Court Opinion

ID: 4585052
Source: CourtListenerOpinion
Date Created: 2020-11-09 22:09:26.68525+00
Date Added: 2024-06-11T13:47:08.650956
License: Public Domain

IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
                      DIVISION ONE

UNIGARD INSURANCE COMPANY,                  )      No. 80234-8-I
a foreign insurer,                          )
                                            )
                      Appellant,            )
                                            )
       v.                                   )
                                            )
WAUSAU UNDERWRITERS                         )
INSURANCE COMPANY, a foreign                )
insurer,                                    )
                                            )      UNPUBLISHED OPINION
                                            )
                      Respondent.           )
                                            )

       VERELLEN, J. — Where a landlord is covered as an additional insured on a

bar’s commercial general liability (CGL) policy for liability “arising out of the

ownership, maintenance or use” of the bar’s leased premises, Washington case

law broadly interprets the “arising out of” language. A verbal altercation that

began inside the bar and culminated in an act of physical violence just outside the

bar, in a common area, resulting in the death of a patron, “arose out of” the use of

the bar’s leased premises. Because the incident “arose out of” the bar’s leased

premises, the landlord was covered under the additional insured endorsement of

the bar’s CGL policy and, consistent with the total insuring intent of all the parties,

the landlord’s own CGL policy provided excess coverage.
No. 80234-8-I/2

       An excess insurer has no duty to defend or indemnify a primary insurer until

the primary insurer’s coverage is exhausted. As a consequence, the bar’s CGL

insurer is not entitled to equitable subrogation or contribution from the excess

insurer, who paid the balance of the amount required for settlement after the bar’s

CGL insurer paid its policy limits. And the bar’s CGL insurer is not entitled to

attorney fees under Olympic Steamship Company v. Centennial Insurance

Company.1

       We affirm.

                                         FACTS

       Munchbar was located in the Bellevue Square Mall. Around closing time

one night, two groups of patrons, Dain Cilley and coworkers and Jacob Steinle and

his friend, engaged in an “aggressive” verbal altercation inside the bar.2 The

confrontation escalated outside the bar, in a common area of Bellevue Square

Mall, where Cilley punched Steinle, killing him.

       Steinle’s estate sued Munchbar and Kemper Development Company, which

is the owner of Bellevue Square Mall and Munchbar’s landlord, under various

theories of liability. The estate alleged that Kemper was negligent for failing to

protect Steinle from the harm he suffered on mall property, failing to intervene in

the altercation while Kemper’s security guards were on site, and failing to take

action given Munchbar’s history of problems, when Kemper knew or should have

       1   117 Wn.2d 37, 811 P.2d 673 (1991).
       2   Clerk’s Papers (CP) at 733.

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No. 80234-8-I/3

known that violence was likely to occur. The estate alleged negligence against

Munchbar on theories of overservice and premises liability.

        Munchbar filed a motion for summary judgment, arguing it was not liable

under either the overservice or the premises liability claim. The estate conceded

that it could not prove the overservice claim. The trial court granted summary

judgment in favor of Munchbar on the premises liability claim. Munchbar was

dismissed as a party, and Kemper remained in the lawsuit.

        Munchbar had a CGL policy with Unigard, and Kemper had its own CGL

policy with Wausau Underwriters. Consistent with the lease, Unigard provided

coverage of Kemper as an additional insured for damages “arising out of the

ownership, maintenance or use” of the bar’s leased premises. The “other

insurance” provisions of the Wausau CGL policy covering Kemper provided that its

coverage was excess to “[a]ny other primary insurance available [to Kemper],

covering liability for damages arising out of the premises” for which Kemper had

been added as an additional insured.3 The “other insurance” provisions of the

Unigard CGL policy provides it is primary with exceptions that are not applicable

here.

        Unigard defended both Munchbar and Kemper with a reservation of rights.

Wausau refused a tender of defense after Munchbar was granted partial summary

        3   CP at 193.

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No. 80234-8-I/4

judgment. Unigard continued to defend. The underlying lawsuit settled with

Unigard paying its policy limits and Wausau contributing an additional $500,000.

      Unigard sued Wausau for equitable contribution and subrogation, and

Wausau filed a motion for summary judgment. Unigard argued that once

Munchbar was exonerated from liability, the remaining allegations implicated

Kemper’s negligence only and Wausau had primary coverage as to those claims.

The trial court granted summary judgment in favor of Wausau.

      Unigard appeals.

                                    ANALYSIS

I. Commercial General Liability Coverage

      Unigard argues that Wausau provided primary coverage for Kemper

because the altercation exclusively “arose out of” Kemper’s negligence and thus,

Kemper did not qualify as an additional insured under the Unigard CGL policy.

      “We review an order granting summary judgment de novo.”4 Summary

judgment is appropriate “‘only when there is no genuine issue as to any material

fact and the moving party is entitled to judgment as a matter of law.’”5 We view

the evidence in the “light most favorable to the nonmoving party.”6

      4   Loeffelholz v. Univ. of Wash., 175 Wn.2d 264, 271, 285 P.3d 854 (2012).
      5  Bavand v. OneWest Bank, 196 Wn. App. 813, 824-25, 385 P.3d 233
(2016) (quoting Scrivener v. Clark Coll., 181 Wn.2d 439, 444, 334 P.3d 541
(2014)).
      6   Loeffelholz, 175 Wn.2d at 271.

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No. 80234-8-I/5

       “‘Primary insurance’ [is the insurance] that attaches immediately upon the

happening of a loss.’”7 Excess insurance is involved only when the primary

insurer has exhausted its obligations to defend or indemnify.8 “An excess carrier’s

obligation to pay and defend begins when, and only when, the limits of the primary

insurance policy are exhausted.”9 The question whether overlapping policies are

primary or excess must be determined “in light of the total insuring intent of all the

parties. On that basis, we consider the nature and purpose of [the] primary and

excess insurance policies as well as the function of [the] ‘other insurance’

clauses.”10 “Generally, when two policies each contain an ‘other insurance’ clause

purporting to make the policy excess over the other policy, our courts have

disregarded the clauses as ‘mutually repugnant.’”11 Conversely, if the “other

insurance” clause of one policy provides it is excess and a second policy does not

include any conflicting provision, then we give effect to the excess coverage

provision.12

       7Diaz v. Nat’l Rental Car Sys. Inc., 143 Wn.2d 57, 62, 17 P.3d 603 (2001)
(quoting BLACK’S LAW DICTIONARY 807 (7th ed. 1999)).
       8Truck Ins. Exch. of Farmers Ins. Grp. v. Century Indem. Co., 76 Wn. App.
527, 531, 887 P.2d 455 (1995).
       9   Rees v. Viking Ins. Co., 77 Wn. App. 716, 719, 892 P.2d 1128 (1995).
       10Safeco Ins. Co. of Ill. v. Auto. Club Ins. Co., 108 Wn. App. 468, 479, 31
P.3d 52 (2001) (citing Allstate Ins. Co. v. Frank B. Hall & Co. of Cal., 770 P.2d
1342, 1346 (Colo. App. 1989)).
       11Safeco Ins. Co. of Ill. v. Country Mut. Ins. Co., 165 Wn. App. 1, 4, 267
P.3d 540 (2011) (internal quotation marks omitted) (quoting Polygon Nw. Co. v.
Am. Nat’l Fire Ins., 143 Wn. App. 753, 777, 189 P.3d 777 (2008)).
       12
        See id. at 5-6 (discussing Safeco Ins. Co of Am. v. Pac. Indem. Co., 66
Wn.2d 38, 401 P.2d 205 (1965)); see also LEE R. RUSS, THOMAS F. SEGALLA, 15

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No. 80234-8-I/6

       In deciding whether “in light of the total insuring intent of all the parties,” 13

the Wausau policy is excess to the coverage provided to Kemper as an additional

insured under the Unigard policy, we look to the policies and the lease provisions.

       The Unigard policy provides Kemper with coverage as an additional insured

“with respect to liability arising out of the ownership, maintenance or use of that

specific part of the premises” leased to Munchbar.14 The “other insurance”

provisions of the Wausau policy expressly provide it is excess over “(b) Any other

primary insurance available to [Kemper] covering liability for damages arising out

of the premises or operations . . . for which [Kemper has] been added as an

additional insured by attachment of an endorsement.”15 The parallel “other

insurance” provisions of the Unigard policy contains identical language. 16 It is

primary except when the provisions for excess coverage in paragraph (b) apply.

       Here, none of those exceptions to primary coverage by Unigard apply. The

lease provides context for the obligations of the insurers. The terms of the lease

provide that Munchbar’s insurance policy “shall be primary and noncontributing

with respect to any policies carried by [Kemper], and that any coverage carried by

COUCH ON INSURANCE 3D § 219.44 (1999) (“It is unnecessary to apply the total
insuring intent test, however, where the ‘other insurance’ clauses in overlapping
insurance policies provide a clear and consistent answer as to allocation of
primary and excess coverage.”).
       13   Safeco, 108 Wn. App. at 479.
       14   CP at 491.
       15   CP at 193.
       16   CP at 471.

                                             6
No. 80234-8-I/7

[Kemper] shall be excess insurance . . . and [Kemper] shall be named as an

additional insured.”17

       Taken together, the lease provisions that Munchbar is to include Kemper as

an additional insured, the provisions of the Unigard additional insured

endorsement of Kemper, and the parallel “other insurance” provisions of both

policies reveal the total insuring intent of the parties is that the Wausau policy

provides only excess coverage of Kemper if Kemper qualifies for coverage under

the additional insured provision in the Unigard policy.

       In turn, that depends on whether the claim for Kemper’s liability “arises out

of” the premises or operation of the bar. “Washington law . . . gives a broad scope

to the phrase ‘arising out of’ in an insurance policy.”18 “The phrase requires only a

causal contribution, and means less than ‘proximately caused by.’” 19 Washington

courts have interpreted “arising out of” as meaning “originating from”, “growing out

of” or “flowing from.”20

       17   CP at 597.
       18 Seaway Properties, LLC v. Fireman’s Fund Ins. Co., 16 F. Supp. 3d
1240, 1251 (W.D. Wash. 2014); see also Equilon Enters. LLC v. Great Am. All.
Ins. Co., 132 Wn. App. 430, 437-39, 132 P.3d 758 (2006).
       19   Seaway, 16 F.Supp.3d at 1251.
       20  National Sur. Corp. v. Immunex Corp., 162 Wn. App. 762, 772-73, 256
P.3d 439 (2011) ( “Washington courts have previously defined ‘arising out of’ as
meaning ‘originating from,’ ‘having origin in,’ ‘growing out of,’ or ‘flowing from.’”)
(citations omitted), affirmed, 176 Wn.2d 872 (2013); Australia Unlimited Inc. v.
Hartford Cas. Ins. Co., 147 Wn. App. 758, 773-74, 198 P.3d 514 (2008)
(advertising trade dress claim and policy covering injury “arising out of one or more
of the following offenses, including ‘[c]opying, in your advertisement’ a person’s or
organizations advertising idea or style of advertisement.’ The policy therefore
requires some causal connection between the injury and the insured’s advertising

                                           7
No. 80234-8-I/8

       In Equilon v. Great American Alliance Insurance Company, a fuel distributor

contracted with Shell to buy fuel and distribute it to service stations, which were

required to put up Shell signs as part of buying the fuel.21 The contract required

that the fuel distributor indemnify Shell “against all claims arising out of any injury

or damage caused by or happening in connection with [the fuel distributor’s] use of

Shell’s products.”22 The fuel distributor complied with Shell’s request and listed

Shell as an additional insured on its CGL policy.23 When an individual was

assaulted at one of the service stations and sued Shell, Shell tendered its defense

to the fuel distributor’s CGL insurer.24 The insurer refused to defend Shell.25

Because the distributor mandated the use of Shell signs where it distributed fuel,

the assault “arose out of” the distributor’s sale of Shell fuel and the insurer had a

duty to defend Shell.26

       In Seaway Properties, LLC v. Fireman’s Fund Insurance Company, a

woman fell as she stepped down from a concrete platform located between a

building’s parking lot and the entrance to a restaurant.27 The woman fell in the

activity before there is . . . a duty to defend.” (alterations in original) (internal
quotation marks omitted)).
       21   132 Wn. App. 430, 433-34, 132 P.3d 758 (2006).
       22   Id. at 434.
       23   Id.
       24   Id.
       25   Id. at 434-35.
       26   Id. at 439-40.
       27   16 F.Supp.3d 1240, 1244 (W.D. Wash. 2014).

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No. 80234-8-I/9

common area owned by the landlord but not on the premises leased to the

restaurant. The lease required the restaurant to maintain a CGL policy and cover

the landlord as an additional insured.28 The additional insured clause stated that it

“covered the landlord as an additional insured for liability arising out of the use of

[the] premises that [the landlord] leased to the [restaurant].”29 Relying on Equilon,

the court held that the landlord was covered under the restaurant’s CGL policy

because the accident “arose out of” the restaurant’s leased premises.30

       Similar to Shell in Equilon and the landlord in Seaway, Kemper is an

additional insured for liability “arising out of” the operation of the underlying

business. Consistent with Equilon and Seaway, Steinle’s death originated in and

flowed from the conflict that began inside Munchbar. Therefore, the claim

asserting Kemper’s liability “arose out of” the use of Munchbar’s leased premises.

       Specifically, Cilley physically assaulted Steinle in a common area of

Bellevue Square mall just outside Munchbar. But the verbal altercation between

Cilley’s coworkers and Steinle and his friend began inside Munchbar. There were

“loud voices” inside the bar and Leonard Lee, Cilley’s coworker, confirmed that the

“aggressive” dialogue started in the bar and that “some words [were exchanged]

with the intent to escalate.”31 According to Cilley, as the two groups turned the

       28   Id.
       29   Id.
       30   Id.
       31   CP at 756, 767.

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No. 80234-8-I/10

corner to exit Munchbar, the argument “started again,” and this time, physical

violence ensued.32 Because the initial altercation began inside Munchbar while

both men were patronizing it, the altercation “arose out of” Munchbar’s operation

of the leased premises. Kemper is covered under the additional insured

endorsement in the Unigard policy. Consistent with the Wausau “other insurance”

provisions, Wausau is “excess over” the primary Unigard policy.

        Unigard’s premise is that once Munchbar was exonerated from liability the

only remaining claim was Kemper’s sole negligence, a claim for which Unigard

provided no coverage. Unigard focuses upon portions of the lease allocating

responsibility for the bar to Munchbar and the mall to Kemper. But we reject the

premise. Unigard ignores that a claim against Kemper alleging liability for

damages can “arise out of” the operation of Munchbar, even if the bar is not held

liable in tort.

        Unigard argues “arising out of” should not be interpreted broadly. But its

attempts to distinguish Equilon are unpersuasive. As this court in Equilon

emphasized, “If the [insurer] had wanted to insure Shell for liability Shell incurred

relating only to injuries arising out of the [fuel distributor’s] operations, it could have

put precisely that language into the endorsement.”33 Here, Unigard could have

limited its additional insured endorsement to cover only those incidents occurring

inside Munchbar’s leased premises. But it did not. And we “‘can neither disregard

        32   CP at 757.
        33   Equilon, 132 Wn. App. at 436.

                                             10
No. 80234-8-I/11

contract language which the parties have employed nor revise the contract under

a theory of construing it.’”34

       “The duty to defend generally is determined from the ‘eight corners’ of the

insurance contract and the underlying complaint.”35 “An insurer has a duty to

defend if the complaint, construed liberally, alleges facts which, if proven, impose

liability within the policy’s coverage.”36 “The duty to indemnify generally arises

when the plaintiff in the underlying action prevails on facts that fall within the

policy’s coverage.”37 Because here, Wausau is an excess insurer for Kemper as

to the remaining claims of liability for damages, it had no duty to defend or

indemnify until the primary coverage through Unigard was exhausted.38

       As a result, Unigard’s claims against Wausau for equitable contribution and

equitable subrogation necessarily fail. Equitable contribution permits one insurer

to recover from another insurer “where both are independently obligated to

indemnify or defend the same loss.”39 “In deciding whether one insurer is liable for

equitable contribution to another, ‘the inquiry is whether the nonparticipating

       34   Id. at 437 (quoting Wagner v. Wagner, 95 Wn.2d 94, 101, 621 P.2d 1279
(1980)).
       35   Expedia, Inc. v. Steadfast Ins. Co., 180 Wn.2d 793, 803, 329 P.3d 59
(2014).
       36   Equilon, 132 Wn. App. at 435-36.
       37   Id. at 440.
       38   Rees, 77 Wn. App. at 719.
       39
        Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wn.2d 411, 419, 191
P.3d 866 (2008).

                                           11
No. 80234-8-I/12

coinsurer had a legal obligation . . . to provide [a] defense [or] indemnity coverage

for the . . . claim or action prior to [the date of settlement].’”40

       Wausau was not independently obligated to defend Kemper and indemnify

Unigard for the same loss. Because Wausau had no legal obligations as an

excess insurer to provide any defense or indemnity on behalf of Kemper until the

Unigard additional insured coverage was exhausted, Unigard is not entitled to

equitable contribution.

       An insurer may be equitably subrogated to another when the insurer who

was not primarily responsible benefitted the other by covering a loss. 41 Because

Unigard was the primary insurer and paid only its policy limits, it has no right to

equitable subrogation from excess insurer Wausau, who paid the balance required

for settlement.

II. Attorney Fees

       Unigard requests attorney fees on appeal under Olympic Steamship and as

the subrogee to Wausau. Because Unigard is not entitled to equitable subrogation

       40Id. at 420 (emphasis omitted) (alterations in original) (internal quotation
marks omitted) (quoting Safeco Ins. Co. of Am. v. Superior Court, 140 Cal. App.
4th 874, 879, 44 Cal. Rptr. 3d 841 (2006)).
       41
        See Truck Ins. Exch. of Farmers Ins. Grp. v. Century Indem. Co., 76 Wn.
App. 527, 530-31, 887 P.2d 455 (1995) (“Equitable subrogation is a legal fiction
whereby a person who pays a debt for which another is primarily responsible is
subrogated to the rights and remedies of the other.”).

                                             12
No. 80234-8-I/13

from Wausau and does not prevail on a coverage dispute, it is not entitled to

attorney fees.42

       We affirm.

WE CONCUR:

       42Ainsworth v. Progressive Cas. Ins. Co., 180 Wn. App. 52, 82, 322 P.3d 6
(2014) (“Because [the insured] prevailed in his coverage dispute below, we award
reasonable appellate costs and fees.”).

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