Evanston Ins. Co. v. Nagano

• Decision Date: 31 August 2012
• Docket Number: Civil No. 11–00666 LEK–KSC.
• Parties: EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff, v. Eric NAGANO, Hiroko Nagano, PMX, Inc., a Hawaii Corporation, and HC Builders LLC, a Hawaii Limited Liability Company, Defendant.
• Court: U.S. District Court — District of Hawaii

891 F.Supp.2d 1179

EVANSTON INSURANCE COMPANY, an Illinois Corporation, Plaintiff,

v.Eric NAGANO, Hiroko Nagano, PMX, Inc., a Hawaii Corporation, and HC Builders LLC, a Hawaii Limited Liability Company, Defendant.

Civil No. 11–00666 LEK–KSC.

United States District Court, D. Hawai‘i.

Aug. 31, 2012.

Bradford F.K. Bliss, Thomas E. Cook, Lyons Brandt Cook & Hiramatsu, Honolulu, HI, for Plaintiff.

Kevin W. Herring, Ashford & Wriston, Honolulu, HI, for Defendants.

ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT

LESLIE E. KOBAYASHI, District Judge.

Before the Court is Plaintiff Evanston Insurance Company's (“Evanston”) Motion for Summary Judgment (“Motion”), filed on March 29, 2012. Defendants Eric Nagano, Hiroko Nagano, PMX, Inc. (“PMX”), and HC Builders LLC (“HC”, all collectively “Defendants”) filed their memorandum in opposition on June 29, 2012, and Evanston filed its reply on July 9, 2012. This matter came on for hearing on July 23, 2012. Appearing on behalf of Evanston was Bradford Bliss, Esq., and appearing on behalf of Defendants was Kevin Herring, Esq. Defendants Eric Nagano and Hiroko Nagano were also present. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, Evanston's Motion is HEREBY GRANTED for the reasons set forth below.

BACKGROUND

Evanston filed its Complaint for Declaratory Relief (“Complaint”) on October 31, 2011. The Complaint seeks a judicial determination that Evanston has no duty to defend or indemnify Defendants in Frederick M.C. Hu & Marie G. Hu v. Eric Nagano & Hiroko M. Nagano, Civil No. 11–1–1412–07, Circuit Court of the First Circuit, State of Hawai'i (“ Hu v. Nagano”), and in an arbitration proceeding before Dispute Prevention & Resolution (“DPR”) titled Frederick M.C. Hu & Marie G. Hu v. PMX, Inc. & HC Builders, LLC (“ Hu v. PMX ”). The parties to those proceedings, however, subsequently agreed to consolidate the claims in Hu v. PMX with the claims in Hu v. Nagano. Thus, the Hus' First Amended Complaint in Hu v. Nagano (“Hu Complaint”) also names PMX and HC as Defendants. Other than that change, the Hu Complaint is identical to the Hus' original complaint.¹ [Decl. of Bradford F.K. Bliss, filed 7/24/12 (dkt. no. 25), at ¶ 4; Exh. 1 (Hu Complaint).]

I. Factual Background

Evanston issued two general liability insurance policies to PMX that were in effect from November 11, 2002 through November 11, 2004. [Evanston's Concise Statement of Facts in Supp. of Motion, filed 3/29/12 (dkt. no. 19) (“Evanston CSOF”), at ¶ 4 (citing Complaint, Exhs. A & B); Defs.' Separate Concise Statement in Opp. to Motion, filed 6/29/12 (dkt. no. 22) (“Defs.' CSOF”), at 2 (admitting ¶ 4 of Evanston CSOF).²] Defendant Eric Nagano was the principal and owner of PMX prior to its dissolution. [Defs.' CSOF, Decl. of Eric Nagano (“Nagano Decl.”), at ¶ 3.]

Evanston issued six general liability insurance policies to HC that were in effect from January 18, 2005 through January 18, 2011. [Evanston CSOF at ¶ 5 (citing Complaint, Exhs. C–H); Defs.' CSOF at 2 (admitting ¶ 5 of Evanston CSOF).] Defendant Hiroko Nagano is Eric Nagano's wife, and she is the principal of HC. [Nagano Decl. at ¶ 4.]

The Hu Complaint alleges that: Eric Nagano held a contractor's license from approximately June 1993 until it was revoked in approximately March 2006; and Hiroko Nagano has held an active contractor's license since approximately September 2006. [Hu Complaint at ¶¶ 3, 6.] The Hus allege that there is “sufficient unity of interest” among Defendants to consider them “one and the same, and the ‘alter ego’ of each other with respect to their obligations and duties” to the Hus and the claims in Hu v. Nagano. [ Id. at ¶ 8.] Further, the Hus allege that Defendants are jointly and severally liable for the Hus' damages. [ Id. at ¶ 9.]

On or about December 2, 2002, the Hus and PMX entered into a contract for the construction of a residence (“the Construction Contract”) at 2263 Okoa Street, Honolulu, Hawai'i 96821 (“the Project”).³ The Hus agreed to pay PMX $440,000 for its full performance under the Construction Contract. The Construction Contract provided, inter alia, that construction was to commence within five days after the Hus provided authorization to commence construction, and construction was to be completed within 220 days from the authorization to commence construction. On or about July 1, 2003, the Hus provided Eric Nagano and PMX with a letter to proceed with construction. The letter informed Eric Nagano and PMX that the construction period for the Hus' construction loan could not exceed twelve months after July 1, 2003, and exceeding that period would cause the Hus to incur substantial costs and expenses. [ Id. at ¶¶ 10, 13–15.]

Construction did not commence until approximately October 2004 and, even after commencement, there were numerous delays resulting in months of inactivity on the Project. During the construction period, the Hus' community association fined them because of the prolonged construction and the Hus' construction lender assessed extension fees and fines for exceeding the term of the loan. [ Id. at ¶¶ 16–19.]

After the revocation of Eric Nagano's contractor's license, he presented the Hus with a letter agreement authorizing HC to take over the contract with Hiroko Nagano acting as general contractor. In conjunction with that letter agreement, Defendants represented that they would assume all of PMX's obligations under the Construction Contract.⁴ The letter agreement was filed with the City and County of Honolulu, Department of Planning and Permitting (“DPP”) on or about June 8, 2006. The Hus allege that Hiroko Nagano did not have a contractor's license at that time. Thus, there was no licensed contractor on the Project from March 2006 to September 2006. Eric Nagano later presented Frederick Hu with another letter agreement authorizing Frederick Hu as owner-builder to replace HC as the contractor for the Project. The Hus signed the letter agreement based on Eric Nagano's representation that Defendants would immediately resume construction and would complete the Project within two months. That letter agreement was filed with the DPP on or about July 25, 2006. [ Id. at ¶¶ 20–27, 29–30.]

The Hus allege that Defendants did not fulfill the obligations under the Construction Contract. Further, the Project was “grossly delayed” and the construction was “riddled with defects.” [ Id. at ¶ 31.] The Hus also allege that Defendants abandoned the Project “after repainting less than one-third of the home's mud-stained, stucco exterior[.]” [ Id.] According to the Hu Complaint, HC fraudulently published an Owner's Notice of Completion for the Project on or about December 4, 2007, and the notice was filed in state court or about December 19, 2007. Defendants represented to the Hus that the construction was substantially complete. The Hus allege that, when they moved in on or about March 1, 2008, the residence was not usable because it had no electricity, no hot water, and no installed appliances. Further, parts of the flooring were either missing or incomplete. The Hus state that, on or about June 29, 2008, Eric Nagano acknowledged that Defendants had not fulfilled the obligations under the Construction Contract and that Defendants lacked the funds to do so. As a result, the Hus were forced to either perform work themselves or pay third parties for services they paid Defendants to provide. [ Id. at ¶¶ 32–36, 38–39.]

The Hus also allege that, after they moved into the residence, “the first floor of the house flooded during several rainstorms as a result of the defective construction by [Defendants] on the second floor of the house.” [ Id. at ¶ 41.] The Hus incurred expenses for materials and labor to replace or repair numerous types of defective construction on the Project. They also allege that, as a result of Defendants' defective construction, their staircase and balcony are unsafe and there are severe humps in the hardwood floors. [ Id. at ¶¶ 42–45.]

The Hu Complaint alleges the following claims: breach of contract (“Count I”); breach of warranties (“Count II”); breach of the covenant of good faith and fair dealing (“Count III”); fraud related to the letter agreement authorizing Frederick Hu to take over the Project as the owner-builder (“Count IV”); fraud related to publication and filing of the Owner's Notice of Completion for the Project (“Count V”); unjust enrichment (“Count VI”); promissory estoppel (“Count VII”); and unfair and deceptive business practices (“Count VIII”). The Hus therefore seek: general, special, actual, consequential, and incidental damages; treble or punitive damages; reasonable attorneys' fees and costs; and any other appropriate relief.

Eric Nagano and Hiroko Nagano (collectively “the Naganos”) tendered the defense in Hu v. Nagano to Evanston under the two policies issued to PMX and the six policies issued to HC. Evanston has provided a defense, but Defendants allege the defense is limited because Evanston: allowed default to be entered against the Naganos (the default was later set aside); delayed retaining experts; and limited the ability of the Naganos' retained counsel to perform necessary actions to advance the case. [Nagano Decl. at ¶¶ 9–10.]

II. Motion

In the instant Motion, Evanston argues that it does not have a duty to defend or indemnity Defendants against the Hus' claims because: none of the claims “constitute ‘property damage’ caused by an ‘occurrence’ as those terms are defined in the applicable insurance polices[;]” and the policies' exclusions of claims arising from a breach of contract preclude coverage for all of the Hus claims. [Mem. in Supp. of Motion at 1–2.]

Evanston emphasizes that the Hu Complaint alleges numerous breaches of the Construction Contract and numerous defects in the construction of the Hus' residence, but the Hu Complaint does not allege any claims sounding in negligence. All of the...