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American Automobile Insurance Co. v. Hawaii Nut & Bolt, Inc.

United States District Court, D. Hawaii

September 14, 2017

AMERICAN AUTOMOBILE INSURANCE COMPANY, a Missouri Corporation; NATIONAL SURETY CORPORATION, an Illinois Corporation, 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.


          Alan C Kay Sr., United States District Judge

         For the 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, 317.


         At 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.

         I. Claims in the Underlying Action

         On June 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 generally id.

         According 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.

         In the 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.[2] 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.

         Safeway 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.

         II. The Instant Action

         On June 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.

         The 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.

         On 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.

         The 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”).

         The Court held a hearing on the Brokers' Motion on September 5, 2017.


         Summary 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 Cir. 1999).

         “A 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).

         “An 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).


         I. The Brokers' Duties to HNB

         Both 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 4, 24.

         A. Developments in Hawaii's “Occurrence”-Based Insurance Law

         In 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, 2007).

         In 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. ...

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