Pinnacle Architecture, Inc. v. Hiscox, Inc.

• Decision Date: 12 June 2021
• Docket Number: No. 3:20-cv-01922-HZ,3:20-cv-01922-HZ
• Citation: 543 F.Supp.3d 997
• Parties: PINNACLE ARCHITECTURE, INC. an Oregon Corporation, Peter Baer an individual, Mark Rossi an individual, Plaintiffs, v. HISCOX, INC. a New York Corporation, Certain Underwriters at Lloyd's, London-Syndicate 3624, Subscribing to Policy ANE1756517.19, an unincorporated association, Defendants.
• Court: U.S. District Court — District of Oregon

543 F.Supp.3d 997

PINNACLE ARCHITECTURE, INC. an Oregon Corporation, Peter Baer an individual, Mark Rossi an individual, Plaintiffs,

v.HISCOX, INC. a New York Corporation, Certain Underwriters at Lloyd's, London-Syndicate 3624, Subscribing to Policy ANE1756517.19, an unincorporated association, Defendants.

No. 3:20-cv-01922-HZ

United States District Court, D. Oregon.

Signed June 12, 2021

Filed June 14, 2021

Seth H. Row, Shanelle A. Honda, Miller Nash LLP, 111 SW Fifth Avenue, Suite 3400, Portland, OR 97204, Attorneys for Plaintiff.

Aryn M. Seiler, Heather M. Jensen, Jordan H. Lewis, Kristen Dana Perkins, Lewis Brisbois Bisgaard & Smith LLP, 888 SW Fifth Avenue, Suite 900, Portland, OR 97204, Attorneys for Defendant.

OPINION & ORDER

HERNÁNDEZ, District Judge:

Plaintiff Pinnacle Architecture, Inc. (Pinnacle) and individual Plaintiffs Peter Baer and Mark Rossi bring this action against Certain Underwriters at Lloyd's, London-Syndicate 36241.¹ Plaintiffs bring claims for breach of contract, breach of the covenant of good faith and fair dealing, and seek a declaratory judgment arising from an underlying claim made against Plaintiffs by Lifeways, Inc.

Plaintiff moves for summary judgment on its declaratory judgment claim. Defendant moves for summary judgment on all claims against it. For the reasons that follow, the Court grants Plaintiffs’ partial motion for summary judgment and denies Defendant's motion for summary judgment.

BACKGROUND

I. Underlying Incident and Action

Lifeways, Inc. (Lifeways) retained Plaintiffs to perform architecture services for a psychiatric hospital in Hermiston, Oregon. Row Decl. Ex. C at 78–79 (Amended Arbitration Demand), ECF 12. According to Lifeways’ Complaint and Amended Arbitration Demand, in June 2014, based on Plaintiffs’ initial design, Lifeways and its first contractor WC Construction established a guaranteed maximum price (GMP) for the hospital project. Id. at 79.

In August 2015, Lifeways and Plaintiffs executed a second supplement to their initial contract which required Plaintiffs to "[r]e-design floor plan to meet State of Oregon requirements for a Psychiatric Hospital, as defined by OARs [Oregon Administrative Rules]." Id. Plaintiffs’ redesign allegedly required extensive changes to meet the OAR requirements for a psychiatric hospital. Id. Consequently, Lifeways and its general contractor increased the GMP to $4,356,964.00. Id. Despite the required changes, Plaintiffs allegedly "assured Lifeways that it would be able to obtain waivers from the Oregon Health Authority ("Authority") to address the failure of its revised design to comply with the OAR requirements." Id. The Authority ultimately rejected some waivers increasing the costs for the project. Id. at 79–80. Lifeways alleges that Plaintiffs’ "incomplete, negligent, and defective design caused Lifeways to incur additional construction costs totaling $1,152,94 9.91 beyond the Revised GMP" and $50,643.00 in additional costs associated with "completing the Project in accordance with the OAR requirements." Id. at 80.²

Lifeways filed the underlying lawsuit against Plaintiffs in Umatilla County, Oregon and an Arbitration and Mediation Demand with the American Arbitration Associated in accordance with the arbitration provisions of the Lifeways-Pinnace Contract. See Perkins Decl. Ex. C (Underlying Complaint), ECF 21-3; Amended Arbitration Demand.

Lifeways brought breach of contract and negligence actions against Plaintiffs. Id. The counts are stated in the Amended Arbitration Demand as follows:

COUNT 1 (BREACH OF CONTRACT)

Under the Contract, Pinnacle agreed to "Re-design floor plan to meet State of Oregon requirements for a Psychiatric Hospital, as defined by OARs." In performing its services, Pinnacle breached the Contract and fell below the standard of care required by the Contract by, among other things, failing to design the Project to meet the design requirements of the State of Oregon, including the OAR requirements for a licensed hospital. Lifeways performed all of the acts required of it pursuant to the Contract, except as the same may have been waived, excused and/or prevented by the acts of Pinnacle. As a direct and proximate result of Pinnacle's breaches, Lifeways has been damaged in an amount to be proven during arbitration.

COUNT 2 (NEGLIGENCE)

Pinnacle owed a duty to Lifeways to perform the design services for the Project in accordance with the ordinary standard of care for a licensed architect. Pinnacle breached this duty by, among other things, failing to design the Project to meet the design requirements of the State of Oregon, including the OAR requirements for a licensed hospital. As a direct and proximate result of Pinnacle's negligence, Lifeways has been damaged in an amount to be proven during arbitration.

Id. at 80–81.

II. The Policy and Breach of Contract Exclusion

Defendant issued Plaintiffs a professional liability insurance policy (the Policy). Row Decl. Ex. A (Insurance Policy), ECF 12-1. The Policy includes a duty to defend Plaintiffs if the underlying claim is "covered." Id. at 42. The "Defense and settlement of claims" section contains several exclusions. Id. at 43. It includes an exclusion for breach of contract claims. Id. The breach of contract exclusion states:

We will have no obligation to pay any sums under this Coverage Part, including any damages or claim expenses , for any claim : ... based upon or arising out of any actual or alleged breach of any contract or agreement, or any liability of others that you assume under any contract or agreement; however, this exclusion will not apply to any liability you would have in the absence of the contract or agreement.

Id. (emphasis in original).

III. This Action

On May 13, 2020 Plaintiffs provided notice to Defendant that a claim had been made against it. Row Decl. ¶ 4. On July 30, 2020, Defendant responded to the notice stating its position that there was no coverage under the Policy for the allegations made by Lifeways in the underlying Complaint and arbitration demand based on the Policy's breach of contract exclusion. Perkins Decl. Ex. F at 1, ECF 21-6. On September 10, 2020 Lifeways and Plaintiffs filed a stipulated Amended Arbitration Demand. On September 21, 2020, Defendant maintained its position that there was no coverage under the Policy for the allegations in the Amended Arbitration Demand. Perkins Decl. Ex. J, ECF 21-10.

On September 30, 2020, Plaintiffs filed suit against Hiscox, Inc. and Certain Underwriters at Lloyd's, London-Syndicate 3624 in Multnomah County Circuit Court. Not. of Removal at 2, ECF 1. On November 6, 2020 Defendant timely removed the action to federal court. Id. at 4. Plaintiffs move for summary judgment on their third claim for relief and seek a declaration that Defendant has a duty to defend Plaintiffs in the underlying breach of contract and negligence action brought by Lifeways. Defendant moves for summary judgment on all claims against it.

STANDARDS

I. Summary Judgment

Summary judgment is appropriate if there is no genuine dispute as to any material fact and the moving party is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a). The moving party bears the initial responsibility of informing the court of the basis of its motion, and identifying those portions of " ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett , 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (quoting former Fed. R. Civ. P. 56(c) ).

Once the moving party meets its initial burden of demonstrating the absence of a genuine issue of material fact, the burden then shifts to the nonmoving party to present "specific facts" showing a "genuine issue for trial." Fed. Trade Comm'n v. Stefanchik , 559 F.3d 924, 927–28 (9th Cir. 2009) (internal quotation marks omitted). The nonmoving party must go beyond the pleadings and designate facts showing an issue for trial. Bias v. Moynihan , 508 F.3d 1212, 1218 (9th Cir. 2007) (citing Celotex , 477 U.S. at 324, 106 S.Ct. 2548 ).

The substantive law governing a claim determines whether a fact is material. Suever v. Connell , 579 F.3d 1047, 1056 (9th Cir. 2009). The court draws inferences from the facts in the light most favorable to the nonmoving party. Earl v. Nielsen Media Rsch., Inc. , 658 F.3d 1108, 1112 (9th Cir. 2011). If the factual context makes the nonmoving party's claim as to the existence of a material issue of fact implausible, that party must come forward with more persuasive evidence to support its claim than would otherwise be necessary. Matsushita Elec. Indus. Co. v. Zenith Radio Corp. , 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).

II. Declaratory Judgment

The Declaratory Judgment Act provides: "In a case of actual controversy within its jurisdiction, ... any court of the United States ... may declare the rights and other legal relations of any interested party seeking such declaration[.]" 28 U.S.C. § 2201(a). The exercise of jurisdiction under the Declaratory Judgment Act is at the discretion of the district court. Gov't Emp. Ins. Co. v. Dizol , 133 F.3d 1220, 1223 (9th Cir. 1998). Thus, "[e]ven if the district court has subject matter jurisdiction, it is not required to exercise its authority to hear the case." Huth v. Hartford Ins. Co. of the Midwest , 298 F.3d 800, 802 (9th Cir. 2002). However, "[a] District Court cannot decline to entertain such an action as a matter of whim or personal disinclination." Dizol , 133 F.3d at 1223. When determining whether to retain jurisdiction in a properly filed declaratory-judgment action, the court "must make a sufficient record of its reasoning to enable appropriate appellate review." Id. at 1225.

There are three main factors for the court to consider when determining whether to exercise jurisdiction over a declaratory-judgment action (the " Brillhart factors" as set out...