert policyholders and allow them to incur substantial legal costs while waiting for an indemnity determination. 147 Wn.2d at 761 (citing Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 563, 951 P.2d 1124 (1998)). An insurer must accordingly defend its insured until it is clear that a claim is not covered under the policy. Am. Best Food, 168 Wn.2d at 405 (citing Truck Ins. Exch., 147 Wn.2d at 765). The duty to defend generally is determined from the eight corners of the insurance contract and the underlying complaint. There are two exceptions to this 9 No. 88673~3 rule, and both favor the insured. Woo, 161 Wn.2d at 53 (quoting Truck Ins. Exch., 147 Wn.2d at 761). First, if coverage is not clear from the face ofthe complaint but coverage could exist, the insurer must investigate and give the insured the benefit of the doubt on the duty to defend. !d. Second, if the allegations in the complaint conflict with facts known to the insurer or if the allegations arc ambiguous, facts outside the complaint may be considered. !d. at 54. However, these 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. !d. Washington law broadly views damages as 'sums of money' owed when a policyholder's 'acts or omissions affected adversely the rights of third parties.' Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wn.2d 869, 879, 784 P.2d 507 (1990) (quoting U.S. Fid. & Guar. Co. v. Thomas Solvent Co., 683 F. Supp. 1139, 1168 (W.D. Mich. 1988)). Construing these insurance contracts liberally, as we must, many of the underlying complaints appear to seek damages that could conceivably be covered by the policies. The trial court appeared to recognize this, noting that there is under at least one conceivable theory a situation where Expedia could be found to be liable under the underlying complaints, yet not have engaged in willful misconduct. RP (Jan. 13, 20 12) at 82~83. The court also recognized that given that the cities do not have to prove intent, one of those theories, at least, would put this more in the category of damages, rather than restitution. !d. at 81. Even so, 10 No. 88673-3 the court declined to adjudicate Expedia's motion for summary judgment and instead stayed it pending further discovery. It appears that the trial court erroneously conflated the duty to defend with the duty to indemnify. Determining whether the duty to defend has been triggered is a separate inquiry from whether an insurer may be relieved of its duty to defend or indemnify due to a defense such as a claim of late tender by the insured. See Nat'! Sur. Corp. v. Immunex Corp., 176 Wn.2d 872, 889, 297 P.3d 688 (2013). A late tender defense to the duty to defend requires the insurer to prove that it was actually and substantially prejudiced by the late tender. !d. at 890. Zurich claims that Immunex stands for the proposition that discovery on the issue of whether an insured's late notice has prejudiced the insurer is appropriate. Accordingly, they assert that summary judgment on the duty to defend is foreclosed in this case. This, however, is an incorrect reading of Immunex. In Immunex, this court first resolved whether a determination of no coverage applied retroactively to a reservation of rights defense. Only after resolving this question did the court turn to the insurer's late tender defense and address issues of actual prejudice. !d. at 878-80, 890-91. At most, Immunex indicates that the actual prejudice question is relevant only to the late tender defense and that actual prejudice caused by late tender may relieve the insurer of the duty to pay the cost of defense incurred after the insurer obtains a judicial declaration that it owes no duty to defend. Id. at 891. 11 No. 88673-3 Here, the trial court delayed adjudicating Zurich's motion for summary judgment on its duty to defend because it believed that Zurich had a right to discovery in order to help prove its defenses, including late tender. This was incorrect. Instead, the trial court should have adjudicated the duty to defend issue. Zurich could then attempt to prove its defenses, including prejudice from late tender. In the meantime, however, Zurich should have been required to defend Expedia if the court found that the duty to defend had been triggered. Unless actual prejudice can be established by the insurer as a matter of law, an insurer's allegations of prejudice cannot preclude a determination that the underlying claim is conceivably covered. 2. Discovery The trial court allowed Zurich discovery before it would hear Expedia's summary judgment motion concerning Zurich's duty to defend. In support of its argument that it should be permitted to discover and present extrinsic evidence negating its duty to defend, Zurich primarily relies on Overton v. Consolidated Insurance Co., 145 Wn.2d 417, 38 P.3d 322 (2002). In Overton, this court considered extrinsic evidence that the insured was aware of pollution on his property before purchasing the insurance policies in the course of determining that there was no coverage. !d. at 429-31. The proposition for which Zurich cites Overton is not stated in the majority opinion and is implicit only in the majority's consideration of extrinsic evidence. Moreover, the opinion is not clear as to 12 No. 88673-3 whether the insured even objected to the insurer's reliance on extrinsic evidence. See id. Even if Overton is viewed as supporting Zurich's argument, the opinion predates and conflicts with the extrinsic evidence rule as clarified in Truck Insurance Exchange and its progeny. Truck Insurance Exchange is clear that the duty to defend must be determined from the four corners of the complaint and the four corners of the insurance policy. 147 Wn.2d at 761. The two exceptions to this rule may be used only to trigger the duty to defend, not to foreclose it. Id. It appears that no Washington courts have squarely considered the propriety of allowing discovery in a duty to defend action that may prejudice the insured in the underlying litigation. Expedia, however, cites two California cases which are on point. 5 In Montrose Chemical Corp. of California v. Superior Court, the California Supreme Court noted, [t]o eliminate the risk of inconsistent factual determinations that could prejudice the insured, a stay of the declaratory relief action pending resolution of the third party suit is appropriate when the coverage question turns on facts to be litigated in the underlying action. 6 Cal. 4th 287, 301, 24 Cal. Rptr. 2d 467 (1993). Two years later, the California Court of Appeal 5 Washington and California insurance law embrace many of the same basic principles. However, Washington law is even more restrictive than California as to what evidence an insurer may use to defeat a showing that the duty to defend has been triggered. California, unlike Washington, permits an insurer to rely on facts extrinsic to the complaint to defeat a defense duty. Compare Haskel, Inc. v. Superior Court, 33 Cal. App. 4th 963, 975, 39 Cal. Rptr. 2d 520 (1995), with Woo, 161 Wn.2d at 53. Even in California, the insurer must defend until those facts are developed and may not deny the duty to defend or delay adjudication of such a duty in order to pursue discovery to develop those facts. Haskel, 33 Cal. App. 4th at 976-77. 13 No. 88673-3 decided Haske!, Inc. v. Superior Court, 33 Cal. App. 4th 963, 975, 39 Cal. Rptr. 2d 520 (1995). The case presented an almost identical question to the discovery issue in this case. !d. at 968. Expedia urges us to follow Haskel's lead concerning discovery in duty to defend actions. In that case, corporations brought a declaratory action against their insurers to determine coverage. !d. at 971. They then filed a motion for summary judgment. !d. at 972. The trial court ordered the motion to be taken off the calendar and that the motion could not be refiled until the insureds complied with the insurers' discovery requests. !d. at 973. The insureds then sought a writ of mandate to vacate the order and stay all discovery that was logically related to the underlying actions. !d. The court concluded that Haskel was entitled to have its summary judgment motion adjudicated concerning the duty to defend. If a showing of potential coverage was made and the insurers did not produce undisputed evidence that conclusively eliminated any possibility of coverage, the motion was to be granted. The court also concluded that Haskel was entitled to a stay of prejudicial discovery. !d. at 969. The court recognized that the trial court erred by conditioning Haskel's right to have its summary judgment motion heard upon its compliance with the insurer's discovery demands. !d. at 978. We find Haske! persuasive and agree that an adjudication of the duty to defend cannot be delayed by discovery. Here, the trial court erred by delaying 14 No. 88673-3 adjudication ofExpedia's summary judgment motion concerning the duty to defend until Expedia complied with potentially prejudicial discovery.