Ingenco Holdings, LLC v. ACE American Insurance Co., No. 16-35792 (9th Cir. 2019)
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Plaintiffs, operators of a gas purification plant, filed suit against its insurer, Ace, after the insurer denied coverage for damage caused by broken metal brackets that secured crucial components. The Ninth Circuit affirmed the district court's application of Washington law and its discovery sanctions against plaintiffs.
However, the panel reversed the district court's grant of summary judgment in favor of the insurer and held that there was a triable issue of fact as to whether the insurer was prejudiced by plaintiffs' remedial actions, whether plaintiffs' loss was fortuitous, whether the policy's Boiler and Machinery endorsement applied to independently confer coverage for plaintiffs' losses, whether the Endorsement's "accident" coverage applied, and whether a 16 month shutdown was consistent with the exercise of due diligence and dispatch.
Court Description: Washington Insurance Law / Fed. R. Civ. 37 Sanctions. The panel affirmed the district court’s application of Washington law and its discovery sanctions against appellants, reversed the grant of summary judgment that was entered in an insurer’s favor, and remanded for trial in a diversity insurance coverage case. Appellants operate a gas purification plant in King County, Washington. Appellants’ insurer, Ace American Insurance Company, denied coverage when appellants sought to recover for damages sustained after metal brackets broke resulting in an eventual shutdown of the entire plant. The panel held that the district court properly applied Washington law to this insurance coverage dispute. Concerning the insurer’s argument that appellants’ failure to give notice of the initial failure and shutdown violated a * The Honorable Dean D. Pregerson, United States District Judge for the Central District of California, sitting by designation. INGENCO HOLDINGS V. ACE AMER. INS. CO. 3 condition precedent to coverage under the all risks policy, the panel held that there was a triable issue of fact as to whether the insurer was prejudiced by appellants’ remedial actions. Concerning the insurer’s argument that the cause of the damage was an “external” force not covered by the all risks policy, the panel held that there was at the very least a triable issue of fact whether appellants’ loss was fortuitous. The panel further held that a determination that a particular loss was fortuitous could obviate the need to examine whether that loss was caused by an external force. The panel concluded that the district court’s grant of summary judgment to the insurer on the question of whether appellants’ loss was the cause of an “external cause” must be reversed because the district court failed to consider the role of fortuity in all risks insurance disputes. In Vision One, LLC v. Philadelphia Indem. Ins. Co., 174 Wash.2d 501, 515 (2012), the Washington Supreme Court held that insurance ensuing loss clauses ensure that, where an uncovered event takes place, any ensuing loss which is otherwise covered by the policy remains covered, even though the uncovered event itself is never covered. Applying Vision One to the facts at hand, the panel held that even if it were conclusively established that appellant’s diffuser shield suffered from some inherent defect, the subsequent destruction of absorbent beads would be covered under the policy’s ensuing loss exception. The panel held that there was a genuine dispute of material fact as to whether the policy’s Boiler and Machinery endorsement applied to independently confer coverage for appellants’ losses. 4 INGENCO HOLDINGS V. ACE AMER. INS. CO. Assuming there was coverage, the policy covered business interruption losses for only the time required with the exercise of due diligence to rebuild the damaged property. The panel held that although appellants’ actual time to repair might be relevant to the question whether the sixteen-month shutdown was consistent with the exercise of due diligence, it was by no means dispositive of the issue. The district court determined that appellants willfully withheld evidence of damages on its state law statutory claims, and as a Fed. R. Civ. P. 37(c) sanction, the district court precluded appellants from introducing such evidence. The panel held that appellants failed to explain its failure to meet its affirmative obligations under Fed. R. Civ. P. 26. The panel also held that the district court did not abuse its discretion in sanctioning appellants for failure to disclose statutory damages information to the insurer, even though those damages resulted in the dismissal of appellants’ statutory claims.
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