Peters et al v. Lexington Insurance Company et al
Filing
24
ORDER GRANTING DEFENDANT LEXINGTON INSURANCE COMPANY'S MOTION FOR JUDGMENT ON THE PLEADINGS granting (17) - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 12/27/11. Associated Cases: 1:11-cv-00355-SOM -RLP, 1:11-cv-00356-SOM -RLP(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
MICHAEL PETERS and LINDA
PETERS,
)
)
)
Plaintiffs,
)
)
vs.
)
)
LEXINGTON INSURANCE COMPANY, )
a foreign insurance
)
corporation, and YORK RISK
)
SERVICES GROUP, INC., a
)
foreign corporation qualified )
to conduct business in
)
Hawaii,
)
)
Defendants.
)
_____________________________ )
)
JERRY CHERNIK and KRIS
)
CHERNIK
)
)
Plaintiffs,
)
)
vs.
)
)
LEXINGTON INSURANCE COMPANY, )
a foreign insurance
)
corporation, and YORK RISK
)
SERVICES GROUP, INC., a
)
foreign corporation qualified )
to conduct business in
)
Hawaii,
)
)
Defendants.
)
_____________________________
CIVIL NO. 11-00355 SOM/RLP
CIVIL NO. 11-00356 SOM/RLP
(Consolidated)
ORDER GRANTING DEFENDANT
LEXINGTON INSURANCE COMPANY’S
MOTION FOR JUDGMENT ON THE
PLEADINGS
ORDER GRANTING DEFENDANT LEXINGTON
INSURANCE COMPANY’S MOTION FOR JUDGMENT ON THE PLEADINGS
I.
INTRODUCTION.
This is an action involving insurance coverage arising
out of damage to the plaintiffs’ condominiums, allegedly caused
by a water leak from another unit.
Plaintiffs Michael Peters,
Linda Peters, Jerry Chernik, and Kris Chernik own two condominium
units at the Wavecrest Resort on the island of Molokai.
Michael
and Linda Peters, and Jerry and Kris Chernik, brought separate
actions through virtually identical complaints against Defendants
Lexington Insurance Company (“Lexington”), the insurer for the
Wavecrest Resort’s homeowners’ association, and York Risk
Services Group, Inc. (“York”), an insurance adjuster hired by
Lexington.
The two actions have been consolidated.
Plaintiffs assert that Lexington failed to comply with
the terms of the homeowners’ association’s insurance policy by
failing to properly adjust Plaintiffs’ claims for property damage
claims resulting from the water leak.
Plaintiffs also assert
claims for punitive damages against Lexington and York.
Lexington now moves for judgment on the pleadings pursuant to
Rule 12(c) of the Federal Rules of Civil Procedure.
The court
grants the motion on the ground that Plaintiffs do not have
standing to enforce the association’s policy.
II.
RULE 12(c) STANDARD.
Rule 12(c) permits parties to move for judgment on the
pleadings.
It states: “After the pleadings are closed--but early
enough not to delay trial--a party may move for judgment on the
pleadings.”
Fed. R. Civ. P. 12(c).
The standard governing a
Rule 12(c) motion for judgment on the pleadings is “functionally
2
identical” to that governing a Rule 12(b)(6) motion.
United
States ex rel. Caffaso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d
1047, 1054 n.4 (9th Cir. 2011).
For a Rule 12(c) motion, the
allegations of the nonmoving party are accepted as true, while
the allegations of the moving party that have been denied are
assumed to be false.
See Hal Roach Studios v. Richard Feiner &
Co., Inc., 896 F.2d 1542, 1550 (9th Cir. 1989).
A court
evaluating a Rule 12(c) motion must construe factual allegations
in a complaint in the light most favorable to the nonmoving
party.
Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir. 2009).
“Judgment on the pleadings under Rule 12(c) is proper when the
moving party establishes on the face of the pleadings that there
is no material issue of fact and that the moving party is
entitled to judgment as a matter of law.”
Jensen Family Farms,
Inc. v. Monterey Bay Unified Air Pollution Control Dist., 644
F.3d 934, 937 n.1 (9th Cir. 2011).
Generally, when matters outside the pleadings are
considered, a motion for judgment on the pleadings must be
construed as one for summary judgment under Rule 56 of the
Federal Rules of Civil Procedure.
See Fed. R. Civ. P. 12(d).
Courts have held, however, that when adjudicating a Rule 12(c)
motion, courts may consider matters subject to judicial notice
without converting the motion into one for summary judgment.
See
Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n.18
3
(9th Cir. 1999) (“When considering a motion for judgment on the
pleadings, this court may consider facts that are contained in
materials of which the court may take judicial notice.”
(quotation marks omitted)); accord Lacondeguy v. Adapa, 2011 WL
9572, at *2 (E.D. Cal. Jan. 3, 2011); Williams v. City of
Antioch, 2010 WL 3632199, at *2 (N.D. Cal. Sept. 2, 2010).
A
court may also consider certain documents attached to a
complaint, as well as documents incorporated by reference into a
complaint “if the plaintiff refers extensively to the document or
the document forms the basis of the plaintiff’s claim.”
States v. Ritchie, 342 F.3d 903, 909 (9th Cir. 2003).
United
According
to the Ninth Circuit, incorporation by reference is appropriate
when “a plaintiff's claim about insurance coverage is based on
the contents of a coverage plan.”
III.
Id. (citations omitted).
BACKGROUND.
Plaintiffs Michael Peters and Linda Peters jointly own
a condominium at the Wavecrest Resort in Kaunakakai, on the
island of Molokai.
Defs. Lexington Insurance Company and York
Risk Services Group, Inc.’s Notice of Removal Ex. A. (“Peters
Complaint”) ¶ 1, ECF No. 1.
Plaintiffs Jerry Chernik and Kris
Chernik also jointly own a unit at the Wavecrest Resort.
Defs.
Lexington Insurance Company and York Risk Services Group, Inc.’s
Notice of Removal Ex. A. (“Chernik Complaint”) ¶ 1, Civil No. 1100356, ECF No. 1.
On December 3, 2009, water leaking from
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another unit damaged Plaintiffs’ units.
Peters Complaint and
Chernik Complaint (collectively, the “Complaints”) ¶ 4.
At the time of the leak, Defendant Lexington insured
Wavecrest Resort pursuant to an insurance policy taken out and
maintained by the Wavecrest Resort’s Association of Apartment
Owners (“AOAO”).
Id. ¶ 2.
Plaintiffs allege that they were
covered under the AOAO’s insurance policy.
Id. ¶ 3.
After the
leak, they “timely” filed claims with Lexington “under the terms
of the Policy.”
Id. ¶ 5.
It appears from the Complaints that
Michael and Linda Peters demanded $65,323.54 in damages, and
Jerry and Kris Chernik demanded $89.519.77 in damages.
Lexington hired Defendant York to adjust the claims.
Id. ¶ 9.
Id. ¶ 6.
On April 13, 2011, the Peters Plaintiffs and the
Chernik Plaintiffs filed the lawsuits now consolidated before
this court.
Originally filed in state court, the nearly
identical Complaints allege that Lexington and York failed to
adequately adjust Plaintiffs’ claims pursuant to the Policy and
Hawaii law.
The Complaints assert three causes of action:
Count
I--“Breach of the Insurance Agreement by Lexington,” Count II-“Punitive Damages Against Lexington,” and Count III--“Punitive
Damages Against York.”
Id. at 3-4.
The AOAO is not named as a
party, and Plaintiffs do not contend that they are suing on
behalf of the AOAO.
5
On June 3, 2011, Defendants removed the cases to
federal court.
ECF No. 1.
Defendants answered the Complaints on
June 15, 2011.
ECF No. 7.
On August 2, 2011, the parties agreed
to consolidate the cases.
ECF. No. 15.
On August 22, 2011, Lexington moved for judgment on the
pleadings against all Plaintiffs with respect to Counts I and II.
Def. Lexington Insurance Company’s Mot. for J. on the Pleadings
(“Motion”), ECF No. 17.
on November 21, 2011.1
Plaintiffs jointly filed an opposition
Pls. Memo. in Opp’n to Def. Lexington
Insurance Company’s Mot. for J. on the Pleadings (“Opposition”),
ECF No. 20.
IV.
Defendants filed a reply on November 23, 2011.
ANALYSIS.
A.
General Law Governing Insurance Contracts.
Federal courts sitting in diversity apply state
substantive law and federal procedural law.
See Mason & Dixon
Intermodal, Inc. v. Lapmaster Int'l LLC, 632 F.3d 1056, 1060 (9th
Cir. 2011) (“When a district court sits in diversity, or hears
state law claims based on supplemental jurisdiction, the court
applies state substantive law to the state law claims.”); Zamani
v. Carnes, 491 F.3d 990, 995 (9th Cir. 2007) (“Federal courts
1
The court notes that Plaintiffs filed their opposition in
violation of Local Rule 7.4, as it was filed only fourteen days
before the hearing. Rule 7.4 requires that an opposition be
filed not less than twenty-one days prior to the date of a
hearing. While the court has considered Plaintiffs’ opposition,
the court cautions Plaintiffs that untimely filings may be
disregarded or stricken from the record.
6
sitting in diversity jurisdiction apply state substantive law and
federal procedural law.” (quotation marks omitted)).
When
interpreting state law, a federal court is bound by the decisions
of a state's highest court.
Trishan Air, Inc. v. Fed. Ins. Co.,
635 F.3d 422, 427 (9th Cir. 2011).
In the absence of a governing
state decision, a federal court attempts to predict how the
highest state 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 marks and brackets omitted)).
Under Hawaii law, general rules of contract
construction apply to the interpretation of insurance contracts.
Guajardo v. AIG Haw. Ins. Co., 118 Haw. 196, 203 (2008); Dawes v.
First Ins. Co. of Haw., 77 Haw. 117, 121 (1994).
Hawaii law
requires that an insurance policy be read as a whole and its
terms construed in accordance with their plain, ordinary, and
accepted sense in common speech, unless it appears that a
different meaning is intended.
Guajardo, 118 Haw. at 203; Dawes,
77 Haw. at 121; First Ins. Co. of Haw. v. State, 66 Haw. 413, 423
(1983); see also Haw. Rev. Stat. § 431:10–237 (“Every insurance
7
contract shall be construed according to the entirety of its
terms and conditions as set forth in the policy, and as
amplified, extended, restricted, or modified by any rider,
endorsement or application attached to and made a part of the
policy.”).
Plaintiffs have attached a copy of the insurance
policy in issue to their opposition.
(“Policy”), ECF. No. 20-1.
authenticity.
Opposition Ex. A
The parties do not dispute its
As Plaintiffs’ claims are based on the Policy, the
court considers its terms.
B.
Count I is a Breach of Contract Claim.
Lexington, contending that Count I is unclear,
construes Count I as either a breach of contract claim or a
third-party bad faith claim.
Lexington argues that judgment on
the pleadings is appropriate in either event.
The court construes Count I as claiming a breach of the
Policy between Lexington and the AOAO.
Count I is labeled
“Breach of the Insurance Agreement,” and it alleges that
“Lexington has breached the terms of the insurance agreement by
failure to properly adjust the Plaintiffs’ claim in violation of
the terms of its policy.”
Complaints ¶ 10-11.
Plaintiffs’
opposition also implies that Count I is a breach of contract
claim by arguing that Plaintiffs have standing to assert a “first
party action against an insurance carrier.”
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Opposition at 4.
The court therefore does not reach the merits of the purported
third-party bad faith claim.
C.
Plaintiffs Lack Standing to Assert Breach of
Contract Based on the AOAO’s Insurance Policy.
Article III, section 2, of the United States
Constitution sets forth constitutional limits on a court’s
subject-matter jurisdiction; it confines federal courts to
deciding cases or controversies.
No case or controversy exists
when a plaintiff lacks standing to make the claims asserted.
Cetacean Cmty. v. Bush, 386 F.3d 1169, 1174 (9th Cir. 2004).
A
federal court therefore does not have subject-matter jurisdiction
over a suit by a plaintiff who lacks standing.
Id.
A plaintiff bears the burden of establishing its
standing to sue.
To do so, a plaintiff must demonstrate three
things: (1) the plaintiff suffers an actual or threatened
injury; 2) the injury is fairly traceable to the challenged
action; and (3) the injury is likely to be redressed by a
favorable decision.
Lujan v. Defenders of Wildlife, 504
U.S. 555, 560 (1992).
Plaintiffs do not meet this burden.
A breach of contract claim generally requires that the
parties be in privity of contract.
See Hunt v. First Ins. Co. of
Haw., Ltd., 82 Haw. 363, 367 (App. 1996).
Lexington argues that
Plaintiffs lack standing to assert a breach of the insurance
agreement in issue because there is no privity of contract
between Lexington and the Peters Plaintiffs or the Chernik
9
Plaintiffs.
As the policy insured only the AOAO and not the
individual unit owners, the court agrees with Lexington.
Although the court is unaware of controlling authority
addressing whether homeowners may sue to enforce their
homeowners’ association’s insurance policy, a California court of
appeals held in an analogous case that “individual members of a
homeowners association in a planned residential development have
no standing to maintain an action against insurance companies on
policies purchased by and issued to the homeowners association
managing the development and under which plaintiffs are not
insureds.”
Gantman v. United Pacific Ins. Co., 284 Cal.
Rptr. 188, 189 (Cal. Ct. App. 1991).
In Gantman, the plaintiffs
owned a home in a residential development that had been damaged
by a water leak in the roof.
Id. at 190-91.
The plaintiffs sued
the defendant insurance companies to recover damages based on
their homeowners’ association’s insurance policies.
Id. at 191.
The California court held that the individual members of the
association did not have standing because they were neither
parties to the insurance contract between the homeowners’
association and the insurance companies, nor insureds or express
beneficiaries under the terms of the policy whose benefits were
allegedly being wrongfully withheld.
Id. at 192-93.
Plaintiffs similarly are neither parties to Lexington
and the AOAO’s insurance contract, nor insureds or express
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beneficiaries under the Policy.
The Complaints allege that the
“[P]laintiffs were covered under [the insurance] policy as
members of the Plaintiffs’ AOAO.”
Complaints ¶ 2.
This is a
legal conclusion that the court is not required to accept as
true.
See, e.g., Ashcroft v. Iqbal, 129 S. Ct. 1937, 1949-50
(2009) (“Although for the purposes of a motion to dismiss we must
take all of the factual allegations in the complaint as true, we
‘are not bound to accept as true a legal conclusion couched as a
factual allegation’” (quoting Bell Atlantic Corp. v Twombly, 550
U.S. 544, 555 (2007)).
The Policy actually names “Wavecrest
Resort, AOAO” as the insured, not the individual unit owners.
Policy at 2.
Plaintiffs do not point to anything in the Policy
stating that they are additional insureds.
Plaintiffs contend that “they do not have to be named
insureds to be covered under the subject policy of insurance.”
Opposition at 2.
They make two arguments in this regard.
First, they argue that although they are not expressly
named as insureds, section A.1.a.(6) of the Policy establishes
that they are in fact insureds.
This argument is unpersuasive.
Section A.1.a.(6) is a term that was added to the main body of
the Policy.
coverage.
Policy at 56.
Section A of the Policy pertains to
It states that Lexington “will pay for direct physical
loss of or damage to Covered Property at the premises described
in the Declarations caused by or resulting from any Covered Cause
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of Loss.”
Id. at 14.
“Covered Property” is defined as “the type
of property described in this Section A.1., and limited in A.2.”
Id.
Section A.1 includes: “a. Building, meaning the building or
structure described in the Declarations,” with subsections (1)(5).
Id.
In a “Condominium Association Changes” rider to the
Policy, section A.1.a (“Building”) was supplemented with
subsection (6), which expanded the definition of “Covered
Property” to include:
(6) Any of the following types of property
contained within a unit, regardless of
ownership, if your Condominium Association
Agreement requires you to insure it:
(a) Fixtures, improvements and
alterations that are a part of the building
or structure; and
(b) Appliances, such as those used
for refrigerating, ventilating, cooking,
dishwashing, laundering, security, or
housekeeping.
Id. at 56.
Section A.1.a.(6) does not give Plaintiffs standing to
sue.
It states only that the Policy covers some property in the
individual units if the Condominium Association Agreement
requires the AOAO to provide such insurance.
The provision does
not state that the individual unit owners thereby become insureds
who may bring claims against Lexington on their own.
That is,
even if section A.1.a.(6) expands what Lexington covers for the
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AOAO, it does not necessarily follow that Michael and Linda
Peters or Jerry and Kris Chernik may themselves enforce the
Policy.
Plaintiffs’ second argument is that section A.1.a.(6)
gives them standing to enforce the AOAO’s Policy because it
incorporates Hawaii Revised Statutes § 514B-143(b).
According to
Plaintiffs, section 514B-143(b) creates a private right of
action.
Section 514B-143(b) states in relevant part:
If a building contains attached units,
the insurance maintained under subsection
(a)(1), to the extent reasonably available,
shall include the units, the limited common
elements, except as otherwise determined by
the board, and the common elements. The
insurance need not cover improvements and
betterments to the units installed by unit
owners, but if improvements and betterments
are covered, any increased cost may be
assessed by the association against the units
affected.
Subsection (a)(1), referred to in section 514B-143(b), requires,
among other things, that a homeowners’ association maintain
property insurance for the common areas.
Haw. Rev. Stat. § 514B-
143(a)(1).
While section 514B-143(b) does indeed state that a
homeowners’ association shall insure individual units, the
statute is silent on the point of whether the owner of an
individual unit may bring an action directly against the insurer
to enforce an association’s policy.
Plaintiffs do not provide
any authority, such as legislative history or case law,
13
interpreting section 514B-143(b) as giving a unit owner a right
of action.
Hawaii state courts apply three factors to determine
whether “a private remedy is implicit in a statute not expressly
providing one,” as set forth by the United States Supreme Court
in Cort v. Ash, 422 U.S. 66 (1975):
First, is the plaintiff ‘one of the
class for whose especial benefit the statute
was enacted[’] . . . -that is, does the
statute create a . . . right in favor of the
plaintiff? Second, is there any indication of
legislative intent, explicit or implicit,
either to create such a remedy or to deny
one? . . . Third, is it consistent with the
underlying purposes of the legislative scheme
to imply such a remedy for the plaintiff?
County of Haw. v. Ala Loop Homeowners, 123 Haw. 391, 407 (2010)
(quoting Pono v. Molokai Ranch, Ltd, 119 Haw. 164, 185 (Haw. App.
2008) (citations omitted), abrogated on other grounds by Ala
Loop, 123 Haw. at 408)).
Hawaii courts recognize that
“legislative intent appears to be the determinative factor.”
Id.
Plaintiffs fail to meet at least two of the factors.2
With regard to the first factor, because section 514B-143(b)
2
Plaintiffs may satisfy the third factor. The stated
purpose of chapter 514B is to “update, clarify, organize,
deregulate, and provide for consistency and ease of use of the
condominium property regimes law.” S.B. 2210, 22nd Leg., 2004
(Haw. 2004). Reading section 514B-143(b) as providing Plaintiffs
with a private remedy against Lexington does not appear
inconsistent with that purpose.
14
states that the AOAO’s insurance “shall include the units,” it
appears that Plaintiffs would benefit from the statute; however,
it is not clear that section 514B-143(b) was enacted to provide
“especial” benefit to, or a right in favor of, the unit owners.
See Rees v. Carlisle, 113 Haw. 446, 459 (2007) (holding that
taxpayers who attempted to enforce an ordinance that provided
“standards of conduct” for public officers did not meet the first
factor because “[a]lthough the public clearly benefits from the
existence of such standards, it does not appear that the
ordinance was passed for the special benefit of tax payers as a
group” (citations omitted)).
It may be that the legislature
meant to benefit the AOAO, as problems with individual units
could affect the building as a whole, or as eliminating
ambiguities in coverage could assist the AOAO’s administration of
the building.
More significantly, Plaintiffs do not establish the
determinative second factor, that the Hawaii legislature intended
to create a right of action for unit owners to enforce their
AOAO’s policy.
At the hearing on this motion, Plaintiffs argued
that the Hawaii legislature’s intent to create a private right of
action under section 514B-143(b) is clear when that section is
read in conjunction with section 514B-143(f).
Section 514B-
143(f) provides that an insurer is to pay the homeowners’
15
association when making payments under an association’s policy
for damage to the common areas:
Any loss covered by the property policy under
subsection (a)(1) shall be adjusted by and with the
association. The insurance proceeds for that loss shall
be payable to the association, or to an insurance
trustee designated by the association for that purpose.
The insurance trustee or the association shall hold any
insurance proceeds in trust for unit owners and secured
parties as their interests may appear.
Plaintiffs concede that section 514B-143(f) requires Lexington to
adjust claims with the AOAO, but argue that section 514B-143(f)
applies only to the property the AOAO is required to insure under
section 514B-143(a)(1)--the common areas–-and not to property
insured pursuant to section 514B-143(b), which addresses the
individual units.
The gist of Plaintiffs’ argument is that it makes sense
for only a homeowners’ association to recover insurance benefits
under section 514B-143(a)(1) because that provision applies to
common areas, which the association must maintain or repair.
Plaintiffs argue that, by contrast, unit owners bear the cost of
repairing their own units, so the legislature would not have
similarly restricted rights of action relating to the units to
the AOAO.
In other words, Plaintiffs argue that the Hawaii
legislature intended to allow an AOAO’s insurer to adjust a claim
for loss to an individual unit not only with the AOAO, but also
with that unit’s owner.
Plaintiffs further contend that, in
16
implicitly providing for an AOAO’s insurer to adjust claims with
unit owners under section 514B-143(b), that statute must also
permit unit owners to sue to enforce an AOAO’s policy under
section 514B-143(b).
Otherwise, Plaintiffs contend, they would
be unable to recover at all for damage to their units.
The court is not persuaded that, by explicitly
mentioning section 514B-143(a)(1) while remaining silent as to
section 514B-143(b) in section 514B-143(f), the legislature was
giving a unit owner a private right of action under section 514B143(b).
It could just as easily be said that the legislature’s
failure to mention any direct action by a unit owner indicates an
intent not to permit such an action at all.
Plaintiffs are not left without a remedy even if they
cannot sue Lexington themselves.
If Plaintiffs believe that the
AOAO has not been vigorous enough in its dealings with Lexington,
Plaintiffs’ dispute may well be with the AOAO.
Absent status as insureds under the Policy or some
other source providing a right to sue the AOAO’s insurer,
Plaintiffs may not proceed with their claims against Lexington.
V.
CONCLUSION.
The court GRANTS Lexington’s motion for judgment on the
pleadings.
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IT IS SO ORDERED.
DATED: Honolulu, Hawaii, December 27, 2011.
/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
Peters v. Lexington Ins. Co.; Civil No. 11-00355 SOM-RLP; ORDER GRANTING DEFENDANT
LEXINGTON INSURANCE COMPANY’S MOTION FOR JUDGMENT ON THE PLEADINGS
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