Hamlet Homes et al v. Mid-Continent Casualty Company
Filing
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MEMORANDUM DECISION AND ORDER denying without prejudice 12 Motion for Partial Summary Judgment; granting 18 Motion for Discovery. The parties shall have four months from the date of this Order to conduct discovery relevant to the issue of Mid-Continents duty to defend Plaintiffs in the HOA lawsuit in state court. Signed by Judge Dale A. Kimball on 1/9/13. (jlw)
______________________________________________________________________________
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF UTAH
CENTRAL DIVISION
HAMLET HOMES CORPORATION;
BEAR HOLLOW RESTORATION,
LLC; MICHAEL BRODSKY; JOHN
ALDOUS; DAVID IRWIN; PHILLIP M.
TURNER,
Plaintiffs,
MEMORANDUM DECISION
AND ORDER
Case No. 2:12CV305DAK
Judge Dale A. Kimball
vs.
MID-CONTINENT CASUALTY
COMPANY,
Defendant.
This matter is before the court on Plaintiffs Hamlet Homes Corporation (“Hamlet”), Bear
Hollow Restoration, LLC (“Bear Hollow”), Michael Brodsky, John Aldous, David Irwin, and
Phillip M. Turner’s (collectively “Plaintiffs”) Motion for Partial Summary Judgment on their
Fourth Claim for Declaratory Judgment and Defendant Mid-Continent Casualty Company’s Rule
56(d) Motion for Leave to Conduct Discovery. Plaintiffs request an order from the court
declaring that Mid-Continent has a duty to defend Plaintiffs in a lawsuit filed by The Lodges at
Bear Hollow Condominium Homeowners Association, Inc. (the “HOA”) in Utah State Court.
Mid-Continent, however, seeks leave to conduct four months of discovery prior to the court’s
consideration of Plaintiffs’ motion.
On October 24, 2012, the court held a hearing on the motions. At the hearing, Plaintiffs
were represented by Craig H. Howe and Defendant was represented by Barbara K. Berrett. The
court took the motions under advisement. The court has carefully considered all pleadings,
memoranda, and other materials submitted by the parties. The court has further considered the
law and facts relevant to the parties’ motions. Now being fully advised, the court enters the
following Memorandum Decision and Order.
BACKGROUND
Hamlet is an insured under Commercial General Liability Policies issued by MidContinent, including, but not limited to, Policy No. 04-GL-000813880. Plaintiffs state that it is
not clear at this time which of the policies applies to the claims asserted by the HOA in the HOA
lawsuit because the HOA does not allege any dates when the alleged property damage occurred.
However, the provisions at issue have remained generally consistent throughout the various
policy periods. Therefore, Plaintiffs rely on the provisions in Policy No. 04-GL-000813880 (the
“Policy”).
Bear Hollow and Hamlet Development Corporation (“Hamlet Development”) are also
named as insureds under the Policy. The Policy provides coverage for executive officers,
directors, and managers with respect to their duties. Plaintiffs allege that all of the individual
Plaintiffs are officers, directors, or managers of the named insureds under the Policy: Michael
Brodsky is Chairman of Hamlet and Hamlet Development; John Aldous is President of Hamlet;
David Irwin is Vice President of Hamlet; and Phillip Turner was Vice President of Hamlet
Development from January 2005 to April 2006.
The Commercial General Liability Coverage Form under the Policy provides that
Mid-Continent will “pay those sums that the insured becomes legally obligated to pay as
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damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies.” The
Policy further provides that Mid-Continent has the “right and duty to defend the insured against
any ‘suit’ seeking those damages.”
On or about November 4, 2011, the HOA filed a lawsuit against Plaintiffs in the Third
Judicial District Court, Summit County, State of Utah. The HOA’s Complaint contains causes of
action for negligence; negligent misrepresentation; breach of contract and implied warranties;
breach of the declaration of covenants, conditions and restrictions; breach of the covenant of
good faith and fair dealing; piercing the corporate veil; fraudulent transfer; joint venture liability;
breach of director’s duties; violation of the Utah Consumer Sales Practices Act; and breach of
express warranties. The HOA also specifically alleges in its Complaint that there is “continued
severe water intrusion through siding, through and around windows, and under doors resulting in
damages to the common area property and construction components and voiding component
warranties as well as the loss of use of the Units and personal property within the Units.”
Plaintiffs tendered the defense of the HOA lawsuit to Mid-Continent. In response, MidContinent sent Hamlet a letter, dated December 12, 2011, stating that Mid-Continent “will not
participate in or contribute towards any settlement, indemnification and/or defense of this claim
on your behalf.” On January 19, 2012, Plaintiffs, through their counsel, sent a letter to MidContinent responding to the December 12 letter. Based on counsel’s letter, Mid-Continent
decided to conduct a further review of the Complaint in the HOA Lawsuit and the Policy. On
February 24, 2012, however, Mid-Continent informed Hamlet that it had concluded there was no
duty to defend or indemnify Plaintiffs in the HOA Lawsuit.
Plaintiffs filed the present case in state court, and Mid-Continent removed the case to this
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court. Mid-Continent filed its Answer on May 4, 2012. Plaintiffs filed the present Motion for
Partial Summary Judgment on July 3, 2012, three days before the parties completed their Rule 26
Conference and ten days before the parties filed their Attorneys’ Planning Meeting Report and
Scheduling Order. Therefore, no discovery was conducted in this case before Plaintiffs filed
their Motion for Partial Summary Judgment. It is unclear whether the parties have exchanged
their initial disclosures during the briefing of the motion.
DISCUSSION
Plaintiffs move for partial summary judgment on their Fourth Claim for Declaratory
Judgment, requesting an order from the court declaring that Mid-Continent has a duty to defend
Plaintiffs in the HOA lawsuit in Utah State Court. Mid-Continent opposed Plaintiffs’ motion
and filed a Rule 56(d) motion requesting four months of discovery before the court considers
Plaintiffs’ motion.
In Benjamin v. Amica Mut. Ins. Co., 140 P.3d 1210 (Utah 2006), the Utah Supreme Court
explained the required analysis concerning the duty to defend as follows:
When we engage in a duty-to-defend analysis, we focus on two documents: the
insurance policy and the complaint. “An insurer's duty to defend is determined by
comparing the language of the insurance policy with the allegations of the
complaint.” Fire Ins. Exch. v. Estate of Therkelsen, 2001 UT 48, ¶ 21, 27 P.3d
555 (internal quotation marks omitted); see also Nova Cas. Co. v. Able Constr.,
Inc., 1999 UT 69, ¶ 8, 983 P.2d 575; Sharon Steel v. Aetna Cas. & Sur., 931 P.2d
127, 133 (Utah 1997). In Therkelsen, we cited to an alternative formulation of this
rule: “‘The test is whether the complaint alleges a risk within the coverage of the
policy.’” 2001 UT 48, ¶ 21 n.3, 27 P.3d 555 (quoting Continental Cas. Co. v.
Alexis I. DuPont Sch. Dist., 317 A.2d 101, 103 (Del. 1974)).
Id. at 1214.
The parties in this case dispute whether extrinsic evidence can or should be used in
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determining Mid-Continent’s duty to defend. Plaintiffs argue that extrinsic evidence is legally
irrelevant and would be inappropriate to consider because the decision must be based solely on
the complaint and policy. Mid-Continent argues that its policy requires the claim to be a covered
by the policy and the court, therefore, needs to examine extrinsic evidence before determining its
duty to defend.
In Therkelsen, the court addressed the same debate. After providing the general rule that
courts look to the complaint and the policy language, the court stated, “however, this does not
end our inquiry.” 2001 UT ¶ 21. The court explained that the insurer’s duty to defend is separate
from the duty to indemnify and the duty to defend “‘arises solely under contract.” Id. ¶ 22.
“Whether extrinsic evidence is admissible to determine whether an insurer has a duty to defend
an insured turns on the parties’ contractual terms.” Id. ¶ 25. The court provided two examples,
one demonstrating policy language requiring the duty to defend determination to be based solely
on the allegations of the underlying complaint and one demonstrating policy language that would
require the court to consider extrinsic evidence in determining the insurer’s duty to defend an
underlying action. See id. ¶¶ 23, 24. The first example stated that the insurer would provide a
defense even if the allegations were groundless, false, or fraudulent. Id. ¶ 23. Whereas the
second example stated that the insurer would defend an insured against any covered claim or suit.
Id. ¶ 24. The court concluded that “[i]f the parties make the duty to defend dependent on the
allegations against the insured, extrinsic evidence is irrelevant to a determination of whether a
duty to defend exists. However, if, for example, the parties make the duty to defend dependent
on whether there is actually a ‘covered claim or suit,’ extrinsic evidence would be relevant to a
determination of whether a duty to defend exists.” Id. ¶ 25.
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The Policy in this case states that Mid-Continent “will have the right and duty to defend
the insured against any ‘suit’ seeking [damages because of bodily injury or property damage].
However, we will have no duty to defend the insured against any ‘suit’ seeking damages for
‘bodily injury’ or ‘property damage’ to which this insurance does not apply.”
Mid-Continent argues that based on the Complaint in the HOA Lawsuit, there is no
information on when the alleged property damage occurred and thus which Policy applies. MidContinent also asserts that it does not have enough information to determine whether the
individual Plaintiffs qualify as insureds under any applicable policy. Specifically, MidContinents asserts that it needs to discover facts related to: (1) the roles of the named individual
Plaintiffs with Hamlet Homes Corporation and/or Bear Hollow Restoration, LLC in order to
determine if these entities were additional insureds, as the Plaintiffs maintain, and (2) specific
facts regarding the HOA lawsuit and whether based upon those facts regarding the timing and
nature of the property damage claims there is any duty to defend or indemnify.
The court agrees that the Policy at issue in this case would allow the duty to defend to be
determined on extrinsic evidence. The Complaint in the HOA lawsuit is vague and creates
questions regarding coverage. Similarly, there are questions of fact as to coverage for the
individuals. Plaintiffs’ motion for summary judgment comes before the initiation of any
discovery. The court, therefore, believes Mid-Continent’s Rule 56(d) motion seeking leave to
conduct four month of discovery into issues related to its duty to defend Plaintiffs in the HOA
lawsuit is reasonable and appropriate. Accordingly, the court grants Mid-Continent’s Rule 56(d)
motion for Leave to Conduct Discovery and denies Plaintiffs’ motion for summary judgment
without prejudice, to be renewed at the close of the four-month discovery period.
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Under Utah law, however, the court notes that Mid-Continent has a duty to defend while
the issue is in doubt. “Where factual questions render coverage uncertain, as is the case here, the
insurer must defend until those uncertainties can be resolved against coverage. ‘When in doubt,
defend.’” Benjamin, 140 P.3d at 1215 (quoting Appleman on Insurance Law and Practice §
136.2[C] (2d ed. 2006)).
CONCLUSION
Based on the above reasoning, Plaintiffs’ Motion for Partial Summary Judgment is
DENIED WITHOUT PREJUDICE and Defendant’s Rule 56(d) Motion for Leave to Conduct
Discovery is GRANTED. The parties shall have four months from the date of this Order to
conduct discovery relevant to the issue of Mid-Continent’s duty to defend Plaintiffs in the HOA
lawsuit in state court.
Dated this 9th day of January, 2013.
BY THE COURT:
_______________________________
Dale A. Kimball,
United States District Judge
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