Ill. Nat'l Ins. Co. v. Nordic PCL Constr., Inc.

• Decision Date: 26 April 2012
• Docket Number: Civil No. 11–00515 SOM/KSC.
• Citation: 870 F.Supp.2d 1015
• Parties: ILLINOIS NATIONAL INSURANCE COMPANY, an Illinois corporation; and National Union Fire Insurance Company of Pittsburgh, PA., a Pennsylvania corporation, Plaintiffs, v. NORDIC PCL CONSTRUCTION, INC., f/k/a Nordic Construction, Ltd., a Hawaii corporation, Defendant. Nordic PCL Construction, Inc., f/k/a Nordic Construction Ltd., a Hawaii corporation, Defendant and Third–Party Plaintiff, v. Marsh USA, Inc., Third–Party Defendant.
• Court: U.S. District Court — District of Hawaii

870 F.Supp.2d 1015

ILLINOIS NATIONAL INSURANCE COMPANY, an Illinois corporation; and National Union Fire Insurance Company of Pittsburgh, PA., a Pennsylvania corporation, Plaintiffs,

v.NORDIC PCL CONSTRUCTION, INC., f/k/a Nordic Construction, Ltd., a Hawaii corporation, Defendant.

Nordic PCL Construction, Inc., f/k/a Nordic Construction Ltd., a Hawaii corporation, Defendant and Third–Party Plaintiff,

v.Marsh USA, Inc., Third–Party Defendant.

Civil No. 11–00515 SOM/KSC.

United States District Court, D. Hawai‘i.

April 26, 2012.

Christopher R. Wagner, David L. Jones, Peter Schwartz, Gordon & Rees LLP, Los Angeles, CA, John S. Edmunds, Joy S. Omonaka, Ronald J. Verga, Edmunds & Verga, Honolulu, HI, for Plaintiffs.

David Schulmeister, Jeffrey Mark Osterkamp, Cades Schutte, Honolulu, HI, for Defendant and Third–Party Plaintiff.

Nenad Krek, Carlsmith Ball LLP, Honolulu, HI, for Third–Party Defendant.

ORDER (1) GRANTING IN RELEVANT PART COUNTERCLAIM DEFENDANTS' REQUEST FOR JUDICIAL NOTICE; (2) GRANTING IN PART AND DENYING IN PART COUNTERCLAIM DEFENDANTS' MOTION TO DISMISS COUNTERCLAIM FILED OCTOBER 24, 2011, AND GIVING NORDIC LEAVE TO AMEND IN CERTAIN RESPECTS; (3) DENYING COUNTERCLAIM DEFENDANTS' MOTION TO STRIKE PORTIONS OF THE COUNTERCLAIM FILED OCTOBER 24, 2011; (4) DENYING THIRD–PARTY DEFENDANT MARSH USA, INC.'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, STAY PROCEEDINGS IN FAVOR OF PENDING STATE ACTION; (5) DENYING DEFENDANT AND THIRD–PARTY PLAINTIFF NORDIC CONSTRUCTION, INC., F/K/A NORDIC CONSTRUCTION LTD.'S SUBSTANTIVE JOINDER TO THIRD–PARTY DEFENDANT MARSH USA, INC.'S MOTION TO DISMISS OR, IN THE ALTERNATIVE, STAY PROCEEDINGS IN FAVOR OF PENDING STATE ACTION; AND (6) GRANTING THIRD–PARTY DEFENDANT MARSH USA, INC.'S MOTION FOR JUDGMENT ON THE PLEADINGS ON COUNTS V AND VI OF DEFENDANT/THIRD–PARTY PLAINTIFF NORDIC PCL CONSTRUCTION, INC.'S THIRD–PARTY COMPLAINT FILED OCTOBER 24, 2011

SUSAN OKI MOLLWAY, Chief Judge.

I. INTRODUCTION.

This case involves a dispute about whether insurance benefits are available to a general contractor who built structures that allegedly have construction defects. Plaintiffs Illinois National Insurance Company (“Illinois National”) and National Union Fire Insurance Company of Pittsburgh, PA (“National Union”) (collectively, the “Insurers”), commenced this action for declaratory relief against Defendant Nordic PCL Construction, Inc., f/k/a Nordic Construction, Ltd. (“Nordic”), on August 23, 2011. See Compl., ECF No. 1. Nordic filed a Counterclaim against the Insurers, see Countercl., ECF No. 10–1, and a Third–Party Complaint against Marsh USA, Inc. (“Marsh”). See Third–Party Compl., ECF No. 11.

The parties are now before the court on numerous motions: Counterclaim Defendants' Request for Judicial Notice in Support of Their (1) Motion to Dismiss the Counterclaim and (2) Motion to Strike Portions of the Counterclaim, ECF No. 16 (“Request for Judicial Notice”); Counterclaim Defendants' Motion to Dismiss Counterclaim Filed October 24, 2011, ECF No. 14 (“Motion to Dismiss Counterclaim”); Counterclaim Defendants' Motion to Strike Portions of the Counterclaim Filed October 24, 2011, ECF No. 15 (“Motion to Strike”); Third–Party Defendant Marsh USA, Inc.'s Motion to Dismiss or, in the Alternative, Stay Proceedings in Favor of Pending State Action, ECF No. 33 (“Marsh's Motion To Dismiss Or Stay”); Defendant and Third–Party Plaintiff Nordic PCL Construction, Inc., f/k/a Nordic Construction Ltd.'s Substantive Joinder to Third–Party Defendant Marsh USA Inc.'s Motion to Dismiss or, in the Alternative, Stay Proceedings in Favor of Pending State Action, ECF No. 36 (“Nordic's Joinder”); and Third–Party Defendant Marsh USA, Inc.'s Motion for Judgment on the Pleadings on Counts V and VI of Defendant/Third–Party Plaintiff Nordic PCL Construction, Inc.'s Third–Party Complaint, ECF No. 29 (“Marsh's Motion for Judgment on the Pleadings”).

The court GRANTS IN RELEVANT PART the Insurers' Request for Judicial Notice to the extent it covers matters relevant to these motions; GRANTS IN PART the Insurers' Motion to Dismiss Counterclaim, but gives Nordic leave to amend the Counterclaim in certain respects; DENIES the Insurers' Motion to Strike; DENIES Marsh's Motion To Dismiss Or Stay and Nordic's Joinder; and GRANTS Marsh's Motion for Judgment on the Pleadings.

II. BACKGROUND.

This action arises out of alleged construction defects involving two projects on which Nordic acted as the general contractor. Nordic is a defendant in a pending state court action with respect to one of the projects and says it spent more than $400,000 on repairs with respect to the other project. Nordic tendered the defense of the pending state court action to the Insurers and sought reimbursement of the cost of repairs already performed. The Insurers responded by filing this action to determine their rights under the insurance policies issued to Nordic.

A. The Insurance Policies.

1. The CGL Policy.

In or around 2007, Illinois National issued Commercial General Liability Policy No. GL 161–68–33 (the “CGL Policy”) to Nordic. See CGL Policy, attached as Exhibit “A” to Compl., ECF No. 1–1. The CGL Policy was effective from May 1, 2007, to May 1, 2008. Id. Section I, Coverage A of the CGL Policy “applies to ‘bodily injury’ and ‘property damage’ only if: (1) The ‘bodily injury’ or ‘property damage’ is caused by an ‘occurrence’ that takes place in the ‘coverage territory[.]’ ” Id. at 23 (Policy page numbers referred to are at the top of the page, as in “page 23 of 64,” not at the bottom right). “Occurrence” is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” Id. at 35. The CGL Policy excludes coverage for “ ‘[b]odily 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.” Id. at 24.

2. The Umbrella Policy.

In or around 2007, National Union issued Commercial Umbrella Liability Policy No. BE 5685754 (the “Umbrella Policy”) to Nordic. See Umbrella Policy, attached as Exhibit “B” to Compl., ECF No. 1–2. The Umbrella Policy was effective from May 1, 2007, to May 1, 2008. Id. Section I of the Umbrella Policy provides coverage if “the Bodily Injury or Property Damage is caused by an Occurrence that takes place anywhere, and the Bodily Injury or Property Damage occurs during the Policy Period.” Id. at 6. “Occurrence” is defined in the Umbrella Policy as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions. All such exposure to substantially the same general harmful conditions will be deemed to arise out of one Occurrence.” Id. at 25. The Umbrella Policy excludes “liability for which the Insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” Id. at 10.

B. The Alleged Construction Defects.

1. Kapahulu Safeway.

Nordic constructed a grocery store for Safeway, Inc. (“Safeway”), at 900 Kapahulu Avenue in Honolulu, Hawaii. Compl. ¶ 8, ECF No. 1. Nordic's contract, signed in September 2006, required Nordic to build not only the store, but also a 165–space, rooftop parking deck, retail shops, and related improvements. Id. ¶ 10; Countercl. ¶ 5, ECF No. 10–1. The parking deck was to consist of a floating concrete“wearing slab” topped with sealant. Compl. ¶ 10, ECF No. 1.

Shortly after opening for business in 2007, Safeway allegedly had significant leaks. Id. ¶ 11. In January 2008, Safeway allegedly notified Nordic that the leaks had damaged interior fixtures and equipment, that Safeway lost profits during remedial work, and that the “wearing slab” was uneven and cracking. Id.; Countercl. ¶ 14, ECF No. 10–1. In October 2008, Safeway sent Nordic a letter demanding that Nordic repair the parking deck. Id. ¶ 15. Nordic allegedly forwarded the demand letter to AIG Domestic Claims, Inc. (“AIG”), the Insurers' representative. Id. AIG agreed to appoint counsel for Nordic, subject to a reservation of rights. Id. ¶ 16. AIG allegedly followed up with a second letter to Nordic, pointing out that “[t]here are several provisions of the policies that may preclude or limit coverage for this matter,” but not explicitly asserting that the claim did not involve an “occurrence” under the Policies. Id. ¶ 18.

On or around June 22, 2009, Safeway commenced suit, Safeway, Inc. v. Nordic PCL Construction, Inc., Case No. 09–1–1414–06 (the “Safeway Action”), against Nordic for alleged construction defects in the Circuit Court of the First Circuit, State of Hawaii. Compl. ¶ 12, ECF No. 1. Safeway's complaint alleged breach of contract, breach of the covenant of good faith and fair dealing, negligence, gross negligence, breach of express and implied warranties, unjust enrichment, negligent misrepresentation, intentional misrepresentation, and declaratory relief. Id. Nordic tendered the Safeway Action to the Insurers under the CGL Policy and Umbrella Policy (collectively, “the Policies”). Id. ¶ 13. Illinois National is providing Nordic with a defense in the Safeway Action, and both Illinois National and National Union have reserved their rights under their respective policies. Id. Notwithstanding the provision of a defense, Nordic claims that it is incurring costs and attorney's fees for independent counsel to protect its interests, because “the appointed insurance defense counsel lacks the staff and resources” to manage discovery. Countercl. ¶ 21, ECF No. 10–1.

2. Moanalua Shopping Center.

The other project that is the subject of the present lawsuit is Moanalua Shopping Center, a strip mall and two-story office building at 930 Valkenburg Street in Honolulu, Hawaii. Compl. ¶ 8, ECF No. 1. Pursuant to a contract dated July 18, 2005, MSC, LLC (“MSC”), hired Nordic to construct the Moanalua Shopping Center. Id. ¶ 15. Nordic finished construction in or around September 2006, but in or around September 2009, the United...