Austin Mutual Insurance Company v. Stonehenge Home Specialties LLP. et al

Filing 42

IT IS HEREBY ORDERED that Austin Mutuals Motion for Summary Judgment (Doc. 14) is DENIED. Secors Rule 56(d) Motion (Doc. 28) is DENIED as moot. 14 Motion for Summary Judgment. Signed by Judge Brian Morris on 11/14/2023. (KAH)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
BUTTE DIVISION
AUSTIN MUTUAL INSURANCE
COMPANY,

CV-23-31-B-BMM

Plaintiff,
ORDER
vs.
STONEHENGE HOME SPECIALTIES,
LLP., SECOR INVESTMENTS, LLC., CS
STRUCTURES, INC.,
Defendants.

BACKGROUND
CS Structures, Inc. (“CS Structures”) sued Secor Investments, LLC
(“Secor”) in Montana state court for outstanding payment from the construction of
a commercial building. (Doc. 16 at 1-2.) Stonehenge Home Specialties
(“Stonehenge”) worked on the building as a subcontractor for CS Structures.
Austin Mutual Insurance Company (“Austin Mutual”) insures Stonehenge.
(Doc. 16 at 2.) A claims adjuster for Austin Mutual requested that Brian Gushi, the
owner and principal of Stonehenge and Austin Mutual’s contact at Stonehenge,
(Doc. 16 at 14, 2), attend an inspection of the property at issue on March 12, 2020,
(Doc. 16 at 5.) Gushi did not attend. (Id.)

CS Structures filed a third-party complaint against Stonehenge for
contribution and indemnity on April 29, 2020. (Doc. 16 at 2.) CS Structures
alleged Stonehenge “failed to properly complete its work” on the building. (Id.)
Austin Mutual’s claims adjuster repeatedly attempted to contact Gushi from May
to August 2020 to discuss the action against Stonehenge, but Gushi did not
respond. (Doc. 16 at 6-7.) Austin Mutual retained counsel to defend Stonehenge,
but counsel withdrew after counsel could not reach Gushi. (Doc. 16 at 7, 8, 11.)
Austin Mutual sought and received a declaratory judgment from this Court that it
had no duty to defend or indemnify Stonehenge with respect to the CS Structures
claim. (Doc. 16 at 11.)
Secor filed a second third-party complaint against Stonehenge for damages
and defects related to the building on August 2, 2021. (Id.) Austin Mutual retained
counsel to defend Stonehenge, but counsel withdrew after counsel could not reach
Gushi. (Doc. 16 at 12, 13-14.) Austin Mutual’s claims adjuster mailed and emailed
Gushi on April 14, 2023, warning that if Gushi failed to make contact with Austin
Mutual by April 28, 2023, “Austin Mutual will deny coverage for this claim due to
your material breach of the Policy.” (Doc. 16 at 12-13.) Gushi did not make
contact in the time allowed. (Doc. 16 at 16.)
CS Structures asserts a counterclaim against Austin Mutual for declaratory
judgment that Austin Mutual has a duty to defend CS Structures against Secor’s
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claim against CS Structures. (Doc. 10.) Austin Mutual sought summary judgment
that it is under no duty to defend or indemnify CS Structures against claims filed in
the underlying case under Stonehenge’s Policy with Austin Mutual. (Doc. 22; Doc.
23 at 2.) Austin Mutual withdrew its motion for summary judgment as to CS
Structure’s counterclaim when Austin Mutual located evidence of CS Structures’s
status as an additional insured on Gushi’s Policy. (Doc. 39; Doc. 39-1.) Austin
Mutual seeks summary and declaratory judgment from this Court that it is under no
duty to defend or indemnify Stonehenge for CS Structures’s and Secor’s claims.
(Doc. 15 at 16.)
LEGAL STANDARD
Summary judgment proves appropriate when “the movant shows that there
is no genuine dispute as to any material fact and the movant is entitled to judgment
as a matter of law.” Fed. R. Civ. P. 56(a). Material facts are those which may affect
the outcome of the case. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106
S.Ct. 2505, 91 L.Ed.2d 202 (1986). A genuine material fact dispute requires
sufficient evidence for a reasonable jury to return a verdict for the nonmoving
party. Id. at 248, 106 S.Ct. 2505. The Court applies the substantive law of Montana
in this diversity action. In re Cnty. of Orange, 784 F.3d 520, 524 (9th Cir. 2015).

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DISCUSSION
Austin Mutual claims that its insured, Stonehenge, willfully refused to
cooperate with Austin Mutual to defend against the CS Structures and Secor
claims. (Doc. 15 at 10.) The refusal of Stonehenge breached the terms of its Policy,
Austin Mutual asserts, and that breach relieves Austin Mutual of any duty to
defend Stonehenge from the claims. (Doc. 15 at 11.)
A party establishes noncooperation where “(1) the insured failed to
cooperate in a material and substantial respect, (2) with an insurer’s reasonable and
material request, (3) thereby causing actual prejudice to the insurer's ability to
evaluate and investigate a claim.” Streeter v. USAA Gen. Indem. Co., No. CV 20188-M-DLC, 2023 WL 402507, at *4 (D. Mont. Jan. 25, 2023). Austin Mutual’s
requests of Stonehenge pass the threshold of reasonableness and materiality.
Stonehenge doubtless failed to cooperate in a material and substantial respect with
Austin Mutual’s request to communicate with Austin Mutual, much less to
participate in any defense against the CS Structures and Secor claims.
An Austin Mutual claims adjuster first attempted to contact Gushi, a
Stonehenge partner, about the underlying matter on May 31, 2019. (Doc. 29 at 4;
Doc 31 at 4.) The adjuster’s first letter to Gushi, sent July 29, 2019, requested a
“complete copy of your subcontractor agreement with CS Structures, and all work
orders, purchase invoices, service orders, service invoices and billing associated
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with this job.” (Doc. 29 at 4; Doc 31 at 4.) The adjuster continued contact efforts.
Gushi responded with a fifteen-minute phone call in October 2019 in which he
provided an email address that proved unreachable. (Doc. 29 at 5; Doc 31 at 5.)
The adjuster continued contact efforts. Gushi responded in December 2019, again
in a brief conversation, this time about photographs that the adjuster emailed. (Doc.
29 at 5; Doc 31 at 5.)
The adjuster tried to contact Gushi in January and February 2020 with
requests that he attend an inspection of the property around which the underlying
dispute in this case swirls and assist Austin Mutual’s investigation. (Doc. 29 at 6;
Doc 31 at 6.) Gushi failed to attend. (Doc. 29 at 7; Doc. 31 at 6.) Indeed, Gushi
failed to respond to any of the steady drumbeat of phone calls, text messages,
emails, or certified letters directed to him by Austin Mutual over the next several
months. (Doc. 29 at 7-20; Doc. 31 at 7-18.) When an investigator hired by the law
firm Austin Mutual retained to defend Stonehenge in Montana state court located
Gushi at home, Gushi responded with instructions: “get out of here” and “you need
to leave.” (Doc. 29 at 11; Doc. 31 at 10.) Austin Mutual argues that Stonehenge’s
noncooperation caused actual prejudice. (Doc. 15 at 16.) Austin Mutual asserts that
the prejudice took the form of the withdrawal of the counsel that Austin Mutual
retained to defend Stonehenge in Montana state court. (Id.)

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A factual dispute remains as to whether Stonehenge’s refusal to cooperate
actually prejudiced Austin Mutual’s ability to investigate the claim. “Actual
prejudice requires affirmative proof of an advantage lost or disadvantage suffered
as a result of the failure to cooperate, which has an identifiable detrimental effect
on the insurer's ability to evaluate or present its defenses to coverage or liability.”
Streeter at *6 (quoting Tran v. State Farm Fire & Cas. Co., 136 Wash. 2d 214,
228, 961 P.2d 358, 365 (1998)). Austin Mutual admits that it had access to the
property at issue in the underlying case and did inspect the property by way of a
retained third party. (Doc. 32 at 10.) Austin Mutual argues that it suffered
prejudice despite this access because Stonehenge could have informed Austin
Mutual of what work Stonehenge completed as opposed to what work some
different subcontractor completed. (Doc. 32 at 10.)
Gushi’s refusal to attend the property inspection and advise Austin Mutual
of where Stonehenge’s work begins and ends constituted a definite setback to
Austin Mutual’s defense efforts. The silence of one potential source of information
does not cause “an identifiable detrimental effect on the insurer's ability to evaluate
or present its defenses to coverage or liability,” however, if other sources of the
same information remain at the disposal of the party claiming noncooperation.
Stonehenge, a Montana limited liability partnership, lists Natosha Gushi as a
second partner in addition to Brian Gushi. (Doc. 31-2; Doc. 31-3.)
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Austin Mutual presents no evidence that it ever attempted to contact Natosha
Gushi. See (Doc. 16); compare (Doc. 16-2) (Crowley Fleck PLLP Motion to
Withdraw as [Stonehenge’s] Counsel of Record filed in Montana state district
court, which lists “[e-mail]” as the email address for service of
“all further pleadings and notices” in the case.) Austin Mutual presents no evidence
that Natosha Gushi would not have been able to provide the information that it
sought to adequately defend Stonehenge. Natosha Gushi, as a Stonehenge partner,
may have had access to records of the work that Stonehenge performed on the
property, may have identified other subcontractors who could delineate where the
Stonehenge work occurred, and may have been personally involved in or witnessed
the work Stonehenge conducted at the property. Whether contacting Natosha
would have deviated from the standard claim investigation for Austin Mutual has
no purchase. The noncooperation inquiry concerns itself with the insurer’s ability
to investigate and evaluate, not with the ease or comfort of insurer’s task.
Additionally, Dusty Felska’s report, Austin Mutual’s belated addition to the
record, notes that “no other contractors or engineers [were] at the loss site during
the inspection” despite the involvement of “a couple sub contractors [sic]” in
completing the work. (Doc. 41-1 at 1.) Stonehenge admitted in Montana state
district court that it “contracted with Roof Construction, and possibly others, to
perform certain services on the [p]roject.” (Doc. 16-13.) The record does not
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indicate, however, whether Austin Mutual sought any subcontractor who worked
on the property, other than Brian Gushi, for records or recollections as to the scope
of their own work or as to the scope of Stonehenge’s work.
Finally, the Court notes that Austin Mutual’s motion may be characterized
as an attempt to have their cake and eat it too. The Austin Mutual-retained law
firm’s filings in Montana state court on behalf of Stonehenge did not argue “severe
prejudice” from the noncooperation of Brian Gushi. The state court filings instead
argued that the Montana state court should permit the firm’s representation despite
Stonehenge’s noncooperation. (Doc. 31-7.) The Austin Mutual-retained law firm
representing Stonehenge appeared substantively on behalf of Stonehenge when it
submitted a motion for summary judgment and supporting briefs to defend against
the Secor claim. (Doc. 30 at 7.) Such a posture suggests that “an identifiable
detrimental effect on the insurer's ability to [. . .] present its defenses to coverage or
liability” may be lacking. Austin Mutual fails to show that there exists no genuine
dispute of fact and that it is entitled to judgment as a matter of law as to the
element of “actual prejudice.”
Accordingly, IT IS HEREBY ORDERED that
1. Austin Mutual’s Motion for Summary Judgment (Doc. 14) is DENIED.
2. Secor’s Rule 56(d) Motion (Doc. 28) is DENIED as moot.

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DATED this 14th day of November, 2023.

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