Gemini Insurance Company v. Kukui'ula Development Company (Hawaii), LLC.

Filing 280

ORDER DENYING ADDITIONAL DEFENDANTS CERTAIN UNDERWRITERS AT LLOYD'S MOTION FOR RECONSIDERATION 275 . Signed by JUDGE LESLIE E. KOBAYASHI on 8/31/2012. re: Motion for Reconsideration of Order filed 6/29/2012, doc. no. 274 . (afc)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). All participants are registered to receive electronic notifications.

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
GEMINI INSURANCE COMPANY,
Plaintiff,
vs.
KUKUI`ULA DEVELOPMENT COMPANY
(HAWAII), LLC; DMB KUKUI`ULA,
LLC; KDC, LLC; DMB ASSOCIATES
(HAWAII), INC.; and A & B
PROPERTIES, INC., et al.,
Defendants.
_____________________________

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CIVIL NO. 10-00637 LEK-BMK

ORDER DENYING ADDITIONAL DEFENDANTS CERTAIN
UNDERWRITERS AT LLOYD’S MOTION FOR RECONSIDERATION

Before the Court is Additional Defendants Certain
Underwriters at Lloyd’s (“Underwriters”) Motion for
Reconsideration (“Motion”), filed on July 13, 2012.

Defendants

Kukui‘ula Development Company (Hawaii), LLC, DMB Kukui‘ula, LLC,
KDC, LLC, DMB Associates (Hawaii), Inc., and A&B Properties, Inc.
(collectively, “KDC”), and Plaintiff Gemini Insurance Company
(“Gemini”) filed their memoranda in opposition on July 27, 2012,
and Underwriters filed their reply on August 10, 2012.

The Court

finds this matter suitable for disposition without a hearing
pursuant to Rule LR7.2(d) of the Local Rules of Practice of the
United States District Court for the District of Hawai`i (“Local
Rules”).

After careful consideration of the Motion, supporting

and opposing memoranda, and the relevant legal authority,

Underwriters’ Motion is HEREBY DENIED for the reasons set forth
below.
BACKGROUND
Underwriters seek reconsideration of the Court’s Order
(1) Granting in Part and Denying in Part Gemini Insurance
Company’s Motion for Summary Judgment Against Indian Harbor
Insurance Company and Certain Underwriters at Lloyds and (2)
Denying Additional Defendants Certain Underwriters at Lloyd’s
Motion For Summary Judgment (“Order”), filed June 29, 2012 [dkt.
no. 274].

The parties and the Court are familiar with the

extensive factual and procedural background of this case.

The

Court therefore will only discuss the background that is relevant
to the instant Motion.
In the Order, the Court disposed of several motions for
summary judgment regarding the various insurers’ duties to defend
KDC in several state court lawsuits.1

At issue in the current

Motion are the following rulings relating to KDC’s claims against
the insurers for bad faith and contribution among the insurers:

1

In 2009, three lawsuits were filed against KDC in the
Circuit Court of the Fifth Circuit, State of Hawai‘i, asserting
claims arising out of construction work performed by KDC:
(1) Schredder, et al. v. Kukui‘ula Development Co. (Hawaii), LLC,
et al., Civ. No. 09-1-0045 (the “Schredder Action”); (2) Hawaiian
Insurance & Guaranty Co., Ltd. v. Kukui‘ula Development Co.
(Hawaii), LLC, et al., Civ. No. 09-1-0046 (the “HIGC Action”);
and (3) Association of Apartment Owners of Lawai Beach Resort, et
al. v. Kukui‘ula Development Co. (Hawaii), LLC, et al., Civ. No.
09-1-0109 (the “AOAO Action”) (collectively, the “Underlying
Actions”).
2

E.

KDC’s Bad Faith Claim against Underwriters

Underwriters also seeks summary judgment on
KDC’s claim for bad faith. As the Hawai‘i Supreme
Court stated in Miller v. Hartford Life Insurance
Co., 126 Hawai‘i 165, 178, 268 P.3d 418, 431
(2011):
The burden of proof for bad faith
liability is not insubstantial. As
we stated in Best Place [v. Penn
America Insurance Co., 82 Hawai‘i
120, 920 P.2d 334 (1996)], an
insurer’s conduct that is based on
an interpretation of the insurance
contract that is reasonable does
not constitute bad faith; moreover,
an erroneous decision not to pay a
claim for benefits due under a
policy does not by itself prove
liability. Rather, the decision
not to pay a claim must be in “bad
faith” in order to prove liability.
See also Enoka v. AIG Hawaii Ins. Co., 109 Hawai‘i
537, 552, 128 P.3d 850, 865 (2006) (“where an
insurer denies the payment of no-fault benefits
based on ‘an open question of law,’ there is
‘obviously no bad faith on the part of the insurer
in litigating that issue’” (citation omitted)).
This Court cannot say that Underwriters
adopted a “reasonable interpretation” of the
“continuing or progressive injury” exclusion when
it refused to defend KDC, when the complaints
alleged both the manifestation of damage as well
as the commencement of construction activities
that gave rise to new injury or damage during the
Underwriters Policy period. As discussed herein,
even assuming that the Underwriters Policy
precluded coverage for damage or injury that first
manifested before the inception of the
Underwriters Policy on September 23, 2008,
Underwriters should have known that there was a
possibility that damages first potentially
occurred during its policy period. The Court
cannot say that it is an “open question of law”
whether Underwriters had a duty to defend; at
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most, Underwriters presents a question of fact
regarding the reasonableness of its actions.
At the hearing on the present motions,
Underwriters argued that, even if Underwriters had
a duty to defend and failed to honor that
obligation, it acted reasonably in refusing to
defend KDC. It further argues that KDC cannot
show any damage arising out of such refusal, since
Gemini fully covered KDC’s defense in the
Underlying Actions. [6/4/12 Hrg. Trans. at 5657.] Conversely, KDC argues that it was indeed
injured by Underwriters’s refusal to defend, since
the Gemini Policy is self-eroding and contains a
$100,000 self-retention amount [Gemini Policy at
57], while the Underwriters Policy contains a
$50,000 self-retention amount [Underwriters Policy
at 36-45]. While it is fortunate for both KDC as
well as the other insurers that, once tendered,
Gemini did provide a defense in the Underlying
Actions, KDC astutely draws attention to the fact
that Gemini’s defense is more costly to KDC than
Underwriters’s defense would have been due to the
$100,000 self-retention amount. [6/4/12 Hrg.
Trans. at 57-58.] Accordingly, the Court is
persuaded by KDC’s argument that it has shown
injury due to Underwriters’s alleged bad faith.
The Court therefore DENIES Underwriters summary
judgment on KDC’s bad faith claim.
. . . .
VI.

Contribution among the Insurers

Finally, the Gemini Motion requests that the
Court order Indian Harbor and Underwriters to
reimburse Gemini for the costs it expended in its
defense of KDC in the Underlying Actions. Indian
Harbor requests that, if the Court determines that
it must reimburse Gemini, the Court not order the
parties to pay a specific dollar amount.
As discussed herein, the Court determines
that Gemini, Indian Harbor, and Underwriters had a
duty to defend KDC in the Underlying Actions. As
such, Indian Harbor and Underwriters are obligated
to reimburse Gemini for their proportional shares
of the defense solely provided by Gemini. Gemini
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contends that Indian Harbor received notice of the
Underlying Actions on June 13, 2007, and
Underwriters received notice on November 11, 2010.
Neither Indian Harbor nor Underwriters disputes
these facts. Accordingly, the Court FINDS that
Indian Harbor is liable for one-half (½) of the
defense costs Gemini incurred from June 13, 2007
to November 11, 2010, and Indian Harbor and
Underwriters are each liable for one-third (1/3)
of the defense costs incurred thereafter until the
settlement. To the extent Gemini may be seeking
defense costs going forward - after the settlement
of the Underlying Actions - the Gemini Motion is
DENIED.
[Order at 81-85 (footnotes omitted).]
I.

Motion
Underwriters seek reconsideration of those portions of

the Court’s Order (1) concluding that Underwriters had notice of
all three Underlying Actions at issue in this declaratory
judgment action as of November 11, 2010 and is therefore liable
for one third of defense costs incurred by Plaintiff Gemini
Insurance Company from and after that date, and (2) concluding
that KDC has shown evidence of damages in connection with its bad
faith claim against Underwriters.

[Motion at 5.]

Underwriters argue that the Court made a manifest
error of fact when it rule that Underwriters “did not dispute
that it received notice of all three of the underlying lawsuits
by November 11, 2010.”

[Mem. in Supp. of Motion at 3.]

Underwriters state that it specifically disputed this contention
in its Separate Concise Statement of Facts (“SCSF”), noting that
the Acord Notice of Claim document cited by Gemini as proof of
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notice applied only to the subrogation action brought by HIGC.
Underwriters now argue that they did not receive notice of the
Schredder Action until November 24, 2010, when Underwriters’
counsel received an email forwarding an copy of Gemini’s
complaint for declaratory relief against KDC and an attached
copy of the complaint in the Schredder action.

Underwriters

assert that the Court’s conclusion that they are liable for onethird of the defense costs incurred by Gemini on behalf of KDC
beginning on November 11, 2010 constituted a manifest error of
law.

[Id. at 3-5.]
They also argue that the Court’s finding that KDC has

shown injury due to Underwriters’ alleged bad faith failure to
defend constitutes a manifest error of fact and/or law.

They

argue that Underwriters cannot, as a matter of law, be liable for
defense costs incurred by KDC prior to Underwriters’ receipt of
notice of the underlying lawsuits.

They argue that KDC has not

shown that it incurred any defense costs (other than those paid
by Gemini) after Underwriters received notice of the lawsuits,
and likewise has not shown that it has suffered any damages as a
result of Underwriters’ failure to defend.
II.

[Id. at 3.]

KDC Memorandum in Opposition
KDC opposes the Motion on the grounds that: (1) because

the Court found Underwriters had a duty to defend KDC, which was
breached, they are liable for all defense fees and costs incurred

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by KDC, including the $100,000 spent in the self-insured
retention (“SIR”) under Gemini’s policy; (2) KDC’s attorneys’
fees incurred to secure coverage under the policy constitute
“damages”; and (3) Underwriters had the burden as the party
moving for summary judgment, but failed to submit any evidence or
argument as to KDC’s damages.

[KDC Mem. in Opp. at 2]

III. Gemini Memorandum in Opposition
Gemini argues that the Motion attempts to introduce
evidence that was previously available.

It notes that it raised

the issue of equitable contribution against Underwriters and
affirmatively asserted that Underwriters had notice of
the underlying lawsuits on November 10, 2010.

Gemini argues that

Underwriters had prior notice that the date of notice of the
underlying lawsuits would be relevant if Gemini prevailed on its
motion, but that Underwriters failed to even address the issue of
equitable contribution in its opposition brief, choosing instead
to argue that it did not have a duty to defend.

It also argues

that, although Underwriters disputed Gemini’s assertion that
Underwriters received notice of the Underlying Lawsuits on
November 10, 2010, it offered no evidence to the contrary.

That

is, Underwriters offered no documentary evidence that it received
notice on a different date.
IV.

[Gemini Mem. in Opp. at 9-10.]

Reply
Underwriters argue in reply that Gemini never met its
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burden of production with respect to when Underwriters received
notice of the Underlying Actions.

They argue that the Acord

Notice of Claim should not be sufficient with respect to the
Schredder and AOAO actions.

[Reply at 5-6.]

With respect to

injuries to KDC, Underwriters argue that any harm is speculative
or illusory, and that attorneys’ fees incurred by KDC in the
instant action do not constitute “damages” for insurer bad faith.
[Id. at 9-10.]
DISCUSSION
In order to obtain reconsideration of the Order,
Underwriters’ Motion “must accomplish two goals.

First, a motion

for reconsideration must demonstrate reasons why the court should
reconsider its prior decision.

Second, a motion for

reconsideration must set forth facts or law of a strongly
convincing nature to induce the court to reverse its prior
decision.”

See Donaldson v. Liberty Mut. Ins. Co., 947 F. Supp.

429, 430 (D. Hawai`i 1996); accord Tom v. GMAC Mortg., LLC, CIV.
NO. 10–00653 SOM/BMK, 2011 WL 2712958, at *1 (D. Hawai`i July 12,
2011) (citations omitted).

This district court recognizes three

grounds for granting reconsideration of an order: “(1) an
intervening change in controlling law; (2) the availability of
new evidence; and (3) the need to correct clear error or prevent
manifest injustice.”

White v. Sabatino, 424 F. Supp. 2d 1271,

1274 (D. Hawai`i 2006) (citing Mustafa v. Clark County Sch.

8

Dist., 157 F.3d 1169, 1178–79 (9th Cir. 1998)).

“Whether or not

to grant reconsideration[,]” however, “is committed to the sound
discretion of the court.”

Navajo Nation v. Confederated Tribes &

Bands of the Yakama Indian Nation, 331 F.3d 1041, 1046 (9th Cir.
2003) (citing Kona Enter., Inc. v. Estate of Bishop, 229 F.3d
877, 883 (9th Cir. 2000)).
The Court first addresses Underwriters’ claims that the
Court’s finding that Underwriters had notice of the Underlying
Acts as of November 11, 2010 constitutes a manifest error of fact
and the Court’s conclusion that Underwriters are liable for one
third of defense costs incurred after November 11, 2010
constitutes a manifest error of law.

Underwriters claim that

they did not receive notice of the Schredder Lawsuit until
November 24, 2010 and the AOAO Lawsuit until after April 5, 2011.
[Mem. in Supp. of Motion at 5-6.]

In support, Underwriters

attach the Declaration of Eric Shoiketman, and three new exhibits
purporting to show the dates upon which Underwriters received
notice of the Schredder and AOAO Lawsuits.2

Clearly, these

documents were in existence and were known to Underwriters before

2

The exhibits are: an e-mail dated November 24, 2010 from
Mary Alexander of DMB, Inc. to Eric Shoiketman attaching a copy
of Gemini’s unsigned and unfiled Complaint for Declaratory
Judgment in regards to coverage for the Schredder Action (Exh.
1); another e-mail dated November 24, 2010 from Mary Alexander of
DMB, Inc. to Mr. Shoiketman attaching a copy of Gemini’s signed
and filed Complaint for Declaratory Judgment in regards to the
Schredder Action (Exh. 2); and a Notice of Occurrence/Claim dated
April 5, 2011 of the AOAO Action (Exh. 3).
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Underwriters opposed Gemini’s motion for summary judgment.
Underwriters present no evidence that these were newly discovered
evidence; there is no indication that they did not have all of
these documents in their possession when they filed their
opposition to Gemini’s motion for summary judgment.

This newly

presented evidence is not a proper basis for reconsideration.
See White, 424 F. Supp. 2d at 1274 (citing Kona Enterprises, Inc.
v. Estate of Bishop, 229 F.3d 877, 890 (9th Cir. 2000)); Haw.
Stevedores, Inc. v. HT & T Co., 363 F. Supp. 2d 1253, 1269 (D.
Hawai`i 2005) (“reconsideration may not be based on evidence and
legal arguments that could have been presented at the time of the
challenged decision”).
The Court next turns to Underwriters’ contention that
the Court’s finding that KDC has shown injury due to
Underwriters’ failure to defend constitutes a manifest error of
fact and/or law.

Here, the Motion simply disagrees with this

Court’s reasoning that Underwriters are not entitled to summary
judgment on this issue; that is, they have not established that
KDC did not suffer harm.

“Mere disagreement with a previous

order is an insufficient basis for reconsideration.”

White, 424

F. Supp. 2d at 1274.
The Court therefore FINDS that Underwriters have not
presented any ground warranting reconsideration of the Order’s
rulings regarding the date of notice or injury to KDC.

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CONCLUSION
On the basis of the foregoing, Underwriters Motion for
Reconsideration Motion, filed on July 13, 2012, is HEREBY DENIED.
IT IS SO ORDERED.
DATED AT HONOLULU, HAWAII, August 31, 2012.

/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge

GEMINI INSURANCE COMPANY V. KUKU`ULA DEVELOPMENT COMPANY
(HAWAII), LLC, ET AL; CIVIL NO. 10-00637 LEK-BMK; ORDER DENYING
ADDITIONAL DEFENDANTS CERTAIN UNDERWRITERS AT LLOYD’S MOTION FOR
RECONSIDERATION

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