[00:00:00] Speaker 05:
Yes.

[00:00:02] Speaker 03:
Yes, your honor.

[00:00:06] Speaker 03:
Thank you, your honor.

[00:00:07] Speaker 03:
My name is Marshall Casey and I represent Bramlett.

[00:00:09] Speaker 03:
I'd like to reserve two minutes for my rebuttal.

[00:00:13] Speaker 03:
This case is about the breach of the duty of defense in violation of both endorsement 12 and the contract in the law of Washington and that violation was done in bad faith.

[00:00:25] Speaker 03:
And I want to approach three different issues.

[00:00:27] Speaker 03:
Number one, the law of Washington, because the law of Washington is clear that if the complaint alleges any facts that could result in coverage, then the duty of defense is triggered.

[00:00:41] Speaker 03:
And when the insurer is looking at those facts, looking at its policy, and looking at the law, it's supposed to weigh anything and everything in favor of providing coverage.

[00:00:52] Speaker 03:
We know that didn't happen here.

[00:00:54] Speaker 03:
In particular, there were claims of sexual harassment and claims of sexual misconduct, wrongful conduct of a sexual nature.

[00:01:05] Speaker 03:
Those are clear in the record.

[00:01:07] Speaker 03:
And the interesting thing is when I deposed the adjuster on this, and I would encourage you to read that portion of the transcript, I asked the adjuster, is it possible

[00:01:17] Speaker 03:
that these claims could be covered at the end.

[00:01:20] Speaker 03:
Is it possible that a jury verdict could come out with this liability and not include any of the excluded liability?

[00:01:26] Speaker 03:
And the adjuster said, yes.

[00:01:28] Speaker 03:
Yes, that was possible.

[00:01:29] Speaker 03:
And yes, it was foreseeable at the time.

[00:01:31] Speaker 03:
That's the duty of defense trigger.

[00:01:33] Speaker 03:
And it doesn't only trigger under Washington law.

[00:01:35] Speaker 03:
It triggers under endorsement 12.

[00:01:37] Speaker 03:
And I think this is important.

[00:01:39] Speaker 03:
An endorsement changes the contract.

[00:01:42] Speaker 03:
It comes in, in particular on this one, changed the duty of defense.

[00:01:50] Speaker 03:
Because the duty of defense in the contract before this endorsement came in was there was none.

[00:01:55] Speaker 03:
And the endorsement says, and this is on 145 of the record, Washington duty to defend coverage.

[00:02:02] Speaker 03:
And it says, allied had a duty to defend any claim which is covered in whole or in part under the insuring agreements.

[00:02:09] Speaker 04:
How do you get around them?

[00:02:10] Speaker 04:
broad language of the exclusion procuring coverage, which says, attributed to or in any way related to any actual or alleged sexual molestation or sexual abuse.

[00:02:24] Speaker 04:
How do you get around that?

[00:02:26] Speaker 04:
As broad as you can imagine.

[00:02:28] Speaker 03:
Yeah, and I think there's three reasons that doesn't work.

[00:02:32] Speaker 03:
Number one, that exclusion is not brought into the duty of defense endorsement.

[00:02:38] Speaker 03:
If you look at the duty of defense endorsement, it is triggered by the insuring agreements.

[00:02:43] Speaker 03:
And I would encourage you to compare that to the duty of defense statement in the case of ZIA.

[00:02:49] Speaker 03:
In the case of ZIA, their duty of defense included the exclusions.

[00:02:53] Speaker 03:
This one, they specifically wrote to not have that.

[00:02:56] Speaker 03:
And the duty of defense was triggered only by the insuring agreements, which their 30B6 witness said were meant to provide coverage, which the exclusions we know have an opposite effect, and which is the other reason that it should not be applied here.

[00:03:12] Speaker 03:
or that it should not defeat coverage.

[00:03:15] Speaker 03:
In Washington, exclusions are narrowly interpreted and they have to be clearly brought forward.

[00:03:22] Speaker 03:
If you look at endorsement 12, they're not clearly brought forward into any

[00:03:27] Speaker 03:
of endorsement 12 and the duty of defense, which is separate coverage than indemnity.

[00:03:32] Speaker 03:
So I would say it is underneath the structure of this policy.

[00:03:36] Speaker 03:
That exclusion works towards the indemnity, not the duty of defense, which is exactly the law of Washington.

[00:03:42] Speaker 03:
If there was a chance that this could be covered as sexual harassment at the end of the verdict and not be sexual abuse, well, the duty of defense triggered.

[00:03:53] Speaker 03:
And they had a duty to provide it.

[00:03:56] Speaker 03:
And the failure to provide was a breach of that duty.

[00:03:59] Speaker 00:
So assuming we agreed with you that there was a duty to defend, why is the question of bad faith something that we should decide versus sending it to the district court?

[00:04:11] Speaker 03:
Yeah.

[00:04:12] Speaker 03:
I think the question of bad faith is clear as a matter of law.

[00:04:15] Speaker 03:
If you look at both Robbins and the American Best,

[00:04:21] Speaker 03:
Both cases decide the breach of duty of defense as a matter of law.

[00:04:26] Speaker 03:
And what they say is the insurer breached that duty by putting its interests in the interpretation of the policy when there was another possible interpretation that could have provided coverage of the facts in the law and the policy.

[00:04:41] Speaker 03:
The insurer put their interests too high and that was a breach of the duty of defense in bad faith.

[00:04:47] Speaker 05:
I certainly agree those cases support your position.

[00:04:50] Speaker 05:
At the same time, the court is Washington state.

[00:04:53] Speaker 05:
Supreme Court, I believe, has said there's not a per se bad faith, right?

[00:04:59] Speaker 05:
You show a breach of the duty to defend.

[00:05:01] Speaker 05:
It's not per se bad faith.

[00:05:02] Speaker 05:
There has to be something.

[00:05:06] Speaker 05:
But it seems like those cases come pretty close to the line of saying, if there's a breach of the duty to defend, there's going to be a finding of bad faith.

[00:05:15] Speaker 05:
So where's the gap?

[00:05:17] Speaker 05:
And why isn't this case falling on the side of no bad faith?

[00:05:20] Speaker 03:
Yeah, I think that's a great issue, because when you look at Butler and you look at, which is they were actually correct in their decision not to defend, but they took a long delay to get to that decision.

[00:05:36] Speaker 03:
And Butler comes out and says, OK, you're correct in your decision, but if it's found bad faith in that delay, that that was a bad faith delay in the duty of defense, then that triggers coverage by a stopper.

[00:05:48] Speaker 03:
versus you look at truck and it's a failure to defend in bad faith and they're like we don't even need to get into the rest of the policy that's that's failure to defend so the question is are there facts that a jury could look at this and say oh they they had a reasonable basis well it's never a reasonable basis to say there is this reasonable interpretation for defense

[00:06:13] Speaker 03:
But we're going to resolve that in our favor.

[00:06:15] Speaker 03:
And you look at the court in Zia.

[00:06:16] Speaker 03:
The court in Zia actually warned every insurer, you take a great risk when you resolve questions of fact, questions of the policy, questions of the law in just straight up denial.

[00:06:31] Speaker 03:
Instead, what you're supposed to do is what they should have done here.

[00:06:34] Speaker 03:
They should have provided a duty of defense under a reservation of rights.

[00:06:38] Speaker 03:
and come to the court for the decision.

[00:06:41] Speaker 00:
If there's any possibility, that's basically bad faith.

[00:06:44] Speaker 00:
What's that?

[00:06:45] Speaker 00:
If there's any possibility that defense was owed, that's bad faith.

[00:06:49] Speaker 03:
Yeah, if there's any possibility.

[00:06:51] Speaker 03:
And so that's why we have bad faith here.

[00:06:54] Speaker 03:
They breached it, and so I think I've covered most of my points of endorsement 12 and the breach.

[00:07:01] Speaker 03:
I do want to hit one more point, and I think other counsel will hit it as well.

[00:07:06] Speaker 03:
You know, the interesting thing, even in this case, one of the things allied continually brings up is there were allegations of sexual abuse.

[00:07:16] Speaker 03:
Well, there were also allegations of sexual harassment, and that's what triggered the duty of defense.

[00:07:20] Speaker 03:
But even so, they sold a sexual harassment policy that's very broad.

[00:07:26] Speaker 03:
And we interpret coverage to be broad because you sell insurance to provide insurance.

[00:07:33] Speaker 03:
You don't sell an exclusion.

[00:07:36] Speaker 03:
And yet they want to claim they sold an exclusion that wipes out the coverage any time you're sued for sexual

[00:07:44] Speaker 03:
harassment if there's also separate and independent sexual abuse.

[00:07:50] Speaker 03:
And that's going to be common that those two things are going to happen.

[00:07:53] Speaker 03:
And I do want to hit actually one more point.

[00:07:56] Speaker 03:
They continually bring up this other insurance.

[00:08:00] Speaker 03:
That's irrelevant.

[00:08:01] Speaker 03:
They were the first primary.

[00:08:04] Speaker 03:
They say, we are primary defense for the EPL policy.

[00:08:08] Speaker 03:
They were primary.

[00:08:09] Speaker 03:
They owed the duty of defense.

[00:08:11] Speaker 03:
They failed to provide it.

[00:08:12] Speaker 03:
I'm going to reserve the rest of my time unless your honors have further questions.

[00:08:15] Speaker 03:
Thank you.

[00:08:35] Speaker 01:
Good afternoon, Your Honors.

[00:08:36] Speaker 01:
Dan Bridges, I represent Nicholas, Nat, collective reserve, three minutes.

[00:08:40] Speaker 01:
I do have some points I want to make, but I want to jump right on the question you just asked counsel.

[00:08:44] Speaker 01:
The reason why this does not go back to the district court on a question of bad faith is Aliyah, before there was Aliyah, found as a matter of law that this carrier applying this exclusion exactly as they did was bad faith.

[00:08:57] Speaker 01:
without Aliyah, right?

[00:08:58] Speaker 01:
That was Aliyah as a first impression.

[00:09:00] Speaker 01:
But now we have Aliyah.

[00:09:02] Speaker 01:
Aliyah's been the law in the state of Washington for 15, 20 years, and they still didn't, again.

[00:09:07] Speaker 01:
That's why you don't remand back to the district court for a question of bad faith, because the Supreme Court of Washington has already told you this is bad faith as a matter of law.

[00:09:16] Speaker 01:
Now, let me get back into my points.

[00:09:19] Speaker 01:
You might ask yourself, how could this possibly be as bad as the appellant's patent?

[00:09:24] Speaker 01:
Because if everything the appellants say is true, wow, they really got this wrong.

[00:09:28] Speaker 01:
Let me tell you, I do not believe carriers set out to commit bad faith.

[00:09:32] Speaker 01:
I think adjusters are generally good people.

[00:09:33] Speaker 01:
They want to do their jobs and go home.

[00:09:36] Speaker 01:
I firmly believe that.

[00:09:38] Speaker 01:
But it's reasonable to ask yourself, how can it be this bad?

[00:09:40] Speaker 01:
Is it really this bad?

[00:09:42] Speaker 01:
It is that bad.

[00:09:43] Speaker 01:
This is not really a record, but I think it's important context.

[00:09:47] Speaker 01:
The insurance industry in the last 20 years has undergone vast centralization.

[00:09:53] Speaker 01:
There is a carrier in Washington that had a huge presence in Washington.

[00:09:56] Speaker 01:
They've all camped off and go to Arizona.

[00:09:59] Speaker 01:
All the western state of the country is handled out of Arizona.

[00:10:03] Speaker 01:
This carrier is based in Connecticut.

[00:10:08] Speaker 01:
What we have, the problem is, when you have carriers who are adjusting national Y claims from a little bitty place, they stop caring about the law in which they're writing the coverage.

[00:10:19] Speaker 01:
That is problematic on all sorts of levels.

[00:10:21] Speaker 04:
Council, I want to go to the state court complaint with regards to Mr. Nack and the allegations.

[00:10:27] Speaker 04:
Under the allegations, they're labeled as abuse and harassment.

[00:10:32] Speaker 04:
Why is that not dispositive here?

[00:10:34] Speaker 04:
In other words, why are those acts not sexual abuse and therefore excluded?

[00:10:39] Speaker 01:
Sure.

[00:10:40] Speaker 01:
Number one, there's Ninth Circuit law, and I cited two in our brief, that buzzwords do not determine coverage.

[00:10:46] Speaker 01:
Facts determine coverage.

[00:10:47] Speaker 01:
I can't take away ABHS's coverage because I'm sitting in my office and use a certain word.

[00:10:53] Speaker 01:
ABHS bought that coverage.

[00:10:55] Speaker 01:
I can't take that away by my decision to use a particular adjective.

[00:10:58] Speaker 01:
The second point is simply this.

[00:11:01] Speaker 01:
I asked both the adjuster and the 30B6 flat out, and I showed them the complaint.

[00:11:05] Speaker 01:
Do you agree?

[00:11:06] Speaker 01:
I'm talking about right now the failure of accommodation claim.

[00:11:09] Speaker 01:
Is this covered?

[00:11:10] Speaker 01:
Yes.

[00:11:11] Speaker 01:
Is it excluded?

[00:11:12] Speaker 01:
No.

[00:11:13] Speaker 01:
That's cited to pinpoint in my brief with block quotes.

[00:11:16] Speaker 01:
So, Your Honor, respectfully, if Outlight admits it's covered and not excluded, that answers your question.

[00:11:22] Speaker 01:
It's not excluded.

[00:11:24] Speaker 01:
So let me get back to my point here.

[00:11:27] Speaker 01:
The problem with centralization is this.

[00:11:29] Speaker 01:
When I asked the adjuster, I took her through the wax, basically reading them as hypotheticals, asking her these various duties, and she had no idea what I was talking about.

[00:11:37] Speaker 01:
This went on for a while.

[00:11:38] Speaker 01:
And finally, she said, quote,

[00:11:40] Speaker 01:
I don't know what the regulations are in this hypothetical state of Washington that you're giving.

[00:11:45] Speaker 01:
I'm pretty sure Washington is not a hypothetical state, nor are our laws.

[00:11:50] Speaker 01:
Yet that is how this carrier approached this claim.

[00:11:53] Speaker 01:
They may have been right had they applied the law of the state of Delaware, but we're in Washington for this claim.

[00:11:58] Speaker 01:
And when a carrier decides to write coverage in Washington, they are bound to understand our laws.

[00:12:04] Speaker 01:
I cite you over and over on our brief with pinpoint sites

[00:12:08] Speaker 01:
They don't bother to know the law of Washington.

[00:12:11] Speaker 01:
They didn't look at the law of Washington in this case.

[00:12:13] Speaker 01:
They don't care what the law of Washington is.

[00:12:15] Speaker 01:
When I asked them flat out, well, if the law of Washington says this, would you apply it?

[00:12:20] Speaker 01:
Literally said, it's arguable.

[00:12:22] Speaker 01:
That was the quote from the adjuster.

[00:12:24] Speaker 01:
The 30B6 says, well, I don't know.

[00:12:27] Speaker 01:
How can a carrier under OSATE, it's arguable whether we will follow the law in your state?

[00:12:32] Speaker 01:
Now, the other point I'd like to make is this is not an ISO policy.

[00:12:38] Speaker 01:
That is critical.

[00:12:39] Speaker 01:
The carrier relies entirely on ISO policies.

[00:12:43] Speaker 01:
ISO policies ensure accidental losses and unintended consequences.

[00:12:49] Speaker 01:
This is not an ISO policy.

[00:12:51] Speaker 01:
This is a very unique policy written for health care facilities.

[00:12:54] Speaker 01:
And it expressly ensures intentional acts and intended consequences.

[00:13:00] Speaker 01:
When you look at that definition T,

[00:13:02] Speaker 01:
Any misconduct of a sexual nature is covered.

[00:13:06] Speaker 01:
So the whole idea of relying on ISO policies is wrong.

[00:13:10] Speaker 01:
They insured exactly this type of loss.

[00:13:13] Speaker 01:
And again, like I just said, the carrier admitted Mr. Naack's claims were covered and not excluded.

[00:13:19] Speaker 01:
I can sit down right now.

[00:13:21] Speaker 01:
But here's what I'd like to ask you to consider.

[00:13:24] Speaker 01:
Here's the fulcrum of their argument.

[00:13:26] Speaker 01:
And they said as much.

[00:13:27] Speaker 01:
Well, Mr. Nack's claim is covered but not excluded.

[00:13:30] Speaker 01:
But the fact that other covered, pardon me, other excluded claims were made subsumes his covered claim.

[00:13:38] Speaker 01:
That is not what this contract even says.

[00:13:41] Speaker 01:
It says we will cover any claim, whether covered in whole or in part.

[00:13:45] Speaker 01:
The very policy itself repudiates that.

[00:13:48] Speaker 01:
Secondly, the law of the state of Washington, in terms of good faith, which is engrafted into every single insurance contract, whether or not it says it,

[00:13:56] Speaker 01:
is exactly that.

[00:13:57] Speaker 01:
A carrier has an obligation to cover any claim, whether covered in whole or apart.

[00:14:01] Speaker 01:
Quote, an insurer's duty to defend applies to any allegation in a complaint that may result in a covered liability, even if other claims in the complaint are clearly outside the scope of coverage.

[00:14:11] Speaker 01:
That is Webb, that is Prudential, and that is the Supreme Court and you may next.

[00:14:15] Speaker 01:
So, they had a duty to defend—I cite to you authority that if there's any covered claim, the prophylactic duty of good faith requires them to defend all claims to ensure the covered claim is properly defended—and indemnity coverage clearly laid.

[00:14:29] Speaker 01:
Now, I want to jump really quickly to this exclusion.

[00:14:33] Speaker 01:
This exclusion does not apply.

[00:14:35] Speaker 01:
Given the over-broad, yawning coverage grant by definition T, covering any misconduct of a sexual nature, to try to exclude sexual abuse as a carve-out requires some type of definition, because sexual abuse is any misconduct of a sexual nature, right?

[00:14:55] Speaker 01:
When I asked the adjuster in the 36 over and over, explain to me where the crossover is, they couldn't do it.

[00:15:02] Speaker 01:
They just couldn't do it.

[00:15:03] Speaker 01:
After six months of litigation, knowing they were going to be deposed, after three days of depositions, they still couldn't explain how this exclusion is applied against that coverage.

[00:15:13] Speaker 01:
So that renders it vague and therefore unenforceable.

[00:15:16] Speaker 01:
And as my colleague just said, if you've got two different possibilities, you have to pick the one for coverage.

[00:15:22] Speaker 01:
And they did exactly what Aliyah said was bad faith.

[00:15:24] Speaker 01:
They picked the coverage, pardon me, they picked the resolution that favored them.

[00:15:29] Speaker 01:
That's why you don't send it back to the district court for a bad faith determination.

[00:15:33] Speaker 01:
More importantly though, even if they are right, they are wrong.

[00:15:37] Speaker 01:
Because even if this exclusion could be applied in the way they do, they ignore Aliyah and they ignore the district court.

[00:15:46] Speaker 01:
perhaps not binding precedent, but there are two cases in this very district that expressly says that if you have an exclusion exactly like theirs, it does exclude the perpetrator's conduct, the intentional conduct, and it does exclude claims that the insured did not prevent it from happening in the first place.

[00:16:04] Speaker 01:
But it does not exclude the insured's negligent or later conduct in response to it.

[00:16:08] Speaker 01:
In that context, it doesn't matter whether initiating conduct was covered or not.

[00:16:13] Speaker 01:
What at that point is we are evaluating the insurance conduct.

[00:16:17] Speaker 01:
So even if this exclusion could apply, they applied it well.

[00:16:21] Speaker 01:
There's really two steps, right?

[00:16:23] Speaker 01:
Was it intentional, was it excluded, and then did the insured do something after the fact with knowledge?

[00:16:28] Speaker 01:
And the complaint expressly alleges that ABHS had this knowledge of this misconduct.

[00:16:33] Speaker 01:
It was going on for months before Mr. Nack even was enrolled there.

[00:16:37] Speaker 01:
They didn't do anything to prevent it.

[00:16:39] Speaker 01:
With knowledge of it, that's the breach of the duty, and that's the insured act.

[00:16:44] Speaker 01:
And I'm way over by three minutes.

[00:16:45] Speaker 01:
I want to reserve.

[00:16:47] Speaker 01:
Thank you, Your Honors.

[00:17:02] Speaker 02:
Thank you, Your Honors, and may it please the Court, Fred Yarger, for appellee allied world.

[00:17:08] Speaker 02:
We certainly agree that the Washington duty to defend is broad, but as the case law also makes clear, it's not unlimited.

[00:17:15] Speaker 05:
So, Counsel, I'll come to the point of what I think is difficult for me about your position on how to weave the policy, is that we have expressed coverage of sexual harassment and other misconduct of a sexual nature.

[00:17:32] Speaker 05:
And then we have the exclusion, right?

[00:17:35] Speaker 05:
And I think you essentially assume for the purposes of your argument that the complaint includes allegations that would be covered under the sexual harassment provision, but also includes allegations that would be excluded under the exclusion.

[00:17:50] Speaker 05:
And you're saying your argument is that under that sort of mixed

[00:17:54] Speaker 05:
scenario, right, because of the wording of the exclusion, we should deem the entire lawsuit to be excluded, because they come in related to the allegations of sexual abuse.

[00:18:07] Speaker 05:
So that's my understanding of your position.

[00:18:10] Speaker 05:
I understand that's certainly a plausible interpretation of the policy, but the question isn't whether your interpretation is plausible.

[00:18:17] Speaker 05:
The question is whether the plaintiff's interpretation is also plausible or conceivable, I think is the word that the Washington state courts use.

[00:18:25] Speaker 05:
And it seems to me that it is also plausible—they have a couple different arguments, but one of which is that there's—it is conceivable that the policy doesn't prohibit essentially splitting the claims into covered and excluded—it doesn't really actually say what to do in that scenario.

[00:18:48] Speaker 05:
I couldn't find a provision in the policy that actually says when you have a complaint with covered in excluded allegations that you should not split.

[00:18:59] Speaker 05:
the claims essentially into covered and excluded and give coverage in part.

[00:19:04] Speaker 05:
So you're essentially asking for the broadest possible reading of language for an essentially implied interpretation.

[00:19:13] Speaker 05:
But when it's only implied, it seems to me that the plaintiff's interpretation is not precluded.

[00:19:18] Speaker 05:
Their interpretation is also conceivable.

[00:19:23] Speaker 05:
Can you respond to that?

[00:19:25] Speaker 02:
Yes, Your Honor, and I understand there's a lot there, so let me try to unpack it.

[00:19:33] Speaker 02:
So I agree with you.

[00:19:34] Speaker 02:
We have to read this exclusion and the policy as a whole and determine if it's clear and unambiguous and compare that to the complaint.

[00:19:44] Speaker 05:
Is there a provision in the policy that says you should not split the complaint to cover an exclusion?

[00:19:48] Speaker 02:
Yeah, and let me explain that.

[00:19:50] Speaker 02:
Okay.

[00:19:50] Speaker 02:
This policy doesn't alter that baseline rule.

[00:19:53] Speaker 02:
What it does is it creates an exclusion that says if there is harassment that it's in any way related to abuse, that loss is not covered.

[00:20:04] Speaker 02:
If it were a case, for example, where there was racial harassment that occurred in a separate instance of sexual abuse,

[00:20:10] Speaker 02:
the other harassment would certainly be covered.

[00:20:14] Speaker 02:
The question is, is there any relation between those two losses?

[00:20:17] Speaker 05:
And this is what Judge Rothstein—

[00:20:25] Speaker 05:
and excluded sexual abuse, you could still give meaning to the related to provision.

[00:20:31] Speaker 05:
I think in the case you cited, there was a determination that negligence, you know, negligent retention of an employee who engaged in sexual abuse was not

[00:20:42] Speaker 05:
didn't arise from the sexual abuse but was related to the sexual abuse.

[00:20:46] Speaker 05:
So you could have a whole series of allegations and losses that are arising from and related to the excluded allegations of sexual abuse and split those off as excluded and still have covered allegations and losses that are not

[00:21:02] Speaker 05:
And I guess I'm just looking for something that says you can't disaggregate the complaint, I think were the words used in the briefing, you can't split it up that way, or that something that says they're wrong, you can't, it's not even conceivable on this policy that you can split it up.

[00:21:19] Speaker 02:
And, Your Honor, it's the way that the district court, the district court I think provides a very helpful roadmap, because what the district court did was it looked at this term related to.

[00:21:28] Speaker 02:
And there's a case applying Washington law that says that's unambiguous.

[00:21:32] Speaker 02:
It means connections that are either logical or causal.

[00:21:36] Speaker 02:
And that includes time, place, modus operandi, et cetera.

[00:21:42] Speaker 02:
Here, we had a complaint filed by all plaintiffs that alleged nearly the exact same kind of conduct.

[00:21:48] Speaker 02:
But not only that, it was the same person.

[00:21:52] Speaker 02:
at the same facility, engaging in nearly identical conduct.

[00:21:56] Speaker 04:
Mr. Nack counsel did not allege any contact, I don't think.

[00:22:00] Speaker 04:
Was there any contact?

[00:22:01] Speaker 02:
No, that's not quite true, Your Honor.

[00:22:03] Speaker 02:
Mr. Nack very specifically alleged he was subject to strip searches, and that's at ER 231.

[00:22:10] Speaker 02:
And so his allegations map very clearly and very closely

[00:22:14] Speaker 02:
onto the rest of the plaintiffs.

[00:22:16] Speaker 02:
And so as the district court found, we don't just have separate incidences of harassment versus abuse that aren't connected to each other.

[00:22:25] Speaker 02:
We have a single course of conduct by the same individual at the same facility during the same time period using the same modus operandi.

[00:22:33] Speaker 00:
But why wouldn't it be possible to believe that, for instance, there were harassing comments, but that there was no—that there was no touching?

[00:22:45] Speaker 00:
I understand that some of these things happened at the same time, but wouldn't it be possible for a finder of fact to say, well, I believe that these comments were made, but—yeah, but I don't believe that there was any touching.

[00:22:56] Speaker 00:
There was nothing that—

[00:22:57] Speaker 00:
wandered over into abuse?

[00:22:59] Speaker 02:
In the eight corners context, Your Honor, it's very important for the insured to respect what the claim itself says.

[00:23:07] Speaker 02:
One of the cases I'd point you to is USAA versus Speed.

[00:23:11] Speaker 02:
And that's a case involving a road rage incident.

[00:23:14] Speaker 02:
There, the document that alleged to give rise to coverage used the term deliberate conduct.

[00:23:21] Speaker 02:
The policy didn't cover deliberate conduct.

[00:23:24] Speaker 02:
And there, the Washington Court of Appeals said, we have to look at the eight corners, so the four corners of the policy and the four corners of the document that allegedly gives rise to coverage.

[00:23:33] Speaker 02:
And if it's unambiguous, here, very similar, sexual abuse was very specifically and repeatedly alleged.

[00:23:40] Speaker 02:
We have to apply the eight corners rule, and that's what we look at to determine coverage.

[00:23:44] Speaker 02:
Now, if anything else came up throughout the course of this litigation that suggested that there was no relationship between the harassment and abuse, of course, the insurer is going to look at that.

[00:23:54] Speaker 02:
But that never occurred here.

[00:23:56] Speaker 02:
In fact, as the district court judge acknowledged, everything outside of the complaint confirmed what the complaint said.

[00:24:02] Speaker 02:
The demand letters.

[00:24:03] Speaker 05:
The premise of your argument assumes that

[00:24:09] Speaker 05:
We cannot disaggregate the covered and excluded allegations.

[00:24:14] Speaker 05:
So I guess mine is really asking you to go a step back and say, point me to something in the policy that says, when determining whether there can be coverage in part, we have told the insured that we will not

[00:24:37] Speaker 05:
disaggregate the complaint into covered

[00:24:40] Speaker 05:
and excluded allegations.

[00:24:42] Speaker 05:
As there's an excluded allegation, we will deem the whole thing to be related to and therefore excluded, right?

[00:24:49] Speaker 05:
I mean, or that there's something expressed in the policies that says it cannot be disaggregated.

[00:24:56] Speaker 02:
So I want to point you to a couple of things, because there's sort of an order of operations that you have to understand how this policy works.

[00:25:03] Speaker 02:
First, the exclusion says, shall I cover any loss in connection with the claim?

[00:25:09] Speaker 02:
if that loss is in any way related to actual abuse.

[00:25:12] Speaker 02:
Here, there was—all of the losses, all of the allegations in the complaint were all directly tied to abuse.

[00:25:18] Speaker 02:
So this wasn't an instance of a mixed claim under the exclusion.

[00:25:23] Speaker 02:
In cases of truly mixed claims, Your Honor, the endorsement does say, in whole or in part.

[00:25:29] Speaker 02:
The problem is, here, there was no coverage in part, because everything in the complaint

[00:25:35] Speaker 02:
was all tied to the same behavior that was connected in time, place, person, modus operandi.

[00:25:42] Speaker 02:
It was all one related course of events.

[00:25:44] Speaker 00:
It was a single scheme of sexual abuse, and that's why the entirety of the complaint was— But I guess, why isn't it possible to read the—to read the claims otherwise?

[00:25:54] Speaker 00:
Because I just suggested there were some—there were some allegations about comments being made that were disaggregated, in a way, from the incidents of

[00:26:05] Speaker 00:
of touching.

[00:26:06] Speaker 00:
Why isn't that a fair reading of the complaint?

[00:26:09] Speaker 00:
Why is it so intertwined?

[00:26:10] Speaker 00:
Go ahead.

[00:26:11] Speaker 02:
Because the undisputed or the unambiguous meaning of the term related to encompasses connections exactly like those that were alleged in the complaint.

[00:26:22] Speaker 02:
Same person, same time, same place.

[00:26:25] Speaker 02:
And this is what the district would recognize in applying that.

[00:26:27] Speaker 05:
But you're saying that we should import into the term related to

[00:26:30] Speaker 05:
the premise that we cannot disaggregate the complaint.

[00:26:33] Speaker 05:
And I guess that's, to me, here, if we could, say, for example, have an under-Washington law narrowly interpret the exclusion for sexual abuse to not include the strip search in which there was no contact.

[00:26:48] Speaker 05:
that doesn't constitute molestation and it doesn't constitute sexual abuse and that there was therefore that all constitutes sexual harassment and there's a body of factual allegations in the complaint that merely constitutes sexual harassment or other sexual misconduct that is expressly covered.

[00:27:07] Speaker 05:
Right?

[00:27:08] Speaker 05:
And then we just take those out, and any losses that are attributable to those covered allegations would be covered.

[00:27:16] Speaker 05:
And then we take the ones, the allegations that constitute sexual abuse and sexual molestation, and say those are excluded.

[00:27:23] Speaker 05:
You're saying you interpret, I understand your interpretation of the exclusion is that because it says anything related to sexual abuse, it encompasses even the covered

[00:27:37] Speaker 05:
sexual harassment allegations, the entire complaint gets excluded, even though some of those allegations taken on their own would otherwise be covered.

[00:27:48] Speaker 02:
If they are taken on their own and unrelated to sexual abuse, I agree with you.

[00:27:53] Speaker 02:
The way that this exclusion is written

[00:27:55] Speaker 02:
It makes very clear is if there's harassment, it's in any way related to abuse, you don't have a mixed claim.

[00:28:03] Speaker 02:
You don't have two claims.

[00:28:04] Speaker 02:
You can certainly have that under this policy, Your Honor, and we're not denying that.

[00:28:08] Speaker 02:
But the way this exclusion is written—and the courts applying Washington law have actually looked at exclusions not too dissimilar from this.

[00:28:16] Speaker 02:
I can give you a site for it.

[00:28:18] Speaker 02:
It's the capital specialty versus JBC entertainment case.

[00:28:22] Speaker 02:
Very sort of similar language.

[00:28:23] Speaker 02:
The court found that the claims there were excluded given in part the breadth of the exclusion under the policy.

[00:28:31] Speaker 02:
And it's not just that, of course.

[00:28:33] Speaker 02:
It's the discourse recognition that in any way related to or at least related to is an unambiguous term that is brought.

[00:28:41] Speaker 02:
We're certainly not saying that the mixed claims rule doesn't apply, but when there's a loss,

[00:28:48] Speaker 02:
where there's abuse and harassment in tandem, and they are related to each other, that excludes that loss.

[00:28:57] Speaker 02:
And of course, that's why there are separate policies in this industry.

[00:29:01] Speaker 02:
There are policies that cover these more typical conduct that you'd see covered by unemployment practices, and there are separate policies just as there was here for sexual abuse.

[00:29:12] Speaker 04:
I want you to go back to my question about Mr. Naft, because I went back to

[00:29:17] Speaker 04:
235, and it's not there.

[00:29:18] Speaker 04:
I think what you mean is 231.

[00:29:20] Speaker 04:
If I said 235, I assume that's what you meant.

[00:29:25] Speaker 04:
But again, I see that in 230,

[00:29:29] Speaker 04:
As soon as I was told Mr. Nack to remove his clothing, I went to 231 and it did say that he was asked to remove his shorts.

[00:29:41] Speaker 04:
There's nothing in that paragraph that says anything about being physically touched.

[00:29:48] Speaker 04:
I know that it says that he was asked to

[00:29:52] Speaker 04:
that he was Mr. Stevens strips after one of these strips searches but there was nothing in the nothing in the actual complaint saying that there was actually was there somewhere else that I'm supposed to there's also the hugging the physical contact through hugging that appears on the on the previous page and so it was the exact same type of conduct that every other plaintiff

[00:30:19] Speaker 02:
Was alleging in this case and the other place I would point you to your honor in the complaint is I think it's 233 and this isn't the statements of the claims itself the cause of action says that all plaintiffs not just some and not not

[00:30:35] Speaker 02:
others were subject to, quote, sexual abuse and sexual harassment and were injured by this particular employee's sexual abuse and harassment.

[00:30:45] Speaker 02:
So the four corners of the complaint make very clear that there were both allegations as to all plaintiffs, not just as to some and not just as to others.

[00:30:54] Speaker 00:
So, is your—just to make sure I understand your argument, is it that the harassing acts here were all just kind of prelude to abuse?

[00:31:05] Speaker 00:
They're all really the same—it's the same thing in this case?

[00:31:08] Speaker 00:
Yes.

[00:31:08] Speaker 00:
That's part of it, certainly.

[00:31:10] Speaker 00:
You can't separate them out.

[00:31:12] Speaker 02:
You cannot.

[00:31:13] Speaker 02:
You cannot.

[00:31:14] Speaker 02:
And that's what the district court recognized in analyzing the— As a factual matter on this.

[00:31:20] Speaker 02:
Well, based on—as a factual matter based on the four corners of the complainants pleaded by these plaintiffs.

[00:31:25] Speaker 05:
On the, I just want to make sure, so I understand you're largely resting on the breadth, possible breadth of the term relating to my understanding from the Washington state case law that

[00:31:43] Speaker 05:
For example, the negligent hiring claim that plaintiffs brought, they could say that the hiring didn't arise from the sexual abuse but was related to the sexual abuse.

[00:31:57] Speaker 05:
And your client could say, therefore, the hiring

[00:32:01] Speaker 05:
was, even though it didn't arise from, because of that related-to language, it would fall under the exclusion, if it related to the sexual abuse.

[00:32:09] Speaker 05:
Is that correct?

[00:32:10] Speaker 05:
That would be your interpretation.

[00:32:13] Speaker 02:
So, there are some cases under Washington law that apply specifically the arising out of.

[00:32:18] Speaker 02:
in both the intentional sort of assault context and in other contexts as well.

[00:32:23] Speaker 02:
And what the court has held there is that post intentional assault conduct can still give rise to liability.

[00:32:30] Speaker 02:
But those policies were not written

[00:32:33] Speaker 02:
with this language, one of them was—and in one of those cases—and I think this is very important, because it really distinguishes between arising out of and related to—and this is American best food—it found that this post-assault conduct, quote, while related to the excluded conduct, which was the assault, was not excluded by the arising under language.

[00:32:55] Speaker 05:
OK.

[00:32:55] Speaker 05:
So, and then—but you would say that problem is taken care of in your policy exclusion because it includes

[00:33:00] Speaker 05:
Absolutely.

[00:33:01] Speaker 02:
Correct.

[00:33:03] Speaker 05:
So there is a way to give meaning to the related to language in your exclusion, right, without broadening it all the way to the sexual harassment allegations.

[00:33:17] Speaker 05:
Is that correct?

[00:33:17] Speaker 02:
I must have misunderstood because, no, that's not what we're saying.

[00:33:22] Speaker 02:
And I think American Best Food kind of points this up.

[00:33:24] Speaker 02:
You have to give independent meaning to arising out of and in any way related to.

[00:33:30] Speaker 05:
So the sexual abuse and other losses that arise from the sexual abuse.

[00:33:39] Speaker 05:
would be excluded, as well as post-conduct that is only related to and doesn't arise from Washington law would all be excluded under the language of the sexual abuse exclusion.

[00:33:52] Speaker 05:
But I guess what I'm saying is there is a way to give meaning, legal significance, to every term in that exclusion, while still disaggregating the sexually—expressly covered sexual harassment allegations.

[00:34:06] Speaker 02:
Well, I certainly agree with you that there's a way— That is possible.

[00:34:08] Speaker 02:
—a way to give meaning to all the terms.

[00:34:11] Speaker 02:
But when you give meaning to the terms under the unambiguous meaning given by courts applying Washington law, if those things are related to each other, they're excluded.

[00:34:23] Speaker 05:
I mean, really—I guess the question is, right, really, how broadly do we interpret the term related to?

[00:34:30] Speaker 05:
And, you know, the Supreme Court has said, you know, the related to can, you know, be interpreted in a variety of ways, and we don't always have to give it its maximalist scope, right?

[00:34:42] Speaker 05:
And it seems to me Washington law says we should interpret exclusions narrowly and certainly if there's ambiguity.

[00:34:50] Speaker 05:
we construed against the insurer.

[00:34:53] Speaker 05:
So why—I understand that related to could mean everything in the complaint, but why is that the only possible interpretation here?

[00:35:02] Speaker 02:
I think it's the only possible interpretation because it includes these other terms in the exclusion.

[00:35:10] Speaker 02:
It's not just related to.

[00:35:11] Speaker 02:
It's alleging or rising out of based upon attributable to or anyway relating to any actual

[00:35:18] Speaker 02:
or alleged sexual molestation and abuse.

[00:35:21] Speaker 02:
And this was, the clause was very much written to encapsulate those logical and causal connections, the broad connections that the district court recognized fall within the relating to definition.

[00:35:31] Speaker 02:
So I think if you didn't give related to its plain meaning based on the case law that the district court cited, I think you would risk

[00:35:39] Speaker 02:
sort of having it mean the same thing as it rising out of or creating other interpretive problems.

[00:35:45] Speaker 02:
And certainly, the other principle I'd like to sort of point to, Your Honor, is the Washington Supreme Court has said, you know, perhaps exclusions can be ambiguous in some cases, but not in others.

[00:35:57] Speaker 02:
There it was a pollution case.

[00:35:59] Speaker 02:
It was Quadrant Corp.

[00:36:01] Speaker 02:
Here, the complainant issue, the underlying complaint,

[00:36:04] Speaker 02:
very explicitly used the very terms to describe this conduct on behalf of all plaintiffs, such that it fell within the exclusion.

[00:36:13] Speaker 02:
And under cases like USAA v. Speed, you have to read the complaint.

[00:36:18] Speaker 02:
You can't ignore it.

[00:36:19] Speaker 02:
You can't close your eyes to it.

[00:36:21] Speaker 02:
And I think that very much points up that this was a case understood from the very beginning.

[00:36:26] Speaker 02:
to involve both harassment and abuse that were linked together and related to each other.

[00:36:32] Speaker 02:
So I think in this case, application of the exclusion is straightforward, given the four corners of the underlying complaint.

[00:36:41] Speaker 02:
And I see you have 30 seconds.

[00:36:42] Speaker 02:
I'm happy to answer questions.

[00:36:43] Speaker 02:
But otherwise, I would request that you affirm.

[00:36:57] Speaker 03:
Thank you, Your Honors.

[00:36:59] Speaker 03:
Judge Thomas, I want to address one of your questions of whether or not the jury could find sexual harassment without finding sexual abuse.

[00:37:08] Speaker 03:
And I point you to 288 to 290 in the record, where I asked the adjuster just that.

[00:37:14] Speaker 03:
And the adjuster says, yes, a verdict could come down that finds sexual harassment.

[00:37:19] Speaker 03:
And I believe that I put in the term tag ABHS with sexual harassment without also sexual abuse.

[00:37:28] Speaker 03:
And the adjuster was yes, said yes.

[00:37:30] Speaker 03:
And I asked, was that visible at the time you made this decision?

[00:37:34] Speaker 03:
And her answer was yes.

[00:37:36] Speaker 03:
And then further, if you read in there, I say, do you know what triggers coverage under Washington law for the duty of defense?

[00:37:43] Speaker 03:
And she says no.

[00:37:45] Speaker 03:
That's why we're here.

[00:37:47] Speaker 03:
That's the problem.

[00:37:48] Speaker 03:
That's the bad faith.

[00:37:50] Speaker 03:
I want to also point out something that counsel said that I found much different than their brief, because their brief has always been, if the claim itself ever alleges any sexual abuse, then the whole thing's gone.

[00:38:04] Speaker 03:
That changed today.

[00:38:06] Speaker 03:
I heard him say that if the claim were to allege racial discrimination and sexual abuse, well, that would be covered.

[00:38:14] Speaker 03:
But this one alleges separate incidences.

[00:38:18] Speaker 03:
These don't have to be taken together.

[00:38:20] Speaker 03:
They're not causal in nature, especially under floating, that could cause sexual harassment separate and independent.

[00:38:28] Speaker 03:
And that brings me to my last page.

[00:38:30] Speaker 03:
The related to that he talks of in American Best Foods talks about a causal relationship.

[00:38:36] Speaker 03:
And there is a possibility, if you look back through the Supreme Court and the Bodstock case talks about how do we deal with the causal relationship, you remove something and see if the outcome's different.

[00:38:47] Speaker 03:
If you have sexual harassment in some of the words here, you can remove the abuse and you'll still have liability for the sexual harassment.

[00:38:56] Speaker 03:
It was clear in the beginning that this was, the duty of defense was triggered.

[00:39:00] Speaker 03:
It was denied by them favoring their own

[00:39:03] Speaker 03:
interpretation and their own interests.

[00:39:06] Speaker 03:
I ask that you reverse the trial court and I also ask the district court and I also ask that you grant summary judgment on the breach of the duty of defense in bad faith.

[00:39:18] Speaker 03:
Thank you, Your Honor.

[00:39:30] Speaker 01:
Three quick points.

[00:39:31] Speaker 01:
There was no allegation of touching by Mr. Nack other than two hugs.

[00:39:34] Speaker 01:
And if two hugs constitute sexual abuse, that simply demonstrates the perniciousness of this exclusion, because a hug certainly constitutes an unwanted sexual overture, which is expressly covered by definition T.

[00:39:47] Speaker 01:
The issue of related to or arising out of—I don't want to say the case law necessarily treats them identically, but they are so close to each other, there really is no effective difference.

[00:39:57] Speaker 01:
I'm not asking you to read it out of the policy.

[00:39:59] Speaker 01:
I'm simply asking you to read it as the Supreme Court does.

[00:40:02] Speaker 01:
Related to and arising out of in these claims means it includes the initial act that's excluded, it includes not having prevented before the fact the act,

[00:40:11] Speaker 01:
but it does not include the later response, which is merely negligence.

[00:40:15] Speaker 01:
That's all I'm saying right here.

[00:40:17] Speaker 01:
Furthermore, what he's really arguing to you now is that what this means, any response to excluded conduct is also excluded because it is related to or arising out of.

[00:40:26] Speaker 01:
The Northfield case, the same district, which I cited at page 36 of my brief express, he says no.

[00:40:31] Speaker 01:
If you want to do what they just argued they want to do, to include the later conduct, you have to include language like that.

[00:40:37] Speaker 01:
And the Northfield policy actually included that language.

[00:40:40] Speaker 01:
It said, your response to excluded conduct is excluded.

[00:40:44] Speaker 01:
They could have included that language if they wanted it, and they didn't do it.

[00:40:47] Speaker 01:
He's asking me to read language into the policy to create an exclusion that is not there.

[00:40:52] Speaker 01:
And that is not how we interpret coverage in this state.

[00:40:56] Speaker 01:
There is a lot in this case, and given the short amount of time, it's impossible to talk about.

[00:41:00] Speaker 01:
I would like to ask you, please, to not merely reverse the granting of summary judgment, but you should reverse the denial of Mr. Nack's motion for summary judgment.

[00:41:09] Speaker 01:
Furthermore, as this is an Ithaca claim, there are a lot of obvious off-roads, off-ramps in this case, that there's coverage.

[00:41:15] Speaker 01:
That was bad faith.

[00:41:16] Speaker 01:
But there are so many aspects of bad faith I outline in my brief, from not having claims policies to not properly explaining the exclusion.

[00:41:22] Speaker 01:
I ask you to please to work through all those steps.

[00:41:25] Speaker 01:
Because when you remand, we have to retry everything that isn't decided as a matter of law.

[00:41:29] Speaker 01:
If we're not entitled to it, I get it.

[00:41:31] Speaker 01:
But I would ask you to please go through the brief in detail and look at all the acts of bad faith, because on IFCA, we have to go back and try those to a jury, because we're a district court, not state court.

[00:41:41] Speaker 01:
Thank you for your time, Your Honor.

[00:41:46] Speaker 05:
Thank you.

[00:41:46] Speaker 05:
Thank you, Counsel, for your helpful argument.

[00:41:48] Speaker 05:
And I believe we are adjourned for the day.