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Axis Surplus Insurance v. Mccarthy/Kiewit

January 12, 2012

AXIS SURPLUS INSURANCE
LEK-BMK COMPANY, A GEORGIA CORPORATION; AND RSUI INDEMNITY COMPANY, A NEW HAMPSHIRE CORPORATION, PLAINTIFFS,
v.
MCCARTHY/KIEWIT, A JOINT VENTURE; MCCARTHY BUILDING COMPANIES, INC., A MISSOURI ) CORPORATION; KIEWIT PACIFIC CO., A DELAWARE CORPORATION; AND ARCH INSURANCE COMPANY, A MISSOURI CORPORATION, DEFENDANTS.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

ORDER GRANTING DEFENDANTS'

MOTION TO STAY OR DISMISS ACTION Before the Court are Defendants McCarthy/Kiewit Joint Venture ("MKJV"), McCarthy Building Companies, Inc. ("McCarthy"), and Kiewit Infrastructure West Co.'s ("Kiewit," all three collectively "Defendants") Motion to Stay or Dismiss Action ("Motion"), filed September 30, 2011, and Defendant Arch Insurance Company's ("Arch") Joinder in the Motion ("Joinder"), filed October 3, 2011. Plaintiffs RSUI Indemnity Company ("RSUI") and Axis Surplus Insurance Company ("Axis," collectively "Plaintiffs") filed their memorandum in opposition on December 13, 2011. Defendants filed their reply on December 20, 2011. This matter came on for hearing on January 3, 2012. Appearing on behalf of Defendants were Alan Van Etten, Esq., and Edward Weiman, Esq., appearing telephonically on behalf of Arch was Lee Howard Graham, Esq., appearing on behalf of Plaintiffs was Keith Hiraoka, Esq., appearing telephonically on behalf of Axis was Joyce Wang, Esq., and appearing telephonically on behalf of RSUI was Denis Shanagher, Esq. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Defendants' Motion and Arch's Joinder are GRANTED for the reasons set forth below, and the instant action is HEREBY STAYED.

BACKGROUND

Defendants ask the Court to stay or dismiss this federal action in favor of a parallel action currently pending in Missouri state court. According to Defendants, on May 2, 2005, Kaiser Foundation Health Plan, Inc. ("Kaiser") hired MKJV to act as the general contractor for the construction of an addition to, and renovation of, Kaiser's Moanalua Medical Center (the "Project"). [Mem. in Supp. of Motion at 3, Declaration of Edward Weiman ("Weiman Decl."), Exh. A ("Missouri Complaint") at ¶¶ 2, 14).] In connection with its work on the Project, MKJV purchased primary and excess liability insurance from Arch, RSUI, and Axis (collectively, the "MKJV Policies"). [Id. (citing Missouri Complaint at ¶ 18).] MKJV purchased its primary insurance from Arch, which issued a commercial general liability ("CGL") policy with MKJV as the named insured to provide insurance coverage for liability arising out of the construction and maintenance work on the Project (the "Arch Policy"). The Arch Policy was effective from June 6, 2005, through October 15, 2010, and contains limits of liability of one million dollars per occurrence. [Id. at 4 (citing Missouri Complaint at ¶¶ 18-19).] MKJV purchased its first and second layers of excess insurance from RSUI (the "RSUI Policy") and Axis (the "Axis Policy"). The RSUI Policy was effective from June 6, 2005, through October 15, 2010. The Axis Policy was effective from June 6, 2005, through October 15, 2010, and contains a Missouri-specific endorsement which expressly states that the Axis Policy was "procured and developed under the Missouri Surplus Lines Laws." [Id. (citing Missouri Complaint, Exh. C (Axis Policy Endorsement H)).]

In the underlying Missouri case, Kaiser has asserted a claim against MKJV for damages resulting from allegedly deficient construction work on the Project. Kaiser alleges that faulty work on the part of MKJV and/or its subcontractors caused certain flooring surfaces throughout the Project to delaminate or bubble up from the concrete substrate below. Kaiser has further alleged that the certain portions of the floors at the Project are not level. [Id. at 5.] MKJV tendered the claim to Arch, RSUI and Axis pursuant to the MKJV Policies. Arch accepted MKJV's tender and agreed to defend MKJV under a reservation of rights.*fn1 [Id. at 6 (citing Missouri Complaint at ¶¶ 18-19).] According to Defendants, RSUI and Axis have refused to participate meaningfully in settlement discussions, investigate the underlying claim, or confirm or deny coverage under their respective policies. [Id.]

On August 19, 2010, Axis and RSUI filed a complaint for declaratory relief against Defendants and Arch in Hawai'i state court, which was not served on Defendants until September 22, 2010, and which Defendants later removed to this Court. [Weiman Decl. at ¶ 10.] On September 17, 2010, Defendants filed a complaint against Arch, Axis, and RSUI in the Circuit Court for the County of St. Louis, State of Missouri, for breach of contract, anticipatory breach of contract, breach of the implied covenant of good faith and fair dealing, insurance bad faith, and declaratory judgment ("Missouri Action"). [Mem. in Supp. of Motion at 8-9.] On October 26, 2010, Plaintiffs filed a First Amended Complaint in this Court, naming the exact same parties as the Missouri Action.

I. Motion

Defendants argue that a stay or dismissal of this declaratory action is warranted under Brillhart v. Excess Insurance Co. of America, 316 U.S. 491 (1942), and other relevant authority, on the following grounds:

(1) a stay or dismissal of this action is necessary to prevent the needless determination of state law issues by this Court;

(2) a stay or dismissal of this action is proper to discourage improper forum shopping by RSUI and AXIS; and,

(3) the simultaneous litigation of identical claims and defenses in two different forums raises the potential for inconsistent and irreconcilable outcomes in this action and the Missouri action. [Motion at 2.]

Defendants maintain that "when a state court action is pending presenting the same issue of state law as is presented in the federal declaratory suit, 'there exists a presumption that the entire suit should be heard in state court.'" [Mem. in Supp. of Motion at 12 (quoting Cont. Cas. Co. v. Robsac Indus., 947 F.2d 1367, 1370-71 (9th Cir. 1991) (emphasis Defendants')).]

A. Issues Arising Under State Law

Defendants first argue that the regulation of insurance is an area of state law which Congress expressly left to the states, and that the instant action requires the needless determination of issues that arise solely under state law. Defendants state that the scope of the Missouri Action is broader than the instant action, however, the relief sought in the Missouri Action is identical to the relief sought here; specifically, an adjudication of the parties' respective rights and obligations under the MKJV Policies. Both actions require an adjudication of issues which, Defendants argue, are matters of state law. [Id. at 13-14.]

The additional claims alleged in the Missouri Action are contractual counts and a cause of action for bad faith refusal to settle the claim, a separate tort under Missouri law. In the event that RSUI is found to have wrongly denied its duty to defend MKJV after its obligation to do so was triggered, it will also be subject to liability under Missouri statutory authority which prohibits insurers from denying their coverage obligations "without reasonable cause or excuse." [Id. at 14 (quoting Mo. Rev. Stat. § 375.296).] Further, while the action before this Court seeks only equitable relief, Defendants note that the Missouri Action seeks monetary relief that is unavailable here, including statutory damages against RSUI and Axis pursuant to section 375.420 of the Revised Statutes of Missouri with regard to their bad faith refusal to settle within the MKJV Policy limits. Defendants argue that the state law issues here are integral to the much broader Missouri Action, which implicates additional state common law and statutory claims. [Id.]

B. Forum Shopping

Next, Defendants argue that the instant case constitutes "reactive litigation," which the Ninth Circuit has included within the notion of forum shopping. The term is generally applied to situations where an insurer files a federal declaratory judgment action after its insured files a non-removable state court action. [Id. at 15 (citing Robsac, 947 F.2d at 1372).] According to Defendants, the Ninth Circuit in Robsac was addressing reactive litigation filed in federal court with an intent to avoid being named in a non-removable state court proceeding, and that the reasoning in Robsac applies with equal force here, because RSUI and Axis filed a Hawai'i state court complaint in response to MKJV's claim for coverage, even though MKJV had not yet filed a Missouri state court action. They state that RSUI and Axis did so without waiting for the results of their investigation into the claims, and prior to a long-scheduled mediation of the underlying claim and any attendant insurance disputes. [Id. at 16.]

Defendants argue that forum shopping is an issue here because both actions concern a contractual dispute between six parties who are not Hawai'i residents, although two reside in Missouri (McCarthy and Arch). They argue that both actions concern insurance policies that were contracted for, negotiated, and delivered in Missouri, and, while the underlying claim itself arises out of construction work done at a Hawai'i hospital, that dispute is not before the Court. Instead, the only issues before the Court are the contractual rights and obligations of parties to Missouri insurance contracts. According to Defendants, permitting this action to go forward "when there is a pending state court case presenting the identical issue would encourage forum shopping in violation of the second Brillhart principle." [Id. at 17 (quoting Robsac, 947 F.2d at 1372-73).]

C. Duplicative Litigation

Finally, Defendants argue that permitting this action to proceed will result in duplicative litigation, thereby raising comity concerns because of the potential for inconsistent results involving state law issues. According to Defendants, permitting the instant federal action to go forward is a waste of judicial resources. They argue that here, the two actions are mirror images of each other, with the sole exception of the additional state law claims alleged in the Missouri Action. They assert that there is the potential for two conflicting declarations of the parties' respective rights and obligations under the MKJV Policies. [Id.]

Further, they argue that the instant action would not entirely resolve all of the disputes between the parties, creating an additional danger that these disputes will have to be litigated piecemeal in two different courts, perhaps applying two different bodies of insurance law. The Missouri state court can resolve all of the issues raised in the instant action, but this Court is not presented with the additional claims alleged in the Missouri Action. Defendants argue that, if they were to prevail in this action, they would still have to pursue the remainder of their contractual, non-contractual, and statutory claims in the Missouri Action. [Id. at 18.]

II. Plaintiffs' Memorandum in Opposition

Plaintiffs argue in their opposition that, because this first-filed coverage dispute involves a Hawai'i project, and involves the nature of the alleged defects in the Project, Hawai'i is the obvious and only forum for this case. They urge the Court to retain jurisdiction over this case and resolve the parties' disputes. Plaintiffs argue that Defendants' claims filed in the Missouri Action are compulsory counter-claims to the instant declaratory relief action and should have been filed as such either in the Hawai'i Circuit Court or promptly upon removal to this Court. They assert that they originally filed for declaratory relief in the Hawai'i Circuit Court because Hawai'i law applies to the parties' obligations under the policies. "MKJV chose to file a separate action in ...


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