Traub Lieberman Straus & Shrewsberry LLP | October 22, 2014
In State Farm Fire & Cas. Co. v. RK Wooten, 2014 U.S. Dist. LEXIS 146196 (D. Haw. Oct. 14, 2014), the U.S. District Court of Hawaii recently determined that State Farm Fire & Casualty Insurance Company (“State Farm”) had no duty to defend or indemnify an insured subcontractor in a state court construction defect lawsuit filed by underlying plaintiff, Maui Park Plaza LLC, related to the construction of the Maui Park Plaza Office Complex.
RK Wooten (“RKW”), a subcontractor engaged in metal framing and drywall installation was named as a defendant in the state court litigation and sought coverage from State Farm based on a series of commercial liability policies issued to RKW from January 1, 2007 to January 1, 2012. State Farm provided RKW with defense under a reservation of rights and initiated a declaratory judgment action seeking a declaration that it owed no duty to defend or indemnify RKW in the underlying suit.
RKW failed to respond to State Farm’s declaratory action and State Farm filed a Motion for a Final Default Judgment, or in the alternative Summary Judgment. In determining whether Final Default Judgment was appropriate, the district court evaluated seven factors enumerated by the Ninth Circuit in Eitel v. McCool, 782 F.2d 1470, 1472 (9th Cir. 1986):(1) the possibility of prejudice to the plaintiff; (2) the merits of plaintiff’s substantive claim; (3) the sufficiency of the complaint; (4) the sum of money at state in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to excusable neglect; and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decision on the merits.
Focusing on the second factor, the “merits of State Farm’s claim,” it was clear to the Court that the alleged construction defects “did not fit within the scope of any of the policy terms as defined by the construction policies” (i.e. they did not constitute claims for “bodily injury” or “property damage” caused by an “occurrence”) and that it was well settled in Hawaii that “claims arising from an insured’s obligations under a contract” — whether phrased in terms of breach of contract or negligence — are not claims for “property damage” caused by an “occurrence.”
The court also noted that the applicable policies contained language that excluded coverage for “property damage for which the insured is obligated to pay damages by reason of the assumption of liability in a contract or agreement.” As such, the Court held that State Farm commercial policies made it clear that they did not provide coverage for the Plaintiff’s claims in the construction defect suit and the Court granted State Farm’s Motion for Final Default Judgment.