WA Fed Court: "Spin, Massage, Speculation and Sophistry" Do Not Create Duty to Defend

In Wargacki v. Western National Assurance Co. Judge Leighton of the Western District of Washington held that a homeowner's carrier had no duty to defend a civil suit where the insured shot his pregnant girlfriend, and then shot himself - despite the allegation in the complaint that the boyfriend acted "either negligently, intentionally or recklessly" and that the shooting was "at least negligent."

The court held that the allegation that the shooting was negligent and thus not barred by the intentional acts exclusion was not plausible, and characterized the girlfriend's estate's argument as "spin, massage, speculation or sophistry."  Although this decision appears rooted in common sense, it appears to be inconsistent with Washington law on the burden of proof in the duty-to-defend situation.  The court took the plaintiff to task for failing to allege any facts that would have supported the shooting being negligent, rather than intentional.  But that was not the plaintiff's burden.  Under Washington law, as under the law in most states, the duty to defend is based only on what is pled in the complaint.  If the complaint itself is compliant with court rules on factual pleading, it is simply not up to the judge in a coverage case to fault the plaintiff for not pleading more.  If the complaint could allow the presentation of evidence to support a covered loss (such as proof that the shooting was negligent), then there should be a duty to defend.

That is not to say that the decision was necessarily incorrect.  The plaintiff's complaint alleged not only negligence but also in the same claim the tort of outrage, which (according to the judge) requires intent.  If the decision had relied on that pleading, then the decision might be easier to reconcile with Washington law.  However, the decision only cites that fact as further evidence that there was no duty to defend.

This decision highlights the importance of careful analysis of coverage issues before embarking on any kind of litigation and when crafting an opening pleading, but also the importance of the burden of proof in coverage disputes.  It is not "sophistry" or "spin" to plead in the alternative where the facts are reasonably in dispute and as a result different legal theories may be implicated.  Forensic science and life experience teach us that our gut-level beliefs about such things as motive and causation are often incorrect.  Courts should recognize that and approach duty-to-defend questions accordingly.

Ore. Appeals Court Important Holding on Construction Indemnity Agreements

Just as the ball began to fall in New York to herald the New Year Oregon's Court of Appeals issued an important ruling on contractual indemnity agreements in construction contracts.  The decision isn't directly on insurance coverage, but is important because of the overlap between additional insured issues, contractual indemnity, and Oregon's "anti-indemnity" statute (ORS 30.140).  The progress of the case, Sunset Presbyterian Church v. Andersen Construction, has been closely watched because the trial court issued a written decision, one of the few on this subject.

Here is a bit of background: a  new addition to the church suffered from many problems, involving the work of several subcontractors (including one called "B&B"), as well as the general contractor, Andersen.  Andersen's form subcontract included a broad indemnity provision requiring all subcontractors to defend Andersen if suit was brought on the project.  Therefore, Andersen tendered the suit to its subcontractors.  B&B refused the tender.  Andersen settled with the owner, and assigned to the owner its claims against B&B for breach of the duty to defend.  The owner moved for summary judgment on the duty to defend, and prevailed.  However, the trial court awarded the church (as Andersen's assignee) no damages, because the church could not prove how much time Andersen's lawyers had spent dealing with the claims involving B&B's alleged negligence, as opposed to its own negligence or the negligence of other subcontractors.  The trial court relied on Oregon's anti-indemnity statute (ORS 30.140) -- which only applies to construction contracts -- as the basis for putting the burden on the church /Andersen to allocate the defense costs.  (I analyzed the trial court's ruling in more detail in an article for the June 2013 newsletter of the OSB Construction Law Section, available here,)

The church appealed, arguing that the statute did not require that kind of allocation for various reasons, including that the standard applied in the insurance "duty to defend" context should apply to the duty to defend in a contractual indemnity provision.  As a matter of insurance law, an insurer has a duty to defend all claims -- even claims that are not potentially covered -- if any one claim in a suit triggers the duty to defend.  The insurer may not allocate its defense costs based on covered versus uncovered claims.  The Court of Appeals rejected that argument as to ORS 30.140 (and all of the church's other arguments) based on the court's analysis of the legislative history.  However, the Court of Appeals did not reach many of the practical issues presented by the case, finding them moot because of the church's failure to even try to meet the burden of proof articulated by the trial court.  (See the Construction Law Section newsletter article mentioned above for an explanation of those issues).  The case was sent back to the trial court for additional proceedings including (potentially) an award to B&B of its attorney fees, since the Court of Appeals reversed the trial court as to who was the prevailing party.

The general take away is this: if a general contractor (or the GC's insurer) wants to recover its defense costs from a subcontractor that refuses to pick up the defense, it must require its law firm to write time descriptions in such a way that a court can later determine how much time was spent on the negligence of each subcontractor.  Of interest to readers of this blog, that requirement will likely lead to all kinds of issues between GC's and their insurers about management of the defense, and also may complicate additional insured claims on subcontractors, involving coverage counsel for the subcontractors.  Happy New Year!