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The Charter Oak Fire Ins. Co. v. Endurance Am. Specialty Ins. Co.

United States District Court, D. Hawaii

August 20, 2014

THE CHARTER OAK FIRE INSURANCE COMPANY, Plaintiff,
v.
ENDURANCE AMERICAN SPECIALTY INSURANCE COMPANY, Defendant

Page 1297

For Charter Oak Fire Insurance Company, The Charter Oak Fire Insurance Company, Plaintiff: Mark D. Peterson, LEAD ATTORNEY, PRO HAC VICE, Cates Peterson LLP, Newport Beach, CA; Sheree A. Kon-Herrera, Wesley H.H. Ching, LEAD ATTORNEYS, Fukunaga Matayoshi Hershey Ching & Kop, Honolulu, Hi.

For Endurance American Specialty Insurance Company, Defendant: John S. Edmunds, Joy S. Omonaka, Ronald J. Verga, LEAD ATTORNEYS, Edmunds & Verga, Honolulu, HI.

Page 1298

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT

Susan Oki Mollway, Chief United States District Judge.

I. INTRODUCTION.

This motion calls upon the court to determine whether Endurance American Specialty Insurance Company owes VSE Corporation a duty to defend it from state-court claims arising out of an explosion that killed five people. VSE's insurer, The Charter Oak Fire Insurance Company, moves for summary judgment, asking this court to rule that Endurance owes a duty to defend VSE from those claims. Charter Oak also seeks a determination that Endurance's insurance policy is " primary" to Charter Oak's insurance policy. Charter Oak contends that the requested rulings require Endurance to reimburse Charter Oak for money spent defending VSE from such claims, and to provide VSE with a defense going forward. The court grants Charter Oak's motion with the caveat that any reimbursement obligation is limited to reasonable defense expenditures, the amount of which the record does not allow the court to determine.

II. BACKGROUND FACTS.

VSE had a contract with the federal government to destroy seized fireworks. VSE subcontracted with Donaldson Enterprises, Inc., to have Donaldson destroy those fireworks. See ECF No. 23-3. On April 11, 2011, an explosion occurred where the fireworks were being stored that killed Bryan Dean Cabalce, Kevin Donor Freeman, Neil Benjamin Sprankle, Robert Leahey, and Justin Joseph Kelii. All five were Donaldson employees who were in the process of destroying the fireworks at the time of the explosion.

Four suits were filed in state court arising out of the deaths of the five Donaldson employees. The court refers to these actions as the " Liability Suits." See ECF Nos. 23-4 to 23-7. Each suit asserts similar claims arising out of the same facts. Id. Each of the suits has been removed to federal court. See Civ. Nos. 12-00373 JMS/RLP, 12-00376, JMS/RLP 12-00377 JMS/RLP, and 12-00391 JMS/RLP.

The complaint filed in connection with the death of Bryan Dean Cabalce, for example, alleges that, on or about April 8, 2011, Cabalce was killed in an explosion at a storage facility in which confiscated fireworks were being stored and destroyed. That complaint alleges that Cabalce was employed by Donaldson, which had been hired by VSE to store, transport, destroy, and dispose of illegal fireworks that had been seized by the federal government.

Page 1299

See ECF No. 23-4, ¶ ¶ 14-16, 21, PageID # 322. The complaint asserts: 1) that VSE was negligent in a number of ways (Count I); that Thomas E. Blanchard & Associates, hired by VSE to inspect, monitor, and supervise the warehousing, storage, and destruction of the fireworks by Donaldson, was also negligent (Count II); 3) that VSE and Thomas E. Blanchard & Associates were liable for punitive damages (Count III); 4) that Defendants HIDC Small Business Storage, LLC; Hawaiian Island Development Co., Inc.; Hawaiian Island Homes Ltd.; Hawaiian Island Commercial Ltd.; and Ford Island Ventures, LLC, were the owners, lessees, and/or managing entities of the storage facility at which the explosion occurred and were also negligent (Count IV); and 5) that all the defendants were liable " under the theories of strict liability for breach of warranty, defective design, conducting an ultra-hazardous activity, breach of implied warranty of habitability, implied warranty of fitness for a particular purpose, other applicable warranties, respondeat superior, res ipsa loquitur, agency liability, partnership liability, and/or otherwise." ECF No. 23-4, ¶ 51, PageID # 330 (Count V).

Charter Oak, part of the Travelers insurance group, insured VSE under Policy Number P-630-1133x365-COF-11 for the policy period from January 1, 2011, through January 1, 2012. See ECF No. 23-14. Charter Oak has been providing VSE with a defense in the Liability Suits. See ECF No. 23-8.

On or about August 27, 2013, Charter Oak sent a demand to Endurance that Endurance reimburse Charter Oak for $637,672.98 that Charter Oak said it had paid defending VSE in the Liability Suits. See ECF No. 23-12, PageID # 414. By the time the present motion was filed, Charter Oak had apparently paid $968,000. See ECF No. 22-1, PageID # 255. By the time the reply memorandum was filed, that amount may have grown to " nearly $1.5 million." See ECF No. 72, PageID # 1031. The court is not here determining what Charter Oak actually paid in defending the Liability Suits, noting only that it claims to have spent a significant amount in that defense and to be spending more as time passes.

Charter Oak seeks reimbursement of VSE's defense costs on the ground that VSE is an additional insured under the policy Endurance issued to Donaldson. See ECF No. 23-2 (copy of Policy Number ECC101003708-02 for policy period from November 15, 2010, to November 15, 2011). That policy includes Endorsement Number 5, which modifies the policy's Commercial General Liability Coverage. Endorsement Number 5 states, " Any person(s) or organization(s) whom the Named Insured agrees, in a written contract, to name as an additional insured . . . . for the project specified in that contract . . . . is included as an insured, but only with respect to that person's or organization's vicarious liability arising out of [Donaldson's] ongoing operations performed for that insured." ECF No. 23-2, PageID # 308. There is no dispute that VSE qualifies as an organization that Donaldson agreed in a written contract was an additional insured. According to Endorsement Number 16 to the Endurance policy, the Endurance policy is " primary" to other insurance. See id., PageID # 309.

The Commercial General Liability Coverage included in the Endurance policy provides that, for " occurrences" taking place during the " policy period," Endurance " will pay those sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies." ECF No. 23-2, PageID # 287. The policy defines " occurrence" as " an accident, including

Page 1300

continuous or repeated exposure to substantially the same general harmful conditions." Id., PageID # 296. The policy has multiple exclusions from coverage, including one for " pollution." Id., PageID # 289. That exclusion excludes coverage for the following:

" Bodily injury" or " property damage" arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of " pollutants" . . . [a]t or from any premises, site or location which is or was at any time used by or for any insured or others for the handling, storage, disposal, processing or treatment of waste.

See copy of policy attached to Concise Statement of Endurance, ECF No. 26-9, PageId # 782-83. The policy defines " Pollutants" as " any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed." ECF No. 23-2, PageID # 296.

On or about August 16, 2012, Endurance " agreed to defend VSE against the [Cabalce] Lawsuit subject to a reservation of rights," noting that " there are significant coverage issues." See ECF No. 23-9, PageID # 393.

On October 17, 2013, Endurance reiterated that it had " previously agreed to defend VSE pursuant to a reservation of rights" and that it would " continue to defend VSE pursuant to a reservation of rights." See ECF No. 23-13, PageID # 417. Endurance reserved the right to withdraw from that defense and seek reimbursement for all funds paid for the defense. Id. Although the record includes statements by Endurance agreeing to defend VSE, Endurance has paid nothing towards VSE's defense.

On August 23, 2013, HIDC Small Business Storage, LLC, a storage facility defendant in the Liability Suits, filed a complaint in state court seeking a declaration that Endurance had a duty to defend and indemnify it under the insurance policy Endurance had issued to Donaldson. See ECF No. 26-11. Endurance filed a third-party complaint in that action against VSE on October 21, 2013, three days before Charter Oak filed the Complaint in the present action. The third-party complaint sought a declaration that Endurance had no duty to defend VSE (First Claim for Relief) or indemnify VSE (Second Claim for Relief) with respect to the Liability Suits. See ECF No. 26-2. On November 25, 2013, about one month after Charter Oak had filed the suit now before this court, VSE filed a counterclaim in state court against Endurance seeking a declaration that Endurance owed a duty to defend and indemnify VSE with respect to the Liability Suits. See ECF No. 26-12, PageID #s 922-29. The record before this court does not indicate the progress of the state-court coverage case since that time.

III. SUMMARY JUDGMENT STANDARD.

Summary judgment shall be granted when " the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a) (2010). See Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000). The movants must support their position that a material fact is or is not genuinely disputed by either " citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits or declarations, stipulations (including those made for the purposes of the motion only), admissions, interrogatory answers, or other materials" ; or " showing that the materials cited do not establish

Page 1301

the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Fed.R.Civ.P. 56(c). One of the principal purposes of summary judgment is to identify and dispose of factually unsupported claims and defenses. Celotex Corp. v. Catrett, 477 U.S. 317, 323-24, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Summary judgment must be granted against a party that fails to demonstrate facts to establish what will be an essential element at trial. See id. at 323. A moving party without the ultimate burden of persuasion at trial--usually, but not always, the defendant--has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment. Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102 (9th Cir. 2000).

The burden initially falls on the moving party to identify for the court those " portions of the materials on file that it believes demonstrate the absence of any genuine issue of material fact." T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass'n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp., 477 U.S. at 323). " When the moving party has carried its burden under Rule 56(c), its opponent must do more than simply show that there is some metaphysical doubt as to the material facts." Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (footnote omitted).

The nonmoving party must set forth specific facts showing that there is a genuine issue for trial. T.W. Elec. Serv., Inc., 809 F.2d at 630. At least some " 'significant probative evidence tending to support the complaint'" must be produced. Id. (quoting First Nat'l Bank of Ariz. v. Cities Serv. Co., 391 U.S. 253, 290, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)). See Addisu, 198 F.3d at 1134 (" A scintilla of evidence or evidence that is merely colorable or not significantly probative does not present a genuine issue of material fact." ). " [I]f the factual context makes the non-moving party's claim implausible, that party must come forward with more persuasive evidence than would otherwise be necessary to show that there is a genuine issue for trial." Cal. Arch'l Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th Cir. 1987) (citing Matsushita Elec. Indus. Co., 475 U.S. at 587). Accord Addisu, 198 F.3d at 1134 (" There must be enough doubt for a 'reasonable trier of fact' to find for plaintiffs in order to defeat the summary judgment motion." ).

All evidence and inferences must be construed in the light most favorable to the nonmoving party. T.W. Elec. Serv., Inc., 809 F.2d at 631. Inferences may be drawn from underlying facts not in dispute, as well as from disputed facts that the judge is required to resolve in favor of the nonmoving party. Id. When " direct evidence" produced by the moving party conflicts with " direct evidence" produced by the party opposing summary judgment, " the judge must assume the truth of the evidence set forth by the nonmoving party with respect to that fact." Id.

IV. THE COURT DECLINES TO STAY THIS ACTION PENDING THE OUTCOME OF THE STATE-COURT DECLARATORY RELIEF INSURANCE COVERAGE CLAIMS.

This court begins by examining whether it should reach the merits of the insurance coverage issues before it, given the coverage case pending in state court. The plaintiff in that case, a storage facility defendant in the Liability Suits, seeks a defense and indemnification from Endurance.

Page 1302

Endurance, three days before the lawsuit now before this court was filed, filed a third-party complaint in state court against VSE, seeking a declaration that it owed VSE neither a duty to defend nor a duty to indemnify with respect to the Liability Suits.

" [T]he power to stay proceedings is incidental to the power inherent in every court to control the disposition of the causes on its docket with economy of time and effort for itself, for counsel, and for litigants." Landis v. N. Am. Co., 299 U.S. 248, 254, 57 S.Ct. 163, 81 L.Ed. 153 (1936). See Leyva v. Certified Grocers of Cal., Ltd., 593 F.2d 857, 864 (9th Cir. 1979) (" [T]he court may order a stay of [an] action pursuant to its power to control its docket and calendar and to provide for a just determination of the cases pending before it." ). In addition, " the Declaratory Judgment Act has been understood to confer on federal courts unique and substantial discretion in deciding whether to declare the rights of litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 286, 115 S.Ct. 2137, 132 L.Ed.2d 214 (1995).

Consistent with the nonobligatory nature of the remedy, a district court is authorized, in the sound exercise of its discretion, to stay or to dismiss an action seeking a declaratory judgment before trial or after all arguments have drawn to a close. In the declaratory judgment context, the normal principle that federal courts should adjudicate claims within their jurisdiction yields to considerations of practicality and wise judicial administration.

Id. at 288 (footnote omitted).

That discretion, however, is not unfettered. See Gov't Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998) (en banc). Guidance on whether to stay an insurance coverage action pending resolution of an underlying state court action is provided by Brillhart v. Excess Insurance Co. of ...


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