Maui Land & Pineapple Co., Inc. v. Liberty Insurance Underwriters Inc.

Filing 84

ORDER GRANTING IN PART AND DENYING IN PART DEFENDANT LIBERTY INSURANCE UNDERWRITERS' MOTION FOR SUMMARY JUDGMENT, AND PLAINTIFF MAUI LAND & PINEAPPLE'S MOTION FOR PARTIAL SUMMARY JUDGMENT re 62 , 64 - Signed by JUDGE DERRICK K. WATSON on 4/3/2018. (emt, )

UNITED STATES DISTRICT COURT
DISTRICT OF HAWAI‘I

MAUI LAND & PINEAPPLE CO., INC., CIV. NO. 16-00271 DKW-KJM
Plaintiff,
vs.
LIBERTY INSURANCE
UNDERWRITERS INC., A NEW
YORK CORPORATION; JOHN DOES
1-20, JANE DOES 1-20, DOE
ENTITIES 1-20, DOE INSURANCE
ENTITIES 1-20,

ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT
LIBERTY INSURANCE
UNDERWRITERS’ MOTION FOR
SUMMARY JUDGMENT, AND
PLAINTIFF MAUI LAND &
PINEAPPLE’S MOTION FOR
PARTIAL SUMMARY JUDGMENT

Defendants.

This insurance coverage dispute arises out of a residential development
project located in West Maui, funded and controlled, in part, by Plaintiff Maui
Land & Pineapple Company (“MLP”). Before the Court are (1) MLP’s Motion for
Partial Summary Judgment (“MPSJ”) on both its Complaint for Declaratory
Judgment and on Defendant Liberty Insurance Underwriter’s Counterclaim for the
same; and (2) Liberty’s Motion for Summary Judgment (“MSJ”) on its
Counterclaim for the same (collectively “Cross-MSJs”). For the reasons set forth
below, Liberty’s MSJ (Dkt. No. 62) and MLP’s MPSJ (Dkt. No. 64) are
GRANTED IN PART AND DENIED IN PART.

BACKGROUND
I.

Underlying Lawsuit
On June 7, 2012, a group of litigants (“Underlying Plaintiffs”) commenced

an action against twenty-two defendants—including MLP and Ryan L. Churchill—
in the Circuit Court of the Second Circuit, State of Hawai‘i, Narayan, et. al. v.
Marriott Int’l, Inc., et al., Civil No. 12-1-0586(3) (“Underlying Lawsuit”). The
Underlying Lawsuit concerns a residential development project formerly known as
The Ritz-Carlton Club & Residences in Kapalua Bay, Maui, Hawaii (the
“Project”). See Esaki Decl., Ex. A [Second Am. Compl. in Underlying Lawsuit]
¶ 1, Dkt. No. 65-2 [hereinafter Underlying SAC].
According to the Underlying Plaintiffs, MLP “directly or indirectly through
wholly owned subsidiaries exerts control” over defendant in the Underlying
Lawsuit, Kapalua Bay, LLC (Underlying SAC ¶ 26(d)), which is a “Delaware
limited liability company” (“LLC”) that was “created by a joint venture between
Marriott International, Inc. ([which has a] 34% [joint-venture interest]), MLP
(51%), and Exclusive Resorts, LLC (15%)” (Underlying SAC ¶ 20). “Kapalua
Bay is ‘member driven’ in that no major decision can be made without both
Marriott and [MLP]’s agreement and/or consent.” Underlying SAC ¶ 20, Dkt. No.
65-2. MLP “exerts control” in a variety of ways, including via Churchill, who is
“a senior executive officer of [MLP], President of Kapalua Bay, an officer of
2

Kapalua Bay Holdings, the ‘point person’ for the Joint Venture, and an executive
officer of Kapalua Realty” who “ participated in all aspects of the Project,
including financing, development, construction, pricing, marketing and sales and
was one of [MLP]’s two representatives” on the Association of Apartment Owners
of Kapalua Bay Condominium (“AOAO”) Board. Underlying SAC ¶¶ 26(d), 38.
In their Second Amended Complaint filed June 13, 2013, Underlying
Plaintiffs bring nine Counts against the defendants in the Underlying Lawsuit,
including: (i) “Breach of Fiduciary Duty (Against All Defendants)” (Underlying
SAC ¶¶ 96–99, Dkt. No. 65-2); (ii) “Access to Books and Records of the
Association (Against All Defendants)” (id. ¶¶ 100–01); (iii)
“Injunctive/Declaratory Relief (Against All Defendants)” (id. ¶¶ 102–03); (iv)
“Unfair and Deceptive Acts and Practices (By All Purchaser Plaintiffs, Against All
Developer Defendants)” (id. ¶¶ 104–07); (v) “Intentional Misrepresentation and/or
Concealment (By All Purchaser Plaintiffs, Against All Developer Defendants)” (id.
¶¶ 108–14); (vi) “Negligent Misrepresentation and/or Concealment (By All
Purchaser Plaintiffs, Against All Developer Defendants)” (id. ¶¶ 115–21); (vii) for
“Violations of Hawaii Condominium Statute—[Hawai‘i Revised Statutes (‘HRS’)]
Chapter 514B, or, to the extent applicable, HRS Chapter 514A (By All Purchaser
Plaintiffs, Against All Developer Defendants)” (id. ¶¶ 122–24); (viii) “Unjust
Enrichment (By All Purchaser Plaintiffs, Against All Developer Defendants)” (id.
3

¶¶ 125–30); and (ix) “Civil Conspiracy (By All Purchaser Plaintiffs Against All
Developer Defendants)” (id. ¶¶ 131–33). The “Developer Defendants” include
MLP, Kapalua Bay, and other entities, but do not include individuals like
Churchill. See Underlying SAC ¶ 32, Dkt. No. 65-2.
In the allegations supporting the claim for breach of fiduciary duty, the
Underlying Plaintiffs assert the following:
92. Inasmuch as every past and present director on the
AOAO Board is employed by and/or is an agent for the joint
venture entities that control and hold the beneficial interests in
Kapalua Bay, each has conflicts of interest. Consequently,
these directors have not reasonably exercised the fiduciary
duties that they owe to Plaintiffs and other owners, and must be
precluded from taking any action regarding the management of
the Project or the expenditure of Association funds except to
the specific extent agreed to by Plaintiffs. The Plaintiffs and
other independent owners must be allowed to access the
information held by the Board to meaningfully participate in the
Board’s deliberations and actions.
93. The conflicted directors and managing Agent have
already breached their fiduciary duties to the Association and to
the owners by, inter alia, failing to timely inform Plaintiffs or
to otherwise take action regarding the dire financial condition
of the Project, failing to take any action to compel the joint
venture to make the payments owed by Kapalua Bay, failing to
stop MVW/MORI and/or Marriott from stripping funds out of
the Association’s accounts, intentionally keeping the owners in
the dark regarding the current situation, failing to adequately
respond to the owners’ requests for information, and failing to
exercise oversight duties with respect to the operation of the
Project and the cost thereof, particularly since Marriott’s
management fee was 10% of the total cost to run the Project
thereby incentivizing Marriott et al to make the Project
operations as expensive as possible.
4

....
97. Defendants owe fiduciary duties, including duties of
utmost good faith, loyalty, full disclosure, and care to Plaintiffs.
By their acts and omissions, both directly, through their
respective affiliated entities, and through the representatives
that served as directors on the Board, Defendants have breached
these duties, consistently failing to act in good faith, with the
care that an ordinarily prudent person in a like position would
exercise under similar circumstances, and in a manner that one
would reasonably believe to be in the best interests of the
Association and Plaintiffs.
Underlying SAC ¶¶ 92, 93, 97, Dkt. No. 65-2. Several allegations in the
Underlying SAC also name Churchill individually and describe his alleged
material misrepresentations to Underlying Plaintiffs regarding the Project’s
financing. E.g., Underlying SAC ¶¶ 62 (“Churchill . . . misrepresented to
prospective purchasers that Ritz-Carlton and Marriott were fully committed to the
Project.”); 65 (“The Statements made by Mr. Churchill . . . regarding the strength
of the Developer and the commitment of the [joint venture] partners were false and
deceptive.”); 66 (discussing Churchill’s specific misrepresentations to, and
material omissions from, an Underlying Plaintiff in 2009); 67 (describing
Churchill’s misrepresentations, as part of the “Ritz-Carlton sales staff,” in
connection with an Underlying Plaintiff’s purchase of a unit at the Project); 68
(alleging misrepresentations and material omissions based on conversations with
Churchill and another “between the end of 2010 and the close of [the Underlying
5

Plaintiff’s] purchase in August of 2011”); 69 (describing alleged
misrepresentations stemming from discussions with Churchill and others prior to
the closing of an Underlying Plaintiff’s unit in May 2010). Underlying Plaintiffs
also allege that the AOAO Board was itself wrongful in failing to engage in
effective financial oversight of the Project. Underlying SAC ¶ 82, Dkt. No. 65-2.
After years of litigation—including appeals reaching the Supreme Court of
the United States—the Hawai‘i Supreme Court affirmed the denial of a motion to
compel arbitration by defendants in the Underlying Lawsuit and “remand[ed] the
case to the circuit court for further proceedings” on July 14, 2017. Narayan v. The
Ritz-Carlton Dev. Co., Inc., 400 P.3d 544, 547, recon. denied, 400 P.3d 581 (Haw.
2017), and cert. denied, No. 17-694, --- S. Ct. --- (2018).
II.

Contracts & Insurance Documents
The Cross-MSJs before the Court implicate the parties’ various insurance

and other agreements, the relevant portions of which are described below.
MLP–Churchill Indemnification Agreement
On August 3, 2009, MLP entered into an Indemnification Agreement (Dkt.
No. 65-8) with its then-“officer and/or director” Churchill. Section 2 of the
Indemnification Agreement obligates MLP to indemnify Churchill for costs
“actually and reasonably incurred by [Churchill] in connection with a Proceeding
. . . if [Churchill] acted in good faith and in a manner [Churchill] reasonably
6

believed to be in or not opposed to the best interests of [MLP][.]” Indemnification
Agreement § 2(a), Dkt. No. 65-8 at 2. “[MLP] shall not be obliged” under the
agreement, however, “[t]o indemnify [Churchill] for Expenses or liabilities of any
type whatsoever . . . which have been paid directly to or on behalf of [Churchill] by
an insurance carrier under a policy of directors’ and officers’ liability insurance
maintained by [MLP] . . . .” Indemnification Agreement § 3(d), Dkt. No. 65-8 at 3.
MLP is also obligated to “use its best efforts to obtain and maintain, or have an
affiliate obtain and maintain, in full force and effect directors’ and officers’
liability insurance . . . which provides [Churchill] the same rights and benefits as
are accorded to the most favorably insured of [MLP]’s directors.” Indemnification
Agreement § 8(a), Dkt. No. 65-8 at 3. The insurance policy described below is
MLP’s effort to fulfill this obligation.
Liberty–MLP Executive Advantage Policy
Liberty issued an Executive Advantage insurance policy to Churchill and
MLP, Policy No. DOSF-190257-210 (the “Policy”), that spans the policy period
from September 1, 2011 to September 1, 2012. See Policy, Dkt. Nos. 10-4 at 1–21
(Part 1), 10-5 at 1–21 (Part 2). The Policy generally obligates Liberty to provide
coverage to “Insured Persons” for “all Loss which they shall become legally
obligated to pay as a result of a Claim” and to “Insured Organizations” for “all
Loss which it is permitted or required by law to indemnify the Insured Persons as a
7

result of a Claim” so long as the claim is “first made during the Policy Period . . .
against the Insured Persons for a Wrongful Act which takes place before or during
the Policy Period[.]” Policy §§ 1.1 (Insured Persons), 1.2 (Insured Organizations),
as amended by Endorsement No. 9, Dkt. No. 10-5 at 2. The Policy also provides
MLP with coverage for its own wrongful conduct occurring “as a result of a
Securities Action.” Policy § 1.3, as amended by Endorsement No. 9, Dkt. No. 10-5
at 2–3.
With respect to the costs of defending against a legal action, the Policy
provides both that “[i]t shall be the duty of the Insureds, not [Liberty], to defend
any Claim” (Policy § 3.1, Dkt. No. 10-5 at 3), and that Liberty “shall not be liable
for any Defense Costs incurred or any admissions, obligations, agreements, or
settlements made by the Insureds without [Liberty]’s prior written consent” (Policy
§ 3.2, Dkt. No. 10-5 at 3). Moreover, “[Liberty] shall . . . advance on a current
basis covered Defense Costs incurred by the Insureds” (Policy § 3.3, Dkt. No. 10-5
at 3), and “Insured Organizations agree to indemnify the Insured Persons and/or
advance Defense costs to the fullest extent permitted or required by law” (Policy
§ 11.2, as amended by Endorsement No. 9, Dkt. No. 10-5 at 7 (stating further that
“If [Liberty] pays under this Policy any indemnification or advancement owed to
any Insured Person by an Insured Organization within the applicable Retention,
then that Insured Organization shall reimburse [Liberty] for such amounts and such
8

amounts shall become immediately due and payable as a direct obligation of the
Insured Organization to the Insurer”)). Defense Costs are “reasonable and
necessary fees (including attorneys’ fees and experts’ fees) and expenses incurred
in the defense of a Claim and cost of attachment or similar bonds, but shall not
include the wages, salaries, benefits or expenses of any directors, officers, or
employees of the Insured Organization[.]” Policy § 25.4(a), as amended by
Endorsement No. 9, Dkt. No. 10-5 at 9.
Under “Exclusions,” the Policy specifies that coverage does not include “any
error, misstatement, misleading statement, act, omission, neglect or breach of duty
by any Subsidiary or such Subsidiary’s Insured Persons if such error, misstatement,
misleading statement, act, omission, neglect or breach of duty actually or allegedly
occurred, in whole or in part, when such entity was not a Subsidiary.” Policy
§ 5.2, Dkt. No. 10-4 at 5. The Policy also excludes coverage for any Loss “based
upon, arising from, or in any way related to an Insured Person serving as a director,
officer, trustee, regent, governor, volunteer, employee, or similar position of any
entity other than the Insured Organization[.]” Policy § 5.8, Dkt. No. 10-4 at 6
[hereinafter Outside Service Exclusion]. Coverage for losses “based upon, arising
from, or in any way related to any deliberately fraudulent act or omission or any
willful violation of law by any Insured if a final judgment or other final
adjudication in the underlying action against Insured establishes such an act,
9

omission, or willful violation” is also excluded. Policy § 5.10, as amended by
Endorsement No. 9, Dkt. No. 10-5 at 5.
And with regard to “Allocation,” the Policy specifies that where “a Claim
gives rise to Loss covered under this Policy and loss not covered under this Policy,
either because a Claim includes both covered and uncovered matters or both
covered and uncovered parties,” Liberty and the Insureds will “use their best
efforts to determine a fair and appropriate allocation” of funds. Policy § 13.1, as
amended by Endorsement No. 9, Dkt. No. 10-5 at 7. “If there can be no agreement
between [Liberty] and the Insured as to the amount of Defense Costs to be
advanced in connection with any such Claim, [Liberty] shall advance Defense
Costs which it reasonably believes to be covered under this Policy until a different
allocation is negotiated or determined.” Policy § 13.2, as amended by
Endorsement No. 9, Dkt. No. 10-5 at 7.
III.

Procedural Background
MLP initiated the instant lawsuit in the Circuit Court of the Second Circuit,

State of Hawai‘i, on May 6, 2016. See Notice of Removal, Ex. 1 [Compl. for
Declaratory J.] at 2–6, Dkt. No. 1-1. Liberty removed the case to this Court on
May 31, 2016 (Dkt. No. 1) and filed its Answer to MLP’s claims on June 7, 2016

10

(Dkt. No. 6).1
The parties filed their Cross-MSJs on October 11, 2017. Liberty MSJ, Dkt.
No. 62; MLP MPSJ, Dkt. No. 64. Liberty seeks summary judgment against MLP
arguing that the Policy does not entitle MLP to coverage in the Underlying
Lawsuit. Liberty MSJ, Dkt. No. 62. Liberty principally asserts that because the
Underlying Plaintiffs have sued Churchill for breaching duties owed in Churchill’s
capacity as director of the AOAO, rather than in his capacity as an officer of MLP,
the Outside Service Exclusion is triggered. See Liberty Mem. in Supp. of MSJ at
10–13, 17–23, Dkt. No. 62-3. Liberty additionally contends that because
Underlying Plaintiffs are condominium owners/purchasers, rather than
shareholders to whom certain securities-based fiduciary duties would be owed, the
Underlying Lawsuit is not a “Securities Action” for which the Policy provides
coverage to MLP. See Liberty Mem. in Supp. at 16–17, Dkt. No. 62-3. In MLP’s
MPSJ (Dkt. No. 64), MLP seeks advanced defense costs and a declaration of
indemnity regarding the Underlying Lawsuit. In support, MLP asserts that it has
“a prima facie claim that the Underlying Lawsuit is covered by the Policy” and
“leaves Liberty to its proof as to any policy exclusions” that may apply. MLP
Mem. in Supp. of MPSJ at 14, Dkt. No. 64-1.
1

MLP moved to remand the case on June 29, 2016. Mot. to Remand, Dkt. No. 10. But on
August 17, 2016, the Magistrate Judge issued its Findings and Recommendation to Deny
Plaintiff’s Motion to Remand (“F&R”; Dkt. No. 18), which this Court adopted over MLP’s
objection (Dkt. No. 22) on November 10, 2016 (Order Adopting F&R, Dkt. No. 25).

11

This Court heard oral argument on the Cross-MSJs on December 15, 2017
(see EP, Dkt. No. 75) and took matters under advisement. The instant disposition
follows.
LEGAL STANDARDS
I.

Summary Judgment
Pursuant to Federal Rule of Civil Procedure (“FRCP”) 56(a), 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.” The moving party is entitled to judgment as a matter of law when the
nonmoving party fails to make a sufficient showing on an essential element of a
claim in the case on which the nonmoving party has the burden of proof. Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986). To meet its burden, “the moving party
must either produce evidence negating an essential element of the nonmoving
party’s claim or defense or show that the nonmoving party does not have enough
evidence of an essential element to carry its ultimate burden of persuasion at trial.”
Nissan Fire & Marine Ins. Co. v. Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir.
2000) (citing High Tech Gays v. Defense Indus. Sec. Clearance Office, 895 F.2d
563, 574 (9th Cir. 1990)).
Once the moving party has satisfied its initial burden of production, the
burden shifts to the party opposing summary judgment “to demonstrate the
12

existence of a genuine dispute.”2 Kowalski v. Mommy Gina Tuna Res., 574 F.
Supp. 2d 1160, 1162 (D. Haw. 2008) (citing Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 586–87 (1986)). To meet this burden, the non-moving
party must do “more than simply show that there is some metaphysical doubt as to
the material facts” and instead must “come forward with specific facts showing
that there is a genuine issue for trial.” Matsushita Elec., 475 U.S. at 586–87
(citations and internal quotation marks omitted). At least some “significant
probative evidence tending to support the complaint” must be produced. T.W.
Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987)
(quoting First Nat’l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 290 (1968));
see also Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000) (“A
scintilla of evidence or evidence that is merely colorable or not significantly
probative does not present a genuine issue of material fact.”). For, if no evidence
can be mustered to sustain the nonmoving party’s position, a trial would be useless.
See Kahumoku v. Titan Mar., LLC, 486 F. Supp. 2d 1144, 1150 (D. Haw. 2007)
(explaining that one of the primary purposes of summary judgment is to “isolate
and dispose of factually unsupported claims or defenses”) (quoting Celotex, 477

2

“If a moving party fails to carry its initial burden of production, the nonmoving party has no
obligation to produce anything, even if the nonmoving party would have the ultimate burden of
persuasion at trial.” Nissan Fire & Marine Ins., 210 F.3d at 1102–03 (citing Adickes v. S.H.
Kress & Co., 398 U.S. 144, 160 (1970); High Tech Gays, 895 F.2d at 574; A. Friedenthal, A.
Miller, & M. Kane, Civil Procedure 460 (3d ed. 1999)).

13

U.S. at 323–24 (1986)); see also Addisu, 198 F.3d at 1134 (“There must be enough
doubt for a ‘reasonable trier of fact’ to find for plaintiffs in order to defeat the
summary judgment motion.”).
Furthermore, “courts are required to view the facts and draw reasonable
inferences ‘in the light most favorable to the party opposing the [summary
judgment] motion.’” Scott v. Harris, 550 U.S. 372, 378 (2007) (quoting United
States v. Diebold, Inc., 369 U.S. 654, 655 (1962) (per curiam)). Nevertheless,
“[w]hen opposing parties tell two different stories, one of which is blatantly
contradicted by the record, so that no reasonable jury could believe it, a court
should not adopt that version of the facts for purposes of ruling on a motion for
summary judgment.” Id. at 380.
II.

Insurance Contracts
Insurance policies are a form of contract and subject to the general rules of

contract construction. As such, their terms must be interpreted according to their
ordinary, commonly accepted meaning, unless it appears from the language of the
policies that a different meaning is intended. C. Brewer & Co. v. Marine Indem.
Ins. Co. of Am., 347 P.3d 163, 169 (Haw. 2015) (quoting Dairy Rd. Partners v.
Island Ins. Co., 992 P.2d 93, 106 (Haw. 2000)); accord Dawes v. First Ins. Co. of
Haw., 883 P.2d 38, 42 (Haw. 1994).

14

Courts in Hawai‘i construe insurance policies “liberally in favor of the
insured and the ambiguities [are] resolved against the insurer.” Fortune v. Wong,
702 P.2d 299, 305 (Haw. 1985) (quoting Masaki v. Columbia Cas. Co., 395 P.2d
927, 929 (Haw. 1964)) (additional citations omitted). Moreover, “any ambiguity in
an exclusionary clause is construed in favor of the insured and ‘strictly construed
against the insurer.’” C. Brewer & Co., 347 P.3d at 169 (quoting Retherford v.
Kama, 470 P.2d 517 (1970)). Nonetheless, the Hawai‘i Supreme Court has clearly
explained that the construction of ambiguities against an insurer does not come
into play merely because the insured party alleges ambiguity, nor does it come into
play simply because the parties to the dispute disagree about the underlying
policy’s terms. See Oahu Transit Servs., Inc. v. Northfield Ins. Co., 112 P.3d 717,
722 n.7 (Haw. 2005) (citing Hawaiian Ins. & Guar. Co., Ltd. v. Chief Clerk, 713
P.2d 427, 431 (Haw. 1986)). Rather, “[a]mbiguity exists and the rule is followed
only when the [underlying insurance policy], taken as a whole, is reasonably
subject to differing interpretation.” Id.
With these basic principles in mind, the Court turns first to the merits of
Liberty’s MSJ (Dkt. No. 62) and then to MLP’s MPSJ (Dkt. No. 64).

15

DISCUSSION
I.

Churchill Coverage
The Court first ascertains whether the Policy provides for the defense of

claims against Churchill in the Underlying Lawsuit. It does.
A.

Standard for the Duty to Advance Defense Costs Under the Policy

According to Liberty, its duty to advance defense costs under the Policy
“requires that the insured ‘establish that the underlying claims are within the basic
scope of coverage,’” and because MLP has not established such coverage, the
defense-costs duty has not been triggered. See Liberty Reply at 10, Dkt. No. 73-1
(quoting Jeff Tracy, Inc. v. United States Specialty Ins. Co., 636 F. Supp. 2d 995,
1044 (C.D. Cal. 2009)). MLP, on the other hand, asserts that the general standard
for triggering the legal duty to defend is the same as the standard to trigger the duty
to advance costs under the Policy—potentiality. MLP Mem. in Supp. at 12–14,
Dkt. No. 64-1; MLP Reply at 1–8, Dkt. No. 72. And potentiality is evident from
the Underlying SAC.
A “duty to defend” under an insurance contract “rests primarily on the
possibility that coverage exists.” Dairy Rd., 992 P.2d at 107 (emphasis added)
(quoting Sentinel Ins. Co., Ltd. v. First Ins. of Haw., Ltd., 875 P.2d 894, 904 (Haw.
1994)). “When an insurer has a duty to defend, the ‘insurer must defend its insured
against claims that create a potential for indemnity under the policy.” Legacy
16

Partners, Inc. v. Clarendon Am. Ins. Co., 2010 WL 1495198, *4 (S.D. Cal. Apr.
14, 2010) (quoting Scottsdale Ins. Co. v. MV Transp., 115 P.3d 460, 466 (Cal.
2005)); see also Standard Oil Co. of Cal. v. Hawaiian Ins. & Guar. Co., Ltd., 654
P.2d 1345, 1349 (Haw. 1982) (“The possibility may be remote[,] but if it exists[,]
the [insurer] owes the insured a defense.” (quoting another source)). An insurer’s
duty to defend thus extends beyond claims where liability within the scope of the
policy is ultimately found. See Finley v. Homes Ins. Co., 975 P.2d 1145, 1149–50
(Haw. 1998) (“Where a complaint alleges grounds that are both within and without
the scope of insurance coverage, the insurer is required to defend the entire
action.”) (citing First Ins. Co. of Haw., Inc. v. State of Haw., 665 P.2d 648, 652
(1983)).3 Cf. Nautilus Ins. Co. v. Lexington Ins. Co., 321 P.3d 634, 644 (Haw.
2014) (“When it comes to the duty to defend, a heavy burden is placed on the
insurer if that insurer wishes to disclaim its duty.”).
Contrary to Liberty’s contention, the Court finds that Ninth Circuit
precedent supports application of the potentiality standard for the duty to defend to
similar insurance policies that impose a duty to reimburse defense costs on
insurers. See, e.g., Braden Partners, LP v. Twin City Fire Ins. Co., 2017 WL
3

The policy rationale for this rule is simple—an insurer who will not defend the entire action
would have a conflict of interest with the insured in the underlying action “because the insurer
may be more concerned with developing facts showing non-coverage than facts defeating
liability.” Finley, 975 P.2d at 1150 (quoting Douglas Richmond, Lost in the Eternal Triangle of
Ins. Defense Ethics, 9 Geo. J. Legal Ethics 475, 486 (1996)) (citing Rockwell Int’l Corp. v.
Superior Ct. of Los Angeles, 32 Cal. Rptr. 2d 153, 158 (Ct. App. 1994)).

17

63019, *9–10 (N.D. Cal. Jan. 5, 2017) (collecting cases in support). Indeed, “[a]n
insurer may have a duty to advance defense costs even if it does not have a duty to
defend the insured against an underlying claim.” Id., 2017 WL 63019 at *10
(citing Gon v. First State Ins. Co., 871 F.2d 863, 867–68 (9th Cir. 1989)
(explaining that, although the insurer did not have a duty to defend under the
policy, it nonetheless had a “duty . . . to pay defense expenses as incurred” under
the policy’s general indemnification provision, which “cover[ed] legal expenses as
a loss item”); and Okada v. MGIC Indem. Corp., 823 F.2d 276, 279–82 (9th Cir.
1986) (holding that the insurer had a duty to pay defense costs as they were
incurred because “[t]he costs of the ‘defense of legal actions’ [were] included in
the definition of ‘Loss’ [in the policy]”)). Indeed, “the duty to advance defense
costs would be illusory if the insured had to wait for a determination of actual
coverage to obtain the necessary funding for its defense.” Braden Partners, 2017
WL 63019 at *11 (citing Gray v. Zurich Ins. Co., 419 P.2d 168, 173 (Cal. 1966)).
Courts have held that “the duty to advance defense costs, like the duty to
defend, extend[s] to potentially covered claims” where the policy at issue includes
“the word ‘alleged’ when defining the scope of the insurer’s duty to advance
defense costs[.]” Braden Partners, 2017 WL 63019 at *9–10 (explaining that
where “the policy require[d] [the insurer] to advance costs incurred defending
against ‘alleged’ wrongdoing,” a mere “potential [for] coverage is sufficient to
18

trigger the duty”); see also, e.g., Legacy Partners, 2010 WL 1495198 at *4–5
(explaining that “[t]he [p]olicy’s use of the word ‘alleged’. . . [was] critical” to the
court’s analysis because “[a]llegations, by their nature, are not facts,” but they
“have the potential to become facts”)); cf., Peterson v. Columbia Cas. Co., 2012
WL 5316352, *10 (C.D. Cal. Aug. 21, 2012) (finding no duty to advance defense
costs where the policy at issue did “not compel unconditioned payment of
expenses in the manner of those in Legacy Partners and Olympic Club [v. Those
Interested Underwriters at Lloyd’s London, 991 F.2d 497 (9th Cir. 1993) (not
directly addressing the duty-to-advance issue)] and does not reference ‘alleged’
damages”).4 Here, the Policy does just that.
The Policy generally obligates Liberty to provide coverage to “Insured
Persons” for “all Loss which they shall become legally obligated to pay as a result
of a Claim,” and to “Insured Organizations” for “all Loss which it is permitted or
required by law to indemnify the Insured Persons as a result of a Claim” so long as
4

But see Millennium Labs., Inc. v. Allied World Assurance Co. (U.S.), Inc., 2013 WL 12072536,
*5 (S.D. Cal. July 22, 2013) (rejecting arguments focused on provisions in the policy stating that
certain “alleged” acts are covered, noting that “the policies in Jeff Tracy[, 636 F. Supp. 2d 995,]
and Impac [Mortg. Holdings, Inc. v. Houston Cas. Co., 634 Fed. Appx. 614 (9th Cir. 2016),] also
covered ‘alleged’ acts,” and holding that the “potential for coverage” standard did not apply to
the standard-type Directors and Officers (“D & O”) Liability Policy at issue, which was an
“indemnity-only polic[y] whereby the insurer reimburses defense expenditures only after the
insured selects counsel, controls the defense, and submits the defense bill”) (citing, inter alia,
Exec. Risk Indemnity, Inc. v. Jones, 89 Cal. Rptr. 3d 747, 751 n.4 (Ct. App. 2009) (explaining
that “[u]nlike a comprehensive general liability policy, D & O policies are not written on a ‘duty
to defend’ basis” but rather “are indemnity-only policies whereby the insurer reimburses defense
expenditures only after the insured selects counsel, controls the defense, and submits the defense
bill”)).

19

the claim is “first made during the Policy Period . . . against the Insured Persons for
a Wrongful Act which takes place before or during the Policy Period[.]” Policy
§§ 1.1 (Insured Persons) & 1.2 (Insured Organizations), as amended by
Endorsement No. 9, Dkt. No. 10-5 at 2. A Wrongful Act is defined under the
Policy as “any actual or alleged error, misstatement, misleading statement, act,
omission, neglect, or breach of duty, actually or allegedly committed or attempted
by the Insured Persons in their capacities as such or in an Outside Position . . . .”
Policy § 25.20(a), as amended by Endorsement No. 4, Dkt. No. 10-4 at 18.
Particularly in light of the liberal public policy resolving doubts regarding
the duty to defend against insurers like Liberty, Sentinel, 875 P.2d at 904 (citing
Trizec Props., Inc. v. Biltmore Constr. Co., 767 F.2d 810, 812 (11th Cir. 1985)),
the Court holds that the standard for triggering the duty to defend under the Policy
is the same as the standard for triggering the duty to advance costs—potentiality.5

5

MLP says that in opposing MLP’s Motion to Remand this case to state court (see Mot. to
Remand, Dkt. No. 10; Opp’n to Mot. to Remand, Dkt. No. 16 at 13), Liberty acknowledged “that
the duty to advance defense costs is determined in the same manner that the Hawaii courts
determine the duty to defend.” See MLP Mem. in Supp. at 13 n.3, Dkt. No. 64-1. MLP alleges
that Liberty did so in an effort to show that there were no unresolved issues of state law that this
Court could be required to determine and therefore no reason to remand. As such, MLP asserts
that “Liberty is judicially estopped from arguing that the traditional duty to defend standard
followed by Hawaii courts does not apply in this case[.]” MLP Mem. in Supp. at 13 n.3, Dkt.
No. 64-1 (citing Helfand v. Gerson, 105 F.3d 530, 534 (9th Cir. 1997)). The Court need not
reach MLP’s estoppel contention because its finds for MLP on the merits of the potentiality
issue.

20

B.

The Underlying Lawsuit Raises the “Potentiality” of Coverage for
Churchill Under the Policy

In the Underlying Lawsuit, Churchill is sued both “in his capacity as an
officer of MLP” and “in his capacity as a director of the defendant AOAO.” See
MLP Mem. in Supp. at 2 n.2, Dkt. No. 64-1. Accordingly, the allegations in the
Underlying Lawsuit raise the possibility of coverage, triggering MLP’s duty to
advance defense costs.
Liberty has “acknowledged” that it provides excess coverage to Churchill in
his capacity as an AOAO director. Liberty, however, declines “to advance[]
defense costs to indemnify Churchill and MLP against claims arising from
Churchill’s conduct in his . . . capacity” as an MLP officer. MLP Mem. in Supp. at
2 n.2, Dkt. No. 64-1. Liberty does so because it argues that no claims have been
directed at Churchill in the Underlying Lawsuit in his capacity as an MLP officer.
Liberty Mem. in Supp. at 7, 11, Dkt. No. 62-3 (asserting that “[t]he only legal
relationship between Mr. Churchill and the Underlying Plaintiffs arose solely from
his seat on the condominium association board”; because he was sued as a director
of the board, and the Underlying Plaintiffs “assert no claims against him as an
officer or director of MLP,” Churchill has no coverage under the Policy); id. at 17–
18 (“There are no allegations of wrongdoing relating to Mr. Churchill’s role as an
officer of MLP[.]”); id. at 22–23 (“As there can be no dispute that the Underlying
[SAC] seeks relief based on Mr. Churchill’s conduct as an AOAO
21

Director . . . , there also can be no dispute that Mr. Churchill is not entitled to
coverage under the Liberty policy[.]”).
While Liberty might be correct, the Underlying SAC is not so clear. The
Underlying Plaintiffs’ breach of fiduciary duty claim, for instance, is asserted
against all defendants. Underlying SAC ¶¶ 32–33, Dkt. No. 65-2. That is
consistent with the broad allegations asserted elsewhere in the Underlying SAC.
For example, Underlying Plaintiffs allege:
41. Each and all of the Defendants (directly and/or indirectly
through individual agents, representatives, employees,
principals, officers, directors and members) (a) actively or
passively participating in the conduct, acts, and omissions
alleged herein, (b) materially assisted, aided, abetted and/or
conspired with one or more other Defendants in committing the
conduct, acts, and omissions alleged herein, (c) purposely,
knowingly, recklessly, or negligently planned, directed,
implemented, furthered, and/or consented to the conduct, acts,
and omissions alleged herein, and/or (d) is directly, vicariously,
jointly, and/or severally liable for the conduct, acts, and
omissions alleged herein.
Underlying SAC ¶ 41, Dkt. No. 65-2. “[A]ll of the Defendants” certainly includes
Churchill. That much is clear.
While Liberty wishes to limit these allegations to Churchill in his capacity
as an AOAO Board Member and not Churchill in his capacity as an MLP officer
and director by, among other things, arguing that Churchill did not owe a duty to
Plaintiffs as an MLP officer or director (see, e.g., Liberty Mem. in Supp. at 17–19,
Dkt. No. 62-3), the State court presiding over the Underlying Lawsuit has made no
22

such finding, nor is it evident in the voluminous materials submitted by the parties
that the issue has even been presented to the State court. All this Court has, then,
are the allegations of the Underlying SAC, none of which limit the Underlying
Plaintiffs’ claims against Churchill in the manner urged by Liberty (compare
Underlying SAC ¶¶ 96–99 (“Against All Defendants”); with Underlying SAC
¶¶ 104–32 (“Against All Developer Defendants”)), and the other State court
litigation statements made by the Underlying Plaintiffs, which offer similarly
muted, if any, support (cf. Liberty Mem. in Supp. at 17–18, Dkt. No. 62-3; MLP
Mem. in Opp’n to Liberty MSJ at 21, Dkt. No. 69).
Indeed, during the December 15, 2017 hearing in this matter, counsel for
Liberty argued the allegations in the Underlying Lawsuit “clearly” differentiated
between claims against the developers and those claims brought against the
AOAO, as evidenced by pages 18 through 21 of the Draft-Conclusions of Law
(“Draft-COLs”) written by the Underlying Plaintiffs themselves. Tr. of Hr’g at 37,
Dkt. No. 76. In relevant part, those Draft-COLs read:
6.
The developer of a condominium association owes the
association a basic fiduciary duty . . . [that] extends to
individual homeowners, not just the homeowners’ association[.]
7.
. . . [A] developer-controlled association creates a
conflict of interest which imposes a fiduciary duty upon the
developer . . . when the developer and its employees control the
association. Where, as here, the JV Partners in the developer
entity have appointed their agents and/or employees as
members of the AOAO . . , and the JV Partners thereby control
23

the AOAO and all other aspects of the development, a basic
fiduciary obligation must be imposed on the JV Partners . . . .
....
14. From the inception of the Project, [MLP] has owed every
owner of a unit at the Project a basic fiduciary duty . . . .
15. The Court finds and concludes that [Underlying]
Plaintiffs have demonstrated a likelihood of success on the
merits of their claim that [MLP] breached its fiduciary
obligations by demonstrating, among other things, that [MLP]
. . . . failed to inform its Board appointees that[:] it had written
off its investment in the Project by 2009; . . . [and] that the
Developer entity would likely be out of money . . . by . . . early
2010 . . . .
16. . . . [T]he fact that [MLP] had written off its investment
in the Project is a material fact that [MLP] and/or its agents
were required to disclose to purchasers, owners, and the
members of the AOAO Board at the Project.
17. . . . [T]he fact that the Developer entity was reliant or
soon would be reliant on discretionary prospective advances
from lenders is a material fact that [MLP] and/or its agents were
required to disclose to purchasers, owners and members of the
AOAO Board at the Project.
Esaki Decl., Ex. G [Underlying Draft-COLs] at 19–22, Dkt. No. 65-7 at 74–77.
These Draft-COLs offer little in the way of “clarity” with respect to the scope of
liability the Underlying Plaintiffs intended to impose on Churchill in the
Underlying Lawsuit.
Liberty also argues that Churchill has essentially conceded that the
Underlying Lawsuit does not impose liability on Churchill for his acts or omissions
24

made in any capacity other than as an AOAO director. See Liberty Mem. in Supp.
at 11–13, 18–19, 22, Dkt. No. 62-3. For example, in response to an interrogatory
in the instant matter, MLP stated: “It is MLP’s understanding that Mr. Churchill is
receiving a defense in the Underlying Lawsuit under [the National Union Fire Ins.
Co. of Pittsburgh, Pa. policy number 01-189-15-54] with respect to Mr. Churchill’s
capacity as director or officer of the [AOAO].” Liberty Concise Statement in
Supp., Ex. A [MLP Interrogatory Response] at 10, Dkt. No. 63-1. Moreover, in
response to a discovery request in the Underlying Lawsuit, Churchill filed a
document in Circuit Court on November 26, 2012, entitled “Defendant Ryan
Churchill’s, in his Capacity as Director of the [AOAO], Response to Pls.’ First
Request for Production of Docs. & Things to Def. Ryan Churchill Dated Sept. 7,
2012.” Liberty Concise Statement in Supp., Ex. B-1 [Churchill Response to
Production Request] at 1, Dkt. No. 63-3 at 1 (emphasis added). These statements
from the defendants in the Underlying Lawsuit are a better indication of what those
defendants wish, rather than indications of what the Underlying Plaintiffs intend.
The same is true of MLP’s statements in its 2015 Form 10-K. See Mem. in Opp’n
to Mot. to Remand, Ex. C [U.S. Secs. & Exch. Comm’n Form 10-K], Dkt. No. 164 [hereinafter MLP Form 10-K].6

6

Liberty argues that “MLP implicitly confirmed that Mr. Churchill was not sued in his capacity
as an officer or director of MLP in the Underlying Lawsuit when it stated in its 2015 Form 10-K
that ‘[MLP] has been named along with multiple parties in lawsuits filed by owners of units and

25

Thus, viewing these facts, and in light of the “potentiality” standard for
triggering Liberty’s duty to advance defense costs under the Policy, Braden
Partners, 2017 WL 63019 at *10, the Court finds in favor of coverage, Sentinel,
875 P.2d at 904 (“All doubts as to whether a duty to defend exists are resolved
against the insurer and in favor of the insured[.]”(quoting Trizec Props., 767 F.2d
at 812)).
C.

The “Outside Service Exclusion” (Exclusion 5.8) Does Not Apply

There are a number of exclusions from Liberty’s coverage obligations under
the Policy. Under the Policy’s Outside Service Exclusion, for instance, Liberty
fractional interest in the project . . . .’” Liberty Mem. in Supp. at 13, Dkt. No. 62-3 (quoting
MLP Form 10-K at 10, Dkt. No. 16-4). Liberty also asserts that “the 10-K does not state that Mr.
Churchill is a defendant[,] [n]or, correspondingly, does it reference any indemnification or
advancement of fees and costs by MLP to Mr. Churchill in his defense of the Underlying
Lawsuit.” Liberty Mem. in Supp. at 13, Dkt. No. 62-3. The rest of Item 3 of the MLP Form 10K (entitled “Legal Proceedings”) reads:
The lawsuits allege deceptive acts, intentional misrepresentation,
concealment, and negligent misrepresentation, among other allegations
and seek unspecified damages, treble damages and other relief. [MLP]
disagrees with the allegations and is defending itself. [MLP] is presently
unable to estimate the amount, or range of amounts, of any probable
liability, if any, related to this matter and no provision has been made in
the accompanying financial statements.
We are a party to various claims, complaints, and other legal actions that
have arisen in the normal course of business from time to time. We
believe the outcome of these pending legal proceedings, in the aggregate,
is not likely to have a material adverse effect on our operations, financial
position or cash flows.
MLP Form 10-K at 10, Dkt. No. 16-4. The language of the MLP Form 10-K might be
suggestive of the defendants in the Underlying Lawsuit’s interpretation of the Underlying SAC,
but says nothing of the Underlying Plaintiffs’ intention to pursue Churchill only in his capacity
as an AOAO Director.

26

“shall not be liable to make any payment for Loss in connection with any Claim”
that is:
based upon, arising from, or in any way related to an Insured
Person serving as a director, officer, trustee, regent, governor,
volunteer, employee, or similar position of any entity other than
the Insured Organization; provided that this exclusion shall not
apply with respect to any coverage afforded under Section 2,
Outside Position Liability.
Policy § 5.8, Dkt. No. 10-4 at 6. Thus, the Outside Service Exclusion broadly bars
coverage for conduct when an MLP individual insured serves as a director or
officer of another, uninsured entity. See Liberty Mem. in Supp. at 20, Dkt. No. 623. Liberty argues that this exclusion applies in the instant context both because the
AOAO qualifies as a “board outside MLP” and because broad-form exclusions
from insurance coverage are generally acceptable in the State of Hawai‘i. Liberty
Mem. in Supp. at 22, Dkt. No. 62-3 (citing, inter alia, Trenches, Inc. v. Hanover
Ins. Co., 575 Fed. Appx. 741 (9th Cir. 2014) (enforcing broadly worded exclusion
containing “arising out of” language); Cont’l Cas. Co. v. Adams, 2003 WL
22162379, *9, *32–33 (M.D. Pa. Sept. 12, 2003)).
MLP advances a single reason why the Outside Service Exclusion should
not apply—because the AOAO is MLP’s “Subsidiary” under the terms of the
Policy and is therefore itself an “Insured Organization” (like MLP).7 MLP Opp’n

7

MLP succinctly explains that the AOAO qualifies as a Subsidiary of an Insured Organization
under the Policy because “MLP owns 100% of MLP KB Partner, LLC, which owns 51% of

27

at 27–31, Dkt. No. 69 (referring to Policy § 25.9, Dkt. No. 10-4 at 11). Indeed,
during the December 15, 2017 hearing on the Cross-MSJs, counsel for MLP
agreed that if MLP does not “prevail on” its “subsidiary argument,” then “[the
AOAO is] an outside entity,” as argued by Liberty, “so [Churchill is] covered[,]
but only for indemnity at the end of the case.” Tr. of Hr’g at 16, Dkt. No. 76.
The Policy defines Subsidiary, in relevant part, as “any entity in which more
than 50% of the outstanding securities or voting rights representing the present
right to vote for election of directors or equivalent positions are owned, in any
combination, by one or more Insured Organization[.]” Policy § 25.19, Dkt. No.
10-4 at 12. MLP offers the evidentiary support linking MLP to the “ownership” of
the AOAO within the meaning of the Policy (see Esaki Decl., Ex. K [Kapalua Bay
Dev. Org. Chart], Dkt. No. 70-2; Esaki Decl., Ex. L [Decl. of Condo. Prop. Regime
of Kapalua Bay Condo.] § I(B)(44), Dkt. No. 70-3 at 5; Van Etten Decl., Ex. M
[AOAO Bylaws (Part 1)] Art. II, § 1, Dkt. No. 70-5 at 3), which is challenged by
Liberty in only one respect: Liberty claims that MLP’s 51% ownership interest in
Kapalua Bay Holdings, LLC does not qualify Kapalua Bay Holdings as an MLP
Subsidiary and therefore breaks the ownership link between MLP and the AOAO

Kapalua Bay Holdings, LLC, which in turn owns 100% of Kapalua Bay, LLC[,]” and “Kapalua
Bay, LLC owns more than 50% of the voting rights in the AOAO” due to its retention of voting
rights for unsold condominiums. MLP Opp’n at 29, Dkt. No. 69.

28

(Liberty Reply at 17, Dkt. No. 73-1). The reasons cited by Liberty, however,
cannot withstand scrutiny.
First, Liberty argues that because Kapalua Bay Holdings is a “member
driven” LLC formed under the laws of the State of Delaware (Liberty Reply at 17,
Dkt. No. 73-1 (citing Young Decl., Ex. G [MLP Ans. in Underlying Lawsuit] at
¶ 20, Dkt. No. 71-10 at 4)), MLP’s 51% ownership does not represent a
“controlling interest.” In fact, Liberty offers that MLP has admitted in an SEC
filing that it “does not have a controlling interest in [Kapalua] Bay Holdings.”
Liberty Reply at 18 (quoting Young Decl., Ex. H [U.S. Secs. & Exch. Comm’n
Form 10-Q] § 9, Dkt. No. 71-11 at 10). While that may be true, Liberty does not
explain how “control” of Kapalua Bay Holdings is relevant in the instant context.
The Policy defines Subsidiary in terms of percentage ownership, not control.8 If
Liberty wanted Subsidiary to depend on control or on any other factors not
mentioned in the Policy, it presumably could have drafted its own contract in that
manner. But it did not.
Second, Liberty contends that MLP’s ownership interest in Kapalua Bay
Holdings cannot constitute ownership of at least 50% of its “outstanding
securities” because “[t]he membership interests of member driven LLCs are not
securities.” Liberty Reply at 17, Dkt. No. 73-1. The only direct authority,

8

Liberty does not contest MLP’s percentage ownership of Kapalua Bay Holdings.

29

however, that Liberty cites in support of this proposition is a 2010 law firm blog
that itself offers no authority in support of its conclusory statements. See Arina
Shulga, Are LP, GP, LLP, and LLC Interests Securities?, Business Law Post (June
28, 2010), available at http://www.businesslawpost.com/2010/06/are-lp-gp-llpand-llc-interests.html. The Court finds this far from sufficient to satisfy Liberty’s
burden of establishing application of the Outside Service Exclusion. See C.
Brewer & Co., 347 P.3d at 169 (citing Retherford, 470 P.2d 517).
Because Liberty’s limited contentions do little to contravene MLP’s
submissions evidencing the AOAO’s status as an MLP Subsidiary under the Policy
(see Policy § 25.19, Dkt. No. 10-4 at 12), the Outside Service Exclusion does not
protect Liberty from the contractual defense obligations it owes to Churchill.
III.

MLP Coverage
The Policy provides MLP with coverage for its own wrongful conduct

occurring “as a result of a Securities Action.” Policy § 1.3, as amended by
Endorsement No. 9, Dkt. No. 10-5 at 2–3. An action qualifies as a Securities
Action under the Policy where it:
(a) arises from the purchase or sale of, or offer to purchase
or sell, any securities issued by the Insured Organization,
whether such purchase, sale, or offer involves a transaction with
the Insured Organization or occurs in the open market;
(b) is brought by a securities holder of the Insured
Organization other than a natural person who was, now is, or
shall hereafter be a duly elected or appointed director or officer
30

of the Insured Organization based upon such securities holder’s
interest in such securities, whether directly or by class action; or
(c) is brought as a securities holder derivative action on
behalf of the Insured Organization.
Policy § 25.18, as amended by Endorsement No. 9, Dkt. No. 10-5 at 10. Liberty
asserts that MLP is not entitled to any coverage in the Underlying Lawsuit because
that lawsuit does not qualify as a Securities Action under the terms of the Policy.
See Liberty Mem. in Supp. at 16–17, Dkt. No. 62-3. In response, MLP argues that
the Underlying Lawsuit qualifies as a Securities Action because it has been
“brought by a securities holder of AOAO, against the subsidiary AOAO, and its
Parent, MLP, both of which are Insured Organizations.” MLP Opp’n at 33, Dkt.
No. 69. In other words, MLP relies on Section 25.18(b) of the Policy. MLP’s
assertion is unpersuasive.
Because “[t]he Policy does not provide any definition of ‘securities holder,’”
MLP encourages the Court to include the Underlying Plaintiffs in that definition
because “Courts and other authorities have recognized that the nature of the
relationship between a condominium owner and its Association is that of a
corporation and shareholder or security holder[.]” MLP Opp’n at 33–34, Dkt. No.
69 (citing Rohan & Reskin, 42 Real Estate Transactions: Condominium Law &
Practice—Forms, § 42.01; Sargis v. Seventy Grove Hill Condo. Ass’n, 1990 WL
289578, *7–8 (Conn. Super. Ct. July 19, 1990); Carlandia Corp. v. Rogers & Rod
31

Constr. Corp., 605 So.2d 1014, 1015 (Fla. Ct. App. 1992)). Yet MLP provides no
binding authority in support of this contention, and perhaps more importantly, the
authority it cites is not persuasive. The Underlying Plaintiffs are condominium
owners—not shareholders nor securities purchasers. See Liberty Mem. in Supp. at
16–17, Dkt. No. 62-3. Moreover, the owners’ claims in the Underlying Lawsuit
are not based upon their interest in some nominal security they hold in the AOAO.
The claims are based on misrepresentations and omissions on the part of the
developers and others responsible for building and marketing the condominium.
As such, Section 25.18(b) of the Policy does not apply.
To qualify as a Securities Action under the Policy, the underlying claim must
involve the purchase or sale of securities, or it must be brought by securities
holders. Policy § 25.18, as amended by Endorsement No. 9, Dkt. No. 10-5 at 10.
The theory of the Underlying Lawsuit is that MLP, as a developer of the Project,
“hid the truth” and “misrepresented” the status of the Project, and its financial
state, among other things, thereby injuring the Underlying Plaintiffs. See Liberty
Mem. in Supp. at 16, Dkt. No. 62-3 (citing Impac, 634 Fed. Appx. at 615
(affirming coverage denial due to lack of underlying securities claim against
insured entity)). The Court agrees with Liberty that such a theory necessarily
prevents characterization of the Underlying Lawsuit as an action “aris[ing] from
the purchase or sale of, or offer to purchase or sell, any securities issued by the
32

Insured Organization[.]” Policy § 25.18(a), as amended by Endorsement No. 9,
Dkt. No. 10-5 at 10.9
As such, the Underlying Lawsuit cannot be a Securities Action under the
Policy.
CONCLUSION
For the above-stated reasons, Liberty’s Motion for Summary Judgment (Dkt.
No. 62) and MLP’s Motion for Partial Summary Judgment (Dkt. No. 64) are
GRANTED IN PART AND DENIED IN PART.
IT IS SO ORDERED.
DATED: April 3, 2018 at Honolulu, Hawai‘i

Maui Land & Pineapple Co., Inc. v. Liberty Insurance Underwriters Inc., et al.,
CIV. NO. 16-00271 DKW-KJM, ORDER GRANTING IN PART AND
DENYING IN PART DEFENDANT LIBERTY INSURANCE
UNDERWRITERS’ MOTION FOR SUMMARY JUDGMENT, AND
PLAINTIFF MAUI LAND & PINEAPPLE’S MOTION FOR PARTIAL
SUMMARY JUDGMENT

9

For similar reasons, Section 25.18(a) would not apply, even were MLP to argue for its
application.

33