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Nautilus Ins. Co. v. Pro-Set Erectors, Inc.

United States District Court, D. Idaho

March 1, 2013

PRO-SET ERECTORS, INC., and Idaho corporation, and Leone & Keeble, Inc., a Washington Corporation, Defendants.

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David S. Perkins, Richard L. Stubbs, Carey Perkins LLP, Kevin Alan Griffiths, Duke Scanlan & Hall, PLLC, Boise, ID, for Plaintiff.

Scott L. Poorman, Beck & Poorman, LLC, Hayden, ID, Andrew C. Bohrnsen, Law Office of Andrew C. Bohrnsen, PS, Spokane, WA, for Defendants.


MIKEL H. WILLIAMS, United States Magistrate Judge.

Pending before the Court are a Motion for Summary Judgment (Dkt. 20) and Motion

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to Strike Affidavit (Dkt. 43) filed by Plaintiff Nautilus Insurance Company (" Nautilus" ).[1] Having considered the record, including the briefs and affidavits of the parties, and having considered the oral arguments heard on January 16, 2013, the Court will grant Nautilus' Motion for Summary Judgment. The Court will resolve the issues raised in the Motion to Strike within the analysis of the summary judgment motion rather than addressing it separately.

After considering the parties' statements of fact and their respective objections, as well as rejecting any legal conclusions or unsupported factual statements identified in the Motion to Strike, the Court finds the following facts.


This case involves a dispute about whether or not Leone & Keeble, Inc. (" L & K" ) was an additional insured under a commercial general liability insurance policy issued to Pro-Set Erectors, Inc. (" Pro-Set" ). In order to place the dispute in context, it is necessary to discuss the business relationship between L & K and Pro-Set, the circumstances surrounding the purported issuance of an additional insured endorsement to L & K, and the subsequent injury to one of Pro-Set's employees, Delbert Williams.

A. Business Relationship

On November 10, 2006, L & K, as the general contractor, entered into a contract with the Lakeland School District to construct a building for the Twin Lakes School District (the " Lakeland project" or the " Project" ) in Rathdrum, Idaho. Pl.'s Statement of Facts ¶ 1. In March of 2007, L & K entered into a subcontract with Pro-Set whereby Pro-Set agreed to provide structural steel, steel joints, and other metal fabrication for the Project. Id. ¶ 2.

Even before these events had occurred, on October 16, 2006, Pro-Set had purchased a commercial general liability insurance policy (the " Policy" ) from Nautilus to cover its business operations naming Pro-Set as the primary insured and several entities as additional insureds. Id. ¶¶ 3, 4, and 11. Pro-Set had obtained this policy through the Jerry S. Carlson Insurance Agency (the " Carlson Agency" ) which was located in Hayden Lake, Idaho, and described by the parties as an " insured producer" or " retail producer" or " retail agent." Am. Compl., Ex. A, Dkt. 1-1. Affidavit of Michelle R. Nelson ¶ 4 (Dkt. 33); Affidavit of Sharon Bruce ¶ 3 (Dkt. 34). The Carlson Agency obtained the insurance policy from Nautilus' designated Idaho agent, Hull & Company.

When Pro-Set later entered into its business arrangement with L & K, it became contractually required to be insured, which it was through Nautilus, and to obtain and provide to L & K an additional insured endorsement and certificate of liability under the Policy. Pl.'s Statement of Facts ¶ 15; Nelson Aff. ¶ 3. On March 27, 2007, Michelle Nelson, Pro-Set's bookkeeper and corporate Secretary, requested the Carlson Agency to add L & K and the Lakeland School District to Pro-Set's commercial general liability policy. Nelson Aff. ¶ 5. On March 29, 2007, Ms. Nelson received from the Carlson Agency an additional insured endorsement and a certificate of liability indicating that those entities had been added as additional insureds on the Policy. Nelson Aff. ¶ 6.

In August of 2007, Delbert Williams was working for Pro-Set on the Lakeland project. He was working on scaffolding approximately

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40 feet from the ground when he fell and sustained various injuries. Pl.'s Statement of Facts ¶ 8. After his injuries, which were undisputedly incurred in the course of his employment on the Lakeland project, Williams filed for and received workers' compensation benefits from the State of Idaho through the coverage carried by Pay Check Connection. Jost Depo. Excerpt at 8. Pro-Set had entered into an agreement with Pay Check Connection whereby Pay Check Connection agreed to provide human resource services for Pro-Set employees, such as Delbert Williams, by issuing paychecks and providing workers' compensation coverage through the Idaho State Insurance Fund.[2] Jost Depo. at 6-8.

In June of 2008, Williams filed a lawsuit in the Washington Superior Court in Spokane County against general contractor L & K alleging claims of negligence. Pl.'s Statement of Facts ¶ 7. More specifically, Williams alleged he was injured because L & K had failed to take the proper steps to provide for his safety while he was working on the scaffolding during the Project. Id. ¶ 9. See Washington Compl., Dkt. 1-1 at 97-99.

L & K tendered the defense of the Washington case to Pro-Set. Both L & K and Pro-Set then tendered the defense to Nautilus on the grounds that L & K was an additional named insured under Pro-Set's Nautilus policy.[3] Nautilus denied coverage on several grounds, primarily that L & K was never properly designated as additional insured under the Policy because the Carlson Agency was never authorized to issue such endorsement without approval from Nautilus' designated agent, Hull & Company. Additionally, Nautilus denied coverage based on two exclusions in the Policy. Pl.'s Statement of Facts ¶¶ 5-6. First, the Nautilus policy contains an exclusion for " Employer's Liability," which excludes coverage for bodily injury sustained by an employee of any insured arising out of and in the course of employment by any insured or performing duties related to the conduct of any insured's business. Id. ¶ 5. Second, the Nautilus policy contains an exclusion for " Worker's Compensation and Similar Laws," which excludes coverage for any obligation of the insured under a workers' compensation, disability benefits, or unemployment compensation law or any similar law. Id. ¶ 6.

B. Circumstances Regarding Issuance of Policy and Additional Insured Endorsements

When Nautilus filed its application to do business in the State of Idaho, it designated Hull & Company (" Hull" ) of Kalispell, Montana (presumably registered to do business in the State of Idaho), as its agent. Pl.'s Statement of Facts ¶ 4. Hull,

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in turn, did business with insured producers such as the Carlson Agency.

Pro-Set was one of the Carlson Agency's larger commercial accounts and had been its customer for several years prior to 2006. Nelson Aff. ¶ 4; Bruce Aff. ¶ 3. Sharon Bruce, former office manager of the Carlson Agency, frequently handled requests from Pro-Set to name parties to the Nautilus policy as additional insureds. Bruce Aff. § 3. Because of Pro-Set's numerous additional insured requests, Hull provided the Carlson Agency with blank endorsement forms to complete when Pro-Set requested an additional insured endorsement. Affidavit of Jerry S. Carlson ¶ 7.

It was the Carlson Agency's " regular practice and procedure" to issue additional insured certificates and then send a copy to Hull. Bruce Aff. ¶¶ 6-7. Carlson Aff. ¶ 8. Hull never objected to the " dozens" of additional insured certificates issued by the Carlson Agency. Bruce Aff. ¶ 8; Carlson Aff. ¶ 9. However, there is no direct evidence that the additional insured endorsement and certificate of liability naming L & K were ever faxed or otherwise sent to Hull or to Nautilus.

The Carlson Agency did not have any business relationship with Nautilus. Pl.'s Statement of Facts ¶ 14. The Carlson Agency admittedly had no need or reason to communicate directly with Nautilus. Bruce Aff. ¶ 10. Additionally, Nautilus never made Carlson its designated agent in the State of Idaho, did not file a notice of appointment of the Carlson Agency with the Idaho Department of Insurance, did not authorize Carlson to act as its agent, did not have any known contact with Carlson, did not know that Carlson was holding itself out as Nautilus' agent or agree that Carlson could do so, and did not know that Carlson purported to issue additional insured endorsements or certificates of liability insurance. Pl.'s Statement of Facts ¶¶ 17-23.

C. Washington Litigation

As will be discussed more fully below, the Washington Superior Court dismissed Delbert Williams' action on grounds of lack of jurisdiction based on the Idaho Industrial Commission's decision to award him workers' compensation benefits. See Williams v. Leone & Keeble, Inc., 171 Wash.2d 726, 254 P.3d 818, 823 n. 6 (2011) (" Williams I " ). Alternatively, the court found that Idaho law would apply to issues raised in the tort action if the court did not lack subject matter jurisdiction barring the action. Id. The Washington Court of Appeals affirmed. However, on June 9, 2011, the Washington Supreme Court reversed and remanded to the Court of Appeals for review of the trial court's determination that Idaho law applied. Id. On September 12, 2012, the Court of Appeals ultimately determined that Washington law should be applied. See Williams v. Leone & Keeble, Inc., 170 Wash.App. 696, 285 P.3d 906 (2012) ( " Williams II " ).

D. Idaho Litigation

Nautilus initially filed a complaint against Pro-Set and L & K in the district court of the First Judicial District of the State of Idaho in and for the County of Kootenai in 2009. See Notice of Removal, Ex. C, Kootenai County Docket, Dkt. 1-3. The case was stayed from May of 2009 through August of 2011 while the appeals worked their way through the Washington courts. Id.; Pl.'s Brief at 4. On August 8, 2011, after the Washington Supreme Court ruled that the Williams action was not barred under Washington law, Nautilus amended its Complaint to add Travelers Property Casualty Company of America (" Travelers" ) as a defendant. Am. Compl., Dkt. 1-1; Pl.'s Brief at 4. On September 8,

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2011, Travelers removed the case to this Court.

In the Amended Complaint, Nautilus claims that L & K was not an additional insured under the Policy it issued to Pro-Set, that the Policy excludes liability for obligations arising in the context of injuries to employees, that L & K was insured under its own commercial general liability policy with Travelers, and that Nautilus was not required to defend or indemnify Pro-Set or L & K in the Washington action. Nautilus also sought contribution from Travelers under its commercial general liability policy issued to L & K for the defense of L & K. Nautilus subsequently agreed to dismiss Travelers without prejudice. See Order, Dkt. 15. In its pending summary judgment motion, Nautilus seeks declaratory judgment that it is not required to defend or indemnify either Pro-Set or L & K.

E. Motion to Strike

Nautilus claims that some of the statements contained in the Bruce and Carlson affidavits are inadmissible because they are self-serving, lack evidentiary support, are hearsay, and contain legal conclusions. In order to preserve a hearsay objection, " a party must either move to strike the affidavit or otherwise lodge an objection with the district court." Pfingston v. Ronan Engineering Co., 284 F.3d 999, 1003 (9th Cir.2002). In the absence of objection, the Court may consider hearsay evidence. Skillsky v. Lucky Stores, Inc., 893 F.2d 1088, 1094 (9th Cir.1990). Pro-Set has not filed a response to the motion to strike.

As explained below, the Court finds that Nautilus' objections to certain portions of the Bruce and Carlson affidavits are well-founded and that the challenged statements are unsupported by the requisite detailed admissible facts. Accordingly, Nautilus' Motion to Strike is granted as to those challenged statements. The remaining statements in the affidavits are not stricken and are contained in the recitation of facts above.

1. Carlson Affidavit

Nautilus objects to Jerry Carlson's statement that " [t]he Carlson Insurance Agency was specifically authorized by Hull & Company to issue Additional Insured Endorsements directly from our office without first getting specific approval from Hull & Company for each such endorsement." Carlson Aff. ¶ 6.

Despite making this assertion, Mr. Carlson does not aver or provide evidence as to when or by whom Hull provided the authorization to the Carlson Agency. Nor does he explain whether or how Hull received authorization from Nautilus to vary from the usual procedure for issuance of additional insured endorsements and certificates of liability insurance. The statement is clearly conclusory. As such, it is not sufficient to raise a genuine issue of material fact. Furthermore, Mr. Carlson's statement that some unidentified person at Hull authorized him to issue endorsements is inadmissible hearsay offered to prove the truth of the matter asserted. See Fed.R.Evid. 802.

Nautilus also objects to Mr. Carlson's statements that it was standard practice for his office to send a copy of the endorsement to Hull and that " [t]o the best of [his] knowledge and recollection" a copy of the additional insured certificate for L & K was sent to Hull pursuant to that practice. Carlson Aff. ¶¶ 8 and 11. While the statement is admissible to show that it was the Carlson Agency's standard practice to send a copy of endorsements to Hull, it is not admissible to show that the L & K endorsement was actually sent to Hull. The speculative assertion that " to the best of his knowledge" it was sent is not

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sufficient to create a genuine issue of material fact to rebut Nautilus' assertion that it ...

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