[No. 55867-6-I. Division One. December 12, 2005.]
THE DEPARTMENT OF CORRECTIONS , in Its Own Capacity and as Assignee , Appellant , v. FLUOR DANIEL , INC . ET AL ., Respondents .
[1] Appeal - Review - Issues of Law - Standard of Review. An appellate court reviews issues of law de novo.
[2] Interest - Prejudgment Interest - Liquidated Claim - Arbitration Award. An arbitration award that has not been reduced to judgment does not constitute a liquidated sum for purposes of awarding prejudgment interest.
Nature of Action: The prevailing party in a dispute submitted to arbitration sought confirmation of the arbitration award, entry of judgment, and prejudgment interest from the date of the arbitration award.
Superior Court: The Superior Court for King County, No. 01-2-30874-2, William L. Downing, J., on February 8, 2005, entered a judgment on the arbitration award and an order awarding prejudgment interest from the date of the arbitration award.
Court of Appeals: Holding that the arbitration award did not constitute a liquidated sum entitling the prevailing party to prejudgment interest, the court reverses the order awarding prejudgment interest and remands the case for entry of judgment in favor of the nonprevailing party on the issue of prejudgment interest.
Robert M. McKenna , Attorney General, and Douglas D. Shaftel , Assistant, for appellant .
Richard M. Stanislaw and Christopher Wright (of Stanislaw Ashbaugh, L.L.P. ), for respondents .
630 Dep't of Corr. v. Fluor Daniel, Inc. Dec. 2005
130 Wn. App. 629
¶1 COLEMAN, J. - Fluor Daniel, Inc. (Fluor), and the Department of Corrections (DOC) agreed to arbitration to settle their legal dispute. The arbitrator issued his decision, and Fluor moved the superior court to confirm the award and enter judgment. The superior court did so and awarded Fluor prejudgment interest dating back to the date of the arbitration decision.«1»The DOC appeals the prejudgment interest award. Because the arbitration decision did not constitute a fully liquidated sum entitling Fluor to prejudgment interest, we reverse and direct entry of judgment in favor of the DOC on the issue of prejudgment interest.
FACTS
¶2 Fluor and the DOC entered into a contract for the development of the Stafford Creek Corrections Center. A lawsuit arose between Fluor and the DOC. Before the suit went to trial, the two parties agreed to stay the litigation and submit their remaining disputes to binding arbitration.
¶3 Paragraph 8 of the arbitration agreement provided that once the arbitrator reached a decision, either party could submit the decision to the King County Superior Court and that the judgment would be final and binding once entered. The paragraph reads in full,
Once the Arbitrator issues a decision, either party may submit the decision to the King County Superior Court in the action now pending. The parties agree the judgment to be entered will be in full and complete compliance with the decision of the Arbitrator. Once said judgment is entered the judgment will be final and binding on Fluor and DOC. Fluor and DOC each waive any and all rights to appeal the Arbitration Award.
¶4 On January 18, 2005, the arbitrator issued his decision that Fluor was entitled to payment of approximately $6 million. Three days later Fluor moved for an order confirming the arbitration award and for entry of judgment.
«1»Both parties agree that the damages at issue in the arbitration were unliquidated, and Fluor does not seek prejudgment interest for the period prior to the arbitration award.
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In its motion, Fluor characterized the arbitrator's award as a liquidated sum and asked for prejudgment interest from the date of the arbitrator's award. The superior court granted Fluor's motion on February 8, 2005, and awarded prejudgment interest dating back to January 18. The DOC appeals.
ANALYSIS
[1]¶5 In this decision, we analyze whether the arbitrator's award was a fully liquidated sum entitling Fluor to prejudgment interest from the date of the arbitrator's decision or whether the award was instead analogous to a jury verdict. An appellate court reviews issues of law de novo. State v. Campbell , 125 Wn.2d 797 , 800, 888 P.2d 1185 (1995).
¶6 Washington's statutory code provides that a court generally may award interest only from the date of entry of the judgment. RCW 4.56.110 (4). Interest accrues from the date of a verdict only when a court is directed on review to enter judgment or when the judgment is affirmed on review. RCW 4.56.110 (4).
[2]¶7 The DOC argues that the arbitrator's award in this dispute was more akin to a jury verdict than a fully liquidated sum and that the trial court erred in awarding prejudgment interest. We agree. The Court of Appeals has held that in the context of the issue of collateral estoppel, an arbitration award is analogous to a jury verdict or an oral decision, instead of a judgment. Channel v. Mills , 61 Wn. App. 295 , 299-300, 810 P.2d 67 (1991).
In our judgment, an arbitration award is not the same thing as a final judgment of a court. We reach this conclusion primarily because Washington's statutory scheme for arbitration, RCW 7- .04[.010 et seq.], provides a rather elaborate process for the confirmation, vacation, correction or modification of an arbitration award in court and for the entry of a judgment which conforms with the court's final determination. RCW 7.04.150 , .160, .170, .180, .190. We can only conclude from a plain
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reading of these statutes that the Legislature did not consider an award in arbitration to be equivalent to a final judgment of a court. If it had it would have been unnecessary to provide a process to reduce the award to judgment. We conclude, therefore, that an award of arbitrators that has not been reduced to judgment pursuant to the statutory framework discussed above is not equivalent to a judgment. It is, in our view, more akin to a jury verdict or a trial court's memorandum opinion or oral decision, determinations which are not considered equivalent to a judgment.
Channel , 61 Wn. App. at 299 -300.
¶8 An arbitrator's award is analogous to a jury verdict in the context of this dispute as well. Until entry of judgment, a court may vacate a jury verdict in specialized circumstances as provided in CR 59(a).«2»A court also may request
«2»CR 59(a) provides: " Grounds for New Trial or Reconsideration. On the motion of the party aggrieved, a verdict may be vacated and a new trial granted to all or any of the parties, and on all issues, or on some of the issues when such issues are clearly and fairly separable and distinct, or any other decision or order may be vacated and reconsideration granted. Such motion may be granted for any one of the following causes materially affecting the substantial rights of such parties:
(1) Irregularity in the proceedings of the court, jury or adverse party, or any order of the court, or abuse of discretion, by which such party was prevented from having a fair trial;
(2) Misconduct of prevailing party or jury; and whenever any one or more of the jurors shall have been induced to assent to any general or special verdict or to a finding on any question or questions submitted to the jury by the court, other and different from his own conclusions, and arrived at by a resort to the determination of chance or lot, such misconduct may be proved by the affidavits of one or more of the jurors;
(3) Accident or surprise which ordinary prudence could not have guarded against;
(4) Newly discovered evidence, material for the party making the application, which he could not with reasonable diligence have discovered and produced at the trial;
(5) Damages so excessive or inadequate as unmistakably to indicate that the verdict must have been the result of passion or prejudice;
(6) Error in the assessment of the amount of recovery whether too large or too small, when the action is upon a contract, or for the injury or detention of property;
(7) That there is no evidence or reasonable inference from the evidence to justify the verdict or the decision, or that it is contrary to law;
(8) Error in law occurring at the trial and objected to at the time by the party making the application;
(9) That substantial justice has not been done."
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a party to consent to a reduction or increase in the damages awarded by a jury in lieu of a new trial. RCW 4.76.030 .«3»It is for these reasons that a jury verdict, even though for a specific sum, is not considered a fully liquidated amount. Kiessling v. Nw. Greyhound Lines, Inc., 38 Wn.2d 289 , 297, 229 P.2d 335 (1951).
¶9 Similarly, under Washington's arbitration statutes, an arbitration award is not a liquidated sum because the superior court may vacate, modify, or correct the award before entry of judgment under certain conditions described in RCW 7.04.160 «4»and RCW 7.04.170 .«5»It is true that the
«3»RCW 4.76.030 reads, "If the trial court shall, upon a motion for new trial, find the damages awarded by a jury to be so excessive or inadequate as unmistakably to indicate that the amount thereof must have been the result of passion or prejudice, the trial court may order a new trial or may enter an order providing for a new trial unless the party adversely affected shall consent to a reduction or increase of such verdict, . . . ."
«4»RCW 7.04.160 reads, "In any of the following cases the court shall after notice and hearing make an order vacating the award, upon the application of any party to the arbitration:
"(1) Where the award was procured by corruption, fraud or other undue means.
"(2) Where there was evident partiality or corruption in the arbitrators or any of them.
"(3) Where the arbitrators were guilty of misconduct, in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence, pertinent and material to the controversy; or of any other misbehavior, by which the rights of any party have been prejudiced.
"(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a final and definite award upon the subject matter submitted was not made.
"(5) If there was no valid submission or arbitration agreement and the proceeding was instituted without either serving a notice of intention to arbitrate, as provided in RCW 7.04.060 , or without serving a motion to compel arbitration, as provided in RCW 7.04.040 (1).
"An award shall not be vacated upon any of the grounds set forth in subdivisions (1) to (4), inclusive, unless the court is satisfied that substantial rights of the parties were prejudiced thereby.
" . . . ."
«5»RCW 7.04.170 provides, "In any of the following cases, the court shall, after notice and hearing, make an order modifying or correcting the award, upon the application of any party to the arbitration:
"(1) Where there was an evident miscalculation of figures, or an evident mistake in the description of any person, thing or property, referred to in the award.
"(2) Where the arbitrators have awarded upon a matter not submitted to them.
"(3) Where the award is imperfect in a matter of form, not affecting the merits of the controversy. The order must modify and correct the award, as to effect the intent thereof."
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130 Wn. App. 629
grounds for modifying, vacating, or correcting an arbitration award are narrower than the grounds for vacating or changing a jury verdict prior to entry of judgment. But the superior court's authority under the arbitration statutes to modify, vacate, or correct an award before entry of judgment means that an arbitration award, like a jury verdict, is not fully liquidated until the arbitrator's award is reduced to judgment.
¶10 Fluor contends that the decision in City of Moses Lake v. International Ass'n of Firefighters, Local 2052 , 68 Wn. App. 742 , 847 P.2d 16 (1993), supports its argument that an arbitration award does constitute a liquidated sum. In Moses Lake , an arbitration panel decided a collective bargaining dispute pursuant to RCW 41.56.450 between the City and the Association. Moses Lake , 68 Wn. App. at 743 -44. The City appealed to the superior court, which affirmed the decision and refused to grant prejudgment interest. Moses Lake , 68 Wn. App. at 745 . The City appealed to the Court of Appeals, which affirmed the arbitration decision and reversed the superior court's order denying prejudgment interest. Moses Lake , 68 Wn. App. at 745 , 749. The Moses Lake court ruled that the arbitration decision constituted a liquidated sum, as it placed on the City a duty to raise firefighters' salaries in the amount specified. Moses Lake , 68 Wn. App. at 743 -44, 749. The Moses Lake decision is inapposite, however, because in the context of RCW 41- .56.450, a superior court acts as an appellate court when it reviews an arbitration decision under an "arbitrary or capricious" standard. RCW 41.56.450 . The decision of the Moses Lake court to order prejudgment interest back to the arbitration award is therefore consistent with a court's authority to award prejudgment interest back to the date of the verdict when it is directed on review to enter judgment under RCW 4.56.110 (4) and RCW 4.56.115 ("[W]here a
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court is directed on review to enter judgment . . . interest . . . shall date back to and shall accrue from the date the verdict was rendered.").
¶11 We reverse and direct entry of judgment denying Fluor's request for prejudgment interest.«6»\
APPELWICK , A.C.J., and BECKER , J., concur.
«6»Nothing in our decision prevents parties to an arbitration agreement from mutually agreeing that interest shall run from the date of the arbitration decision.
No. 30915-7-II. Division Two. January 11, 2005.]
HOLLY MOUNTAIN RESOURCES , LTD ., et AL ., Respondents , v. WESTPORT INSURANCE CORPORATION , Petitioner .
[1] Judgment - Summary Judgment - Burden on Nonmoving Party - Averment of Specific Facts - Unsupported Assertions. In a summary judgment proceeding, a genuine issue of material fact is not shown by speculation, argumentative assertions that unresolved factual issues remain, or affidavits taken at face value.
[2] Insurance - Duty To Defend - Test. An insurer's duty to defend its insured arises when an action against the insured is first brought. The duty is based on the potential for liability as determined from the complaint filed against the insured. The insurer has a duty to defend if the complaint, construed liberally, alleges facts that could, if proved, impose liability on the insured within the coverage of the insurance policy. An ambiguous complaint is construed liberally in favor of the insured. If coverage is not clear from the face of the complaint but may exist, the insurer must investigate the claim and give the insured the benefit of the doubt in determining whether there is an obligation to defend. Facts outside of the complaint may be considered if (1) the allegations in the complaint conflict with facts known to or readily ascertainable by the insurer or (2) the allegations in the complaint are ambiguous or inadequate.[3] Insurance - Duty To Defend - Noncovered Claim. An insurer has no duty to defend its insured in an action if the claims alleged in
636 Holly Mountain Res., Ltd. v. Westport Ins. Corp. Jan. 2005
130 Wn. App. 635
the complaint are clearly outside of the policy's coverage. Where the claims against the insured as stated in the complaint are clearly outside of the policy's coverage, the insurer has no duty to investigate or to look outside of the complaint for additional information.
[4] Insurance - Good Faith - Insurer's Bad Faith - Breach of Contract - Test. An insurer may be liable in damages for the tort of bad faith if it fails to follow the terms of its insurance contract. The cause of action for bad faith is based on the business of insurance affecting the public interest and insurers having a duty to act in good faith. In order to establish bad faith, the insured must show that the insurer committed a breach that was unreasonable, frivolous, or unfounded.
[5] Insurance - Good Faith - Insurer's Bad Faith - Denial of Coverage - Refusal To Defend Insured - Reasonable Interpretation of Policy. An insurer does not act in bad faith by denying coverage or refusing to provide a defense to its insured based on a reasonable interpretation of the insurance policy.
[6] Insurance - Good Faith - Insurer's Bad Faith - Harm to Insured - Presumption. A presumption that an insured was harmed by its insurer's acts does not arise if the insured fails to show that the insurer acted in bad faith.
[7] Insurance - Good Faith - Insurer's Bad Faith - Coverage by Estoppel - Presumption. A presumption of insurance coverage by estoppel does not arise if the insured fails to show that the insurer acted in bad faith.
[8] Insurance - Good Faith - Insurer's Bad Faith - Summary Judgment - For Insurer - Insurer's Acts. An insured's claim that its insurer acted in bad faith by denying coverage and refusing a tender of defense is properly dismissed by summary judgment if the insurer made a good faith effort to determine if there was potential coverage under the policy, the denial of coverage and refusal to defend were based on a reasonable interpretation of the insurance policy, and the insurer clearly and completely communicated its position and reasoning to the insured.
[9] Insurance - Expenses of Insured - Insured's Action To Obtain Benefit of Policy - Unsuccessful Action. An insured who is compelled to assume the burden of legal action to obtain the benefit of its insurance contract is not entitled to an award of attorney fees therefor if the insured does not prevail in the action.Nature of Action: A company and its president who were defendants in a timber trespass and breach of contract action sought damages from the company's liability insurer for breach of insurance contract, bad faith, and violation of the Consumer Protection Act based on the insurer's refusal
Jan. 2005 Holly Mountain Res., Ltd. v. Westport Ins. Corp. 637
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to defend or indemnify the company on the timber trespass and breach of contract claims.
Superior Court: The Superior Court for Thurston County, No. 02-2-00845-1, Wm. Thomas McPhee, J., on September 26, 2003, granted a partial summary judgment in favor of the plaintiffs, ruling that the insurer had breached its duty to defend and acted in bad faith as a matter of law.
Court of Appeals: Holding that the insurer was justified in refusing to defend the plaintiffs because the allegations in the action against them clearly were outside of the coverage of the insurance policy, the court reverses the judgment and remands the case for further proceedings.
Karen S. Weaver , Therese M. Hansen , and Gary A. Sparling (of Soha & Lang, P.S. ), for petitioner .
Matthew B. Edwards (of Owens Davies, P.S. ), for respondents .
¶1 HUNT, J . - Westport Insurance Corporation (Westport) appeals the trial court's grant of partial summary judgment to its insured, Holly Mountain Resources, arising from a breach of contract and timber trespass lawsuit that Ahtanum Irrigation District (AID) filed against Holly Mountain; John Zapel, its president; and his wife, Vickie Zapel (Holly Mountain). Westport argues the trial court erred in ruling that Westport breached its duty to defend Holly Mountain in bad faith, entitling Holly Mountain to coverage by estoppel, attorney fees, and the value of the counterclaim. Holding that Westport did not breach its duty to defend Holly Mountain because AID's complaint against Holly Mountain alleged only claims that the policy unambiguously did not cover, we reverse.
638 Holly Mountain Res., Ltd. v. Westport Ins. Corp. Jan. 2005
130 Wn. App. 635
FACTS
¶2 Holly Mountain Resources, Ltd., was a Washington corporation engaged in contract logging.«1»John Zapel was its president. Holly Mountain purchased comprehensive liability insurance from Westport Insurance Corporation.
I. WESTPORT INSURANCE POLICY
¶3 Relevant excerpts from Holly Mountain's Commercial General Liability Coverage insurance policy with Westport included:
SECTION I - COVERAGES
COVERAGE A BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result.
. . . .
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and
(2) The "bodily injury" or "property damage" occurs during the policy period.
. . . .
2. Exclusions
This insurance does not apply to:
«1»Holly Mountain ceased doing business in February 2003.
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a. Expected Or Intended Injury
"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. . . .
b. Contractual Liability
"Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.
. . . .
j. Damage To Property
"Property damage" to:
. . . .
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations;
. . . .
SECTION V - DEFINITIONS
. . . .
13. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.
. . . .
17. "Property damage" means:
a. Physical injury to tangible property, including all resulting loss of use of that property . . .
b. Loss of use of tangible property that is not physically injured.
Clerk's Papers (CP) at 89, 92, 98, 100, 101.
¶4 The policy also included a "Logging and Lumbering Operations Endorsement" that modified the Commercial General Liability Coverage Part. It provided:
With respect to "logging and lumbering operations" as defined below Section 1, Coverage A, "Property Damage" Liability, is amended to include:
. . . .
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130 Wn. App. 635
2. "PROPERTY DAMAGE" TO TIMBERLAND NOT OWNED BY ANY NAMED INSURED - Meaning, "property damage" to timberland and standing, felled or bucked timber at premises rented or controlled by the Named Insured, if such timberland or timber is not owned by any insured except while such timber is being transported; and
. . . .
4. TIMBER TRESPASS - Is defined as unexpected or unintended "property damage" to timberland or standing timber which is not owned by the Named Insured or in the care, custody or control of the Named Insured and which arises out of the "logging and lumbering operations" of the Named Insured.
CP at 106.
II. HOLLY MOUNTAIN'S BREACH OF AID TIMBER HARVEST CONTRACT
¶5 In January 1998, Holly Mountain entered into a "Timber Harvest Agreement" (the Contract) with AID. The Contract gave Holly Mountain the right to log AID's land, as directed, for a three-year period. The Contract provided that Holly Mountain was to harvest certain volumes of timber with the objective of enhancing snowpack retention, thinning for improved stand growth, and removing overstory. The Contract specifically proscribed nonharvest areas, timing, and various other logistics. The Contract further provided that in logging the AID property, Holly Mountain would emphasize market timing to maximize potential returns to AID.
¶6 Holly Mountain logged the AID land for approximately two years, until late in 1999, when AID asked Holly Mountain to produce an accounting of its logging costs and gross mill receipts. When Holly Mountain refused, AID ordered Holly Mountain off its land and to discontinue harvesting.
¶7 In November 1999, AID sued Holly Mountain and president Zapel for the following breaches of the timber
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harvest contract. Holly Mountain and Zapel (1) failed to harvest the timber in a timely manner, (2) failed to enhance snowpack retention, (3) failed to minimize post harvest erosion, (4) failed to conform to the laws of Washington,«2»(5) failed to maintain roads, (6) failed to perform cleanup, and (7) failed to haul cut logs to the mill. AID's complaint further alleged that Holly Mountain failed to produce logging cost documentation as AID had requested.
¶8 In addition, AID's complaint alleged that Holly Mountain breached the Contract by committing intentional timber trespass as follows:
Holly Mountain and John P. Zapel harvested timber in violation of the Agreement. They had no right to harvest trees except as described in the Agreement and the sustained harvest plans pursuant to that Agreement. Any harvest of trees outside the scope of the management plan in any year was a timber trespass under RCW 4.24.630 or under RCW 64.12.030 . These acts of Holly Mountain and John P. Zapel were intentional. Holly Mountain's and John P. Zapel's acts of timber trespass by cutting timber not allowed under the Agreement has damaged the Ahtanum Irrigation District in an amount to be proved at the time of trial but known to exceed $35,000.00.
CP at 231-32.
III. HOLLY MOUNTAIN'S DEFENSE OF AID LAWSUIT BY INDEPENDENT COUNSEL
A. Westport's Rejection of Holly Mountain's Tender of Defense
¶9 Acting on Holly Mountain's behalf, Zapel forwarded AID's complaint to Westport for defense under Holly Mountain's insurance policy. On December 27, 1999, Westport sent Holly Mountain a letter denying that it had any obligation to provide a defense for Holly Mountain. Westport's letter stated in part:
«2»The complaint did not specify which laws Holly Mountain failed to follow.
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Based on our review of the allegations contained within the above referenced complaint, it is our opinion that there is no allegation of an "occurrence," "bodily injury" or "property damage" as defined in the policy. In addition, it appears that exclusions "a" and "b" may be applicable to exclude coverage as your policy does not provide coverage for intentional acts.
You are hereby notified that it is our opinion that we owe no duty to either defend or indemnify you for the allegations contained within this complaint, and we strongly recommend that you obtain personal counsel to protect your interests in this matter. However, should an amended complaint be filed in this matter, please immediately forward the complaint for our review for potential coverage.
. . . .
In addition, if you have any information which you feel would change our opinion on coverage and/or duty to defend, please immediately forward the documentation to us for review.
CP at 236-37.
¶10 On January 3, 2000, Linda Adams, a senior claims representative for Westport, spoke with Zapel on the telephone. Zapel had not yet received Westport's letter disclaiming coverage. They discussed the reasons behind Westport's denial of coverage and duty to defend. Zapel admitted that he did not believe there would be insurance coverage for the lawsuit. According to Adams, Zapel "responded that he . . . would call with any questions once he received the disclaimer letter." CP at 811. Zapel did not call.
¶11 On January 6, 2000, Adams reviewed a copy of the AID-Holly Mountain Timber Harvest Agreement, but it did not change her decision to decline coverage by Westport. On February 25, 2000, after hearing nothing further from Zapel or Holly Mountain, Westport closed the claim file. Holly Mountain made no further communications to Westport about its claim for almost two years.
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B. Holly Mountain's Hiring of Independent Counsel to Defend AID Lawsuit
¶12 After Westport's rejection of Holly Mountain's tender of defense, Holly Mountain retained independent counsel, who filed an answer to AID's complaint and a counterclaim against AID for lost profits it suffered when AID terminated Holly Mountain's logging rights, allegedly in breach of the parties' logging Contract.
¶13 In April 2001, AID answered Holly Mountain's first set of interrogatories. In October 2001, AID answered Holly Mountain's second set of interrogatories. In the second set of answers, AID alleged primarily breaches of contract and economic losses, including the following answer to interrogatory 5:
Additionally, snowpack retention in Section 13 North of the road was over cut. Section 3 was almost a clear-cut. To date, there is no reproduction present in Section 3, despite the fact that it was harvested over 3 years ago. There was very little if any return to AID. All revenue was applied by Mr. Zapel to alleged logging costs and overhead. Due to the over cutting, significant erosion is occurring on the east side of Section 3. Additionally, [Holly Mountain] did not leave a wide enough buffer on the portion of Section 13 which was logged by helicopter. This has caused significant wind damage and blow down.
CP at 243-44.
¶14 Later in October, AID answered a third set of interrogatories. The answer to interrogatory 3 stated:
[Holly Mountain] failed to maintain roads in a manner required by the Forest Practice Rules. [Holly Mountain]'s failure to maintain the surface of the A-3000 road caused loss of gravel into the ditches and to the fill slope. Additionally, operations on part of the road continued when the road was bare of gravel down to the ballast. Additionally, in Sections 3 and 9, [Holly Mountain]'s failure to maintain the road system resulted in blocked pipes and other problems which caused sediment to enter type 4 and type 5 streams which flow directly into the North Fork Ahtanum Creek.
CP at 248.
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IV. HOLLY MOUNTAIN'S SECOND TENDER OF DEFENSE TO WESTPORT
¶15 On October 29, 2001, Holly Mountain's independent counsel again requested that Westport defend Holly Mountain against AID's lawsuit. On January 29, 2002, Westport declined to reconsider its refusal to defend Holly Mountain, stating, "Your most recent correspondence does not contain anything new in terms of facts, allegations or specific pleadings that would alter the reasoning outlined in the coverage disclaimer of December 27, 1999."«3»CP at 275.
¶16 In February 2002, Holly Mountain wrote Westport that, in answering interrogatories, AID had made it clear that it was seeking recovery for "property damage" allegedly caused by Holly Mountain. Holly Mountain included quotes from the second and third interrogatories, copies of which Westport did not have, and asserted its Westport policy covered this claim.
¶17 From February to May 2002, Westport communicated with Holly Mountain's independent counsel and AID. On March 14, 2002, correspondence from AID to Westport mentioned, for the first time, that AID might seek recovery for negligent timber trespass: "Discovery has indicated that those trees may have been taken as a result of Holly Mountain's negligence or recklessness ." CP at 736 (emphasis added).
¶18 On March 15, 2002, the Zapels filed a motion for summary judgment, asking the trial court to dismiss the claims against them individually. The court granted the motion in part, dismissing all claims except those for timber trespass and commingling funds. Holly Mountain sent Westport a short letter explaining the court's dismissal of all but two claims, together with copies of the pleadings and the summary judgment order.
«3»Westport states that Holly Mountain's October 29, 2001 letter did not contain any answers to interrogatories and Westport was, therefore, not advised of any new allegations of property damage. The record shows that answers to only the first set of interrogatories were mailed to Westport on December 5, 2001. Westport never received answers to the second and third sets of interrogatories.
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¶19 In early May 2002, Holly Mountain's independent counsel learned that Westport was discussing settlement terms with AID and asked Westport to stop communicating with AID. Westport ceased communication with AID.
V. HOLLY MOUNTAIN'S LAWSUIT AGAINST WESTPORT
¶20 On May 20, 2002, Holly Mountain sued Westport for breach of insurance contract, acting in bad faith, and violating the Consumer Protection Act, chapter 19.86 RCW. On July 19, 2002, Westport notified Holly Mountain that, in light of the "newly-alleged" timber trespass and property damage claims, it would provide Holly Mountain a defense in the AID lawsuit under a reservation of rights for certain claims.
¶21 After hearing nothing further from Westport for several months, in October Holly Mountain's independent counsel sent Westport two letters inquiring about the defense. On November 1, 2002, Westport advised Holly Mountain that it had hired Jim Berg to defend Holly Mountain against AID.
¶22 In February 2003, Holly Mountain moved for summary judgment in its lawsuit against Westport. In March 2003, Westport filed a reply, in which Westport moved for summary judgment against Holly Mountain. Ruling that Westport had breached its duty to defend and acted in bad faith as a matter of law, the trial court granted Holly Mountain's motion for partial summary judgment and denied Westport's cross-motion for summary judgment.
¶23 Holly Mountain moved for attorney fees and an order that Westport was estopped from denying coverage for any AID claim against Holly Mountain, whether or not the policy would have provided coverage. The trial court granted this motion, too.
¶24 Holly Mountain also asked the trial court to hold Westport liable for the full, good faith value of its counterclaim against AID for lost profits resulting from AID's cancellation of Holly Mountain's timber harvest Contract.
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Ruling that Westport was liable for the full value of Holly Mountain's counterclaim, the trial court entered a $342,224.75 judgment against Westport under CR 54(b).
¶25 Westport appeals.
ANALYSIS
¶26 In granting summary judgment for Holly Mountain, the trial court ruled that Westport breached its duty to defend Holly Mountain against AID's lawsuit and acted in bad faith. In so doing, the trial court erred as a matter of law. Reviewing this case de novo and considering all facts in the light most favorable to the nonmoving party, we hold that Westport properly denied Holly Mountain's request to defend because the allegations in AID's complaint were clearly outside the insurance policy's coverage.
I. STANDARD OF REVIEW
[1]¶27 When reviewing an order of summary judgment, we engage in the same inquiry as the trial court. Wilson v. Steinbach , 98 Wn.2d 434 , 437, 656 P.2d 1030 (1982). Summary judgment is appropriate only if the pleadings, affidavits, depositions, and admissions on file demonstrate the absence of any genuine issues of material fact and that the moving party is entitled to judgment as a matter of law. CR 56(c). We consider all facts submitted and all reasonable inferences from them in the light most favorable to the nonmoving party. Wilson , 98 Wn.2d at 437 . The nonmoving party may not rely on speculation, argumentative assertions that unresolved factual issues remain, or having its affidavits considered at face value. Seven Gables Corp. v. MGM/UA Entm't Co ., 106 Wn.2d 1 , 13, 721 P.2d 1 (1986).
¶28 After the moving party has submitted adequate affidavits, the burden shifts to the nonmoving party to set forth specific facts sufficiently rebutting the moving party's contentions and disclosing the existence of a material issue of fact. Seven Gables , 106 Wn.2d at 13 . We will uphold the trial court's grant of summary judgment only if, from all the
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evidence, reasonable persons could reach but one conclusion. Wilson , 98 Wn.2d at 437 . We hold that Westport has met its burden here.
II. WESTPORT'S REJECTION OF HOLLY MOUNTAIN'S DEFENSE
¶29 Westport argues the trial court erred in ruling that, as a matter of law, Westport acted in bad faith and breached its duty to defend Holly Mountain against AID's lawsuit. We agree.
A. Duty to Defend
[2, 3]¶30 An insurer's duty to defend arises when an action is first brought, and it is based on the potential for liability. Truck Ins. Exch. v. VanPort Homes, Inc ., 147 Wn.2d 751 , 760, 58 P.3d 276 (2002). An insurer has a duty to defend " 'when a complaint against the insured, construed liberally, alleges facts which could, if proven, impose liability upon the insured within the policy's coverage.' " Truck , 147 Wn.2d at 760 (quoting Unigard Ins. Co. v. Leven , 97 Wn. App. 417 , 425, 983 P.2d 1155 (1999), review denied , 140 Wn.2d 1009 (2000)). If the complaint is ambiguous, insurers should construe it liberally, in favor of the insured. Truck , 147 Wn.2d at 760 . Conversely, if the alleged claims are clearly outside the policy's coverage, then the insurer has no duty to defend. Truck , 147 Wn.2d at 760 .
¶31 Two exceptions to the general rule of referencing only the complaint favor the insured. Truck , 147 Wn.2d at 761 . First, if coverage is not clear from the face of the complaint but may nonetheless exist, the insurer must investigate the claim and give the insured the benefit of the doubt in determining whether the insurer has a duty to defend. Truck , 147 Wn.2d at 761 . Second, the insurer may consider facts outside the complaint if " ' "(a) the allegations are in conflict with facts known to or readily ascertainable by the insurer or (b) the allegations of the complaint are ambiguous or inadequate." ' " Truck , 147 Wn.2d at 761 (quoting Atl. Mut. Ins. Co. v. Rolfe, Inc ., 73 Wn. App. 858 ,
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862, 872 P.2d 536 (1994) (quoting E-Z Loader Boat Trailers, Inc. v. Travelers Indem. Co ., 106 Wn.2d 901 , 908, 726 P.2d 439 (1986))). Neither exception applies here, however, because it is clear from the face of AID's complaint against Holly Mountain that there was no coverage under the Westport insurance policy.
¶32 Holly Mountain tendered AID's November 1999 complaint to Westport and asked Westport to provide a defense. AID's complaint alleged that Holly Mountain committed fraud, misrepresentation, and breach of contract, including intentional timber trespass in breach of contract. Specifically, AID alleged that Holly Mountain breached its timber harvest Contract when it (1) failed to harvest timber timely, (2) failed to enhance snowpack retention and to minimize post-harvest erosion, (3) failed to conform to the laws of Washington, (4) failed to maintain roads and to perform cleanup, (5) failed to haul cut logs to the mill, (6) failed to produce documentation of logging costs, and (7) committed intentional timber trespass on AID land by cutting unauthorized timber outside the agreed timber harvest plan.
¶33 Westport's insurance policy specifically excluded from coverage contractual liability and expected or intended injuries. AID's complaint unambiguously alleged breaches of contract and intentional torts by Holly Mountain.«4»It alleged no covered "occurrence" (accident) or "property damage" as defined under Holly Mountain's Westport
«4»For example, the complaint's "FACTS" section II, paragraph three, alleged multiple breaches of contract. Similarly, the complaint's "CLAIM OF DAMAGES" section III, paragraph one, alleged damages from the "material breaches of contract" "complained of above." Even paragraph three of this section's sole reference to "timber trespass" is characterized as "intentional" "cutting [of] timber not allowed under the Agreement" because Holly Mountain had "no right to harvest trees except as described in the Agreement and the sustained harvest plans pursuant to that Agreement." CP at 25-26.
Moreover, the complaint's "PRAYER FOR RELIEF," section IV, paragraph one, asked for a judgment against Holly Mountain and Zapel for "breach of contract and/or fraud." (The fraud allegation related to Holly Mountain's allegedly having dissolved as corporation before entering into the AID Contract, thereby defrauding AID.) And paragraph 2 requested treble damages for the intentional, breach-of-contract timber trespass.
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insurance policy.«5»Rather, the damage it alleged arose exclusively from Holly Mountain's alleged breach of contract, which the policy did not cover.
¶34 Because AID's claims were clearly outside Holly Mountain's policy coverage, Westport had no duty to investigate or to look outside the complaint for additional information.«6»Nonetheless, Adams did review the Timber Har
«5»In its December 27, 1999 rejection of Holly Mountain's request, Westport responded that it had no duty to defend Holly Mountain on the allegations contained in the AID complaint. The letter summarized and quoted the following pertinent language from the insurance policy:
[T]his insurance applies only to "bodily injury" and "property damage" which occurs during the policy period and is caused by an "occurrence."
"Occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."
CP at 235-36. The letter also included the policy definitions of "bodily injury" and "property damage." Westport further noted that although the policy covered timber trespass, the policy defined "timber trespass" as
unexpected or unintended "property damage" to timberland or standing timber which is not owned by the named insured or in the care, custody or control of the named insured and which arises out of the logging and lumber operations of the named insured.
CP at 236 (emphasis added). Westport further noted that the policy contained "exclusions" for "a. expected or intended injury" and "b. contractual liability."
Westport's letter concluded:
Based on our review of the allegations contained within the above referenced complaint, it is our opinion that there is no allegation of an "occurrence," "bodily injury" or "property damage" as defined in the policy. In addition, it appears that exclusions "a" [expected or intended injury] and "b" [contractual liability] may be applicable to exclude coverage as your policy does not provide coverage for intentional acts .
You are hereby notified that it is our opinion that we owe no duty to either defend or indemnify you for the allegations contained within this complaint. . . . However, should an amended complaint be filed in this matter, please immediately forward the complaint for our review for potential coverage.
You are also hereby notified that we are undertaking the investigation of this matter under a full reservation of rights.
. . . .
In addition, if you have any information which you feel would change our opinion on coverage and/or duty to defend, please immediately forward the documentation to us for review.
CP at 236-37 (emphasis added).
«6»Westport did, however, offer to consider any amended complaint or any additional information that Holly Mountain could provide which might affect Westport's coverage decision and duty to defend. But Holly Mountain failed to supply additional information to Westport for nearly two years, and Westport closed its claim file.
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vest Agreement, but it did not change her decision to decline coverage. Even Holly Mountain's principal, Zapel, told Westport that he had not expected the AID complaint to fall within Westport's policy coverage.
B. Bad Faith
[4-8]¶35 An insurer may be liable in damages for the tort of bad faith«7»if it fails to follow the terms of its insurance contract. Safeco Ins. Co. of Am. v. Butler , 118 Wn.2d 383 , 393-94, 823 P.2d 499 (1992). In order to establish bad faith, an insured must show the insurer committed a breach that was unreasonable, frivolous, or unfounded. Kirk v. Mt. Airy Ins. Co ., 134 Wn.2d 558 , 560, 951 P.2d 1124 (1998). The insured does not establish bad faith, however, when, as here, the insurer denies coverage or fails to provide a defense based upon a reasonable interpretation of the insurance policy. Kirk , 134 Wn.2d at 560 (citing Transcon. Ins. Co. v. Wash. Pub. Util. Dists.' Util. Sys ., 111 Wn.2d 452 , 470, 760 P.2d 337 (1988)). If the insured fails to show the insurer acted in bad faith, then there is no presumption of harm or coverage by estoppel.
¶36 Holly Mountain argues that Truck , 147 Wn.2d 751 , is controlling. But Truck is factually distinguishable. VanPort, Truck's insured, was a construction company sued by several of its customers for violations of the Consumer Protection Act, the Consumer Credit Protection Act, misrepresentation, usury, breach of contract, and negligence. Truck , 147 Wn.2d at 756 . VanPort tendered the lawsuits to
«7»A cause of action for bad faith acknowledges that the business of insurance affects the public interest and that an insurer has a duty to act in good faith. See Kirk v. Mt. Airy Ins. Co ., 134 Wn.2d 558 , 560, 951 P.2d 1124 (1998). RCW 48.01.030 provides:
The business of insurance is one affected by the public interest, requiring that all persons be actuated by good faith, abstain from deception, and practice honesty and equity in all insurance matters. Upon the insurer, the insured, their providers, and their representatives rests the duty of preserving inviolate the integrity of insurance.
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Truck, which denied coverage approximately one year later. Truck , 147 Wn.2d at 757 . The Supreme Court held that Truck had denied coverage in bad faith. Although Truck's letter denying coverage quoted extensively from the policy language, the letter (1) provided no analysis or explanation of how the policy language excluded VanPort's claim and (2) falsely stated the insurer had conducted a thorough investigation. Truck , 147 Wn.2d at 757 . When VanPort requested a meeting with the insurer to discuss the denial, Truck never responded. Truck , 147 Wn.2d at 757 . In fact, Truck did not explain its denial of coverage until nearly two years later when it filed for declaratory judgment. Truck , 147 Wn.2d at 757 . None of these facts used by the court to find bad faith in Truck are present here. Therefore, Truck does not control.
¶37 Here, in contrast, Westport demonstrated good faith. First, Westport went beyond the confines of the insurance policy and reviewed Holly Mountain's timber harvest Contract with AID before finally concluding that AID's complaint alleged noncovered breach of contract actions. Second, Westport spoke with Zapel on the telephone and explained why Westport was denying coverage. Third, Westport's letter to Holly Mountain denying coverage (1) explained the reasons for the denial, citing the pertinent policy language and (2) offered to reconsider its decision if Holly Mountain provided additional pleadings or information, which Holly Mountain failed to provide for nearly two years. Moreover, Westport's rejection of Holly Mountain's tendered defense was consistent with Holly Mountain's expectation, exemplified by Zapel's admission that he did not expect the policy to cover the claim. And finally, after receiving notice of AID's allegation of potentially "negligent or reckless" timber trespass and other property damage, which Westport still deemed contractual in nature and outside the policy's coverage, Westport nev
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ertheless hired counsel to defend Holly Mountain under a reservation of rights.«8»
C. Summary
¶38 Because Holly Mountain's initial tender of the AID complaint to Westport contained no covered claims, Westport did not breach its duty to defend. And because Westport had no duty to defend, as a matter of law, it did not act in bad faith in denying Holly Mountain's tender of its defense. We hold, therefore, that the trial court erred (1) in granting partial summary judgment to Holly Mountain and (2) in assessing damages under an estoppel theory against Westport to reimburse Holly Mountain for lost profits Holly Mountain had asserted in its counterclaim against AID for terminating the timber harvest.
III. ATTORNEY FEES
¶39 Holly Mountain requests attorney fees under Olympic Steamship Co. v. Centennial Insurance Co ., 117 Wn.2d 37 , 811 P.2d 673 (1991). In Olympic Steamship the Supreme Court recognized an insured's right to recoup attorney fees it incurs when an insurer refuses to defend or to pay the justified action or claim of the insured. 117 Wn.2d at 52 .
[9]¶40 But Olympic Steamship does not apply here. Our having held that Westport owed Holly Mountain no duty to defend against AID's lawsuit, Holly Mountain's action against Westport was not justified as a matter of law.
«8»Where an insurer is uncertain about whether it has a duty to defend in a particular case, it may defend under a reservation of rights, as Westport ultimately did here. Truck , 147 Wn.2d at 761 . A reservation of rights is a means by which the insurer conditionally defends its insured, subject to potential reimbursement by the insured upon later discovery that there was no duty to defend. An insurer's defense of its insured under a reservation of rights avoids breaching its duty to defend while seeking to avoid waiver and estoppel allegations. Truck , 147 Wn.2d at 761 .
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Not having prevailed, Holly Mountain is not entitled to attorney fees under Olympic Steamship .
¶41 Reversed and remanded.\
MORGAN, A.C.J., and ARMSTRONG, J., concur.