Nordby Constr., Inc. v. Am. Safety Indem. Co.

• Decision Date: 19 March 2015
• Docket Number: Case No.:14-CV-04074-LHK
• Court: U.S. District Court — Northern District of California
• Parties: NORDBY CONSTRUCTION, INC., Plaintiff, v. AMERICAN SAFETY INDEMNITY COMPANY, et al., Defendants.

NORDBY CONSTRUCTION, INC., Plaintiff, v. AMERICAN SAFETY INDEMNITY COMPANY, et al., Defendants.

Case No.:14-CV-04074-LHK

UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF CALIFORNIA SAN JOSE DIVISION

March 19, 2015

ORDER GRANTING IN PART AND DENYING DEFENDANT AMERICAN SAFETY'S MOTION TO DISMISS; GRANTING IN PART AND DENYING IN PART DEFENDANT AIG SPECIALTY'S MOTION TO DISMISS

Re: Dkt. Nos. 23, 24

Plaintiff Nordby Construction, Inc. ("Plaintiff" or "Nordby") brings this action for breach of insurance contract against Defendants American Safety Indemnity Co. ("American Safety"), American International Specialty Lines Insurance Company ("AIG Specialty"), and Ace American Insurance Company ("ACE"). Before the Court are Defendants American Safety's and AIG Specialty's motions to dismiss Plaintiff's First Amended Complaint. Having considered the submissions of the parties, the relevant law, and the record in this case, the Court GRANTS IN PART AND DENIES IN PART American Safety's motion to dismiss and GRANTS IN PART and DENIES IN PART AIG Specialty's motion to dismiss.

I. BACKGROUND

A. Factual Background

Plaintiff Nordby was hired by Summit State Bank as the general contractor to construct the Summit State Project. First. Am. Compl. ("FAC"), ¶ 10. Plaintiff subcontracted with Kenyon Construction, Inc. ("Kenyon") to "furnish and install a 'complete weather tight and watertight' EIFS system on the exterior" of the Summit State Project. Id. Plaintiff's subcontractor agreement with Kenyon required Kenyon to:

(a) procure and maintain a policy of commercial general liability insurance, with minimum limits of $1 million per occurrence and $1 million in the aggregate for completed operations, naming [Plaintiff] as an additional insured . . .

(b) include, in the required insurance, a provision stipulating that the coverage provided to [Plaintiff] as an additional insured is primary and non-contributing with any other insurance available to [Plaintiff] or the owner of the Summit State Project;

(c) include, in the required insurance, completed operations coverage, broad form property damage coverage, and contractual liability coverage with respect to all operations by or on behalf of [Kenyon]; and

(d) defend and indemnify [Plaintiff] against any loss of liability arising out of, or in connection with, [Kenyon's] operations to be performing under the agreement.

Id. ¶ 11.

On or about July 26, 2002, Plaintiff received a certificate of insurance certifying Kenyon was insured by Defendant American Safety for the period from July 1, 2002 to July 1, 2003 under a policy of commercial general liability insurance with $1 million dollar limits per occurrence and in the aggregate. Id. ¶ 12. The certificate also certified that Plaintiff was an additional insured, and that the coverage was primary and non-contributing. Id. Plaintiff also alleges that it is "an additional insured under the terms of the policies issued by" Defendant AIG Specialty and ACE. Id. ¶ 13.

Plaintiff constructed the Summit State Project "largely in 2002," which is the period of time during which Kenyon provided its services under the subcontractor agreement. Id. ¶ 14. The"Notice of Completion" was recorded on February 27, 2003. Id.

1. Underlying Litigation

Following the completion of construction, Summit State Bank "observed water intrusion" and filed suit against Plaintiff and its subcontractors. Id.; see also Summit State Bank v. Nordby Construct. Co., No. SCV-249420 (Sonoma Cnty. Sup. Ct.). Summit State Bank determined that the water intrusion was related to the EIFS exterior installed by Kenyon, and that the entire EIFS system had to be removed and replaced. Id. ¶ 17. Plaintiff filed a cross-complaint for indemnity against Kenyon. Id. ¶ 15. Plaintiff also tendered its defense to Kenyon. Id. Plaintiff alleges that "[t]he tenders of defense were all denied," and Plaintiff had to defend itself in the state court action. Id.

Plaintiff settled the state court action with Summit State Bank for $3.4 million dollars, with Plaintiff responsible for $649,000, Kenyon responsible for $285,000, and the other subcontractors contributing the balance. Id. ¶ 18. The settlement did not resolve Plaintiff's claims against Kenyon. Id. Nordby avers that Kenyon was defended in the underlying state court action by American Safety under a policy of commercial general liability insurance. Id. ¶ 19. American Safety allegedly exhausted all but $256,690.60 of the policy's limit at the time of settlement. Id. As Kenyon owed $285,000 under the terms of the settlement, Nordby contributed the additional $19,309.40 difference between Kenyon's settlement obligations and the remaining insurance funds. Id.

In or about August 2012, Nordby and Kenyon entered into a partial settlement agreement in which Kenyon assigned its rights against all of its liability insurers to Nordby, in exchange for "certain material concessions." Id. ¶ 33. Those concessions included Nordby's payment of the $19,309.40 owed by Kenyon, crediting Kenyon for the $265,690.60 contribution against any arbitration award entered in Nordby's favor, and Nordby's agreement not to execute any award against Kenyon's non-insurance assets. Id. ¶ 34. As a condition of settlement, Kenyon and Plaintiff agreed to arbitrate Plaintiff's claims for defense and indemnification. Id. ¶ 20. Kenyonand Nordby arbitrated the claims on September 12, 2012, and the arbitrator rendered a decision on September 18, 2012. Id. The arbitrator found that Kenyon had failed to properly install the EIFS system, resulting in "significant water intrusion." Id. ¶ 20. The arbitrator awarded Nordby damages in the amount of $924,974.06, and attorney's fees and costs in the amount of $174,808.10. Id. ¶ 21. According to Plaintiff, the Superior Court confirmed the arbitration award and entered the award as a judgment on January 9, 2013. Id. ¶ 23. The Superior Court credited Kenyon for the $265,690.60 Kenyon contributed to the settlement of the underlying state court action with Summit State Bank, "resulting in a net judgment of $834,091.50, plus interest on that amount at the legal rate of 10 percent per annum from September 12, 2012." Id. According to Plaintiff, the amount currently due exceeds $950,000. Id.

2. Defendants' Insurance Policies and Tender Responses

Plaintiff alleges that Defendant American Safety insured Kenyon under two primary policies of commercial general liability insurance effective July 1, 2002 to July 1, 2003 (Policy XGI 02-1747-003), and July 1, 2003 to July 1, 2004 (Policy XGI 03-1747-004). Id. ¶ 25. American Safety allegedly agreed to defend Kenyon under the 2002-03 policy, but denied coverage under the 2003-04 policy. Id. Plaintiff believes both policies carried limits of $1 million dollars per occurrence, "exclusive of defense and other supplementary payments coverage," and that both polices are now "exhausted with respect to [Kenyon's] legal obligation to pay damages." Id. Plaintiff further alleges that American Safety exhausted its policy limit under the 2002-03 policy before the arbitration, but only exhausted its policy limit under the 2003-04 policy after the arbitration. Id. ¶¶ 26-27.

Plaintiff first tendered its defense to American Safety under the 2002-03 and 2003-04 policies on or about June 2, 2011. Id.¶ 35. According to Plaintiff, it was entitled to a defense and indemnification under these policies as an additional insured and a contractual indemnitee of the named insured, Kenyon. Id. American Safety "ignored" the tender. Id. Plaintiff again tendered its defense to American Safety on or about September 29, 2011, November 8, 2011, and January 2,2012, and American Safety allegedly ignored these tenders as well. Id. On or about December 16, 2013, Nordby tendered the judgment entered against Kenyon, requesting payment of the attorney's fees and costs awarded against Kenyon. Id. ¶ 37.

As to Defendant AIG Specialty, Plaintiff alleges that AIG Specialty insured Kenyon under a primary policy of commercial general liability effective July 1, 2004 to July 15, 2005 (Policy GL 933-32-99). Id. ¶ 29. Defendant AIG Specialty denied coverage to Kenyon, and declined Kenyon's tender of defense. Id. The AIG Specialty policy carried a liability limit of $1 million dollars per occurrence, "exclusive of defense and other supplementary payments coverage." Id. AIG Specialty also allegedly insured Kenyon under three policies of umbrella liability insurance effective July 1, 2002 to July 1, 2003 (Policy BE 7413924), July 1, 2003 to July 1, 2004 (Policy BE 9745186), and July 1, 2004 to July 1, 2005 (Policy BE 9745761). Id. ¶ 32. Plaintiff avers that AIG Specialty denied coverage under the umbrella policies, claiming that Kenyon had not exhausted its primary insurance coverage. Id. Each umbrella policy carries a liability limit of $5 million dollars. Id.

On or about January 20, 2014, Nordby tendered to AIG Specialty the judgment entered against Kenyon in the underlying state court action. Id. ¶ 39. AIG Specialty has refused to pay any portion of the judgment awarded against Kenyon. Id.

Defendant ACE allegedly insured Kenyon under three primary policies of commercial general liability insurance effective July 15, 2005 to July 15, 2006 (Policy HDO G205909097A) , July 15, 2006 to July 15, 2007 (Policy HDO G21702390), and July 15, 2007 to July 15, 2008 (Policy HDO G2451027A). Id. ¶ 30. ACE denied coverage under all three policies and declined Kenyon's tender of defense. Id. Plaintiff alleges that each policy carries a limit of $1 million dollars per occurrence, exclusive of defense and other supplementary payments coverage. Id. Plaintiff further alleges that the 2005-06 and 2007-08 policies had "designated work exclusions precluding coverage for the Summit State Bank project," but that the 2006-07 policy did not have such an exclusion. Id.

On or about January 20, 2014, Nordby tendered to ACE the judgment entered against Kenyon in the underlying state court action. Id. ¶...