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Lexington Insurance Company v. Scott Homes Multifamily, Inc.

United States District Court, Ninth Circuit

May 29, 2013

Lexington Insurance Company, a Delaware Corporation, Plaintiff,
v.
Scott Homes Multifamily, Inc., an Arizona corporation; and Silverbell 290 Limited Partnership, an Arizona Limited Partnership, Defendants.

ORDER

JAMES A. TEILBORG, Senior District Judge.

Pending before the Court are: (1) Plaintiff's Motion to Dismiss Silverbell 290 Limited Partnership's Counterclaim (Doc. 27) and (2) Scott Homes Multifamily, Inc.'s Motion to Dismiss (Doc. 41). The Court now rules on the Motions.

I. Background

A. The Complaint

On October 8, 2012, Lexington filed its Complaint in this Court. (Doc. 1) In its Complaint, Lexington alleges as follows:

On March 2, 2010, Defendant Silverbell 290 Limited Partnership ("Silverbell")[1] sued Defendant Scott Homes Multifamily, Inc. ("Scott"), among others, in Pima County Superior Court (the "state court case"). ( Id. at ¶ 13). Silverbell is the owner of an apartment complex called the Springs at Silverbell Apartments (the "Silverbell Apartments"). ( Id. at ¶ 6). In its Amended Complaint in the state court case, Silverbell alleged that Scott was the general contractor in the construction of the Silverbell Apartments pursuant to a contract, and that Scott, as general contractor, entered into contracts, agreements, and/or subcontracts with subcontractors and/or others to assist in the construction. ( Id. at ¶¶ 16-17). In that Amended Complaint, Silverbell alleged that, in late 2008, it discovered a number of defects and latent defects at the Silverbell Apartments and that the damages exceed $7.11 million. ( Id. at ¶¶ 18-20).

Scott then tendered its defense and indemnity to Evanston Insurance Company ("Evanston") subject to a reservation of rights under Evanston CGL Policy No. 01 GLP 1003112 (the "Evanston Policy"). ( Id. at ¶ 23).

Lexington issued an Excess Liability Policy No. 4013724, effective January 1, 2002 to January 1, 2003, to Robson Communities, Inc. ("Robson") (the "Excess Policy"). ( Id. at ¶ 2). Scott is a named insured in that policy. ( Id. at ¶ 4). The Evanston Policy is the "underlying policy" to the Excess Policy. ( Id. at ¶ 43).

On July 2, 2012, Robson and Scott provided notice to Lexington that Scott was finalizing a settlement with Silverbell that would result in the exhaustion of the Evanston Policy and would trigger coverage under the Excess Policy issued by Lexington. ( Id. at ¶ 24). On July 13, 2012, Lexington requested information from Robson and Scott confirming the exhaustion of the Evanston Policy and any other underlying policies. ( Id. at ¶ 25). Thereafter, on July 20, 2012, Lexington again requested information confirming the exhaustion of underlying policies and requested confirmation that the subcontractors' policies had also been exhausted. ( Id. at ¶¶ 26-27). On July 26, 2012, Lexington again requested information concerning the subcontractors' policies and positions taken by their respective carriers. ( Id. at ¶ 28). Lexington never received a response to these requests. ( Id. at ¶ 29).

On September 19, 2012, Silverbell, Scott, and Evanston agreed to enter into a settlement agreement purporting to resolve the claims asserted against Scott in the state court case for damages arising out of the project, including repair and replacement of defective construction and resulting damages (the "Settlement Agreement"). ( Id. at ¶¶ 30-31). In that Settlement Agreement, Evanston agreed to pay Silverbell one million dollars, the aggregate limit of its insurance under the Evanston Policy. ( Id. at ¶ 32). The Settlement Agreement further provided that the one million dollar payment exhausted Evanston's applicable coverage.

Further, Scott and Silverbell agreed to enter into a stipulated judgment against Scott in the amount of six million dollars to be received from subcontractors, subcontractor's insurers, and Scotts' primary and excess insurers (the "stipulated judgment"). ( Id. at ¶ 34). In Exhibit 1 to the Settlement Agreement, Scott identified eleven subcontractors who unconditionally agreed to defend and indemnify Scott and failed to do so. ( Id. at ¶ 36). The Excess Policy applies only upon exhaustion of all applicable underlying limits, whether or not collectible. ( Id. at ¶¶ 46, 67).

As a result of the above allegations, Lexington seeks the following declarations: (1) that the Excess Policy is not currently implicated and Lexington owes no duty to defend Scott Homes ( Id. at ¶ 74); (2) that it owes no coverage for any amount of the stipulated judgment or any damages sought in the state court case because the damages sought in the state court case are not a result of "property damage" as defined in the Excess Policy ( Id. at ¶ 81); (3) that it is not liable for property damages that did not occur during the effective dates of the Excess Policy ( Id. at ¶ 88); (4) that it owes no coverage for any amount of the stipulated judgment or other damages sought not caused by an "occurrence" ( Id. at ¶ 92); (5) that it owes no coverage for any "property damage exclusions" ( Id. at ¶ 100); (6) that it owes no coverage for damages excluded by "professional liability exclusions" ( Id. at ¶ 107); (7) that it owes no damages that were first incurred prior to the inception of the Evanston or Excess Policies ( Id. at ¶ 116); (8) that is owes no coverage under a policy in effect prior to January 1, 2002 ( Id. at ¶ 121); (9) that it owes no coverage for damages as a result of clean up, remediation, abatement, or removal of mold, fungus, or yeast ( Id. at ¶ 126); (10) that it owes no coverage for damages attributable to breach of contract, breach of a third party beneficiary contract and breach of implied and express warranties causes of action ( Id. at ¶ 132); (11) that it owes no coverage for damages attributable to "property damages" for the acts of independent contractors that did not procure the requisite insurance ( Id. at ¶ 137); (12) that, to the extent Silverbell qualifies as an insured under the Excess Policy, no coverage is available for any damages sought in the state court case ( Id. at ¶ 145); (13) that, as a result of Scott's material breach of duty to cooperate with Lexington, no coverage is available under the Excess Policy ( Id. at ¶ 153); (14) that, as a result of Scott's failure to obtain Lexington's consent before entering into a settlement agreement, no coverage is available under the Excess Policy ( Id. at ¶ 158); (15) that, as a result of Scott's failure to obtain permission to transfer its rights under the Excess Policy, no coverage is available under the Excess Policy ( Id. at ¶ 165); and (16) that, to the extent that stipulated judgment is a product of collusion or is unreasonable, no coverage is available under the Excess Policy ( Id. at ¶ 173).

B. The Counterclaim

In response to the Complaint, Defendant Silverbell filed an answer and counterclaim. In its ...


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