[00:00:00] Speaker 04:
I'll reserve 12 minutes for rebuttal.

[00:00:02] Speaker 04:
May it please the court.

[00:00:04] Speaker 04:
My name is Todd Scogland.

[00:00:05] Speaker 04:
I represent the law on plaintiffs as the sides of Highmark Homes.

[00:00:10] Speaker 04:
There's two main issues before this court today.

[00:00:12] Speaker 04:
The first I'll cover is the duty to identify the interpretation of the track house endorsement.

[00:00:19] Speaker 04:
It is our opinion, the district court read it as broad as possible, which is against Washington law.

[00:00:25] Speaker 04:
It specifically says they can build up to 25 or more houses within a time frame.

[00:00:29] Speaker 04:
Facts matter.

[00:00:31] Speaker 01:
Where does it say within the time frame?

[00:00:35] Speaker 01:
The language, as I read it, doesn't have a time frame to it.

[00:00:38] Speaker 04:
It does not, Your Honor.

[00:00:40] Speaker 04:
It does not have a time frame.

[00:00:41] Speaker 04:
That's why I said the district court read it as broad as possible.

[00:00:45] Speaker 04:
It does have a policy period.

[00:00:46] Speaker 04:
They bought a policy period.

[00:00:48] Speaker 04:
The district court cited Seattle Tuttle, which is the case building the tunnel downtown, which is a project policy, which is 72, I think it was 72 or 78 months long because of the project.

[00:00:59] Speaker 04:
And that's the case it cites.

[00:01:00] Speaker 04:
If you read the opinion, you won't see that time frame in it.

[00:01:04] Speaker 04:
You have to go back and pull the record.

[00:01:06] Speaker 04:
And the actual policy, but if you flip through the policy referenced in the Seattle Tunnel Case, Seattle Partners Tunnel Case, it'll tell you it's a policy, a project policy, which extended the entire project.

[00:01:20] Speaker 04:
This is a standard CGL policy, which is a one-year policy, which ran from 7-16, 2010 to 2011, 11 to 12, 7-16, 12 to 13.

[00:01:30] Speaker 04:
There was four houses built in the second policy period.

[00:01:34] Speaker 00:
You agree that there were 25 or more residential buildings that were built in the development?

[00:01:43] Speaker 04:
I wouldn't concede it's a development, Your Honor.

[00:01:45] Speaker 04:
If you read the first part of my argument, that development was submitted by a different developer, and then Highmark Homes came in and it submitted

[00:01:55] Speaker 04:
individual certificates or individual plans for every house built and he treated every project as a house and then he submitted another house and then another house and that's how he read the policy so he decided or he defines a project as a house which is a standard term

[00:02:17] Speaker 04:
Use a house as a project could be a project could be a number of projects and the term most favorable to the insurer or sure is the term the court should use not the one That the developer wants to use and they want to use project the policy uses the term phase a phase Phase yes, phaser development.

[00:02:36] Speaker 04:
Yes, why doesn't that cover it?

[00:02:39] Speaker 04:
How many phases are there build a table or chair your honor?

[00:02:42] Speaker 04:
You could build a phase could be

[00:02:45] Speaker 04:
This court has phases.

[00:02:46] Speaker 04:
It has a discovery phase.

[00:02:48] Speaker 03:
It has an opening statement phase.

[00:02:50] Speaker 03:
Well, you know, it's not realistic.

[00:02:52] Speaker 03:
Well, maybe it is with some builders, but it seems hard to imagine that a builder could build 25 homes in one year.

[00:03:00] Speaker 04:
As in the intro, this motion says there's four, actually this builder, if you look at the project at the beginning of this motion, you'll see there's four projects being at issue when.

[00:03:11] Speaker 04:
Yes, there's several other cases.

[00:03:12] Speaker 04:
He actually, I don't know the exact number in my head, but he had projects going on, innovative houses built all over the place.

[00:03:19] Speaker 04:
A lot of these projects were combined.

[00:03:20] Speaker 04:
If you actually combined all the different projects.

[00:03:21] Speaker 00:
Can you slow down just a little bit?

[00:03:23] Speaker 00:
I'm having some difficulty following you, so maybe just slow down.

[00:03:27] Speaker 00:
I have, yes, Your Honor.

[00:03:29] Speaker 00:
Thank you.

[00:03:30] Speaker 04:
And so the way that there was actually a lot more than 25 Projects going on at same time.

[00:03:37] Speaker 04:
He's built if you look At all the projects he he contracted per home or project every contract was there wasn't Five homes at a time each house if you look at the facts and these facts are undisputed your honor.

[00:03:53] Speaker 04:
There's no dispute here and

[00:03:55] Speaker 04:
He contracted every house as a single project.

[00:03:58] Speaker 04:
There was a single framer for that project, a single plumber, a single roofer.

[00:04:02] Speaker 04:
As soon as that house was built and the city approved another house, he would hire, he would put up for bid, I should say, the roofing, the framing, the plumbing, and so that house or project would be done individually.

[00:04:16] Speaker 04:
These facts are not disputed.

[00:04:18] Speaker 04:
So he did not build this as a project.

[00:04:22] Speaker 04:
And all the literature I supplied to the court

[00:04:25] Speaker 04:
And there's no counter-testimony.

[00:04:27] Speaker 04:
This must be noted to the court that they produced no evidence in this case except for their lawyers' arguments.

[00:04:34] Speaker 01:
Can I just read you the policy and then work from there?

[00:04:37] Speaker 04:
Yes, sir.

[00:04:37] Speaker 01:
We know that tracked housing is excluded from coverage.

[00:04:42] Speaker 01:
Now the question is, what is tracked housing?

[00:04:46] Speaker 01:
Tracked housing is defined, and I'm on 14ER3773, and I'm just reading.

[00:04:54] Speaker 01:
Tracked housing is defined as follows.

[00:04:57] Speaker 01:
Tracked housing or tracked housing project or development

[00:05:00] Speaker 01:
means any housing project or development that includes the construction, repair, or remodel of 25 or more residential buildings by our insured in any or all phases of the project or development.

[00:05:15] Speaker 01:
So why is this not tracked housing under that definition?

[00:05:19] Speaker 04:
Because the way my client defined it is

[00:05:23] Speaker 04:
one policy period.

[00:05:24] Speaker 01:
The average person... I don't care how your client does it.

[00:05:27] Speaker 01:
Give me an argument as to why this is not tracked housing.

[00:05:30] Speaker 01:
That wasn't quite responsive to me.

[00:05:34] Speaker 01:
So why is this not tracked housing?

[00:05:36] Speaker 01:
He built 25 houses or contributed to the building within the meaning of this phrase of 25 houses.

[00:05:42] Speaker 01:
So why isn't it tracked housing?

[00:05:44] Speaker 01:
But in this language, there's no limitation as to policy period.

[00:05:52] Speaker 01:
It just says tracked housing, and here's what tracked housing is.

[00:05:57] Speaker 04:
Then if you read the first three or four pages of the policy, it says you must read this entire policy as a whole.

[00:06:02] Speaker 01:
Of course, you always have to do that.

[00:06:05] Speaker 04:
But in big, bold letters.

[00:06:07] Speaker 01:
Even if it weren't tiny letters, I understand that.

[00:06:10] Speaker 04:
So if you built four houses, like this developer did,

[00:06:14] Speaker 04:
Four houses, right?

[00:06:15] Speaker 04:
And the policy ends.

[00:06:16] Speaker 04:
Four houses.

[00:06:17] Speaker 04:
So they built 21 houses in the next policy period.

[00:06:20] Speaker 04:
Why would the average person say that has no connection to this phase of project, even if you want to call it a phase of project, in that policy period, why would you assume that?

[00:06:30] Speaker 04:
You're reading that language as broad as possible.

[00:06:32] Speaker 04:
And the state of Washington says, no, you read that narrow.

[00:06:34] Speaker 04:
You keep it within the year.

[00:06:36] Speaker 04:
If you want a Seattle Tunnel Partner case.

[00:06:39] Speaker 03:
What language do we use to read in that one year?

[00:06:43] Speaker 03:
Limitation.

[00:06:44] Speaker 03:
The policy period.

[00:06:47] Speaker 04:
The policy period, Your Honor.

[00:06:49] Speaker 03:
And why would an average person assume that... Well, no, but taking Judge Fletcher's question where he pointed you directly, he read the language from the policy that's in play here, you're basically saying we need to rewrite that to add in within a year or within the policy period.

[00:07:11] Speaker 04:
I'm asking the court to look at the policy as a whole and the policy period and that together.

[00:07:18] Speaker 04:
And when you read the exclusion and the policy period together, the average person would not assume a policy that no coverage of that next policy.

[00:07:27] Speaker 04:
There's no coverage.

[00:07:28] Speaker 04:
This is CGL policy, single family housing, not an apartment project where you'd have a continuation over policy periods.

[00:07:36] Speaker 04:
This is a distinct ending period when a house is built.

[00:07:39] Speaker 00:
What do we do with the fact that

[00:07:41] Speaker 00:
Highmark itself informed TIG that Highmark worked on 25 tracked homes.

[00:07:48] Speaker 00:
I'm looking at 4ER 747.

[00:07:50] Speaker 00:
This is a statement of the builder that they've worked on 25 tracked homes.

[00:07:58] Speaker 04:
I'm not sure of this phrase.

[00:07:59] Speaker 04:
I'll look at what Helen's speaking, but I would still argue that they thought the time frame was when track homes are in that time frame.

[00:08:08] Speaker 04:
i.e.

[00:08:09] Speaker 04:
once again, the Seattle Tunnel case.

[00:08:11] Speaker 04:
You want the whole period?

[00:08:13] Speaker 04:
Are all the houses covered?

[00:08:14] Speaker 04:
And the whole project, the whole development?

[00:08:16] Speaker 04:
You say, no time for it.

[00:08:18] Speaker 04:
They paid a premium for coverage.

[00:08:21] Speaker 04:
They built four houses.

[00:08:22] Speaker 04:
So now, there's no coverage for those four houses under this Court's analysis, or what I'm referring to is the Court's questions, or the 21 houses.

[00:08:31] Speaker 04:
It bought coverage for up to 48 houses, and it got coverage for 25 houses, is how I look at that phrase.

[00:08:37] Speaker 04:
Because each policy, you build up to 25 houses, right?

[00:08:40] Speaker 04:
So each policy, you built up to 24 houses, right?

[00:08:44] Speaker 04:
So up to 24 houses, they did so at four and 21.

[00:08:49] Speaker 04:
Under two different policies, they're covered.

[00:08:52] Speaker 00:
Unless... So I think your argument is essentially that we should be reading in language and the policy that doesn't exist to be able to think about this as a per policy development as opposed to

[00:09:04] Speaker 00:
the over that that entire period of all the policies combined correct exactly what I'm okay so I'm gonna actually move you to a different issue because you're short on time and you wanted to reserve some of your time for rebuttal.

[00:09:15] Speaker 00:
I'm I'm I want to ask you about the bad faith claims.

[00:09:21] Speaker 00:
And the fact that it seems to me that some of the theories for your bad faith claim that you're raising now on appeal were never raised before the lower court.

[00:09:30] Speaker 00:
And in fact, sir, just let me finish my question.

[00:09:33] Speaker 00:
There was a motion for leave to amend the complaint that included the very theories that are now being argued to this court.

[00:09:40] Speaker 00:
And they were not permitted to be added to the complaint through a motion to amend.

[00:09:47] Speaker 00:
So I want to understand, and I'm particularly

[00:09:51] Speaker 00:
you know, confused about this issue because you all make these arguments that weren't raised below and your friends on the other side don't actually raise the fact that you didn't raise these theories below and they address the merits of them, which I'm not understanding why.

[00:10:08] Speaker 00:
But what do we do with this fact now that you are asking us to decide issues that were not only not raised but were explicitly rejected in your motion for leave to amend?

[00:10:19] Speaker 00:
Um, can we address those?

[00:10:21] Speaker 00:
Why should we address those?

[00:10:23] Speaker 00:
Are they forfeited?

[00:10:23] Speaker 04:
If they were briefed in the lower court, I believe they are before this court.

[00:10:27] Speaker 00:
And the reason they're not briefed to the lower court, they in fact were not permitted to be included in your complaint.

[00:10:33] Speaker 04:
Not all of them.

[00:10:34] Speaker 04:
And I would argue twofold.

[00:10:35] Speaker 04:
First, the duty to defend is very broad.

[00:10:38] Speaker 04:
And yes, I did not know that they fired their counsel.

[00:10:41] Speaker 04:
And there's some other things that were known at the time that the accusations were made.

[00:10:46] Speaker 04:
But that doesn't preclude the fact that this court could consider them when they were briefed, and they are before the court.

[00:10:52] Speaker 04:
And I would, as far as we're on these claims, once again, there's no evidence contrary to the positions taken.

[00:11:02] Speaker 04:
And so as far as the bad faith claims and then firing their counsel and getting new counsel and then paying half the cost for the new counsel and putting all the costs on a, the other insurer, that is actually a motion for, there's a motion for the Ninth Circuit on whether or not that should be heard by the state court.

[00:11:25] Speaker 04:
I don't know if the court's aware of that.

[00:11:26] Speaker 00:
A certification.

[00:11:27] Speaker 04:
Yes, a certification.

[00:11:29] Speaker 04:
And so the issue was raised in another motion, maybe not directly.

[00:11:33] Speaker 04:
And the reason it kind of gets convoluted is the three cases.

[00:11:36] Speaker 04:
There's overlapping arguments.

[00:11:39] Speaker 04:
And I know they're all separate cases.

[00:11:41] Speaker 04:
And maybe they should have been consolidated, looking back at them all, Your Honor.

[00:11:44] Speaker 04:
They're more similar than thought.

[00:11:46] Speaker 04:
But you don't find that out until discovery.

[00:11:49] Speaker 04:
And once discovery goes, you start understanding the different arguments and how they are all intertwined.

[00:11:59] Speaker 04:
Under Washington law, I just want to be clear.

[00:12:02] Speaker 04:
They're asking you to broad language on a CGL annual policy period to cover events that aren't covered outside of policy.

[00:12:12] Speaker 04:
It'd be no different than a car wreck in one policy.

[00:12:15] Speaker 04:
Then you get a car wreck later and you say, well, that's the worst.

[00:12:18] Speaker 04:
They're both covered.

[00:12:19] Speaker 04:
They're two car wrecks.

[00:12:21] Speaker 03:
Let me just ask you one question.

[00:12:23] Speaker 03:
Yes.

[00:12:26] Speaker 03:
There was an earlier case that we decided, the Ninth Circuit decided.

[00:12:30] Speaker 03:
Hey.

[00:12:32] Speaker 03:
Yep.

[00:12:32] Speaker 03:
Very familiar with you, Your Honor.

[00:12:34] Speaker 03:
Yeah, you would probably counsel on that case, right?

[00:12:37] Speaker 03:
Yes, it was.

[00:12:38] Speaker 03:
And it's the same policy provision.

[00:12:42] Speaker 03:
Yep.

[00:12:42] Speaker 03:
Right?

[00:12:43] Speaker 03:
Yep.

[00:12:44] Speaker 03:
I think it's same project, too.

[00:12:46] Speaker 03:
Different project, but same time frame.

[00:12:48] Speaker 03:
Same time frame.

[00:12:48] Speaker 03:
Yeah, that's... Okay.

[00:12:49] Speaker 03:
It's the same policy provision.

[00:12:52] Speaker 03:
Yep.

[00:12:53] Speaker 03:
The panel in that case didn't buy your argument.

[00:12:56] Speaker 04:
The argument wasn't made, Your Honor.

[00:12:57] Speaker 04:
Why it wasn't made?

[00:12:59] Speaker 04:
Because 25 houses were actually certified for occupancy within one policy period.

[00:13:05] Speaker 04:
So you can't make the argument two policies were triggered.

[00:13:09] Speaker 04:
There's 25 houses built in one policy period.

[00:13:12] Speaker 04:
Another policy has to occur within the policy, right?

[00:13:16] Speaker 04:
It was, and they were certified for occupancy in one policy period.

[00:13:19] Speaker 04:
So it was stuck in one policy period.

[00:13:21] Speaker 04:
You couldn't make the argument that you can't, you're stretching it into another policy period to trigger your coverage.

[00:13:26] Speaker 04:
That is the quintessential difference in all these cases.

[00:13:31] Speaker 04:
And there's different factual scenarios in each of these cases.

[00:13:34] Speaker 04:
That's where I think the Hay case is, that broad statement the court made, is incorrect.

[00:13:42] Speaker 04:
There's other cases out there that, there's other insurers after this policy.

[00:13:46] Speaker 04:
So 20 houses were built, no figure, but other houses were built while insured by another insurer.

[00:13:54] Speaker 04:
to get 25.

[00:13:55] Speaker 04:
And so how far are you going to stretch this?

[00:13:57] Speaker 04:
And I know the court doesn't like hypotheticals and doesn't really look at them, but that's where the hay court, that broad decision, that would, I'll do you expect the judge to last, that broad statement should be made in a Washington court, because facts matter.

[00:14:13] Speaker 04:
In every case,

[00:14:14] Speaker 04:
affects an exclusion different.

[00:14:16] Speaker 03:
You know, the Ninth Circuit decision is a memorandum disposition.

[00:14:22] Speaker 03:
But it's not binding on us.

[00:14:26] Speaker 03:
It's not binding authority.

[00:14:28] Speaker 04:
And if you read the, it basically said if they think there's 25 houses and they complain and they deny it on that claim on the duty to defend, so be it, there's no factual dispute there.

[00:14:38] Speaker 04:
Where in this case the facts say four houses, so you gotta go back in time where there's no coverage to get houses,

[00:14:45] Speaker 04:
And then you know, for that time, some more houses, if they want that policy in Washington, Seattle, the court's right to cite Seattle Tunnel, because it's a project policy.

[00:14:55] Speaker 04:
If they wanted a project policy to cover all phases, all development of all time, they should issue it.

[00:15:00] Speaker 04:
The average person reading that policy would not think an occurrence

[00:15:06] Speaker 04:
six years later, two years, one year, whatever it is, would trigger an exclusion and deny coverage.

[00:15:12] Speaker 00:
Council, would you like to reserve the balance of your time for a vote?

[00:15:14] Speaker 04:
That'd be fine.

[00:15:31] Speaker 02:
Thank you, Your Honor.

[00:15:32] Speaker 02:
May it please the court, Chancellor Loboto, on behalf of TIG Insurance Company,

[00:15:36] Speaker 02:
This is really a simple question of policy interpretation.

[00:15:39] Speaker 02:
TIG is not up here, it's just up here asking you to enforce the policy as written.

[00:15:45] Speaker 02:
Washington law is clear that if, based on policy interpretation, that clear and ambiguous policy terms must be given, must be enforced as written.

[00:15:57] Speaker 02:
And that's all TIG is asking you to do today.

[00:16:00] Speaker 02:
The track housing exclusion or endorsement explicitly Excludes coverage for track housing developments that are 25 or more buildings built by an insured in any and all phases of a project or development This language has been enforced as plain and unambiguous by this court I Want to briefly a driving about hey, yes in hey yes, and in that court in that case this court is

[00:16:32] Speaker 02:
explicitly held that neither is susceptible to competing interpretations, at least none that are unassailable.

[00:16:51] Speaker 01:
I'm sorry, you mumbled.

[00:16:52] Speaker 01:
I couldn't understand.

[00:16:53] Speaker 02:
Oh, sorry.

[00:16:54] Speaker 02:
I was just reading the log or the hay decision.

[00:16:57] Speaker 02:
The court ruled that the exclusion is unassailable and not open to susceptible to competing interpretations.

[00:17:04] Speaker 01:
You say the conclusion is unassailable.

[00:17:06] Speaker 01:
What conclusion are you talking about?

[00:17:07] Speaker 02:
That the tract housing endorsement applied to exclude coverage.

[00:17:12] Speaker 01:
Again, how does that help me you give me the facts it applies to that one, okay?

[00:17:17] Speaker 02:
But well in this case in this case Highmark built 25 homes It's not reasonably in dispute that this project did not involve more than 25 homes And so you know this is the bargain for insurance that was purchased by harm mark Tg Sold the policy, but that is the policy that Highmark chose to purchase and

[00:17:45] Speaker 03:
But he says, this wasn't a real project.

[00:17:52] Speaker 03:
You might think about a project.

[00:17:53] Speaker 03:
You think about, well, I'm a developer.

[00:17:55] Speaker 03:
I'm going to build 45 homes.

[00:18:01] Speaker 03:
But it takes time to build 45 homes.

[00:18:07] Speaker 03:
He says, that's not what this was.

[00:18:09] Speaker 03:
A project like that takes phases and whatever.

[00:18:13] Speaker 03:
It may take years.

[00:18:17] Speaker 03:
This he says was, basically he says each home was an individual project.

[00:18:26] Speaker 02:
Right.

[00:18:27] Speaker 02:
I'm not sure that that issue was properly briefed before this court, but I also don't think it's reasonable.

[00:18:32] Speaker 03:
What do you make of it?

[00:18:33] Speaker 02:
I don't think it's reasonably in dispute.

[00:18:35] Speaker 02:
I mean, the Vintage Hills project contained much more than 25 homes, and Highmark was the developer on all of them.

[00:18:43] Speaker 02:
The fact that it took multiple years, and each house is built individually, that's how housing developments work.

[00:18:50] Speaker 02:
You build them in phases, phase one, phase two, and of course, it takes time.

[00:18:56] Speaker 02:
I don't think whether one house was built and then they moved on to the other how disqualifies it as a phaser development, and I don't think the public site to any case law that supports that position.

[00:19:10] Speaker 03:
Was there an overall you know you have to go to the.

[00:19:13] Speaker 03:
I guess to the county or wherever the city.

[00:19:17] Speaker 03:
To get the permits was it presented as a you know like this is a.

[00:19:22] Speaker 02:
100 100 track It was your honor it was submitted as a plot to this county that you know each house was individually laid out you know and Then Highmark went in and built each house individually and got certificate of occupancies individually But it was all part of the same development those submitted to the city of Bremerton.

[00:19:44] Speaker 02:
I believe I

[00:19:50] Speaker 02:
Appellate site to the case Seattle Tunnel Partners, which is a case that does not apply to the facts of this case.

[00:19:56] Speaker 02:
It was cited to at the lower level to clear up some policy language.

[00:20:01] Speaker 02:
It basically was cited to show the language, you know, how courts are to interpret policies in the state of Washington.

[00:20:09] Speaker 02:
But Seattle Tunnels Partners is a first party property case that covers

[00:20:13] Speaker 02:
specific covered perils.

[00:20:16] Speaker 02:
In this case, we're dealing with a general liability policy that is a yearly policy and is really, you know, the trigger in a CGL policy is property damage caused by an occurrence.

[00:20:30] Speaker 02:
The trigger in a first party all risk policy is, you know, covered perils unless explicitly excluded.

[00:20:37] Speaker 02:
So they really are an opposite.

[00:20:40] Speaker 02:
And the rationale in Seattle Tunnel Partners does not apply to the facts of this case.

[00:20:47] Speaker 02:
Another thing is that the tracked housing exclusion, it does not modify the insuring agreement.

[00:20:53] Speaker 02:
The insuring agreement stays the same.

[00:20:55] Speaker 02:
Rather, it is a limitation on certain types of coverages that was bargained for by Harmark when they purchased it.

[00:21:02] Speaker 02:
They, being Highmark, explicitly chose to buy a policy that limited coverage to 25 or less homes.

[00:21:11] Speaker 02:
If they had built 22 homes, the tract housing exclusion wouldn't apply, but it's the 25 or more homes that makes the tract exclusion apply.

[00:21:19] Speaker 02:
These types of mandatory endorsements are routinely upheld and are part of the insurance procurement process.

[00:21:25] Speaker 02:
It affects premiums and how much the insured elects or wants to pay.

[00:21:30] Speaker 02:
I think the facts of this case show that there's two policies at issue here.

[00:21:36] Speaker 02:
There's the handover policy, which was wasting.

[00:21:39] Speaker 02:
And because it was wasting in theory, Highmark decided to get a second CGL policy.

[00:21:44] Speaker 02:
But this policy explicitly excluded coverage for 25 or more homes in any and all phases.

[00:21:49] Speaker 02:
So the two policies, one wasting, one with a track housing exclusion, that's simply the insurance that Highmark chose to purchase.

[00:21:58] Speaker 02:
to ensure their risks.

[00:22:00] Speaker 02:
It does not modify the insurance agreement.

[00:22:02] Speaker 02:
The insurance agreement still covers property damage caused by an occurrence.

[00:22:05] Speaker 02:
It is simply just a limitation on the type of coverage that is available.

[00:22:14] Speaker 03:
So explain to me a little bit more in layman's terms what was actually covered then.

[00:22:22] Speaker 02:
Well the the insurance agreement itself covers property damage caused by an occurrence or bodily injury so if you know it was a single project and high mark put up the home and or a single house in the project and The roof leaked and got down into the flooring then you know the cost to repair the flooring would have been covered It doesn't change the type of coverage available.

[00:22:46] Speaker 02:
It's just a

[00:22:47] Speaker 02:
As soon as you build 26 homes and all the floor or all the roofs leak and get down into the flooring, then you have a limitation on the coverage and the tract housing applies to or applies to, you know, eliminate coverage for that type of project.

[00:23:01] Speaker 00:
There was a determination in a prior proceeding that Highmark was in fact liable for some of these home construction defects, correct?

[00:23:11] Speaker 00:
This was before they assigned their claims to the homeowners.

[00:23:16] Speaker 02:
I don't know if it was a finding, but they did settle the case.

[00:23:19] Speaker 02:
And I mean, sure.

[00:23:21] Speaker 02:
I, yes, I, yes.

[00:23:22] Speaker 00:
There was a judgment against Highmark.

[00:23:25] Speaker 02:
Correct.

[00:23:25] Speaker 00:
For the construction defects.

[00:23:27] Speaker 00:
Right.

[00:23:28] Speaker 00:
And then those, those, the plaintiffs who received that judgment in their favor against Highmark decided to pursue their claims directly as to TIG as opposed to Highmark.

[00:23:42] Speaker 00:
correct okay so there was no effort to be able to get their repairs made or whatnot through highmark directly highmark said here you can just have our claims against t i g

[00:23:58] Speaker 02:
So the duty to indemnify is different than the duty to defend, however, and the duty to indemnify is based on actual coverage available under the policies.

[00:24:06] Speaker 02:
In this case, and it has been, you know, repeatedly upheld through the courts, is that the CAD exclusion applies to preclude coverage.

[00:24:13] Speaker 02:
So that's why there's no indemnity obligation on behalf of TIG to go out and actually pay for what would be considered the necessary repairs in this case.

[00:24:21] Speaker 03:
So once this endorsement kicked in, that's it, there was no coverage?

[00:24:24] Speaker 03:
Correct.

[00:24:25] Speaker 02:
Correct, Your Honor.

[00:24:26] Speaker 00:
Can you turn to the issue of the bad faith claim and why it is that you did not argue on appeal that these arguments had been waived?

[00:24:39] Speaker 00:
And what do we do with that now?

[00:24:40] Speaker 00:
Because I think that we would, had you preserved or made the argument that the bad faith argument the plaintiffs now try to make are waived, we could perhaps address those as a waiver issue.

[00:24:53] Speaker 00:
But now that you didn't do that,

[00:24:55] Speaker 00:
I'm not sure we can do that, and you've only argued the merits, so.

[00:25:00] Speaker 02:
That's correct, Your Honor.

[00:25:00] Speaker 02:
And TIG thought it was necessary to address the claims on the merits, you know, given the substantial exposure that comes with a bad faith claim and an allegation that they failed to defend.

[00:25:11] Speaker 02:
It was pertinent on TIG's part to get out ahead of it.

[00:25:14] Speaker 00:
So are you conceding that you waived the waiver?

[00:25:19] Speaker 02:
I'm not sure we waived the waiver because you're talking explicitly about the motion for leave to amend, correct?

[00:25:24] Speaker 00:
Talking about in this appeal, you never argued that the plaintiffs are raising arguments for the first time that were not raised below and in fact were precluded from being raised when their motion for leave to amend was denied.

[00:25:40] Speaker 02:
I think you could say we waived it as it pertains to the motion for leave to amend, but

[00:25:45] Speaker 02:
The appellates also filed a motion for summary judgment at the lower court that did address bad faith claims, if I'm not mistaken.

[00:25:51] Speaker 00:
They raised a bad faith claim, but it was it was very different than the one that they're arguing on appeal.

[00:25:56] Speaker 02:
OK, right.

[00:25:58] Speaker 02:
And again, I think addressing the merits when the bad faith claim is out there is important from an insurance carrier's perspective doing business in the state of Washington.

[00:26:08] Speaker 02:
So the fact that the

[00:26:10] Speaker 02:
Appellates in this case brought a bad faith claim.

[00:26:13] Speaker 01:
I think it was pertinent for TIG to address it and address it on the merits And and and you couldn't have said it's waived but in the event the court find it's not waived Here's our argument.

[00:26:25] Speaker 01:
You just said here's our argument

[00:26:26] Speaker 02:
Looking back on it, I think that's probably what TIG should have done.

[00:26:29] Speaker 01:
An extra little sentence might have helped.

[00:26:33] Speaker 02:
Next time.

[00:26:36] Speaker 02:
But I guess to briefly address the bad faith argument, since it is before the court today, bad faith requires a finding of unreasonable frivolous or unfounded conduct by the carrier.

[00:26:55] Speaker 02:
In this case, there's a lot of back and forth about the duty to defend.

[00:26:59] Speaker 02:
I don't think the duty to defend is properly before this court.

[00:27:04] Speaker 02:
TIG picked up the defense immediately and defended through the settlement of this matter.

[00:27:11] Speaker 02:
The real question or the real bad faith allegations arise out of the failure to indemnify, which as I previously stated, it has to do with the actual coverage available under the policy.

[00:27:22] Speaker 02:
TGE properly reserved on its rights, properly issued coverage position letters, defended throughout the whole time.

[00:27:29] Speaker 02:
They did at one point assign its own defense counsel, but assigning its own defense counsel is not an act of bad faith.

[00:27:35] Speaker 02:
In fact, this is not a consent policy.

[00:27:37] Speaker 02:
TGE had the right to assign defense counsel of its choice.

[00:27:42] Speaker 02:
You know, there's a multitude of reasons of why an insurance company might choose to assign defense counsel, whether it be through conflict or past work experience.

[00:27:50] Speaker 02:
That's simply what happened in this case.

[00:27:51] Speaker 03:
He came on the scene, right, as the case is going to mediation.

[00:27:54] Speaker 02:
Is that right?

[00:27:55] Speaker 02:
I believe a little before that, but yes, around.

[00:27:57] Speaker 02:
It's October 2017, I think is the time frame, which is around mediation.

[00:28:00] Speaker 02:
Did he do the mediation?

[00:28:01] Speaker 02:
That lawyer?

[00:28:03] Speaker 02:
They were involved in mediation.

[00:28:04] Speaker 02:
I'm not sure if that attorney explicitly attended mediation, but they were involved and were sending correspondence back and forth between the parties or, you know, other defense counsel.

[00:28:13] Speaker 02:
And to another point,

[00:28:16] Speaker 02:
There's allegations that TIG fired defense counsel.

[00:28:19] Speaker 02:
TIG never fired defense counsel.

[00:28:21] Speaker 02:
The original defense counsel stayed on and continued to defend the insured.

[00:28:25] Speaker 02:
It just so happens TIG brought in its own defense counsel to also assist in the defense being provided.

[00:28:30] Speaker 02:
But TIG stopped paying them, the original counsel?

[00:28:35] Speaker 02:
TIG began paying it for its own defense counsel, that's correct.

[00:28:38] Speaker 02:
But continued to pay for?

[00:28:40] Speaker 02:
Continued to pay for defense counsel.

[00:28:41] Speaker 02:
For the old counsel.

[00:28:43] Speaker 02:
continue to pay for no they pay for their new council and hanover paid correct for the old council so that's the complaint about the burning policy right but washington is a selective tender state and the fact that the uh... as highmark in this case elected to

[00:29:01] Speaker 02:
tender to both insurance carriers, that's out of the control of TIG.

[00:29:06] Speaker 02:
We can't, you know, TIG can't, you know, has no say on who gets tendered to.

[00:29:13] Speaker 02:
So, you know, they elected to assign their own defense counsel and pay for it, but the high mark was never left out of the defense.

[00:29:20] Speaker 03:
The settlement proposal made during the mediation by TIG?

[00:29:25] Speaker 02:
I believe TIG made a offer prior to the mediation.

[00:29:29] Speaker 02:
I'd have to go back through the record to say for certain, but there was discussions about the proper amount for each homes.

[00:29:38] Speaker 02:
But when it came to mediation, TIG did not offer any money for settlement.

[00:29:42] Speaker 02:
But again, they didn't have any duty to indemnify based on the CAT exclusion, which that position was communicated to the insured prior to the mediation occurring.

[00:29:55] Speaker 02:
One last point I'll make is that throughout the pendency of this case Highmark also had its own personal counsel involved in the case and there's nothing in the record that reflects any displeasure on the behalf of Highmark with the defense being provided.

[00:30:12] Speaker 02:
It seems to be a

[00:30:16] Speaker 02:
Issue being raised by the assignees in this case you know post Settlement where they're raising the issue of you know whether defense counsel You know properly acted and properly had the best interests of high mark while conducting this defense

[00:30:37] Speaker 02:
One last thing, Your Honors, the appellant's brief raises or at the lower court there's action or there's claims against TIG for violations of the Washington Administrative Code, IFCA, the CPA.

[00:30:53] Speaker 02:
Those claims were not addressed in the appellant's opening brief and it's a TIG's position that those have been waived and are not properly before this court.

[00:31:06] Speaker 00:
Thank you.

[00:31:11] Speaker 04:
A couple things unpacked there, Your Honors.

[00:31:12] Speaker 04:
First of all, they acknowledge this is an occurrence policy.

[00:31:18] Speaker 04:
In oral argument, they said this is an occurrence policy.

[00:31:21] Speaker 04:
There can only be occurrences for houses that are built.

[00:31:25] Speaker 04:
Houses that are built can't have damages because they haven't occurred.

[00:31:28] Speaker 04:
The actual construction hasn't occurred during that policy period.

[00:31:32] Speaker 04:
So four houses built in the first policy period, there can be four occurrences.

[00:31:36] Speaker 04:
The 21 other occurrences cannot occur till the houses are built, right?

[00:31:42] Speaker 04:
That is why they should not be able to add them together.

[00:31:44] Speaker 04:
You read this policy as a complete policy one year at a time.

[00:31:49] Speaker 04:
Seattle Pacific, the Seattle Tunnel, the reason the court needed that analogy is because it needed the time frame to be a policy period, or a project policy.

[00:32:00] Speaker 04:
It's not, the court didn't realize it wasn't a project policy.

[00:32:04] Speaker 04:
That's why, if it went back and read the actual record, you'll find the,

[00:32:10] Speaker 04:
It's a 78 or 72 month policy.

[00:32:12] Speaker 04:
And so that's the proper way to read a policy.

[00:32:16] Speaker 04:
There's not another case in the state of Washington history that has ever extended a policy to deny coverage like they're trying to do.

[00:32:26] Speaker 04:
Never.

[00:32:27] Speaker 04:
There's not a single one.

[00:32:29] Speaker 04:
There's the pollution cases where they've triggered covered because there's a tangential connection because the pollution continues.

[00:32:37] Speaker 04:
There is no connection between the four houses in one policy period and the 21 houses.

[00:32:44] Speaker 04:
They have distinct certificate of offices and a CGL policy.

[00:32:48] Speaker 04:
Once they're built, then there's completed operations coverage.

[00:32:51] Speaker 04:
So there's coverage to the end of the policy period.

[00:32:54] Speaker 04:
Then coverage is over.

[00:32:55] Speaker 04:
Their own denial letters say that.

[00:32:58] Speaker 04:
There's no coverage for those houses.

[00:33:01] Speaker 01:
Excuse me.

[00:33:01] Speaker 01:
Let me do it this way.

[00:33:03] Speaker 01:
I understand that these are three successive policies for one year each.

[00:33:07] Speaker 01:
I get that.

[00:33:08] Speaker 01:
Yes.

[00:33:10] Speaker 01:
What if you have a policy that has an exclusion that says we will not cover damage caused by water pollution?

[00:33:21] Speaker 03:
Okay.

[00:33:22] Speaker 01:
And it doesn't say, with respect to policy period, it just says, we will not cover that.

[00:33:28] Speaker 01:
Well, here we have something that says, we don't cover tract houses.

[00:33:31] Speaker 01:
And it defines tract houses.

[00:33:33] Speaker 01:
Why do we say, but there has to be a tract house built within the year.

[00:33:39] Speaker 04:
The answer to that is, if this was an apartment project where there's different occurrences that transcended the policy period,

[00:33:45] Speaker 04:
i.e.

[00:33:46] Speaker 04:
the certificate of opposite is the defining point, right?

[00:33:49] Speaker 04:
Where the completed operations is, that's where the current has to occur for the damage.

[00:33:53] Speaker 04:
So it actually goes across the policy periods, right?

[00:33:55] Speaker 04:
So you'd want that language in that policy, right?

[00:33:59] Speaker 04:
There's several, there's a Ballard case, Ballard Square case, it talks about the same kind of analysis, like, well,

[00:34:06] Speaker 04:
Of course, they should be covered because the construction, you can't tell when that damage occurred before or after the occurrence happened in this policy period.

[00:34:13] Speaker 04:
Therefore, they counted the whole project.

[00:34:17] Speaker 04:
This is individual certificate of occupancies that have definite points of completion.

[00:34:22] Speaker 04:
Let me ask you a different question.

[00:34:25] Speaker 01:
Did Highmark contract housing?

[00:34:30] Speaker 01:
Not as they define it.

[00:34:31] Speaker 01:
And I want to be clear.

[00:34:34] Speaker 01:
How do you define it then?

[00:34:36] Speaker 01:
What's tracked housing in your view?

[00:34:37] Speaker 01:
They were not the developer of this project.

[00:34:39] Speaker 01:
Let me ask you a question.

[00:34:41] Speaker 01:
How would you define tracked housing?

[00:34:43] Speaker 04:
I would identify it as the guy that initially submitted the plans for the entire plat.

[00:34:49] Speaker 04:
Council mentioned this wasn't a development, right?

[00:34:51] Speaker 04:
A project.

[00:34:52] Speaker 04:
That guy went into bankruptcy.

[00:34:55] Speaker 04:
The paperwork.

[00:34:57] Speaker 04:
So what happened was it went into bankruptcy.

[00:34:59] Speaker 04:
Once it went into bankruptcy, Highmark came along and I don't know how many houses were built beforehand, but it started buying.

[00:35:06] Speaker 01:
Let me ask the question in a different way.

[00:35:09] Speaker 01:
Is the housing at the Vintage Hills project tracked housing?

[00:35:18] Speaker 04:
Not according to the city wouldn't be read the city ordinances is how they submitted the paperwork for each house individually the original developer it was track housing because it submitted a development project plat and development once he went bankrupt and Highmark came in and started submitting individual declarations or declarations excuse me

[00:35:36] Speaker 04:
plans for each house, and each house had to be individually approved.

[00:35:41] Speaker 04:
Whereas the original developer came in and said, here's everything we're going to build, here's our track housing, right?

[00:35:49] Speaker 04:
But that's not what Highmark did.

[00:35:51] Speaker 04:
It came in after the project track housing was all developed, it went bankrupt, and then it started submitting individual houses to be built.

[00:35:59] Speaker 04:
Does that make sense?

[00:36:02] Speaker 04:
a couple more things.

[00:36:04] Speaker 04:
There was not concurrent coverage here.

[00:36:06] Speaker 04:
Is that in the record?

[00:36:07] Speaker 04:
Yes, it is in the record.

[00:36:09] Speaker 04:
Council misspoke when he said there's concurrent coverage.

[00:36:12] Speaker 00:
Council, you're over your time, so if you could wrap up, I'd appreciate it.

[00:36:15] Speaker 04:
There was not concurrent coverage.

[00:36:16] Speaker 04:
It was three consecutive policies by TIG, and then policies issued to Hanover.

[00:36:23] Speaker 04:
But there weren't concurrent coverage for the same risk.

[00:36:26] Speaker 04:
There was separate risk.

[00:36:28] Speaker 04:
Three policies, three policies, all consecutive.

[00:36:31] Speaker 00:
Thank you for your time.

[00:36:33] Speaker 00:
This case is now submitted and the court will stand in recess.

[00:36:37] Speaker 00:
Thank you.