State Farm Fire and Casualty Company v. RK Wooten

Filing 17

ORDER GRANTING STATE FARM FIRE AND CASUALTY COMPANY'S MOTION FOR DEFAULT JUDGMENT, DOC NO. 10 . Signed by JUDGE J. MICHAEL SEABRIGHT on 10/14/2014. [Order further deems moot Plaintiff's Request for Summary Judgment. Wri tten order follows hearing held 10/14/2014. Minutes of hearing: doc no. 16 ] (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). 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
)
CASUALTY COMPANY, an Illinois )
corporation,
)
)
Plaintiff,
)
)
vs.
)
)
RK WOOTEN, dba RKW
)
DRYWALL INTERIORS,
)
)
Defendant.
)
_____________________________ )

CIV. NO. 14-00094 JMS-KSC
ORDER GRANTING STATE FARM
FIRE AND CASUALTY COMPANY’S
MOTION FOR DEFAULT
JUDGMENT, DOC. NO. 10

ORDER GRANTING STATE FARM FIRE AND CASUALTY COMPANY’S
MOTION FOR DEFAULT JUDGMENT, DOC. NO. 10
I. INTRODUCTION
In this action, 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 Defendant RK Wooten, dba RKW Drywall Interiors (“RKW”) in an
action pending in the First Circuit Court of the State of Hawaii, Maui Park Plaza,
LLC v. Betsill Brothers Construction, Inc., Civil No. 13-1-2524-09 (the
“Underlying Action”). In the Underlying Action, Maui Park Plaza, LLC (“MPP”)
alleges state law claims for breach of contract, breach of warranty, and negligence

based on RKW’s and others’ construction of the Maui Park Plaza office complex
in Kihei, Maui.
Default in this action was entered against RKW on June 2, 2014, and
currently before the court is State Farm’s Motion for Default Judgment or, in the
Alternative, for Summary Judgment. Doc. No. 10. RKW did not file an
Opposition, and did not appear at the October 14, 2014 hearing. Based on the
following, the court GRANTS State Farm’s Motion for Default Judgment, and
DEEMS MOOT the request for summary judgment.
II. BACKGROUND
As a general rule, once default is entered, the well-pleaded factual
allegations in the operative complaint are taken as true, except for those
allegations relating to damages. TeleVideo Sys., Inc. v. Heidenthal, 826 F.2d 915,
917-18 (9th Cir. 1987) (per curiam) (citing Geddes v. United Fin. Grp., 559 F.2d
557, 560 (9th Cir. 1977) (per curiam)); see also Fair Housing of Marin v. Combs,
285 F.3d 899, 906 (9th Cir. 2002). The court therefore sets forth the following
factual allegations made in the Complaint:
A.

The Underlying Action
On September 17, 2013, MPP filed its complaint in the Underlying

Action against the general contractor, design professionals, and subcontractors
2

involved in the construction of the Maui Park Plaza office complex in Kihei, Maui
(the “Project”), which took place from 2007 through April 2008. Doc. No. 1,
Compl. ¶¶ 8-9. RKW is named as a defendant, and identified as a domestic
business engaged in metal framing and drywall installation. Id. ¶ 9. MPP alleges
various construction defects in the Project including leakage, structural issues, and
building code violations, and alleges claims against all defendants for breach of
contract, breach of warranty, and negligence. Id. ¶¶ 9-10. MPP seeks special,
general, compensatory, and/or consequential damages, as well as attorneys’ fees
and costs. Id.
After the Underlying Action was filed, RKW tendered the defense to
State Farm based on a series of Contractor’s policies State Farm issued to RKW
covering successive one-year periods from January 1, 2007 through January 1,
2012 (with the final policy canceled effective January 1, 2011). Id. ¶¶ 11, 15.
State Farm has been providing a defense under a reservation of rights. Id. ¶ 15.
B.

The Relevant Policy Language
All of the contractor’s policies that State Farm issued to RKW were

written on Special Form 3, FP-6100, which includes the following insuring
provisions (all bold in the original):

3

COMPREHENSIVE BUSINESS LIABILITY
COVERAGE L -- BUSINESS LIABILITY
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 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.
....
RIGHT AND DUTY TO DEFEND
We will have the right and duty to defend any claim or
suit seeking damages payable under this policy even
though the allegations of the suit may be groundless,
false or fraudulent. The amount we will pay for damages
is limited as described in Limits of Insurance. Damages
because of bodily injury include damages claimed by
any person or organization for care, loss of services or
death resulting at any time from the bodily injury. We
may investigate and settle any claim or suit at our
discretion. Our right and duty to defend end when we
have used up the applicable limit of insurance in the
payment of judgments or settlements or medical
expenses.
Id. ¶ 12.

4

Coverage L -- Business Liability, is subject to the following
exclusions:
Under Coverage L, this insurance does not apply:
...
2.
to bodily injury or property damage for which
the insured is obligated to pay damages by reason of the
assumption of liability in a contract or agreement. This
exclusion does not apply to liability for damages:
a.
assumed in contract or agreement that is an
insured contract; or
b.
that the insured would have in the absence
of a contract or agreement . . . .
Id. ¶ 13.
Section II of Special Form 3, FP-6100 provides the following
definitions:
12.

occurrence means:
a.
an accident, including continuous or
repeated exposure to substantially the same
general harmful conditions which result in bodily
injury or advertising injury.
b.
the commission of an offense, or a series of
similar or related offenses, which results in
personal injury or advertising injury.
For purposes of this definition, bodily injury or
property damage resulting from the use of reasonable
force to protect persons or property will be considered an
accident.
13. personal injury means injury, other than bodily
injury, arising out of one or more of the following
offenses:
a.
false arrest, detention or imprisonment;
5

b.
malicious prosecution;
c.
wrongful entry into, or eviction of a person
from, a room, dwelling or premises that the person
occupies;
d.
oral or written publication of material that
slanders or libels a person or organization or
disparages a person’s or organization’s goods,
products or services; or
e.
oral or written publication of material that
violates a person’s right of privacy;
....
16. property damage means:
a.
physical injury to or destruction of tangible
property, including all resulting loss of use of that
property; or
b.
loss of use of tangible property that is not
physically injured or destroyed, provided such loss of
use is caused by physical injury to or destruction of other
tangible property;
....
22. your work:
a.
means:
(1) work or operations performed by you or on
your behalf; and’
(2) materials, parts or equipment furnished in
connection with such work or operations;
b.
including warranties or representations made at
any time with respect to the fitness, quality, durability or
performance of any of the items included in (1) or (2)
above.
Id. ¶ 14.
///
///

6

III. STANDARD OF REVIEW
If a defendant fails to timely defend an action, the plaintiff may move
the court for entry of default judgment. See Fed. R. Civ. P. 55(b)(2). Although
generally disfavored, see Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986),
district courts have discretion to enter default judgments. See Aldabe v. Aldabe,
616 F.2d 1089, 1092 (9th Cir. 1980) (per curiam). The Ninth Circuit has
enumerated various factors for district courts to consider when deciding whether
to enter a default judgment, including:
(1) the possibility of prejudice to the plaintiff; (2) the
merits of plaintiff’s substantive claim; (3) the sufficiency
of the complaint; (4) the sum of money at stake in the
action; (5) the possibility of a dispute concerning
material facts; (6) whether the default was due to
excusable neglect; and (7) the strong policy underlying
the Federal Rules of Civil Procedure favoring decision
on the merits.
Eitel, 782 F.2d at 1471-72.
IV. ANALYSIS
Based upon consideration of the Eitel factors, the court finds that
State Farm is entitled to default judgment.
///
///

7

A.

The Possibility of Prejudice to State Farm
Failure to grant the Motion for Default Judgment would prejudice

State Farm -- with no default judgment, State Farm would be without other
recourse for recovery and thus would suffer prejudice by having to defend RFW in
the Underlying Action and potentially pay an award against RFW. State Farm is
entitled to resolution of whether coverage is owed under the policies, and to avoid
any continued unnecessary expenditure of resources on this action.
B.

The Merits of State Farm’s Substantive Claim
As to the merits of State Farm’s claim, federal jurisdiction in this

action is proper under 28 U.S.C. § 1332 based upon diversity of citizenship, and as
a result, Hawaii substantive law applies in determining whether State Farm has a
duty to defend and indemnify RKW. See, e.g., Burlington Ins. Co. v. United
Coatings Mfg. Co., 518 F. Supp. 2d 1241, 1246 (D. Haw. 2007); Apana v. TIG Ins.
Co., 504 F. Supp. 2d 998, 1003 (D. Haw. 2007).
Under Hawaii law, the court looks to the plain language of the
insurance policy to determine the scope of an insurer’s duties. See, e.g., Sentinel
Ins. Co. v. First Ins. Co. of Haw., 76 Haw. 277, 287, 875 P.2d 894, 904 (1994); see
also Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 945 (9th
Cir. 2004); Hawaiian Ins. & Guar. Co. v. Fin. Sec. Ins. Co., 72 Haw. 80, 87, 807
8

P.2d 1256, 1260 (1991). Nevertheless, insurance policies must 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)); see also 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, 41112, 992 P.2d 93, 106-07 (2000)). Further, an insurer’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 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)).
Applying this framework, the court has little difficulty determining
that the Underlying Action’s claims are not covered by the terms of the

9

construction policies. Under the construction policies, State Farm agreed to
defend, and pay damages for, claims for “bodily injury,” “personal injury,”
“advertising injury,” or “property damage” caused by an “occurrence,” i.e., an
accident. MPP’s claims based on construction defects do not fit within the scope
of any of these terms as defined by the construction policies, and it is well-settled
under Hawaii law that claims arising from an insured’s obligations arising under
contract -- whether phrased in terms of a breach of contract or negligence -- are
not claims for “property damage” caused by an “occurrence.”1 Further, even if the
Business Liability provision of the contractors’ policies could arguably be
construed to encompass MPP’s claims (which the court does not find), the
construction policies make clear that they exclude from coverage “bodily injury or

1

See Hawaii Revised Statutes § 431:1-217(a) (providing that the term “occurrence” as
used in construction liability insurance policies “shall be construed in accordance with the law as
it existed at the time that the insurance policy was issued”); See, e.g., Burlington Ins. Co. v.
Oceanic Design & Constr. Inc., 383 F.3d 940, 949 (9th Cir. 2004) (rejecting argument that
construction defect claims are covered by the policy and explaining that “[a]llowing recovery for
disputes between parties in a contractual relationship over the quality of work performed would
convert this CGL policy into a professional liability policy or a performance bond”); Nautilus
Ins. Co. v. 3 Builders, Inc., 955 F. Supp. 2d 1121 (D. Haw. 2013) (applying Burlington to reject
that CGL policy issued in 2008 provided coverage for construction defect claims); Evanston Ins.
Co. v. Nagano, 891 F. Supp. 2d 1179, 1193 (D. Haw. 2012) (holding that contract and contractbased tort claims do not fall within the scope of CGL policies under Hawaii law); Hawaiian
Macadamia Nut Co. v. Indus. Indem. Co., 76 Haw. 166, 171, 872 P.2d 230, 235 (1994)
(determining that claim for destruction of seedlings were “part and parcel” of claims for breach
of contract and fraud, and not negligence claims resulting from accidental conduct); Grp.
Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 148, 231 P.3d 67, 73 (Haw. App. 2010) (“We
hold that under Hawaii law, construction defect claims do not constitute an ‘occurrence’ under a
CGL policy.”).
10

property damage for which the insured is obligated to pay damages by reason of
the assumption of liability in a contract or agreement.” See Doc. No. 1, Compl.
¶ 13. As result, the construction policies make clear that they do not provide
coverage for MPP’s claims arising from RKW’s obligations to provide metal
framing and drywall installation.
In sum, the court finds meritorious State Farm’s claim that the
Underlying Action does not raise an “occurrence” under the construction policies.
C.

The Sufficiency of the Complaint
This factor weighs in favor of default judgment -- the allegations of

the Complaint are sufficiently pled and supported by facts in the record. See Doc.
No. 12, Pl.’s Concise Statement of Facts.
D.

The Sum of Money at Stake in the Action
The sum of money at stake favors default judgment -- no damages are

sought as this action seeks only a declaration of the rights of the parties to the
construction policies.
E.

The Possibility of a Dispute Concerning Material Facts
There is little possibility of a dispute concerning material facts -- the

court construes the construction policies as a matter of law, and State Farm’s claim

11

for declaratory relief simply requires this court to compare the allegations in the
Underlying Action with the coverage provided by the policies.
F.

Whether the Default Was Due to Excusable Neglect
RKW’s default was not due to excusable neglect -- RKW was served

with process and mailed with all filings in this matter, including the Motion for
Default Judgment. To date, RKW had made no appearance, has not sought to set
aside the Entry of Default, and has filed no opposition to the Motion for Default
Judgment. There is therefore no evidence that RKW’s failure to defend results
from excusable neglect.
G.

Policy Favoring Decision on the Merits
Although the court recognizes the strong policy favoring decisions on

the merits, further proceedings in this matter would be futile where RKW has
failed to participate. As a result, this factor does not outweigh the others in favor
of default judgment. Rather, weighing all of the Eitel factors together, the court
finds that State Farm is entitled to default judgment against RKW.
V. CONCLUSION
Based on the above, the court GRANTS State Farm’s Motion for
Default Judgment, and DEEMS MOOT the Motion for Summary Judgment. The
court directs the Clerk of Court to enter judgment in favor of State Farm stating
12

that Plaintiff State Farm Fire and Casualty Company has no duty to defend or
indemnify Defendant RK Wooten, dba RKW Drywall Interiors, in connection with
the action pending in the First Circuit Court of the State of Hawaii, Maui Park
Plaza, LLC v. Betsill Brothers Construction, Inc., Civil No. 13-1-2524-09. The
Clerk of Court is further directed to close the case file.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, October 14, 2014.

/s/ J. Michael Seabright
J. Michael Seabright
United States District Judge

State Farm Fire & Cas. Co. v. RK Wooten, Civ. No. 14-00094 JMS-KSC, Order Granting State
Farm Fire and Casualty Company’s Motion for Default Judgment, Doc. No. 10
13