State Farm Fire and Casualty Company v. Certified Management, Inc.
Filing
45
ORDER GRANTING PLAINTIFF STATE FARM FIRE AND CASUALTY COMPANY'S MOTION FOR SUMMARY JUDGMENT AGAINST ALL DEFENDANTS re 30 - Signed by MAGISTRATE JUDGE KENNETH J. MANSFIELD on 4/27/2018. Based on the foregoing, the Court GRA NTS Plaintiff's Motion for Summary Judgment Against All Defendants. Specifically, the Court finds that as a matter of law that State Farm has no duty to defend or indemnify Regency in the Underlying Lawsuit. In addition, State Farm has no dut y to defend or indemnify Associa in the Underlying Lawsuit. The Clerk of the Court shall enter judgment in favor of State Farm. Participants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). (emt, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
STATE FARM FIRE &
CASUALTY COMPANY,
)
)
)
Plaintiff,
)
)
vs.
)
)
CERTIFIED MANAGEMENT,
)
INC., dba ASSOCIA HAWAII and )
REGENCY AT POIPU KAI,
)
)
Defendants.
)
_______________________________)
CIVIL NO. 17-00056 KJM
ORDER GRANTING PLAINTIFF
STATE FARM FIRE AND CASUALTY
COMPANY’S MOTION FOR
SUMMARY JUDGMENT AGAINST
ALL DEFENDANTS
ORDER GRANTING PLAINTIFF STATE FARM
FIRE AND CASUALTY COMPANY’S MOTION FOR
SUMMARY JUDGMENT AGAINST ALL DEFENDANTS
Plaintiff State Farm Fire and Casualty Company (“State Farm”) filed its
Motion for Summary Judgment Against All Defendants on December 27, 2017
(“Motion”). See ECF No. 30. Defendant Certified Management, Inc., dba Associa
Hawaii (“Associa”) filed its Memorandum in Opposition to the Motion on
February 22, 2018 (“Opposition”). See ECF No. 37. Defendant Regency at Poipu
Kai (“Regency”) filed a Joinder to Associa’s Opposition on February 23, 2018
(“Joinder”). See ECF No. 39. Plaintiff filed its Reply on March 1, 2018. ECF
No. 40.
The Court held a hearing on the Motion on March 15, 2018. Ashley R.
Shibuya, Esq., appeared on behalf of State Farm. Wesley H.H. Ching, Esq.,
appeared on behalf of Associa, and John D. Marshall, Esq., appeared on behalf of
Regency. After carefully considering the memoranda, arguments, and the record
in this case, the Court GRANTS the Motion.
BACKGROUND
Regency is a condominium association for a condominium located on
Kauaʻi. ECF No. 33 at ¶ 4. At all relevant times, Associa served as the managing
agent for Regency, pursuant to a Fiscal & Administrative Property Management
Agreement for Regency AOAO (“Management Agreement”). Id. at ¶ 13.
This declaratory action arises out of a lawsuit filed by Frederick T. Caven,
Jr. (“Caven”), on behalf of himself and a class of similarly situated persons, against
Associa in the Circuit Court of the First Circuit, State of Hawaiʻi (“Underlying
Lawsuit”).1 State Farm asks this Court to find that, under the terms of an insurance
policy issued by State Farm to Regency, State Farm has no duty to defend or
1
The Underlying Lawsuit is entitled, Frederick T. Cavern, Jr. v. Certified
Management, Inc., dba Associa Hawaii, Civil No. 16-1-1778-9 RAN. See ECF
No. 33 at ¶ 1.
2
indemnify Regency and Associa with respect to the Underlying Lawsuit. The facts
of this case are generally undisputed.2
I.
The Underlying Lawsuit
In the Underlying Lawsuit, Caven alleges that he was a previous co-owner
of a condominium unit located on Kauaʻi (“Unit”). ECF No. 33-3 at ¶ 31. “As an
owner of the [Unit], [Caven] was required to be a member of two homeowners
associations: Poipu Kai Association, and [Regency]” (collectively,
“Associations”). Id. at ¶ 32.3 Caven alleges that Associa was the managing agent
for both Associations. Id. at ¶ 33.
Caven alleges that he sold the Unit in or around April 2016. Id. at ¶ 34. In
connection with the sale of the Unit, Caven had to provide the purchaser with
condominium documents for both Associations, which Caven’s real estate agent
requested from Associa. Id. at ¶¶ 35-36. Associa provided Caven with a “link to
an internet site where [Caven] could download the requested documents.” Id. at
2
Associa does not dispute the facts State Farm asserts in paragraphs 1, 2, 3, 4, 5,
6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 18, 19, 20, and 21of State Farm’s First
Amended Separate Concise Statement of Facts in Support of the Motion
(“CSOF”). See ECF No. 36 at 2-4. Because the Court generally limits its
summary of this case background to undisputed facts, for efficiency purposes, the
Court only cites to facts in State Farm’s CSOF admitted by Associa. Where there
is a disputed fact, however, the Court notes the dispute and cites to the appropriate
party’s filing.
3
Regency is a condominium association within the Poipu Kai Association. ECF
No. 33 at ¶ 4.
3
¶ 37. Associa charged Caven a fee of $182.29 to download 197 pages of
condominium documents for Regency. Id. at ¶ 38. In addition, Associa charged
Caven $286.46 for a one-page “fee status confirmation,” “a document prepared by
[Associa] which contains financial and other information sufficiently detailed to
comply with requests for information and disclosures related to the resale of [the
Unit].” Id. at ¶ 40.
Caven alleges that the fees Associa charged Caven and other unit owners for
the condominium documents were excessive and in violation of Hawaiʻi law.
Caven asserts the following clams against the Associa in the Underlying Lawsuit:
(1) Count I – Violations of Haw. Rev. Stat. Chapter 514B; (2) Count II –
Violations of Haw. Rev. Stat. Chapter 421J; and (3) Count III – Violations of Haw.
Rev. Stat. Chapter 480. See ECF No. 33-3 at 13-16. Regency is not a party in the
Underlying Lawsuit.
II.
State Farm’s Insurance Policy to Regency
Regency is the named insured on a residential community association policy
issued by State Farm to Regency, Policy No. 91-BN-8879-2 (“Policy”). ECF
No. 33 at ¶ 15. The coverage period for the Policy was from December 15, 2015,
to December 15, 2016. Id.
Caven initiated the Underlying Lawsuit on September 20, 2016. ECF
No. 33 at ¶ 1. Associa asserts that, on or around October 3, 2016, Associa tendered
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its request for defense and indemnification of the claims in the Underlying Lawsuit
to Regency pursuant to a defense and indemnity provision in the Management
Agreement. ECF No. 36 at ¶ 24. Regency’s board of directors subsequently
submitted Associa’s tender to State Farm for coverage under the Policy. Id. at
¶ 25. On October 27, 2016, State Farm informed Associa via e-mail that it would
defend Associa in the Underlying Suit. See id. at ¶ 26; see also ECF No. 33 at
¶ 17.
The parties dispute whether State Farm’s agreement to defend Associa in the
Underlying Lawsuit was subject to a full reservation of rights by State Farm.
Associa contends that it never received a reservation of rights from State Farm.
ECF No. 36 at ¶ 28. State Farm, however, contends that it sent a letter to Associa,
dated December 2, 2016, setting forth its reservation of rights as to its defense of
Associa in the Underlying Lawsuit (“Reservation Letter”). ECF No. 41-3.
III.
The Present Lawsuit
State Farm filed its Complaint in this case on February 8, 2017. ECF No. 1.
State Farm filed its First Amended Complaint on October 2, 2017. ECF No. 24.
Associa filed its Counterclaim for Declaratory Judgment (“Counterclaim”) against
State Farm on October 12, 2017. ECF No. 27-1. In the Counterclaim, Associa
seeks a declaratory judgment stating that, pursuant to the Policy, State Farm has a
5
duty to defend and a duty to indemnify Associa in the Underlying Lawsuit, among
other things. See id. at 6.
State Farm filed the instant Motion on December 27, 2017, seeking
summary judgment as to its First Amended Complaint and Associa’s
Counterclaim.
LEGAL STANDARDS
I.
Summary Judgment
Summary judgment is proper where there is no genuine issue of material fact
and the moving party is entitled to judgment as a matter of law. Fed. R. Civ.
P. 56(a). Accordingly, this Court shall grant summary judgment if “the pleadings,
the discovery and disclosure materials on file, and any affidavits show that there is
no genuine issue as to any material fact and that the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(c).
A moving party has both the initial burden of production and the ultimate
burden of persuasion on a motion for summary judgment. Nissan Fire & Marine
Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000). The moving party
must identify for the court “those portions of the materials on file that it believes
demonstrate the absence of any genuine issue of material fact.” T.W. Elec. Serv.,
Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing
Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986)). “A fact is material if it could
6
affect the outcome of the suit under the governing substantive law.” Miller v.
Glenn Miller Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006).
If the moving party meets its initial burden on a summary judgment motion,
the “burden then shifts to the nonmoving party to establish, beyond the pleadings,
that there is a genuine issue for trial.” Id. The nonmoving party may not rely on
the mere allegations in the pleadings and instead “must set forth specific facts
showing that there is a genuine issue for trial.” Porter v. Cal. Dep’t of Corr., 419
F.3d 885, 891 (9th Cir. 2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 256 (1986)). This means that the nonmoving party “must do more than
simply show that there is some metaphysical doubt as to the material facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 (1986)
(footnote omitted). “A genuine dispute arises if the evidence is such that a
reasonable jury could return a verdict for the nonmoving party.” California v.
Campbell, 319 F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred Meyer, Inc., 198
F.3d 1130, 1134 (9th Cir. 2000) (“There must be enough doubt for a ‘reasonable
trier of fact’ to find for plaintiffs in order to defeat the summary judgment
motion.”).
II.
Diversity Jurisdiction
This Court has diversity jurisdiction over this case pursuant to 28 U.S.C.
§ 1332. Accordingly, this Court must apply Hawai‘i state law to determine
7
whether State Farm has a duty to defend and a duty to indemnify Regency and
Associa under the Policy. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S.
415, 427 (1996) (“Under the Erie doctrine, federal courts sitting in diversity apply
state substantive law and federal procedural law.”); Ill. Nat’l Ins. Co. v. Nordic
PCL Constr., Inc., 870 F. Supp. 2d 1015, 1028 (D. Haw. 2012) (applying state law
to determine whether alleged construction defects were caused by “occurrence” as
defined by the language in the insurance policy at issue). “When interpreting state
law, a federal court is bound by the decisions of a state’s highest court.”
Progressive Cas. Ins. Co. v. Ferguson, 134 F. Supp. 2d 1159, 1162 (D. Haw. 2001)
(citing Ariz. Elec. Power Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995)).
“In the absence of such a decision, a federal court must predict how the highest
state court would decide the issue using intermediate appellate court decisions,
decisions from other jurisdictions, statutes, treatises, and restatements as
guidance.” In re Kirkland, 915 F.2d 1236, 1239 (9th Cir. 1990) (citation omitted).
DISCUSSION
I.
Hawaiʻi Insurance Coverage Law
An insurer has a duty to indemnify its insured “for any loss or injury which
comes within the coverage provisions of the policy, provided it is not removed
from coverage by a policy exclusion.” Dairy Rd. Partners v. Island Ins. Co., 92
Haw. 398, 413, 992 P.2d 93, 108 (Haw. 2000). The Hawaiʻi Supreme Court has
8
previously recognized that “[t]he obligation of an insurer to defend an insured is
distinct from the duty to provide coverage.” Hart v. Ticor Title Ins. Co., 126 Haw.
448, 458, 272 P.3d 1215, 1225 (2012) (citing Pancakes of Haw., Inc. v. Pomare
Prop. Corp., 85 Haw. 286, 291, 944 P.2d 83, 88 (1997)). “Indeed, an insurer’s
duty to defend is ‘broader than the duty to pay claims and arises wherever there is
a mere potential for coverage[ ]’ under a policy.” Id. (quoting Diary Road
Partners, 92 Haw. at 412, 992 P.2d at 107. “All doubts as to whether a duty to
defend exists are resolved against the insurer and in favor of the insured.” Id.
(citations omitted).
“Hawaii abides by the ‘complaint allegation rule,’ whereby the
determination of whether an insurer has a duty to defend focuses on the claim and
facts that are alleged.” State Farm Fire & Cas. Co. v. GP West, Inc., 190 F. Supp.
3d 1003, 1014 (D. Haw. 2016) (citing Burlington Ins. Co. v. Oceanic Design &
Constr. Inc., 383 F.3d 940, 944 (9th Cir. 2004)); see also Hawaiian Holiday
Macadamia Nut Co. v. Indus. Indem. Co., 76 Haw. 166, 170, 872 P.2d 230, 234
(1994) (citations omitted) (“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 the pleadings fail to allege any basis for
recovery within the coverage clause, the insurer has no obligation to defend.”
Hawaiian Ins. & Guar. Co. v. Blair Ltd., 6 Haw. App. 447, 449 726 P.2d 1310,
9
1312 (Ct. App. 1986). “Stated differently, ‘to have any effect at all,’ the duty to
defend must be determined when the claim is initially asserted.” Hart, 126 Haw. at
458, 272 P.3d at 1225 (quoting Pancakes of Haw., 85 Haw. at 292, 944 P.2d at 89).
“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.” State Farm Fire & Cas. v. Elsenbach, No. CV 0900541 DAE-BMK, 2011 WL 2606005, at *8 (D. Haw. June 30, 2011) (citing Oahu
Transit Servs., Inc. v. Northfield Ins. Co., 107 Haw. 231, 238, 112 P.3d 717, 724
(2005); Bayudan v. Tradewind Ins. Co., 87 Haw. 379, 387, 957 P.2d 1061, 1069
(Ct. App. 1998)). “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.” Hawaiian Holiday, 76 Haw. at 169, 872 P.2d at 233 (citations and
internal quotation marks omitted).
“On a motion for summary judgment regarding its duty to defend, the
insurer bears the burden of proving there is ‘no genuine issue of material fact with
respect to whether a possibility exists that the insured would incur liability for a
claim covered by the policy.’” GP West, Inc., 190 F. Supp. 3d at 1014 (emphasis
in Tri-S Corp.) (quoting Tri-S Corp. v. W. World Ins. Co., 110 Haw. 473, 488, 135
P.3d 82, 97 (2006)). “The insured’s burden, on the other hand, is ‘comparatively
10
light, because it has merely to prove that a possibility of coverage exists.’” Id.
(emphasis in Tri-S Corp.) (quoting Tri-S Corp., 110 Haw. at 488, 135 P.3d at 97).
II.
State Farm’s First Amended Complaint Against Regency and Associa
A.
Whether the Policy Requires State Farm to Defend and Indemnify
Regency in the Underlying Lawsuit
State Farm argues that, pursuant to the terms of the Policy, State Farm has
no duty to defend or indemnify Regency with respect to the Underlying Lawsuit.
See ECF No. 30-3 at 16-17. Neither Associa’s Opposition nor Regency’s Joinder
address this argument. At the hearing on the Motion, Mr. Marshall stated on
behalf of Regency that Regency does not oppose the Motion as to this issue. The
Court thus considers State Farm’s request for summary judgment against Regency
as unopposed. “When a motion for summary judgment is unopposed, the motion
should nonetheless be granted only when the movant’s papers are themselves
sufficient to support the motion, and the papers do not reveal a genuine issue of
material fact.” Martin v. U.S. Bank Nat’l Ass’n, CIVIL NO. 14-00458 DKWBMK, 2015 WL 12697723, at *3 (D. Haw. Oct. 23, 2015) (other citation omitted)
(citing In re Rogstad, 126 F.3d 1224, 1227 (9th Cir. 1997)).
The Policy requires State Farm to defend Regency against any “suit” seeking
damages for covered claims of “bodily injury,” “property damage,” or “personal
and advertising injury.” ECF No. 33-9 at 33. The Policy defines “suit” as “a civil
proceeding in which damages because of ‘bodily injury’, ‘property damage’, or
11
‘personal and advertising injury’, to which this insurance applies are alleged.” Id.
at 47. “Suit” can also include arbitration or alternative dispute resolution
proceedings in which such damages are claimed. See id.
There is no dispute that Regency is not a party to the Underlying Lawsuit.
The Court thus finds that no “suit,” as defined in the Policy, has been initiated
against Regency. Accordingly, under the terms of the Policy, State Farm does not
have a duty to defend or indemnify Regency with respect to the Underlying
Lawsuit, and State Farm is entitled to summary judgment as to its First Amended
Complaint against Regency.
B.
Whether the Policy Requires State Farm to Defend and Indemnify
Associa
State Farm argues that it has no duty to defend or indemnify Associa in the
Underlying Lawsuit because: (1) Associa is not an “insured” under the Policy;
(2) the Underlying Lawsuit does not allege a claim covered by the Policy; (3)
Associa is not an “insured” under the Policy’s “Directors and Officers Liability”
endorsement; and (4) an exception to the Policy’s exclusion for “contractual
liability” not does apply. The Court discusses each argument in turn below. As an
initial matter, however, the Court addresses the only asserted issue of material fact:
whether State Farm’s initial agreement to defend Associa in the Underlying
Lawsuit was subject to a reservation of rights by State Farm.
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1.
There is no genuine issue of material fact as to State Farm’s
reservation of rights.
In a footnote in its Opposition, Associa asserts: “The absence of a
reservation of rights at a minimum raises a disputed issue with respect to whether
or not State Farm should have more promptly explained the basis for noncoverage
and with respect to State Farm’s continuing obligation to defend the underlying
lawsuit.” ECF No. 37 at 7 n.1. Although Associa cites to AIG Hawaii Insurance
Co. v. Smith, 78 Haw. 174, 891 P.2d 261 (1995), it provides no explanation as to
how this case supports its assertion. After reviewing AIG Hawaii Insurance Co.,
the Court reads Associa’s assertion as one arguing that there are issues of fact as to
whether State Farm is estopped from denying coverage at this point. “Whether
State Farm is estopped from attempting to decline coverage is an affirmative
defense that [Associa], not State Farm, bear[s] the burden of proving.” State Farm
Fire & Cas. Co. v. Vogelgesang, 834 F. Supp. 2d 1026, 1038 (D. Haw. 2011)
(citing Cal. Dairies Inc. v. RSUI Indem. Co., 617 F. Supp. 2d 1023, 1048 n.11
(E.D. Cal. 2009) (“To demonstrate waiver, the insured bears the burden of proof to
demonstrate that the carrier intentionally relinquished a right or that the carrier’s
acts are so inconsistent with an intent to enforce the right as to induce a reasonable
belief that such right has been relinquished.”); Waller v. Truck Ins. Exch., Inc., 900
P.2d 619, 635-36 (1995) (same)).
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Other than asserting that it did not receive a reservation of rights from State
Farm, Associa presents no evidence suggesting that State Farm relinquished its
right to contest coverage. By contrast, State Farm submitted a copy of the
Reservation Letter in connection with its Reply. ECF No. 41-3. The Reservation
Letter is dated December 2, 2016, approximately two months after Associa initially
tendered its request for defense and indemnity to Regency. In the Reservation
Letter, State Farm sets forth the reasons it “specifically reserv[es its] rights to deny
coverage to [Associa] and anyone else seeking coverage under the policy.” Id. at
1. After carefully reviewing the Reservation Letter, the Court finds that the
arguments State Farm makes in its Motion are also listed in the Reservation Letter
as potential bases to deny coverage. See, e.g., id. (“There is a question as to
whether [Associa] would be considered an insured as defined in the [Policy].”).
Based on the foregoing, the Court finds that there is no genuine issue of
material fact that State Farm did not waive its right to contest coverage. The
remaining material facts are undisputed.
2.
Associa is not an “insured” under the Policy.
The Court now turns to the question of whether, as a matter of law, State
Farm is required to defend and indemnify Associa under the terms of the Policy.
See P.W. Stephens Contractors, Inc. v. Mid Am. Indem. Ins. Co., 805 F. Supp. 854,
858 (D. Haw. 1992) (citation omitted) (“The interpretation of contract language is
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a matter of law, and therefore appropriate in a pretrial motion such as a motion for
summary judgment.”). State Farm contends that it has no duty to defend or
indemnify Associa in the Underlying Lawsuit because Associa is not an “insured”
under the Policy. The Court agrees.
The Policy sets forth the following pertinent provision regarding who
qualifies as an “insured” based on Regency’s organization structure:
If you are designated in the Declarations as . . .
(4)
An organization other than a partnership, joint venture
or limited liability company, you are an insured. Your
“executive officers” and directors are insureds, but only
with respect to their duties are your officers or directors.
Your stockholders are also insureds, but only with
respect to their liability as stockholders. . . .
ECF No. 33-9 at 41.
It is undisputed that Regency is the named insured. The Policy’s
Declarations designate Regency as a corporation, i.e., an organization other than a
partnership, joint venture, or limited liability company. See id. at 2. Thus,
Regency’s executive officers, directors, and stockholders are also insureds, but
only as to their respective duties or liabilities as such. Associa presents no
evidence that it is an executive officer, director, or stockholder for Regency. Nor
does the Underlying Lawsuit contain any allegations against Associa in any
capacity as Regency’s executive officer, director, or stockholder. The Court thus
finds that Associa is not an “insured” under the above provision.
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In addition, the Policy also includes as an insured “[a]ny person (other than
your ‘employee’ or ‘volunteer worker’), or any organization while acting as your
real estate manager but only with respect to liability for ‘bodily injury’.” See id. at
85 (emphasis added). The Policy does not define “real estate manager.”
Regardless, however, the Court finds that this provision does not apply because
there is no allegation of bodily injury in the Underlying Lawsuit.
The Policy defines “bodily injury” as “bodily injury, sickness, or disease
sustained by a person, including death, resulting from any of these at any time.
‘Bodily injury’ includes mental anguish or other mental injury caused by the
‘bodily injury[.]’” Id. at 44. The Court has carefully reviewed Caven’s allegations
in the Underlying Lawsuit, and finds that there are no allegations of “bodily
injury.” Caven alleges that Associa overcharged him and other unit owners for
copies of condominium documents, and he seeks to recover monetary damages
arising out of such excess charges. Thus, even assuming Associa was acting as
Regency’s “real estate manager,” Associa is not an insured under the Policy
because there is no allegation of “bodily injury” in the Underlying Lawsuit.
Based on the foregoing, the Court finds that Associa is not an “insured”
under the Policy. Accordingly, State Farm has no duty to defend or indemnify
Associa with respect to the Underlying Lawsuit at this time.
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3.
The Underlying Lawsuit does not allege a claim covered by the
Policy.
Even if Associa somehow qualified as an insured under the Policy, neither
State Farm’s duty to defend nor its duty to indemnify has yet been triggered, as the
Underlying Lawsuit does not allege a claim covered by the Policy. The Policy
provides that State Farm “will pay those sums that the insured becomes legally
obligated to pay as damages because of ‘bodily injury’, ‘property damage’, or
‘personal and advertising injury’ to which this insurance applies.” ECF No. 33-9
at 33. The Policy also provides that State Farm “will have the right and duty to
defend the insured by counsel of our choice against any ‘suit’ seeking those
damages.” Id. The Policy applies to, in relevant part: (1) “bodily injury” or
“property damage” caused by an “occurrence”; and (2) “personal and advertising
injury” caused by an offense arising out of [Regency’s] business. Id.
For the reasons set forth below, the Court finds that the Underlying Lawsuit
does not allege a claim for “bodily injury” or “property damage” caused by an
“occurrence,” or a “personal and advertising injury.”
a.
The Underlying Lawsuit does not allege a claim for
“bodily injury” or “property damage” caused by an
“occurrence.”
The Policy defines “bodily injury,” “property damage,” and “occurrence” as
follows:
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“Bodily injury” means bodily injury, sickness, or disease sustained by
a person, including death, resulting from any of these at any time.
“Bodily injury” includes mental anguish or other mental injury caused
by the “bodily injury” . . . .
“Occurrence” means an accident, including continuous or repeated
exposure to substantially the same general harmful conditions.
“Property damage” means:
a. Physical injury to tangible property, including all resulting
loss of use of that property. All such loss of use shall be
deemed to occur at the time of the physical injury that
caused it; 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. All such
loss of use shall be deemed to occur at the time of the
“occurrence” that caused it.
For purposes of this insurance, electronic data is not tangible property.
ECF No. 33-9 at 44, 46.
First, as this Court previously determined, the Underlying Lawsuit contains
no allegation of “bodily injury” as defined in the Policy. Second, the Underlying
Lawsuit also contains no allegation of “property damage” as defined in the Policy.
More specifically, the Underlying Lawsuit makes no allegation of physical injury
to or loss of use of Caven’s or other owners’ tangible property. Rather, Caven
seeks to recover damages arising out of the excessive fees charged by Associa,
which are economic in nature. The Court thus finds that, based on the allegations
of the Underlying Lawsuit, no possibility exists that an insured under the Policy
18
would incur liability for a claim of “property damage.” See Allstate Ins. Co. v.
Hui, 57 F. Supp. 2d 1039, 1044 (D. Haw. 1999) (“Numerous cases have held that
economic loss does not constitute damage or injury to property.” (citations
omitted)).
Third, the claims in the Underlying Lawsuit did not arise out of an
“occurrence.” The Policy states that “occurrence” means “an accident,” but does
not further define “accident.” As the Hawaiʻi Supreme Court has previously
explained, “accident” in the insurance context is an injury that cannot be expected
or reasonably foreseeable:
The question of what is an “accident” must be determined by
addressing the question from the viewpoint of the insured. This court
has addressed this question previously in AIG Haw. Ins. Co. v. Estate
of Caraang[,74 Haw. 620, 635-36, 851 P.2d 321, 329 (1993)]:
[I]f the insured did something . . . or failed to do something, and
the insured’s expected result of the act or omission was the
injury, then the injury was not caused by an accident and
therefore not . . . within the coverage of the policy . . . .”
[Hawaiian Ins. & Guar. Co. v.] Blanco, 72 Haw. [9] at 16, 804
P.2d [876] at 880 [(1990)] (insured fired rifle in victim’s
direction, intending to frighten but instead injuring him; injury
held to be reasonably foreseeable and therefore not accidental
from insured’s viewpoint; consequently, insurer had no duty to
defend); see also [Hawaiian Ins. & Guar. Co. v.] Brooks, 67
Haw. [285] at 292, 686 P.2d [23] at 27-28 [(1984)] (from
perspective of insured truck driver, sexual assault of hitchhiker
in rear section of vehicle by insured’s co-worker not accidental
where insured aware of attack but chose not to do anything to
prevent him or mitigate harm to victim, thereby facilitating
commission of act; insurer held to have no duty to defend or
indemnify).
19
....
The teaching of Blanco and Brooks, however, is that, in order
for the insurer to owe a duty to defend or indemnify, the injury
cannot be the expected or reasonably foreseeable result of the
insured’s own intentional acts or omissions.
Hawaiian Holiday, 76 Haw. at 170, 872 P.2d at 234.
In the Underlying Lawsuit, Caven alleges that Associa charged him and
other owners an excessive fee in exchange for copies of condominium documents.
The expected and reasonably foreseeable result of Associa’s act is that Caven and
other owners would incur this fee. Thus, pursuant to Hawaiʻi law, the Court finds
that Associa’s alleged act of charging Caven and other owners fees for copies of
condominium documents was intentional, and not an accident. Accordingly,
pursuant to Hawaiʻi law, Associa’s alleged act of charging excessive fees does not
constitute an “occurrence” under the Policy. The Court makes this finding
regardless of whether Associa believed that its fees were excessive or in violation
of Hawaiʻi law. See Cty. of Maui v. Ace Am. Ins. Co., Civil No. 14-00236 LEKRLP, 2015 WL 1966682, at *9 n.5 (D. Haw. Apr. 30, 2015) (“[T]he critical inquiry
is not whether the insured acted in bad faith or out of ill will, but whether the
injury was an expected or foreseeable result of the insured’s act.”).
20
b.
The Underlying Lawsuit does not allege a claim for
“personal and advertising injury.”
The Policy defines “personal and advertising injury” as follows:
“Personal and advertising injury” means injury, including
consequential “bodily injury”, arising out of one or more of the
following offenses:
a. False arrest, detention or imprisonment;
b. Malicious prosecution;
c. The wrongful eviction from, wrongful entry into, or invasion of
the right of privacy, of a room, dwelling or premises that a
person occupies, committed by or on behalf of its owner,
landlord or lessor;
d. Oral or written publication, in any manner, of material that
slanders or libels a person or organization or disparages a
person’s or organization’s goods, products or services;
e. Oral or written publication, in any manner, of material that
violates a person’s right of privacy;
f. The use of another’s advertising idea of your
“advertisement”;[4] or
g. Infringing upon another’s copyright, trade dress or slogan in
your “advertisement”.
ECF No. 33-9 at 46.
4
“Advertisement” is defined as “a notice that is broadcast or published to the
general public or specific market segments about your goods, products or services
for the purposes of attracting customers or supporters.” ECF No. 33-9 at 44.
21
Viewing the facts alleged in the Underlying Lawsuit in the light most
favorable to Associa, the Court finds that there is no claim for a “personal and
advertising injury” as defined in the Policy. There is no allegation in the
Underlying Lawsuit that implicates one of the qualifying offenses listed above.
Accordingly, the Underlying Lawsuit does not assert a claim for “personal and
advertising injury” as defined in the Policy.
Based on the foregoing, the Court finds that there are no factual allegations
in the Underlying Lawsuit that raise even the possibility of coverage under the
Policy. Thus, even if Associa was an insured, State Farm would have not duty to
defend or indemnify Associa.
Moreover, the Court notes that Associa’s Opposition does not directly
respond to State Farm’s argument that the Underlying Lawsuit does not assert a
covered claim. Instead, Associa simply asserts that “the allegations in the
Complaints in the Underlying Lawsuit . . . at a minimum include allegations of
‘injury to Plaintiff Caven and each Class Member’ and ‘special and general
damages’ and ‘consequently damages as the evidence may warrant’.” ECF No. 37
at 19-20. Based on the quoted language, Associa refers to Caven’s prayer for relief
in the Underlying Lawsuit. See ECF No. 33-3 at 17.
Although unclear, Associa appears to assert that the type of relief listed in
Caven’s prayer for relief indicates that he may seek more than economic losses
22
and, therefore, the possibility of coverage exists. The Court’s main focus in
determining whether the possibility of coverage exists, however, is on the factual
allegations in the Underlying Lawsuit, and not the relief prayed for in the
complaint. Cf. Elsenbach, 2011 WL 2606005, at *8 (D. Haw. June 30, 2011)
(citations omitted) (“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.”). The Court thus is not persuaded
by Associa’s bare assertion.
4.
Associa is not an “insured” under the Policy’s “Directors and
Officers Liability” endorsement.
The Policy includes a “Directors and Officers Liability” endorsement (“DOL
Endorsement”), which provides additional coverage for “those sums that the
insured becomes legally obligated to pay as damages because of a ‘wrongful act’ to
which this endorsement applies.” ECF No. 33-9 at 63. State Farm contends that
Associa is not an “insured” for purposes of the DOL Endorsement, which includes:
(1) any of Regency’s directors, officers, managers, or trustees who has been duly
elected or appointed to serve on Regency’s managing body and was acting within
the scope of his or her respective position; (2) the named insured (i.e., Regency);
(3) any of Regency’s members or renters; and (4) any lawful spouse of the
qualifying persons identified in numbers (1) through (3). See id. at 65.
23
Based on the plain language of the DOL Endorsement, the Court finds that
there is nothing in the record indicating that Associa is an “insured.” Nor does
Associa assert in its Opposition that it is an “insured” under the DOL
Endorsement. Because Associa is not an insured under the DOL Endorsement,
there is no possibility of coverage in the Underlying Lawsuit. Accordingly, State
Farm has no duty to defend or indemnify Associa.
5.
An exception to the Policy’s exclusion for “contractual
liability” does not apply to Associa.
In light of the Court’s findings that there is no coverage under the Policy, the
Court need not address the parties’ remaining arguments regarding the Policy’s
exclusions. Nevertheless, the Court does address Associa’s argument that an
exception to the exclusions applies. In particular, Associa argues that the
possibility of coverage exists pursuant to an exception to the Policy’s exclusion for
“contractual liability” (“contractual liability exclusion”). The Court disagrees.
Pursuant to the contractual liability exclusion, coverage under the Policy
does not apply to “‘[b]odily 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.” ECF No. 33-9 at 34. The Policy provides exceptions to the
contractual liability exclusion, however, for certain instances involving an “insured
contract.” The Policy defines “insured contract,” in relevant part, as: “That part of
any other contract or agreement pertaining to your business . . . under which you
24
assume the tort liability of another party to pay for ‘bodily injury’ or ‘property
damage’ to a third person organization. . . .” Id. at 45.
Associa’s argument focuses on the contractual liability exclusion’s
exception for liability for damages:
Assumed in a contract or agreement that is an “insured
contract”, provided that the “bodily injury” or “property
damage” occurs subsequent to the execution of the liability
assumed in an “insured contract”, reasonable attorney fees and
necessary litigation expenses incurred by or for a party other
than an insured are deemed to be damages because of “bodily
injury” or “property damage”, provided:
ii. Liability to such party for, or for the cost of, that
party’s defense has also been assumed in the same
“insured contract”; and
iii. Such attorney fees and litigation expenses are for
defense of that party against a civil or alternative
dispute resolution proceeding in which damages to
which this insurance applies are alleged.
Id. at 34-35.
Associa contends that the Management Agreement constitutes an “insured
contract,” and that the “reasonable attorney’s fees and litigation expenses being
incurred by Associa fall within the liability that Regency assumed in the
Management Agreement.” ECF No. 37 at 17. Associa’s contention fails, however,
because this exception to the contract liability exclusion applies only where (1) the
“reasonable attorney fees and necessary litigation expenses incurred . . . are
deemed to be damages because of ‘bodily injury’ or ‘property damage[.]’” ECF
25
No. 33-9 at 34 (emphasis added). Moreover, application of this exception would
also require that “[s]uch attorney fees and litigation expenses are for defense of
that party against a civil . . . proceeding in which damages to which this insurance
applies are alleged.” Id. (emphasis added). As set forth above, the Underlying
Lawsuit does not seek damages because of “bodily injury” or “property damage”
as those terms are defined in the Policy. Nor does the Underlying Lawsuit allege
damages to which the Policy applies. Accordingly, even if the Management
Agreement constituted an “insured contract,” there is no possibility of coverage
under this exception to the contractual liability exclusion.
In sum, the Court finds that there are no genuine issues of material fact and,
as a matter of law, there is no possibility of coverage under the Policy in the
Underlying Lawsuit because (1) Associa is not an “insured,” and (2) the
Underlying Lawsuit does not assert a covered claim for “bodily injury” or
“property damage” caused by an “occurrence,” or a claim for “personal and
advertising injury” as defined in the Policy. State Farm thus has no duty to defend
or indemnify Associa in the Underlying Lawsuit. Accordingly, State Farm is
entitled to summary judgment as to its First Amended Complaint against Associa.
III.
Associa’s Counterclaim Against State Farm
Associa’s Counterclaim seeks a declaratory judgment stating that State Farm
has a duty to defend and a duty to indemnify Associa in the Underlying Lawsuit.
26
As set forth above, there are no genuine issues of material fact. Thus, for the same
reasons discussed herein, the Court finds that as a matter of law State Farm has no
duty to defend or indemnify Associa in the Underlying Lawsuit. Accordingly,
State Farm is entitled to summary judgment as to Associa’s Counterclaim.
CONCLUSION
Based on the foregoing, the Court GRANTS Plaintiff’s Motion for Summary
Judgment Against All Defendants. Specifically, the Court finds that as a matter of
law that State Farm has no duty to defend or indemnify Regency in the Underlying
Lawsuit. In addition, State Farm has no duty to defend or indemnify Associa in the
Underlying Lawsuit. The Clerk of the Court shall enter judgment in favor of State
Farm.
IT IS SO ORDERED.
DATED: Honolulu, Hawaiʻi, April 27, 2018.
/S/ Kenneth J. Mansfield
Kenneth J. Mansfield
United States Magistrate Judge
State Farm Fire & Cas. Co. v. Certified Mgmt., Inc., dba Associa Haw., et al., CV 17-00056
KJM; Order Granting State Farm Fire and Casualty Company’s Motion for Summary Judgment
Against All Defendants
27
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