MILGARD MANUFACTURING INC v. ILLINOIS UNION INSURANCE COMPANY Complaint

Case 3:10-cv-05943 Document 1 Filed 12/23/10 Page 1 of 9
7 UNITED STATES DISTRICT COURT

WESTERN DISTRICT OF WASHINGTON
8 AT TACOMA
9 MILGARD MANUFACTURING INC., a

Washington corporation, No.
10
Plaintiff, MILGARD MANUFACTURING,
11 INC.'S COMPLAINT FOR:
v.
12 1. BREACH OF CONTRACT;
ILLINOIS UNION INSURANCE 2. DECLARATORY JUDGMENT;
13 COMPANY, an Illinois surplus lines carrier, 3. BAD FAITH; AND
4. CONSUMER PROTECTION ACT
14 Defendant.
JURY DEMAND
15
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Plaintiff, Milgard Manufacturing, Inc. (“Milgard”) alleges the following against
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Defendant, Illinois Union Insurance Company (“IUIC”).
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I. PARTIES, JURISDICTION, AND VENUE
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1. Milgard is and at all relevant times was a corporation duly organized and
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existing under the laws of the State of Washington. Milgard is, and at all relevant times has
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been, in the business of manufacturing window assemblies and maintains its principal place of
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business in Tacoma, Pierce County, Washington.
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2. Upon information and belief, IUIC is and at all relevant times was an Illinois
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surplus lines carrier domiciled in the State of Illinois and with its principal place of business
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MILGARD MANUFACTURING,
INC.'S COMPLAINT AND
DEMAND FOR JURY TRIAL - 1 K&L GATES LLP
Case No. 925 FOURTH AVENUE
SUITE 2900
SEATTLE, WASHINGTON 98104-1158
TELEPHONE: (206) 623-7580
FACSIMILE: (206) 623-7022
1 in Chicago, Illinois. IUIC is, and at all relevant times has been, in the business of issuing
2 liability insurance policies and administering claims made under such policies throughout the
3 United States, including the State of Washington.
4 3. IUIC issued a general liability insurance policy to Milgard for the policy
5 period of December 31, 2001, through December, 2002, with a $2,000,000 products–
6 completed aggregate limit and a $1,000,000 per occurrence limit (“the Policy”). A true and
7 correct copy of the Policy is attached hereto as Exhibit 1 and is incorporated herein by
8 reference. Milgard paid a $735,878.00 minimum and deposit premium for the Policy and is
9 the named insured under the Policy. The Policy was negotiated and delivered in the State of
10 Washington. All premiums were paid from Milgard’s headquarters in Tacoma, Washington
11 and the material communications between IUIC, including its third-party administrator, and
12 Milgard, were directed to and from Milgard’s representatives located in Tacoma, Washington.
13 4. The value of the matters in controversy in the present case, exclusive of
14 interest and costs, exceeds the sum of $75,000.00.
15 II. FACTUAL BACKGROUND
16 5. The Policy requires IUIC to pay damages Milgard becomes legally obligated to
17 pay by reason of liability, imposed by law or assumed under an insured contract, for personal
18 injury, property damage, advertising injury, or personal injury in accordance with various
19 terms and restrictions set forth in the Policy. The Policy also requires IUIC to defend Milgard
20 against any suit seeking damages for personal injury, property damage, advertising injury, or
21 personal injury subject to the terms and conditions of the Policy.
22 6. The present case arises from product liability claims asserted against Milgard
23 based upon windows supplied by Milgard. Milgard timely tendered this claim to IUIC under
24 the Policy. Presently, a lawsuit and related third-party action arising from these product
25 liability claims and entitled Pacific Realty Associates, L.P. v. Baugh Construction Oregon,
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TELEPHONE: (206) 623-7580
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1 Inc., et al., Case No. C096062CV, is pending against Milgard in the Circuit Court of the State
2 of Oregon, County of Washington (“the Underlying Action”).
3 7. In the Underlying Action, plaintiff and the third-party developer plaintiff allege
4 Milgard supplied defective windows which, after installation by a party other than Milgard,
5 caused property damage to the buildings in which the windows were installed. The damages
6 alleged in the Underlying Action are within the scope of coverage provided by the Policy, and
7 IUIC has a duty to defend and indemnify Milgard but has refused to do so.
8 8. Despite timely notice of this claim and the pedency of the Underlying Action,
9 IUIC did not timely issue a coverage determination to Milgard. On November 4, 2010, IUIC
10 denied coverage for defense and indemnity.
11 9. On December 8, 2010, Milgard’s defense counsel sent to IUIC’s adjuster a
12 court order issued in the Underlying Action requiring IUIC and other carriers to attend a
13 December 15, 2010, mandatory settlement conference (“MSC”) with full settlement authority.
14 On December 9, 2010, defense counsel forwarded correspondence to IUIC’s adjuster by
15 which plaintiff’s counsel in the Underlying Action confirmed a $2,700,000 demand to
16 Milgard and further stated plaintiff would, at trial, seek $4,300,000 in damages against
17 Milgard. On December 13, 2010, Milgard’s coverage counsel sent correspondence to IUIC’s
18 adjuster re-asserting Milgard’s request for defense and indemnity. In this correspondence,
19 Milgard’s coverage counsel further explained and set forth authority clearly establishing
20 IUIC’s duty to defend and indemnify and further requested that IUIC attend the MSC with
21 full settlement authority. Less than ten minutes after receiving this correspondence, IUIC’s
22 adjuster replied to Milgard’s counsel stating that IUIC would not attend the MSC or further
23 evaluate its coverage position.
24 10. On December 22, 2010, after completion of the unsuccessful MSC, IUIC,
25 through its counsel, sent correspondence to Milgard’s counsel, reasserting IUIC’s denial of
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1 coverage.
2 11. Trial in the Underlying Action presently is set for January 11, 2011. Plaintiff
3 in the Underlying Action has made a settlement demand and is seeking damages against
4 Milgard far in excess of the limits of available primary insurance. Plaintiff in the Underlying
5 Action is in the process of seeking leave to amend the operative complaint to allege
6 exemplary damages against Milgard.
7 12. Moreover, as a result of IUIC’s refusal to honor its obligations as a primary
8 insurer and because approximately $574,000.00 of the IUIC product-completed aggregate
9 remains unexhausted, Milgard’s excess carriers currently are refusing to drop down and
10 provide coverage for either defense or indemnity. Upon information and belief, once IUIC
11 tenders its remaining aggregate, the excess carriers will drop and tender amounts necessary to
12 resolve the Underlying Action.
13 13. Due to IUIC’s persistent refusal to accept its obligations under the Policy,
14 Milgard continues to incur out-of-pocket defense costs, is unable to fund settlement of the
15 Underlying Action, and is exposed to a verdict in excess of primary policy limits and potential
16 judgment for exemplary damages.
17 III. FIRST CAUSE OF ACTION
18 BREACH OF CONTRACT
19 14. Milgard refers to and incorporates herein by reference the allegations of each
20 and every paragraph herein.
21 15. For valuable consideration, Milgard purchased the Policy described above and
22 is a named insured under the Policy.
23 16. Milgard performed all conditions and requirements under the Policy, except
24 those excused as a matter of law.
25 17. IUIC breached the terms and provisions of the Policy by failing to provide
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1 benefits required under the Policy and under the law as set forth herein.
2 18. As a result of IUICs breach of the contractual requirements of the Policy,
3 Milgard has suffered damages in an amount to be determined according to proof at the time of
4 trial, but in excess of $75,000.00.
5 IV. SECOND CAUSE OF ACTION
6 DECLARATORY JUDGMENT
9 20. An actual controversy has arisen and now exists between Milgard and IUIC
10 concerning their respective rights and duties under the Policy and as to legal consequences
11 resulting from facts alleged herein. Milgard contends IUIC wrongfully refused to defend the
12 Underlying Action and further contends IUIC is now estopped from denying coverage for any
13 judgment against or settlement by Milgard in the Underlying Action, whether or not the
14 damages awarded to the plaintiff or third-party plaintiff in the Underlying Action are within
15 the scope or limits of coverage provided by the Policy. IUIC denies these contentions.
16 21. Milgard desires a judicial determination of its rights and duties, and a
17 declaration as to the rights and duties arising out of the Policy and under law and equity,
18 including interpreting the terms and the obligations of same. A judicial declaration is
19 necessary and appropriate at this time under the circumstances so Milgard may ascertain its
20 rights and duties as stated above.
21 V. THIRD CAUSE OF ACTION
22 BAD FAITH
25 23. IUIC has breached its duty of good faith and fair dealing to Milgard by acts
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1 including but not limited to the following:
2 a) By unreasonably failing to acknowledge and act reasonably promptly upon
3 communications with respect to claims arising under the Policy;
4 b) By unreasonably failing to adopt and implement reasonable standards for the
5 fair handling and investigation of claims;
6 c) By unreasonably failing to affirm or deny coverage of claims within a
7 reasonable time after proof of loss statements have been completed;
8 d) By unreasonably failing to investigate claims in a timely manner;
9 e) By unreasonably failing to provide Milgard a defense in the Underlying
10 Action;
11 f) By refusing to settle Milgard’s claims on the grounds that responsibility should
12 allegedly be borne by others;
13 g) By failing to promptly, fairly, and equitably settle claims; and
14 h) By unreasonably failing to provide indemnity and settle the Underlying Action
15 despite a demand from Milgard within IUIC’s remaining policy limit.
16 24. IUIC has a duty imposed by law and the Policy to defend any action
17 immediately and vigorously if any of the claims are potentially covered under the Policy. As
18 set forth above, IUIC has failed to provide any defense despite a potential for coverage under
19 the Policy.
20 25. IUIC has a duty imposed by law and the Policy to settle claims made against
21 Milgard, within policy limits, when there is a genuine risk of the claimant obtaining a
22 judgment in excess of primary insurance limits. As set forth above, IUIC has refused to
23 provide indemnity and settle the Underlying Action within its remaining policy limits despite
24 a genuine risk of the claimants obtaining judgments in excess of primary insurance limits.
25 26. As a proximate result of the conduct described herein, Milgard has suffered
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1 and will continue to suffer damages including but not limited to costs incurred defending the
2 Underlying Action and exposure to a judgment in excess of primary insurance limits. Milgard
3 is prejudiced by IUIC’s conduct. As a result of IUIC’s bad faith, IUIC is estopped from
4 asserting Milgard’s claim falls outside the scope and/or limits of coverage under the Policy,
5 and Milgard is entitled to coverage under the Policy by estoppel.
6 VI. FOURTH CAUSE OF ACTION
7 CONSUMER PROTECTION ACT
10 28. IUIC has acted unreasonably and in bad faith; such acts by IUIC include but
11 are not limited to the following:
12 a) Unreasonably failing to acknowledge and act reasonably promptly upon
13 communications with respect to claims arising under the Policy;
14 b) Unreasonably failing to adopt and implement reasonable standards for the fair
15 handling and investigation of claims;
16 c) Unreasonably failing to affirm or deny coverage of claims within a reasonable
17 time after proof of loss statements have been completed;
18 d) Unreasonably failing to investigate claims in a timely manner;
19 e) Unreasonably failing to provide Milgard a defense in the Underlying Action;
20 f) Refusing to settle Milgard’s claims on the grounds that responsibility should
21 allegedly be borne by others;
22 g) Failing to promptly, fairly, and equitably settle claims; and
23 h) Unreasonably failing to provide indemnity and settle the Underlying Action
24 despite a demand from Milgard within IUIC’s remaining policy limit.
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1 29. Such acts constitute multiple unfair and deceptive acts under the Washington
2 Consumer Protection Act, chapter 19.86 RCW.
3 30. Milgard’s acts and omissions in failing to comply with, inter alia, chapter
4 48.01 RCW and chapter 284-30 WAC, constitute multiple per se violations of the Washington
5 Consumer Protection Act, chapter 19.86 RCW.
6 31. Milgard has suffered prejudice and damage proximately caused by the unfair
7 and deceptive practices of IUIC. These unfair and deceptive practices have, upon information
8 and belief, been repeated and present the potential for further repetition.
9 32. IUIC has acted unreasonably and in bad faith, it is now liable for damages and
10 estopped from denying coverage.
11 VII. ATTORNEYS’ FEES, EXPENSES, EXEMPLARY DAMAGES
14 34. Milgard is entitled to its reasonable attorneys’ fees and expenses because it has
15 been compelled to assume the burden of legal action to receive the benefit of its insurance
16 contracts with IUIC.
17 35. Milgard is also entitled to its reasonable attorneys’ fees, expenses, and
18 exemplary damages, pursuant to the Washington Consumer Protection Act (RCW 19.86.090).
19 VIII. PRAYER FOR RELIEF
20 WHEREFORE, Plaintiff prays for the following relief against defendant IUIC:
21 1. For the entry of a declaratory judgment stating that IUIC has materially
22 breached its contractual obligations to Milgard;
23 2. Judgment in favor of Milgard in an amount to be proved with specificity at
24 time of trial;
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1 3. An award of Milgard’s reasonable attorneys’ fees, costs and disbursements for
2 bringing this action because it has been compelled to assume the burden of legal action to
3 receive the benefit of its insurance contracts, and as otherwise permitted by law or equity,
4 including interest at the highest legal rate;
5 4. An award of exemplary damages; and,
6 5. Any further relief that this Court deems just and equitable.
7 IX. DEMAND FOR JURY TRIAL
8 Milgard demands a trial by jury.
9 DATED this 23rd day of December, 2010.
10
K&L GATES LLP
11
12
By /s/ Matthew J. Segal _________
13 Matthew J. Segal, WSBA # 29797
Attorneys for Plaintiff
14 Milgard Manufacturing, Inc.
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MILGARD MANUFACTURING INC v. ILLINOIS UNION INSURANCE COMPANY Complaint

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Case 3:10-cv-05943 Document 1 Filed 12/23/10 Page 1 of 9

7 UNITED STATES DISTRICT COURT

9 MILGARD MANUFACTURING INC., a

3 United States, including the State of Washington.

13 4. The value of the matters in controversy in the present case, exclusive of

14 interest and costs, exceeds the sum of $75,000.00.

15 II. FACTUAL BACKGROUND

21 personal injury subject to the terms and conditions of the Policy.

2 of Oregon, County of Washington (“the Underlying Action”).

10 denied coverage for defense and indemnity.

11 9. On December 8, 2010, Milgard’s defense counsel sent to IUIC’s adjuster a

14 On December 9, 2010, defense counsel forwarded correspondence to IUIC’s adjuster by

15 which plaintiff’s counsel in the Underlying Action confirmed a $2,700,000 demand to

23 evaluate its coverage position.

6 exemplary damages against Milgard.

7 12. Moreover, as a result of IUIC’s refusal to honor its obligations as a primary

8 insurer and because approximately $574,000.00 of the IUIC product-completed aggregate

12 resolve the Underlying Action.

16 judgment for exemplary damages.

17 III. FIRST CAUSE OF ACTION

20 and every paragraph herein.

22 is a named insured under the Policy.

24 those excused as a matter of law.

2 18. As a result of IUICs breach of the contractual requirements of the Policy,

4 trial, but in excess of $75,000.00.

5 IV. SECOND CAUSE OF ACTION

8 and every paragraph herein.

20 rights and duties as stated above.

21 V. THIRD CAUSE OF ACTION

24 and every paragraph herein.

1 including but not limited to the following:

2 a) By unreasonably failing to acknowledge and act reasonably promptly upon

3 communications with respect to claims arising under the Policy;

4 b) By unreasonably failing to adopt and implement reasonable standards for the

5 fair handling and investigation of claims;

6 c) By unreasonably failing to affirm or deny coverage of claims within a

7 reasonable time after proof of loss statements have been completed;

8 d) By unreasonably failing to investigate claims in a timely manner;

9 e) By unreasonably failing to provide Milgard a defense in the Underlying

11 f) By refusing to settle Milgard’s claims on the grounds that responsibility should

12 allegedly be borne by others;

13 g) By failing to promptly, fairly, and equitably settle claims; and

14 h) By unreasonably failing to provide indemnity and settle the Underlying Action

15 despite a demand from Milgard within IUIC’s remaining policy limit.

5 and Milgard is entitled to coverage under the Policy by estoppel.

6 VI. FOURTH CAUSE OF ACTION

7 CONSUMER PROTECTION ACT

9 and every paragraph herein.

11 are not limited to the following:

12 a) Unreasonably failing to acknowledge and act reasonably promptly upon

13 communications with respect to claims arising under the Policy;

15 handling and investigation of claims;

16 c) Unreasonably failing to affirm or deny coverage of claims within a reasonable

17 time after proof of loss statements have been completed;

18 d) Unreasonably failing to investigate claims in a timely manner;

19 e) Unreasonably failing to provide Milgard a defense in the Underlying Action;

20 f) Refusing to settle Milgard’s claims on the grounds that responsibility should

21 allegedly be borne by others;

22 g) Failing to promptly, fairly, and equitably settle claims; and

23 h) Unreasonably failing to provide indemnity and settle the Underlying Action

24 despite a demand from Milgard within IUIC’s remaining policy limit.

2 Consumer Protection Act, chapter 19.86 RCW.

5 Consumer Protection Act, chapter 19.86 RCW.