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Lexington Insurance Co. v. Scott Homes Multifamily, Inc.

United States District Court, D. Arizona

January 22, 2014

Lexington Insurance Company, Plaintiff,
v.
Scott Homes Multifamily, Inc. and Silverbell 290 Limited Partnership, Defendants. Silverbell 290 Limited Partnership, individually and as the assignee of Scott Homes Multifamily, Inc., Counterclaimants,
v.
Lexington Insurance Company, Counterdefendant.

ORDER

JAMES A. TEILBORG, Senior District Judge.

Pending before the Court are Plaintiff Lexington Insurance Company ("Lexington")'s Motion for Summary Judgment (Doc. 53) and Defendant Silverbell 290 Limited Partnership ("Silverbell")'s Motion to Strike (Doc. 81). The Court now rules on the motions.

I. Motion to Strike

The Court first considers Silverbell's motion to strike because if granted, it would narrow the evidence before the Court in considering Lexington's motion for summary judgment. Lexington's statement of facts in support of its motion for summary judgment includes several attached exhibits. (Doc. 54 Exs. A-P). Silverbell raised evidentiary objections to these exhibits in its controverting statement of facts, (Doc. 69), and Lexington attempted to bolster their admissibility by attaching an affidavit to its reply in support of its motion. (Doc. 78). In the affidavit, Lexington's counsel attempts to authenticate the exhibits by attesting that they are true and correct copies of what they appear to be. ( Id. at 2-4). Silverbell then filed a motion to strike both the affidavit as well as the exhibits, objecting to their admissibility. (Doc. 81 at 3-4). Lexington contends Silverbell's motion is procedurally improper. (Doc. 83 at 3).

A. Legal Standard

Arizona Local Rule of Civil Procedure ("Local Rule") 7.2 governs the filing of motions to strike, and provides that "a motion to strike may be filed only if it is authorized by statute or rule... or if it seeks to strike any part of a filing or submission on the ground that it is prohibited (or not authorized) by a statute, rule, or court order." L.R.Civ.P. 7.2(m)(1). "An objection to (and any argument regarding) the admissibility of evidence offered in support of or opposition to a motion must be presented in the objecting party's responsive or reply memorandum and not in a separate motion to strike or other separate filing." Id. 7.2(m)(2).

B. Analysis

Lexington contends that Silverbell's motion to strike is a motion presenting objections to the admissibility of evidence barred under Local Rule 7.2(m). (Doc. 83 at 3). Silverbell asserts that Local Rule 7.2(m)(1) authorizes a motion to strike part of a filing that is not authorized by a statute, rule, or court order. (Doc. 81 at 3).

The Court need not consider whether Lexington was authorized to file its affidavit with its reply. At the summary judgment stage, a court focuses on the admissibility of the contents of evidence and not its form. Fraser v. Goodale, 342 F.3d 1032, 1036-37 (9th Cir. 2003). It is sufficient that the "contents of the [exhibits] are admissible at trial, even if the [exhibits themselves] may be inadmissible." Id. at 1036. Lexington's affidavit seeks only to convert the exhibits into an admissible form, (Doc. 78 at 2-4), but the Court must consider the exhibits on summary judgment regardless of whether they are admissible in their current form. See Fraser, 342 F.3d at 1036-37. Accordingly, to the extent that Silverbell's motion to strike seeks to strike Lexington's affidavit, the Court will deny the motion as presenting an advisory question because the Court must consider the exhibits regardless of whether the affidavit is stricken.

Additionally, to the extent that Silverbell's motion to strike seeks to strike Lexington's exhibits themselves, the Court will deny the motion. Local Rule 7.2(m)(2) prohibits motions to strike objecting to the admissibility of evidence. Silverbell's motion objects to the admissibility of Lexington's exhibits and is procedurally improper. See Pruett v. Ariz., 606 F.Supp.2d 1065, 1074 (D. Ariz. 2009). The Court will consider only those evidentiary objections made in Silverbell's controverting statement of facts.

II. Motion for Summary Judgment

A. Background

Lexington filed this declaratory judgment action seeking a determination that it is not liable to pay Silverbell in satisfaction of a consent judgment Silverbell obtained in prior litigation against Lexington's insured, Scott Homes Multifamily, Inc. ("Scott Homes"). (Doc. 1).

The basic facts giving rise to Lexington's action are as follows. Silverbell contracted with Scott Homes for the construction of the Springs at Silverbell Apartments (the "Apartments"). (Doc. 1-1 at 25-26). At all relevant times, Scott Homes was insured under a primary general liability policy (the "Evanston Policy") issued by Evanston Insurance Company ("Evanston").[1] (Doc. 10-2 at 2). Scott Homes was also insured under an excess liability policy issued by Lexington (the "Lexington Excess Policy") that "followed form"[2] to the Evanston policy. (Doc. 1-1 at 2). Additionally, Scott Homes was an additional named insured on some of its subcontractors' primary policies. (Doc. 1-4 at 2). After the Apartments were built, Silverbell discovered construction defects in the Apartments. ( Id. at 30).

Silverbell sued Scott Homes and its subcontractors for damages. ( Id. at 25-45). Scott Homes tendered its defense to Evanston, who defended subject to a reservation of rights. (Doc. 68-5 at 2). Lexington declined to defend Scott Homes, asserting that it had not been provided with documentation showing all underlying coverage had been exhausted. ( Id. at 7); (Doc. 54-2 at 5). Silverbell, Scott Homes, and Evanston subsequently entered into a settlement agreement[3] (the "Settlement Agreement") in which (1) Silverbell and Scott Homes stipulated to a $6 million judgment against Scott Homes; (2) Evanston agreed to pay Silverbell its policy limit of $1 million in exchange for a release from further liability; (3) Silverbell agreed not to execute the judgment against Scott Homes; and (4) Scott Homes assigned to Silverbell all of Scott Homes' rights for claims arising out of the Apartments against certain subcontractors, subcontractors' insurers, primary insurers (other than Evanston), and excess insurers. (Doc. 68-5 at 9-10).

The Pima County Superior Court entered judgment for Silverbell and against Scott Homes in the amount of $6 million, as stipulated. (Doc. 54-12 at 2). The judgment stated that the $6 million amount was awarded for "claims related to and/or damages caused by work of" seven subcontractors who Scott Homes had hired to construct the Apartments and provided an itemized breakdown of the award per subcontractor. ( Id. at 3). After entry of judgment, Lexington filed the present action for a declaration that it is not liable to Silverbell under the terms of its policy. (Doc. 1).

B. Legal Standard

Summary judgment is appropriate when "the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a). "A party asserting that a fact cannot be or is genuinely disputed must support that assertion by... citing to particular parts of materials in the record, including depositions, documents, electronically stored information, affidavits, or declarations, stipulations... admissions, interrogatory answers, or other materials, " or by "showing that materials cited do not establish the absence or presence of a genuine dispute, or that an adverse party cannot produce admissible evidence to support the fact." Id. 56(c)(1)(A), (B). Thus, summary judgment is mandated "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

Initially, the movant bears the burden of pointing out to the Court the basis for the motion and the elements of the causes of action upon which the non-movant will be unable to establish a genuine issue of material fact. Id. at 323. The burden then shifts to the non-movant to establish the existence of material fact. Id. The non-movant "must do more than simply show that there is some metaphysical doubt as to the material facts" by "com[ing] forward with specific facts showing that there is a genuine issue for trial.'" Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (quoting Fed.R.Civ.P. 56(e) (1963) (amended 2010)). A dispute about a fact is "genuine" if the evidence is such that a reasonable jury could return a verdict for the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). The non-movant's bare assertions, standing alone, are insufficient to create a material issue of fact and defeat a motion for summary judgment. Id. at 247-48. However, in the summary judgment context, the Court construes all disputed facts in the light most favorable to the non-moving party. Ellison v. Robertson, 357 F.3d 1072, 1075 (9th Cir. 2004).

C. Applicable Underlying Policies

Because the Lexington Excess Policy is an excess liability policy, it provides coverage only after certain underlying policies have been exhausted. The parties dispute which policies must be exhausted before Lexington incurs an obligation to provide coverage under the Lexington Excess Policy. Lexington contends the applicable underlying policies are the Evanston Policy as well as any policies issued to Scott Homes' subcontractors "under which Scott Homes [qualifies] as an additional insured." ( Id. at 5). Silverbell argues that the Evanston Policy is the only applicable underlying policy. (Doc. 68 at 19). Accordingly, the Court must first address whether subcontractor policies qualify as underlying policies for the Lexington Excess Policy before determining which, if any, underlying policies have exhausted.

1. Background

The Lexington Excess Policy provides that:

A. We will pay on behalf of the Insured that portion of the loss which the Insured will become legally obligated to pay as compensatory damages (excluding all fines, penalties, punitive or exemplary damages) by reason of exhaustion of all applicable underlying limits, whether collectible or not, as specified in Section II of the Declarations, subject to:
1. the terms and conditions of the underlying policy listed in Section IIA of the Declarations, AND
2. our Limit of Liability as stated in Section 1C of the Declarations.
B. Except as regards: (1) the premium; (2) the obligation to investigate and defend, including costs and expenses thereto; (3) the limit of liability; (4) the renewal agreement, if any; (5) the notice of occurrence, claim, or suit provision; (6) any other provision therein inconsistent with this policy; the ...

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