First National Insurance, Resp. v. Mark & Carol Decoursey, Pets.

fiLEO
COURT OF APPEALS Di¥ I
STATE OF WASHINGTON
2013 APR 29 AH 10-15
IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE
FIRST NATIONAL INSURANCE No. 67906-6-
COMPANY OF AMERICA, an
Indiana corporation,
Respondent,
MARK DECOURSEY AND CAROL
DECOURSEY, husband and wife,
Appellants,
V&E MEDICAL IMAGING, INC., a
Washington dissolved corporation;
AUTOMATED HOME SOLUTIONS,
INC., a Washington dissolved UNPUBLISHED OPINION
corporation,
Defendants. FILED: April 29, 2013
Verellen, J. — Mark and Carol DeCoursey appeal the trial court's grant of
summary judgment to First National Insurance Company of America, contending First
National had a duty to pay the default arbitration award the DeCourseys obtained
against V&E Medical Imaging, Inc. An insurer has no duty to pay if its insured untimely
tenders a suit, provided the insurer can prove actual and substantial prejudice from the
late tender. First National did not receive a proper tender of either the DeCourseys'
counterclaim against V&E or the ensuing arbitration of the counterclaim. First National
No. 67906-6-1/2
has demonstrated it was actually and substantially prejudiced as a matter of law by the
late tender, as it could not assert defenses to the DeCoursey's liability claims or pursue
its defenses to coverage. We affirm.
BACKGROUND
The DeCourseys' Lawsuit
In 2003, Automated Home Solutions, Inc. (AHS, Inc.) sold its assets, including
the trade name of Automated Home Solutions, to V&E Medical Imaging Inc., d/b/a
Automated Home Solutions (V&E). AHS, Inc. dissolved in January 2004. In 2004, the
DeCourseys hired V&E to perform electrical work at their house in Redmond.1 V&E was
already operating under the Automated Home Solutions trade name.
On March 29, 2006, V&E sued the DeCourseys in King County District Court for
nonpayment.2 The DeCourseys counterclaimed,3 asserting V&E damaged their home
and did not complete the project.4 Before the case went to trial, the court ordered the
parties to arbitrate the DeCourseys' counterclaim. V&E's counsel withdrew, and V&E
went out of business.
The arbitration took place in May 2010. V&E did not appear. On May 11, 2010,
the arbitrator awarded the statutory maximum of $50,000 in damages to the
DeCourseys, as well as $41,000 in fees and costs. After the court entered the
1According to the DeCourseys, they contracted directly with V&E for some of the
work, and their general contractor hired V&E for other work.
2The case was removed to King County Superior Court in August 2006.
3 The date of the second amended answer and counterclaims is May 22, 2006.
4 In the same lawsuit, the DeCourseys also asserted claims against the general
contractor and their real estate agent. The DeCourseys prevailed on their claim against
the agent, obtaining approximately $1 million in damages.
No. 67906-6-1/3
arbitration award, the DeCourseys, standing in the shoes of V&E, sought to execute on
the judgment by pursuing First National.
Notice to First National
First National issued a commercial general liability policy to AHS, Inc. with a
policy period of June 2004 through June 2005.5 The policy states "[t]he following is a
complete list of the named insureds" and then lists one insured, "Automated Home
Solutions Inc."6 When the DeCourseys asserted their counterclaim against V&E in May
2006, V&E did not tender the claim to First National. When the court ordered V&E and
the DeCourseys to arbitrate the DeCourseys' counterclaims, V&E did not notify First
National of the decision.
In April 2010, the DeCourseys contacted Bordelon Insurance, the agency that
had placed the commercial general liability coverage with First National, to inquire
whether AHS had an insurance policy. Bordelon then contacted First National and
explained the existence of a claim against "AHS" by the DeCourseys. First National's
claims office issued a claim number. On April 23, 2010, Travis Tonn of First National
spoke with Lester Ellis, the registered agent for V&E. Ellis mentioned a possible
lawsuit, but told Tonn he had no information about an active lawsuit. Ellis also told
5AHS, Inc. dissolved in January 2004 but, as a dissolved corporation, it could be
sued after dissolution. See RCW 23B. 14.340
6Clerk's Papers at 90. We need not resolve the parties' lengthy debate whether
the insured could have been V&E Medical Imaging Inc. d/b/a AHS, rather than AHS,
Inc. The only issue on appeal is whether the late tender under the subject policy
prejudiced First National.
No. 67906-6-1/4
Tonn he had received an arbitration notice but instructed First National "not to
investigate."7
In late May, Ryan Anderson of First National assumed responsibility for the AHS,
Inc. file. On June 4, Anderson contacted the DeCourseys about their claim. The
DeCourseys responded via letter, requesting information about AHS's coverage, but did
not mention the lawsuit or the arbitration.
In early July 2010, the DeCourseys sought the aid of the Office of the Insurance
Commissioner (Commissioner) to prompt First National to pay the DeCourseys'
arbitration award. On July 14, 2010, two months after the entry of the arbitration award,
First National received a call from the Commissioner concerning the DeCourseys'
complaint and the arbitration award. The Commissioner then forwarded the
DeCourseys' letter to First National, along with the copy of the arbitration award. First
National received the order entering the arbitration award on July 23, 2010.
The Declaratory Judgment Action
First National filed this declaratory judgment action in October 2010 to resolve its
responsibility to pay the arbitration award. The DeCourseys counterclaimed,
contending First National had a duty to pay. The parties filed cross motions for
summary judgment. First National contended it was entitled to judgment, as it had not
received notice of the suit until after entry of the arbitration award, prejudicing it as a
matter of law. The court granted First National's motion and denied the DeCourseys'
motion. The court also denied the DeCourseys' motion for reconsideration.
7Clerk's Papers at 243.
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The DeCourseys also argued First National had not timely answered their
counterclaim for declaratory judgment and moved to strike. On the same day the court
granted summary judgment to First National, the court denied the DeCourseys' motion
to strike, finding that "First National's Answer to Defendant's Counterclaims is not an
amendment of Plaintiffs complaint."8
Representing themselves, the DeCourseys appeal.9
DISCUSSION
We review an order granting summary judgment de novo.10 Acourt may grant
summary judgment if the record presents no genuine issue of material fact and the law
entitles the moving party to judgment.11 The court views all facts and draws all
reasonable inferences in the light most favorable to the nonmoving party.12 We may
affirm an order granting summary judgment on any basis supported by the record.13
Even if an insured breaches a notice provision of an insurance policy, the insurer is not
relieved of its duties under the policy unless it shows the late tender caused it actual
8Clerk's Papers at 885.
9The DeCourseys moved for discretionary review, and this courtdetermined
that, under RAP 2.2(a), it would treat the motion as a notice of appeal.
10 Mut. of Enumclaw Ins. Co. v. USF Ins. Co., 164 Wn.2d 411. 418, 191 P.3d 866(2008). Although the trial court entered findings, they are superfluous on appeal.
Hubbard v. Spokane County. 146 Wn.2d 699, 706 n.14, 50 P.3d 602 (2002) ("Although
the trial court entered findings of fact, because summary judgment motions are
reviewed de novo, these findings are superfluous and need not be considered.").
11 CR 56(c); USF Ins. Co.. 164 Wn.2d at 418.
12 USF Ins. Co.. 164 Wn.2d at 418.
13 LaMon v. Butler. 112Wn.2d 193, 200-01, 770 P.2d 1027(1989).
No. 67906-6-1/6
and substantial prejudice.14 The DeCourseys claim the court erred by granting
summary judgment to First National, contending First National received timely tender of
their counterclaim and was therefore not prejudiced by late notice.
We note at the outset of our discussion that because the DeCourseys sought to
enforce AHS, Inc.'s rights under the First National policy, the DeCourseys are subject to
any defense that First National could raise against the insured. They are "chargeable
with any breach of condition as well as failure of proof of facts on which liability
depends."15
Notice and Tender
The First National policy includes, as a condition of coverage, a cooperation
clause, which requires the insured to give notice of a suit immediately:
b. If a claim is made or "suit" is brought against any insured, you must:
(2) notify us as soon as practicable. You must see to it that we
receive written notice of the claim or "suit" as soon as practicable.
c. You ... must:
(1) Immediately send us copies of any demands, notices,
summonses or legal papers received in connection with the claim
or "suit."1161
The notice provisions in an insurance contract exist because an "insurer cannot be
expected to anticipate when or if an insured will make a claim for coverage; the insured
14 USF Ins. Co.. 164 Wn.2d at 426; Griffin v. Allstate Ins. Co.. 108 Wn. App. 133,
140, 29 P.3d 777 (2001).
15 Burr v. Lane, 10 Wn. App. 661, 670-71, 517 P.2d 988 (1974): see also Atlantic
Cas. Ins. Co. v. Oregon Mut. Ins. Co., 137 Wn. App. 296, 304-05, 153 P.3d 211 (2007).
16 Clerk's Papers at 320.
No. 67906-6-1/7
must affirmatively inform the insurer that its participation is desired."17
The DeCourseys contend First National received notice of their counterclaim
before arbitration. The DeCourseys' arguments rest on assertions unsupported by the
record. They first argue First National should have known of the suit and ensuing
arbitration, or could have taken steps to seek information about the lawsuit. The law
does not impose such a duty on an insurer to seek out information regarding the
existence ofa lawsuit against the insured.18
The DeCourseys also relied on call logs they had allegedly obtained from
Bordelon which show that Bordelon had received a subpoena from the DeCourseys
requesting production of the AHS file, and that First National had issued a claim number
to Bordelon before the arbitration date pertaining to the DeCourseys. The trial court
excluded the call logs as hearsay, and because the DeCourseys could not authenticate
them. Even if the call logs were admissible, the content of the logs does not
demonstrate that either Bordelon or First National received timely tender of the lawsuit
or ensuing arbitration by the DeCourseys, as required under the policy.
First National, on the other hand, set forth undisputed evidence that the
DeCourseys' lawsuit was tendered on July 14, well after the arbitration proceeding,
when the Commissioner called First National and forwarded the suit papers and
17 Griffin. 108 Wn. App. at 140.
18 USF Ins. Co.. 164 Wn.2d at 421 ("'An insurer cannot be expected to anticipate
when or if an insured will make a claim for coverage; the insured must affirmatively
inform the insurer that its participation is desired.") (quoting Griffin. 108 Wn. App. 140).
"The duties to defend and indemnify do not become legal obligations until a claim for
defense or indemnity is tendered." \± Further, the insurance contract itself required the
insured to "[ijmmediately send us copies of any demands, notices, summonses or legal
papers received in connection with the claim or 'suit.'" Clerk's Papers at 320.
No. 67906-6-1/8
arbitration award. Even though Ellis spoke with Tonn on April 23, 2010 and mentioned
an arbitration, Ellis gave insufficient detail for the conversation to function as a tender of
the DeCourseys' counterclaim. Further, Ellis instructed Tonn not to investigate. The -
record demonstrates that First National received notice of the counterclaim after entry of
the arbitration award, leaving no genuine issue of material fact concerning late tender.
Prejudice
An insurer is not relieved of its duties under the policy unless it shows the late
notice caused it actual and substantial prejudice.19 The existence of prejudice caused
by late notice is typically a question offact.20 The insurer has the burden ofproving
actual and substantial prejudice from the breach.21 The insurer must prove that an
insured's breach of a notice provision had an identifiable and material detrimental effect
on its ability to defend its interests,22 including its ability to "evaluate or present its
defenses to coverage or liability."23
Courts may find prejudice as a matter of law ifthe insurer could have eliminated
liability if given timely notice.24 "[I]f the insurer claims that its own counsel would have
defended differently, it must show that its participation would have materially affected
19 USF Ins. Co.. 164 Wn.2d at 426; Griffin. 108 Wn. App. at 140.
20 USF Ins. Co.. 164 Wn.2d at 427.
21 Id,
22 jU at 430.
23 Canron. Inc. v. Fed. Ins. Co.. 82 Wn. App. 480, 491-92, 918 P.2d 937 (1996);
see also USF Ins. Co.. 164 Wn.2d at 430.
24 USF Ins. Co.. 164 Wn.2d at 430 (discussing other circumstances that indicate
prejudice as a matter of law); Unigard Ins. Co. v. Leven. 97 Wn. App. 417, 427, 983
P.2d 1155 (1999) (insurer was prejudiced as a matter of law by inability to argue its
insured was not a potentially liable party under the Model Toxics Control Act, chapter
70.105D RCW).
8
No. 67906-6-1/9
the outcome, eitheras to liability or the amount ofdamages."25 V&E was not
represented at arbitration, either by itself, by defense counsel of its choosing, or by
insurer-appointed counsel. If, for instance, the DeCourseys' counterclaim and
arbitration award could be characterized properly as against AHS, Inc., rather than V&E,
First National was prevented from asserting a liability defense based on
RCW 23B. 14.340. That statute provides that a Washington corporation has no capacity
to sue or be sued two years after dissolution.26 AHS, Inc. dissolved on January 20,
2004, and the DeCourseys asserted their counterclaims in April 2006.27
V&E's failure to appear at arbitration also prejudiced First National's ability to
investigate and develop its coverage defenses. First National highlights various policy
provisions that could preclude coverage for the damage claimed by the DeCourseys,
but which it did not have the opportunity to timely investigate before entry of the
arbitration award. The DeCourseys' counterclaim alleged that V&E failed to complete
its electrical work. First National contends the DeCourseys' allegations of improper
work do not constitute "property damage" caused by an "occurrence" as those terms are
defined in its policy. First National also points to the possible applicability of the
25 USF Ins. Co.. 164 Wn.2d at 430.
26 RCW 23B.14.340 (providing a two-year window to sue and be sued for
corporations with a dissolution date prior to June 7, 2006).
27 First National also relies upon the proposition that V&E's agreement to
arbitrate the DeCourseys' counterclaims prejudiced it as a matter of law. This court in
MacLean Townhomes. LLC v. Am. States Ins. Co.. held that an insured's unilateral
agreement to binding arbitration constituted prejudice as a matter of law because
"[g]iven the extremely limited scope of available judicial review, the agreement removed
judicial remedies that the insurer might have had." 138 Wn. App. 186,189, 156 P.3d
278 (2007). We do not reach this argument, as it appears from the record that the
parties were subject to mandatory arbitration under chapter 7.06 RCW rather than
under the Uniform Arbitration Act, chapter 7.04 RCW, as in MacLean.
No. 67906-6-1/10
exclusion for damage to the insured's own work. More fundamentally, First National
also notes the question of whether the alleged damage occurred within the policy
period.
Finally, First National highlights the ambiguity in the judgment on which the
DeCourseys sought to execute. The judgment describes the judgment debtor as "V&E
Medical Imaging Services, Inc., aka Automated Home Solutions, a Washington
Corporation (also known and doing business under the names .. . "Automated Home
Solutions, Inc.").28 As First National correctly notes, if AHS, Inc., the named insured on
the policy, and V&E are in fact distinct entities, and the judgment is against V&E, First
National insures only AHS, Inc., and there is a viable defense that First National would
not be liable for a judgment against V&E.29
The record unambiguously demonstrates that, as a result of the late notice, First
National could not assert liability defenses on behalf its insured, nor could it investigate
and develop its own coverage defenses. First National was entitled to summary
judgment, as it met its burden to demonstrate the late notice prejudiced it as a matter of
law.
Motion to Strike
The DeCourseys argue the trial court erred in declining to strike First National's
answer to their counterclaims. The DeCourseys asserted their counterclaims on
28 Clerk's Papers at 423.
29 As we noted above, the issue of whether V&E was a covered entity under the
First National policy is not before us; rather, we note the identity of the insured was a
viable potential defense to coverage. The First National policy lists AHS, Inc. as the
only insured. While V&E did business under the trade name Automated Home
Solutions, V&E and AHS, Inc. never merged. V&E and AHS, Inc. were always distinct
corporate entities. The policy identifies only AHS, Inc. as the insured.
10
No. 67906-6-1/11
January 12, 2011, and First National answered on September 16, 2011. CR 12(a)(4)
provides that "the plaintiff shall serve his reply to a counterclaim in the answer within 20
days after service of the answer." First National did not comply with CR 12(a)(4).
However, the DeCourseys did not file a motion for entry of default under CR 55(a)(1),
the recourse available to litigants if an opposing party fails to respond to a claim.
CR 55(a)(2) provides "[i]f the party has appeared before the motion [for entry of default]
is filed, he may respond to the pleading or otherwise defend at any time before the
hearing on the motion."30 The court did not err in denying the DeCoursey's motion to
strike.
Affirmed.
£\A* ^
WE CONCUR:
30 The DeCourseys argue the court should have applied CR 15, but that rule
applies only to amended pleadings, as the trial court recognized: "First National's
Answer to Defendant's Counterclaims is not an amendment of Plaintiffs complaint."
Clerk's Papers at 885.
11