United States District Court, D. Hawaii
AMERICAN AUTOMOBILE INSURANCE COMPANY, a Missouri Corporation; NATIONAL SURETY CORPORATION, an Illinois Corporation, Plaintiffs,
HAWAII NUT & BOLT, INC. AND SAFEWAY INC., Defendants. SAFEWAY INC.; HAWAII NUT & BOLT, INC. Counterclaim Plaintiffs
AMERICAN AUTOMOBILE INSURANCE COMPANY, a Missouri Corporation; NATIONAL SURETY CORPORATION, an Illinois Corporation, Counterclaim Defendants. and DOUGLAS MOORE, MONARCH INSURANCE SERVICES, INC., a Hawaii Corporation, and INSURANCE ASSOCIATES, INC., a Hawaii Corporation, Additional Counterclaim Defendants.
ORDER DENYING COUNTERCLAIM DEFENDANTS DOUGLAS MOORE,
MONARCH INSURANCE SERVICES, INC., AND INSURANCE ASSOCIATES,
INC.'S MOTION FOR SUMMARY JUDGMENT AND SUBSTANTIVE
Kay Sr., United States District Judge
reasons set forth below, the Court DENIES
Plaintiffs/Counterclaim Defendants Monarch Insurance
Services, Inc. and Douglas Moore's Motion for Summary
Judgment, to which Insurance Associates, Inc. and Douglas
Moore have filed a substantive joinder. ECF Nos. 313, 315,
issue in this matter is the alleged failure of Douglas Moore
and the companies with which he was affiliated, Monarch
Insurance Services, Inc. and Insurance Associates, Inc.
(collectively, “Brokers”) to procure for Hawaii
Nut & Bolt (“HNB”) adequate insurance
coverage for a dispute over defects related to the
construction of a Safeway store in Hawaii. The Brokers have
moved for summary judgment here on two issues: (1) what
duties the Brokers owed to HNB; and (2) whether certain
attorneys' fees are recoverable.
Claims in the Underlying Action
22, 2009, Safeway filed a complaint in the First Circuit
Court of the State of Hawaii (“Underlying
Complaint” or “UC”). Third Am. Counterclaim
(“TACC”) ¶ 16, ECF No. 206; Brokers'
Concise Statement of Facts (“Brokers' CSF”),
Ex. 3, Compl., Safeway Inc. v. Nordic PCL Constr.,
Inc., No. 09-1-1414-06 (Haw. Cir. Ct. June 22, 2009).
The Underlying Complaint involved issues pertaining to the
construction of the roof deck at a Safeway store on Kapahulu
Avenue in Honolulu, Hawaii (“Kapahulu Safeway”).
See generally UC. In particular, the Underlying
Complaint focused on the failure of the “VersaFlex
Coating System, ” a group of products used to
waterproof the roof deck of the Kapahulu Safeway. See
to the Underlying Complaint, Safeway relied on HNB and
VersaFlex's representations that the VersaFlex Coating
System was adequate for its intended use in connection with
the Kapahulu Safeway project and would perform as intended,
notwithstanding Hawaii's ultraviolet exposure. UC
¶¶ 20-23. HNB also proposed to Safeway “the
option of deleting the UV and color resistant aliphatic top
coat” of the VersaFlex Coating System to save costs.
Id. ¶ 27. However, shortly after the Kapahulu
Safeway opened, the store began to experience water leaks
from the roof deck, and Safeway alleged that it was
“apparent that the VersaFlex Coating System was
failing” because of the cracks and failures in the
waterproof membrane in the roof deck. Id. ¶ 33.
According to Safeway, the deletion of the aliphatic top coat
contributed to its damages. Id. ¶ 30.
Underlying Complaint, Safeway brought claims against various
defendants, including a products liability claim, among
others, against HNB as the distributor of the allegedly
defective VersaFlex products. See generally id. HNB
notified its insurers American Automobile Insurance Co. and
National Surety Corp. (collectively, Fireman's Fund
Insurance Corp., “FFIC, ” or the
“Insurers”) of the claims. See TACC
¶ 42. The Insurers defended HNB during the litigation
subject to a reservation of rights letter regarding coverage.
Id.; see HNB CSF ¶ 24.
and HNB settled the Underlying Complaint on February 12, 2016
and entered into a stipulated judgment in favor of Safeway in
the amount of $8 million. Brokers' CSF ¶¶ 15,
17. In the Settlement Agreement, HNB assigned to Safeway all
of its claims against the Brokers in exchange for a mutual
release of liability and a covenant not to execute the
stipulated judgment. Id. ¶ 16.
The Instant Action
29, 2015, the Insurers filed a Complaint for Declaratory
Judgment against HNB in this Court. Compl., ECF No. 1. The
Complaint sought a binding declaration that under the
insurance policies HNB had purchased, the Insurers had no
duty to further defend and/or indemnify HNB for the claims
asserted in the Underlying Action. Id.
Insurers had issued to HNB three Commercial General Liability
(“CGL”) policies and three umbrella and excess
policies (collectively, “Policies”) relevant to
the Underlying Action. Brokers' CSF ¶ 4. HNB
purchased the Policies through Douglas Moore, who was
affiliated with Monarch Insurance Associates and later
Insurance Associates, Inc. Id. ¶¶ 2-3. The
CGL policies had limits of $1 million per occurrence and the
umbrella and excess policies had limits of $5 million per
policy period. Id. ¶ 4. The Policies covered
property damage caused by an “occurrence” taking
place in the coverage territory. Order at 7, ECF No. 193;
Brokers' CSF ¶ 5. The Polices defined an
“occurrence” as “[a]n accident including
continuous or repeated exposure to substantially the same
general harmful conditions.” Order at 7, ECF No. 193.
William Hayes, the owner of HNB, believed that he was covered
for any claims that could be brought against HNB.
Brokers' CSF ¶ 6.
September 4, 2015, HNB filed a counterclaim against the
Insurers. ECF No. 14. HNB then amended its counterclaim twice
to join Safeway, by virtue of the assignment, and to add the
Brokers as Counterclaim Defendants. See ECF Nos. 45,
64. The Insurers moved to dismiss the Second Amended
Counterclaim on September 7, 2016. ECF No. 104. The Brokers
took no position on the motion to dismiss. ECF Nos. 179, 189.
The Court granted the Insurers' motion with leave to
amend on December 16, 2016. Order, ECF No. 193. With respect
to allegations that the Insurers breached the insurance
contracts, “the Court conclude[d] that none of the
claims [in the Underlying Action] are covered by the
Policies....” See id. at 35; see also
id. at 27, 29-30, 34. Safeway and HNB filed the
operative Third Amended Counterclaim on January 13, 2017,
which contained claims against both the Insurers and the
Brokers. ECF No. 206. The Insurers have now settled their
declaratory judgment action and the counterclaims against
them, which settlement has been determined to have been in
good faith. ECF No. 350.
remaining claims in this action are against the Brokers for:
(1) breach of contract; (2) negligence; (3) promissory
estoppel; and (4) breach of fiduciary duty. TACC ¶¶
168-93. The Brokers previously moved for summary judgment on
the basis that the release in the settlement agreement in the
Underlying Action precluded HNB and Safeway from proving
damages. See ECF Nos. 293, 307. This Court denied
the Brokers' motion on June 27, 2017. ECF No. 342. On May
12, 2017, Monarch Insurance and Mr. Moore then filed the
instant motion for summary judgment, to which Insurance
Associates and Mr. Moore filed substantive joinders on May 15
and May 16. ECF Nos. 313, 315, 317 (“Motion”).
HNB and Safeway filed their Opposition on August 15, 2017.
ECF No. 351 (“Opp.”). The Brokers filed their
Reply on August 22, 2017. ECF No. 354 (“Reply”).
Court held a hearing on the Brokers' Motion on September
judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as
a matter of law. Fed.R.Civ.P. 56(a). Federal Rule of Civil
Procedure (“Rule”) 56(a) mandates summary
judgment “against a party who fails to make a showing
sufficient to establish the existence of an element essential
to the party's case, and on which that party will bear
the burden of proof at trial.” Celotex Corp. v.
Catrett, 477 U.S. 317, 322 (1986); see also
Broussard v. Univ. of Cal., 192 F.3d 1252, 1258 (9th
party seeking summary judgment bears the initial burden of
informing the court of the basis for its motion and of
identifying those portions of the pleadings and discovery
responses that demonstrate the absence of a genuine issue of
material fact.” Soremekun v. Thrifty Payless,
Inc., 509 F.3d 978, 984 (9th Cir. 2007) (citing
Celotex, 477 U.S. at 323); see also Jespersen v.
Harrah's Operating Co., 392 F.3d 1076, 1079 (9th
Cir. 2004). “When the moving party has carried its
burden under Rule 56[(a)] its opponent must do more than
simply show that there is some metaphysical doubt as to the
material facts [and] come forward with specific facts showing
that there is a genuine issue for trial.”
Matsushita Elec. Indus. Co. v. Zenith Radio, 475
U.S. 574, 586-87 (1986) (citation and internal quotation
marks omitted); see also Anderson v. Liberty Lobby,
Inc., 477 U.S. 242, 247-48 (1986) (stating that a party
cannot “rest upon the mere allegations or denials of
his pleading” in opposing summary judgment).
issue is ‘genuine' only if there is a sufficient
evidentiary basis on which a reasonable fact finder could
find for the nonmoving party, and a dispute is
‘material' only if it could affect the outcome of
the suit under the governing law.” In re
Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing
Anderson, 477 U.S. at 248). When considering the
evidence on a motion for summary judgment, the court must
draw all reasonable inferences on behalf of the nonmoving
party. Matsushita Elec. Indus. Co., 475 U.S. at 587;
see also Posey v. Lake Pend Oreille Sch. Dist. No.
84, 546 F.3d 1121, 1126 (9th Cir. 2008) (stating that
“the evidence of [the nonmovant] is to be believed, and
all justifiable inferences are to be drawn in his
favor”) (internal citation and quotation omitted).
The Brokers' Duties to HNB
parties agree that in Hawaii, “[a]n insurance agent
owes a duty to the insured to exercise reasonable care,
skill, and diligence in carrying out the agent's duties
in procuring insurance.” Quality Furniture, Inc. v.
Hay, 61 Haw. 89, 93, 595 P.2d 1066, 1068 (Haw. 1979);
see Motion at 8; Opp. at 12. While recognizing that
they owed duties to HNB, the Brokers nevertheless assert
these duties did not include anticipating the Intermediate
Court of Appeals' (“ICA”) decision in
Group Builders, Inc. v. Admiral Insurance Co., 123
Haw. 142, 231 P.3d 67 (Haw. App. Ct. 2010) - a duty on which
they contend HNB and Safeway's claims depend.
See Motion at 7. However, the Brokers' Motion
itself rests on the premise that a reasonable jury could not
find that the Brokers breached duties owed to HNB independent
of Group Builders. In their Opposition HNB and
Safeway contest this premise, asserting that a reasonable
jury could find that the Brokers owed duties to HNB under the
law that existed at the time the Policies were procured,
including the Ninth Circuit's decision in Burlington
Insurance Co. v. Oceanic Design & Construction,
Inc., 383 F.3d 940 (9th Cir. 2004). See Opp. at
Developments in Hawaii's
“Occurrence”-Based Insurance Law
2010, the ICA held in Group Builders that
“construction defect claims do not constitute an
‘occurrence' under a CGL policy, ” and thus
contract and contract-based tort claims arising from shoddy
performance were not covered under CGL policies. See
123 Haw. at 148-49, 231 P.3d at 73-74. In so holding, the ICA
extensively discussed the Ninth Circuit's 2004 holding in
Burlington. See id. at 146-48, 231 P.3d at
71-73. In Burlington, the Ninth Circuit,
interpreting Hawaii law, held that contract-based
construction defect claims were not covered
“occurrences” under a standard CGL policy.
See 383 F.3d at 946-48. Prior to 2010 when Group
Builders was decided, courts in this district applied
Burlington to find that contract-based claims were
not covered occurrences under CGL policies. See,
e.g., Burlington Ins. Co. v. United Coatings Mfg.
Co., Inc., 518 F.Supp. 1241, 1249-51 (D. Haw. 2007);
State Farm Fire & Cas. Co. v. Lau, CV No.
06-00524 DAE-BMK, 2007 WL 1288153, at *5-6 (D. Haw. Apr. 30,
2011, the Hawaii Legislature passed Act 83 out of a concern
that Group Builders would affect coverage that was
understood to exist for ongoing projects. See H.B.
No. 924, 26thLeg., Reg. Sess. (Haw. 2011). Under
Act 83, for a construction liability policy, “the
meaning of the term ‘occurrence' shall be construed
in accordance with the law as it existed at the time that the
insurance policy was issued.” Act 83, as codified
at Haw. Rev. Stat. § 431:1-217(a). Subsequent to
the passage of Act 83, courts in this district have continued
to find that policies issued before Group Builders
and after Burlington continue to fall within the
Ninth Circuit's Burlington analysis. See,
e.g., Ill. Nat'l Ins. ...