State Farm Fire and Casualty Company vs. Curtis L. Wimberly; et al.
Filing
29
ORDER Granting Plaintiff State Farm Fire And Casualty Company's Motion For Summary Judgment re 14 . Signed by JUDGE J. MICHAEL SEABRIGHT on 7/6/12. (gls, )CERTIFICATE OF SERVICEParticipants registered to receiv e 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
STATE FARM FIRE AND
) CIV. NO. 11-00492 JMS/KSC
CASUALTY COMPANY, an Illinois )
Corporation,
) ORDER GRANTING PLAINTIFF
) STATE FARM FIRE AND CASUALTY
Plaintiff,
) COMPANY’S MOTION FOR
) SUMMARY JUDGMENT
vs.
)
)
CURTIS L. WIMBERLY and
)
JOCELYN B. WIMBERLY,
)
Individually and as Trustees of the
)
Curtis L. Wimberly and Jocelyn B. )
Wimberly Revocable Trust,
)
)
Defendants.
)
_____________________________ )
ORDER GRANTING PLAINTIFF STATE FARM FIRE AND CASUALTY
COMPANY’S MOTION FOR SUMMARY JUDGMENT
I. INTRODUCTION
Plaintiff State Farm Fire and Casualty Company (“State Farm”) seeks
a declaration under 28 U.S.C. § 2201 that it owes no duty to defend or indemnify
its policyholders Defendants Curtis and Jocelyn Wimberly, Individually and as
Trustees of the Curtis L. Wimberly and Jocelyn B. Wimberly Revocable Trust
(collectively, “the Wimberlys”), against an action pending in the Circuit Court of
the First Circuit, State of Hawaii (“the underlying action”). The complaint in the
underlying action alleges claims related to a failure by the Wimberlys and their real
estate agent to disclose the condition of a retaining wall on real property that the
Wimberlys sold to Ronney Shimabukuro (“Shimabukuro”).
Before the court is State Farm’s Motion for Summary Judgment,
seeking a ruling that it has no duty to defend and/or indemnify the Wimberlys for
claims Shimabukuro is asserting against them in the underlying action because
(1) the claims do not assert “bodily injury,” “property damage,” or “personal
injury” caused by an “occurrence” as defined in State Farm’s insurance policy
(“the Policy”), and (2) coverage is otherwise excluded under the Policy. Based on
the following, the court finds that the complaint in the underlying action does not
raise the possibility of coverage, and therefore GRANTS State Farm’s Motion for
Summary Judgment.
II. BACKGROUND
A.
Factual Background
The court first describes the essential facts alleged against the
Wimberlys in the underlying action. The allegations are not disputed by the parties
and are assumed to be true for purposes of this declaratory relief action. See, e.g.,
Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944-45 (9th
2
Cir. 2004) (“The focus is on the alleged claims and facts.”). The court then sets
forth the relevant provisions of the Policy.
1.
The Underlying Action
By contract dated February 28, 2009, the Wimberlys sold real
property located at 1583 Ala Lani Street in Honolulu, Hawaii to Shimabukuro,
with a June 2009 closing. Doc. No. 18-3, Brown Decl. Ex. A (“Underlying
Compl.”) ¶¶ 7, 12. The Wimberlys were represented by real estate agent JoAnn
Matsuo (“Matsuo”) during the transaction. Id. ¶ 4, 7. As part of the transaction,
the Wimberlys, assisted by Matsuo, prepared and delivered a “Seller’s Real
Property Disclosure Statement” to Shimabukuro. Id. ¶ 8. Shimabukuro, after
taking possession of the property, allegedly cleared vegetation and discovered
“patchwork repair and cracks and damages” to a retaining wall, and “learned that
the wall was in imminent danger of collapse.” Id. ¶ 14. The condition of the wall
was not disclosed in the Seller’s Real Property Disclosure Statement. Id. ¶ 10.
The cost to repair the retaining wall and stabilize the land “exceeds $100,000.” Id.
¶ 15.
///
///
///
3
On February 28, 2011, based on the sales transaction and the
undisclosed condition of the retaining wall, Shimabukuro1 filed the underlying
action against the Wimberlys and Matsuo’s firm. The underlying complaint makes
the following relevant factual allegations:
8.
...
10.
11.
...
13.
On or about March 9, 2009, Sellers [the
Wimberlys] prepared and delivered to Plaintiff
[Shimabukuro] a “Seller’s Real Property
Disclosure Statement” in connection with the
purchase of the Property.
In said “Seller’s Real Property Disclosure
Statement” the Sellers denied any knowledge of
settling or slippage, sliding subsidence, or other
soil problem and denied any knowledge of
drainage, water infiltration, seepage, flooding, or
grading problems, nor was any mention made of
patchwork repairs to any retaining wall on the
property.
Said denials and omissions were
misrepresentations, as the Sellers, personally or
through their agents, were aware, or should have
been aware, that patchwork had been done on the
retaining wall on the rear of the property, including
the footings of the wall, specifically because the
wall was no longer stable, due to earth movement
and soil problems.
That Plaintiff relied upon the representations made
in the “Seller’s Real Property Disclosure
1
The underlying complaint was brought by Ronney H. Shimabukuro, individually and as
trustee of the Ronney H. Shimabukuro Trust. Doc. No. 18-3, Underlying Compl. The court
refers to both as “Shimabukuro.”
4
Statement” in purchasing the property and was
unaware of the cracks and unstable nature of the
retaining wall due to the heavy growth of
vegetation which concealed both the patchwork
repairs and the cracks and damages to the retaining
wall.
14.
That subsequent to taking possession of the
Property, Plaintiff cleared the vegetation and
discovered the patchwork repair and cracks and
damages to the retaining wall, and learned that the
wall was in imminent danger of collapse, all of
which was known, or should have been known in
the exercise of reasonable care, by the Defendants,
and each of them at the time the “Seller’s Real
Property Disclosure Statement” was prepared and
delivered to Plaintiff and upon which Plaintiff was
expected to rely.
Based on those factual allegations, the underlying complaint asserts
claims against all the underlying defendants for misrepresentation (Count One),
negligence (Count Two), breach of contract (Count Three), rescission (Count
Four), unfair and deceptive trade practices (Count Five), and punitive damages
(Count Six).
Because it is entitled “negligence,” Count Two is particularly
important for purposes of assessing whether the Wimberlys are entitled to
insurance coverage. In relevant part, Count Two provides:
Based upon the above-described acts, Defendants are
liable to the Plaintiff [Shimabukuro] for negligence by,
among other things, failing to exercise reasonable care in
5
preparing the “Seller’s Real Property Disclosure
Statement” and making the appropriate inquiries to
determine the condition of the property, and/or failing to
accurately complete the “Seller’s Real Property
Disclosure Statement”, knowing that Plaintiff would rely
upon the representations of Defendants and their agents.
Id. ¶ 19.
2.
The Policy
State Farm insured the Wimberlys’ premises at 1583 Ala Lani Street
under a Rental Dwelling Policy, No. 91-BX-9370-9. Doc. No. 15-3, Miller Decl.
Ex. 2 (“the Policy”). As clarified by State Farm’s counsel at the oral hearing on
the Motion, the Wimberlys -- as owners who are alleged to be residents and
citizens of California at all relevant times -- were renting out the premises and thus
were insured by a Rental Dwelling Policy. After the underlying action was filed,
the Wimberlys tendered the action to State Farm. State Farm has provided the
Wimberlys a defense of the underlying action, subject to a reservation of rights.
See Doc. No. 1, Compl. ¶ 15.
The Policy contains the following relevant provisions (bold in
original):
///
///
///
6
DEFINITIONS
1.
...
5.
...
8.
9.
10.
“bodily injury” means bodily harm, sickness or disease.
This includes required care, loss of services and death
resulting therefrom[.]
“insured premises” means:
a.
the residence premises[.]
“occurrence”, when used in Section II of this
policy, means an accident, including exposure to
conditions, which results in:
a.
bodily injury;
b.
property damage; or
c.
personal injury;
during the policy period. Repeated or continuous
exposure to the same general conditions is
considered to be one occurrence.
“personal injury” means injury arising out of one
or more of the following offenses:
a.
false arrest, detention or imprisonment or
malicious prosecution;
b.
libel, slander or defamation of character; or
c.
invasion of privacy, wrongful eviction or
wrongful entry.
“property damage” means physical damage to or
destruction of tangible property, including loss of
use of this property. Theft or conversion of
property by any insured is not considered to be
property damage.
SECTION II -- LIABILITY COVERAGES
COVERAGE L -- BUSINESS LIABILITY
If a claim is made or a suit is brought against an insured
for damages because of bodily injury, personal injury,
7
or property damage to which this coverage applies,
caused by an occurrence, and which arises from the
ownership, maintenance, or use of the insured premises,
we will:
1.
2.
pay up to our limit of liability for the damages for
which the insured is legally liable; and
provide a defense at our expense by counsel of our
choice. We may make any investigation and settle
any claim or suit that we decide is appropriate.
Our obligation to defend any claim or suit ends
when the amount we pay for damages, to effect
settlement or satisfy a judgment resulting from the
occurrence, equals our limit of liability.
...
SECTION II -- EXCLUSIONS
1.
...
2.
Coverage L -- Business Liability and Coverage
M -- Premises Medical Payments do not apply
to:
a.
bodily injury, personal injury, or
property damage:
(1) which is either expected or intended
by an insured; or
(2) to any person or property which is the
result of willful and malicious acts of
an insured[.]
Coverage L -- Business Liability does not apply
to:
a.
liability:
...
(2) assumed under any unwritten
contract or agreement, or by contract
or agreement in connection with any
8
b.
c.
...
i.
business of the insured other than the
rental of the insured premises.
property damage to property owned by any
insured;
property damage to property rented to
occupied or used by or in the care of the
insured;
property damage or personal injury to
premises you sell, give away or abandon, if
the property damage, or personal injury
arises out of those premises.
Doc. No. 15-3, Miller Decl. Ex. 2.
B.
Procedural History
After notifying the Wimberlys that it was defending the underlying
suit subject to a reservation of rights, State Farm filed this declaratory relief action
on August 12, 2011. The suit is based upon diversity of citizenship -- State Farm
is an Illinois Corporation, and the Wimberlys are residents and citizens of
California. Doc. No. 1, Compl. ¶¶ 1-2. The suit seeks a declaration that it is not
required to defend and/or indemnify the Wimberlys in the underlying action
because the Policy is not applicable to the claims in the underlying action. On
December 2, 2011, the Wimberlys filed a counterclaim against State Farm, seeking
declaratory relief and making claims for breach of contract and specific
performance.
9
On February 23, 2012, State Farm filed its Motion for Summary
Judgment, with a hearing set for April 23, 2012. The Wimberlys filed their
Opposition on April 2, 2012. The Motion was then withdrawn, but was re-instated,
and State Farm filed its Reply on June 4, 2012. A hearing was held on June 18,
2012. The Wimberlys filed a Supplemental Memorandum in Opposition on June
25, 2012, and State Farm filed a corresponding Supplemental Reply on July 2,
2012.
III. STANDARD OF REVIEW
Summary judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(a). Rule 56(a) mandates summary judgment “against a party who
fails to make a showing sufficient to establish the existence of an element essential
to the party’s case, and on which that party will bear the burden of proof at trial.”
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of
Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).
“A party seeking summary judgment bears the initial burden of
informing the court of the basis for its motion and of identifying those portions of
the pleadings and discovery responses that demonstrate the absence of a genuine
issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th
10
Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah’s
Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has
carried its burden under Rule 56[(a)] its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts [and] come forward
with specific facts showing that there is a genuine issue for trial.” Matsushita
Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87 (1986) (citation and internal
quotation signals omitted); see also Anderson v. Liberty Lobby, Inc., 477 U.S. 242,
247-48 (1986) (stating that a party cannot “rest upon the mere allegations or
denials of his pleading” in opposing summary judgment).
“An issue is ‘genuine’ only if there is a sufficient evidentiary basis on
which a reasonable fact finder could find for the nonmoving party, and a dispute is
‘material’ only if it could affect the outcome of the suit under the governing law.”
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson, 477 U.S. at
248). When considering the evidence on a motion for summary judgment, the
court must draw all reasonable inferences on behalf of the nonmoving party.
Matsushita Elec. Indus. Co., 475 U.S. at 587; see also Posey v. Lake Pend Oreille
Sch. Dist. No. 84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that “the evidence
of [the nonmovant] is to be believed, and all justifiable inferences are to be drawn
in his favor.” (citations omitted)).
11
IV. ANALYSIS
The court outlines the legal framework for interpreting the Policy and
determining the scope of an insurer’s coverage duties, and then addresses the
parties’ arguments.
A.
Framework for Construing Insurance Contracts
“Every insurance 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.” Hawaii Revised Statutes (“HRS”) § 431:10-237. Thus,
under Hawaii law, courts must look to the language of the insurance policy to
determine the scope of an insurer’s duties. See Sentinel Ins. Co. v. First Ins. Co. of
Haw., 76 Haw. 277, 287, 875 P.2d 894, 904 (1994); see also Hawaiian Ins. &
Guar. Co. v. Fin. Sec. Ins. Co., 72 Haw. 80, 87, 807 P.2d 1256, 1260 (1991) (“In
the context of insurance coverage disputes, we must look to the language of the
insurance policies themselves to ascertain whether coverage exists, consistent with
the insurer and insured’s intent and expectations.”); Burlington Ins. Co., 383 F.3d
at 945 (“In Hawaii, the terms of an insurance policy are to be interpreted according
to their plain, ordinary, and accepted sense in common speech.”).
12
Insurance policies must nevertheless be construed “in accordance with
the reasonable expectations of a layperson.” Hawaiian Isle Adventures, Inc. v. N.
Am. Capacity Ins. Co., 623 F. Supp. 2d 1189, 1194 (D. Haw. 2009) (citing Dawes
v. First Ins. Co. of Haw., 77 Haw. 117, 121, 883 P.2d 38, 42 (1994)). The Hawaii
Supreme Court classifies insurance contracts as “contracts of adhesion” and “ha[s]
long subscribed to the principle that [insurance contracts] must be construed
liberally in favor of the insured and any ambiguities must be resolved against the
insurer.” Guajardo v. AIG Haw. Ins. Co., 118 Haw. 196, 202, 187 P.3d 580, 586
(2008) (citing Dairy Rd. Partners v. Island Ins. Co., 92 Haw. 398, 411-12, 992
P.2d 93, 106-07 (2000) (internal citations, quotation marks, brackets, and ellipses
omitted)).
An insurance company’s duty to defend is broader than its duty to
indemnify and “arises whenever there is the mere potential for coverage.”
Commerce & Indus. Ins. Co. v. Bank of Haw., 73 Haw. 322, 326, 832 P.2d 733,
735 (1992) (citations omitted). “In other words, the duty to defend ‘rests primarily
on the possibility that coverage exists. This possibility may be remote but if it
exists[,] the [insurer] owes the insured a defense.’” Dairy Road Partners, 92 Haw.
at 412, 992 P.2d at 107 (quoting Standard Oil Co. of Cal. v. Hawaiian Ins. &
Guar. Co., 65 Haw. 521, 527, 654 P.2d 1345, 1349 (1982)).
13
In determining whether an insurer has a duty to defend, Hawaii courts
apply the “complaint allegation rule,” where
[t]he 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.’”
Burlington Ins. Co., 383 F.3d at 944-45 (quoting Hawaiian Holiday Macadamia
Nut Co. v. Indus. Indem. Co., 76 Haw. 166, 169, 872 P.2d 230, 233 (1994)). “In
determining whether coverage exists under a liability policy, Hawaii courts do not
look at the way a litigant states a claim, but rather at the underlying facts alleged in
the pleadings.” Allstate Ins. Co. v. Miller, 732 F. Supp. 2d 1128, 1134 (D. Haw.
2010) (citing Bayudan v. Tradewind Ins. Co., 87 Haw. 379, 387, 957 P.2d 1061,
1069 (Haw. App. 1998)); see also Dairy Road Partners, 92 Haw. at 417, 992 P.2d
at 112 (“[W]hen the facts alleged in the underlying complaint unambiguously
exclude the possibility of coverage, conclusory assertions contained in the
complaint regarding the legal significance of those facts (such as that the facts as
alleged demonstrate ‘negligent’ rather than ‘intentional’ conduct) are insufficient
to trigger the insurer’s duty to defend.”).
To obtain summary judgment that it has no duty to defend, an insurer
has the burden of proving that there is “no genuine issue of material fact with
14
respect to whether a possibility exist[s]” that the insured will incur liability for a
claim covered by the policy. Dairy Road Partners, 92 Haw. at 412, 992 P.2d at
107. In other words, Plaintiff must prove that it would be impossible for the
underlying party in the underlying lawsuit to prevail against Defendants on a claim
covered by the Policy. See id. at 412-13, 992 P.2d at 107-08. “All doubts as to
whether a duty to defend exists are resolved against the insurer and in favor of the
insured.” Id. at 412, 992 P.2d at 107.
B.
Application of Framework
1.
Claims Arising out of a Breach of Sales Contract Are Not Covered
State Farm first argues that the underlying action alleges claims for, or
arising out of, a breach of contract, which do not constitute an “occurrence” within
the meaning of the Policy. See Burlington Ins. Co., 383 F.3d at 949 (“[C]ontract
and contract-based tort claims are not within the scope of [liability] policies under
Hawaii law.”). Burlington also indicates similar claims for unfair and deceptive
trade practice violations are not covered. Id. at 943. And indeed the Wimberlys do
not oppose State Farm’s arguments as to coverage over these claims arising out of
breach of contract. Thus, State Farm owes no coverage duties as to the claims
arising from the Wimberly’s alleged failure to disclose the condition of the
retaining wall in the sales transaction. See also State Farm Fire & Cas. Co. v.
15
Thompson, 2010 WL 2017101, at *9 (D. Haw. May 20, 2010) (Mollway, J.)
(reiterating that a claim for “negligent” failure to disclose defects in the sale of real
estate arose out of an alleged breach of a contractual duty and thus did not arise
from an occurrence or accident under the terms of liability policy).
Likewise, State Farm argues -- without opposition from the
Wimberlys -- that it owes no coverage for allegations of intentional and “negligent
misrepresentation.” See, e.g., Hawaiian Holiday Macadamia Nut Co., 76 Haw. at
170, 872 P.2d at 234 (holding that claims for breach of contract and fraud are not
negligence claims resulting from accidental conduct, and where an insurance
policy provides coverage for accidental conduct only, an insurer has no duty to
defend); Thompson, 2010 WL 2017101, at *8-9 (citing numerous cases for
proposition that claims for negligence and negligent misrepresentation in
connection with sale of home did not constitute an “occurrence”); see also Safeco
Ins. Co. of Am. v. Andrews, 915 F.2d 500, 502 (9th Cir. 1990) (holding that a
failure to disclose an alleged misrepresentations regarding defective condition of
property does not constitute an “occurrence”).
Further, Hawaii’s insurance code specifically provides that there can
be no coverage for punitive damages. See HRS § 431:10-240 (“Coverage under
any policy of insurance issued in [Hawaii] shall not be construed to provide
16
coverage for punitive or exemplary damages unless specifically included.”);
Allstate Ins. Co. v. Takeda, 243 F. Supp. 2d 1100, 1109 (D. Haw. 2003).
2.
Count Two Does Not Trigger Coverage -- the Thompson Cases Are
Distinguishable
The only coverage question remaining is whether the underlying
complaint alleges facts that could lead to a negligence claim against the Wimberlys
that is independent of claims arising out of the sales contract. In this regard, two
decisions from this district -- Thompson, 2010 WL 2017101, and an earlier
decision arising out of the same facts, RLI Ins. Co. v. Thompson, 2010 WL
1438925 (D. Haw. Apr. 12, 2010) (Kay, J.) -- are the key cases. These cases arose
from a similar (but ultimately distinguishable) factual background as the instant
case. They addressed whether insurers owed coverage duties against an underlying
action arising out of a failure to disclose wood rot/termite damage in the sale of
real property, where the underlying action alleged claims against the seller
sounding in breach of contract and fraud.
The Thompson cases ruled consistently with each other, first finding
that most of the underlying claims did not constitute “occurrences” for purposes of
insurance coverage because the underlying action alleged uncovered breach of
contract claims, or allegations of intentional conduct:
17
. . . . Applying the complaint allegation rule, see
Burlington Ins. Co., 383 F.3d at 944, and construing the
complaint in the light most favorable to the Thompsons
for purposes of this summary judgment motion, the court
sees the Davises as possibly claiming negligent failure to
disclose damage or possibly negligent repair of the
damage. In either case, the “property damage” that was
supposedly fixed could not have been caused by the
alleged negligence. Any alleged failure to disclose did
not cause any already existing termite damage, dry rot, or
other structural problem. Similarly, any alleged
negligence in repairing the termite damage, dry rot, or
other structural problems cannot be said to have caused
that damage. Accordingly, to the extent the underlying
complaint asserts “property damage” for any damage
that was supposedly (even if insufficiently) fixed, it does
not assert a covered claim.
Thompson, 2010 WL 1438925, at *9 (emphasis added); see also Thompson, 2010
WL 2017101, at *6-7 (ruling similarly). But the decisions found a potential for
coverage in allegations that the seller could have “negligently repaired” wood rot
and “exacerbated” existing damage that continued after the sale:
It is unclear, however, whether the underlying
complaint is asserting that any negligence exacerbated
prior damage. That is, if the failure to properly fix the
earlier damage (e.g., dry rot) caused further property
damage (e.g., more extensive dry rot), such a claim could
possibly be covered under the Policy, as the alleged
negligence might be accidental conduct causing
“property damage.” . . . . Given the record before this
court, [the insurer] does not establish as a matter of law
that it is impossible for the negligence claim in the
underlying lawsuit to be covered by the Policy.
Accordingly, based on the current record, [the insurer]
18
does not meet its burden of showing that it has no duty to
defend and/or indemnify the Thompsons with respect to
the Davises’ negligence claim. See Tri-S Corp. v. W.
World Ins. Co., 110 Haw. 473, 488, 135 P.3d 82, 97
(2006).
Thompson, 2010 WL 1438925, at *9 (emphasis added); see also Thompson, 2010
WL 2017101, at *10 (construing the underlying complaint as possibly alleging
covered negligent conduct “for the same reasons” as in the prior Thompson
decision).
Thus, under the Thompson cases, the possibility of coverage was
limited to a potential claim for negligence in repairing or overseeing dry rot repair
that caused further property damage (i.e., an “exacerbation of damages”).
As to the potential for a claim based on “exacerbation of damages,”
the Thompson cases are readily distinguishable. The underlying complaint in
Thompson alleged that the seller, prior to closing, hired a contractor to perform
construction work on the property and “instructed the contractor to ‘cover over’ the
termite damage.” 2010 WL 2017101, at *1. The seller did this rather than having
the contractor repair the termite damage or remove the damaged parts of the
structure. Id. That is, there were factual allegations that could have constituted, or
led to, a claim for a “negligent fix” that made existing damage worse or
“exacerbated” the damage.
19
Here, on the other hand, although the underlying complaint alleges the
existence of a wall with an undisclosed improper “patchwork repair,” it does not
allege that the Wimberlys actually did that repair (or instructed others in how to
patch the wall), much less that they did so negligently or attempted to cover up any
condition of the wall. Nor are there allegations that such repair caused further
additional (“exacerbated”) damages to the condition of the wall. Indeed, the
underlying complaint does not allege any facts regarding the “patch” (other than its
existence) -- e.g., who did the patch, what role the Wimberlys had in such repair
(overseeing or directing), or whether the repair exacerbated the condition of the
wall.
Rather, the underlying complaint is limited to allegations that the
Wimberlys and/or agents misrepresented the condition of the wall, or improperly
filled out the disclosure statement. It alleges that the Wimberlys or their agent
completed the disclosure statement negligently. It alleges the Wimberlys should
have known that the wall was in danger of collapse and thus negligently failed to
disclose its condition. But nowhere does it allege that the wall itself was repaired
negligently and that such a repair caused further damage -- the underlying
complaint only alleges improprieties in the sales transaction. The “patchwork
20
repair” simply describes the condition that was not disclosed (intentionally or
negligently) on the disclosure form.
Thus, under the complaint allegation rule, no facts are pled that would
indicate the potential for coverage under such a “negligent exacerbation of
condition” claim. See Dairy Road Partners, 92 Haw. at 417, 992 P.2d at 112
(“[W]hen the facts alleged in the underlying complaint unambiguously exclude the
possibility of coverage, conclusory assertions contained in the complaint regarding
the legal significance of those facts (such as that the facts as alleged demonstrate
‘negligent’ rather than ‘intentional’ conduct) are insufficient to trigger the insurer’s
duty to defend.”); Bayudan, 87 Haw. at 387, 957 P.2d at 1069 (agreeing with
courts holding “that the mere relabeling of a claim for which coverage is excluded
to a claim which could raise the potential for coverage is not a permissible manner
in which to trigger an insurer’s duty to defend”).
In short, the Thompson cases are distinguishable, and the underlying
action fails to allege a covered negligence claim against the Wimberlys.
3.
Coverage Is Otherwise Excluded -- a Separate and Independent
Ground for Finding No Duty to Defend or Indemnify
What’s more, even if there were some question of fact as to whether
the underlying action alleged an “occurrence,” coverage is also barred by an
exclusion from coverage for property damage sold to others. The exclusion is an
21
additional and independent ground for a finding of no coverage. Specifically, the
Rental Dwelling Policy unambiguously excludes liability coverage for:
i.
property damage or personal injury to premises
you sell, give away or abandon, if the property
damage, or personal injury arises out of those
premises.
The exclusion -- otherwise known as an “alienated premises”
exclusion -- is clear and unambiguous. The underlying action alleges property
damage2 to “premises” that the Wimberlys sold, and that damage allegedly “arose
out of those premises.” Under the exclusion, coverage is barred. Cf. State Farm
Auto Ins. Co. v. Henderson Enters., 2000 WL 33969976, at *2 (W.D. Ky. Mar. 9,
2000) (enforcing nearly identical exclusion, barring coverage against suit alleging
liability for damage that occurred after sale); Borden, Inc. v. Affiliated FM Ins. Co.,
682 F. Supp. 927, 931 (S.D. Ohio 1987) (applying “alienated premises” exclusion
to relieve insurer of duty to defend or indemnify insured against suit by purchaser
for concealment of toxic waste); Stull v. Am. States Ins. Co., 963 F. Supp. 492, 494
2
This assumes that the allegations could constitute “property damage” notwithstanding
(1) the court’s prior analysis distinguishing the Thompson decisions, and (2) the Policy’s “owned
property exclusion,” which excludes “property damage to property owned by any insured” and
“property damage to property rented to, occupied or used by or in the care of the insured.” Doc.
No. 15-3, Policy at § II (Exclusions), 2.b. & c. State Farm points out that cases cited by the
Wimberlys in supplemental briefing -- Binkley v. State Farm Fire & Casualty Co., 2001 WL
1664672, *5 (Cal. App. Dec. 28, 2001) and Walnut Grove Partners LP v. American Family
Mutual Insurance Co., 2004 WL 5348863, *4 (S.D. Iowa Oct. 4, 2004) -- both concern a thirdparty’s property, not to property owned or sold by the insured.
22
(D. Md. 1997) (stating that the “‘alienated premises’ clause operates to exclude
coverage for claims arising from property sold by the insured regardless of when
the alleged wrongful act occurred”) (citing Reliance Ins. Co. v. Povia-Ballantine
Corp., 738 F. Supp. 523, 525 (S.D. Ga. 1990)).
In sum, the court finds that there is no genuine issue of material fact
that the underlying action does not raise the possibility of coverage under the
Policy. State Farm does not have a duty to defend Defendants in the underlying
action, and thus has no duty to indemnify the Wimberlys.
V. CONCLUSION
For the foregoing reasons, the court GRANTS State Farm’s Motion
for Summary Judgment. State Farm is entitled to a declaration that it owes no
coverage duties as to the underlying complaint. It follows that State Farm is
entitled to summary judgment on the Wimberlys’ counterclaim. Judgment shall
issue in favor of State Farm and against the Wimberlys. The Clerk of Court is
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23
directed to close the case file.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, July 6, 2012.
/s/ J. Michael Seabright
_____________________________
J. Michael Seabright
United States District Judge
State Farm Fire & Cas. Co. v. Wimberly et al., Civ. No. 11-00492 JMS/KSC; Order Granting
State Farm Fire and Casualty Company’s Motion for Summary Judgment
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