United States Fidelity and Guaranty Company v. Ulbricht, 2:20-cv-00369

Background

In 2018 Robert Ulbricht sued PM Northwest for asbestos-related mesothelioma allegedly caused by work in the 1970s–80s; trial was expedited and mediation occurred in July 2018.
PM Northwest could not locate old USF&G policies initially; its office manager (Huntley) located certificates of insurance and a policy number in July 2018 and provided them to USF&G.
PM Northwest and the Ulbrichts entered a stipulated settlement/judgment for $4.5 million filed Aug. 3, 2018; King County Superior Court approved its reasonableness; USF&G later paid $2.5 million on May 1, 2019.
USF&G then sought declarations that its total available limits were $2.5 million and that it had not acted in bad faith; PM Northwest and the Ulbrichts counterclaimed for breach of contract, bad faith, IFCA, and CPA violations.
Cross-motions for summary judgment and a sealing motion were filed; parties disputed (a) whether missing policies could be reconstructed and under what burden, (b) whether the certificates triggered a duty to defend, (c) whether USF&G acted in bad faith and is estopped from denying coverage beyond limits, and (d) applicability/remedies under IFCA/CPA.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Can defendants reconstruct missing USF&G policies and what burden applies?	USF&G: defendants are estopped by earlier spoliation findings and, regardless, must meet a clear, cogent and convincing standard.	Defendants: preponderance standard should apply to reconstruct policies.	Court: reconstruction permitted under Fed. R. Evid. 1004; Washington law requires clear, cogent, and convincing proof of lost instruments, so defendants bear that high burden; but triable issues remain so summary judgment denied on inability-to-prove-the-terms claim.
Did certificates of insurance trigger USF&G’s duty to defend?	USF&G: certificates insufficient; it was reasonable to await full policy files before defending.	Defendants: certificates (with policy numbers, dates, limits) made coverage conceivable and triggered a duty to defend under Washington law.	Court: certificates provided enough to make coverage "conceivable;" USF&G’s refusal to defend based on waiting for full policies was unreasonable and in bad faith; court granted partial summary judgment finding breach of duty to defend.
Remedy — coverage by estoppel for unsatisfied covenant judgment?	USF&G: denies estoppel; argues any procedural regulatory violations cannot support substantive estoppel remedy.	Defendants: USF&G’s bad faith denial caused harm; estoppel should prevent USF&G from denying coverage for unsatisfied judgment portion.	Court: because USF&G acted in bad faith and did not rebut presumption of harm, coverage by estoppel applies; USF&G estopped from denying coverage for the unsatisfied amount.
IFCA/CPA claims and measure of "actual damages" under IFCA	USF&G: IFCA does not reach third-party insurance claimants and, in any event, it did not violate IFCA/CPA; the covenant judgment does not automatically measure IFCA actual damages.	Defendants: IFCA applies to third-party policies where the first-party insured has assigned rights; USF&G’s conduct violated IFCA/CPA and defendants may recover enhanced damages.	Court: IFCA can apply to third-party insurance (with an assigned first-party claimant); USF&G’s summary judgment granted as to claims about unpaid post-judgment interest and certain misrepresentations (because USF&G paid interest and gave written reservation); but denied as to IFCA/CPA claims premised on the bad-faith investigation/defense refusal. Covenant judgment does not automatically equate to IFCA "actual damages;" plaintiffs may prove proximate IFCA damages at trial.

Key Cases Cited

Kamakana v. City & Cty. of Honolulu, 447 F.3d 1172 (9th Cir. 2006) (standard for sealing court records; compelling reasons required).
American Best Food, Inc. v. Alea London, Ltd., 229 P.3d 693 (Wash. 2010) (duty to defend is broader than duty to indemnify; defend if any reasonable interpretation could give coverage).
Queen City Farms, Inc. v. Cent. Nat. Ins. Co. of Omaha, 882 P.2d 703 (Wash. 1994) (clear and convincing standard for proving certain lost instruments).
City of Tacoma v. Great Am. Ins. Companies, 897 F. Supp. 486 (W.D. Wash. 1995) (secondary/circumstantial evidence can establish terms of lost insurance policies).
Mut. of Enumclaw Ins. Co. v. Dan Paulson Const., Inc., 169 P.3d 1 (Wash. 2007) (presumption of harm where insurer acted in bad faith; coverage-by-estoppel principles).
Truck Ins. Exch. v. Vanport Homes, Inc., 58 P.3d 276 (Wash. 2002) (coverage-by-estoppel and insurer liability beyond policy limits when insurer acts in bad faith).
St. Paul Fire & Marine Ins. Co. v. Onvia, Inc., 196 P.3d 664 (Wash. 2008) (insurer’s duty to act promptly in communication and investigation; regulatory duties inform bad-faith analysis).
Celotex Corp. v. Catrett, 477 U.S. 317 (1986) (summary judgment standard and burdens).