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State Farm Fire and Casualty Co. v. Certified Management, Inc.

United States District Court, D. Hawaii

April 27, 2018



          Kenneth J. Mansfield United States Magistrate Judge

         Plaintiff State Farm Fire and Casualty Company (“State Farm”) filed its Motion for Summary Judgment Against All Defendants on December 27, 2017 (“Motion”). See ECF No. 30. Defendant Certified Management, Inc., dba Associa Hawaii (“Associa”) filed its Memorandum in Opposition to the Motion on February 22, 2018 (“Opposition”). See ECF No. 37. Defendant Regency at Poipu Kai (“Regency”) filed a Joinder to Associa's Opposition on February 23, 2018 (“Joinder”). See ECF No. 39. Plaintiff filed its Reply on March 1, 2018. ECF No. 40.

         The Court held a hearing on the Motion on March 15, 2018. Ashley R. Shibuya, Esq., appeared on behalf of State Farm. Wesley H.H. Ching, Esq., appeared on behalf of Associa, and John D. Marshall, Esq., appeared on behalf of Regency. After carefully considering the memoranda, arguments, and the record in this case, the Court GRANTS the Motion.


         Regency is a condominium association for a condominium located on Kaua'i. ECF No. 33 at ¶ 4. At all relevant times, Associa served as the managing agent for Regency, pursuant to a Fiscal & Administrative Property Management Agreement for Regency AOAO (“Management Agreement”). Id. at ¶ 13.

         This declaratory action arises out of a lawsuit filed by Frederick T. Caven, Jr. (“Caven”), on behalf of himself and a class of similarly situated persons, against Associa in the Circuit Court of the First Circuit, State of Hawai'i (“Underlying Lawsuit”).[1] State Farm asks this Court to find that, under the terms of an insurance policy issued by State Farm to Regency, State Farm has no duty to defend or indemnify Regency and Associa with respect to the Underlying Lawsuit. The facts of this case are generally undisputed.[2]

         I. The Underlying Lawsuit

         In the Underlying Lawsuit, Caven alleges that he was a previous co-owner of a condominium unit located on Kaua'i (“Unit”). ECF No. 33-3 at ¶ 31. “As an owner of the [Unit], [Caven] was required to be a member of two homeowners associations: Poipu Kai Association, and [Regency]” (collectively, “Associations”). Id. at ¶ 32.[3] Caven alleges that Associa was the managing agent for both Associations. Id. at ¶ 33.

         Caven alleges that he sold the Unit in or around April 2016. Id. at ¶ 34. In connection with the sale of the Unit, Caven had to provide the purchaser with condominium documents for both Associations, which Caven's real estate agent requested from Associa. Id. at ¶¶ 35-36. Associa provided Caven with a “link to an internet site where [Caven] could download the requested documents.” Id. at ¶ 37. Associa charged Caven a fee of $182.29 to download 197 pages of condominium documents for Regency. Id. at ¶ 38. In addition, Associa charged Caven $286.46 for a one-page “fee status confirmation, ” “a document prepared by [Associa] which contains financial and other information sufficiently detailed to comply with requests for information and disclosures related to the resale of [the Unit].” Id. at ¶ 40.

         Caven alleges that the fees Associa charged Caven and other unit owners for the condominium documents were excessive and in violation of Hawai'i law. Caven asserts the following clams against the Associa in the Underlying Lawsuit: (1) Count I - Violations of Haw. Rev. Stat. Chapter 514B; (2) Count II - Violations of Haw. Rev. Stat. Chapter 421J; and (3) Count III - Violations of Haw. Rev. Stat. Chapter 480. See ECF No. 33-3 at 13-16. Regency is not a party in the Underlying Lawsuit.

         II. State Farm's Insurance Policy to Regency

         Regency is the named insured on a residential community association policy issued by State Farm to Regency, Policy No. 91-BN-8879-2 (“Policy”). ECF No. 33 at ¶ 15. The coverage period for the Policy was from December 15, 2015, to December 15, 2016. Id.

         Caven initiated the Underlying Lawsuit on September 20, 2016. ECF No. 33 at ¶ 1. Associa asserts that, on or around October 3, 2016, Associa tendered its request for defense and indemnification of the claims in the Underlying Lawsuit to Regency pursuant to a defense and indemnity provision in the Management Agreement. ECF No. 36 at ¶ 24. Regency's board of directors subsequently submitted Associa's tender to State Farm for coverage under the Policy. Id. at ¶ 25. On October 27, 2016, State Farm informed Associa via e-mail that it would defend Associa in the Underlying Suit. See Id. at ¶ 26; see also ECF No. 33 at ¶ 17.

         The parties dispute whether State Farm's agreement to defend Associa in the Underlying Lawsuit was subject to a full reservation of rights by State Farm. Associa contends that it never received a reservation of rights from State Farm. ECF No. 36 at ¶ 28. State Farm, however, contends that it sent a letter to Associa, dated December 2, 2016, setting forth its reservation of rights as to its defense of Associa in the Underlying Lawsuit (“Reservation Letter”). ECF No. 41-3.

         III. The Present Lawsuit

         State Farm filed its Complaint in this case on February 8, 2017. ECF No. 1. State Farm filed its First Amended Complaint on October 2, 2017. ECF No. 24. Associa filed its Counterclaim for Declaratory Judgment (“Counterclaim”) against State Farm on October 12, 2017. ECF No. 27-1. In the Counterclaim, Associa seeks a declaratory judgment stating that, pursuant to the Policy, State Farm has a duty to defend and a duty to indemnify Associa in the Underlying Lawsuit, among other things. See Id. at 6.

         State Farm filed the instant Motion on December 27, 2017, seeking summary judgment as to its First Amended Complaint and Associa's Counterclaim.


         I. Summary Judgment

         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). Accordingly, this Court shall grant summary judgment if “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c).

         A moving party 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 moving party must 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. v. Catrett, 477 U.S. 317, 323 (1986)). “A fact is material if it could affect the outcome of the suit under the governing substantive law.” Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 987 (9th Cir. 2006).

         If the moving party meets its initial burden on a summary judgment motion, the “burden then shifts to the nonmoving party to establish, beyond the pleadings, that there is a genuine issue for trial.” Id. The nonmoving party may not rely on the mere allegations in the pleadings and instead “must set forth specific facts showing that there is a genuine issue for trial.” Porter v. Cal. Dep't of Corr., 419 F.3d 885, 891 (9th Cir. 2005) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256 (1986)). This means that the nonmoving party “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 (1986) (footnote omitted). “A genuine dispute arises if the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” California v. Campbell, 319 F.3d 1161, 1166 (9th Cir. 2003); Addisu v. Fred Meyer, Inc., 198 F.3d 1130, 1134 (9th Cir. 2000) (“There must be enough doubt for a ‘reasonable trier of fact' to find for plaintiffs in order to defeat the summary judgment motion.”).

         II. Diversity Jurisdiction

         This Court has diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332. Accordingly, this Court must apply Hawai‘i state law to determine whether State Farm has a duty to defend and a duty to indemnify Regency and Associa under the Policy. See Gasperini v. Ctr. for Humanities, Inc., 518 U.S. 415, 427 (1996) (“Under the Erie doctrine, federal courts sitting in diversity apply state substantive law and federal procedural law.”); Ill. Nat'l Ins. Co. v. Nordic PCL Constr., Inc., 870 F.Supp.2d 1015, 1028 (D. Haw. 2012) (applying state law to determine whether alleged construction defects were caused by “occurrence” as defined by the language in the insurance policy at issue). “When interpreting state law, a federal court is bound by the decisions of a state's highest court.” Progressive Cas. Ins. Co. v. Ferguson, 134 F.Supp.2d 1159, 1162 (D. Haw. 2001) (citing Ariz. Elec. Power Coop., Inc. v. Berkeley, 59 F.3d 988, 991 (9th Cir. 1995)). “In the absence of such a decision, a federal court must predict how the highest state court would decide the issue using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance.” In re Kirkland, 915 F.2d 1236, 1239 (9th Cir. 1990) (citation omitted).


         I. Hawai'i Insurance Coverage Law

         An insurer has a duty to indemnify its insured “for any loss or injury which comes within the coverage provisions of the policy, provided it is not removed from coverage by a policy exclusion.” Dairy Rd. Partners v. Island Ins. Co., 92 Haw. 398, 413, 992 P.2d 93, 108 (Haw. 2000). The Hawai'i Supreme Court has previously recognized that “[t]he obligation of an insurer to defend an insured is distinct from the duty to provide coverage.” Hart v. Ticor Title Ins. Co., 126 Haw. 448, 458, 272 P.3d 1215, 1225 (2012) (citing Pancakes of Haw., Inc. v. Pomare Prop. Corp., 85 Haw. 286, 291, 944 P.2d 83, 88 (1997)). “Indeed, an insurer's duty to defend is ‘broader than the duty to pay claims and arises wherever there is a mere potential for coverage[ ]' under a policy.” Id. (quoting Diary Road Partners, 92 Haw. at 412, 992 P.2d at 107. “All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured.” Id. (citations omitted).

         “Hawaii abides by the ‘complaint allegation rule, ' whereby the determination of whether an insurer has a duty to defend focuses on the claim and facts that are alleged.” State Farm Fire & Cas. Co. v. GP West, Inc., 190 F.Supp.3d 1003, 1014 (D. Haw. 2016) (citing Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d 940, 944 (9th Cir. 2004)); see also Hawaiian Holiday Macadamia Nut Co. v. Indus. Indem. Co., 76 Haw. 166, 170, 872 P.2d 230, 234 (1994) (citations omitted) (“The duty to defend is limited to situations where the pleadings have alleged claims for relief which fall within the terms for coverage of the insurance contract.”). “Where the pleadings fail to allege any basis for recovery within the coverage clause, the insurer has no obligation to defend.” Hawaiian Ins. & Guar. Co. v. Blair Ltd., 6 Haw.App. 447, 449726 P.2d 1310, 1312 (Ct. App. 1986). “Stated differently, ‘to have any effect at all, ' the duty to defend must be determined when the claim is initially asserted.” Hart, 126 Haw. at 458, 272 P.3d at 1225 (quoting Pancakes of Haw., 85 Haw. at 292, 944 P.2d at 89).

         “In determining whether coverage exists under a liability policy, Hawaii courts do not look at the way a litigant states a claim, but rather at the underlying facts alleged in the pleadings.” State Farm Fire & Cas. v. Elsenbach, No. CV 09-00541 DAE-BMK, 2011 WL 2606005, at *8 (D. Haw. June 30, 2011) (citing Oahu Transit Servs., Inc. v. Northfield Ins. Co., 107 Haw. 231, 238, 112 P.3d 717, 724 (2005); Bayudan v. Tradewind Ins. Co., 87 Haw. 379, 387, 957 P.2d 1061, 1069 (Ct. App. 1998)). “Furthermore, where a suit raises a potential for indemnification liability of the insurer to the insured, the insurer has a duty to accept the defense of the entire suit even though other claims of the complaint fall outside the policy's coverage.” Hawaiian Holiday, 76 Haw. at 169, 872 P.2d at 233 (citations and internal quotation marks omitted).

         “On a motion for summary judgment regarding its duty to defend, the insurer bears the burden of proving there is ‘no genuine issue of material fact with respect to whether a possibility exists that the insured would incur liability for a claim covered by the policy.'” GP West, Inc., 190 F.Supp.3d at 1014 (emphasis in Tri-S Corp.) (quoting Tri-S Corp. v. W. World Ins. Co., 110 Haw. 473, 488, 135 P.3d 82, 97 (2006)). “The insured's burden, on the other hand, is ‘comparatively light, because it has merely to prove that a possibility of coverage exists.'” Id. (emphasis in Tri-S Corp.) (quoting Tri-S Corp., 110 Haw. at 488, 135 P.3d at 97).

         II. State Farm's First Amended Complaint Against Regency and Associa

         A. Whether the Policy Requires State Farm to Defend and Indemnify Regency in the Underlying Lawsuit

         State Farm argues that, pursuant to the terms of the Policy, State Farm has no duty to defend or indemnify Regency with respect to the Underlying Lawsuit. See ECF No. 30-3 at 16-17. Neither Associa's Opposition nor Regency's Joinder address this argument. At the hearing on the Motion, Mr. Marshall stated on behalf of Regency that Regency does not oppose the Motion as to this issue. The Court thus considers State Farm's request for summary judgment against Regency as unopposed. “When a motion for summary judgment is unopposed, the motion should nonetheless be granted only when the movant's papers are themselves sufficient to support the motion, and the papers do not reveal a genuine issue of material fact.” Martin ...

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