Gemini Ins. Co. v. Kukui'ula Dev. Co.

• Decision Date: 31 May 2012
• Docket Number: Civil No. 10–00637 LEK–BMK.
• Citation: 855 F.Supp.2d 1125
• Parties: GEMINI INSURANCE COMPANY, Plaintiff, v. KUKUI'ULA DEVELOPMENT COMPANY (HAWAII), LLC; DMB Kukui'ula, LLC; KDC, LLC; DMB Associates (Hawaii), Inc.; and A & B Properties, Inc., et al., Defendants.
• Court: U.S. District Court — District of Hawaii

855 F.Supp.2d 1125

GEMINI INSURANCE COMPANY, Plaintiff,

v.KUKUI'ULA DEVELOPMENT COMPANY (HAWAII), LLC; DMB Kukui'ula, LLC; KDC, LLC; DMB Associates (Hawaii), Inc.; and A & B Properties, Inc., et al., Defendants.

Civil No. 10–00637 LEK–BMK.

United States District Court,

D. Hawai‘i.

Feb. 29, 2012.

Order Denying Reconsideration May 31, 2012.

Hiroyuki Shayne Takei, J. Patrick Gallagher, Jennifer M. Palmer, Henderson Gallagher & Kane, Honolulu, HI, Howard Wollitz, Charlston Revich & Wollitz LLP, Los Angeles, CA, for Plaintiff.

James C. McWhinnie, Tred R. Eyerly, Damon Key Leong Kupchak Hastert, Honolulu, HI, Richard B. Miller, David R. Harada–Stone, Tom Petrus & Miller LLLC, Joseph L. Oliva, Stephen F. Yurcich, Oliva and Associates ALC, San Diego, CA, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART INDIAN HARBOR INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT AGAINST KDC AND GEMINI INSURANCE COMPANY; AND DENYING PLAINTIFF GEMINI INSURANCE COMPANY'S MOTION FOR PARTIAL SUMMARY JUDGMENT

LESLIE E. KOBAYASHI, District Judge.

Before the Court are two motions for summary judgment: (1) Indian Harbor Insurance Company's (“Indian Harbor”) Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment Against KDC and Gemini Insurance Company, filed on July 1, 2011 (“Indian Harbor Motion”) [dkt. no. 54]; and (2) Plaintiff Gemini Insurance Company's (“Plaintiff” or “Gemini”) Motion for Partial Summary Judgment, filed on July 5, 2011 (“Gemini Motion”) [dkt. no. 59]. The parties filed their respective memoranda in opposition on November 21, 2011, and their replies on November 28, 2011. These matters came on for hearing on January 30, 2012. Appearing on behalf of Gemini was J. Patrick Gallagher, Esq., and appearing on behalf of Indian Harbor were Michael Tanoue, Esq., and Max Stern, Esq., appearing on behalf of Kukui'ula Development Company (Hawaii), LLC; DMB Kukui'ula, LLC; KDC, LLC; DMB Associates (Hawaii), and A & B Properties, Inc. (collectively “KDC” or “Defendants”) were James C. McWhinnie, Esq., and Joseph Oliva, Esq., and appearing on behalf of Certain Underwriters at Lloyds (“Lloyds”) was Richard Miller, Esq., After careful consideration of the motions, supporting and opposing memoranda, and the arguments of counsel, the Indian Harbor Motion is HEREBY GRANTED IN PART AND DENIED IN PART ¹ and the Gemini Motion is HEREBYDENIED for the reasons set forth below.

BACKGROUND

On November 2, 2009, Plaintiff filed a Complaint for declaratory judgment against KDC. KDC was engaged in the planning, development, and construction of the Kukui'ula Residential Community Project on Kaua'i (“Project”). KDC purchased different insurance policies from the three carriers to this action: (1) a Commercial General Liability (“CGL”) policy from Gemini for September 23, 2005 to September 23, 2008 (“Gemini Policy”); (2) a CGL policy from Lloyds for September 23, 2008 to September 23, 2010 (“Lloyds Policy”); and (3) a Pollution Legal Liability policy from Indian Harbor (“Indian Harbor Policy”). The Gemini and Lloyds policies are both CGL policies, which were issued for consecutive two and three-year periods, and both contain similar exclusionary language regarding pollution claims. The Indian Harbor Policy affords coverage for claims arising from alleged polluting activities, and has a ten-year claims-made policy period running concurrently with both the Gemini and Lloyds policies, i.e., from December 31, 2003 to December 31, 2013.

In 2009, three lawsuits were filed against KDC, arising out of the work performed on the Project: (1) Schredder v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09–1–0045, Circuit Court of the Fifth Circuit, State of Hawai'i (“Schredder Action”); (2) Hawaiian Insurance & Guaranty Co., Ltd. v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09–1–0046, Circuit Court of the Fifth Circuit, State of Hawai'i (“HIG Action”); and (3) Ass'n of Apartment Owners of Lawai Beach Resort v. Kukui'ula Development Co. (Hawaii), LLC, Civ. No. 09–1–0109, Circuit Court of the Fifth Circuit, State of Hawai'i (“AOAO Action”) (all three collectively “Underlying Actions”). In addition to the Underlying Actions, Patti Erickson (“Erickson”) presented a claim to KDC for alleged damage to her property caused by work performed on the Project (“Erickson claim”). Erickson has not filed suit. KDC tendered defense of the Underlying Actions to both Gemini, Lloyds, and Indian Harbor; Gemini is currently providing a defense, while Indian Harbor and Lloyds are not.

Gemini filed a First Amended Complaint on March 7, 2011. The First Amended Complaint seeks a declaration that there is no coverage under the Gemini Policy, and, therefore, Gemini does not have a duty to defend or indemnify KDC in the Underlying Actions. It alleges that: (1) there was no “bodily injury” or “property damage”; (2) there was no “occurrence”; (3) the “expected or intended injury” exclusion applies; (4) the “pollution” exclusion applies; and (5) the “punitive damage” exclusion applies. [First Amended Complaint at ¶¶ 47, 96.]

KDC filed a Third–Party Complaint against Indian Harbor Indian Harbor on March 29, 2011, seeking, among other things, a declaration that Indian Harbor has a duty to defend and indemnify KDC with respect to the Underlying Actions, and a determination that Indian Harbor breached the implied covenant of good faith and fair dealing. [KDC's Third–Party Complaint (dkt. no. 34) at ¶¶ 20, 27, 40.]

Indian Harbor filed a First Amended Counterclaim against Gemini and KDC on May 10, 2011. [Dkt. no. 46.] The First Amended Counterclaim asserts that Indian Harbor has no duty to defend or indemnify Defendants because the Indian Harbor Policy “provides only excess insurance by virtue of its ‘other insurance’ clause....” [Indian Harbor's First Amended Counterclaim at ¶¶ 16, 21.]

I. Indian Harbor Motion

Indian Harbor moves for summary judgment on the grounds that: (1) Gemini has a duty to defend KDC; (2) Indian Harbor does not have a duty to defend KDC because the Indian Harbor Policy is excess to the Gemini Policy; (3) Indian Harbor is not liable to KDC for breach of the implied covenant of good faith and fair dealing; and (4) Indian Harbor has no obligation to two KDC entities—DMB Associates (Hawaii), Inc. (“DMB Associates”) and A & B Properties, Inc. (“A & B Properties”)—because they are not “insureds” under the Indian Harbor Policy. According to Indian Harbor, it is entitled to a legal ruling that its “excess” clause makes its policy excess for the defense of the underlying lawsuits to the Gemini Policy, which contains a “primary/pro rata” clause, such that Indian Harbor has no current duty to defend KDC in the Underlying Actions.² [Mem. in Supp. of Indian Harbor Motion at 1.]

According to Indian Harbor, the Schredder Action alleges that the plaintiffs in that action have been “physically and emotionally injured,” that their home has been “physically damaged,” that they have suffered “loss of and damage to personal property,” and that they have suffered various “economic injuries,” as a result of KDC's construction activities, including from “dust, noise, dynamite blasts, toxic fumes, dirt, rats and rodents, and other offensive nuisances.” [Indian Harbor Separate and Concise Statement of Facts (“CSF”), Declaration of Max Stern (“Stern Decl.”), Exh. 4 (Shredder Complaint), at ¶¶ 14–15, 17, 30, 32.] The Schredder Action contains claims for negligence/gross negligence, trespass, nuisance, and negligent/intentional infliction of emotional distress. [ Id. at ¶¶ 21–32.] The Schredder plaintiffs seek special, general, and punitive damages. The HIG Action alleges that KDC's construction activities have caused “an enormous amount of noise, dirt, dust, toxic fumes and pests” to enter the Schredder plaintiffs' property. [Id., Exh. 6 (HIG Complaint), at ¶ 11.] It asserts causes of action for negligence, gross negligence, nuisance, trespass, and loss of quiet enjoyment. HIG seeks compensatory and punitive damages. [ Id.] Finally, the AOAO Action alleges that KDC's blasting activities have “resulted in approximately eight (8) breaks in the underground water supply lines.” [ Id., Exh. 7 (AOAO Complaint), at ¶ 13.] This action also alleges that the construction activities “generated dust, red dirt and other airborne participles” which traveled to plaintiffs' properties. [ Id. at ¶ 14.] The AOAO Action contains causes of action for negligence, trespass/battery, nuisance, and punitive damages. The AOAO plaintiffs also seek special, general, compensatory and consequential damages.

Indian Harbor issued to Kukui'ula South Shore Community Services, LLC a Pollution and Remediation Legal Liability policy number PEC0015663, in effect between December 31, 2003 and December 31, 2013. [Id., Exh. 1 (Indian Harbor Policy).] Kukui'ula Development Company (Hawaii), LLC; DMB Kukui'ula LLC; and KDC, LLC are Additional Named Insureds under the policy pursuant to Endorsement Nos. 3 and 10. [ Id.] The Indian Harbor Policy contains the following Insuring Agreement:

I. INSURING AGREEMENT

A. Coverage A—POLLUTION LEGAL LIABILITY

The Company will pay on behalf of the INSURED for LOSS from POLLUTIONCONDITIONS on, at, under or emanating from the location(s) stated in the Pollution Legal Liability Schedule, which the INSURED has or will become legally obligated to pay as a result of a CLAIM first made against the INSURED during the POLICY PERIOD, provided that the INSURED reports the CLAIM to the Company, in writing, during the POLICY PERIOD or, if applicable, the Automatic or Optional Extended Reporting Period.

....

C. Coverage C—LEGAL DEFENSE EXPENSE

The Company will pay on behalf of the INSURED for LEGAL DEFENSE EXPENSE to defend a CLAIM for LOSS or for REMEDIATION EXPENSE under Coverage A—POLLUTION LEGAL LIABILITY, Coverage B—REMEDIATION LEGAL LIABILITY or Coverage D—CONTINGENT TRANSPORTATION COVERAGE, to which this Policy...