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Gemini Insurance Company v. Kukui`Ula Development Company (Hawaii)

February 29, 2012

GEMINI INSURANCE COMPANY,
PLAINTIFF,
v.
KUKUI`ULA DEVELOPMENT COMPANY (HAWAII), LLC; DMB KUKUI`ULA, LLC; KDC, LLC; DMB ASSOCIATES (HAWAII), INC.; AND A & B PROPERTIES, INC., ET AL., DEFENDANTS.



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

ORDER DENYING DEFENDANTS/COUNTER CLAIMANTS/THIRD-PARTY PLAINTIFFS KUKUI'ULA DEVELOPMENT COMPANY (HAWAII), LLC, DMB KUKUI'ULA, LLC, KDC, LLC, DMB ASSOCIATES (HAWAII), INC. AND A&B PROPERTIES, INC.'S MOTION TO DISMISS CERTAIN UNDERWRITERS AT LLOYDS' CROSS CLAIM

Before the Court is Kukui'ula Development Company (Hawaii), LLC; DMB Kukui'ula, LLC; KDC, LLC; DMB Associates (Hawaii), and A&B Properties, Inc.'s (collectively "KDC") Motion to Dismiss Certain Underwriters at Lloyds' Cross Claim, Pursuant to Fed. R. Civ. P. 12(b)(6) ("Motion"), filed on December 21, 2011. Certain Underwriters at Lloyds ("Lloyds") filed its opposition on January 31, 2012, and KDC filed its reply on February 7, 2012. Plaintiff Gemini Insurance Company ("Plaintiff" or "Gemini") filed a Statement of No Position on January 31, 2012.

This matter came on for hearing on February 21, 2012.

BACKGROUND

KDC was engaged in the planning, development, and construction of the Kukui'ula Residential Community Project on Kaua`i ("Project"). KDC purchased different insurance policies from the three carriers in this action: (1) a Commercial General Liability ("CGL") policy from Gemini for September 23, 2005 to September 23, 2008 ("Gemini Policy"); (2) a CGL policy from Lloyds for September 23, 2008 to September 23, 2010 ("Lloyds Policy"); and (3) a Pollution Legal Liability policy from Indian Harbor Insurance Company ("Indian Harbor Policy"). The Gemini and Lloyds policies are both CGL policies, which were issued for consecutive two and three-year periods.

In 2009, three lawsuits were filed against KDC, arising out of the work performed on the Project: (1) Schredder v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09-1-0045, Circuit Court of the Fifth Circuit, State of Hawai`i; (2) Hawaiian Insurance & Guaranty Co., Ltd. v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09-1-0046, Circuit Court of the Fifth Circuit, State of Hawai`i; and (3) Ass'n of Apartment Owners of Lawai Beach Resort v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09-1-0109, Circuit Court of the Fifth Circuit, State of Hawai`i (collectively "Underlying Actions"). In addition to the Underlying Actions, Patti Erickson ("Erickson") presented a claim to KDC for alleged damage to her property caused by work performed on the Project ("Erickson claim"). Erickson has not filed suit.

On November 2, 2009, Plaintiff filed a Complaint for declaratory judgment against KDC. Plaintiff filed a Supplemental Complaint adding Lloyds as an additional defendant on August 31, 2011, claiming that Lloyds owes Gemini reimbursement of defense fees under the Lloyds Policy.

On November 18, 2011, KDC filed a First Amended Cross- Claim against Lloyds, seeking a declaration that Lloyds owes it a duty to provide coverage under the Lloyds Policy for the Underlying Actions, Erickson claim, and various additional claims. [KDC's First Amended Cross-Claim (dkt. no. 135) at ¶¶ 26-34 .] KDC also alleges breach of the implied covenant of good faith and fair dealing and bad faith with respect to the duty to settle. [Id. at ¶¶ 35-65.] Lloyds filed its Answer and Cross- Claim on December 1, 2011 ("Lloyds' Cross-Claim"), alleging a claim for declaratory relief that coverage is excluded under the Lloyds Policy, and that it has no duty to defend or indemnify KDC. [Lloyds' Cross-Claim (dkt. no. 157-1) at ¶¶ 19-26 .]

I. KDC's Motion

KDC moves to dismiss Lloyds' Cross-Claim, arguing that Lloyds previously agreed to provide coverage for KDC subject to a reservation of rights, but that Lloyds has never contributed to the defense of the Underlying Actions. Instead, Lloyds filed its Cross-Claim, which KDC argues it should be estopped from doing, given its unreasonable failure to defend KDC. [Motion at 2-3.] The Lloyds Policy includes the following relevant insuring language:

SECTION I -- COVERAGES

COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY

1. Insuring Agreement.

a. We will pay those sums in excess of the Retained Amount that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages. 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. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result. But:

(1) The amount we will pay for damages and "defense expenses" is limited as described in SECTION III LIMITS OF INSURANCE; and

(2) Our right and duty to defend ends when we have used up the applicable Limits of Insurance in the payment of judgments, settlements and/or "defense expenses" under Coverage A or B.

Our obligation to defend any claim or "suit" is governed by DEFENSE AND SETTLEMENT -- COVERAGES A AND B. "Defense expenses" reduce the applicable Limits of Insurance.

b. This insurance applies to "bodily injury" and "property damage" which is not included in the "products-completed operations hazard" only if:

(1) The "bodily injury" or "property damage" is caused by an "occurrence that takes place in the coverage territory"; and

(2) The "bodily injury" or "property damage" occurs during the policy period. . . . .

[Lloyds' Cross-Claim at ¶ 14.]

The Lloyds Policy also includes the following relevant

exclusions:

2. Exclusions.

This insurance does not apply to:

a. Expected or Intended Injury

"Bodily injury" or "property damage" expected or intended from the standpoint of the insured. This exclusion does not apply to "bodily injury" resulting from the use of reasonable force to protect persons or property. . . . .

f. Pollution

(1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of "pollutants":

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured. However, this subparagraph does not apply to:

(i) "Bodily injury" if sustained within a building and caused by smoke, fumes, vapor or soot from equipment used to heat that building;

(ii) "Bodily injury" or "property damage" for which you may be held liable, if you are a contractor and the owner or lessee of such premises, site or location has been added to your policy as an additional insured at that premises, site or location and such premises, site or location is not or never was owned or ...


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