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Gemini Insurance Co. v. Constrx Ltd.

United States District Court, D. Hawaii

September 24, 2018

GEMINI INSURANCE COMPANY, Plaintiff,
v.
CONSTRX LTD., Defendant.

          ORDER (1) DENYING GEMINI INSURANCE COMPANY'S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND (2) GRANTING CONSTRX LTD.'S COUNTER-MOTION FOR PARTIAL SUMMARY JUDGMENT RE: DUTY TO DEFEND

          Derrick K. Watson United States District Judge

         INTRODUCTION

         The parties seek a determination of Gemini's duties to defend and indemnify under commercial general liability ("CGL") policies issued to ConstRX Ltd. ("CRX") with respect to construction defect and other claims against CRX in arbitration. Because the Underlying Arbitration involves claims for which the possibility of coverage exists, due to the operative Revised Occurrence Endorsement, the Court DENIES Gemini's Motion for Partial Summary Judgment and GRANTS CRX's Counter-Motion for Partial Summary Judgment with respect to the duty to defend. Because Gemini's Motion also seeks a ruling regarding its duty to indemnify CRX, and under the circumstances, such a determination is premature pending resolution of the Underlying Arbitration, the Court denies the request without prejudice.

         BACKGROUND

         I. Factual Background

         A. The Underlying Arbitration

         In April 2012, CRX contracted with The Association of Apartment Owners of The Palm Villas at Mauna Lani Resort ("AOAO") to perform remedial construction repairs to condominium buildings and apartment units ("Construction Contract" or the "Project"). Under the Construction Contract, the AOAO was to pay CRX for its work on a Cost Plus Fee Basis, with a Guaranteed Maximum Price ("GMP") of $3, 827, 760. According to CRX, additive and deductive change orders were requested and approved by the AOAO during the course of the Project, which modified the total contract price/GMP to $4, 314, 700. By August 14, 2013, CRX asserts that it completed all work, including change orders and punchlist items, and by September 14, 2013, it had demobilized from the site. CRX contends that the AOAO paid it only $3, 677, 625 of the $4, 314, 700 it is owed. See CRX Arbitration Demand, Ex. A, Dkt. No. 43-2.

         On October 28, 2013, CRX filed a Demand for Arbitration against the AOAO with Dispute Prevention & Resolution ("DPR"), styled ConstRX, Ltd. vs. The Association of Apartment Owners of The Palm Villas at Mauna Lani Resort; et ah, DPR No. 13-0437-A (the "Underlying Arbitration"). Ex. A. The Demand alleges claims for breach of contract, breach of good faith and fair dealing, intentional misrepresentation, wrongful inducement, unjust enrichment, and other quasi-contractual and equitable claims. CRX demanded payment from the AOAO of the outstanding $637, 075. Id.

         On November 27, 2013, the AOAO's representative during the Project, Posard Broek Associates ("PBA"), issued a report entitled "Report - Summary of AOAO Claims" ("PBA Report"), which sets forth the AOAO's claims against CRX arising from the Project. Ex. B, Dkt. No. 43-3. The PBA Report describes the Project and summarizes the AOAO's claims, in part, as follows-

The existing Palm Villas at Mauna Lani project, located on the Kohala Coast of the Big Island of Hawaii, was found to have numerous original construction defects. KHA and ConstRX represented the Developer, Sunstone ML, LLC, during litigation and a mediated settlement was reached based on KHA's scope of repair and based on the ConstRX cost of repair.
ConstRX'S WORK
• A mediated settlement related to the original construction defects resulted in a contract between the Association of Apartment Owners (AOAO) and ConstRX, dated April 18, 2012, in which KHA (David Knox) agreed to provide architectural and engineering design services, including Construction Administration, and ConstRX Ltd. (David Knox) agreed to perform repairs to the subject project for a Cost-Pius With a Guaranteed Maximum Price (GMP) of $3, 827, 760.
• Remedial Construction started on July 2, 2012.
• Posard Broek Associates ("PB") was the Palm Villas Association of Apartment Owners' (AOAO) Owner's Representative during the repair project. ConstRX alleges to have completed the repair work and the "punch-list" items and demobilized from the site as of August 15, 2013. (EXHIBIT B)
• Some of ConstRX's work was deficient and required corrective work. The corrective work was inappropriately billed to the AOAO.
• ConstRX abandoned the Project prior to completing the corrective work, or the "Punch-list" items.
• ConstRX has not provided the contractually required Close-Out documents for final completion and payment.

         Ex. B at 3. The PBA Report details claims against CRX totaling $1, 232, 772.[1] Id.

         On May 1, 2014, the AOAO submitted its Opening Statement in the Underlying Arbitration. Ex. C, Dkt. No. 43-4. The five-day arbitration hearing commenced on May 5, 2014. Suppl. Decl. of Michael Barnette ¶ 3, Dkt. No. 58-1. On June 19, 2014, the AOAO submitted its Post-Arbitration Brief. Ex. M, Dkt. No. 28-3. In February 2015, the arbitrator entered a Final Award in favor of CRX, which the parties respectively sought to confirm and to vacate in the Circuit Court of the First Circuit, State of Hawaii. Decl. of Bruce Wakuzawa ¶ 6, Dkt. No. 54-2. The Circuit Court granted the AOAO's motion to vacate the Final Award, and on April 12, 2017, CRX filed a notice of appeal. Id. CRX's appeal of the Underlying Arbitration is pending before the Hawaii Intermediate Court of Appeals as of the date of this order. See AOAO of The Palm Villas at Mauna Lani Resort v. ConstRX, Ltd., Hawaii Judiciary Electronic Filing and Service System ("JEFS") No. CAAP-17-0000161, available at: https://jimspssl.courts.state.hi.us/JEFS (date of last filing May 15, 2018).

         B. The Gemini Policies

         Gemini issued to CRX a Commercial General Liability ("CGL") insurance policy under policy number VCGP020038, effective for the policy period of June 15, 2012 to June 15, 2013, Ex. D, Dkt. No. 43-5, and policy number VOGP001068, effective for the policy period of June 15, 2013 to June 15, 2014, Ex. E, Dkt. No. 43-6 (collectively, the "Policies"). Under the Policies, Gemini is obligated to pay for sums that CRX "becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies," and has the "right and duty to defend the insured against any 'suit' seeking those damages." Policies § I. 1.a. The coverage applies only if'"bodily injury' or "property damage' is caused by an 'occurrence' that takes place in the 'coverage territory'[.]" Policies § I. 1.b. The Policies include the following relevant definitions-

3. "Bodily injury" means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time.
* * *
17. "Property damage" means:
a. Physical injury to tangible property, including all resulting use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or b. Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the "occurrence" that caused it.

         Policies § V. Of particular note, Form VE 0493 09 10, entitled "Revised Occurrence Definition - State of Hawaii," modifies the coverage provided-

Solely with respect to any premises, site or location in Hawaii, the "occurrence" definition under the Definitions Section is replaced by the following:
"Occurrence" means an accident, including continuous or repeated exposure to the same general harmful conditions.
Faulty workmanship does not constitute an "occurrence". But when faulty workmanship performed by you or on your behalf causes "bodily injury" or causes "property damage" to property other than "your work", then such "bodily injury" or "property damage" will be considered caused by an "occurrence".

         Policies ("Revised Occurrence Endorsement"), Ex. I, Dkt. No. 43-11. "Your work," as defined in the Policies, means "(1) Work or operations performed by you or on your behalf; and (2) Materials, parts or equipment furnished in connection with such work or operations" and includes "(1) Warranties or representations made at any time with respect to the fitness, quality, durability, performance or use of 'your work', and (2) The providing of or failure to provide warnings or instructions." Policies § V.22.

         Coverage under the Policies is subject to the following exclusions-

a. Expected or Intended Injury "Bodily injury" or "property damage" expected or intended from the standpoint of the insured. This exclusion does not apply to "bodily injury" resulting from the use of reasonable force to protect persons or property.
b. Contractual Liability "Bodily injury" or "property damage" for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement. This exclusion does not apply to liability for damages:
(1) That the insured would have in the absence of the contract or agreement; or
(2) Assumed in a contract that is an "insured contract", provided the "bodily injury" or "property damage" occurs subsequent to the execution of the contract or agreement. Solely for the purposes of liability assumed in an "insured contract", reasonable attorney fees and necessary litigation expenses incurred by or for a party other than an insured are deemed to be damages because of "bodily injury" or "property damage", provided:
(a) Liability to such party for, or for the cost of, that party's defense has also been assumed in the same "insured contract"; and
(b) Such attorney fees and litigation expenses are for defense of that party against a civil or alternative dispute resolution proceeding in which damages to which this insurance applies are alleged.
* * *
j. Damage To Property
"Property damage" to:
* * *
(5) That particular part of real property on which you or any contractors or subcontractors working directly or indirectly on your behalf are performing operations, if the "property damage" arises out of those operations; or
(6) That particular part of any property that must be restored, repaired or replaced because "your work" was incorrectly performed on it.
* * *
Paragraph (6) of this exclusion does not apply to "property damage" included in the "products-completed operations ...

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