                                                                              FILED
                           NOT FOR PUBLICATION                                 JUL 25 2013

                                                                          MOLLY C. DWYER, CLERK
                    UNITED STATES COURT OF APPEALS                          U.S. COURT OF APPEALS



                            FOR THE NINTH CIRCUIT


AMERICAN ECONOMY INSURANCE                       No. 12-35518
COMPANY, a foreign corporation and
TOTEM BOWL AND INVESTMENT,                       D.C. No. 2:11-cv-01070-MJP
INC., a Washington corporation,

              Plaintiffs - Appellants,           MEMORANDUM*

  v.

ZURICH AMERICAN INSURANCE
COMPANY, a foreign corporation,

              Defendant - Appellee.


                  Appeal from the United States District Court
                     for the Western District of Washington
                Marsha J. Pechman, Chief District Judge, Presiding

                       Argued and Submitted July 11, 2013
                              Seattle, Washington

Before: M. SMITH and N.R. SMITH, Circuit Judges, and WALTER, Senior
District Judge.**



        *
             This disposition is not appropriate for publication and is not precedent
except as provided by 9th Cir. R. 36-3.
       **
             The Honorable Donald E. Walter, Senior District Judge for the U.S.
District Court for the Western District of Louisiana, sitting by designation.
1.    The district court erroneously construed coverage under the Zurich

American Insurance Company policy to exclude Totem Bowl and Investments, Inc.

Thus, we reverse and remand with instructions to enter judgment in favor of

American Economy Insurance Company.

      Under Washington law, an insurer’s duty to defend “arises when a complaint

against the insured, construed liberally, alleges facts which could, if proven,

impose liability upon the insured within the policy’s coverage.” Unigard Ins. Co.

v. Leven, 983 P.2d 1155, 1160 (Wash. Ct. App. 1999). “An insurer’s duty to

defend is broader than its duty to indemnify. . . . The duty to defend . . . is based on

the potential for liability.” Truck Ins. Exch. v. VanPort Homes, Inc., 58 P.3d 276,

281 (Wash. 2002) (emphasis added and citations omitted). Here, Zurich insured

Cut’N Up, who leased salon space from Totem Bowl. The allegations of the

underlying slip-and-fall complaint seek to hold Totem Bowl liable as owner of the

strip mall based on breach of its duty to keep the premises safe for its invitees,

including Cut’N Up and the employees and customers of Cut’N Up.1 See Ford v.

Red Lion Inns, 840 P.2d 198, 202 (Wash. Ct. App. 1992). Totem Bowl’s alleged

liability “aris[es] out of the ownership, maintenance, or use of that part of any

      1
        Although we need not refer to the Totem Bowl/Cut’N Up lease agreement,
on which American Economy relied in its tender letters to Zurich, the lease
agreement simply reiterates Totem Bowl’s duty to maintain the stairs. It is
irrelevant to the question of whether the allegations in the underlying complaint
triggered the duty to defend.
premises leased to [Cut’N Up]” because the underlying plaintiff slipped on icy

stairs on her way to an appointment at Cut’N Up. Thus, Totem Bowl is covered

under the plain language of the “insured contract” provision. We reject Zurich’s

narrow reading of the “arising out of” provision to mean only “arising inside of”

the leased premises. See, e.g., Nw. Airlines v. Hughes Air Corp., 702 P.2d 1192,

1196 (Wash. 1985) (refusing to interpret “arising out of or in connection with the

use and occupancy of the premises by Lessee” to mean “on the [leased] premises”

where lessee’s injured employee was expected to use common areas controlled by

lessor); Equilon Enters. LLC v. Great Am. Alliance Ins. Co., 132 P.3d 758, 761-62

(Wash. Ct. App. 2006) (collecting cases interpreting “arising out of,” noting “a

‘natural consequence’ level of causation,” and applying a “broad interpretation” to

find coverage under the policy).

2.    It was unreasonable for Zurich to refuse to defend based on a narrow

interpretation of the policy’s “arising out of” language and a self-serving

interpretation of case law. See Am. Best Food, Inc. v. Alea London, Ltd., 229 P.3d

693, 700 (Wash. 2010). Zurich was required to give to the insured “the benefit of

any doubt as to the duty to defend.” Id. Thus, we conclude that Zurich acted in

bad faith.

3.    In light of our holding, American Economy and Totem Bowl are entitled to

attorney’s fees under Washington law. See McGreevy v. Or. Mut. Ins. Co., 904
P.2d 731, 732 (Wash. 1995). We remand determination of the appropriate amount

of attorney’s fees to the district court.

       REVERSED and REMANDED.
