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State Farm Fire and Casualty Company, An Illinois v. Samuel Jong Chung

July 31, 2012

STATE FARM FIRE AND CASUALTY COMPANY, AN ILLINOIS CORPORATION, PLAINTIFF,
v.
SAMUEL JONG CHUNG, ET AL., DEFENDANTS.



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

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

On March 12, 2012, Plaintiff State Farm Fire and Casualty Company ("State Farm") filed its Motion for Summary Judgment ("Motion") and its separate and concise statement of facts in support of the Motion ("Motion CSOF"). Defendants Samuel Jong Chung and Linda Hyunkyong Chung ("Defendants" or "the Chungs") failed to timely file their memorandum in opposition.*fn1

The Court finds this matter suitable for disposition without a hearing pursuant to Rule LR7.2(d) of the Local Rules of Practice of the United States District Court for the District of Hawai`i ("Local Rules"). After careful consideration of the Motion and the relevant legal authority, State Farm's Motion is HEREBY GRANTED for the reasons set forth below.

BACKGROUND

I. Factual Background

State Farm filed its Complaint for Declaratory Judgment ("Complaint") on August 1, 2011 against Defendants. Defendants entered into an agreement with Brian and Debra Bennett ("the Bennetts") for the sale of a residence in Honolulu, Oahu ("the Property") on June 25, 2009. [Complaint at ¶ 9.] On May 3, 2011, the Bennetts commenced an action in the Circuit Court of the First Circuit, State of Hawai`i, Brian E. Bennett & Debra S. Bennett v. Samuel Jong Hoon Chung & Linda HyunKong Chung, Civil No. 11-1-0882-05 ("the Underlying Action"), for claims allegedly arising out of the purchase and sale of the Property. [Motion CSOF, Declaration of David R. Harada-Stone ("Harada-Stone Decl.") at ¶ 1.]

Each of the claims in the Underlying Action ("Bennett Complaint") alleges that Defendants failed to disclose material information about defects and other problems in the Property.

The Bennetts assert the following claims against Defendants: breach of contract ("Count I"); breach of implied covenant of good faith and fair dealing ("Count II"); fraud ("Count III"); intentional and negligent misrepresentation ("Count IV"); negligence ("Count V"); unjust enrichment ("Count VI"); unfair and deceptive trade practices ("Count VII"); and punitive damages ("Count VIII"). [Id. at ¶ 4.]

The Bennetts allege that, on or about May 3, 2009, Defendants completed a Sellers' Disclosure Statement in connection with the sale of the Property. According to the Bennett Complaint, Defendants failed to fully disclose current or past defects, malfunctions, and/or major repairs in the foundation and slab, interior walls and ceilings, settling, sliding, slippage, subsidence, and other soil problems, as well as drainage, water infiltration, seepage, flooding or other grading problems at the Property. [Id. at ¶ 2.]

The Bennetts allege that, after moving into the Property, they noticed that cracks on the walls had been filled with caulk or plastered over and that supporting posts had shifted and/or had lifted off their footings. The Bennetts further contend that Defendants had replaced cracked floor tiles but failed to disclose this and other repairs done to the Property in the Sellers' Disclosure Statement. [Id. at ¶ 3.]

At the time of the events alleged in the Underlying Action, Defendants were the named insureds under a State Farm Homeowners Policy, No. 51-BS-4370-3 (the "Homeowners Policy"), insuring the Property with a relevant policy period from July 26, 2008 through July 26, 2009.*fn2 [Id. at ¶ 5.] Defendants were also the named insureds under a State Farm Personal Liability Umbrella Policy, No. 51-B0-7524-0 ("the Umbrella Policy," both collectively, "the Policies") with a relevant policy period from May 21, 2008 through May 21, 2009.*fn3 [Id. at ¶ 7.]

In its Complaint, State Farm argues that the claims asserted against Defendants in the Underlying Action are not for "bodily injury" or "property damage" caused by a covered occurrence and thus, are not covered in the Homeowners Policy. [Complaint at ¶ 19.] State Farm further alleges that one or more of the exclusions in the Homeowners Policy precludes coverage. [Id.] These exclusions include:

1. Coverage L and Coverage M do not apply to:

a. bodily injury or property damage:

(1) which is either expected or intended by the insured; or

(2) which is the result of willful and malicious acts of the insured[.]

2. Coverage L does not apply to: . . . .

b. property damage to property currently owned by any insured;

c. property damage to property rented to, occupied or used by or in the care of any insured. . . .

[Harada-Stone Decl., Exh. 2 at 21-22 (emphases omitted).]*fn4

State Farm further alleges that the claims are not for a "loss" and thus are not covered under the Umbrella Policy. [Complaint at ¶ 20.] Additionally, State Farm contends that coverage for the claims are precluded by one or more of the exclusions in the Umbrella Policy, such as:

14. bodily injury or property damage which is:

a. either expected or intended by the insured; or

b. the result of any willful and malicious act of the insured;

17. personal injury when the insured acts with specific intent to cause any harm;

18. property damage to:

a. property owned by any insured on date of

loss; and . . . .

19. liability imposed on or assumed by any insured through any unwritten or written agreement[.]

[Harada-Stone Decl., Exh. 3 at 15 (emphases omitted).]

State Farm prays for the following relief: a binding declaration that it has no duty to defend and/or indemnify Defendants for the claims asserted against them in the Underlying Action or for any claims that may arise out of the subject matter of the Underlying Action; attorney's fees incurred in connection with the defense of Defendants in the Underlying Action; attorney's fees and costs incurred in the instant case; and such other relief as the Court may deem appropriate under the circumstances. [Complaint at pg. 10.]

II. Motion

In the instant Motion, State Farm moves for summary judgment on the grounds that the material facts relevant to the insurance coverage for which Defendants seek are not in dispute and State Farm is entitled, as a matter of law, to a ruling that it has no duty to defend or indemnify Defendants for the claims asserted against them in the Underlying Action. Further, State Farm argues that the owned property exclusion and the intentional acts exclusion preclude coverage. State Farm asserts that the claims for which Defendants seek coverage involve Defendants' alleged failure to disclose defects in the Property they sold, and the claims are not for "property damage" caused by an "occurrence" within the meaning of the Policies. [Mem. in Supp. of Motion at 1.]

A. The Homeowners Policy

The Homeowners Policy provides for defense and indemnification for covered claims for "damages because of bodily injury or property damage . . . caused by an occurrence[.]" [Harada-Stone Decl., Exh. 2 at 20 (emphases omitted).] Bodily injury is "physical injury, sickness, or disease to a person[;]" property damage is "physical damage to or destruction of tangible property, including loss of use of this property[;]" and an occurrence is defined, in pertinent part, as an "accident" which results in bodily injury or property damage. [Id. at 6-7.] The Homeowners Policy excludes from coverage damages that any insured expected or intended; or which were the result of willful and malicious acts of the insured. [Id. at 21.]

B. The Umbrella Policy

The Umbrella Policy states, in pertinent part: "[i]f a claim is made or suit is brought against an insured for damages because of a loss for which the insured is legally liable and to which this policy applies, we will pay on behalf of the insured the damages that exceed the retained limit." [Harada-Stone Decl., Exh. 3 at 12 (emphases omitted).] The Umbrella Policy provides coverage for a "loss," which is defined as, inter alia, an "accident, including accidental exposure to conditions, which first results in bodily injury or property damage during the policy period." [Id. at 8 (emphases omitted).] Further, the Umbrella Policy excludes from coverage, personal injury damages that any insured expected or intended, or which were the result of willful and malicious acts of the insured; or in which the insured acted with specific intent to cause harm. [Id. at 15.] Additionally, the Umbrella Policy excludes from coverage property damage to "property owned by any insured on the date of loss" and "liability imposed on or assumed by any insured through any unwritten or written agreement." [Id. (emphases omitted).]

State Farm contends that "[u]nder the 'complaint allegation rule,' the duty to defend is determined at the time that the defense is tendered to the insurer or the insurer otherwise is on notice that a complaint has been filed against its insured." [Mem. in Supp. of Motion at 12 (citing Dairy Road Partners v. Island Insurance Co. Ltd., 92 Haw. 398, 413, 992 P.2d 93, 108 (2000); Commerce & Indus. Ins. Co. v. Bank of Hawai`i, 73 Haw. 322, 326, 832 P.2d 733, 735 (1992)).] State Farm argues that the allegations in the underlying action dictate whether an insurer has a duty to defend the ...


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