Nautilus Ins. Co. v. Heartland Builders, LLC

Decision Date11 March 2021
Docket NumberCase No. 2:19-CV-02624-JAR-KGG
Parties NAUTILUS INSURANCE COMPANY, Plaintiff, v. HEARTLAND BUILDERS, LLC, Jack Redman III, and Karie Redman, Defendants.
CourtU.S. District Court — District of Kansas

Dana A. Rice, Pro Hac Vice, Traub Liberman Staus & Shrewsberry LLP, Chicago, IL, Destiny L. Bounds, Jean-Paul Assouad, Kutak Rock LLP, Kansas City, MO, for Plaintiff.

Derek S. Casey, Kacey Scott Mayes, Triplett Woolf Garretson, LLC, Wichita, KS, for Defendant Heartland Builders, LLC.

Alexandra N.C. Rose, Kyle J. Steadman, Foulston Siefkin LLP, Wichita, KS, for Defendants Jack Redman, III, Karie Redman.



This matter concerns whether two Commercial General Liability ("CGL") insurance policies Plaintiff Nautilus Insurance Company ("Nautilus") issued to Defendant Heartland Builders, LLC ("Heartland") provide coverage for damages awarded against Heartland in an arbitration proceeding brought by Defendants Jack Redman III and Karie Redman ("the Redmans") and confirmed by order of a Kansas state court. Now before the Court is Nautilus's Motion for Partial Summary Judgment (Doc. 35). Nautilus seeks judgment in its favor on Counts I, II, III, V, and VI of its Amended Complaint and on Heartland's Counterclaim for breach of the policies at issue. The motion is fully briefed, and the Court is prepared to rule. For the reasons set forth in detail below, Nautilus's motion is found as moot in part, granted in part, and denied in part.

I. Summary Judgment Standard

Summary judgment is appropriate if the moving party demonstrates "that there is no genuine dispute as to any material fact" and that it is "entitled to judgment as a matter of law."1 In applying this standard, the Court views the evidence and all reasonable inferences therefrom in the light most favorable to the nonmoving party.2

"There is no genuine [dispute] of material fact unless the evidence, construed in the light most favorable to the non-moving party, is such that a reasonable jury could return a verdict for the non-moving party."3 A fact is "material" if, under the applicable substantive law, it is "essential to the proper disposition of the claim."4 A dispute of fact is "genuine" if "there is sufficient evidence on each side so that a rational trier of fact could resolve the issue either way."5

The moving party initially must show the absence of a genuine dispute of material fact and entitlement to judgment as a matter of law.6 In attempting to meet this standard, a movant who does not bear the ultimate burden of persuasion at trial need not negate the nonmovant's claim; rather, the movant need simply point out to the court a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.7 To prevail on a motion for summary judgment on a claim upon which the moving party also bears the burden of proof at trial, the moving party must demonstrate that "no reasonable trier of fact could find other than for the moving party."8

Once the movant has met the initial burden of showing the absence of a genuine dispute of material fact, the burden shifts to the nonmoving party to "set forth specific facts showing that there is a genuine issue for trial."9 The nonmoving party may not simply rest upon its pleadings to satisfy its burden.10 Rather, the nonmoving party must "set forth specific facts that would be admissible in evidence in the event of trial from which a rational trier of fact could find for the nonmovant."11 In setting forth these specific facts, the nonmovant must identify the facts "by reference to affidavits, deposition transcripts, or specific exhibits incorporated therein."12 To successfully oppose summary judgment, the nonmovant must bring forward "more than a mere scintilla of evidence" in support of its position.13 A nonmovant "cannot create a genuine issue of material fact with unsupported, conclusory allegations."14

Finally, summary judgment is not a "disfavored procedural shortcut"; on the contrary, it is an important procedure "designed to secure the just, speedy and inexpensive determination of every action."15

II. Uncontroverted Facts

Guided by the foregoing framework, the Court turns to the parties’ statements of fact. The following material facts are either uncontroverted, stipulated, or viewed in the light most favorable to the non-moving party.

A. The Nautilus Policies

Nautilus issued two CGL insurance policies to Heartland—Policy No. NN698532 for the term of July 25, 2016 to July 25, 2017, and Policy No. NN829173 for the term of August 11, 2017 to August 11, 2018 (the "Policies"). The language of the two Policies is identical except for the policy term. Both Policies provide, in part:

1. Insuring Agreement
a. We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the inured against any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may, at our discretion, investigate any "occurrence" and settle any claim or "suit" that may result....
b. This insurance 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";
(2) The "bodily injury" or "property damage" occurs during the policy period; ....16

The language of the Policies’ exclusions, definitions, and limitations is not in dispute and is set forth below as necessary throughout the Court's analysis. The Policies each provide $1,000,000 of general liability coverage per occurrence, subject to a $2,000,000 general aggregate limit and a $1,000 per-claim deductible for bodily-injury and property-damage liability combined.

B. Arbitration Proceeding, State Court Action, and Interim Award

The Redmans hired Heartland to design and construct a new home for them in Hutchinson, Kansas after they lost their previous home in a wildfire. The Construction Agreement, executed on May 1, 2017, provided that the general scope of Heartland's work would include "electrical rough in, plumbing rough in, structure to Drywall stage."17 The project did not go smoothly, to say the least, and Heartland ultimately abandoned the project.

On March 9, 2018, the Redmans filed an Arbitration Demand with the American Arbitration Association relating to Heartland's allegedly faulty construction of their home, bringing claims for breach of contract, negligent construction, negligent misrepresentation, fraud, unjust enrichment, and violation of the Kansas Consumer Protection Act ("KCPA"). The Arbitration Demand sought monetary damages of $500,000 to $1,000,000.

On March 20, 2018, the Redmans filed a lawsuit against Heartland in the Twenty-Seventh Judicial District of the District of Reno County, Kansas, Case No. 2018-cv-000090 ("Redman Lawsuit"). That action arose out of the same facts at issue in the Arbitration Demand and included claims for fraud, negligent construction, negligent misrepresentation, unjust enrichment, and deceptive and unconscionable acts under the KCPA. The Redman Lawsuit sought damages in excess of $75,000, attorneys’ fees and costs, and post-judgment interest.

On June 11, 2018, Nautilus acknowledged receipt of the Arbitration Demand and Redman Lawsuit. Nautilus agreed to and did defend Heartland in both proceedings.

On July 17, 2019, the Arbitrator, Jerome Bales, entered an Interim Award in favor of the Redmans, awarding them: (1) $103,964.69 for Heartland's breach of the Construction Agreement; (2) $173,490.69 for Heartland's negligence and negligent misrepresentation in connection with construction deficiencies; (3) $20,000 for Heartland's violations of the KCPA; and (4) reasonable attorneys’ fees. In arriving at this result, the Arbitrator relied on the report of Brandon Fuqua, P.E., the Redmans’ structural engineering expert, estimates from contractor Chris Miller, other expert reports and testimony, and the testimony of fact witnesses. Each category of damages awarded in the Interim Award is addressed below.

1. Breach of Construction Agreement

In the Interim Award, the Arbitrator determined that the Construction Agreement was ambiguous as to whether it was a cost-plus or fixed-price arrangement, interpreted it in favor of the Redmans, and found that it provided that Heartland would construct the shell of the Redmans’ home for "$225,000 plus 10% profit, plus sales tax."18

The Arbitrator determined that Heartland had out-of-pocket costs of $199,778.50 for its work on the Redman home. After allowing 10% for overhead in addition to 10% for profit, the Arbitrator found that the total cost of the work was $241,731.99. However, the Redmans paid a total of $345,696.67. The Arbitrator therefore found that Heartland breached the Construction Agreement by overcharging the Redmans by $103,964.69.

2. Negligence and Negligent Misrepresentation Resulting in Construction Deficiencies

The Arbitrator evaluated the reports and testimony of experts and the testimony of fact witnesses regarding what the Redmans claimed were numerous deficiencies in the construction of the house, ultimately concluding "that the Redmans’ experts [were] correct on the more significant issues" and making a number of findings in favor of the Redmans.19

First, the Arbitrator determined that Heartland's framing subcontractor improperly notched (or "birdsmouth cut") the TJI roof rafters at the bearing walls to make them fit the height of the exterior walls, with the approval of Heartland's on-site supervisor, Ralph Dohner, but contrary to the manufacturer's instructions prohibiting such notching. The...

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