Dongbu Insurance Company, Ltd. v. Watson
Filing
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ORDER GRANTING PLAINTIFF'S 24 MOTION FOR SUMMARY JUDGMENT AND DENYING 29 DEFENDANTS' CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT. Signed by JUDGE DERRICK K. WATSON on 7/27/2016. (ecs, )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 HAWAI`I
DONGBU INSURANCE COMPANY,
LIMITED, a foreign corporation,
Plaintiff,
vs.
DAVID L. WATSON and SARAH S.
WATSON,
CIVIL NO. 15-00214 DKW-BMK
ORDER GRANTING PLAINTIFF’S
MOTION FOR SUMMARY
JUDGMENT AND DENYING
DEFENDANTS’ CROSS-MOTION
FOR PARTIAL SUMMARY
JUDGMENT
Defendant.
ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY
JUDGMENT AND DENYING DEFENDANTS’ CROSS-MOTION FOR
PARTIAL SUMMARY JUDGMENT
Plaintiff Dongbu Insurance Company seeks a declaration that it owes no
duty to defend or indemnify its policyholders, Defendants David and Sarah
Watson, against an action pending in Hawai‘i state court. The underlying action
alleges breach of contract and negligent misrepresentation claims against the
Watsons. Because there has been no “occurrence” within the meaning of the
relevant policy sufficient to trigger coverage, the Court GRANTS Dongbu’s
Motion for Summary Judgment and DENIES the Watsons’ Cross-Motion for
Partial Summary Judgment.
BACKGROUND
I.
Factual Background
A.
The Underlying Action
This case arises out of a lawsuit pending in the Circuit Court of the Third
Circuit, State of Hawai‘i, entitled Bodhi Anderson, et al., v. Casey M. Cantwell, et
al., Civil No. 14-1-0453. The lawsuit followed the sale of real property (“the
Property”) by the Watsons to Bodhi and Brittany Anderson (collectively, the
“Underlying Plaintiffs”). Dkt. No. 25-2, Ex. 1 (“Underlying Complaint.”).
According to the Underlying Complaint, the Watsons enlisted the services of
a real estate agency to sell the Property and to have it advertised on the Multiple
Listing Service (“MLS”) at an asking price of $435,000.00. Id. ¶¶ 3, 12. The
Property’s MLS listing, dated March 20, 2011, allegedly contained “misleading
language” regarding the Property’s valuation and permitting status in an attempt
“to encourage an offer higher than what the sellers and Prudential Orchid Isle
Properties [the seller’s agent] knew the property was appraised for on December 4,
2010.” Id. ¶ 12. The MLS Listing described the Property as a “5 bedroom, 3
bathroom legally permitted home,” and stated that the “[c]urrent appraisal
validating [the] asking price [was] available to share with accepted offers.” Id.
Based on the information in the MLS listing, the Underlying Plaintiffs
scheduled an appointment to view the property on March 20, 2011. Id. ¶ 13. The
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following day, after being told that another person was interested in purchasing the
property, the Underlying Plaintiffs submitted a written offer of $400,000. Id. ¶¶
14-15. On March 23, 2011, the Underlying Plaintiffs received a counteroffer,
which they signed. Id. ¶¶ 15-18. Shortly before the agreement was executed, the
Watsons’ agent provided the Underlying Plaintiffs with an appraisal, dated
December 4, 2010, which valued the Property at $365,000.00, less than the MLS
listing price. Id. ¶¶ 21, 23. The Underlying Plaintiffs allege that “[a]lthough the
listing clearly stated that the home was ‘legally permitted,’ the appraisal indicated
that the ‘additional space in the lower level does not appear in County records’ . . .
‘and that no permits were found for the area.’” Id. ¶ 24.
The Underlying Plaintiffs closed escrow and took possession of the Property
on or about May 13, 2011. Id. ¶ 36.
Relevant to the issues before the Court, the Underlying Complaint asserts a
breach of contract claim (Count One) and a negligent misrepresentation claim
(Count Three) against the Watsons.1 Id. ¶¶ 31-40, 45-53.
B.
The Homeowners’ Insurance Policy
During the periods alleged in the Underlying Complaint, the Watsons were
insured under a homeowner’s policy (the “Policy”) issued by Dongbu. The Policy
contains the following relevant provisions (bold in original):
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The Second Count asserts a breach of duty claim against the real estate broker and real estate
agent. Underlying Compl. ¶¶ 41-44.
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AGREEMENT
We will provide the insurance described in this policy in return
for the premium and compliance with all applicable provisions
of this policy.
DEFINITIONS
A. In this policy, “you” and “your” refer to the “named
insured” shown in the Declarations and the spouse if a
resident of the same household. “We”, “us” and “our”
refer to the Company providing this insurance.
...
2. “Bodily injury” means bodily harm, sickness or
disease, including required care, loss of services
and death that results.
...
5. “Insured” means:
a. You and residents of your household . . . .
...
8. “Occurrence” means an accident, including
continuous or repeated exposure to substantially
the same general harmful conditions, which
results, during the policy period, in:
a. “Bodily injury”; or
b. “Property damage”.
9. “Property damage” means physical injury to,
destruction of, or loss of use of tangible property.
...
SECTION II – LIABILITY COVERAGES
A. Coverage E – Personal Liability
If a claim is made or a suit is brought against an
“insured” for damages because of “bodily injury” or
“property damage” caused by an “occurrence” to which
this coverage applies, we will:
1. Pay up to our limit of liability for the damages
for which an “insured” is legally liable; and
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2. Provide a defense at our expense by counsel of
our choice, even if the suit is groundless, false or
fraudulent. We may investigate and settle any
claim or suit that we decide is appropriate. Our
duty to settle or defend ends when our limit of
liability for the “occurrence” has been exhausted
by payment of a judgment or settlement.
Dkt. No. 25-10, Exh. C.
The Watsons tendered the defense of the underlying action to Dongbu based
on the Policy.
II.
Procedural History
After notifying the Watsons that it was defending the underlying suit subject
to a reservation of rights, Dongbu filed this declaratory relief action on June 8,
2015. Dkt. No. 1. The suit seeks a declaration that Dongbu is not required to
defend and/or indemnify the Watsons in the underlying action.
Dongbu filed a Motion for Summary Judgment (Dkt. No. 24), and the
Watsons’ filed a Counter-Motion for Partial Summary Judgment (Dkt. No. 29).
The Court heard oral arguments on the two motions on June 24, 2016. Dkt. No.
38.
STANDARD OF REVIEW
A party is entitled to summary judgment “if 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.” Fed. R. Civ. P. 56(a). “A fact is ‘material’ when, under the
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governing substantive law, it could affect the outcome of the case. A ‘genuine
issue’ of material fact arises if ‘the evidence is such that a reasonable jury could
return a verdict for the nonmoving party.’” Thrifty Oil Co. v. Bank of Am. Nat’l
Trust & Sav. Ass’n, 322 F.3d 1039, 1046 (9th Cir. 2003) (quoting Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986)).
When evaluating a motion for summary judgment, the court must construe
all evidence and reasonable inferences drawn therefrom in the light most favorable
to the nonmoving party. See T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n,
809 F.2d 626, 630–31 (9th Cir. 1987). Thus, the moving party has the burden of
persuading the court as to the absence of a genuine issue of material fact. Celotex
Corp v. Catrett, 477 U.S. 317, 323 (1986). If the moving party satisfies its burden,
the nonmoving party must set forth “‘significant probative evidence’” in support of
its position. T.W. Elec. Serv., 809 F.2d at 630 (quoting First Nat’l Bank v. Cities
Serv. Co., 391 U.S. 253, 290 (1968)). “A party asserting that a fact cannot be or is
genuinely disputed must support the assertion,” and can do so by either “citing to
particular parts of materials in the record” or by “showing that the materials cited
do not establish the absence or presence of a genuine dispute, or that an adverse
party cannot produce admissible evidence to support the fact.” Fed. R. Civ. P.
56(c)(1).
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DISCUSSION
I.
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.” State Farm Fire and Cas. Co. v.
Wimberly, 877 F. Supp. 2d 993, 999 (D. Haw. 2012). A duty to defend “arises
whenever there is a potential claim for indemnification liability of the insurer to the
insured.” Hawaiian Holiday Macadamia Nut Co., Inc. v. Industrial Indem. Co., 76
Hawai‘i 166, 169, 872 P.2d 230, 233 (1994). “Furthermore, where a suit raises a
potential for indemnification liability of the insurer to the insured, the insurer has a
duty to accept the defense of the entire suit even though other claims of the
complaint fall outside the policy’s coverage.” Id. (quotation omitted). The duty to
defend, however, is not without bounds. It “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. (citation
omitted).
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Hawai‘i follows the “complaint allegation rule.” Under this rule,
[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. v. Oceanic Design & Const. Inc., 383 F.3d 940, 944–45 (9th
Cir. 2004) (quoting Hawaiian Holiday, 76 Hawai‘i at 169, 872 P.2d at 233). “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 Hawai‘i 379, 387, 957 P.2d 1061,
1069 (Haw. App. 1998)).
II.
Application of Framework
The Underlying Complaint asserts the following two claims against the
Watsons: (1) breach of contract; and (2) negligent misrepresentation. The Policy
provides coverage only for an “occurrence,” which is defined, in part, as “an
accident” that results in “bodily injury” or “property damage.” Dongbu argues that
there is no potential for coverage because neither of the claims against the Watsons
constitutes an “occurrence.” More specifically, Dongbu argues that the underlying
action alleges claims for, or arising out of, a breach of contract, which the Hawaiʻi
appellate courts and the Ninth Circuit Court of Appeals have ruled do not
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constitute an “occurrence” within the meaning of a liability insurance policy. The
Court agrees both that whether there has been an “occurrence” is a threshold issue,
and that the Underlying Complaint does not allege claims constituting an
“occurrence.” As a result, Dongbu is entitled to summary judgment.
A.
Breach of Contract Claim (Count One)
It is well-established that claims which arise solely because of an alleged
breach of contractual duties do not arise from an occurrence or accident under
Hawaiʻi law. See Burlington Ins. Co., 383 F.3d at 949 (“[C]ontract and contractbased tort claims are not within the scope of [liability] policies under Hawaii
law.”); Group Builders, Inc. v. Admiral Ins. Co., 123 Hawaiʻi 142, 148, 231 P.3d
67, 73 (App. 2010). Indeed, courts in this district have repeatedly held that claims
that arise solely because of a contractual relationship do not result in an occurrence
that could be covered by the type of policies at issue here. See, e.g., State Farm
Fire & Cas. Co. v. Chung, 882 F. Supp. 2d 1180, 1190 (D. Haw. 2012) (finding
that the breach of contract and breach of implied covenant of good faith and fair
dealing did not arise from an occurrence as defined in the policies, because they
arose out of the contractual relationship for the sale of property between the
underlying plaintiffs and the defendants).
In the instant case, Count One alleges a breach of written contract for the
sale of real property. The allegations contained in Count One arise out of the
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contractual relationship between the Watsons and the Underlying Plaintiffs, and
thus, do not result in covered occurrences as defined by the Policy.
B.
Negligent Misrepresentation Claim (Count Three)
As to the underlying claim for negligent misrepresentation, the relevant
inquiry is whether this claim is “premised on a contractual relationship or [is]
based on an independent tort claim under state law.” Burlington Ins. Co. v. United
Coatings Mfg. Co., Inc., 518 F. Supp. 2d 1241, 1251 (D. Haw. 2007). The
Underlying Complaint alleges the following:
46. Defendants are liable to Plaintiffs for negligent
misrepresentation. Defendants provided Plaintiffs with false
information, or omitted, or failed to disclose material
information. Defendants intended that Plaintiffs and others
would rely on information and provided it for that purpose.
Defendants failed to exercise ordinary care in communicating
information, and Plaintiffs justifiably relied on it to their
detriment.
47. Defendants deliberately concealed the true facts
regarding the real property from Plaintiffs, and Broker and
Agent either deliberately concealed the true facts known to
them which representations were made as to the condition of
the real property and without have any sufficient basis on which
to make any representations, knowingly made false
representations, concealing the true condition of the real
property as set forth in this complaint.
48. Defendants concealed the facts when they each knew the
true and correct facts regarding the real property.
49. The concealment of the true facts from Plaintiffs was
done with the intent to induce Plaintiffs to enter into the
agreement.
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50. Plaintiffs’ reliance on statements made by Defendants
was justified in that the seller had owned the real property for a
number of years and the Defendants had access to information
known to the Seller or could ascertain it by a reasonably
competent and diligent investigation and inspection.
51. As a proximate result of the fraud and deceit alleged,
Plaintiffs were induced to purchase the real property. Plaintiffs
have been damaged in the amount set forth in the demand for
relief.
Underlying Compl. ¶¶ 46-51.
Dongbu argues that “there is no coverage for ‘negligent misrepresentation’
claims because such claims arise out of a contractual relationship and thus do not
allege an ‘occurrence’ or ‘accident.’” Dkt. No. 33 at 8. While the Court does not
agree that such is always the case, it is clear from the allegations that the negligent
misrepresentation claim here arose from the Watsons’ alleged nondisclosure of
material information regarding the Property, and that the negligent
misrepresentation claim is inextricably intertwined with the sales contract. See id. ¶
49 (“The concealment of the true facts from Plaintiffs was done with the intent to
induce Plaintiffs to enter into the agreement.”) and ¶ 51 (“As a proximate result of
the fraud and deceit alleged, Plaintiffs were induced to purchase the real
property.”). Courts in this district have repeatedly found no coverage in these
instances. See, e.g., Chung, 882 F. Supp. 2d at 1191-92 (finding no coverage
under homeowners’ policy for claims arising from sale of insured property because
they arose solely out of the contractual relationship between the underlying
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plaintiffs and the defendants); State Farm Fire & Cas. Co. v. CTC Const. Co., Ltd.,
Civ. No. 05-000494 DAE-LEK (D. Haw. June 19, 2006) (finding no basis for
coverage under the policy because a negligent failure to disclose defects in the sale
of real estate arose out of an alleged breach of contractual duty, and thus, did not
constitute an occurrence under the policy); State Farm Fire & Cas. Co. v. Scott,
Civ. No. 06-00119 SOM-BMK, 2007 WL 7698845, at *9 (D. Haw. Jan. 24, 2007)
(“Because each claim is based on the nondisclosure, none of the Kozials’ claims is
covered by either Policy.”). As such, the weight of authority in this district
supports Dongbu’s position.
The Watsons cite to Illinois Nat’l Ins. Co., Inc., et al. v. Nordic PCL Const.,
Civ. No. 11-00515 SOM/KSC, 2013 WL 3975668 (D. Haw. July 31, 2013), in
arguing that the alleged precontract misrepresentations made through the MLS
listing exist independent of any contract claims brought by the Underlying
Plaintiffs. The Watsons’ reliance on Nordic is misplaced. In that case, Nordic
tendered the defense of construction defect claims to two insurers (“the Insurers”),
prompting the Insurers to seek a declaratory judgment that they owed no duty to
defend or indemnify Nordic with respect to either lawsuit. As to the underlying
lawsuit involving Safeway, the court disagreed with the Insurers, reasoning as
follows:
Nordic opined that, even if Safeway had ultimately hired a
different contractor to install the VersaFlex product, Safeway
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could have sued Nordic for having, through misrepresentation,
caused Safeway to have the contractor install the VersaFlex
product. According to Nordic, the misrepresentation claim is
therefore independent of the contract that Safeway and Nordic
entered into.
After carefully reviewing the Safeway Complaint, the court
concludes that the Safeway Complaint may include independent
tort claims arising from alleged precontract statements by
Nordic. While the court remains mindful of Hawaii’s
“complaint allegation rule,” Burlington, 383 F.3d at 944, the
court notes that the Safeway Complaint is drafted in extremely
broad language. See, e.g., Compl. ¶ 79, ECF No. 160-5. At the
very least, there is a potential that Nordic, if liable for alleged
precontract misrepresentations independent of any actual
contract between Nordic and Safeway, will be entitled to
insurance coverage relating to such liability. If the precontract
statements cannot be seen as part and parcel of the actual
contract, then they may relate to a covered “occurrence.”
Id. at *5-6.
The court emphasized that it was “not saying that any precontract statement
gives rise to an independent tort claim.” Id. at *6 (emphasis added). Rather, the
court made clear:
[M]ost of the statements Nordic allegedly made before the
contract was signed are unlikely to be actionable. A
representation that Nordic would do a good job, for example,
would not support a tort claim independent of a breach of
contract claim. But the alleged representations concerning the
VersaFlex product appear at least arguably not to have merged
into the construction contract.
Id.
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The precontract negligent misrepresentation claim concerning the VersaFlex
product is different than the precontract negligent misrepresentation claim at issue
here. The former involved a representation that the court determined did not
merge into the construction contract, because as Nordic pointed out, “even if
Safeway had ultimately hired a different contractor to install the VersaFlex
product, Safeway could have sued Nordic for having, through misrepresentation,
caused Safeway to have the contractor install the VersaFlex product.” Id. at *5.
In contrast, the representations made in the MLS listing are not independent of the
contract that the Watsons entered into with the Underlying Plaintiffs, because there
is nothing in the record to suggest that an independent cause of action would have
arisen against the Watsons but for the consummation of the sales contract. Indeed,
according to the Underlying Complaint, those very (mis)representations are the
basis for the contract claims against the Watsons and their agents. As such, the
Court concludes that the negligent misrepresentation claim in this instance is
contract-based, and thus, not covered under the Policy. See Burlington Ins. Co. v.
United Coatings Mfg. Co., Inc., 518 F. Supp. 2d 1241, 1250 (D. Haw. 2007)
(“Contracts-based claims—including claims sounding in tort which are predicated
upon, stemming directly from, or derivative of, United Coatings’ contracts,
contract of sales, and warranties—are not covered under the CGL Policy.”).
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CONCLUSION2
The Court hereby GRANTS Dongbu’s Motion for Summary Judgment (Dkt.
No. 24) and DENIES the Watsons’ Cross-Motion for Partial Summary Judgment
(Dkt. No. 29). The Clerk of Court is directed to close the case.
IT IS SO ORDERED.
DATED: July 27, 2016 at Honolulu, Hawai‘i.
Dongbu Ins. Co., Ltd. v. Watson; CV 15-00214 DKW-BMK; ORDER
GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT AND
DENYING DEFENDANTS’ CROSS-MOTION FOR PARTIAL SUMMARY
JUDGMENT
2
The Court need not and does not reach the remaining arguments raised by Dongbu, including
the applicability of Policy exclusions.
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