Cincinnati Ins. Co. v. Amsco Windows

• Citation: 921 F.Supp.2d 1226
• Decision Date: 05 February 2013
• Docket Number: Civil No. 2:10–CV–00542 BSJ.
• Court: United States District Courts. 10th Circuit. United States District Court of Utah
• Parties: The CINCINNATI INSURANCE COMPANY, an Ohio Corporation, Plaintiff, v. AMSCO WINDOWS, a Utah Corporation; and Arrowood Indemnity Company, as successor to Royal Indemnity Company and American & Foreign Insurance Company, a Delaware Corporation, Defendants; AMSCO Windows, a Utah Corporation, Counterclaim Plaintiff, v. The Cincinnati Insurance Company, an Ohio Corporation, Counterclaim Defendant.

921 F.Supp.2d 1226

The CINCINNATI INSURANCE COMPANY, an Ohio Corporation, Plaintiff,

v.AMSCO WINDOWS, a Utah Corporation; and Arrowood Indemnity Company, as successor to Royal Indemnity Company and American & Foreign Insurance Company, a Delaware Corporation, Defendants;

AMSCO Windows, a Utah Corporation, Counterclaim Plaintiff,

v.The Cincinnati Insurance Company, an Ohio Corporation, Counterclaim Defendant.

Civil No. 2:10–CV–00542 BSJ.

United States District Court,

D. Utah,

Central Division.

Feb. 5, 2013.

Barbara K. Berrett, Berrett & Associates LLC, Salt Lake City, UT, for Plaintiff/Counterclaim Defendant.

Justin P. Matkin, Stephen E.W. Hale, Parr Brown Gee & Loveless, Nathan D. Alder, Sarah E. Spencer, Christensen & Jensen PC, Salt Lake City, UT, Evan B. Sorensen, Tressler LLP, Irvine, CA, for Defendant/Counterclaim Plaintiff.

MEMORANDUM OPINION & ORDER

(Fed.R.Civ.P. 56)

BRUCE S. JENKINS, Senior District Judge.

On June 10, 2010, plaintiff Cincinnati Insurance Company (“Cincinnati”) commenced this action seeking a declaratory judgment that Cincinnati has no duty to defend or indemnify AMSCO under the terms of its commercial general liability insurance policies and commercial umbrella liability policies with respect to “any claims in the Third Party Complaints filed by J & L Windows, Inc. (‘J & L’) and other various claimants ... against AMSCO, in any and all actions arising out of or related to construction of homes located in various subdivisions in Nevada,” including several civil cases pending before the Nevada state district courts.¹ Further, Cincinnati “seeks a determination that it owes no duty of equitable contribution or indemnity” to Arrowood Indemnity Company (“Arrowood”) “for defense costs and/or fees paid by it on AMSCO's behalf as a result of the underlying litigation.” ² In turn, both AMSCO and Arrowood filed answers and counterclaims against Cincinnati, seeking “a declaratory judgment findingthat Cincinnati is required to defend and indemnify AMSCO from the Nevada claims and lawsuits and that Cincinnati is obligated to reimburse AMSCO for its litigation expenses incurred as a result of Cincinnati's refusal to extend coverage under its policies,” ³ as well as a declaratory judgment that Cincinnati owes Arrowood “a duty of equitable contribution or indemnity for defense costs and/or fees paid by ARROWOOD on behalf of AMSCO” as a result of the same Nevada claims and lawsuits.⁴

The Declaratory Judgment Act reads in pertinent part:

In a case of actual controversy within its jurisdiction ..., any court of the United States, upon the filing of an appropriate pleading, may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought.

28 U.S.C. § 2201(a) (2012 ed.). The Declaratory Judgment Act does not provide an independent basis for jurisdiction. Rather, it provides courts with discretion to fashion a remedy in cases where federal jurisdiction already exists. Heydon v. MediaOne of Southeast Mich., Inc., 327 F.3d 466, 470 (6th Cir.2003). In this case, the subject matter jurisdiction to hear Cincinnati's declaratory judgment action properly arises out of diversity jurisdiction pursuant to 28 U.S.C. § 1332(a), and there exists “a substantial controversy between parties having adverse legal interests, of sufficient immediacy and reality to warrant the issuance of a declaratory judgment.” Md. Cas. Co. v. Pac. Coal & Oil Co., 312 U.S. 270, 273, 61 S.Ct. 510, 85 L.Ed. 826 (1941). Accordingly, the Court finds that Cincinnati's claims and the counterclaims of AMSCO and Arrowood present a justiciable controversy under 28 U.S.C. § 2201(a).

“In a diversity action,” including one seeking declaratory relief, “we apply the substantive law of the forum state, including its choice of law rules.” Pepsi–Cola Bottling Co. of Pittsburg, Inc. v. PepsiCo, Inc., 431 F.3d 1241, 1255 (10th Cir.2005) (citing Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 495–97, 61 S.Ct. 1020, 85 L.Ed. 1477 (1941)); Stickley v. State Farm Mut. Auto. Ins. Co., 505 F.3d 1070, 1076 (10th Cir.2007). Indeed,

In cases arising under diversity jurisdiction, the federal court's task is not to reach its own judgment regarding the substance of the common law, but simply to “ ‘ascertain and apply the state law.’ ” Wankier v. Crown Equip. Corp., 353 F.3d 862, 866 (10th Cir.2003) (quoting Huddleston v. Dwyer, 322 U.S. 232, 236, 64 S.Ct. 1015, 88 L.Ed. 1246 (1944)); see also Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 82 L.Ed. 1188 (1938). The federal court must follow the most recent decisions of the state's highest court. Wankier, 353 F.3d at 866. “Where no controlling state decision exists, the federal court must attempt to predict what the state's highest court would do.” Id. In doing so, it may seek guidance from decisions rendered by lower courts in the relevant state, Progressive Cas. Ins. Co. v. Engemann, 268 F.3d 985, 988 (10th Cir.2001), appellate decisions in other states with similar legal principles, United States v. DeGasso, 369 F.3d 1139, 1148 (10th Cir.2004), district court decisions interpreting the law of the state in question, Sapone v. Grand Targhee, Inc., 308 F.3d 1096, 1100, 1104–05 (10th Cir.2002), and “the general weight and trend of authority” in the relevant area of law, MidAmerica Constr. Mgmt., Inc. v. MasTec N. Am., Inc., 436 F.3d 1257, 1262 (10th Cir.2006) (internal quotation marks omitted). Ultimately, however, the Court's task is to predict what the state supreme court would do.

Wade v. EMCASCO Ins. Co., 483 F.3d 657, 665–66 (10th Cir.2007).

FACTUAL BACKGROUND

Since 1949, AMSCO has manufactured and sold windows for use in homes. AMSCO sells its products through wholesale distributors and dealers, including J & L Windows, Inc. (“J & L”), which purchased windows from AMSCO and resold them. AMSCO does not install its window products in residential structures; nor does it hire its own contractors or subcontractors to do so. The AMSCO windows at issue in this case were sold through J & L and were ultimately installed in new homes constructed in the State of Nevada. A number of homeowners have since asserted claims against the contractors who built their homes, alleging numerous construction defects in their homes, including the windows, and that those defects caused property damage to their homes. (AMSCO refers to these claims collectively as the “Homeowner Claims”). The contractors, in turn, asserted claims against J & L and others, who then asserted third-party claims against AMSCO.

Some of the Homeowner Claims have ripened into civil litigation in the Nevada State courts. Others have been asserted pursuant to “Chapter 40,” a specific Nevada statute governing construction defect claims. SeeNev.Rev.Stat. §§ 40.600 to 40.635. Prior to filing a civil complaint, Chapter 40 requires a homeowner to file a Notice of Compliance, setting forth in reasonable detail the defects in the home and the known nature and extent of the damages caused by such defects, and providing the contractor the opportunity to inspect the residence and repair any damages found. SeeNev.Rev.Stat. § 40.645. ⁵ Pursuant to Chapter 40, a contractor must also forward the notice to each subcontractor and/or supplier “whom the contractor reasonably believes is responsible for a defect specified in the notice.” Nev.Rev.Stat. § 40.646. AMSCO received Chapter 40 notices for each of the Homeowner Claims at issue in this case.

AMSCO had purchased comprehensive general liability (“CGL”) policies from the predecessor of Arrowood Indemnity Company/Arrowpoint Capital (“Arrowood”) for the period of time from 1998 to 2002; from Cincinnati for the period from 2002 to 2007; and from the predecessor of Chartis for the period of 2007 to 2009.⁶ Based upon its receipt of the Chapter 40 notices and/or service of process in the Nevada civil litigation, AMSCO tendered its defense of the Homeowner Claims to the three insurers. Arrowood and Chartis assumed their obligation to defend AMSCO in several cases, but Cincinnati declined to do so, instead filing this declaratory judgment proceeding to absolve itself of any duty to defend or indemnify AMSCO with reference to the Homeowner Claims.

The specific Homeowner Claims which Cincinnati has refused to defend are summarized in the parties' summary judgment memoranda ⁷ and will not be detailed herein. In each instance, the claimants allege the existence of window-related defects, namely, that windows made by AMSCO were defective and/or defectively installed, and that the window defects caused property damage to the interior and/or exterior of the house beyond the window defects themselves—that is, that the faulty workmanship involving AMSCO's windows caused property damage to something other than the insured's work product.

The Pending Motions

On June 14, 2011, AMSCO filed a Motion for Summary Judgment or in the Alternative to Certify a Legal Question to the Utah Supreme Court,⁸ asserting that (1) Cincinnati's duty to defend AMSCO under the terms of its commercial general and umbrella liability insurance policies must be determined from the allegations set forth in the various third-party claims against AMSCO, referred to therein as the “Homeowner Claims;” (2) that those claims allege “occurrences” triggering Cincinnati's duty to defend AMSCO; (3) that there are no applicable policy exclusions upon which Cincinnati can rely to avoid this duty; and (4) there exists no genuine dispute of any material fact. AMSCO seeks an order requiring Cincinnati to defend AMSCO against the Homeowner Claims and pay all fees AMSCO has incurred defending against the Homeowner Claims, or alternatively, asks this court to certify to the Utah Supreme Court “the purely legal question of whether the Homeowner Claims underlying this action obligate Cincinnati to defend AMSCO under Utah law.” ⁹

On October 11, 2011, Cincinnati filed a memorandum in...