Peters v. Lexington Ins. Co.

• Decision Date: 27 December 2011
• Docket Number: Civil Nos. 11–00355 SOM/RLP, 11–00356 SOM/RLP.
• Citation: 836 F.Supp.2d 1117
• Parties: Michael PETERS and Linda Peters, Plaintiffs, v. LEXINGTON INSURANCE COMPANY, a foreign insurance corporation, and York Risk Services Group, Inc., a foreign corporation qualified to conduct business in Hawaii, Defendants. Jerry Chernik and Kris Chernik, Plaintiffs, v. Lexington Insurance Company, a foreign insurance corporation, and York Risk Services Group, Inc., a foreign corporation qualified to conduct business in Hawaii, Defendants.
• Court: U.S. District Court — District of Hawaii

836 F.Supp.2d 1117

Michael PETERS and Linda Peters, Plaintiffs,

v.LEXINGTON INSURANCE COMPANY, a foreign insurance corporation, and York Risk Services Group, Inc., a foreign corporation qualified to conduct business in Hawaii, Defendants.

Jerry Chernik and Kris Chernik, Plaintiffs,

v.Lexington Insurance Company, a foreign insurance corporation, and York Risk Services Group, Inc., a foreign corporation qualified to conduct business in Hawaii, Defendants.

Civil Nos. 11–00355 SOM/RLP, 11–00356 SOM/RLP.

United States District Court,

D. Hawai‘i.

Dec. 27, 2011.

Joseph A. Wolsztyniak, Jr., Wailuku, HI, for Plaintiffs.

Andrew George Odell, Jeffrey S. Portnoy, Cades Schutte, Honolulu, HI, for Defendants.

ORDER GRANTING DEFENDANT LEXINGTON INSURANCE COMPANY'S MOTION FOR JUDGMENT ON THE PLEADINGS

SUSAN OKI MOLLWAY, Chief Judge.

I. INTRODUCTION.

This is an action involving insurance coverage arising out of damage to the plaintiffs'condominiums, allegedly caused by a water leak from another unit. Plaintiffs Michael Peters, Linda Peters, Jerry Chernik, and Kris Chernik own two condominium units at the Wavecrest Resort on the island of Molokai. Michael and Linda Peters, and Jerry and Kris Chernik, brought separate actions through virtually identical complaints against Defendants Lexington Insurance Company (“Lexington”), the insurer for the Wavecrest Resort's homeowners' association, and York Risk Services Group, Inc. (“York”), an insurance adjuster hired by Lexington. The two actions have been consolidated.

Plaintiffs assert that Lexington failed to comply with the terms of the homeowners' association's insurance policy by failing to properly adjust Plaintiffs' claims for property damage claims resulting from the water leak. Plaintiffs also assert claims for punitive damages against Lexington and York. Lexington now moves for judgment on the pleadings pursuant to Rule 12(c) of the Federal Rules of Civil Procedure. The court grants the motion on the ground that Plaintiffs do not have standing to enforce the association's policy.

II. RULE 12(c) STANDARD.

Rule 12(c) permits parties to move for judgment on the pleadings. It states: “After the pleadings are closed—but early enough not to delay trial-a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). The standard governing a Rule 12(c) motion for judgment on the pleadings is “functionally identical” to that governing a Rule 12(b)(6) motion. United States ex rel. Cafasso v. Gen. Dynamics C4 Sys., Inc., 637 F.3d 1047, 1054 n. 4 (9th Cir.2011). For a Rule 12(c) motion, the allegations of the nonmoving party are accepted as true, while the allegations of the moving party that have been denied are assumed to be false. See Hal Roach Studios v. Richard Feiner & Co., Inc., 896 F.2d 1542, 1550 (9th Cir.1989). A court evaluating a Rule 12(c) motion must construe factual allegations in a complaint in the light most favorable to the nonmoving party. Fleming v. Pickard, 581 F.3d 922, 925 (9th Cir.2009). “Judgment on the pleadings under Rule 12(c) is proper when the moving party establishes on the face of the pleadings that there is no material issue of fact and that the moving party is entitled to judgment as a matter of law.” Jensen Family Farms, Inc. v. Monterey Bay Unified Air Pollution Control Dist., 644 F.3d 934, 937 n. 1 (9th Cir.2011).

Generally, when matters outside the pleadings are considered, a motion for judgment on the pleadings must be construed as one for summary judgment under Rule 56 of the Federal Rules of Civil Procedure. SeeFed.R.Civ.P. 12(d). Courts have held, however, that when adjudicating a Rule 12(c) motion, courts may consider matters subject to judicial notice without converting the motion into one for summary judgment. See Heliotrope Gen., Inc. v. Ford Motor Co., 189 F.3d 971, 981 n. 18 (9th Cir.1999) (“When considering a motion for judgment on the pleadings, this court may consider facts that are contained in materials of which the court may take judicial notice.” (quotation marks omitted)); accord Lacondeguy v. Adapa, 2011 WL 9572, at *2 (E.D.Cal. Jan. 3, 2011); Williams v. City of Antioch, 2010 WL 3632199, at *2 (N.D.Cal. Sept. 2, 2010). A court may also consider certain documents attached to a complaint, as well as documents incorporated by reference into a complaint “if the plaintiff refers extensively to the document or the document forms the basis of the plaintiff's claim.” United States v. Ritchie, 342 F.3d 903, 909 (9th Cir.2003). According to the Ninth Circuit, incorporation by reference is appropriate when “a plaintiff's claim about insurance coverage is based on the contents of a coverage plan.” Id. (citations omitted).

III. BACKGROUND.

Plaintiffs Michael Peters and Linda Peters jointly own a condominium at the Wavecrest Resort in Kaunakakai, on the island of Molokai. Defs. Lexington Insurance Company and York Risk Services Group, Inc.'s Notice of Removal Ex. A. (“Peters Complaint”) ¶ 1, ECF No. 1. Plaintiffs Jerry Chernik and Kris Chernik also jointly own a unit at the Wavecrest Resort. Defs. Lexington Insurance Company and York Risk Services Group, Inc.'s Notice of Removal Ex. A. (“Chernik Complaint”) ¶ 1, Civil No. 11–00356, ECF No. 1. On December 3, 2009, water leaking from another unit damaged Plaintiffs' units. Peters Complaint and Chernik Complaint (collectively, the “Complaints”) ¶ 4.

At the time of the leak, Defendant Lexington insured Wavecrest Resort pursuant to an insurance policy taken out and maintained by the Wavecrest Resort's Association of Apartment Owners (“AOAO”). Id. ¶ 2. Plaintiffs allege that they were covered under the AOAO's insurance policy. Id. ¶ 3. After the leak, they “timely” filed claims with Lexington “under the terms of the Policy.” Id. ¶ 5. It appears from the Complaints that Michael and Linda Peters demanded $65,323.54 in damages, and Jerry and Kris Chernik demanded $89.519.77 in damages. Id. ¶ 9. Lexington hired Defendant York to adjust the claims. Id. ¶ 6.

On April 13, 2011, the Peters Plaintiffs and the Chernik Plaintiffs filed the lawsuits now consolidated before this court. Originally filed in state court, the nearly identical Complaints allege that Lexington and York failed to adequately adjust Plaintiffs' claims pursuant to the Policy and Hawaii law. The Complaints assert three causes of action: Count I—“Breach of the Insurance Agreement by Lexington,” Count II—“Punitive Damages Against Lexington,” and Count III—“Punitive Damages Against York.” Id. at 3–4. The AOAO is not named as a party, and Plaintiffs do not contend that they are suing on behalf of the AOAO.

On June 3, 2011, Defendants removed the cases to federal court. ECF No. 1. Defendants answered the Complaints on June 15, 2011. ECF No. 7. On August 2, 2011, the parties agreed to consolidate the cases. ECF. No. 15.

On August 22, 2011, Lexington moved for judgment on the pleadings against all Plaintiffs with respect to Counts I and II. Def. Lexington Insurance Company's Mot. for J. on the Pleadings (“Motion”), ECF No. 17. Plaintiffs jointly filed an opposition on November 21, 2011.¹ Pls. Memo. in Opp'n to Def. Lexington Insurance Company's Mot. for J. on the Pleadings (“Opposition”), ECF No. 20. Defendants filed a reply on November 23, 2011.

IV. ANALYSIS.A. General Law Governing Insurance Contracts.

Federal courts sitting in diversity apply state substantive law and federal procedural law. See Mason & Dixon Intermodal, Inc. v. Lapmaster Int'l LLC, 632 F.3d 1056, 1060 (9th Cir.2011) (“When a district court sits in diversity, or hears state law claims based on supplemental jurisdiction, the court applies state substantive law to the state law claims.”); Zamani v. Carnes, 491 F.3d 990, 995 (9th Cir.2007) (“Federal courts sitting in diversity jurisdiction apply state substantive law and federal procedural law.” (quotation marks omitted)). When interpreting state law, a federal court is bound by the decisions of a state's highest court. Trishan Air, Inc. v. Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir.2011). In the absence of a governing state decision, a federal court attempts to predict how the highest state court would decide the issue, using intermediate appellate court decisions, decisions from other jurisdictions, statutes, treatises, and restatements as guidance. Id.See also Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir.2004) (“To the extent this case raises issues of first impression, our court, sitting in diversity, must use its best judgment to predict how the Hawaii Supreme Court would decide the issue.” (quotation marks and brackets omitted)).

Under Hawaii law, general rules of contract construction apply to the interpretation of insurance contracts. Guajardo v. AIG Hawai'i Ins. Co., 118 Hawai'i 196, 203, 187 P.3d 580 (2008); Dawes v. First Ins. Co. of Haw., 77 Hawai'i 117, 121, 883 P.2d 38 (1994). Hawaii law requires that an insurance policy be read as a whole and its terms construed in accordance with their plain, ordinary, and accepted sense in common speech, unless it appears that a different meaning is intended. Guajardo, 118 Hawai'i at 203, 187 P.3d 580;Dawes, 77 Hawai'i at 121, 883 P.2d 38;First Ins. Co. of Haw. v. State, 66 Haw. 413, 423, 665 P.2d 648 (1983); see alsoHaw.Rev.Stat. § 431:10–237 (“Every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy, and as amplified, extended, restricted, or modified by any rider, endorsement or application attached to and made a part of the policy.”). Plaintiffs have attached a copy of the insurance policy in issue to their opposition. Opposition Ex. A (“Policy”), ECF. No. 20–1. The parties do not dispute its authenticity. As Plaintiffs' claims are based on the Policy, the court considers its terms.

B. Count I is a Breach of Contract Claim.

Lexington, contending that Count I is unclear, construes Count I as either a breach of contract claim or a third-party bad faith...