[00:00:00] Speaker 04:
The next case on tap is Kitsap rifle and Revolver Club versus Northland Insurance Company case number 24-3064

[00:00:32] Speaker 01:
in your mr fosters correct yes your honor and uh... it was a little bit last minute of my firm followed association counsel this morning it was supposed to happen last week but uh... holiday sort of interrupted that process and ice i change firms i was the attorney for kids have rifle revolver club

[00:00:52] Speaker 01:
since 2010 at my old firm, but I changed firms at the beginning of May, and it just took a little while to bring my new firm online as the club's counsel.

[00:01:02] Speaker 01:
So we are now associated in as counsel, along with the Chenoweth Law Group for Appellant Kitsap Rifle Revolver.

[00:01:09] Speaker 01:
May it please the court, I am Brooks Foster, representing Kitsap Rifle and Revolver Club, also known as KRSC or the Club, which is a non-profit firearm shooting club, chartered in 1926 for sport and national defense.

[00:01:23] Speaker 01:
Since then, the club has always operated at a 72-acre parcel that at least from the Washington Department of Natural Resources until 2009, at which point it acquired ownership of the property in a land swap with the DNR in Kitsap County.

[00:01:38] Speaker 01:
This is a liability insurance coverage lawsuit about the duties an insurer has to its insured that is accused of harming wetlands and other public waters of the state.

[00:01:52] Speaker 01:
In this appeal, KRRC assigns five errors to the district court's summary judgment decision.

[00:01:58] Speaker 01:
The first relates to its motion for partial summary judgment that Northland had a past duty to defend, and that that duty began on the date of tender October 28, 2010.

[00:02:08] Speaker 01:
Northland did not dispute that it had a past duty to defend, but contended that duty was immaterial.

[00:02:14] Speaker 01:
The district court agreed, denied KRRC's motion, and dismissed the claim.

[00:02:19] Speaker 01:
This was an error because the past duty to defend is material to at least three other claims asserted by KRRC.

[00:02:26] Speaker 01:
The first is its claim for coverage-related attorney fees under Olympic steamship.

[00:02:30] Speaker 01:
The second, its claim for denial of defense coverage for its site development permitting application, which denial occurred in 2016,

[00:02:39] Speaker 01:
The third is the club's claim for about $48,000 in invoice defense costs that Northland never paid.

[00:02:46] Speaker 01:
If any one of those claims is reinstated, KRC should also receive partial summary judgment that Northland had a past duty to defend.

[00:02:55] Speaker 05:
Apart from the past duty to defend, it seemed to me that the heart of the case really depends on this definition of occurrence and whether

[00:03:07] Speaker 05:
there was an occurrence.

[00:03:09] Speaker 05:
What is your best argument as to why there was an accident here?

[00:03:16] Speaker 01:
Well, first, Your Honor, I would like to address the premise of your question, which is that that is the heart of the case.

[00:03:21] Speaker 01:
I respectfully disagree.

[00:03:23] Speaker 01:
It is an important issue.

[00:03:24] Speaker 01:
But in Washington, as we've thoroughly briefed, under the case of Immunex,

[00:03:31] Speaker 01:
The duty to defend when it is assumed by the insurer continues until it is relieved of that duty by a court order.

[00:03:37] Speaker 05:
And that's really my other question.

[00:03:39] Speaker 05:
I want to separate the two though.

[00:03:41] Speaker 05:
So I want to get an answer on occurrence.

[00:03:44] Speaker 05:
And then I recognize that there is separately the issue we have to contend with duty to defend.

[00:03:50] Speaker 05:
So if you would address yourself to the occurrence and how the statutory language or the contract language fits here.

[00:03:59] Speaker 01:
Yes, Your Honor.

[00:04:00] Speaker 01:
So this is a general liability policy.

[00:04:03] Speaker 01:
It applies to occurrences.

[00:04:06] Speaker 01:
And we generally think of that as an accident.

[00:04:10] Speaker 03:
That's the way the case law has recognized it.

[00:04:13] Speaker 01:
Yeah, that's correct, Your Honor.

[00:04:15] Speaker 01:
There's plenty of case law interpreting these basic policy provisions.

[00:04:20] Speaker 01:
The case of Hales is one of the critical cases on this.

[00:04:24] Speaker 01:
It basically said it construed this issue of whether there's an accident or occurrence.

[00:04:29] Speaker 01:
And it said, if any of the harm could have occurred without the insured intending and expecting it, without it being certain that it would occur, then there is a possible liability for an accidental occurrence.

[00:04:44] Speaker 01:
And it is the possibility of that liability that we're focused on in the club's briefing, because the issue is whether there is an ongoing duty to defend.

[00:04:52] Speaker 01:
That's the issue that this element speaks to.

[00:04:55] Speaker 05:
But we have to figure this out first.

[00:04:58] Speaker 05:
Where, I know you're talking about possibility and duty to defend, but where is your claim that the damages were caused by this accident or occurrence as opposed to intentional conduct?

[00:05:12] Speaker 01:
So there are a number of circumstances in the findings and allegations that are relevant to this that support the inference that the club could be held liable for an accidental occurrence.

[00:05:24] Speaker 01:
First of all, the findings are that there was earth work occurring in the 300 meter range area in 2005.

[00:05:31] Speaker 01:
And then the county showed up and put a stop

[00:05:35] Speaker 01:
work order on

[00:05:54] Speaker 01:
the stop work order was issued.

[00:05:57] Speaker 01:
Also, the club believed that it had a non-performing use right, which it did have, that included the right to construct shooting areas because that's the way it operated historically.

[00:06:06] Speaker 01:
It had constructed shooting areas in the past without permits, so it believed that was part of its grandfathered rights.

[00:06:12] Speaker 01:
It took a 14-day bench trial to sort that out and decide that against the club, but that happened in 2010.

[00:06:19] Speaker 01:
Excuse me, 2011.

[00:06:21] Speaker 01:
Then we have a number of facts that are not found.

[00:06:24] Speaker 01:
So we don't even know who was operating the machinery that moved the earth.

[00:06:29] Speaker 01:
But maybe most fundamentally, the trial court could not even decide or decline to decide whether the earthwork had in fact harmed a wetland in the area of the 300 meter range.

[00:06:40] Speaker 01:
It referred to a suspected wetland and said it was explicitly not deciding whether the county had shown the existence of a wetland in that area.

[00:06:48] Speaker 01:
So it left that open to be decided in a future proceeding, whether the permitting proceeding it ordered or a warrant of abatement proceeding, it also ordered to be to occur at the county's request if

[00:07:00] Speaker 01:
And to what extent the local permitting proceeding did not resolve all the violations.

[00:07:05] Speaker 01:
So the trial court cannot even tell exactly where the wetlands were or whether one was harmed.

[00:07:11] Speaker 01:
It did find diversion of surface waters.

[00:07:13] Speaker 01:
But, and maybe this is the paramount point, it did not decide whether the club had to restore anything.

[00:07:21] Speaker 01:
Okay, so if the harm we're talking about getting coverage for is causing harm to public waters that require restoration,

[00:07:28] Speaker 01:
which that is the trigger of coverage here.

[00:07:31] Speaker 01:
And the trial court did not decide whether that type of harm had occurred.

[00:07:36] Speaker 01:
We cannot say that the club was certain to have caused that harm.

[00:07:40] Speaker 04:
So then this gets to my question is, then how is it money damages?

[00:07:46] Speaker 04:
Because I take the district court's point that the policies don't cover injunctive relief, but it covers money damages.

[00:07:53] Speaker 04:
And as I understand it, the club is not obligated to pay for anything right now.

[00:08:00] Speaker 04:
It could just sit and not do anything.

[00:08:02] Speaker 04:
There hasn't been a warrant of abatement.

[00:08:05] Speaker 04:
There hasn't been anything that affirmatively requires the club to pay environmental damages or remediation or anything.

[00:08:12] Speaker 04:
So how is there a coverage issue based on that?

[00:08:15] Speaker 01:
If so, first of all, your honor, it's not every injunction that it fails to expose a insured to damages.

[00:08:25] Speaker 01:
Okay.

[00:08:25] Speaker 01:
And you have to look at the terms.

[00:08:27] Speaker 01:
So an injunction is a court order and we've cited the excello corp case.

[00:08:32] Speaker 01:
It's from a different state, but it's emblematic of the way environmental liability insurance works.

[00:08:37] Speaker 01:
If an agency asks a party to conduct an investigation, courts, including the Ninth Circuit, construe that to be equivalent to an order.

[00:08:46] Speaker 01:
It's coercive.

[00:08:47] Speaker 01:
You don't disrespect EPA or Ecology when they ask you to investigate a site.

[00:08:52] Speaker 01:
They can also order it.

[00:08:53] Speaker 01:
In Accelacorp, that's what happened.

[00:08:55] Speaker 01:
The state agency ordered a site investigation on allegations of groundwater contamination.

[00:09:02] Speaker 01:
Now, because it was an order, did that mean that all the work that occurred under the order was remedial and not investigative, was indemnity and not defense?

[00:09:12] Speaker 01:
That was the issue in Accelacorp.

[00:09:13] Speaker 01:
We chose that case because it spoke directly to the issue that we're discussing right now.

[00:09:20] Speaker 01:
The trial court in the underlying case ordered the club to apply for permitting.

[00:09:25] Speaker 01:
It did not pre-decide the outcome of that process.

[00:09:28] Speaker 01:
That is like the state agency in Exelica ordering a remedial investigation.

[00:09:33] Speaker 01:
It did not decide whether there was going to be restoration and repair of groundwater in that case.

[00:09:38] Speaker 04:
I thought what the court ordered was if you wish to continue operating, you needed to see conditional use permits and go forward.

[00:09:46] Speaker 04:
There's a conditional element to this.

[00:09:49] Speaker 01:
That was reversed, Your Honor, and I realize that this case has a long tail.

[00:09:53] Speaker 01:
It's complicated in the underlying case, and it's complicated in this coverage action, but especially in the underlying case.

[00:09:59] Speaker 01:
The original trial judgment did order the club to stop operating until it could get a conditional use permit.

[00:10:06] Speaker 01:
That was reversed in the very first appeal, modified on remand, resulting in the permitting order, which the club's failure to comply with because Northland wouldn't pay for its application,

[00:10:17] Speaker 01:
cause it to be held in contempt.

[00:10:19] Speaker 01:
Okay, so that conditional use permit.

[00:10:21] Speaker 04:
I thought the court canceled the contempt.

[00:10:24] Speaker 01:
It did, but the club remains subject to the order to obtain permitting.

[00:10:28] Speaker 01:
And the cancellation of the contempt sanction did not abate the harm to the club because after the trial in this case, the county passed an ordinance that said unless a shooting range gets an operating permit, you can't operate.

[00:10:41] Speaker 01:
And then they decided that because the club was not in compliance with the permitting order,

[00:10:45] Speaker 01:
and had not applied for site development activity permitting, it could not obtain an operating permit.

[00:10:51] Speaker 01:
So the harm continued.

[00:10:53] Speaker 01:
The club is in legal limbo because it is like a party that's been ordered to perform a site investigation of a contamination site and can't do it because it doesn't have the money and its insurer denies payment of what it contends their defense costs.

[00:11:07] Speaker 03:
I'm still not quite sure if you answered Judge Sanchez's question, which is what are the

[00:11:13] Speaker 01:
The damages that are covered by the policy yes your honor there are several cases in washington have held that restoration costs so The party that does the groundwater investigation to use that analogy if they're required to remediate the groundwater Then they have restoration or repair costs and those are a form of damages It's like being held liable for repairing someone else's property that you've harmed the public waters are someone else's property

[00:11:38] Speaker 01:
If the club is ordered to restore and repair wetlands and surface waters, the cost of that is a form of damages under Washington.

[00:11:46] Speaker 04:
But that's an if because the club hasn't applied, and so we don't know that there's a remediation requirement attached to it.

[00:11:53] Speaker 01:
That's correct.

[00:11:54] Speaker 01:
You're speaking in hypothetical terms.

[00:11:55] Speaker 01:
The county is alleging that claim.

[00:11:57] Speaker 01:
It has not yet been resolved.

[00:11:59] Speaker 01:
The defense is ongoing.

[00:12:01] Speaker 01:
The club is stuck in limbo because its defense is not concluded.

[00:12:05] Speaker 01:
The only way right now for it to find out whether it can successfully avoid this alleged liability, the county is still alleging, still subject to the underlying trial court's jurisdiction.

[00:12:15] Speaker 01:
That was ordered.

[00:12:16] Speaker 01:
And by the way, the county seems content to leave the club in limbo, but that's another issue.

[00:12:22] Speaker 01:
If the club cannot proceed with its defense, it will be stuck in this position forever, potentially ceasing to exist.

[00:12:31] Speaker 01:
All we want is for, well, not all we want, but the claim is either to require Northland to pay for the permitting application costs that it denied in 2016 when it was defending.

[00:12:42] Speaker 03:
Now, this is critical, okay, because we... You characterize that as a part of the defense cost.

[00:12:47] Speaker 01:
Yes, exactly.

[00:12:48] Speaker 03:
Not as a coverage.

[00:12:49] Speaker 01:
That's correct.

[00:12:50] Speaker 01:
And I construe coverage, which is the term used by Northland Threats, to mean indemnity.

[00:12:54] Speaker 01:
That's what that means.

[00:12:55] Speaker 01:
None of the issues presented say that the club is entitled to indemnity.

[00:13:01] Speaker 01:
We're saying it's premature and there are questions of fact about indemnity.

[00:13:04] Speaker 01:
That was the fifth assignment of error.

[00:13:08] Speaker 05:
Just to be clear, in your view, the contract covers the permitting costs.

[00:13:15] Speaker 01:
The duty to defend includes the cost to pay for the permitting application.

[00:13:19] Speaker 01:
After we, you know, we get the permit.

[00:13:21] Speaker 01:
And do you have a case for that?

[00:13:22] Speaker 01:
Yeah.

[00:13:23] Speaker 04:
Because that's an unusual position to take.

[00:13:25] Speaker 04:
Yeah, well that's... Permitting is, you know, just, it's a standard, I mean this goes back to... As to doing business.

[00:13:30] Speaker 04:
Right.

[00:13:30] Speaker 04:
And this goes back to Judge McEwen's question about what makes this an accident as opposed to an intentional conduct.

[00:13:36] Speaker 04:
Because usually, a property owner is intentionally making modifications to their property and they're seeking a permit and, you know, this doesn't usually sound in an accidental occurrence.

[00:13:47] Speaker 01:
Well, we actually cited a case from Georgia where a party, where an insurer was required to pay for wetland restoration.

[00:13:56] Speaker 01:
But I love this AcceloCorp case because it really bridges this case about wetlands and public waters with the large body of environmental insurance coverage case law that already exists that maybe some of your honors have some familiarity with.

[00:14:10] Speaker 01:
When EPA or a state agency orders a party to investigate a site,

[00:14:16] Speaker 01:
That party has to then provide a work plan and get approval for that.

[00:14:22] Speaker 01:
It's basically a permitting process, Your Honors.

[00:14:25] Speaker 01:
So for the trial court, if the trial court had said

[00:14:29] Speaker 01:
you're going to come to me with your permitting terms, and I'm going to decide whether you get them or not, and then we're going to decide the outcome of whether you have to restore anything, there would be no question that that's part of the defense.

[00:14:40] Speaker 01:
But because they ordered a separate process before the local government, does that take it out of the defense?

[00:14:46] Speaker 01:
No, because that process is necessarily part of the defense.

[00:14:50] Speaker 01:
Excel or court specifically said just because it's ordered doesn't mean it's not part of the defense you have to look at whether it's in reasonable necessary to limit or avoid the alleged liability that's exactly the case here your honors we have to apply for the permit negotiate and advocate to minimize the liability maybe we can prove there's no duty to restore wetlands and surface waters

[00:15:16] Speaker 01:
And then the defense would be successful.

[00:15:20] Speaker 01:
If we have to restore wetlands and surface waters, then there's a liability that there may be a duty to indemnify.

[00:15:26] Speaker 03:
Does the county have other claims not related to the wetlands?

[00:15:30] Speaker 01:
It did, but those have all at this point been resolved, Your Honor.

[00:15:33] Speaker 01:
How were they resolved?

[00:15:35] Speaker 01:
Through multiple rounds of appeals.

[00:15:37] Speaker 01:
Much of the case was about altering the club's historical use rights or limiting them to remain within the scope of its nonconformities.

[00:15:45] Speaker 03:
So the only thing left is this alleged that the work

[00:15:49] Speaker 03:
Whatever with the modifications damage the wetlands.

[00:15:51] Speaker 01:
Yeah, that's right That's that's all it's what's really all that's left to be done And you know the county could have potentially said we want a warrant of abatement proceeding because the club isn't applying for permitting It didn't do that hasn't done that It's

[00:16:11] Speaker 04:
I actually just was thinking that.

[00:16:14] Speaker 04:
Why are you so sure that the permitting process would require environmental mitigation?

[00:16:19] Speaker 04:
Because the county, if it wanted to have remediation, could step in with a warrant of abatement and

[00:16:27] Speaker 04:
And I think that would put you more in the posture of Excella than where we are now.

[00:16:32] Speaker 04:
But it hasn't done that.

[00:16:33] Speaker 01:
And so we're again left in this kind of hazy area.

[00:16:37] Speaker 01:
Well, the warrant of abatement says, we're tired of asking you to do things.

[00:16:40] Speaker 01:
We're going to do it ourselves.

[00:16:41] Speaker 01:
We've got a warrant to come onto your property, which we normally couldn't do.

[00:16:44] Speaker 01:
We're going to do the work and charge you money for it and seek a judgment against you for it.

[00:16:48] Speaker 01:
The county, I think, in its own interest, has decided not to do that at this point.

[00:16:52] Speaker 01:
But if you look at the trial court's orders, especially what it said after the first remand, I think it answers your question quite directly, Your Honor.

[00:17:00] Speaker 01:
It said the permitting order is to cure the violations found by the trial court in the original trial judgment.

[00:17:06] Speaker 01:
Those include the violations in the area of the 300 meter range that included diversion of surface water.

[00:17:12] Speaker 01:
and also potentially include the harm to wetlands that the trial court said were suspected but not clearly proven to exist, but it wouldn't decide whether they existed or not.

[00:17:23] Speaker 01:
So that is within the bailiwick of the site development activity permitting process to decide what work was done, what permits, permitting terms are needed to retroactively allow it,

[00:17:38] Speaker 01:
and does that include some restoration of these surface waters or wetlands?

[00:17:43] Speaker 05:
Let me move you just to a different subject because your time is running out.

[00:17:46] Speaker 01:
I know your honor.

[00:17:47] Speaker 05:
And that has to do with this $48,000 that is hanging out there as unpaid defense costs.

[00:17:55] Speaker 05:
I can't really, the district says that that balance wasn't explained.

[00:18:00] Speaker 05:
So can you tell us where in your briefing or the record we find an explanation for the $48,000?

[00:18:07] Speaker 01:
yeah uh... well that so the very i think in the opening brief we laid out the facts very thoroughly and in the reply as well and they're very careful citations to the record your honor i don't have them all memorized but what we have is a declaration of uh... club executive officer marcus carter based on personal knowledge always involved in the case from its inception saying there were uh... invoices issued by the the insure the clubs defense attorneys for defense work

[00:18:37] Speaker 01:
Northland paid the vast majority of those, or almost all of them, but didn't pay $48,000, and the balance was carried through the invoices.

[00:18:46] Speaker 05:
So it's just a balance of the defense costs.

[00:18:50] Speaker 01:
Yeah, that's correct, Your Honor, and the testimony of Marcus Carter is that was for work related to the underlying case.

[00:18:55] Speaker 01:
At the time of the summary judgment when it was filed, we didn't know for sure why Northland had not paid them, but we knew they hadn't been paid and it was a claim that had been pleaded.

[00:19:07] Speaker 01:
So we presented a body of evidence to support that.

[00:19:11] Speaker 01:
As the briefing explains, the evidence come back in rebuttal did not foreclose questions of fact.

[00:19:19] Speaker 01:
Trial court's reasons for denying that claim did not adequately express what a reasonable fact-finder could infer and find based on the evidence, so that was an error.

[00:19:31] Speaker 01:
But can I just conclude with one final point, Your Honors?

[00:19:35] Speaker 01:
Again, it's so critical.

[00:19:37] Speaker 01:
The club doesn't need to prove an ongoing duty to defend.

[00:19:40] Speaker 01:
To prevail on many of these claims I just want to make that so perfectly clear to your honors because in Washington if there's a duty to defend until it's relieved That relief is not retroactive and until it's really there's a duty to pay defense costs understood duty to defend is broader than the duty of Coverage yeah, it's to pay under the indemnity, but let me I just have it Let me just I want you just to sue I don't know I haven't come to any final conclusions about this case at all

[00:20:10] Speaker 03:
But assume for a moment that the judgment were affirmed Okay, and then let's say a year from now the county says ah we're tired of this mess We got to get this cleaned up.

[00:20:22] Speaker 03:
You're not going to do it.

[00:20:22] Speaker 03:
We're going to do it We're going in and we're going to do the warranty proceeding whatever.

[00:20:28] Speaker 03:
We're just going to take care of this and too bad and They say and then they come back and they say you're going to pay for it You still have a defense don't you?

[00:20:39] Speaker 03:
And could you tender that to the insurance company?

[00:20:42] Speaker 01:
I think that would be dismissed with prejudice based on the decision.

[00:20:46] Speaker 03:
Why?

[00:20:47] Speaker 03:
Because you just said, you argued earlier that it's unclear whether or not there's even any

[00:20:56] Speaker 03:
you know, particular protected area in play.

[00:21:00] Speaker 01:
Northland is arguing there's no possibility of a covered liability because of the findings that have been made, that they really foreclose any possibility of a covered liability.

[00:21:10] Speaker 03:
Well, but suppose, you know, the county steps in and says, you know, look, we think there is damage and we're going to go out and take care of it, we're going to prove it, we're going to clean it all up and you're going to pay for it.

[00:21:20] Speaker 03:
And send you the bill.

[00:21:21] Speaker 03:
And that's true.

[00:21:22] Speaker 03:
Why can't you then say, hey, insurance company,

[00:21:25] Speaker 03:
This has been an ongoing claim.

[00:21:28] Speaker 01:
what you gotta pay and northland would clearly be in the right to say the district court decided there is no possibility of coverage we have defenses such as uh... uh... so i don't know what you want to say that but well i i mean this is this is exactly what happened we wouldn't have the right to know but i've been thinking about it though because the more the warranty procedures why wouldn't that be just a separate proceeding distinct it so the uh... unit of that triggers defense is a suit

[00:21:58] Speaker 01:
And that would be part of the same suit.

[00:22:00] Speaker 01:
The trial judge retained jurisdiction over that, actually issued orders granting it, subject to further proceedings.

[00:22:07] Speaker 01:
So the case is still open.

[00:22:09] Speaker 01:
It hasn't been closed.

[00:22:11] Speaker 01:
And so it's part of the same suit.

[00:22:12] Speaker 01:
So the defense is for the entire suit until the insurer is relieved of that.

[00:22:17] Speaker 03:
But if he's got a finding from the state trial court that he was not making any findings to the wetlands,

[00:22:26] Speaker 03:
Why would that you know that there that there was damage to wetlands?

[00:22:31] Speaker 03:
Why would that?

[00:22:33] Speaker 01:
Well for clothes I mean so first lawyer there was a finding of diversion of surface water, so I want to make that clear We do have that okay.

[00:22:41] Speaker 01:
We don't know if there's a duty to restore that remains open-ended but the possibility of that should trigger the ongoing duty to defend and

[00:22:49] Speaker 01:
I'm unclear on what in your hypothetical the reason for affirming the district court would be, but if it was on a full affirmance on all the grounds stated by the district court, there would be no remaining right of the club to seek

[00:23:06] Speaker 01:
coverage for anything related to the underlying lawsuit specifically Related the warrant of abatement.

[00:23:12] Speaker 01:
I mean that would have been litigated.

[00:23:14] Speaker 01:
You know we're saying that claim is still pending It's still being alleged.

[00:23:18] Speaker 01:
It hasn't been decided and you're saying well, what if we say agree with the district court saying it's not actually a pending claim and

[00:23:25] Speaker 01:
and then the county comes and renews it, that wouldn't be a new claim.

[00:23:29] Speaker 01:
I mean there are cases where the same parties get into successive litigation, but usually there has to be some new occurrence.

[00:23:37] Speaker 01:
There wouldn't be a new occurrence here.

[00:23:38] Speaker 01:
That would always be part of this same case and controversy.

[00:23:41] Speaker 03:
I was just trying to think through this.

[00:23:42] Speaker 01:
No, I appreciate that and I hope my answer is helpful.

[00:23:45] Speaker 03:
Thank you.

[00:23:46] Speaker 01:
Thank you, Your Honors.

[00:24:00] Speaker 02:
Good morning your honors Eric Neil on behalf of Northland insurance company Northland asked that this court firm the district court in all respects With all due respect to to counsel I Disagree with the notion that this is a complicated case I think your honor hit the nail on the head the heart of this case is whether there was an occurrence There's some other things we can talk about but what where's the accident here?

[00:24:28] Speaker 02:
I don't think that the club is making the argument at this point that they accidentally did all this site work out on their property without permits, or that they didn't know the law.

[00:24:44] Speaker 02:
That was an argument made at the district court level, and I think the district court correctly rejected that.

[00:24:50] Speaker 02:
What they're saying now is that we didn't really know the consequences of what was going to happen.

[00:24:55] Speaker 02:
I think that's that's both legally and factually incorrect from a legal standpoint.

[00:25:01] Speaker 02:
The question is whether something is an accident is whether the result is both acts whether even if it's an intentional act, whether the result is something that wouldn't be foreseeable by a reasonable person.

[00:25:15] Speaker 02:
And that factually just isn't the case here.

[00:25:19] Speaker 02:
They installed two 470-foot culverts for purposes of diverting extreme.

[00:25:28] Speaker 02:
they installed those, the stream got diverted.

[00:25:31] Speaker 02:
So in fact, the work that was done performed exactly as was intended.

[00:25:37] Speaker 02:
It wasn't an unforeseeable or unforeseen consequence.

[00:25:41] Speaker 02:
But that example even goes a little bit... Did it result in damage to the wetlands?

[00:25:48] Speaker 02:
Damage to wetlands

[00:25:51] Speaker 02:
If that was the case that the county put on, and this kind of shifts over into the notion of whether there was damages caused by property damage on this property.

[00:26:06] Speaker 02:
In terms of whether there's an occurrence, I don't think that we get into accidental conduct at any point here.

[00:26:14] Speaker 02:
And we really have to look at what the issue really was in the Superior Court.

[00:26:20] Speaker 02:
It wasn't about damage to wetlands and repairing damage or environmental cleanup or anything like that.

[00:26:27] Speaker 02:
The district court, I think, repeated this several times.

[00:26:31] Speaker 02:
The county sued to abate the nuisance that was caused by the increasing use of the property in terms of exploding targets and increased weapon calibers and paramilitary training.

[00:26:47] Speaker 02:
And it sued for unpermitted site work.

[00:26:51] Speaker 02:
And it's about the permits.

[00:26:53] Speaker 02:
Did they intentionally go out and do work without getting permits?

[00:26:57] Speaker 02:
And we have the record.

[00:26:57] Speaker 05:
On that point, because it's like we're listening to two different cases here to some degree.

[00:27:05] Speaker 05:
So if the rifle club was required to pay for basically restoring restoration costs, that would be environmental remediation, right?

[00:27:17] Speaker 05:
Correct.

[00:27:18] Speaker 05:
And that typically under Washington law would be?

[00:27:21] Speaker 05:
treated as a response cost that is a damage.

[00:27:25] Speaker 02:
Yes in in the cases that that are cited to in support of that by the club are The are cases involving Department of Ecology intervention the Circula actions where based on Washington State and federal strict liability environmental laws the cost of doing work are Damages under a policy

[00:27:52] Speaker 02:
But again, that's not what the county sought here.

[00:27:55] Speaker 05:
Okay, so that's what I wanted to now go to the two points that you raised.

[00:27:59] Speaker 05:
So let's go to the permitting costs, which was your first point.

[00:28:06] Speaker 05:
Where do the permitting costs fit in, in your view, with respect to the contract language?

[00:28:13] Speaker 02:
The permitting costs here are the cost of complying with an injunction.

[00:28:19] Speaker 02:
The case involving the unpermitted site work was effectively over in 2016 after the first appeal.

[00:28:29] Speaker 02:
The ongoing appeals and the modifications to the court's order related in 2022, 2023, whatever the time frame was, those related to the club's challenges to the escalated use injunctions.

[00:28:47] Speaker 02:
After 2016, there were no further appeals, no further litigation involving the unpermitted site work, and the Superior Court's injunction requiring the club to get permits before it could resume operations.

[00:29:03] Speaker 02:
Now, I was thinking of an example.

[00:29:06] Speaker 02:
Imagine if the county had sued a nightclub due to a noise nuisance, and the Superior Court said,

[00:29:15] Speaker 02:
You're right, I'm granting that injunction you can't operate as a nightclub until you take care of this noise problem.

[00:29:21] Speaker 02:
At that point, when the injunction is issued, the case is over.

[00:29:25] Speaker 02:
The only thing that happens next is what does the club do to comply with that injunction.

[00:29:32] Speaker 02:
Now it could certainly turn down the noise.

[00:29:34] Speaker 02:
It could spend a bunch of money to convert itself to a wine bar, much quieter environment.

[00:29:42] Speaker 02:
It could spend a bunch of money to put up baffling on the walls, insulation, noise-canceling technology.

[00:29:47] Speaker 02:
Are those defense costs?

[00:29:49] Speaker 02:
Are those something covered by their insurance policy?

[00:29:53] Speaker 02:
No, those are just costs of complying with an injunction.

[00:29:58] Speaker 02:
in order to resume their preferred business activities on that property.

[00:30:04] Speaker 02:
So I don't think that the costs of permitting fit within the mold of a defense cost, because what is a defense cost?

[00:30:15] Speaker 02:
A defense cost is a cost to defend an active and ongoing claim.

[00:30:19] Speaker 02:
It's something that, but once the county had received the injunction that it requested,

[00:30:26] Speaker 02:
then there was no longer any thing to defend.

[00:30:31] Speaker 02:
So defense counsel's activities going forward on that point were directed towards the non-conforming uses and not relating to the injunction.

[00:30:44] Speaker 04:
What about the contempt sanctions?

[00:30:49] Speaker 04:
If you were right and it ended then there would not have been a follow-up of issuance of contempt for not Getting the permits right right and I get and I understand that court has since canceled the the contempt requirements, but that suggests to me that there is something a little more ongoing in terms of a legal obligation and

[00:31:09] Speaker 02:
And your honor, in terms of the contempt proceedings, Northland paid for the defense of those proceedings.

[00:31:17] Speaker 02:
But that's not my point.

[00:31:20] Speaker 04:
My point is you're making the argument that things have stopped.

[00:31:24] Speaker 04:
There was a contempt sanction.

[00:31:26] Speaker 04:
The contempt sanction has been canceled, but the underlying obligation, the order, still remains, which is, I think, what your colleague on the other side is pointing to as saying things aren't over.

[00:31:40] Speaker 04:
There's still this prospect of something happening in the future, and that's the hook for defense costs.

[00:31:48] Speaker 02:
Again, I go back to the point that really it's the obligation of the insured to comply with an injunction.

[00:31:58] Speaker 02:
We pay for damages that an insured is legally obligated to pay because of property damage caused by an occurrence.

[00:32:06] Speaker 02:
Now, what they're trying to do is they're trying to take that... The judgment that was entered here wasn't the money judgment.

[00:32:14] Speaker 02:
It was an injunction.

[00:32:15] Speaker 02:
And what they're trying to suggest is that rather than paying damages to the county, the insurer is obligated to pay the insured to do work on their own property in order to comply with an injunction.

[00:32:33] Speaker 02:
And that's just simply apples and oranges.

[00:32:36] Speaker 02:
And the permitting costs,

[00:32:39] Speaker 02:
have nothing to do with defending the insured in court for a claim being asserted by the county for damages.

[00:32:48] Speaker 05:
What about their other point it seemed to me that was central to the argument is that they're in this limbo situation because the county could come back.

[00:32:58] Speaker 05:
It probably won't.

[00:33:01] Speaker 05:
So they're just sitting there and that exposure to potential damages

[00:33:08] Speaker 05:
invokes some kind of duty.

[00:33:10] Speaker 02:
And I think that goes to Judge Pizer's point, questions when Mr. Foster was speaking.

[00:33:19] Speaker 02:
The suggestion that there is the potential for some action to be taken by the county, there's always that potential.

[00:33:26] Speaker 02:
The county could sue for money damages tomorrow and say, hey, we've determined that the work you did on your property bled over into county-owned property and caused damage, and so we want money damages.

[00:33:39] Speaker 02:
They could do that tomorrow.

[00:33:40] Speaker 02:
One of the neighboring properties could find a bunch of lead in their backyard.

[00:33:45] Speaker 02:
You know spent casings or whatever and they might sue for damages a new claim can be brought at any time and to suggest that this case is just going to remain open forever and ever is Really kind of a fallacy the the fact of the matter is what does an insurance company and third-party liability context required to do?

[00:34:07] Speaker 02:
defend and indemnify

[00:34:10] Speaker 02:
Well, the club was provided with a full and complete defense, and there's nothing left to defend.

[00:34:15] Speaker 02:
There's no active claim.

[00:34:18] Speaker 02:
And indemnify.

[00:34:20] Speaker 02:
But there's no judgment for money damages due to property damage caused by an occurrence here.

[00:34:27] Speaker 02:
There's an injunction.

[00:34:28] Speaker 05:
So let's say that the county did the unthinkable and came back and said, OK, we're going to fix it all up and send you the bill.

[00:34:38] Speaker 05:
Yeah.

[00:34:38] Speaker 05:
There would be damages, right?

[00:34:40] Speaker 02:
There likely would be, and that could be tendered to Northland or any of the club's subsequent insurers.

[00:34:48] Speaker 02:
I don't believe my client has insured the club for a number of years, but it could be tendered to any number of carriers, including my client.

[00:34:56] Speaker 02:
It would have to be reviewed.

[00:34:57] Speaker 02:
We would have a good faith obligation to investigate.

[00:35:02] Speaker 02:
determine whether there's a defense indemnity obligation.

[00:35:05] Speaker 02:
But the question is, based upon the judgments that have been entered against the club today, is there a duty to defend?

[00:35:13] Speaker 02:
Is there a duty to indemnify?

[00:35:16] Speaker 02:
And the answer on both of those points is no.

[00:35:18] Speaker 05:
Well, you dealt with the permitting and then you said you had a second point related to non-conforming uses.

[00:35:26] Speaker 05:
And that that actually was the second part of the county's

[00:35:31] Speaker 05:
complaint against the rifle club.

[00:35:35] Speaker 05:
What were you referring to there?

[00:35:36] Speaker 05:
I mean, is that some pending claim resulting in damages?

[00:35:41] Speaker 02:
No, at the end of the day, Your Honor, there still has never been any kind of damage award granted by the Superior Court requiring Kitsap rifle to pay Kitsap County money damages.

[00:35:54] Speaker 02:
Doesn't exist.

[00:35:57] Speaker 04:
Can I ask you to turn back to the occurrence discussion?

[00:36:01] Speaker 04:
Do I understand your argument to be that whether something is an accident or not depends on whether someone has filed a permit?

[00:36:13] Speaker 04:
Let me give you a hypothetical.

[00:36:15] Speaker 04:
Suppose the club had sought and obtained permits for its work on the property.

[00:36:22] Speaker 04:
And, but during the course of that work, something unanticipated happened with the water table, or just something that they, you know, wasn't expected to happen and it causes damage to the wetlands or someone.

[00:36:36] Speaker 04:
Would that be a tendered claim for an occurrence, or is it the fact that they were intentional in seeking a permit and doing that work, would that foreclose that type of a claim under the policies?

[00:36:48] Speaker 02:
I think there is a pathway in a hypothetical situation to situations where permits are issued or sought or there's a misunderstanding of what the scope of a permit may include.

[00:37:06] Speaker 02:
Obviously in construction cases we run into this all the time where

[00:37:11] Speaker 02:
unforeseen site conditions require maybe updated permitting, but the insured fails to go out and get that updated permitting, and it results in some sort of unforeseen consequence.

[00:37:25] Speaker 02:
But here, the club knew it needed to get permits, because it began the process in 1996, and then failed to follow through and started doing the work anyways.

[00:37:38] Speaker 02:
And then in 2005,

[00:37:41] Speaker 02:
The county issued stop work order and said stop working and get permits for this stuff and the club ignored that and continued to do work on the property and so is there are there hypothetical situations where permitting applications and stuff can lead to an occurrence certainly absolutely but not on these facts your honor and again what we're talking about here, too is

[00:38:10] Speaker 02:
kind of this idea of unintended consequences.

[00:38:14] Speaker 02:
There's no record whatsoever presented by the club.

[00:38:20] Speaker 02:
It's a self-serving argument made in brief only that they didn't know that they were going to cause harm or that they didn't know that they were going to cause damage to wetlands.

[00:38:32] Speaker 02:
Well, that's not the point.

[00:38:33] Speaker 02:
The point is, did they suspect or should a reasonable person have known that by moving hundreds of cubic yards of material and building structures on a property without getting permits, that that might lead to the county coming in and saying, stop work, you need to get permits for this?

[00:38:54] Speaker 03:
They may not have intended it to cause any damage or to result in damage to protected wetlands.

[00:39:03] Speaker 03:
Right.

[00:39:03] Speaker 03:
Correct?

[00:39:05] Speaker 03:
I mean, so for example, they built these two culverts to divert water from a stream that I guess crossed over the shooting range.

[00:39:13] Speaker 03:
Right.

[00:39:13] Speaker 03:
Is that right?

[00:39:14] Speaker 03:
Yes.

[00:39:14] Speaker 03:
Is that what happened?

[00:39:15] Speaker 03:
Yes.

[00:39:15] Speaker 03:
And so they wanted the water out of the way, the stream.

[00:39:20] Speaker 03:
And as it turns out, that water, when it rains, I guess those culverts weren't big enough.

[00:39:27] Speaker 03:
But the water could, as I had from reading the findings of fact from the Superior Court, the water could overflow and cause damage to the land.

[00:39:43] Speaker 03:
Which, I mean, maybe they were just trying to divert the water, they weren't trying to.

[00:39:51] Speaker 03:
You know, they didn't anticipate, I mean, recently didn't anticipate any.

[00:39:56] Speaker 02:
We didn't know that by diverting water, we were going to cause situations that could result in pooling or flooding here or this or that.

[00:40:04] Speaker 02:
Why isn't that, why doesn't that, could that qualify as an accident?

[00:40:09] Speaker 02:
But that also is not in the record, Your Honor.

[00:40:11] Speaker 02:
You will not find a declaration from a member of the club that says that.

[00:40:15] Speaker 02:
You will not find any evidence from the club suggesting that they didn't know that there was a possibility that by diverting water they could cause problems.

[00:40:25] Speaker 02:
And that's the real point on that issue.

[00:40:28] Speaker 05:
Is it based on a reasonable person expectation or the individual here?

[00:40:33] Speaker 02:
It's a question of whether the result is reasonably foreseeable.

[00:40:36] Speaker 02:
Right.

[00:40:36] Speaker 02:
Is the result of your intentional act reasonably foreseeable, even if it's not the exact thing you expected to happen?

[00:40:44] Speaker 02:
The question is, I mean, they may have expected, Your Honor, that those culverts were going to be good enough and water was just going to flow and it was going to be nice and easy.

[00:40:52] Speaker 02:
But the question is, can a reasonable person expect or reasonably foresee that by diverting water, there is a possibility of causing problems?

[00:41:03] Speaker 02:
And I'll point out, too, in

[00:41:06] Speaker 02:
I don't think we've really discussed this.

[00:41:07] Speaker 02:
There is an exclusion for property damage on property you own.

[00:41:12] Speaker 02:
And nobody has suggested that any of this caused any damage outside of the Kitsap rifle property.

[00:41:21] Speaker 02:
So I think for a number of reasons, you've got an occurrence here.

[00:41:27] Speaker 02:
You do not have an occurrence here, because it was reasonably foreseeable.

[00:41:32] Speaker 02:
And again, I'll turn to the real point, which is it's reasonably foreseeable that by doing a bunch of work on your property without getting a permit, you may end up getting sued by the county for not having permits.

[00:41:45] Speaker 02:
And that's what really happened here.

[00:41:47] Speaker 02:
This is not an environmental cleanup case.

[00:41:50] Speaker 02:
This is not a case where there's been a warrant of abatement.

[00:41:52] Speaker 03:
Well, it could be, wouldn't it?

[00:41:53] Speaker 03:
the warranty of abatement, couldn't it result in?

[00:41:56] Speaker 03:
It could.

[00:41:57] Speaker 03:
So what's your response?

[00:41:59] Speaker 03:
You know, assuming, you know, just hypothetical.

[00:42:01] Speaker 03:
And I said, there's a lot to this case, and I don't have any.

[00:42:06] Speaker 03:
I haven't yet come to any conclusion about what should happen here.

[00:42:10] Speaker 03:
But suppose the judgment is affirmed, and a year later the county says, hey, we've got to clean this up.

[00:42:17] Speaker 03:
You're not doing it, we're doing it.

[00:42:19] Speaker 03:
And here's the bill.

[00:42:21] Speaker 03:
Right.

[00:42:22] Speaker 02:
One would can they can does this does the affirmance of this judgment foreclose them from ever coming back not at all not at all the question is based upon What is before this court is there a present duty to defend or indemnify if a new claim is my wife if we affirm and part of that affirmance is finding that there was no occurrence and

[00:42:43] Speaker 04:
Isn't that race to cut it to something going forward in the future?

[00:42:46] Speaker 04:
I mean, if part of the affirmance is the confirmation that there is not coverage on the basis of no occurrence, and then the county comes in with a warrant of abatement to fix these things, doesn't that have preclusive effect on trying to file a claim in the future?

[00:43:04] Speaker 04:
Because the underlying action that causes the warrant of abatement is something that was not in occurrence.

[00:43:11] Speaker 04:
It was an intentional act.

[00:43:12] Speaker 02:
And that very well may be the case, Your Honor, but the fact of the matter is, my client, if it was tendered, would have an obligation to investigate, determine coverage independent of, and my client may rely upon this court's ruling or the district court's ruling, but we would still have an independent obligation to evaluate and investigate that claim.

[00:43:41] Speaker 02:
They can't change the facts just because a new claim is made.

[00:43:43] Speaker 02:
If a warrant of abatement is in the future made, and this court and the district court have determined that there was never an occurrence, well, they can't unring that bell by saying, now there's a warrant of abatement that's been issued, it was all an occurrence, an accident all along.

[00:44:00] Speaker 02:
We still have an obligation to investigate this.

[00:44:02] Speaker 04:
I take your point, and I think...

[00:44:06] Speaker 04:
Of course, the club can always tender a claim and you would have a duty to investigate it, but it seems to me as a practical matter that that would probably go nowhere if this wasn't a firm at this stage.

[00:44:18] Speaker 04:
You don't have to answer that, but you know.

[00:44:20] Speaker 04:
Well, let me do it.

[00:44:21] Speaker 05:
Would you answer this real quickly, this hanging $48,000, which the district court says wasn't supported.

[00:44:27] Speaker 05:
He says, no, no, it's in the record.

[00:44:29] Speaker 05:
It's in our brief.

[00:44:31] Speaker 02:
This one is very strange.

[00:44:34] Speaker 02:
The only evidence that has been submitted on that 48,000, I'll direct the court to the excerpts of the record at page 425 and 426.

[00:44:45] Speaker 02:
This is supported by a declaration by a member of the club.

[00:44:51] Speaker 02:
And he says that this is something that was given to me by defense counsel.

[00:44:55] Speaker 02:
And it's a two page, like a one and a half page, it appears to be like an internal bookkeeping spreadsheet of some sort maintained by defense counsel.

[00:45:07] Speaker 02:
There's never been an explanation for what it actually is or what it means.

[00:45:11] Speaker 02:
There's no explanation in the declaration.

[00:45:15] Speaker 02:
Northland has invited but has never been provided with.

[00:45:19] Speaker 02:
Tell us what wasn't, specifically what wasn't paid.

[00:45:22] Speaker 05:
Tell us what we didn't pay.

[00:45:24] Speaker 05:
When you're asking, tell us what we didn't pay.

[00:45:26] Speaker 02:
Yeah, if there's a bill out there that wasn't paid, because all we have is this ledger.

[00:45:33] Speaker 02:
And it doesn't really explain to us what wasn't paid or what they think should have been paid.

[00:45:39] Speaker 02:
It may be that clients do this all the time.

[00:45:44] Speaker 02:
They may be challenged a line item on a bill or a set of line items for whatever reasons.

[00:45:53] Speaker 02:
We've invited them to say, tell us why something that wasn't paid should be paid.

[00:46:00] Speaker 02:
And that has never been provided.

[00:46:02] Speaker 02:
The district court correctly found that it's really just not a supportive plan.

[00:46:07] Speaker 05:
I have your point in mind.

[00:46:08] Speaker 02:
Thank you, Your Honor.

[00:46:11] Speaker 04:
Ms.

[00:46:11] Speaker 04:
Frost, we'll give you three minutes.

[00:46:25] Speaker 01:
Thank you, Your Honors.

[00:46:27] Speaker 01:
So if you believe the cost of the permitting application that Northland refused to pay in 2016 was a defense cost, then that claim should be reinstated because Northland breached its duty to defend, which it was attempting to perform at that time.

[00:46:48] Speaker 01:
You don't have to reach any of the policy interpretation coverage issues because Northland was defending

[00:46:56] Speaker 01:
I had a duty to pay reasonable defense costs at that time.

[00:46:59] Speaker 01:
Our briefs show whether it was a defense cost is a question of fact, should not have been found against the club as a matter of law and undisputed fact.

[00:47:08] Speaker 01:
If you want to simplify things down, that is the most important point for the club.

[00:47:18] Speaker 01:
There was a discussion about what is the standard or who has the burden of proving one of these coverage exclusions.

[00:47:27] Speaker 01:
When it comes to the duty to defend a mere possibility of a covered liability arising in the future in the suit at issue Triggers the duty to defend it is the insurer's burden to foreclose that possibility.

[00:47:41] Speaker 01:
This is a very very high burden It's one of the highest in coverage and liability coverage law Northland had to prove through some finding or uncontrovertible aspect of the allegations against the club that

[00:47:56] Speaker 01:
The only possible liability that could result would be excluded by the policy.

[00:48:00] Speaker 01:
It has not done that.

[00:48:01] Speaker 01:
There are still many undetermined questions that could decide things like whether there was an accidental occurrence.

[00:48:09] Speaker 01:
It is not the club's obligation to litigate all of those issues at this time because it is still defending itself.

[00:48:17] Speaker 01:
There was a gross misrepresentation, or I say this with all due respect, of the record of evidence related to the $48,000.

[00:48:25] Speaker 01:
I would just implore Your Honor, so please read that.

[00:48:27] Speaker 01:
Read what?

[00:48:28] Speaker 01:
The briefing filed by the club.

[00:48:30] Speaker 05:
I read the briefing, but I'm still a little at a loss.

[00:48:33] Speaker 01:
Okay.

[00:48:33] Speaker 01:
I'm getting to that, Your Honor.

[00:48:35] Speaker 05:
Okay.

[00:48:35] Speaker 01:
Well, first of all, criticism of the evidence presented by the club falls short because Northland was the moving party.

[00:48:44] Speaker 01:
It had to raise the issues to which the club was supposed to respond.

[00:48:48] Speaker 01:
Northland didn't even flag this claim as one upon which it was moving for summary judgment.

[00:48:54] Speaker 01:
All you really need to do is look at the evidence filed by the club and the evidence filed by Northland on these points and ask yourself, is there a genuine issue material fact about this claim?

[00:49:02] Speaker 01:
Did Northland foreclose it?

[00:49:03] Speaker 01:
It didn't.

[00:49:06] Speaker 01:
In Hales, there was a covered occurrence where the insured turned on an irrigation system that harmed an onion crop.

[00:49:12] Speaker 01:
Turning on the irrigation system is deliberate intentional knowing.

[00:49:15] Speaker 01:
Harming the onion crop is not.

[00:49:16] Speaker 01:
It is the consequences that matter when it comes to the occurrence or accident question.

[00:49:24] Speaker 01:
I know we've taken a lot of your time.

[00:49:25] Speaker 01:
I really appreciate your Honours and I appreciate the opportunity to appear before you today.

[00:49:29] Speaker 04:
Thank you Council and thank you both for your very helpful arguments.

[00:49:31] Speaker 04:
The matter will stand submitted.