Allstate Vehicle & Prop. Ins. Co. v. Shri Krishna, Inc.

• Decision Date: 13 May 2020
• Docket Number: NO. 6:19-CV-6037,6:19-CV-6037
• Parties: ALLSTATE VEHICLE AND PROPERTY INSURANCE COMPANY and ALLSTATE INDEMNITY COMPANY PLAINTIFFS v. SHRI KRISHNA, INC.; KALPA MODI; VIPUL MODI; and CSG ENTERPRISES, INC. DEFENDANTS
• Court: U.S. District Court — Western District of Arkansas

ALLSTATE VEHICLE AND PROPERTY INSURANCE COMPANY andALLSTATE INDEMNITY COMPANY PLAINTIFFS v. SHRI KRISHNA, INC.; KALPA MODI;

VIPUL MODI; and CSG ENTERPRISES, INC. DEFENDANTS

NO. 6:19-CV-6037

UNITED STATES DISTRICT COURT WESTERN DISTRICT OF ARKANSAS HOT SPRINGS DIVISION

May 13, 2020

MEMORANDUM OPINION AND ORDER

I. INTRODUCTION

Before the court is a motion for summary judgment (ECF No. 33) filed by the Plaintiffs, Allstate Vehicle and Property Insurance Company ("AVPIC") and Allstate Indemnity Company ("AIC") (collectively, the "Allstate Plaintiffs"). The Allstate Plaintiffs ask the court to declare they have no duty to defend or indemnify Shri Krishna, Inc., Vipul Modi, and Kalpa Modi, in a state court lawsuit under the terms of a homeowners policy or an umbrella policy. Shri Krishna and the Modis have filed responses opposing the motion (ECF Nos. 40, 43, 46), and the Allstate Plaintiffs have filed a reply. (ECF No. 49). The motion is ready for consideration. For the reasons that follow, the motion for summary judgment will be GRANTED.

II. BACKGROUND

A. The Underlying Lawsuit

In January 2016, CSG Enterprises, Inc., leased a commercial building to operate a fitness center. CSG leased the premises from Shri Krishna, Inc., and the leased premises were located at 150 Peters Point, Hot Springs, Arkansas 71913. Vipul Modi signed the lease on Shri Krishna's behalf. During this time, Vipul and his wife, Kalpa, were the sole shareholders of Shri Krishna, Inc. Under the lease, Shri Krishna had a duty to maintain the exterior portion of the premises, including the roof. The lease contemplated defective roof conditions, and it placed an obligation on Shri Krishna to repair defects.

In the spring of 2016, CSG alleges it noticed leaks and notified Vipul of the need to repair the roof. According to CSG, Vipul Modi subsequently communicated the repairs had taken place. However, CSG alleges the leaks persisted and that it continued to advise Vipul about the need for repairs. The roof collapsed on March 24, 2017, causing CSG to vacate the property and cease its business operations. CSG sued Shri Krishna and the Modis in Garland County Circuit Court. CSG confined its claims to breach of the contract and fraud, and it did not sue for damages deriving from the collapse of the roof. For the breach of contract claim, CSG alleges the Modis and Shri Krishna breached their obligations as landlords by failing to repair the roof. The fraud claim is based on the allegation that Vipul Modi provided misrepresentations insisting the repairs had occurred. In addition to its claims for damages, CSG requests the state court to pierce Shri Krishna's corporate veil and hold Vipul and Kalpa as jointly and severally liable for all damages owed to CSG.

B. Complaint for Declaratory Relief and Motion for Summary Judgment

Following the filing of CSG's lawsuit, the Modis tendered the suit to the Allstate Plaintiffs. The Allstate Plaintiffs responded by retaining counsel to represent the Modis pursuant to a full reservation of rights.¹ During the time the roof collapsed, Vipul and Kalpa were insured under policies issued by the Allstate Plaintiffs, which consisted of a homeowners policy issued by AVPIC and an umbrella policy issued by AIC. Shri Krishna was not listed as an insured under these policies. Furthermore, the insured premises were located at a different address than the premises at issue in the underlying lawsuit, i.e., the building leased by CSG.

The Allstate Plaintiffs filed the current action, seeking a declaration there was no duty to defend or indemnify in the underlying lawsuit. In their motion for summary judgment, the Allstate Plaintiffs contend they owe no duties to Shri Krishna because Shri Krishna is not named as an insured in the policies; CSG's claims fail to constitute an occurrence providing coverage under the policies; and CSG's claims are excluded by the terms of the policies. In response, the Modis and Shri Krishna emphasize that Vipul and Kalpa were not parties to CSG's lease. They suggest summary judgment is premature because this fact has not been developed in the underlying lawsuit. However, the duty to defend is ordinarily determined by the allegations in the pleadings, irrespective of their validity. Cincinnati Ins. Companies v. Collier Landholdings, LLC, 614 F. Supp. 2d 960, 968 (W.D. Ark. 2009). The Modis remain as defendants in the underlying lawsuit. Thus, it is appropriate for the Court to rule on the summary judgment motion and determine what duties, if any, are owed by the Plaintiffs.

C. The Homeowners Policy

The Homeowners Policy was issued by AVPIC, and Vipul and Kalpa Modi are listed as the insureds. The insured premises consist of a property located at 219 Peters Point, Hot Springs, Arkansas 71913. Regarding losses covered and the duty to defend, the policy contains the following language:

Section II—Family Liability And Guest Medical Protection Family Liability Protection-Coverage X

Losses We Cover Under Coverage X:

Subject to the terms, conditions and limitations of this policy, we will pay damages which an insured person becomes legally obligated to pay because of ... property damage arising from an occurrence to which this policy applies, and is covered by this part of the policy.

We may investigate or settle any claim or suit for covered damages against an insured person. If an insured person is sued for these damages, we will provide a defense with counsel of our choice, even if the allegations are groundless, false or fraudulent. We are not obligated to pay any claim or judgment after we have exhausted our limit of liability.

(ECF No. 2-2, Homeowners Policy at 37) (emphasis in original).

The policy defines "property damage" as "physical injury to or destruction of tangible property, including loss of its use resulting from such physical injury or destruction." (Id. at 19). The term "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions during the policy period, resulting in ... property damage." (Id. at 18-19) (emphasis in original).

Furthermore, the Homeowners Policy specifies and describes the following relevant exclusions:

Losses We Do Not Cover Under Coverage X:

1. We do not cover any ... property damage intended by, or which may reasonably be expected to result from the intentional or criminal acts or omissions of, any insured person. This exclusion applies even if:

a) such insured person lacks the mental capacity to govern his or her conduct;

b) such ... property damage is of a different kind or degree than intended or reasonably expected; or

c) such ... property damage is sustained by a different person than intended or reasonably expected.

...

12. We do not cover ... property damage arising out of the past or present business activities of an insured person.²

...

15. We do not cover any liability an insured person assumes arising out of any contract or agreement.

(Id. at 37-38) (emphasis in original).

D. The Umbrella Policy

The Umbrella Policy was issued by AIC. Vipul and Kalpa Modi are listed as the policyholders. The policy provides excess liability coverage for property damage under Sections 1 and 2 of Coverage XL.³ Regarding AIC's duty to defend, Coverage XL states:

DEFENSE WE WILL PROVIDE

We will defend an insured person sued as the result of an occurrence covered by this policy. We will not defend any insured person against any claim for punitive or exemplary damages.

When defense is provided by the insurer providing the Required Underwriting Insurance or any other liability insurance, we maintain the right to join in the defense of any claim or suit which may require us to pay.

If the insured person fails to maintain the Required Underlying Insurance, we will not defend any insured person for any amount of damages falling within the Required Underlying Insurance limits.

We may be prevented from defending an insured person, in any country, due to laws or for other reasons. In that event, we will pay any expense incurred, with our written consent, for the insured person's defense.

We may investigate and settle any claim or suit as we consider appropriate.

(ECF No. 2-3, Umbrella Policy at 17).

Under the provision entitled "Required Underlying Insurance" the policy states:

You must maintain the Required Underlying Insurance policy. You must maintain the Required Underlying Insurance at or above the limits as shown on the Policy Declarations ·Required Underlying Limit· at all times for each liability exposure any insured person has. If you fail to maintain the Required Underlying Insurance policy applicable to the occurrence, there will be no coverage for any insured person under this policy until the damages exceed the Required Underlying Insurance limit for that exposure. If the underlying insurance applicable to the occurrence does not provide at least the limits required under this section of this policy, you will be responsible for the damages up to the Required Underlying Insurance amounts.

(Id. at 12).

The coverage provision in Section 1 states:

Under Section 1 of the policy, we will pay damages which an insured person becomes legally obligated to pay because of ... property damage arising out of an occurrence that is both a loss we cover under Excess Liability Insurance — Bodily Injury and Property Damage — Section 1 of this policy and a covered loss under your Required Underlying Insurance Policy.

(Id. at 13). "Property damage" is defined as "physical harm to or destruction of tangible property, including loss of its use resulting from such physical harm or destruction." (Id. at 10). An "occurrence" means "an accident during the policy period, including continued and repeated exposure to substantially the same general harmful conditions during the policy period, resulting in ... property damage." (Id.) (emphasis in original).

Section 1 only covers occurrences arising out of: (1) the personal activities of an insured person; (2)...