Charter Oak Fire Insurance v. Interstate Mechanical, Inc. (958 F. Supp. 2d 1188, 2013)

United States District Court for the District of Oregon 2013-07-23

Citations

Full opinion text

OPINION AND ORDER

MOSMAN, District Judge.

On May 7, 2013, Magistrate Judge Papak issued his careful and well-reasoned Findings and Recommendation (“F & R”) [358] in the above-captioned case. He recommended that (1) Travelers’ motion for partial summary judgment against Glacier for breach of the cooperation clause [238] and Continental’s joinder in that motion [281] be granted; (2) Glacier’s motion for summary judgment regarding certain occurrences [284] be denied; (3) Travelers’ motion for partial summary judgment regarding the duty to indemnify for the Lake County action [222] and Continental’s joinder in that motion [279] be denied; (4) Travelers’ motion for partial summary judgment regarding pre-2007 policies [240] be granted; (5) Travelers’ motion for partial summary judgment concerning “occurrence,” “property damage,” and various exclusions [256] and Continental’s joinder in that motion [279] be denied; (6) Travelers’ motion for partial summary judgment based on the pollution exclusion [334] be denied; (7) Travelers’ motion for partial summary judgment as to the 2009-2011 policies [331] be denied; (8) Glacier’s motions to stay [211, 273] be denied; (9) Tygart’s motion to stay [263] be granted; (10) Glacier’s motion to amend [216] be denied; (11) Glacier’s Rule 56(d) motion and supplemental motion to compel [282] be denied as moot; (12) Continental’s motion to limit scope of deposition [183] be granted; and (13) the remaining discovery motions be denied as moot [191, 196, 198, 200, 206, 226, 276]. Glacier filed objections [360], and Travelers [361] and Continental [364] responded to those objections.

Upon review, I agree with Judge Papak’s recommendation, and I ADOPT the F & R[358] as my own opinion. I write separately only to clarify Judge Papak’s finding that Glacier failed to assert a claim for bad faith breach and to discuss Glacier’s recent Confession of Judgment in the Flathead County action.

LEGAL STANDARD

The magistrate judge makes only recommendations to the court, to which any party may file written objections. The court is not bound by the recommendations of the magistrate judge, but retains responsibility for making the final determination. The court is generally required to make a de novo determination regarding those portions of the report or specified findings or recommendation as to which an objection is made. 28 U.S.C. § 636(b)(1)(C). However, the court is not required to review, de novo or under any other standard, the factual or legal conclusions of the magistrate judge as to those portions of the F & R to which no objections are addressed. See Thomas v. Arn, 474 U.S. 140, 149, 106 S.Ct. 466, 88 L.Ed.2d 435 (1985); United States v. Reynou-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003). While the level of scrutiny under which I am required to review the F & R depends on whether or not objections have been filed, in either case, I am free to accept, reject, or modify any part of the F & R. 28 U.S.C. § 636(b)(1)(C).

DISCUSSION

In Judge Papak’s thorough F & R, he laid out the factual background and relevant legal standards controlling this dispute. I will not rehash them here. Instead, I focus my discussion on two issues: (1) Glacier’s failure to assert a claim for bad faith breach, and (2) Glacier’s recent Confession of Judgment in the Flathead County action.

I. Bad Faith Breach

Glacier’s principal objection to the F & R is that it was error for Judge Papak to rule on the insurers’ claim for breach of the cooperation clause before resolving Glacier’s properly-asserted claim for bad faith failure to defend. (Objs. [360] at 20.) I agree with Judge Papak that Glacier has not properly asserted a claim for bad faith.

To state a claim for relief, a pleading must contain “a short and plain statement of the claim showing that the pleader is entitled to relief.” Fed.R.Civ.P. 8(a). “[A] complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A pleading that offers only “labels and conclusions” or “‘naked assertion[s]’ devoid of ‘further factual enhancement’ ” will not suffice. Id. (quoting Twombly, 550 U.S. at 555, 557, 127 S.Ct. 1955).

In Glacier’s answer to Travelers’ fourth amended complaint, it asserts the affirmative defenses of “Estoppel/waiver” and “Unclean hands.” (Answer [173] at 8.) In addition, Glacier’s counterclaims against Travelers and cross-claims against Continental state only that “Glacier asserts all contractual and extra contractual claims it has pursuant to Montana and other applicable law.” (Id. [173] at 13.) In Glacier’s pleadings, it does not allege any factual support for these naked assertions. Rather, Glacier argues that a bad faith claim is implicit in estoppel and unclean hands. To satisfy Iqbal and Twombly, however, even implicit claims require sufficient factual support. Therefore, I find that Glacier has not pleaded a bad faith claim.

The question then becomes whether Glacier may assert a bad faith claim for the first time at summary judgment. As Judge Papak noted, the law is clear in the Ninth Circuit that “absent prejudice,” an affirmative defense may be raised for the first time on a motion for summary judgment. Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir.1984). Glacier has discussed the issue of bad faith in briefing on various motions, including a motion for partial summary judgment. (See, e.g., Mem. [284] at 28 (“CWIC and Charter Oak/Travelers have breached their duty to defend and breached the implied covenant of good faith and fair dealing. Both are liable as a matter of law for bad faith and the consequent coverage by estoppel.”).) Specifically, Glacier has argued that Travelers undermined its defense by retaining a firm to defend Glacier that had inadequate resources for the job, conditioning the replacement of the inadequate firm on obtaining a release of malpractice liability from Glacier, failing to pay the more capable Datsopolous firm for five months after it substituted the inadequate firm, and actively resisting discovery in this declaratory relief action. Absent prejudice, therefore, I should permit Glacier to raise its bad faith claim.

In my view, however, allowing Glacier to raise a bad faith claim in its motion for partial summary judgment would prejudice Travelers and Continental. This prejudice is best demonstrated by comparing the insurers’ conduct with that of Glacier. Travelers pleaded failure to cooperate as a bar to coverage in all four relevant complaints. (See, e.g., Fourth Amend. Compl. [154] ¶¶ 36(h), 54.) True, Travelers and Continental did not supply sufficient factual support in their complaints, but they at least identified the specific issue in their pleadings. As a result, when Travelers and Continental have repeatedly raised the issue with extensive factual support in briefing, Glacier has known that it needed to respond to it and has been able to do so with its own evidence.

In contrast, Glacier has never pleaded bad faith, despite seeking leave to amend its pleadings in other ways. Indeed, this seems to have been a deliberate sleight of hand to advance Glacier’s interests. In its unauthorized reply to objections, Glacier states the following:

Travelers’ prior material breach is a defense to Travelers contract claims, and Glacier pled unclean hands as an affirmative defense against these carriers. Further Glacier has a fully formed claimed for breach of contract, fraud, and breach of the Montana Unfair Trade Practices Act against these two carriers in the Lake County case in which all other necessary parties are presently joined.... For these carriers to say that Glacier has not sued them for breach of contract is incorrect. Glacier has done so in Lake. Glacier has not done so here because Glacier could only do so by sacrificing its claim that this Court was the wrong forum.

(Reply [369] at 27 (emphasis added).) Thus, Glacier concedes that it has chosen not to clearly assert a bad faith claim in order to pursue what it has viewed as a stronger argument, that this Court is the wrong forum. Therefore, Glacier has attempted to have it both ways: It has chosen not to actually plead bad faith to advance its overall strategy, but it has made arguments regarding bad faith when such arguments have been beneficial. This approach failed to put Travelers and Continental on notice that Glacier was actually raising a claim for bad faith. Therefore, allowing Glacier to raise a bad faith claim for the first time at summary judgment would prejudice Travelers and Continental. As a result, I agree with Judge Papak that Glacier has not properly asserted a claim for bad faith.

II. Confession of Judgment

On May 7, 2013, the very day Judge Papak issued his F & R, Glacier signed a Confession of Judgment in the Flathead County action. According to its terms, Glacier authorized the entry of judgment against it and in favor of Abbey/Land in the amount of $12,000,000. (Resp. [361] Ex. 3.) Glacier signed this Confession of Judgment without providing notice to or seeking consent from either Travelers or Continental. (McCracken Decl. [372] ¶¶ 2 — 3.) Glacier’s decision to sign this Confession of Judgment has implications for my analysis of both the cooperation clause and the voluntary assumption of obligation clause.

A. Cooperation Clause

Courts draw a distinction between situations in which the insurer unconditionally assumes liability for coverage and those in which the insurer defends under a reservation of rights. See 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d, § 199:48 (3rd ed., 2007). If the insurer unconditionally assumes liability for coverage, a cooperation clause prohibiting settlement without the insurer’s consent forbids such a settlement. If the insurer defends under a reservation of rights, however, an insured can enter into a settlement without the insurer’s consent, so long as the agreement is made fairly, with notice to the insurer, and without fraud or collusion on the insurer. See United Servs. Auto. Ass’n v. Morris, 154 Ariz. 113, 119, 741 P.2d 246 (1987).

Here, Travelers and Continental are defending under a reservation of rights. As a result, if Glacier’s Confession of Judgment were made fairly, with notice to the insurers, and without fraud or collusion, it would not bar coverage. It is incontrovertible, however, that Glacier did not provide notice to the insurers prior to settling with Abbey/Land on May 7, 2013. (McCracken Decl. [372] ¶¶ 2-3.)

In an effort to avoid a finding that Glacier breached the cooperation clause, it appears to argue that notice of any settlement negotiations in the Flathead County action would be sufficient. To that end, Glacier highlights settlement offers it made to Lemons, Tygart, Interstate, Travelers, and Continental between August 2012 and December 2012. (Cushman Decl. [373] ¶¶ 3-10.) On October 10, 2012, for example, Glacier demanded that Travelers and Continental settle the Flathead County action for $10,000,000 or it would stipulate to a judgment in favor of Abbey/Land for $15,000,000. (Id. [373] Ex. F-l.) In anticipation of Judge Papak’s omnibus hearing on April 3, 2013, Glacier made an additional settlement offer to the same parties on March 30, 2013. None of these settlement negotiations directly involved Abbey/Land, and none of the settlement offers was accepted. Furthermore, there is no evidence that Glacier provided notice regarding settlement negotiations of any kind between March 30, 2013, and May 7, 2013, the day Judge Papak issued his F & R and Glacier signed the Confession of Judgment. In fact, Glacier has suggested that signing the Confession of Judgment was a direct response to Judge Papak’s adverse F & R. (Reply [369] at 12 (“Any general contractor would accept such an offer from an owner, particularly where the insurers ... are defending under a reservation of rights, and have gotten an order such as the one at issue here.”).)

In my view, the earlier settlement negotiations between Glacier, Lemons, Tygart, Interstate, Travelers, and Continental did not provide Travelers and Continental with notice of Glacier’s Confession of Judgment in favor of Abbey/Land. Therefore, I conclude that Glacier was not at liberty to enter into settlement with Abbey/Land.

This conclusion reinforces Judge Papak’s finding that Glacier breached its duty to cooperate. An insured breaches a cooperation clause if the insurer establishes three elements: “(1) the insurer diligently sought the insured’s cooperation; (2) the insured willfully failed to cooperate; and (3) the insured’s failure to cooperate prejudiced the insurer.” Assurance Co. of Am. v. MDF Framing, Inc., 2008 WL 361289, at *3 (D.Or. Feb. 7, 2008) (citing Rosalez v. Unigard Ins. Co., 283 Or. 63, 581 P.2d 945 (1978); Bailey v. Universal Underwriters Ins. Co., 258 Or. 201, 474 P.2d 746 (1970)). The Confession of Judgment is conclusive proof both that Glacier willfully failed to cooperate and that its failure to cooperate has prejudiced Travelers and Continental. For this additional reason, therefore, I agree with Judge Papak’s finding that Glacier breached its duty to cooperate.

B. Voluntary Assumption of Obligation Clause

In the F & R, Judge Papak noted that there appear to be no Oregon cases discussing voluntary assumption of obligation clauses. As a result, he followed courts from other jurisdictions, which tend to analyze these clauses under the general rubric of the duty to cooperate. See Roberts Oil Co. v. Transam. Ins. Co., 113 N.M. 745, 752, 833 P.2d 222, 229 (1992). He therefore applied the same three-part test for determining whether the insured’s breach of the cooperation clause barred coverage to determine whether the insured’s breach of the voluntary assumption of obligation clause barred coverage. In so doing, Judge Papak correctly found that the voluntary assumption of obligation clause had not yet been triggered when he issued his F & R. (F & R [358] at 1207-10.)

Taking Judge Papak’s cue, Glacier immediately signed the Confession of Judgment. Now there is no question that Glacier has willfully and voluntarily assumed an obligation and that, by so doing, it has prejudiced Travelers and Continental. Therefore, I conclude that Glacier has breached the voluntary assumption of obligation clause and is thus barred from coverage.

CONCLUSION

Travelers’ motion for partial summary judgment against Glacier for breach of the cooperation clause [238] and Continental’s joinder in that motion [281] are GRANTED. Glacier’s motion for summary judgment regarding certain occurrences [284] is DENIED. Travelers’ motion for partial summary judgment regarding the duty to indemnify for the Lake County action [222] and Continental’s joinder in that motion [279] are DENIED. Travelers’ motion for partial summary judgment regarding pre2007 policies [240] is GRANTED. Travelers’ motion for partial summary judgment concerning “occurrence,” “property damage,” and various exclusions [256] and Continental’s joinder in that motion [279] are DENIED. Travelers’ motion for partial summary judgment based on the pollution exclusion [334] is DENIED. Travelers’ motion for partial summary judgment as to the 2009-2011 policies [331] is DENIED. Glacier’s motions to stay [211, 273] are DENIED. Tygart’s motion to stay [263] is GRANTED. Glacier’s motion to amend [216] is DENIED. Glacier’s Rule 56(d) motion and supplemental motion to compel [282] are DENIED AS MOOT. Continental’s motion to limit scope of deposition [183] is GRANTED. The remaining discovery motions are DENIED AS MOOT [191, 196, 198, 200, 206, 226, 276]. Finally, Travelers’ motion for leave to file additional dispositive motion [362] is DENIED AS MOOT.

IT IS SO ORDERED.

FINDINGS AND RECOMMENDATION

PAPAK, United States Magistrate Judge:

Plaintiffs The Charter Oak Fire Insurance Company, Travelers Property Casualty Company of America, and The Travelers Indemnity Company (collectively “Travelers” or “plaintiffs”) bring this declaratory judgment action under the Federal Declaratory Judgment Act, 28 U.S.C. § 2201, against Interstate Mechanical Inc. (“Interstate”), Glacier Construction Partners, LLC (“Glacier”) and Continental Western Insurance Company (“Continental”) to determine insurance coverage obligations arising from a large construction project in Montana. Continental asserts cross claims for declaratory relief against Interstate also involving coverage obligations. Now before the court are numerous motions, including motions for summary judgment, motions to stay, discovery motions, and a motion to amend. For the reasons discussed below: (1) Travelers’ motion for partial summary judgment against Glacier for breach of the cooperation clause (# 238) and Continental’s joinder in that motion (# 281) should be granted; (2) Glacier’s motion for summary judgment regarding certain occurrences (#284) should be denied; (3) Travelers’ motion for partial summary judgment regarding the duty to indemnify for the Lake County action (# 222) and Continental’s joinder in that motion (# 279) should be denied; (4) Travelers’ motion for partial summary judgment regarding pre2007 policies (#240) should be granted; (5) Travelers’ motion for partial summary judgment concerning “occurrence,” “property damage,” and various exclusions (#256) and Continental’s joinder in that motion (# 279) should be denied; (6) Travelers’ motion for partial summary judgment based on the pollution exclusion (# 334) should be denied; (7) Travelers’ motion for partial summary judgment as to Travelers 2009 to 2011 policies (# 331) should be denied; (8) Glacier’s motions to stay (#211, #273) should be denied; (9) Tygart’s motion to stay (# 263) should be granted; (10) Glacier’s motion to amend (#216) should be denied; (11) Glacier’s Rule 56(d) Motion and Supplemental Motion to Compel (# 282) should be denied as moot; (12) Continental’s Motion to Limit Scope of Deposition (# 183) should be granted; and (13) the following discovery motions should be denied as moot (# 191, # 196, # 198, # 200, # 206, # 226, # 276).

As a housekeeping matter, docket entries # 305 and # 306 are joinders in opposition to summary judgment motions, and are not technically motions before the court at present.

BACKGROUND

The procedural history of this case is too involved to repeat completely here. A more thorough summary can be found in the court’s earlier Findings and Recommendation. (# 120.) A short and undoubtedly oversimplified recitation follows. Real estate developer Donald Abbey formed Abbey/Land, a development entity, and Glacier, a building contractor, to build a luxury residence on rural Shelter Island in Montana. Glacier hired Interstate, an Oregon HVAC and plumbing subcontractor to work on the project. Interstate purchased insurance policies from Travelers and Continental naming Glacier, as required, as an additional insured. Problems with the construction project developed. Abbey/Land and Glacier sued Interstate and other subcontractors for negligence and breach of contract in Flathead County, Montana. Interstate tendered defense to Travelers and Continental. Travelers then initiated the present declaratory judgment action against Interstate and Continental alleging that it had no duty to defend or indemnify Interstate in the Flathead County case. Continental similarly cross-claimed against Interstate for a declaration that it had no duty to defend or indemnify. Interstate failed to answer and the court entered a default judgment. Meanwhile, Glacier had prevailed over Interstate in an arbitration over contractual disputes between them, and Abbey/Land demanded Glacier pay it the proceeds of that arbitration. When Glacier tendered that demand, Travelers added Glacier as a defendant in this suit, seeking a declaration that it had no duty to indemnify Glacier for liability created by Interstate’s conduct, at issue in an already-concluded arbitration. Soon after, Abbey/Land amended its Flathead County complaint to turn Glacier from a plaintiff into a defendant, retaining only the negligence claims against Glacier. Glacier cross-claimed against all other co-defendants (its subcontractors), including Interstate. Glacier then filed a new coverage suit in Lake County, Montana against Abbey/Land, Interstate, other subcontractors, Travelers, Continental, and other of Glacier’s alleged insurers (through policies purchased by other subcontractors naming Glacier as a secondary insured), seeking a declaration that all insurers had a duty to defend and indemnify Glacier for liability on claims made by Abbey/Land in the Flathead County case.

Glacier has consistently argued, under a number of different legal theories, that the present federal suit should be dismissed in favor of resolving all insurance coverage issues concerning the project through the Lake County case. The court has previously rejected these arguments. The court, however, acknowledged the possibility of declining declaratory relief jurisdiction at some point if it became clear that resolving Travelers’ claim regarding the duty to indemnify would require the court to duplicate factual determinations that the Flathead County court would also be making in the context of the underlying liability litigation. Over the last six months, the parties have filed a multitude of interrelated discovery motions and dispositive motions. For the sake of efficiency, the court elected to hear arguments on all of these motions in an omnibus hearing on April 3, 2013.

LEGAL STANDARDS

I. Motion for Summary Judgment

Summary judgment is appropriate “if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). Summary judgment is not proper if material factual issues exist for trial. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Warren v. City of Carlsbad, 58 F.3d 439, 441 (9th Cir.1995), cert. denied, 516 U.S. 1171, 116 S.Ct. 1261, 134 L.Ed.2d 209 (1996). In evaluating a motion for summary judgment, the district courts of the United States must draw all reasonable inferences in favor of the nonmoving party, and may neither make credibility determinations nor perform any weighing of the evidence. See, e.g., Lytle v. Household Mfg., Inc., 494 U.S. 545, 554-55, 110 S.Ct. 1331, 108 L.Ed.2d 504 (1990); Reeves v. Sanderson Plumbing Products, Inc., 530 U.S. 133, 150, 120 S.Ct. 2097, 147 L.Ed.2d 105 (2000).

II. Motion to Amend

Leave to amend is within the discretion of the trial court, but that discretion “should be guided by the underlying purpose of Rule 15(a) which was to facilitate decisions on the merits, rather than on technicalities or pleadings.” In re Morris, 363 F.3d 891, 894 (9th Cir.2004) (citation omitted). “A district court may, however, take into consideration such factors as bad faith, undue delay, prejudice to the opposing party, futility of the amendment, and whether the party has previously amended his pleadings.” Id. (citation omitted). Of these factors, the most important is the potential for prejudice to opposing parties. See Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 821, 330-31, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). While futility alone provides sufficient grounds for denying a motion to amend, see Johnson v. Buckley, 356 F.3d 1067, 1077 (9th Cir. 2004), undue delay by itself cannot justify denial of a motion to amend. See Bowles v. Reade, 198 F.3d 752, 758 (9th Cir.1999). “An outright refusal to grant leave to amend without a justifying reason is ... an abuse of discretion.” Manzarek v. St. Paul Fire & Marine Ins. Co., 519 F.3d 1025, 1034 (9th Cir.2008) (citation omitted).

III. Motion for Protective Order

A “court may, for good cause, issue an order to protect a party or person from annoyance, embarrassment, oppression, or undue burden or expense, including ... (D) forbidding inquiry into certain matters, or limiting the scope of disclosure or discovery to certain matters.... ” Fed. R.Civ.P. 26(c)(1). The party resisting discovery or seeking limitations may show “good cause” by demonstrating harm or prejudice that will result from the discovery. Phillips ex rel. Estates of Byrd v. General Motors Corp., 307 F.3d 1206, 1210-1211 (9th Cir.2002).

IV. Motion to Compel

Federal Civil Procedure Rule 26(b)(1) provides that “any matter, not privileged, that is relevant to the claim or defense of any party” is discoverable, and that “[r]elevant information need not be admissible at the trial if the discovery appears reasonably calculated to lead to the discovery of admissible evidence.” Fed.R.Civ.P. 26(b)(1). However, district courts have discretion to limit the scope of discovery if: (i) the discovery sought is unreasonably cumulative or duplicative, or is obtainable from some other source that is more convenient, less burdensome, or less expensive; (ii) the party seeking discovery has had ample opportunity to obtain the information sought; or (iii) the burden or expense of the proposed discovery outweighs its likely benefit, taking into account the needs of the case, the amount in controversy, the parties’ resources, the importance of the issues at stake in the litigation, and the importance of the proposed discovery in resolving the issues. Fed.R.Civ.P. 26(b)(2)(c).

DISCUSSION

There are numerous motions presently before the court, including ten motions for partial summary judgment. I first address Travelers’ motion for partial summary judgment on Glacier’s breach of the cooperation clause and Continental’s joinder in that motion, and resolve that motion in Travelers’ and Continental’s favor. That conclusion affects many of the remaining motions before the court. Next, I address the various other summary judgment motions. Based on my dispositions of those motions, I determine that this court should decline declaratory relief jurisdiction and stay the present action as to defendant Tygart until resolution of the Flathead County case. Finally, I briefly discuss the pending motion to amend and address the numerous discovery motions.

I. Summary Judgment Motions

A. Travelers’ and Continental’s Motion Regarding Breach of Duty to Cooperate (# 238, # 281)

Travelers moves for partial summary judgment granting declaratory relief that Travelers has no obligation to further defend or indemnify Glacier for any of the underlying matters because Glacier has intentionally breached the cooperation clause in the Travelers’ policies at issue by colluding with Abbey/Land, the plaintiff in the underlying liability action in Flathead County. Continental joins in Travelers’ motion and expands upon it, 'arguing that Glacier also breached the voluntary assumption of obligation clause in Continental’s policies. These motions should be granted.

Both the Travelers and Continental policies at issue in this case contain cooperation clauses. The Travelers CGL policies provide that the insured must:

(1) Immediately send us copies of any demands, notices, summonses or legal papers received in connection with the claim or “suit”;

(2) Authorize us to obtain records and other information;

(3) Cooperate with us in the investigation or settlement of the claim or defense against the “suit”; and

(4) Assist us, upon our request, in the enforcement of any right against any person or organization which may be liable to the insured because of injury or damage to which this insurance may apply-

(McCracken Deck, # 224, Exs. 1-5, 13-16, at Section IV(2)(c).) The Continental CGL policies at issue here contain identical clauses. (Neal Deck, # 280, Ex. 1 at Section IV(2)(c).) Moreover, the Travelers Blanket Additional Insured (Contractors) endorsement to the CGL coverage requires an additional insured to “immediately send us copies of all legal papers received in connection with the claim or ‘suit’, cooperate with us in the investigation or settlement of the claim or defense against the ‘suit’, and otherwise comply with all policy conditions.” (Id., Exs. 14-16, at Subpart 4(c).) Substantially similar language is found in Continental’s Blanket Additional Insured (Contractors) endorsement. (Neal Deck, #280, Ex. 1, at Sub-part 5) (“As soon as practicable, each additional insured must give us prompt notice of any ‘occurrence’ which may result in a claim, forward all legal papers to us, cooperate in the defense of any actions, and otherwise comply with policy conditions.”) Finally, both the Travelers and Continental policies at issue here contain voluntary assumption of obligation clauses, providing that “No insured will, except at that insured’s own cost, voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent.” (McCracken Deck, #224, Exs. 1-5, 13-16, at Section IV(2)(d)); (Neal Deck, #280, Ex. 1 at Section IV(2)(d).)

Unlike with the other summary judgment motions now before the court, Glacier does not specifically dispute that Oregon law should apply to interpretation of the cooperation clauses in the various insurance policies. Perhaps this is because there is no actual conflict between Oregon and Montana law concerning the interpretation of cooperation clauses, or because Glacier chose strategically not to raise a choice of law argument. In any case, I apply Oregon law.

In Oregon, an insured’s breach of an insurance policy’s cooperation clause is a defense that excuses the insurer’s coverage obligations. See Assurance Co. of Am. v. MDF Framing, Inc., No. CV 06-169-MO, 2008 WL 361289, at *3 (D.Or. Feb. 7, 2008). Courts find that an insured breaches a policy’s cooperation clause if the insurer establishes three elements: “(1) the insurer diligently sought the insured’s cooperation; (2) the insured willfully failed to cooperate; and (3) the insured’s failure to cooperate prejudiced the insurer.” Id., citing Rosalez v. Unigard Ins. Co., 283 Or. 63, 581 P.2d 945 (Or.1978); Bailey v. Universal Underwriters Ins. Co., 258 Or. 201, 474 P.2d 746 (Or.1970). See also Johnson v. Doughty, 236 Or. 78, 83, 385 P.2d 760, 763 (1963) (“The defense of noncooperation is one that must be proven by the insurer.”). The burden remains with the insurer to both plead and prove a breach of the policy’s cooperation clause.

Here, Glacier argues that Travelers may not rely on the cooperation clause as a defense to coverage because it never pled Glacier’s failure to cooperate. However, Travelers’ most recent complaint pleads Glacier’s failure to cooperate as one of the bases for Travelers’ lack of defense of indemnity obligation. (Fourth Amend. Compl., # 154, ¶¶ 36(h), 54). In addition, Travelers pleads as affirmative defenses that Glacier’s claims for coverage are barred by the “terms, exclusions, conditions, definitions and limitations contained in any or all of Plaintiffs’ policies,” and barred “to the extent that ... Glacier [has] failed to comply with any and all applicable provisions of the insurance policies.” (Plaintiffs’ Answer and Affirmative Defenses, # 178, ¶¶ 7 & 9.) It is true that Travelers does not specify the facts underlying its cooperation clause elaim/defense. However, the law is clear in the Ninth Circuit that “absent prejudice” an affirmative defense may be raised for the first time on a motion for summary judgment. Rivera v. Anaya, 726 F.2d 564, 566 (9th Cir.1984). Glacier has not suggested it has been prejudiced by Travelers’ assertion that coverage is barred by the cooperation clause. The facts underlying Travelers’ position are facts of Glaciers’ own making, thus discovery has not alluded Glacier on this matter. Glacier was able to respond with its own evidence and to argue it did not breach its duty to cooperate. Accordingly, I address whether the court may conclude as a matter of law that Glacier breached the cooperation clauses of the relevant policies.

1. Insurer’s Diligence in Seeking Cooperation

To satisfy the first element the insurer must make a “substantial showing of diligence,” which is “the same diligence as [the insurer] would exercise to protect its own interests, if there were no advantage to be gained if cooperation fails.” Bailey, 258 Or. at 222, 224, 474 P.2d 746 (internal quotations omitted). Whether the insurer exercised reasonable diligence is ordinarily a question of fact that should be determined “in [ ] light of the particular facts and circumstances of each case.” Id. at 225, 474 P.2d 746. Here, however, there is no factual dispute that both Travelers and Continental diligently sought Glacier’s cooperation. Both Travelers and Continental defended Glacier under a reservation of rights, warned Glacier that coverage would not apply if Glacier failed to cooperate, and requested that Glacier update Travelers on an ongoing basis about the matter. (Suppl. Jack Deck, # 304, Ex. 1, at 1-3.) Travelers engaged in formal and informal discovery with Glacier. Continental also sternly reminded counsel for Glacier that it “is required under the insurance policy to cooperate, including cooperation in any claim CWIC may have against other entities for reimbursement of defense costs or other payments” and further warned “Compliance with this instruction will not necessarily cure any damage already caused by Glacier’s failure to cooperate.” (Cushman Deck, # 145, Ex. C at 3.) For its part, Glacier does not point to any specific instance where Travelers or Continental has failed to pursue Glacier’s cooperation. I find, therefore, that Travelers and Continental diligently sought Glacier’s cooperation.

2. Insured’s Willful Failure to Cooperate

Concerning the second element, Oregon courts recognize that a willful failure to cooperate does not require a showing of malice. Assurance, 2008 WL 361289, at *5. An insured’s intentional, yet passive refusal to assist the insurer suffices. Id. Yet respected commentators also suggest that an insured breaches the cooperation clause of an insurance policy if it “appears to be assisting the claimant in the maintenance of his or her action.” 14 Lee R. Russ & Thomas F. Segalla, Couch on Insurance 3d, § 199:33 (3rd ed., 2007). Indeed, an insured’s active assistance of the claimant excuses coverage and defense obligations. See, e.g., Airway Underwriters v. Perry, 362 Mass. 164, 284 N.E.2d 604 (1972).

Here, I agree with Travelers that Glacier has gone far beyond passive resistance or even the appearance of collusion. There is real no factual dispute that Glacier actively colluded with Abbey/Land in the Flathead County case. Travelers argues that Glacier has engaged in three different types of conduct that resisted Travelers’ defense and aided Abbey/Land’s prosecution. First, Glacier allowed itself to be made a defendant in the Flathead County case for the benefit of Abbey/Land, a related entity. Commentators indicate that while the existence of a relationship between the insured and the claimant does not conclusively establish collusion, such a relationship should be taken into account because “close family relationship or association tends to ally the sympathy of the insured with those to whom the insurer may be liable.” Couch on Insurance 3d, § 199:33. In this case, the insured and the claimant are separate legal entities, but are owned and controlled by the same individual, Donald Abbey. The potential for collusion in this situation is exceptionally high, much more so even than in cases where the claimant and the insured are family members. In fact, it is undisputed that Donald Abbey permitted Glacier to be converted from a plaintiff in the Flathead County case to a defendant, a transformation that Glacier representative Nate Steinbeck testified was meant solely to allow Glacier to access additional insurance coverage, presumably for Abbey/Land and Donald Abbey’s benefit. (McCracken Deck, # 237, Ex. 1 at 194:1-9.)

Second, and more importantly, Glacier worked directly with Abbey/Land, its attorneys, and its experts to create evidence favorable to Abbey/Land and to increase Abbey/Land’s damages claims, all in a manner that was harmful to Glacier’s litigation position. During the summer of 2012, Abbey/Land retained Paul Pederson, an accountant, to calculate Abbey/Land’s damages on the Flathead County claims. (McCracken Deck, # 237, Ex. 4, Pederson Dep., at 26.) Pederson was present at a meeting in June 2012 along with Donald Abbey, counsel for Abbey/Land in the Flathead County case (Mr. Trieweiler), various Glacier representatives (Nate Steinbeck, Brenda Woolhouse), Glacier’s counsel in the Flathead County case (from the Datsopoulos law firm), and John Cushman, Glacier’s coverage counsel. (Id. at 27-28.) Pederson understood only that he was at the meeting to “create” or “compile” Abbey/Land’s claim against Glacier, and did not know who all the various participants represented. (Id. at 29.) Sometime near the end of July 2012 Pederson completed a preliminary summary of Abbey/Land’s damages for Mr. Trieweiler, Abbey/Land’s counsel. (Id. at 43.) Around that time, the Datsopolous firm, which represents Glacier in the Flathead County case, called Mr. Pederson and asked him to sign a declaration. (Id.) That declaration, typed on pleading paper bearing the letterhead of Datsopolous, MacDonald & Lind, P.C. and signed by Pederson on July 26, 2012, summarizes Pederson’s estimate of the amount of Abbey/Land’s damages in the Flathead County case. (McCracken Deck, #237, Ex. 3 at 27-30.) In sum, Glacier participated in a joint conference with Abbey/Land’s attorney and damages expert to create Abbey/Land’s damages claims, then drafted a declaration for Abbey/Land’s expert to help substantiate those damages estimates.

Glacier’s collusion with Abbey/Land did not end there. Subsequently, Pederson received a call from Glacier’s coverage counsel John Cushman and Glacier’s project manager Nate Steinbeck, asking Pederson to “look at” whether Abbey/Land might also claim damages against Glacier and other Flathead County defendants for increased future electricity costs necessitated by the failure of heat pumps installed at the property. (McCracken Deck, # 237, Ex. 4, Pederson Dep. at 112-113). On August 21, 2012, Pederson emailed Cushman with his calculations indicating the increased electricity usage over a twenty year period had a present value of about $767,000. (McCracken Deck, # 237, Ex. 6 at 2-3.) Pederson later revised his damage summary, adding $715,384 for increased future electricity charges for 2009 to 2028. (Compare McCracken Deck, # 237, Ex. 3 at 17 with McCracken Decl., # 237, Ex. 5 at 13.) At Cushman’s suggestion, Pederson also apparently added a $65,000 damages item for installing a larger drain line due to saltwater overload. (McCracken Deck, # 237, Ex. 3 at 17, Ex. 5 at 13, Ex. 6 at 5.) Finally, if there was any doubt about Glacier’s collusion with Abbey/Land, an email indicates that Abbey/Land’s 30(b)(6) deponent William Matteson asked counsel for Abbey/Land and Glacier whether either had “support” for the amount of Abbey/Land’s original claims for damages. (McCracken Deck, # 237, Ex. 6 at 6-7.) Glacier presents no evidence to create a factual dispute about these events.

Third, Travelers contends that Glacier’s invocation of a joint privilege for communications between itself, Donald Abbey, and Abbey/Land violates the cooperation clause. Glacier claimed a joint privilege in response to Travelers’ requests for an explanation of why Glacier’s Flathead County counsel prepared the Pederson declaration in the summer of 2012. (Jack Deck, # 193 at ¶ 7.) More recently, Glacier has moved for a protective order covering communications between Glacier, Donald Abbey, and Abbey/Land, arguing that these communications are privileged under the common interest doctrine. (Mot. for Prot. Order, # 196.) I decline to analyze that assertion of privilege now, since my ultimate finding that Glacier breached the cooperation clause of the various insurance policies eliminates any need to dispose of Glacier’s discovery motions on their merits. But Glacier’s claim of attorney-client privilege over communications with Abbey/Land is certainly consistent with Glacier’s collusion with Abbey/Land in Flathead County. By asserting a common interest in “claiming property damage and insurance coverage” for damage at the project, Glacier illustrates its alliance with Abbey/Land in the Flathead County suit. (Mot. for Prot. Order, # 196, at 13.) Even so, I cannot conclude that asserting the privilege by itself constitutes proof of collusion, without first evaluating the claim of privilege on the merits. In this case, however, there is ample undisputed evidence of Glacier’s other collusive activities, even without relying solely on Glacier’s assertion of the common interest privilege.

Glacier raises several arguments in response to Travelers’ allegation that Glacier breached the cooperation clause, all of which are unavailing. Glacier contends that assertion of a privilege for communications between Abbey, Abbey/Land, and Glacier does not constitute failure to cooperate. In a sense I agree, but there is much other evidence of Glacier’s failure to cooperate that Glacier tellingly fails to rebut. Additionally, Glacier contends that Travelers has actually undermined Glacier’s defense in Flathead County, not the other way around. Glacier argues Travelers initially retained a firm to defend Glacier that had inadequate resources for the representation, that when Travelers retained the more capable Datsopoulos firm, Travelers failed to pay defense costs for five months and then reneged on a promise to immediately pay half of the outstanding balance, and that Travelers and Continental have been actively resisting discovery in this action. Even assuming these assertions are accurate, at most they might provide support for a bad faith failure to defend claim by Glacier against Travelers. They do not in any way relieve Glacier from complying with the duty to cooperate, mitigate its conclusive breach of that obligation, or preserve insurance coverage. Finally, in what appears to be an equitable argument, Glacier suggests that it would be unreasonable for Glacier to be forced to resist Abbey/Land’s Flathead County claims in order to retain insurance coverage, since Donald Abbey’s ownership of both entities was known to Interstate and its insurers and the purpose of Glacier’s coverage as an additional insured under Interstate’s policies was to provide protection for Glacier as well as Donald Abbey. As Glacier has reiterated many times, Glacier and Abbey/Land are separate entities. But Glacier’s obligation under its insurance contracts is to cooperate with its insurers in their defense of Glacier against Abbey/Land, not to disregard the corporate structures of both entities and work collusively for the sole benefit of Donald Abbey.

Even making inferences favorable to Glacier as required on this motion, the court concludes that Glacier willfully failed to cooperate with Travelers and Continental by permitting itself to be made a defendant in Flathead County, but more importantly by preparing a declaration summarizing damages for Abbey/Land’s damages expert, by suggesting Abbey/Land seek two additional categories of damages totaling over $780,000, and by invoking a common interest privilege to withhold relevant communications between Glacier and Abbey/Land. Such brazen collusion between the insured and the claimant epitomizes a willful failure to cooperate in the insured’s defense. See Perry, 362 Mass, at 166, 168, 284 N.E.2d 604 (insured failed to cooperate by advising the injured party, referring the injured party to the insured’s personal attorney for consultation, and providing the injured party with the original insurance policy).

3. Insured’s Failure to Cooperate Prejudiced Insurer

Finally, to constitute a defense to coverage, an insured’s willful failure to cooperate must also prejudice the insurer. Assurance, 2008 WL 361289, at *5. The insurer bears the burden to plead and prove that it has suffered prejudice as a result of an insured’s noncooperation. Bailey v. Universal Underwriters Ins. Co., 258 Or. 201, 219 (Or.1970). Oregon courts have found prejudice where an insured’s failure to communicate with the insurer led to a default judgment against the insured on liability, and where an insured’s failure to attend trial deprived the defense of its only favorable witness. Bailey, 258 Or. at 220, 221, 474 P.2d 746; Berry v. Truck Ins. Exch., 265 Or. 130, 135, 508 P.2d 436 (Or. 1973). Summarizing these holdings, Judge Mosman writes that under Oregon law “[prejudice includes a substantial detriment to the insurer’s ability to litigate or adjust the case.” Assurance, 2008 WL 361289, at *5 (holding, like Bailey, that insurer was prejudiced when insured’s failure to communicate with insurer led to a default judgment). Judge Mosman’s formulation suggests that prejudice can be shown at any stage of the litigation in the underlying suit, even before its conclusion, since an insurer could theoretically prove its “ability to litigate” was impaired even before final resolution of that litigation. But to my knowledge no court applying Oregon law has squarely addressed whether an insurer can prove an insured’s noncooperation caused prejudice before the underlying liability action has concluded.

Other jurisdictions confronting this issue hold that a court can only determine whether the insured has been prejudiced after the underlying injury action is concluded. See, e.g., Cincinnati Ins. Co. v. Irvin, 19 F.Supp.2d 906, 916 (S.D.Ind. 1998) (applying Indiana law and concluding that “the question of prejudice appears impossible to decide before a trial is held in the underlying tort action”); United Servs. Auto. Ass’n v. Martin, 174 Cal. Rptr. 835, 836, 120 Cal.App.3d 963, 966 (1981) (“Logically, the required showing of prejudice cannot be made while the main tort action is still pending, its outcome uncertain, and therefore declaratory relief against the injured persons at this stage is inappropriate”); Harleysville Ins. Co. v. Rosenbaum, 30 Md.App. 74, 86, 351 A.2d 197, 203 (1976) (vacating trial court’s determination of actual prejudice as premature where underlying negligence action had not concluded).

I note, however, that these cases all involved an insured’s passive non-responsiveness to the insurer, rather than active collusion with the injured party. See, e.g., Rosenbaum, 30 Md.App. at 83, 351 A.2d 197 (alleged breach of cooperation clause involved insured’s failure to give automobile insurer an account of the accident before he died); Martin, 120 Cal.App.3d at 965, 174 Cal.Rptr. 835 (alleged breach of cooperation clause was based on refusal to answer interrogatories, give deposition testimony, or testify at trial). In fact, courts draw a distinction between collusion cases and all others when it comes to the manner and timing of proving prejudice. See Irvin, 19 F.Supp.2d at 915-916. In Irvin, the district court reasoned that when the insured’s alleged failure to cooperate takes the form of failing to appear for trial, the insurer must demonstrate actual prejudice and may do so only after the underlying tort action has concluded. Irvin, 19 F.Supp.2d at 915-916. By contrast, Irvin noted that courts presume prejudice as a matter of law in cases where the insured “actively colludes with and supports the claim of an injured plaintiff’ because the fundamental purpose of a cooperation clause is to prevent such collusion. Id. at 914 (citing Elliott v. Metropolitan Cas. Ins. Co., 250 F.2d 680, 684 (10th Cir.1957)).

In Elliott, the Tenth Circuit aptly explained the genesis of this distinction. Elliott, 250 F.2d at 684. Treating the insured’s voluntary unavailability as a breach of the cooperation clause creates a temptation for the insurer to “spirit [the insured] beyond the jurisdiction of the court.” Id. To counteract that incentive, courts place the burden on the insurer to show that its case was adversely affected by the insured’s disappearance. Id. Importantly, this special rule does not affect the “established doctrine that the cooperation clause will be deemed violated if the insured by collusive conduct appears to be assisting the claimant in the maintenance of his suit rather than the insurer.” Id.

Admittedly, Irvin and Elliott’s nuanced explanation stands in some tension with the Oregon Supreme Court’s decision in Bailey, which purports to create a bright-line rule requiring an insured prove prejudice in all cases. See Bailey, 258 Or. at 219, 474 P.2d 746 (“we now expressly recognize the rule that in order for noncooperation to provide a defense ... the insurance company has the burden to plead and prove that it has suffered prejudice as a result.”). But even Bailey and the decisions it relies upon never addressed a situation where the insured actively colludes with the injured party. I believe that if the Oregon Supreme Court ever addressed a case like the instant action, it would recognize that active collusion presents an extreme special circumstance where prejudice may be presumed. Cf Staples v. Allstate Ins. Co., 176 Wash.2d 404, 295 P.3d 201, 209 (2013) (en banc) (although Washington law generally requires an insured prove prejudice, prejudice can be presumed in “extreme cases”).

Indeed, requiring the insurer to prove prejudice where the insured is colluding with the injured party creates obvious difficulties. First, as here, the collusion between the insured and injured party can make it hard for the insurer to obtain the proof that would allow it to demonstrate the extent of its prejudice. Second, requiring the insurer to continue providing a defense until after the liability action is resolved to an obviously collusive insured makes a mockery of the cooperation clause, whose purpose is to prevent collusion in the first instance. Finally, where the insured has involved the insurer-retained defense counsel in collusive activities, as here, prejudice to the insurer is virtually guaranteed.

Even without a resolution of the Flathead County action, I conclude as a matter of law that Glacier’s willful failure to cooperate prejudices Travelers and Continental. As explained above, Glacier’s collusion presents the extreme case. Not only will Travelers and Continental now have to defend Glacier and other Flathead County defendants (Tygart, Lemons, Interstate) against new damages claims suggested by Glacier itself, but they have incurred legal fees for work by the Datsopolous firm to actually assist Abbey/Land’s damages expert and prepare his declaration summarizing the extent of those damages. And Glacier’s assertion of a common interest privilege with Abbey/Land prevents Travelers and Continental from even evaluating the extent of Glacier’s collusion, which further prejudices insurers. In the face of this overwhelming and undisputed evidence of collusion to the detriment of the insurers, Glacier tellingly offers no plausible factual or legal rebuttal. For the reasons described above, I conclude that Glacier cannot recover as an additional insured under Interstate’s insurance policies with Travelers and Continental. Assurance, 2008 WL 361289, at *5.

4. Impact of This Ruling

My conclusion significantly alters the posture of this case, as explained in more detail below. Because the Travelers and Continental policies do not provide coverage to Glacier, the court must deny Glacier’s own motion for partial summary judgment and need not address the insurers’ other motions for summary judgment as they apply to Glacier or the various discovery motions concerning discovery requests made by or resisted by Glacier.

5. Alternative Ground: Breach of Voluntary Assumption of Obligation Clause

As an alternative basis for summary judgment, Continental argues that Glacier has breached a clause in its Continental policy prohibiting it from voluntarily assuming an obligation without Continental’s consent. (Neal Decl., # 280, Ex. 1 at Section IV(2)(d)) (Providing insured may not “voluntarily make a payment, assume any obligation, or incur any expense, other than for first aid, without our consent”) Specifically, Continental contends that Glacier breached this clause by admitting liability in its answer to Abbey/Land’s complaint in the Flathead County case, failing to deny Abbey/Land’s prayer, and then seeking a declaratory judgment in the Lake County case asserting that some aspects of liability in the Flathead County case were undisputed. This motion is not fully briefed; nevertheless, I give an overview of the merits to guide the court’s future consideration.

First, there appear to be no Oregon cases discussing voluntary assumption of obligation clauses (also known as voluntary payment provisions or consent-to-settle provisions) of the type present in Travelers and Continental’s policies. These clauses are fairly common in CGL policies, their purpose being “to give the insurer the ability to control settlement negotiations with the injured party, and to prevent an the [sic] insured party from conspiring with a third party to receive benefits.” Am. Ins. Co. v. Crown Packaging Int’l, 813 F.Supp.2d 1027, 1033 (N.D.Ind.2011). Continental urges the court to treat the voluntary assumption of obligation clause as a “condition of forfeiture” that nullifies otherwise existing coverage. See Federated Serv. Ins. Co. v. Granados, 133 Or.App. 5, 8, 889 P.2d 1312, 1314 (1995) (holding that a consent-to-settlement provision stating “[t]his insurance does not apply to ... [a]ny claim settled without our consent” was a condition of forfeiture). Unlike the consent-to-settle provision in Granados, which explicitly indicates coverage will no longer apply if a claim is settled without the insurer’s consent, the voluntary assumption of obligation clause here makes no reference to nullification of coverage. Rather, the clause appears in the part of the CGL policy entitled “Duties In The Event of Occurrence, Offense, Claim or Suit,” along with other duties of the insured towards the insurer. Consequently, the clause at issue here is not a condition of forfeiture, and I decline to apply the burden-shifting proof structure for the “condition of forfeiture” defense set forth in Lusch v. Aetna Cas. & Surety Co., 272 Or. 593, 538 P.2d 902 (1975) and adopted by Granados.

Instead, I follow courts from other jurisdictions, which tend to analyze these clauses under the general rubric of the duty to cooperate, reasoning that the purposes of a cooperation and no-voluntary-payment clauses are similar. See Roberts Oil Co. v. Transamerica Ins. Co., 113 N.M. 745, 752, 833 P.2d 222, 229 (1992) (“we do not believe that the policy considerations underlying a voluntary payment provision differ significantly from the policy considerations underlying a cooperation clause.”) Thus, I apply the same basic elements of proof for determining whether an insured’s breach of such a clause is a complete defense to coverage, examining whether the insured willfully breached the clause and whether the insurer has been prejudiced.

In determining whether the insured breached the clause, courts also draw an important distinction between situations where the insurer unconditionally assumes liability for coverage and those where the insurer defends under a reservation of rights. 14 Couch on Insurance 3d § 199:48. In the first instance, a cooperation clause prohibiting settlement without the insurer’s consent forbids such a settlement. See United Servs. Auto. Ass’n v. Morris, 154 Ariz. 113, 116-117, 119, 741 P.2d 246 (1987). However, where the insurer defends under a reservation of rights, an insured can enter into a settlement without the insurer’s consent, so long as the agreement is made fairly, with notice to the insurer, and without fraud or collusion on the insurer. Morris, 154 Ariz. at 119, 741 P.2d 246. Here, since Travelers and Continental are defending Glacier under a reservation of rights, the voluntary payment clause does not absolutely bar Glacier from entering into a settlement, so long as that settlement satisfies the above requirements.

But the more immediate issue on this motion is whether Glacier’s conduct so far even implicates the voluntary assumption of obligation clause. It is undisputed that Glacier has not yet settled the Flathead County action, although Glacier has threatened to stipulate to a judgment. Continental argues, however, Glacier has still breached that clause by admitting liability in Flathead County and seeking to prove its own liability in Lake County. Again, the relevant clause at issue prohibits the insured from “voluntarily mak[ing] a payment, assuming] any obligation, or incur[ing] any expense” without the insurer’s consent. Glacier did not make a payment to Abbey/Land or incur an expense. Instead, in response to Abbey/Land’s allegation that “[d]efendants failed to exercise ordinary skill and diligence and were negligent,” Glacier admitted that “the other Defendants herein were negligent” and explained that “[a]ll of Glacier’s general contractor work at issue in this case was brokered to subcontractors.” (Neal Deck, # 280, Ex. 2 at ¶ 45, Ex. 3 at 1.9). Glacier answered similarly in response to Abbey/Land’s allegation that it suffered damages that were directly and proximately caused by Defendants’ “wrongful and unlawful actions and omissions.” (Neal Deck, # 280, Ex. 2 at ¶ 68, Ex. 3 at 1. 18.) Glacier did not respond by either admitting or denying Abbey/Land’s prayer that the court enter judgment against all defendants. (Neal Decl., # 280, Ex. 2 at 21-23, Ex. 3.) Neither did Glacier’s answer pray to dismiss the claims Abbey/Land alleged against it. (Neal Deck, # 280, Ex. 3 at 4-5.) Finally, in the Lake County action, Glacier takes the position in briefing that several incidents of property damage were caused by Glacier subcontractors, that these incidences qualify as “occurrences” under the relevant policies, and consequently, that undisputed facts create a duty to defend and indemnify. (Neal Decl., # 280, Ex. 6 at 12-13, Ex. 7 at 7-10); (Mot. for Part. Summ. Judg., # 284.)

After looking closely at the complaint and answer in the Flathead County action referenced by Continental, I do not agree with Continental’s characterization that Glacier “voluntarily assumed liability and admitted damages” in the Flathead County suit by admitting the liability of its agent subcontractors. It is not certain that Glacier has the authority to concede negligence on behalf of its subcontractors, and until a court finds facts undisputedly establishing the subcontractor’s negligence, Glacier’s legal conclusion is merely speculative. But even if we assume the subcontractors were negligent, a complex legal question remains concerning whether Glacier can be held vicariously liable for the subcontractor’s conduct in this case. Accordingly, Glacier’s answer in Flathead County is by no means an admission of its own liability. Meanwhile, Glacier’s summary judgment briefing in Lake County takes a position that presumes liability will be established against it in Flathead County on some instances of property damage. The briefing might at some later time be considered as a form of estoppel, but the Lake County court has not yet ruled on Glacier’s motions or recognized the estoppel effect of those statements. In sum, Continental (thus far) fails to establish as a matter of law that Glacier has even admitted liability in Flathead County.

Even if Glacier had admitted liability, it is unclear whether that admission constitutes assumption of an obligation in