Weitz Co. v. Lexington Ins. Co.

• Decision Date: 13 November 2013
• Docket Number: No. 4:10–cv–00254.,4:10–cv–00254.
• Citation: 982 F.Supp.2d 975
• Parties: The WEITZ COMPANY, LLC, Plaintiff, v. LEXINGTON INSURANCE COMPANY; Allied World Assurance Company, Inc.; Westchester Surplus Lines Insurance Company; Essex Insurance Company; Lloyd's of London, et al., a/k/a Underwriters at Lloyd's; and various unknown insurers hereby named John Doe Insurers, Defendants.
• Court: U.S. District Court — Southern District of Iowa

982 F.Supp.2d 975

The WEITZ COMPANY, LLC, Plaintiff,

v.LEXINGTON INSURANCE COMPANY; Allied World Assurance Company, Inc.; Westchester Surplus Lines Insurance Company; Essex Insurance Company; Lloyd's of London, et al., a/k/a Underwriters at Lloyd's; and various unknown insurers hereby named John Doe Insurers, Defendants.

No. 4:10–cv–00254.

United States District Court,

S.D. Iowa,

Central Division.

Nov. 13, 2013.

Laura A. Freid–Studlo, David T. Dekker, Laura R. Thomson, Melissa C. Lesmes, Pillsbury Winthrop Shaw Pittman LLP, Washington, DC, John A. Templer, Jr., Richard J. Kirschman, Stephen D. Marso, Whitfield & Eddy PLC, Des Moines, IA, for Plaintiff.

John Anderson Camp, David Lanier Luck, Gary Michael Pappas, Bruce C. King, Steven J. Brodie, Carlton Fields PA, Miami, FL, Daniel C. Brown, Carlton Fields, P.A., Tallahassee, FL, Richard J. Sapp, John F. Lorentzen, Nyemaster Goode West Hansell & O'Brien PC, Joan M. Fletcher, Dickinson Mackaman Tyler & Hagen PC, Des Moines, IA, William Roderick Lewis, Butler Pappas Weihmuller Katz Craig LLP, Tampa, FL, Terry J. Abernathy, Pickens Barnes & Abernathy, Cedar Rapids, IA, Kelly A. Jorgensen, James M. Hoey, James Robert Swinehart, Clausen Miller PC, Chicago, IL, for Defendants.

ORDER

JOHN A. JARVEY, District Judge.

I. INTRODUCTION

Plaintiff, the Weitz Company, LLC (“Weitz”) filed a Complaint against the Defendants on June 4, 2010. [Dkt. No. 1.] Defendants are Lexington Insurance Company (“Lexington”); Allied World Assurance Company (U.S.), Inc. (“Allied”); Westchester Surplus Lines Insurance Company (“Westchester”); Essex Insurance Company (“Essex”); and Lloyd's of London, et al., a/k/a/ Underwriters at Lloyd's (“Lloyd's Underwriters”).¹ Weitz filed an amended complaint on October 28, 2010, a second amended complaint on March 3, 2011, and a third amended complaint on October 30, 2013.² [Dkt. Nos. 24, 68, 204.] The second amended complaint alleges two causes of action in equity: (1) subrogation and (2) unjust enrichment.³ [Dkt. No. 68.] Defendants filed motions to dismiss pursuant to the second amended complaint.⁴ On May 25, 2011, this Court issued an order denying Defendants' motions to dismiss. [Dkt. Nos. 89.]

This matter now comes before the Court pursuant to Lexington/Allied's motion for summary judgment filed on April 4, 2013. [Dkt. No. 148.] The other Defendants, including Westchester, Essex, and Lloyd's Underwriters, joined Lexington/Allied's motion for summary judgment in part and filed separate briefs in support of summary judgment.⁵ [Dkt. Nos. 152, 153.] On May 10, 2013, Weitz filed its resistance to Lexington/Allied's motion for summary judgment. [Dkt. No. 156.] The Court held oral argument on July 12, 2013.

This Court has diversity jurisdiction over the subject matter of this case pursuant to 28 U.S.C. § 1332(a)(1) and (a)(2) because there is complete diversity of citizenship between Weitz and the Defendants,⁶ and an amount in controversy that exceeds $75,000, exclusive of interest and costs. ⁷ Venue is proper in the Southern District of Iowa under 28 U.S.C. § 1391(a)(2) because a substantial part of the events giving rise to the claim occurred therein. After reviewing the parties' briefs and relevant case law, this Court finds that there is no genuine issue of material fact, and Defendants' motions for summary judgment are GRANTED.

II. FACTS

This case arises from the construction of a retirement community in Aventura, Florida. On January 8, 2001, the plaintiff, The Weitz Company, LLC (“Weitz”), entered into a contract with CC–Aventura, Inc., an affiliate of the Hyatt Corporation (“Hyatt”), to build a luxury-life residential community. It consisted of two 23–story residential buildings (“the towers”), an amenities building, an adjacent health center (“the care center”), a plaza deck, and a parking garage. Upon its completion, Hyatt noticed defects in the property's workmanship. The damage was severe: there were cracks in the stucco on the towers and care center; cracks and water intrusion in the concrete floor slabs in the towers; defects in waterproofing and inadequate drainage in the towers and care center; water and moisture intrusion through the window system in the towers and care center; and damage to the plaza deck.

According to the second amended complaint, Allied, Axis, Essex, Lexington, Lloyd's Underwriters, and Westchester provided “all risk” property insurance policies to Hyatt covering the project. [Dkt. No. 142 Page 5]; [Dkt. No. 89 Page 4.] For instance, in late 2003, Lexington and Allied World issued commercial first-party property insurance policies to Hyatt insuring multiple Hyatt properties throughout the United States. [Dkt. No. 148–2 Page 4.] These policies included the Classic–Aventura property in Florida. [Dkt. No. 148–2 Page 4.] The policies provided insurance coverage for “direct physical loss or damage” to the covered properties for certain periods of time.⁸ [Dkt. No. 148–2 Page 6.] The policies covered losses occurring during the policy time periods, and included contractual limitations and notice provisions.

In 2005, Hyatt, Lexington, and Allied entered into a settlement agreement, in which Lexington/Allied agreed to pay Hyatt $750,000 for the reported claims arising from the project.⁹ In return, Hyatt released Lexington/Allied from liability. Weitz alleges that the agreement was coerced—that is, Lexington/Allied threatened not to renew Hyatt's coverage unless Hyatt agreed to a low settlement offer. The settlement agreement related to the reports Hyatt made about damages to the care center in or about September 2004, and damages to the towers in or about July 2005. Damages to the plaza deck were not reported until in or about the fall of 2008.

In 2006, after settling with Lexington/Allied, Hyatt filed a lawsuit against Weitz and MSA Architects, Inc. (“MSA”) in the United States District Court for the Southern District of Florida, Miami Division, on grounds of breach of contract, breach of guaranty, and breach of applicable building codes. ¹⁰ Hyatt sought to recover $102 million for the costs it incurred to repair the construction and design defects, and to remediate the impact the project had on Hyatt's business. Weitz blamed its subcontractors, bringing third-party claims against them, and Weitz made claims against its liability insurers. At that time, Weitz did not bring any third-party claims against Hyatt's first-party property insurers—the Defendants in this case.

In 2010, shortly before trial, Weitz entered into a settlement agreement with Hyatt. Pursuant to the agreement, Weitz paid Hyatt approximately $53 million for the property damage Hyatt suffered.¹¹ The Defendants allege that Weitz recovered $55,799,684 in connection with the litigation in Florida from settlements with its own liability insurers, subcontractors, and the sureties and insurers of its subcontractors.

Later that same year, Weitz sued Hyatt's first-party property insurers—the Defendants—in this Court on a breach-of-contract theory. Weitz amended its initial complaint to seek recovery in equity through subrogation and unjust enrichment. [Dkt. No. 68 Page 6.] Weitz alleges that the $53 million Weitz paid Hyatt for property damages should have been covered by Hyatt's insurance policies that were issued by the Defendants. Based on assignments from entities that contributed to the Hyatt/Weitz settlement, Weitz now seeks to recover a counterclaim of $4,963,404.18 that Weitz gave up as a part of that settlement.

As to the equitable and/or legal subrogation claim, Weitz argues that the Defendants are primarily liable for the property damage to the project because: (1) Weitz paid Hyatt for the property damage covered by the Defendants' policies; (2) Weitz made the settlement payment to Hyatt to protect its own interests; (3) Weitz's settlement payment to Hyatt was not voluntary; (4) Weitz's settlement payment served as payment of Defendants' entire debt; and (5) given that the settlement payment made by Weitz to Hyatt should have been made by the Defendants, subrogation against the Defendants would not work any injustice to them. See In re Chapala Intern., Inc., No. 94–1208–CH, 1995 WL 17911422, at *34 (S.D.Iowa May 26, 1995) (articulating the five-part test to prove an equitable subrogation claim) (citing In re Hagen, 147 B.R. 166, 167 (Bankr.N.D.Iowa 1992)).

Regarding the unjust enrichment claim, Weitz asserts that it conferred a benefit on the Defendants because it covered the property damages that were the responsibility of the Defendants under their insurance policies. For that reason, Defendants were unjustly enriched by the benefit that Weitz conferred. It would be inequitable, Weitz argues, to allow the Defendants to retain the benefit without paying for its value.

The Defendants argue that Weitz has already been made whole from the payments it received after settling with Hyatt. Therefore, Weitz cannot collect at law or in equity because it has already been reimbursed for everything it paid Hyatt in 2010. In addition, the Defendants contend that no amount of the settlement paid by Weitz to Hyatt was a liability owed by the Defendant insurers. Finally, the Defendants also argue that Weitz's claims fail as a matter of law because Weitz's claims are barred by the release Lexington/Allied received from Hyatt, and the suit limitation clauses and notice provisions in Defendants' insurance policies. Because the Defendantsonly insured against “direct physical loss or damage” to the insured property, they argue that Weitz cannot recover for an alleged breach-of-contract counterclaim.

III. STANDARD FOR SUMMARY JUDGMENT

“Summary judgment is proper if there is no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law.” Carraher v. Target Corp., 503 F.3d 714, 716 (8th Cir.2007) (citing Fed.R.Civ.P.56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322–23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). The moving par...