Court Opinion

ID: 4712168
Source: CourtListenerOpinion
Date Created: 2021-08-12 00:37:54.510568+00
Date Added: 2024-06-11T08:07:12.378483
License: Public Domain

Chambers, J.
(dissenting) — I respectfully dissent. The “neither expected nor intended” requirement of an “occurrence,” as used in the Consolidated Insurance Company (Consolidated) and Industrial Indemnity Insurance Company of the Northwest (Industrial Indemnity) policies, is satisfied unless the insured knew with “substantial probability” a known condition would cause harm. The trial court improperly granted summary judgment without a full evidentiary hearing to determine whether the insurers had established that there was no “occurrence.” Further, even if the trial court’s ultimate determination is proved correct, the duty to defend is broader than the duty to indemnify. The allegations in the complaint were sufficient to trigger this duty to defend, since there was potential coverage based on the facts alleged. The insurer could have defended under a reservation of rights but chose not to do so. The insurer was in breach of its duty to defend from the time Jerry Overton, f/d/b/a Spokane Transformer Company, tendered defense of the lawsuit of Paul and Mary Ann Gisselberg until judgment, settlement, or a binding declaratory judgment that there is no duty to defend. Consolidated’s five-year breach of its duty to defend may even *436support a cause of action for bad faith. Therefore, the trial court should be reversed and the Court of Appeals affirmed.
FACTS
The Gisselbergs own the property that is the subject of the underlying suit. When they discovered it was contaminated by polychlorinated biphenols (PCB), they properly notified the Washington State Department of Ecology (DOE) and initiated cleanup. The Gisselbergs then sought indemnification from Overton through legal action. Overton, a former operator of a facility on the property, is among those potentially jointly and severally responsible for the cleanup under Washington’s Model Toxics Control Act (MTCA), chapter 70.105D RCW. In 1994, Overton submitted the complaint to past insurers, Consolidated and Industrial Indemnity. The complaint specifically alleged that: “One or more of the defendants, jointly or severally, caused the disposal, storage, or release of hazardous compounds, materials and chemicals including, without limitation, polychlorinated biphenols, commonly known as PCB, onto, into or over the real property at issue.” Clerk’s Papers (CP) at 69.
Both insurers declined to accept liability or defend against the claim. The insurers claimed that Overton knew about the PCB on his property when he bought the policies and therefore there was no insured “occurrence.” In 1976, the DOE and the Federal Environmental Protection Agency (EPA) inspected the site and discovered PCB. According to EPA records, Overton denied the presence of PCB and refused to cooperate. Overton testified in a deposition he had no memory of the government inspections. He went on to declare:
At no time, while the corporation leased this property from Mr. Boyce, did I believe I would be responsible for any environmental cleanup pertaining to PCB. The company did not purchase, use, store or discharge PCBs. At no time did I have any discussions with Richard Boyce regarding PCBs or soil *437contamination with respect to this property during the time that the corporation leased the property. . . .
At no time, while the corporation leased this property, did anyone tell me I had a legal duty or obligation to perform an environmental cleanup or direct me to do so regarding PCB contamination.
CP at 792-93. Overton purchased the insurance policies in 1977 and 1979, before the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601-9675 was enacted in 1980, more than a decade before the voters of this State approved the law forming the basis for the underlying claim, MTCA, and almost 20 years before the Gisselbergs’ claim at issue here. At summary judgment, Consolidated had the burden of establishing Overton knew with substantial probability that there was or would be an occurrence resulting in property damage when he purchased the insurance. Overton created a material issue of fact when he testified in his deposition that he did not know, expect, or intend any potential liability pertaining to the PCB.
After multiple summary judgment proceedings, the trial court concluded there was no coverage because Overton knew of the presence of PCB before purchasing insurance. For the reasons set forth below, the trial court should be reversed and the Court of Appeals affirmed.
ANALYSIS
Occurrence
Few words have generated so many appellate court opinions as “occurrence.” A large and well-established body of law has developed to help insurers, insureds and the courts interpret the term “occurrence” within insurance policies. Because different kinds of insurance policies insure against different kinds of occurrences, the term is best analyzed within the context of the appropriate policy, coverage, and risk in question. This Court has extensively *438analyzed the term “occurrence” within the context of potentially toxic contaminates, and developed a rich jurisprudence to analyze just this sort of question. See, e.g., Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115 (2000); Queen City Farms, Inc. v. Cent. Nat’l Ins. Co. of Omaha, 126 Wn.2d 50, 882 P.2d 703, 891 P.2d 718 (1994).
The policy in question is a liability policy, and the relevant policy language states:
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
Coverage A. bodily injury or
Coverage B. property damage
to which this insurance applies, caused by an occurrence!.]
CP at 295.
The policy defines occurrence:
“occurrence” means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured!.]
CP at 296 (emphasis added).
Overton asserts he has been sued and may “bee [o] me legally obligated to pay” damages because of “damage to property” as a result of an “occurrence” or “accident” which he “neither expected nor intended.” This turns on whether he expected or intended the occurrence or accident that may ultimately result in liability, PCB contamination. This is analyzed under the “known risk defense,” the principle that insurance is purchased against contingencies, not certainties. “The known risk defense is premised on the principle that an insured cannot collect on an insurance claim for a loss that the insured subjectively knew would occur at the time the insurance was purchased. . . . This is a question of fact.” Pub. Util. Dist. No. 1 v. Int’l Ins. Co., 124 Wn.2d 789, 805, 881 P.2d 1020 (1994).
*439It is not sufficient for the insurer to show that the insured was aware of a potential risk. Consumers buy fire and flood insurance precisely because they are concerned about potential fires and floods. Therefore, it is not sufficient for Consolidated and Industrial Indemnity to show that Overton was or should have been aware of a potential risk. An insurer must show that the insured knew with “substantial probability” that the harm giving rise to potential liability insured against would occur. To determine this, we need to peer into Overton’s subjective knowledge at the time he purchased the insurance, 1977 and 1979.
The trial judge determined on summary judgment that Overton was informed by the DOE and the EPA that there was PCB on the property. The trial judge concluded Overton’s declaration that he did not know of the PCB nor anticipate liability for environmental cleanup was not sufficient to rebut the insurers’ evidence. This was error.
In Queen City Farms, we considered an allied issue. 126 Wn.2d 50. Although the specific exclusions raised in Queen City Farms were a “pollution exclusion” in one policy and the “occurrence exclusion” in another, they were treated functionally the same. Compare 126 Wn.2d at 73 with 126 Wn.2d at 94. Each required an event that was unexpected and unintended. Queen City Farms concerned property used as a hazardous waste disposal site for many years. That the insureds knew of contaminates on the property was beyond question—the insured knew the property was a landfill accepting hazardous materials. However, this Court found that fact not determinative. Instead, we rested our holding on the fact the owners “never expected wastes from the ponds to contaminate the surrounding ground and groundwater.” Queen City Farms, 126 Wn.2d at 59. Put another way, the question is not whether an insured knew of the existence of a condition, or should have appreciated the significance, but instead whether the insured knew and appreciated the significance. See Queen City Farms, 126 Wn.2d at 66 (“[A]n objective standard is inconsistent with insurance coverage for damage resulting from ordinary *440negligence.”). While today it would strain credulity to believe a business owner would not expect PCB in the soil to cause future liability, it is perfectly consistent with Overton’s statements, and our case law, that Overton did not have such subjective knowledge at the time he purchased the insurance. Accord Queen City Farms, 126 Wn.2d at 79 (citing New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1167 (3d Cir. 1991) (noting that in the late 1960s little was known about environmental danger posed by sanitary landfills; few recognized the extent to which landfills threatened pollution of groundwater)).
Further, the majority’s reliance on City of Okanogan v. Cities Insurance Ass’n, 72 Wn. App. 697, 865 P.2d 576 (1994) is misplaced. Okanogan merely held that when the insured had actual knowledge of a risk that was causing harm, there was no “occurrence” as defined by the policy. Okanogan, 72 Wn. App. at 701-02. There is no such finding here; at most, reasonable minds could conclude Overton knew at some point PCBs were present; not that Overton knew PCB would cause a loss or potential liability.4 Similarly, Time Oil held the insured could not claim that their loss was unforeseen or unexpected when they knew with “substantial probability” that they would be required to pay damages for contamination. See Time Oil Co. v. Cigna Prop. & Cas. Ins. Co., 743 F. Supp. 1400, 1414 (1990) (collecting cases). It is a question of fact whether the insured knew PCB would cause damage to the property and require remediation. Whether Overton knew with “substantial probability” could not be determined at summary judgment based on the record before us.
At summary judgment or a hearing on a declaratory judgment motion, the insurer bears the burden to show that the insured knew with “substantial probability” the harm *441would occur. See Queen City Farms, 126 Wn.2d at 72 (the insurer had the burden to show the injury or damage was expected or intended); Time Oil Co., 743 F. Supp. at 1413-14 (holding that when insured knew with substantial certainty loss would occur, not an “occurrence” under a general liability policy). The evidence submitted by Consolidated tended to show the DOE and EPA had inspected the property in the mid 1970s and informed Overton that there may have been PCB on the property. I agree with the trial court that Overton’s statement he did not remember these inspections was insufficient to controvert the evidence that the EPA and DOE inspected the property and informed him there were PCBs on the property. However, that is not the question the trial court should have answered; instead, the question is whether, when he purchased the insurance, Overton knew with substantial probability that a harm causing liability from the PCB would occur. There is no evidence Overton appreciated, subjectively, the import of the visit or that Overton could have anticipated changes in the law that would greatly increase his potential liability. Functionally, the trial court weighed the evidence submitted, which was improper.
Duty to Defend
Even though the majority concludes that there was no coverage under the policy, that should not end the inquiry. An insurer’s duty to defend is broader than its duty to indemnify. Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55, 64, 1 P.3d 1167 (2000).
The duty to defend “does not hinge on the insured’s potential liability to the claimant, but on whether the complaint alleges any facts rendering the insurer liable to the insured under the policy language.” Aetna Cas. & Sur. Co. v. M&S Indus., 64 Wn. App. 916, 927-28, 827 P.2d 321 (1992). The complaint should be construed liberally in favor of recognizing the duty to defend. Id. at 928. Here, the complaint alleged that PCBs were deposited in the soil *442during the period covered by the policy and that Spokane Transformer was strictly liable. These allegations, if proved, would be sufficient to trigger the duty to indemnify. Thus, they trigger the duty to defend.
If the complaint alleges liability that falls unequivocally within an exclusion, the duty to defend is excused. Baugh Constr. Co. v. Mission Ins. Co., 836 F.2d 1164, 1168 (9th Cir. 1988) (applying Washington law). The insurer conceded that coverage issues are not unambiguous but are fairly debatable:
Here, this court knows from its own experience addressing Consolidated’s Renewed Motion for Summary Judgment and the plaintiffs’ Motion for Reconsideration that the coverage issues involved are fairly debatable.
CP at 1009.
One exception to the rule that the duty to insure must be determined only from the complaint occurs when the complaint is ambiguous. If the duty to defend is not clear from the face of the complaint but cannot be ruled out, the insurer must investigate the claim in order to give the insured the benefit of the doubt in determining whether the insurer has an obligation. See Ins. Co. of N. Am. v. Ins. Co. of Pa., 17 Wn. App. 331, 334, 562 P.2d 1004 (1977). However, this rule assists only the insured, not the insurer, and there is no ambiguity in the complaint at issue.
The triggering event for the duty to defend is the filing of the complaint. Griffin v. Allstate Ins. Co., 108 Wn. App. 133, 138, 29 P.3d 777 (2001), modified on denial of recons., 36 P.3d 552 (Wash. Ct. App. Oct. 9, 2001). The duty 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.” Unigard Ins. Co. v. Leven, 97 Wn. App. 417, 425, 983 P.2d 1155 (1999). Even when the contract requires the insured to tender as a condition precedent to the duty to defend, a breach of the insured’s duty to tender does not relieve the insurer of its duty absent prejudice. See Or. Auto. Ins. Co. v. Salzberg, 85 *443Wn.2d 372, 376-77, 535 P.2d 816 (1975). Once a tender is made, the duty is unequivocal. See, e.g., Unigard Ins. Co., 97 Wn. App. at 427. Thus, the duty began at the latest when Overton tendered defense of the Gisselbergs’ suit to Industrial Indemnity and Consolidated.
An insurer’s duty to defend is a continuing one, and does not end until the underlying action is resolved or it is shown that there is no potential for coverage. 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance § 200:29 (3d ed. 1999). Washington courts have held that the duty continues until a judgment or settlement has been reached with the injured party or the permission of the insured has been obtained to forgo the duty. Viking Ins. Co. v. Hill, 57 Wn. App. 341, 348, 787 P.2d 1385 (1990). Other jurisdictions are in accord. See, e.g., Samply v. Integrity Ins. Co., 476 So. 2d 79 (Ala. 1985); Conway v. Country Cas. Ins. Co., 92 Ill. 2d 388, 442 N.E.2d 245, 65 Ill. Dec. 934 (1982); Delaney v. Vardine Paratransit, Inc., 132 Misc. 2d 397, 504 N.Y.S.2d 70 (1986).
Insurers argue that because they knew that Overton was aware of the PCB contamination well before buying insurance, a reasonable interpretation of the policy led to the conclusion that the property damage was either expected or intended by the insured. However, the complaint described a covered event and Overton denied he either expected or intended harm. Therefore, the insurer had a duty to defend until it obtained a judicial determination that it had no duty to defend. Here, there was a five-year delay between the time that the insurer received the tender of defense and it obtained its order on summary judgment. It breached its duty to defend.
The insurer could have avoided the problem by defending under a reservation of rights or seeking a declaratory judgment that it had no duty to defend, or both. See Grange Ins. Co. v. Brosseau, 113 Wn.2d 91, 93-95, 776 P.2d 123 (1989). Instead, it did nothing. A reservation of rights is a means by which the insurer avoids breaching its duty to defend while avoiding waiver and estoppel. “When that *444course of action is taken, the insured receives the defense promised and, if coverage is found not to exist, the insurer will not be obligated to pay.” Kirk v. Mt. Airy Ins. Co., 134 Wn.2d 558, 563 n.3, 951 P.2d 1124 (1998).
If an insurer unreasonably refuses its duty to defend, it has acted in bad faith. Transcon. Ins. Co. v. Wash. Pub. Utils. Dists.’ Util. Sys., 111 Wn.2d 452, 470, 760 P.2d 337 (1988). Bad faith can be found even where, as the majority finds here, an insurer is later found to have correctly denied indemnification coverage. Coventry Assocs. v. Am. States Ins. Co., 136 Wn.2d 269, 279, 961 P.2d 933 (1998). However, if the insurer denies coverage based on a reasonable interpretation of the policy, it does not act in bad faith. Kirk, 134 Wn.2d at 560. Insurers argue that because they knew that Overton was aware of the PCB contamination well before buying coverage, a reasonable interpretation of the policy led to the conclusion that the exclusion for existing known damage applied. If, as the insurer seems to have conceded, the coverage issues were “fairly debatable,” this argument fails.
An insurer who breaches the duty to defend must put its insured in as good a position as he or she would have been in had the contract not been breached. Greer v. N. W. Nat'l Ins. Co., 109 Wn.2d 191, 202-03, 743 P.2d 1244 (1987). Recoverable damages include: (1) the amount of expenses, including reasonable attorney fees, the insured incurred in defending the underlying action, and (2) the amount of the judgment entered against the insured. Greer, 109 Wn.2d at 202. The duty to defend, which was triggered by the tender of defense in 1994, does not terminate until there is a conclusive determination that there was no “occurrence” under the policy. The costs of the defense from 1994 until that point must be borne by the insurer.
Consolidated breached its duty to defend a potentially covered occurrence. Therefore, I respectfully dissent and *445would remand to the trial court for further proceedings consistent with this opinion.
Johnson, Ireland, and Bridge, JJ., concur with Chambers, J.
Reconsideration denied April 17, 2002.

 I note that the insurance policies were purchased in 1977, 3 years before the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. §§ 9601-9675, was enacted, and 11 years before the voters of this State approved the law forming the basis for the underlying claim, MTCA. We must not forget that the legal landscape was significantly different in 1977.