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Westfield Insurance Co. v. Double Aa Builders, Ltd.

United States District Court, Ninth Circuit

August 12, 2013

Westfield Insurance Company, an Ohio Company, Plaintiff,
v.
Double AA Builders, Ltd., an Arizona corporation. Defendant.

ORDER

G. MURRAY SNOW, District Judge.

Pending before the Court is Defendant's Motion to Dismiss Pursuant to Rules 12(b)(1), (3), (6), and (7). (Doc. 9.) For the reasons discussed below, the Court grants the Motion.[1]

BACKGROUND[2]

This declaratory action arises from an insurance coverage dispute. Defendant Double AA is a licensed general contractor and Plaintiff Westfield is its insurer. (Doc. 1 ¶ 7.) In 2007, Double AA contracted with Harkins Theatres ("Harkins") to construct a theatre complex in North Phoenix (the "Theatre"). ( Id. ) As the general contractor, Double AA contracted with Anchor Roofing Systems, Inc. ("Anchor") to construct the Built-Up Roofing (the "BUR") and with GAF Materials Corporation ("GAF") to provide certain roofing materials for the Theatre. ( Id. )

On April 16, 2008. ( Id. ¶ 8.) Anchor warrantied the BUR and agreed to repair or replace any defective work within a period of two years. ( Id. ) After the Theatre's completion, the roof developed cracks and leaks, resulting in some interior water damage to the Theatre. ( Id. ¶¶ 9, 19.) Anchor and/or GAF made several repairs to the cracks in the BUR, but that did not resolve the issue. ( Id. ¶ 10.)

Harkins, Double AA, and GAF investigated these continuing problems. ( Id. ¶ 11.) Meanwhile, Harkins retained a roof consultant from WRECORP to determine the cause of the roof deterioration. ( Id. ¶ 12.) The consultant's August 16, 2012 report identified specific reasons why the roof installation by Anchor and GAF was not proper and concluded that a combination of factors caused the roof system to fail. ( Id. ¶¶ 12-13.) The presence of moisture prior to and during the roof installation was the strongest factor in the deterioration. ( Id. ¶ 14.) GAF reviewed and agreed with the conclusions contained in the report. ( Id. ¶ 15.) Level 4 Studio, the architectural firm that designed the Theatre, sent correspondence to Double AA stating that the cracks exhibited a systematic roof failure and that Harkins demanded a full replacement of the roof. ( Id. ¶ 16.)

Double AA proceeded with the roof replacement and incurred costs of approximately $400, 000. ( Id. ¶ 17.) To remedy the problem, Double AA removed the BUR to allow moisture to dry out and then re-installed it. ( Id. ¶ 18.) After the replacement, Double AA submitted an insurance claim to Westfield. ( Id. ¶ 17.)

Westfield had issued an insurance policy to Double AA (the "Policy") which provided coverage beginning on August 2, 2006, and was renewed for one-year periods through August 1, 2012. ( Id. ¶ 20.) The Policy covers "property damage" if it is caused by an "occurrence." ( Id. at 5, §§ 1(a), (b).) "Property damage" is defined as "[p]hysical injury to tangible property, including all resulting loss of use of that property... or [l]oss of use of tangible property that is not physically injured." ( Id. at 9, § 17.) An "occurrence" is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." ( Id. at 8, § 13.) But the Policy does not cover "[p]roperty damage' to your work' arising out of it or any part of it and included in the products-completed operations hazard.'" ( Id. at 7, § 2(l).) The exclusion does not apply "if the damaged work out of which the damage arises was performed on your behalf by a subcontractor." ( Id. )

Upon receiving the insurance claim, Westfield informed Double AA that the Policy does not provide coverage for the cost of repairing the defective roof but would provide coverage to the extent that Double AA was liable for resulting interior water damage. ( Id. ¶ 22.) Westfield denies any obligation to indemnify Double AA because the existence of the defective roof and the cost of repairing it does not constitute an "occurrence" or "property damage" as defined in the Policy and because such expenditures are excluded from coverage. ( Id. ¶¶ 25-26.) Double AA disputes Westfield's coverage position and has demanded that Westfield reimburse it for the costs incurred to replace the roof. ( Id. ¶ 23.)

On January 3, 2013, Westfield filed this action pursuant to the Federal Declaratory Judgment Act ("FDJA"), 28 U.S.C. § 2201, for a judicial declaration that it has no obligation to defend or indemnify Double AA in connection with any claims for the repair or replacement of the defective roof. (Doc. 1.) On February 19, 2013, Double AA filed an action in Maricopa County Superior Court with claims against Westfield for breach of contract and a declaratory judgment relating to the policy coverage issue. (Doc. 9-1 at 13.) In that pending state action, Double AA also brings claims against Anchor for breach of contract, negligence, and indemnity for failing to properly install the BUR and against Anchor's insurer, Preferred, for breach of contract and a declaratory judgment for damages caused by the roof failure. ( Id. ) On the same day, Double AA filed this motion to dismiss the Complaint and requested the Court to decline jurisdiction in this matter. (Doc. 9.)

DISCUSSION

I. LEGAL STANDARD

The FDJA states that "[i]n a case of actual controversy within its jurisdiction [with noted exceptions]... any court of the United States... may declare the rights and other legal relations of any interested party seeking such declaration, whether or not further relief is or could be sought." 28 U.S.C. § 2201(a). The FDJA "created an opportunity, rather than a duty, to grant a new form of relief to qualifying litigants." Wilton v. Seven Falls Co., 515 U.S. 277, 288 (1995). As the Ninth Circuit has explained, "The Declaratory Judgment Act was an authorization, not a command. It gave the federal courts competence to make a declaration of rights; it did not impose a duty to do so." Amer. Nat. Fire Ins. Co. v. Hungerford, 53 F.3d 1012 (9th Cir. 1995 ), overruled on other grounds by Gov't. Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1227 (9th Cir. 1998) (stating that "the Declaratory Judgment Act is deliberately cast in terms of permissive, rather than mandatory, authority'") (internal citation omitted).

When determining whether to abstain from an FDJA action, the Ninth Circuit considers the factors set out by the Supreme Court in Brillhart v. Excess Insurance Company of America, 316 U.S. 491 (1942). "The district court [1] should avoid needless determination of state law issues; [2] it should discourage litigants from filing declaratory actions as a means of forum shopping; and [3] it should avoid duplicative litigation." Gov't Employees Ins. Co. v. Dizol, 133 F.3d 1220, 1225 (9th Cir. 1998) (en banc) ("The Brillhart factors remain the philosophical touchstone for the district court.") (internal citation omitted). The Brillhart court explained that "[o]rdinarily it would be uneconomical as well as vexatious for a federal court to proceed in a declaratory judgment suit where another suit is pending in a state court presenting the ...


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