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State Farm Fire and Casualty Company, An Illinoiscorporation v. Curtis L. Wimberly and Jocelyn B. Wimberly

July 6, 2012

STATE FARM FIRE AND CASUALTY COMPANY, AN ILLINOISCORPORATION,
PLAINTIFF,
v.
CURTIS L. WIMBERLY AND JOCELYN B. WIMBERLY, INDIVIDUALLY AND AS TRUSTEES OF THE CURTIS L. WIMBERLY AND JOCELYN B. WIMBERLY REVOCABLE TRUST, DEFENDANTS.



The opinion of the court was delivered by: J. Michael Seabright United States District Judge

ORDER GRANTING PLAINTIFF STATE FARM FIRE AND CASUALTY COMPANY'S MOTION FOR SUMMARY JUDGMENT

I. INTRODUCTION

Plaintiff State Farm Fire and Casualty Company ("State Farm") seeks a declaration under 28 U.S.C. § 2201 that it owes no duty to defend or indemnify its policyholders Defendants Curtis and Jocelyn Wimberly, Individually and as Trustees of the Curtis L. Wimberly and Jocelyn B. Wimberly Revocable Trust (collectively, "the Wimberlys"), against an action pending in the Circuit Court of the First Circuit, State of Hawaii ("the underlying action"). The complaint in the underlying action alleges claims related to a failure by the Wimberlys and their real estate agent to disclose the condition of a retaining wall on real property that the Wimberlys sold to Ronney Shimabukuro ("Shimabukuro").

Before the court is State Farm's Motion for Summary Judgment, seeking a ruling that it has no duty to defend and/or indemnify the Wimberlys for claims Shimabukuro is asserting against them in the underlying action because

(1) the claims do not assert "bodily injury," "property damage," or "personal injury" caused by an "occurrence" as defined in State Farm's insurance policy ("the Policy"), and (2) coverage is otherwise excluded under the Policy. Based on the following, the court finds that the complaint in the underlying action does not raise the possibility of coverage, and therefore GRANTS State Farm's Motion for Summary Judgment.

II. BACKGROUND

A. Factual Background

The court first describes the essential facts alleged against the Wimberlys in the underlying action. The allegations are not disputed by the parties and are assumed to be true for purposes of this declaratory relief action. See, e.g., Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944-45 (9th Cir. 2004) ("The focus is on the alleged claims and facts."). The court then sets forth the relevant provisions of the Policy.

1. The Underlying Action

By contract dated February 28, 2009, the Wimberlys sold real property located at 1583 Ala Lani Street in Honolulu, Hawaii to Shimabukuro, with a June 2009 closing. Doc. No. 18-3, Brown Decl. Ex. A ("Underlying Compl.") ¶¶ 7, 12. The Wimberlys were represented by real estate agent JoAnn Matsuo ("Matsuo") during the transaction. Id. ¶ 4, 7. As part of the transaction, the Wimberlys, assisted by Matsuo, prepared and delivered a "Seller's Real Property Disclosure Statement" to Shimabukuro. Id. ¶ 8. Shimabukuro, after taking possession of the property, allegedly cleared vegetation and discovered "patchwork repair and cracks and damages" to a retaining wall, and "learned that the wall was in imminent danger of collapse." Id. ¶ 14. The condition of the wall was not disclosed in the Seller's Real Property Disclosure Statement. Id. ¶ 10. The cost to repair the retaining wall and stabilize the land "exceeds $100,000." Id. ¶ 15.

On February 28, 2011, based on the sales transaction and the undisclosed condition of the retaining wall, Shimabukuro*fn1 filed the underlying action against the Wimberlys and Matsuo's firm. The underlying complaint makes the following relevant factual allegations:

8. On or about March 9, 2009, Sellers [the Wimberlys] prepared and delivered to Plaintiff [Shimabukuro] a "Seller's Real Property Disclosure Statement" in connection with the purchase of the Property.

10. In said "Seller's Real Property Disclosure Statement" the Sellers denied any knowledge of settling or slippage, sliding subsidence, or other soil problem and denied any knowledge of drainage, water infiltration, seepage, flooding, or grading problems, nor was any mention made of patchwork repairs to any retaining wall on the property.

11. Said denials and omissions were misrepresentations, as the Sellers, personally or through their agents, were aware, or should have been aware, that patchwork had been done on the retaining wall on the rear of the property, including the footings of the wall, specifically because the wall was no longer stable, due to earth movement and soil problems.

13. That Plaintiff relied upon the representations made in the "Seller's Real Property Disclosure Statement" in purchasing the property and was unaware of the cracks and unstable nature of the retaining wall due to the heavy growth of vegetation which concealed both the patchwork repairs and the cracks and damages to the retaining wall.

14. That subsequent to taking possession of the Property, Plaintiff cleared the vegetation and discovered the patchwork repair and cracks and damages to the retaining wall, and learned that the wall was in imminent danger of collapse, all of which was known, or should have been known in the exercise of reasonable care, by the Defendants, and each of them at the time the "Seller's Real Property Disclosure Statement" was prepared and delivered to Plaintiff and upon which Plaintiff was expected to rely.

Based on those factual allegations, the underlying complaint asserts claims against all the underlying defendants for misrepresentation (Count One), negligence (Count Two), breach of contract (Count Three), rescission (Count Four), unfair and deceptive trade practices (Count Five), and punitive damages (Count Six).

Because it is entitled "negligence," Count Two is particularly important for purposes of assessing whether the Wimberlys are entitled to insurance coverage. In relevant part, Count Two provides:

Based upon the above-described acts, Defendants are liable to the Plaintiff [Shimabukuro] for negligence by, among other things, failing to exercise reasonable care in preparing the "Seller's Real Property Disclosure Statement" and making the appropriate inquiries to determine the condition of the property, and/or failing to accurately complete the "Seller's Real Property Disclosure Statement", knowing that Plaintiff would rely upon the representations of Defendants and their agents.

Id. ¶ 19.

2. The Policy

State Farm insured the Wimberlys' premises at 1583 Ala Lani Street under a Rental Dwelling Policy, No. 91-BX-9370-9. Doc. No. 15-3, Miller Decl. Ex. 2 ("the Policy"). As clarified by State Farm's counsel at the oral hearing on the Motion, the Wimberlys -- as owners who are alleged to be residents and citizens of California at all relevant times -- were renting out the premises and thus were insured by a Rental Dwelling Policy. After the underlying action was filed, the Wimberlys tendered the action to State Farm. State Farm has provided the Wimberlys a defense of the underlying action, subject to a reservation of rights. See Doc. No. 1, Compl. ¶ 15.

The Policy contains the following relevant provisions (bold in original):

DEFINITIONS

1. "bodily injury" means bodily harm, sickness or disease. This includes required care, loss of services and death resulting therefrom[.]

5. "insured premises" means:

a. the residence premises[.] . . .

8. "occurrence", when used in Section II of this policy, means an accident, including exposure to ...


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