The Charter Oak Fire Insurance Company v. Zurich American Insurance Company, 2:21-cv-01344

Background:

Underlying wrongful-death suit in King County (Wiiest v. Tafa) alleges plaintiff was struck in a Sound Transit construction zone; general contractor PCL and electrical subcontractor Elcon were defendants.
Elcon (insured by Charter Oak) was dismissed without prejudice from the underlying case after discovery; dismissal did not produce a final adjudication of fault.
PCL (insured by Zurich) and Sound Transit are additional insureds under the Charter Oak policy only to the extent any injury was caused by Elcon’s acts or omissions; Zurich issued a policy naming PCL and adding Sound Transit as an additional insured under its own policy.
Zurich initially defended PCL and Sound Transit, tendered defense to Charter Oak when Charter Oak’s additional-insured coverage was discovered; Charter Oak defended for a period and seeks reimbursement for those defense costs.
Charter Oak filed this declaratory judgment action against Zurich seeking (among other relief) a declaration it owes no duty to defend/indemnify PCL and Sound Transit and recovery for contribution/subrogation of defense costs.
Zurich moved to stay the Coverage Dispute pending resolution of the Underlying Action, arguing a parallel coverage adjudication risks prejudicing the insureds’ defenses; Magistrate Judge Tsuchida recommends granting the stay.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether to stay the coverage declaratory action pending the underlying wrongful-death suit	Stay unnecessary; this is a routine contribution/subrogation dispute and will not affect duty to defend/indemnify	Stay necessary to avoid prejudicing insureds; litigating fault in coverage action could harm underlying defenses	Stay recommended/granted until further order
Whether Elcon’s dismissal without prejudice establishes Elcon was not at fault (and thus no additional-insured coverage)	Dismissal and "extensive discovery" show Elcon not liable	Dismissal without prejudice is not a final adjudication; refiling possible and it does not resolve causation	Dismissal without prejudice is not dispositive; coverage/fault issues must await the underlying action
Whether resolving coverage now would prejudice insureds or risk insurer bad-faith liability	No meaningful prejudice; Charter Oak already paid costs and can seek reimbursement later	Proceeding risks forcing insureds to concede or produce evidence harmful to their defense; could expose insurer to bad faith	Court finds significant risk of prejudice and that a stay avoids interference with underlying defenses
Whether delay in Charter Oak’s ability to recover defense costs justifies denying a stay	Delay prejudices Charter Oak and recovery can be simple via negotiation	Zurich resumed defense, burden on Charter Oak is minimal; recovery can be pursued after underlying resolution	Delay in recovery is insufficient hardship to overcome prejudice concerns; stay appropriate

Key Cases Cited

Landis v. North Am. Co., 299 U.S. 248 (1936) (district courts have discretion to stay cases to manage their dockets and balance competing interests)
CMAX, Inc. v. Hall, 300 F.2d 265 (9th Cir. 1962) (factors to weigh when exercising stay discretion)
Mediterranean Enters. v. Ssangyong Corp., 708 F.2d 1458 (9th Cir. 1983) (affirming district court discretion to stay proceedings)
Hayden v. Mut. of Enumclaw Ins. Co., 141 Wn.2d 55 (Wash. 2000) (distinguishing duty to defend and duty to indemnify under Washington law)
Truck Ins. Exch. v. VanPort Homes, 147 Wn.2d 751 (Wash. 2002) (liberal construction of complaint to determine duty to defend)
Unigard Ins. Co. v. Leven, 97 Wn. App. 417 (Wash. Ct. App. 1999) (standards for duty to defend analysis)
Am. Best Food, Inc. v. Alea London, Ltd., 168 Wn.2d 398 (Wash. 2010) (insurer must defend until it is clear claim is not covered)
Mut. of Enumclaw Ins. Co. v. Dan Paulson Constr., Inc., 161 Wn.2d 903 (Wash. 2007) (insurer may not act in ways that prioritize monetary interest over insured’s defense; potential for bad-faith exposure)
Wachovia SBA Lending v. Kraft, 138 Wn. App. 854 (Wash. Ct. App. 2007) (dismissal without prejudice is not a final adjudication)