State Farm Fire & Casualty Company v. Vogelgesang et al
Filing
33
ORDER GRANTING SUMMARY JUDGMENT TO PLAINTIFF 15 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 7/6/11. (emt, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
)
)
)
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Plaintiff,
)
)
)
vs.
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DOUG VOGELGESANG, ELLARENE
VOGELGESANG, and HARVEST
)
GENERAL INCORPORATED fka DOUG )
)
VOGELGESANG, INC.,
)
)
Defendants.
_____________________________ )
STATE FARM FIRE AND CASUALTY
COMPANY, an Illinois
corporation,
CIVIL NO. 10-00172 SOM/BMK
ORDER GRANTING SUMMARY
JUDGMENT TO PLAINTIFF
ORDER GRANTING SUMMARY JUDGMENT TO PLAINTIFF
I.
INTRODUCTION.
This case, brought under the Declaratory Judgment Act,
28 U.S.C. § 2201, seeks a determination as to whether State Farm
Fire and Casualty Company (“State Farm”) has a duty to defend or
indemnify Defendants Doug Vogelgesang, Ellarene Vogelgesang, and
Harvest General Incorporated (“Harvest”) under a commercial
general liability (“CGL”) policy and an umbrella policy (the
“Policies”) from claims brought against the Vogelgesangs and
Harvest in a state court action.
Because there is no possibility
of coverage under the Policies, the court grants summary judgment
in favor of State Farm.
II.
FACTUAL AND PROCEDURAL BACKGROUND.
A.
The Underlying Lawsuit.
On June 5, 2008, Takeo and Etsuko Okuda filed suit in
Circuit Court of the First Circuit of the State of Hawaii,
alleging that their contractor (Doug Vogelgesang), Doug
Vogelgesang’s wife (Ellarene Vogelgesang), and their company
(Harvest) had defectively constructed and failed to complete the
Okudas’ home.
State Farm’s Separate Concise Stmt. Undisputed
Facts Supp. Mot. Summ. J. No. 2, ECF No. 16 (“State Farm’s
Facts”); Complaint for Specific Performance, Damages and Other
Relief (“State Court Compl.”), attached to Errata Regarding Exh.
C of State Farm’s Separate Concise Stmt. Facts, ECF No. 28.
According to the State Court Complaint, in June 2006 Defendants
agreed to build the Okudas a home for $580,000 and to complete
the home within one year.
See State Court Compl. ¶¶ 5-6.
The
Okudas allege that, instead, they paid approximately $750,000
over two years, and the home was still not complete as of May
2008.
Id. ¶¶ 6, 7(f),(l).
Additionally, the State Court
Complaint alleges that various aspects of the residence were not
completed properly, that Defendants deceived the Okudas about the
status of Defendants’ workers, and that Defendants failed to
provide the Okudas with certain disclosures.
See id. ¶ 7.
The Okudas allege claims for fraud and
misrepresentation, unfair and deceptive trade practices, breach
2
of contract, negligence, specific performance, and negligent
misrepresentation.
Compl. ¶¶ 10-30.
State Farm’s Fact No. 3; see State Court
The Vogelgesangs and Harvest tendered the
defense of the underlying suit to State Farm.
State Farm’s Fact
No. 4; Decl. Jennifer Wilson (“Wilson Decl.”) ¶ 7, ECF No. 16.
State Farm is participating in the defense of the underlying
suit, subject to a reservation of rights, and is pursuing the
present action for declaratory relief.
State Farm’s Fact No. 5;
Wilson Decl. ¶ 8.
B.
The Contractors Policy.
During the periods alleged in the State Court
Complaint, Harvest and its predecessor, Doug Vogelgesang, Inc.,
were insured under a State Farm Contractors Policy (the
“Contractors Policy”).
See State Farm’s Fact No. 6; Wilson Decl.
¶ 4 & Exh. A (yearly policies).
The Contractors Policy affords
liability insurance via a standard “Contractors Policy-–Special
Form 3.”
See Wilson Decl. Exh. A 39-72 (Form 3 pp. 1-33).
Contractors Policy contains the following language regarding
liability coverage:
We will pay those sums that the insured
becomes legally obligated to pay as damages
because of bodily injury, property damage,
personal injury or advertising injury to
which this insurance applies. . . . This
insurance applies only:
1. to bodily injury or property damage
caused by an occurrence which takes place in
3
The
the coverage territory during the policy
period;
2. to personal injury caused by an occurrence
committed in the coverage territory during
the policy period. The occurrence must
arise out of the conduct of your business,
excluding advertising, publishing,
broadcasting or telecasting done by or for
you;
3. to advertising injury caused by an
occurrence committed in the coverage
territory during the policy period. The
occurrence must be committed in the course of
advertising your goods, products or
services.
Contractors Policy Special Form 3 Coverage L at p. 18 (emphasis
omitted).
The Contractors Policy, therefore, only covers injury
and damage caused by an occurrence.
See id.
The Contractors Policy defines “occurrence” as:
a. an accident, including continuous or
repeated exposure to substantially the same
general harmful conditions which result in
bodily injury or property damage; or
b. the commission of an offense, or series of
similar or related offenses, which results in
personal injury or advertising injury.
Id. at 29 (emphasis omitted).
No definition of “accident” is
contained in the Contractors Policy.
The Contractors Policy
defines “bodily injury” as “bodily injury, sickness or disease
sustained by a person, including death resulting from the bodily
injury, sickness or disease at any time.”
omitted).
4
Id. at 27 (emphasis
The Contractors Policy also lists a number of
exclusions to the liability coverage.
Specifically, among other
things, the Contractors Policy does not apply:
1. to bodily injury or property damage:
a. expected or intended from the standpoint
of the insured; or
b. to any person or property which is the
result of willful and malicious acts of the
insured.
. . .
4. to any obligation of the insured under any
workers compensation, disability benefits or
unemployment compensation law, or any similar
law;
. . .
10. to bodily injury, property damage or
personal injury due to rendering or failure
to render any professional services or
treatments. This includes but is not limited
to:
. . .
b. engineering, drafting, surveying or
architectural services, including preparing,
approving, or failing to prepare or approve
maps, drawings, opinions, reports, surveys,
change orders, designs or specifications;
c. Supervisory or inspection services;
. . .
11. to property damage to:
. . .
e. that particular part of real property on
which you or any contractor or subcontractor
5
on your behalf is performing operations, if
the property damage arises out of those
operations; or
f. that particular part of any property that
must be restored, repaired or replaced
because your work was incorrectly performed
on it.
. . .
12. to property damage to your product
arising out of it or any part of it;
13. to property damage to your work arising
out of it or any part of it and included in
the products-completed operations hazard.
. . .
16. to personal injury or advertising injury:
a. arising out of oral or written publication
of material if done by or at the direction of
the insured with knowledge of its falsity;
b. arising out of oral or written publication
of material whose first publication took
place before the beginning of the policy
period;
c. arising out of the willful violation of a
penal statute or ordinance committed by or
with the consent of the insured; or
d. for which the insured has assumed
liability in a contract or agreement.
This part of this exclusion does not
apply to liability for damages that the
insured would have in the absence of a
contract or agreement.
Id. at 19-22 (emphasis omitted).
6
C.
The Umbrella Policy.
During the time periods alleged in the State Court
Complaint, the Vogelgesangs were insured by a standard form State
Farm Umbrella Policy (the “Umbrella Policy”).
See State Farm’s
Fact No. 10; Wilson Decl. ¶ 5 & Exh. B (yearly policies).
The
Umbrella Policy provides coverage in excess of the Vogelsangs’
underlying policies and has a $2,000,000 limit of liability.
Umbrella Policy Declarations Page.
The Umbrella Policy provides:
If a claim is made or suit is brought against
an insured for damages because of a loss for
which the insured is legally liable and to
which this policy applies, we will pay on
behalf of the insured, the damages that
exceed the retained limit. The most we will
pay for such loss is the Coverage L Limit of
Liability, as shown on the declarations
page . . . .
Umbrella Policy at 6 (emphasis omitted).
The Umbrella Policy
defines a “loss” as:
a. an accident, including accidental exposure
to conditions, which first results in bodily
injury or property damage during the policy
period. Repeated or continuous exposure to
the same general conditions is considered to
be one loss; or
b. the commission of an offense which first
results in personal injury during the policy
period.
Id. at 2 (emphasis omitted).
The Umbrella Policy excludes:
2. loss arising out of any insured providing
or failing to provide a professional service;
7
See
. . .
4. loss arising out of any insured’s act or
omission as a member of a corporation’s board
of directors. . . .
. . .
6. loss arising out of any insured’s business
property or business pursuits of any insured,
unless:
a. (1) the loss does not involve any land
motor vehicle or watercraft; and
(2) required underlying insurance applies to
the loss and provides coverage that pays for
the loss . . . .
. . .
14. bodily injury or property damage which
is:
a. either expected or intended by the
insured; or
b. the result of any willful and malicious
act of the insured;
. . .
19. liability imposed on or assumed by any
insured through any unwritten or written
agreement.
Id. at 7, 9 (emphasis omitted).
III.
STANDARD.
Summary judgment shall be granted when “the movant
shows that there is no genuine dispute as to any material fact
and the movant is entitled to judgment as a matter of law.”
R. Civ. P. 56(a).
Fed.
A moving party has both the initial burden of
8
production and the ultimate burden of persuasion on a motion for
summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos.,
210 F.3d 1099, 1102 (9th Cir. 2000).
The burden initially falls on the moving party to
identify for the court “the portions of the materials on file
that it believes demonstrate the absence of any genuine issue of
material fact.”
T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors
Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp.
Catrett, 477 U.S. 317, 323 (1986)); accord Miller v. Glenn Miller
Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006).
“A fact is
material if it could affect the outcome of the suit under the
governing substantive law.”
Miller, 454 F.3d at 987.
When the
moving party bears the burden of proof at trial, that party must
satisfy its burden with respect to the motion for summary
judgment by coming forward with affirmative evidence that would
entitle it to a directed verdict if the evidence were to go
uncontroverted at trial.
Id. (quoting C.A.R. Transp. Brokerage
Co., Inc. v. Darden Restaurants, Inc., 213 F.3d 474, 480 (9th
Cir. 2000)).
By contrast, when the nonmoving party bears the
burden of proof on one or more issues at trial, the party moving
for summary judgment may satisfy its burden with respect to those
issues by pointing out to the court an absence of evidence from
the non-moving party.
Miller, 454 F.3d at 987.
9
When the moving party meets its initial burden on a
summary judgment motion, the “burden then shifts to the nonmoving
party to establish, beyond the pleadings, that there is a genuine
issue for trial.”
Id.
The court must not weigh the evidence or
determine the truth of the matter but only determine whether
there is a genuine issue for trial.
See Balint v. Carson City,
180 F.3d 1047, 1054 (9th Cir. 1999).
On a summary judgment
motion, “the nonmoving party’s evidence is to be believed, and
all justifiable inferences are to be drawn in that party’s
favor.”
Miller, 454 F.3d at 988 (quotations and brackets
omitted).
Summary judgment may also be appropriate when a mixed
question of fact and law involves undisputed underlying facts.
See EEOC v. UPS, 424 F.3d 1060, 1068 (9th Cir. 2005); Colacurcio
v. City of Kent, 163 F.3d 545, 549 (9th Cir. 1998).
IV.
ANALYSIS.
This is a diversity action.
See Compl. ¶ 4, ECF No. 1.
Federal courts sitting in diversity apply state substantive law
and federal procedural law.
See Snead v. Metro. Prop. & Cas.
Ins. Co., 237 F.3d 1080, 1090 (9th Cir. 2001).
When interpreting
a state law, a federal court is bound by the decisions of a
state’s highest court.
Ariz. Elec. Power Coop. v. Berkeley, 59
F.3d 988, 991 (9th Cir. 1995).
In the absence of such a
decision, federal courts attempt to predict how the highest state
10
court would decide the issue, using intermediate appellate court
decisions, decisions from other jurisdictions, statutes,
treatises, and restatements as guidance.
Id.; see also
Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d
940, 944 (9th Cir. 2004) (“To the extent this case raises issues
of first impression, our court, sitting in diversity, must use
its best judgment to predict how the Hawaii Supreme Court would
decide the issue.”) (quotation and brackets omitted).
The Complaint contains one count, seeking a declaration
that State Farm owes no duty to defend and/or indemnify the
Vogelgesangs or Harvest under the Contractors Policy or Umbrella
Policy for any claims, injuries, or damages alleged or awarded in
the underlying lawsuit.
Compl. p. 13.
Under Hawaii law, general rules of contract
construction apply to the interpretation of insurance contracts.
Dawes v. First Ins. Co. of Haw., 77 Haw. 117, 121, 883 P.2d 38,
42 (1994).
Insurance policies must be read as a whole and
construed in accordance with the plain meaning of their terms,
unless it appears that a different meaning is intended.
See id.,
883 P.2d at 42; Haw. Rev. Stat. § 431:10-237 (“[e]very insurance
contract shall be construed according to the entirety of its
terms and conditions as set forth in the policy”).
Because insurance contracts are contracts of adhesion,
they must be construed liberally in favor of the insured, and any
11
ambiguities must be resolved against the insurer.
Put another
way, the rule is that policies are to be construed in accordance
with the reasonable expectations of a layperson.
Dawes, 77 Haw.
at 131, 883 P.2d at 42.
The burden is on the insured to establish coverage
under an insurance policy.
See Sentinel Ins. Co. v. First Ins.
Co. of Haw., 76 Haw. 277, 291 n.13, 875 P.2d 894, 909 n.13 (1994)
(as amended on grant of reconsideration).
The insurer has the
burden of establishing the applicability of an exclusion.
See 76
Haw. at 297, 875 P.2d at 914.
The insurer owes the insured a duty to indemnify “for
any loss or injury which comes within the coverage provisions of
the policy, provided it is not removed from coverage by a policy
exclusion.”
Dairy Road Partners v. Island Ins. Co., 92 Haw. 398,
413, 922 P.2d 93, 108 (2000).
The obligation to defend an
insured is broader than the duty to indemnify.
The duty to
defend arises when there is any potential or possibility for
coverage.
Sentinel, 76 Haw. at 287, 875 P.2d at 904.
However,
when the pleadings fail to allege any basis for recovery under an
insurance policy, the insurer has no duty to defend.
Pancakes of
Haw., Inc. v. Pomare Props. Corp., 85 Haw. 286, 291, 944 P.2d 83,
88 (Ct. App. 1997).
In other words, for State Farm to obtain
summary judgment on its duty to defend, State Farm must prove
that it would be impossible for a claim in the underlying lawsuit
12
to be covered by the Contractors or Umbrella Policies.
See Tri-S
Corp. v. W. World Ins. Co., 110 Haw. 473, 488, 135 P.3d 82, 97
(2006).
“Hawaii adheres to the ‘complaint allegation rule.’”
Burlington Ins. Co., 383 F.3d at 944.
In that regard:
The focus is on the alleged claims and facts.
The duty to defend “is limited to situations
where the pleadings have alleged claims for
relief which fall within the terms for
coverage of the insurance contract. ‘Where
pleadings fail to allege any basis for
recovery within the coverage clause, the
insurer has no obligation to defend.’”
Id. at 944-45 (citing Hawaiian Holiday Macadamia Nut Co. v.
Indus. Indem. Co., 76 Haw. 166, 872 P.2d 230 (1994) (“Hawaiian
Holiday”).
A.
There is No Covered “Occurrence” or “Loss” Arising
Out of Alleged Fraud Because Fraud Involves
Intentional Conduct.
The Contractors Policy covers “occurrences.”
Contractors Policy at 18.
Umbrella Policy at 6.
The Umbrella Policy covers “losses.”
Both are defined as “accidents.”1
1
Although both the Contractors Policy and the Umbrella
Policy also define occurrence/loss as “the commission of an
offense which first results in personal injury during the policy
period,” no personal injury is alleged by any of the six Counts
of the State Court Complaint. See Contractors Policy at 30
(defining “personal injury” as arising from: false arrest;
malicious prosecution; wrongful entry into or eviction of a
person from a room, dwelling, or premises that the person
occupies; defamation; and invasion of privacy); Umbrella Policy
at 2-3 (defining “personal injury” as arising from: false arrest;
false imprisonment; wrongful eviction; abuse of process;
malicious prosecution; defamation; or invasion of the right of
13
Contractors Policy at 29; Umbrella Policy at 2.
Count I (Fraud
and Misrepresentation) of the State Court Complaint requires that
Defendants acted intentionally.
“As any injury caused by [an]
intentional act would be ‘the expected or reasonably foreseeable
result of the insured’s own intentional acts or omissions,’ the
intentional nondisclosure alleged in these counts does not
constitute an ‘accident’ and is thus not an ‘occurrence’ or
‘loss’ under Hawaii insurance law.”
State Farm Fire & Cas. Co.
v. Scott, Civ. No. 06-00119 SOM/BMK, 2007 U.S. Dist. Lexis 8255,
at *18-*19 (D. Haw. Jan. 24, 2007) (quoting Hawaiian Holiday, 76
Haw. at 170, 872 P.2d at 234); see also RLI Ins. Co. v. Thompson,
Civ. No. 09-00345 SOM/BMK, 2010 WL 1438925, at *7 (D. Haw. Apr.
12, 2010).
Thus, the first count of the State Court Complaint is
not covered by either Policy.
A similar analysis renders these claims excluded by the
Intentional Act Exclusion of the Policies.
See Contractors
Policy at 19; Umbrella Policy at 9.
B.
The Remaining Claims Are Not “Occurrences” or
“Losses” Because They Arise from Defendants’
Alleged Breach of Their Contract with the Okudas.
As the Hawaii Court of Appeals, the Ninth Circuit, and
this court have previously held, claims that arise from alleged
breaches of contract are not accidents.
Because the remaining
claims asserted in the underlying litigation arise from
private occupancy in one’s residence).
14
Defendants’ alleged breach of their construction contract with
the Okudas, none of the remaining claims triggers State Farm’s
duty to defend under the Policies.
In Group Builders, Inc. v. Admiral Ins. Co., 123 Haw.
142, 231 P.3d 67 (Ct. App. 2010), the Hawaii Court of Appeals
considered the definition of “accident” set forth in Hawaiian
Holiday and Burlington Insurance Co. in determining that
defendant Admiral owed no duty to defend or indemnify Group
Builders against contract and contract-related tort claims
associated with an underlying lawsuit alleging defective
construction.
Group Builders, a named insured under a commercial
general liability insurance policy issued by Admiral, had
subcontracted to build a portion of a hotel.
231 P.3d at 68.
123 Haw. at 143,
The insurance policy covered claims alleging
“bodily injury” or “property damage” if “caused by an
‘occurrence.’” 123 Haw. at 145, 231 P.3d at 70.
“The policy
define[d] ‘occurrence’ as ‘an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.’”
Id.
After construction was completed, the hotel discovered
significant mold growth within the new construction and sued
various contractors, including Group Builders, for breach of
contract, negligence, and negligent misrepresentation, among
other claims.
123 Haw. at 144, 231 P.3d at 69.
15
Admiral refused
to defend, indemnify, or otherwise provide coverage to Group
Builders for the claims asserted by the hotel in the lawsuit, and
won partial summary judgment before the state circuit court on
this issue.
Id.
The Hawaii Intermediate Court of Appeals affirmed.
Applying the Hawaii Supreme Court’s definition of “accident,” as
summarized in Burlington Insurance Co., the ICA concluded that
the hotel’s claims were not covered by the policy.
“In Hawaii,”
the court explained, “an occurrence ‘cannot be the expected or
reasonably foreseeable result of the insured’s own intentional
acts or omissions.’”
123 Haw. at 147, 231 P.3d at 72 (quoting
Burlington Insurance Co., 383 F.3d at 948).
To the extent Group
Builders “breached its contractual duty by constructing a substandard home, then facing a lawsuit for that breach is a
reasonably foreseeable result.”
Id. (quoting Burlington
Insurance Co., 383 F.3d at 948).
The court noted that the cases
cited by the plaintiffs as allowing coverage in various other
jurisdictions constituted the minority position on this issue.
123 Haw. at 148, 231 P.3d at 73.
Accordingly, the ICA held that
“breach of contract claims based on allegations of shoddy
performance are not covered under CGL policies.”
148, 231 P.3d at 73.
123 Haw. at
Moreover, “tort-based claims, derivative of
these breach of contract claims, are also not covered under CGL
policies.”
123 Haw. at 148-49, 231 P.3d at 73-74.
16
Cf. WDC
Venture v. Hartford Accident Indem. Co., 938 F. Supp. 671, 679
(D. Haw. 1996) (explaining that “[t]here is simply no reason to
expect . . . a comprehensive liability policy which has, as its
genesis, the purpose of protecting an individual or entity from
liability for essentially accidental injury . . . or property
damage” to cover “contractual-based allegations”).
In the present case, in addition to breach of contract,
the State Court Complaint asserts claims for unfair and deceptive
trade practices, negligence, specific performance, and negligent
misrepresentation.
State Court Compl. ¶¶ 15-30.
Each of these
claims asserts actions that arise directly out of the Okudas’
contract with Defendant.
The claim of unfair and deceptive trade practices
(Count Two) is premised on “Vogelgesang’s misrepresentations and
their failures to disclose lien rights and remedy rights as
required by state law.”
State Court Compl. ¶ 16.
To the extent
this Count alleges deliberate misrepresentations and omissions,
the claim does not involve an occurrence or loss and would also
be excluded by the Policies’ exclusions for intentional conduct.
To the extent the claim alleges negligent misrepresentations and
omissions, it falls under the analysis for negligent
misrepresentation, and is excluded from coverage for the reasons
set forth below.
17
The breach of contract claim (Count Three), and its
companion claim for specific performance of the parties’
agreement (Count Five), State Court Compl. ¶¶ 18-19, 24-27, are
clearly excluded from coverage under Hawaii law.
See Group
Builders, Inc., 123 Haw. at 148, 231 P.3d at 73; see also 3139
Props., LLC v. First Specialty Ins. Corp., Civ. No. 06-00619
SOM/LEK, 2007 WL 1701922, at *6 (D. Haw. June 8, 2007)
(underlying complaint’s claim for specific performance, which
merely sought to compel the defendant to comply with its
agreement, did not allege an “occurrence”).
The claim of negligence (Count Four) similarly alleges
that Vogelgesang breached his duties to the Okudas “by failing to
finish the residence in a timely manner, and by failing to
achieve high-grade quality for the residence.”
Compl. ¶ 22.
State Court
In Burlington, the underlying complaint alleged a
breach of contract based, in part, on alleged failure to
construct a residence.
Because the allegations of breaches of
duty merely described how the contract to build a residence was
breached, the Ninth Circuit determined that it could not “fairly
construe this language to state a separate independent cause of
action for negligence.”
383 F.3d at 948.
Similarly, here, the
claim that Defendants failed to finish the residence in a timely
and workmanlike manner is not truly an independent cause of
18
action, but instead a restatement of the breach of contract
claim.
Defendants argue that, even if the majority of the
claims in the State Court Complaint are contractual, State Farm’s
duty to defend is nevertheless triggered because it is possible
that Count Six, for negligent misrepresentation, is based on
statements that did not arise out of the contract and may
therefore be considered “accidental” under the Policies.
11-14.
Opp.
Defendants base their argument on paragraph 7m of the
State Court Complaint, which alleges in general fashion that
“[a]dditional misrepresentations and reckless statements were
made by Vogelgesang to Okuda.”
Defendants point out that the
“additional misrepresentations” are alleged as separate and apart
from the series of alleged misrepresentations that pertain to the
contract, suggesting that the additional misrepresentations
referred to do not arise from the contract.
Opp. 13.
Defendants
also note that the negligent misrepresentation cause of action is
not based on specific representations made in connection with the
contract, but instead alleges generally that “Vogelgesang
negligently and carelessly made misrepresentations to Okuda, upon
which Okuda relied and upon which Okuda had a right to rely.”
State Court Compl. ¶ 29; see Opp. 13.
This argument is unpersuasive.
Hawaii follows the
Restatement definition of negligent misrepresentation.
19
State v.
U.S. Steel Corp., 82 Haw. 32, 41, 919 P.2d 294, 303 (1996).
Under the Restatement, negligent misrepresentation may be
asserted only in the context of a business relationship.
The
Restatement defines the tort as follows:
One who, in the course of his business,
profession or employment, or in any other
transaction in which he has a pecuniary
interest, supplies false information for the
guidance of others in their business
transactions, is subject to liability for
pecuniary loss caused to them by their
justifiable reliance upon the information, if
he fails to exercise reasonable care or
competence in obtaining or communicating the
information.
Restatement (Second) of Torts
§ 552 (1977).
See also U.S. Steel
Corp., 82 Haw. at 41, 919 P.2d at 303 (explaining that “[t]he
duty imposed by section 552 [of the Restatement (Second) of
Torts] is . . . to exercise reasonable care or competence in
obtaining or communicating information for the guidance of others
in their business transactions”); Chun v. Park, 51 Haw. 462, 468
& n.5, 462 P.2d 905, 909 & n.5 (1969) (ruling that damages for
negligent misrepresentation are limited by the scope of the
business relationship between the party who supplied the
information and the party who relied on the information).
As discussed above, Defendants’ business relationship
with the Okudas is founded on their agreement that Defendants
would construct their house.
The only negligent
misrepresentations for which Defendants could be liable to the
20
Okudas are those made in the course of that business
relationship.
The allegation of “additional misrepresentations
and reckless statements” cannot be construed to allege
representations that may be considered “accidental” under Hawaii
law.
Accord Burlington Ins. Co. v. United Coatings Mfg. Co., 518
F. Supp. 2d 1241 (D. Haw. 2007) (holding that unfair or deceptive
acts or practices, specific performance, negligent
misrepresentation, and negligence claims all stemmed from the
defendant’s contracts and warranties, rather than “any
independent duty originating in tort,” and were therefore
excluded from the CGL policy’s coverage); CIM Ins. Corp. v.
Masamitsu, 74 F. Supp. 2d 975, 987 (D. Haw. 1999) (holding that a
negligent misrepresentation claim did not involve an “occurrence”
under a CGL policy because “any claim of such ‘negligence’
stemmed from intentional acts or contract-based claims”).
Nor does the Okudas’ prayer for general damages prove
that they are seeking recovery for bodily injury stemming from
the alleged negligent misrepresentations.
Cf. Opp 14-15 (arguing
that, because general damages are not contract damages and may
include recovery for bodily injury, the Complaint alleges bodily
injury).
As State Farm points out, Hawaii courts permit recovery
of solely the pecuniary losses that resulted from a negligent
misrepresentation.
909.
See, e.g., Chun, 51 Haw. at 468, 462 P.2d at
Therefore, even if general damages may include bodily
21
injury in certain cases, there can be no such recovery if the
Okudas are successful in their negligent misrepresentation cause
of action in this case.
C.
House Bill No. 924.
At the hearing on this matter, State Farm brought to
the court’s attention a recently enacted law affecting insurance
coverage under commercial general liability policies for
construction defects.
See House Bill No. 924, Haw. Legis. Serv.
93 (West) (enacted June 3, 2011), to be codified at Haw. Rev.
Stat. § 431:1.
Citing “uncertainty” created by the Group
Builders decision, the law modifies chapter 431 of Hawaii Revised
Statutes by providing that, for liability insurance policies
“that cover[] occurrences of damage or injury during the policy
period and that insure[] a construction professional for
liability arising from construction-related work, the meaning of
the term ‘occurrence’ shall be construed in accordance with the
law as it existed at the time that the insurance policy was
issued.”
See id.
State Farm stated that it did not believe this law
affected its motion for summary judgment and, in a supplemental
brief filed after the hearing, Defendants agreed.
Submission re: Act 924, ECF No. 31.
See Defs.’
The court has reviewed the
new law and agrees with the parties that the law does not affect
the outcome of this case.
As explained above, although the Group
22
Builders case was issued by the ICA in 2010, it relied heavily on
previously decided state and federal cases.
See Group Builders,
123 Haw. at 146-48, 231 P.3d at 71-73 (examining the holdings of
Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d
940 (9th Cir. 2004), Burlington Ins. Co. v. United Coatings Mfg.
Co., 518 F. Supp. 2d 1241 (D. Haw. 2007), WDC Venture v. Hartford
Accident & Indem. Co., 938 F. Supp. 671 (D. Haw. 1996), and
Hawaiian Holiday Macadamia Nut Co. v. Indus. Indem. Co., 76 Haw.
166, 872 P.2d 230 (1994), among other cases).
Nearly all of
those cases predate 2006, the year State Farm issued to
Defendants the first policy that could potentially provide
coverage in this case.
None of these cases suggests that the
claims associated with the Okudas’ contract with Defendants
warrants coverage.
See United Coatings, 518 F. Supp. 2d at 1249
(reading WDC Venture, its progeny, and Burlington Ins. Co. v.
Oceanic for the proposition that, “under Hawaii law, contract and
contract-based tort claims are not within the scope of CGL
policies”) (internal quotation marks omitted).
Accordingly, the
court concludes that House Bill No. 924 does not affect the
court’s ruling on State Farm’s motion.
23
D.
There is No Genuine Issue of Material Fact With
Respect to State Farm’s Reservation of Rights.
Finally, contrary to Defendants’ argument, summary
judgment is not precluded by any question of fact with respect to
State Farm’s reservation of rights.
Whether State Farm is
estopped from attempting to decline coverage is an affirmative
defense that Defendants, not State Farm, bear the burden of
proving.
See Cal. Dairies Inc. v. RSUI Indem. Co., 617 F. Supp.
2d 1023, 1048 n.11 (E.D. Cal. 2009) (“To demonstrate waiver, the
insured bears the burden of proof to demonstrate that the carrier
intentionally relinquished a right or that the carrier’s acts are
so inconsistent with an intent to enforce the right as to induce
a reasonable belief that such right has been relinquished.”);
Waller v. Truck Ins. Exchange, Inc., 900 P.2d 619, 635-36 (Cal.
1995) (same).
Defendants proffer no evidence suggesting that State
Farm has improperly reserved its rights.
Cf. Miller, 454 F.3d at
987 (if the moving party does not bear the burden of proof at
trial with respect to an issue, nonmoving party must present
evidence establishing a genuine issue of material fact to avoid
summary judgment on the issue).
Indeed, Defendants do not
actually contend that the reservation of rights was inadequate.
Instead, they merely speculate that, because the letter was not
provided with State Farm’s motion for summary judgment, this may
indicate that the reservation of rights was insufficiently
24
asserted by State Farm.2
Defendants’ speculation, standing
alone, is not enough to create a genuine issue of material fact
regarding whether State Farm waived its right to contest
coverage.
E.
State Farm’s Duty to Indemnify.
The duty to indemnify is narrower than the duty to
defend.
Because the court finds that State Farm does not have a
duty to defend Defendants in the underlying suit, State Farm also
has no duty to indemnify Defendants with respect to the potential
liability they face in that suit.
See CIM Ins. Corp. v. Midpac
Auto Ctr., Inc., 108 F. Supp. 2d 1092, 1097, 1107 (D. Haw. 2000)
(because CGL policy did not cover contract and contract-based
tort claims, insurer had neither the duty to defend nor to
indemnify insured); Group Builders, Inc., 123 Haw. at 148-49, 231
P.2d at 73-74 (affirming partial summary judgment providing that
CGL insurer had no duty to indemnify breach of contract and
derivative claims “based on allegations of shoddy performance”);
see generally Hawaiian Holiday, 76 Haw. at 169, 872 P.2d at
233(duty to defend is “much broader” than duty to pay claims).3
2
The court notes that State Farm, by contrast, offered the
declaration of a claims representative that State Farm is
defending the underlying case pursuant to a reservation of
rights. See State Farm’s Fact No. 5; see also Wilson Decl. ¶ 8.
State Farm also submitted its original reservation of rights
letter with its reply memorandum.
3
In light of the court’s ruling that the State Court
Complaint does not allege covered occurrences, the court need not
25
V.
CONCLUSION.
For the reasons set forth above, the court GRANTS State
Farm’s motion for summary judgment.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, July 6, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
State Farm Fire & Casualty Co. v. Vogelgesang; Civil No. 10-00172 SOM/BMK; ORDER
GRANTING SUMMARY JUDGMENT TO PLAINTIFF
consider State Farm’s alternative arguments that it owes no duty
to Defendant Harvest because Harvest is not insured by the
Umbrella Policy, and that various other exclusions apply. See
Mot. 16-17, 25-28.
26
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