Unpublished Disposition, 880 F.2d 1323 (9th Cir. 1987)

MEMORANDUM^* 

Puget Sound Power & Light Company (Puget) challenges the district court's summary judgment rulings, declaring that its liability insurers had no duty to indemnify or defend it in an action brought by the Muckleshoot Indian Tribe. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

In 1910, Pacific Coast Power Company, Puget's predecessor in interest, built a hydroelectric dam on the White-Stuck River. Before construction, Pacific Coast purchased most of the land and water rights from landowners along the river. Because the river flowed through the Muckleshoot Indian Reservation, it had to secure rights from individual owners on the Reservation.¹  Pacific Coast brought condemnation proceedings in state court to secure the legal rights to divert water for public use. Relying on state condemnation decrees, it built the dam and began to divert water around the Reservation.

In July 1972, the Tribe sued Puget, alleging that Puget's diversion of water from the river deprived the Tribe of its federally protected water and fishing rights. Asserting claims for wrongful diversion, conversion, and restitution of profits, the Tribe sought injunctive and declaratory relief and compensatory damages.

Shortly thereafter, Puget notified each of its liability insurers of the Tribe's allegations by sending copies of the complaint.²  Only Harbor Insurance Co. agreed to assume Puget's defense subject to its policy's terms and designated a law firm to defend Puget. In light of the inconsistent responses received from its insurers, Puget had its corporate counsel, Perkins, Coie, Stone, Olsen & Williams (Perkins Coie) take primary responsibility for handling its defense. Shortly after Puget answered the complaint, the court stayed the case pending outcome of related proceedings before the Federal Power Commission.

Almost ten years passed before the case again became active. In December 1982, the Tribe amended its complaint to add a defendant and claims for due process and wrongful interference with treaty fishing rights. In May 1985, it amended the complaint for a third and final time to add a claim for trespass and to seek punitive damages.

The Tribe and Puget settled before trial in October 1986. Admitting no liability, Puget agreed to increase the river's flow and to construct and fund the operation of a tribal fish hatchery.

In October 1983, Harbor and Aetna brought this declaratory judgment action to establish that they had no duty to defend or indemnify Puget. They named as defendants, in addition to Puget and the Tribe, all other insurers who had issued liability policies to Puget during the period it diverted water from the river. By this time, all insurers had denied coverage of the Tribe's claims.

In August 1984, Aetna and Harbor moved for summary judgment, arguing that Puget's diversion of water was intentional and that the policies did not cover injuries resulting from intentional acts. The district court granted the motions.

This court reversed that judgment in December 1985. It found that declaratory relief was premature because the Tribe could amend its claims to allege nonintentional conduct. It also concluded that summary judgment was improper because the factual record was incomplete and in dispute.

Following remand, Puget amended its answer, asking the court to declare that the insurers had a duty to defend and indemnify. It also asked the court to rule that Harbor and Aetna should be estopped from denying coverage or be held liable for damages based on their breach of duty of good faith and violation of Washington's Consumer Protection Act.

After Puget's settlement with the Tribe in October 1986, Puget and its insurers, except United Pacific, filed cross-motions for summary judgment on the issue of coverage. Harbor and Aetna also moved for summary judgment on the estoppel and breach of good faith counterclaims. On August 14, 1987, the court ruled that Puget's insurance policies did not cover the Tribe's claims. On November 5, it dismissed Puget's counterclaims. Finally, on December 10, it granted summary judgment in favor of United Pacific, an insurer who previously had not filed a motion, for the reasons stated in its August 14 order.

STANDARD OF REVIEW

This court reviews de novo the district court's grant of summary judgment and interpretation of state law. State Farm Mut. Auto. Ins. Co. v. Khoe, 872 F.2d 1427, 1431 (9th Cir. 1989); In re McLinn, 739 F.2d 1395, 1403 (9th Cir. 1984) (en banc). Under Washington law, which governs this case, the interpretation of an insurance policy is a question of law reviewed de novo. State Farm Gen. Ins. Co. v. Emerson, 102 Wash. 2d 477, 687 P.2d 1139, 1141-42 (1984).

DISCUSSION

Puget urges that its liability policies provided coverage for costs incurred in the Muckleshoot suit. It contends further that Harbor and Aetna should be estopped from denying coverage and held liable for damages resulting from breach of their covenant of good faith and violation of Washington's Consumer Protection Act.

I. Contractual Obligations of Puget's Liability Insurers

We must decide whether the Tribe's claims fall within Puget's liability policies, triggering a duty to indemnify and a duty to defend Puget.

Generally, a duty to indemnify arises when the injured party prevails ultimately on facts that fall within the policy's coverage. Safeco Ins. Co. v. McGrath, 42 Wash. App. 58, 708 P.2d 657, 659 (1985). Because the case settled without trial, the Muckleshoot court made no factual determinations. Thus, in determining coverage issues, we must rely on the undisputed facts in the Muckleshoot complaint and those known to the parties.

An insurer's duty to defend may be broader than a duty to indemnify.³  The duty to defend arises when a complaint alleges facts which, if proved, would impose liability upon the insured within the policy's coverage. Emerson, 687 P.2d at 1145; see Baugh Constr. Co. v. Mission Ins. Co., 836 F.2d 1164, 1168 (9th Cir. 1988) (discussing the duty to defend under Washington law).

All the policies at issue provide insurance for property damage caused by an "accident" or an "occurrence." Although the policies differ slightly in language, Aetna's primary policy is typical of those providing coverage for liability arising from accidents.

The Aetna Casualty and Surety Company ... [a]grees with the Insured ... [t]o pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of injury to or destruction of property ... caused by accident.

"Accident" is not defined in the policies.

Harbor's primary insurance policy is typical of those covering "occurrences."

The Harbor Insurance Company ... hereby agrees with the insured ... to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of tangible property ... caused by an occurrence....

"Occurrence" is defined:

The term "occurrence" means an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

B. Coverage of an "Accident" or "Occurrence"?

Although the parties raise several issues relating to coverage, their arguments focus primarily on whether the Tribe's damages were caused by an "accident" or "occurrence." The district court concluded and the insurers contend that Puget's diversion of water away from the Reservation was intentional. Finding that the harm alleged by the Tribe did not result from an accident or occurrence, the court held that the insurers had no duty to indemnify or defend Puget.

Puget contends that the court erred by failing to consider the significance of its reliance on state condemnation decrees in determining coverage. It argues that the injury to the Tribe, while the natural result of its intentional act, resulted from a mistake of law and so was caused by an accident or occurrence.

Alternatively, Puget asserts that even if this court concludes that its conduct was not an accident or occurrence, its insurers had a duty to defend based on the allegations of the Tribe's complaint. It submits that the complaint alleged "negligent acts" that could be construed as resulting in an accident or occurrence.

The parties agree that Puget, laboring under a good faith misunderstanding as to the validity of state condemnation decrees, intentionally caused water to be diverted away from the Reservation, which caused injury to the Tribe. They disagree as to the whether Puget's intentional conduct committed under a mistake of law was an "accident" or "occurrence."

No Washington court has addressed directly the issue of whether an insured's injury to another party, caused by an intentional act committed under a mistake of law, constitutes an accident or occurrence. From our analysis of Washington law, we conclude that the Tribe's injuries do not fall within the coverage of Puget's policies.

a) Coverage of an "Accident"?

We consider whether coverage exists under Puget's "accidental" policies. Because the word "accident" is not defined in the policies, we rely on a long line of Washington cases that have concluded that:

an accident is never present when a deliberate act is performed unless some additional unexpected, independent and unforeseen happening occurs which produces or brings about the result of injury.... The means as well as the result must be unforeseen, involuntary, unexpected and unusual.

Detweiler v. J.C. Penney Casualty Ins. Co., 110 Wash. 2d 99, 751 P.2d 282, 284 (1988) (quoting Unigard Mut. Ins. Co. v. Argonaut Ins. Co., 20 Wash. App. 261, 263-64, 579 P.2d 1015, 1018 (1978)) (footnotes omitted).

Puget concedes that the construction of the dam and its diversion of water were deliberate acts. Summary judgment is proper then if the Tribe's alleged injury was a natural consequence of Puget's deliberate conduct and not the product of an unusual or a typical intervening event. See Lloyd v. First Farwest Life Ins. Co., 54 Wash. App. 299, 773 P.2d 426, 428 (1989); see Detweiler, 751 P.2d at 286 (summary judgment proper when injury was a natural consequence of the intentional act and no "additional unexpected, independent or unforeseen happening" occurred). Both requirements are met in this case.

First, the Tribe's injuries were the natural consequence of Puget's deliberate acts. The diversion of water around the Reservation and the harm to the tribal fishery resulted from Puget's intentional conduct.

Second, Puget has not established that any "additional unexpected, independent or unforeseen happening" caused the Tribe's injury. It does not allege that an unexpected event caused the alleged harm, but that its reliance on condemnation decrees resulted in an unexpected injury to the Tribe.

It confuses "accidental result" with "accidental means." Coverage under its accidental policies depends not on an "accidental result," but on an injury "caused by accident." See Lloyd, 773 P.2d at 427-28 (holding that intentional inhalation of cocaine leading to unintentional death not a "bodily injury caused by accident"). To recover under a policy insuring against injury caused by accident, "it is not enough that the result was unusual, unexpected or unforeseen, ... it must appear that the means were accidental." Johnson v. Business Men's Assurance Co., 38 Wash. 2d 245, 228 P.2d 760, 762-66 (1951); Safeco Ins. Co. v. Dotts, 38 Wash. App. 382, 685 P.2d 632, 633 (1984).

Applying the "accidental means" test, we reject Puget's contention that its mistaken reliance on state condemnation decrees results in coverage under its accidental policies.

Where acts are voluntary and intentional and the injury is the natural result of the act, the result was not caused by accident even though that result may have been unexpected, unforeseen and unintended. There was no insurance against liability for damages caused by mistake or error.

Thomason v. United States Fidelity & Guaranty Co., 248 F.2d 417, 419 (5th Cir. 1957). But see Gray v. State, 191 So. 2d 802, 816 (La.Ct.App.1966) (holding that "the damage for which the contractor is held liable may nevertheless from his point of view have been caused by accident insofar as attaching an unexpected legal liability to intentional acts") (citations omitted), amended on other grounds, 250 La. 1045, 202 So. 2d 24 (1967).

b) Coverage of an "Occurrence"?

Although we conclude that Puget's conduct does not constitute an "accident," we still must consider whether it may constitute an "occurrence" as defined in its policies.

Puget notes correctly that Washington courts generally view the term "occurrence" as providing greater coverage than under the term "accident." E.g., Yakima Cement Prods. Co. v. Great Am. Ins. Co., 93 Wash. 2d 210, 608 P.2d 254, 257 (1980).

It would, therefore, seem that from the usual and ordinary meaning of the words used the word "occurrence" extends to events included within the term "accident" and also to such conditions, not caused by accident, which may produce an injury not purposely or deliberately.

Id. (quoting Aerial Agric. Serv. of Mont., Inc. v. Till, 207 F. Supp. 50, 57-58 (N.D. Miss. 1962)); City of Medina v. Transamerica Ins. Co., 37 Wash. App. 360, 680 P.2d 69, 72 (1984).

Puget contends that the damage alleged by the Tribe was caused by an occurrence because Puget, while operating the dam in an intentional manner, did not purposely or deliberately injure the Tribe's property interests. It relies heavily on Yakima and later Washington cases to argue that an intentional act committed under mistake of law may constitute an "occurrence."

In Yakima, the Washington court found coverage under an "occurrence" policy for damages resulting from the deliberate but negligent mismanufacture of products. 608 P.2d at 257-58. The court found that Yakima's unintentional and unexpected mismanufacture of concrete panels constituted an "accident" and "occurrence." Id. at 257. It noted that, in the context of products liability, if coverage did not extend to the deliberate manufacture of a product which is inadvertently mismanufactured, that policy would be rendered meaningless. Id.

Puget's reliance on Yakima is misplaced. In that case, the insured did not intend to mismanufacture the panels. The court considered Yakima's unintentional and unexpected mismanufacture of the panels "an unexpected, unforeseen or undesigned happening." Id. By contrast, Puget intended to divert water from the Reservation. That diversion was not an unexpected or unforeseen happening.

Further, we interpret Yakima to stand only for the proposition that the term "occurrence" may include negligent acts that result in unexpected or unintended damages. Washington courts have applied the Yakima analysis only to circumstances in which injuries or mishaps were caused by an insured's negligence. See Palouse Seed Co. v. Aetna Ins. Co., 40 Wash. App. 119, 697 P.2d 593, 595 (1985); City of Medina, 680 P.2d at 72; see also Harrison Plumbing & Heating, Inc. v. New Hampshire Ins. Group, 37 Wash. App. 621, 681 P.2d 875, 878 (1984). They have not extended the analysis beyond the circumstances in which the insured negligently caused harm by its deliberate acts. We decline to do so now.

We conclude that Washington courts would essentially equate an "occurrence" with an "accident" for injuries caused by intentional acts such as Puget's conduct here. See Dotts, 685 P.2d at 633; Briscoe v. Travelers Indem. Co., 18 Wash. App. 662, 571 P.2d 226, 228-29 (1977). Because Puget intended to divert water around the Reservation and the natural consequences of that deliberate conduct resulted in injury to the Tribe, there was no accident or occurrence. Although Puget intended no injury based on its belief that the Tribe had no property interest, we conclude that its policies do not cover damages caused by intentional acts committed under a mistake of law. Accord Foxley & Co. v. United States Fidelity & Guaranty Co., 203 Neb. 165, 277 N.W.2d 686, 688 (1979) (holding that damages caused by mistake, when the natural result of an intentional act, not an "occurrence"); Argonaut S.W. Ins. Co. v. Maupin, 500 S.W.2d 633, 635 (Tex.1973) (holding that damages caused by mistake or error not covered by policy). But see State v. Glens Falls Ins. Co., 137 Vt. 313, 404 A.2d 101, 104 (1979) (finding coverage where sheriff mistakenly believed property belonged to another); York Indus. Center, Inc. v. Michigan Mut. Liab. Co., 271 N.C. 158, 155 S.E.2d 501, 505-07 (1967) (holding that damages caused by plaintiffs' mistake covered by policy).

Under Washington law, Puget's intentional acts of building and operating the dam to divert water around the Reservation did not constitute an "accident" or "occurrence" as contemplated by its liability policies.⁴  The insurers had no duty to indemnify.

Puget contends that even if its insurers had no duty to indemnify, its primary insurers had a contractual duty to defend against any negligence claim alleged by the Tribe.⁵  Although coverage excludes injury caused by its intentional acts, Puget argues that its "accident" and "occurrence" policies could arguably cover injury caused by its negligence. Puget submits that the Tribe's complaint alleged claims of nonintentional conduct, triggering a duty to defend. We disagree.

First, Puget argues that an insurer could construe allegations underlying the "wrongful diversion" claim in the Tribe's original complaint to refer to damages caused by Puget's intentional conduct or negligence. Thus, it contends there was potential coverage under its policies.

We conclude that the complaint did not allege facts that impose liability within the scope of coverage. The Tribe did not allege that Puget's diversion of water was negligent. It is beyond dispute that Puget's diversion of water around the Reservation was intentional.⁶  Thus, any injury resulting from that intentional conduct, without an intervening unexpected happening, could not have resulted from an accident or occurrence as required by Puget's policies. " [A]lleged claims which are not clearly covered by the policy relieve the insurer of its right and duty to defend." Emerson, 687 P.2d at 1145.

Second, Puget asserts that the Tribe's claim of wrongful interference with its treaty rights could be construed as a negligence action falling within policy terms. It bases this argument on a ruling by the judge presiding over the Muckleshoot suit that the Tribe could litigate on whether Puget had violated intentionally or negligently those rights as alleged in the third amended complaint.

Again, we do not find Puget's argument persuasive. In the third complaint, the Tribe alleged that Puget's interference with its treaty rights involved "intentional and flagrant disregard for the Treaties of Medicine Creek and Point Elliott...." The complaint alleged that Puget intended the Tribe's injury and therefore the injury could not have resulted from an accident or occurrence. Even if we found that the Tribe's claim could be construed as a negligence action, it would not fall within the terms of these policies. We find no duty to defend.

II. Breach of Good Faith/Violation of Consumer Protection Act

Alternatively, Puget contends that Aetna and Harbor should be estopped from denying coverage or held liable for damages for their conduct in handling its coverage claim.

In August 1972, Harbor agreed to assume Puget's defense and designated Attorney Betts and his firm to represent Puget. About a month later, Betts advised Harbor that its policy did not cover the Tribe's claims because most of the allegations were based on Puget's intentional acts. In July 1983, Betts' firm withdrew its representation of Puget. Citing to Betts' conduct while serving as its attorney of record, Puget contends that Harbor breached its covenant of good faith and fair dealing in handling the Muckleshoot action. We disagree.

Washington has imposed the duty of good faith on insurers. Wash.Rev.Code Sec. 48.01.030; Tank v. State Farm Fire & Casualty Co., 105 Wash. 2d 381, 715 P.2d 1133, 1136 (1986) (holding that this duty includes an enhanced and broad obligation of fair dealing and a responsibility to give equal consideration to the insured's interests). Insureds may bring a private action against insurers for breach of a duty of good faith under Washington's Consumer Protection Act. See Wash.Rev.Code Sec. 19.86.020; Tank, 715 P.2d at 1140.

Puget relies on Tank and other Washington cases to establish that Harbor breached its duty of good faith. Yet it fails to make a critical distinction between this case and the cited authorities. In those cases, the insurer provided the sole defense for the insured and injured the insured in conducting that defense.

By contrast, the Betts firm did not provide the sole defense for Puget. Its principal counsel was Perkins Coie throughout the Muckleshoot suit. In fact, Puget noted in a letter to Harbor in 1983 that Betts had taken no action since entering its appearance on Puget's behalf. Throughout the suit, Perkins Coie continuously and ably represented Puget, and the withdrawal of Betts as counsel of record did not prejudice or injure Puget's defense. We find no breach of the duty of good faith and fair dealing.

Under Washington's Consumer Protection Act, Puget must show an injury to support a private cause of action. See, e.g., Cooper's Mobil Homes, Inc. v. Simmons, 94 Wash. 2d 321, 617 P.2d 415, 419 (1980). Puget has made no showing of injury from Betts' conduct. Its CPA claim also fails.

Puget's contention that Harbor should be estopped from denying coverage based on Betts' conduct is also without merit. It has failed to make any showing of prejudice. See R.A. Hanson Co. v. Aetna Casualty & Sur. Co., 15 Wash. App. 608, 550 P.2d 701, 703-05 (1976). Washington courts have held that the doctrine of estoppel may not be used to extend coverage to claims that otherwise do not fall within the policy's terms. Nordean v. Life Ins. Co., 37 Wash. App. 106, 678 P.2d 366, 369 (1984); Sullivan v. Great Am. Ins. Co., 23 Wash. App. 242, 594 P.2d 454, 457 (1979).

Puget argues that Aetna breached its duty of good faith by disclosing some sensitive documents to the Tribe with reference to Puget's settlement strategy.

Although Aetna's conduct in disclosing the reports seems inconsistent with its duty of good faith, Puget has failed to show any injury based on that disclosure. We find no breach of the covenant of good faith or any violation of the CPA.

Nor has Puget made any showing that disclosure of the documents regarding Puget's settlement strategy prejudiced the Muckleshoot settlement. Its estoppel claim fails. See R.A. Hanson, 550 P.2d at 703.

AFFIRMED.