United States Fire Insurance Company; v. Icicle Seafoods, Inc.;

NOT FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
UNITED STATES FIRE INSURANCE
COMPANY; et al.,
Plaintiffs-counter-claim-
defendants-Appellees,
v.
ICICLE SEAFOODS, INC.; et al.,
Defendants-counter-
claimants-plaintiffs-
Appellants.
No. 22-35024
D.C. No. 2:20-cv-00401-RSM
MEMORANDUM*
Appeal from the United States District Court
for the Western District of Washington
Ricardo S. Martinez, District Judge, Presiding
Argued and Submitted October 19, 2022
Seattle, Washington
Before: TALLMAN, R. NELSON, and FORREST, Circuit Judges.
Dissent by Judge R. NELSON
Icicle Seafoods, Inc. (Icicle) sought loss of hire coverage from its various U.S.
and London insurers (Insurers), claiming in part that its factory processing vessel,
the M/V R.M. THORSTENSON, was unable to process fish in Alaska’s Area M
* This disposition is not appropriate for publication and is not precedent
except as provided by Ninth Circuit Rule 36-3.
FILED
DEC 6 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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fishery because of engine damage giving rise to a related hull insurance claim that
was separately adjusted and is not before us. Icicle and Insurers sued each other in
federal court, disputing the losses, if any, recoverable under Icicle’s loss of hire
claim. The parties also disputed whether Icicle breached any duty it had to cooperate
in Insurers’ adjustment of Icicle’s claim. Icicle appeals the district court’s grant of
summary judgment to Insurers.
Icicle argues the district court erred by finding it had breached an express duty
to cooperate by withholding from the adjusters historical financial information,
discharging Insurers of their coverage obligations under the loss of hire policy.
Because Icicle breached an implied duty to cooperate, and Insurers were prejudiced
as a result, we affirm.
Although the district court misconstrued a specific loss mitigation clause in
the policy as imposing a general duty to cooperate, that error was harmless given the
rule that every Washington contract contains “‘an implied duty of good faith and fair
dealing’ that ‘obligates the parties to cooperate with each other so that each may
obtain the full benefit of performance.’” Rekhter v. State ex. rel. Dep’t of Soc. &
Health Servs., 323 P.3d 1036, 1041 (Wash. 2014) (quoting Badgett v. Sec. State
Bank, 807 P.2d 356, 360 (Wash. 1991)).
This implied duty is not “free-floating” but rather “exists only ‘in relation to’”
Insurers’ specific contractual obligation to cover actual loss sustained. Keystone

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Land & Dev. Co. v. Xerox Corp., 94 P.3d 945, 949 (Wash. 2004).1 An insurer may
be relieved of its coverage obligations if the insured fails to substantially comply
with a material request and the insurer is prejudiced as a result. Tran v. State Farm
Fire & Cas. Co., 961 P.2d 358, 363 (Wash. 1998).2 Insurers have established that
no genuine issue of material fact exists as to any of these elements.
First, Insurers’ requests for financial information were material because that
information was “relevant and germane” to Insurers’ investigation into the actual
loss arising from Icicle’s claim. Id. (citation omitted); see also Puget Sound Lumber
Co. v. Mechanics’ & Traders’ Ins. Co., 10 P.2d 568, 572 (Wash. 1932) (explaining
“due consideration must be given to the experience of the business before the [loss]
and the probable experience thereafter” (quotations omitted)).
1 The Washington Supreme Court has clarified that a breach of a specific contractual
provision is not required for a violation of the duty of good faith to occur. A
violation of the implied duty can occur where a party merely fails to act in good faith
when exercising discretion to determine its obligations under the contract. See
Rekhter, 323 P.3d at 1041-42.
2 Washington courts do not appear to have addressed precisely what standard applies
to cases involving only an implied duty to cooperate. Compare, e.g., Coventry
Assocs. v. Am. States Ins. Co., 961 P.2d 933, 937, 938 (Wash. 1998) (suits under the
implied duty by insured against insurers treated as tort claims), with NOVA
Contracting, Inc. v. City of Olympia, 426 P.3d 685, 690 (Wash. 2018) (“A claim of
breach of the covenant of good faith and fair dealing sounds in contract . . . .”).
Accordingly, “we are required to use our best judgment to predict how the
Washington Supreme Court would [analyze] it.” Underwriters at Lloyds v. Denali
Seafoods, Inc., 927 F.2d 459, 462 (9th Cir. 1991). We apply Washington’s
framework for express cooperation clauses to the implied duty here as we see no
reason to distinguish between express and implied duties where they impose the
same nonspecific obligation to cooperate.

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Second, Icicle’s partial disclosures prior to litigation do not amount to
substantial compliance. Icicle expressly and unequivocally refused to supply
material financial records for at least 15 months.
Third, Insurers were prejudiced as a matter of law by this 15-month delay,
which culminated in a demand letter from Icicle threatening administrative action
and a bad faith claim against Insurers if Icicle’s demand was not paid in full without
seeing the documents later produced in the ensuing lawsuit before us. Insurers then
faced a “‘Hobson’s choice’ of either paying [the unsubstantiated] claim, or exposing
itself to bad faith liability.” Staples v. Allstate Ins. Co., 295 P.3d 201, 209-10 (Wash.
2013). On this record, Icicle breached its implied duty to cooperate, and Insurers
were prejudiced as a matter of law.3 We conclude that the district court properly
3 We disagree with the dissent’s characterization of Icicle’s 15-months of
prelitigation “hardball” tactics as little more than a mere workaday discovery
dispute. The dissent’s implication that Insurers were not prejudiced because they
always retained the option to sue for the requested documents vitiates the entire
purpose of the implied covenant of good faith and fair dealing: by promoting
cooperation and punishing exactly the sort of bad faith, hardball tactics that existed
here, the implied covenant incentivizes parties to avoid litigation altogether. This
case does not involve a discovery dispute occurring after litigation ensued; it
involves the breach of an implied condition precedent to cooperate with Insurers on
the investigation of the claim. The district court properly found on summary
judgment that Icicle’s persistent refusal to cooperate by withholding relevant
documents precluded Insurers from performing their duties under the contract. The
remedy for that breach, relieving Insurers of their obligation to indemnify the alleged
loss, is a harsh result. But Icicle has only itself to blame for its bad faith tactics. The
record amply supports the district court’s decision.

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entered summary judgment. Because we conclude that summary judgment was
properly granted, Icicle’s challenge to the denial of its motion to compel is moot.
AFFIRMED.

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22-35024, United States Fire Ins. Co., et al v. Icicle Seafoods, Inc., et al
R. NELSON, Circuit Judge, dissenting:
I respectfully dissent from the majority disposition. In my view, the
majority’s conclusion that Icicle Seafoods did not substantially comply with its duty
to cooperate and that Insurers were prejudiced is troubling. If followed, this could
open the floodgates to denials of coverage based on little more than what is better
characterized as discovery disputes over insurers’ adjustment of claims. The penalty
for discovery disputes should not be the denial of coverage; appropriate penalties for
dilatory discovery are available, including limiting recoverable damages for a claim.
The penalty here is all the more harsh because Insurers acknowledged a possible
covered loss of nearly $1 million based on the information that was provided.
I want to focus on the majority’s holding that Insurers were prejudiced by
Icicle’s failure to cooperate. Here is a summary of the dispute: Icicle valued its
claim between $3.1 and $4.7 million and submitted documents in support of that
valuation. Insurers requested additional information to support the claim, but Icicle
refused the requests it believed were either irrelevant or overbroad. Icicle then
submitted a formal claim for $4.7 million, but continued to refuse to provide
requested documents. Icicle’s refusal to provide the requested documents resulted
in a roughly 15-month delay of the investigation. Without the requested information,
Insurers calculated Icicle’s possible loss at just under $1 million. Icicle sent Insurers
FILED
DEC 6 2022
MOLLY C. DWYER, CLERK
U.S. COURT OF APPEALS

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a demand letter threatening administrative action and a bad-faith claim against
Insurers if they did not promise to pay Icicle’s valuation. Insurers then filed this
action, seeking a declaratory judgment valuing Icicle’s claim.
Washington’s leading case on this issue is Staples v. Allstate Ins. Co., 295
P.3d 201 (Wash. 2013) (en banc). The majority concludes that Insurers were
prejudiced because they faced a “‘Hobson’s choice’ of either paying [the
unsubstantiated] claim, or exposing itself to bad faith liability.” Maj. at 4.
(modifying a quote from Staples, 295 P.3d at 209–10 (Wash. 2013) (alteration in
majority memorandum)).
“A claim of actual prejudice requires ‘affirmative proof of an advantage lost
or disadvantage suffered as a result of the breach, which has an identifiable
detrimental effect on the insurer’s ability to evaluate or present its defenses to
coverage or liability.’” Staples, 295 P.3d at 209 (quoting Dien Tran v. State Farm
Fire & Cas. Co., 961 P.2d 358, 358 (1998)). Prejudice is an issue of fact and will
be established only in extreme cases. Id. (citing Dowler v. Clover Park Sch. Dist.
No. 400, 172 Wash. 2d 471, 484 (2011)). This case is not one of them.
In Staples, the Washington Supreme Court concluded that the insurer could
not establish prejudice where the insurer had opportunities to question the insured,
where the insured provided only some documents the insurer requested, and where
there was not urgency to investigate the claim before evidence was lost. Id. at 210.

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That sounds a lot like our facts. Here, although Icicle did not provide Insurers all
the information they requested, it nonetheless provided Insurers thousands of
documents during their claim investigation, submitted written answers to their
questions, and conducted telephonic and in-person meetings with them. And
Insurers sought access to historical records that were in no danger of being lost.
In contrast, Tran, which preceded Staples, is one of those rare cases in which
the Washington Supreme Court determined the insurer was prejudiced. Tran had
submitted a fraudulent claim and then stonewalled the insurer’s investigation to
prevent the fraud from being discovered. See 961 P.2d at 360, 364 (Tran reported a
burglary to police and said he noticed nothing out of place, but the next day filed an
insurance claim in which he reported property damage and many stolen items.).
Here, however, there is no evidence that Icicle was acting fraudulently or in bad
faith. So, Insurers never faced the “‘Hobson's choice’ of either paying a suspected
fraudulent claim, or exposing itself to bad faith liability.” Staples, 295 P.3d at 209–
10 (paraphrasing Tran, 961 P.2d at 365–66). The majority alters that key line from
Staples so that it would apply to any unsubstantiated claim. Maj. at 4.
This case also differs from Tran since the question was whether Tran’s claims
were covered by the insurance policy at all. Tran, 961 P.2d at 362. Here, Icicle’s
claim was covered; the only question is the quantum of damages. When just the

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quantum of damages is at issue, it is more likely that issues of material fact will not
properly be resolved via summary judgment.
Insurers do not deny that they must cover Icicle’s claim; the parties only
disagree about what the claim is worth. Icicle concededly played hardball with
Insurers. And a penalty for that litigation tactic is appropriate. But the majority
provides Insurers a windfall; that will encourage future insurers to rush to the courts
seeking similar advantage, rather than work to resolve disputes in good faith.

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