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Peninsula II Developers, Inc. v. Westchester Fire Insurance Co.

United States District Court, S.D. Florida

April 25, 2018




         THIS MATTER is before the Court on Westchester's Motion for Summary Judgment Against Skyline [DE 469] and Skyline's Motion for Partial Summary Judgment on Bad Faith and Breach of Contract [DE 476]. This action arises out of the installation of Chinese drywall in a condominium project developed by now-dismissed Plaintiff Peninsula II Developers, Inc. (Peninsula). Skyline Systems, Inc. (Skyline) was the subcontractor that installed the Chinese drywall. Defendant Westchester Fire Insurance Co. (Westchester) issued an excess liability insurance policy under an owner controlled insurance program for the condominium project, under which Skyline is an insured. Skyline's amended complaint alleges claims for declaratory judgment, breach of contract, and bad faith. Both sides now seek summary judgment. Because Skyline has failed to establish that Westchester has a duty to indemnify Skyline for the damages which it seeks in this action, Westchester is entitled to summary judgment.


         This case arises out of the construction of a 223-unit luxury condominium in Aventura, Florida called the Peninsula II Condominium (the "Project"). The developer of the Project, Peninsula entered into an agreement for the construction of the Project with a contractor, Gryphon Construction, LLC ("Gryphon"), the other remaining Plaintiff. Gryphon, in turn, entered into a subcontract with Skyline to supply and install drywall in the units and common areas of the Project.

         The Insurance Policies

         To insure the Project, Peninsula set up an owner controlled insurance program ("OCIP"). Under the Peninsula OCIP, American Home Assurance Company ("American Home") issued three primary commercial general liability policies for the construction of the Project for consecutive terms lasting between May 15, 2005 and March 30, 2008. Peninsula is listed as the "named insured" on the first page of each of the policies, but on the "Name Insured Endorsement" pages, Gryphon and Skyline, as contractors and subcontractors, are also identified as insureds. (DE 473-1 at 49.)[1] The American Home policy contains the following "Insuring Agreement:"

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured against any "suit" seeking those damages.
No other obligation or liability to pay sums or perform acts or services is covered unless explicitly provided for under [other sections of this policy].

(DE 473-l at 11.)

         Westchester provided excess liability insurance coverage for the Project. (DE 473-2.) Westchester's policy contains the following three relevant provisions:

         Insuring Agreement

To pay on behalf of the "Insured" for that amount of loss which exceeds the amount of loss payable by "Underlying Insurance" described in the Declarations, but the Company's obligation hereunder shall not exceed the limit of liability stated in Declaration 6.

(Id. at 3 (capitalization altered).) Following that language is the following:

         Condition C, Loss Payable, Is Amended As Follows:

Liability of the Company with respect to any one occurrence shall not attach unless and until the Insured, or the Insured's underlying insurer, has paid the amount of underlying insurance stated in Declarations 5. If the Company is obligated to indemnify the Insured, the Insured must make a definite claim for loss within twelve (12) months after the Insured has paid any amount of excess loss, as stated in Declaration 6; or after the Insured's liability shall have been made certain by final judgment or by written agreement of the Insured, the Claimant, and the Company. Any subsequent payments made by the Insured on account of the same occurrence shall be payable by the Company within thirty (30) days after additional claim is made by the Insured, and after the Insured has shown proof in conformity with this policy.

(Id. at 3 (capitalization altered).) Finally, the Westchester policy contains language stating that it follows form to the underlying American Home policy:

Application of Underlying Insurance. Except as otherwise stated herein, and except with respect to (1) any obligation to investigate or defend any claim or sit, or (2) any obligation to renew, the insurance afforded by this policy shall apply in like manner as the underlying insurance described in the Declarations.

(Id. at 22.)

         The Litigation [2]

         Skyline installed Chinese drywall at the Project with the approval of Peninsula and Gryphon. At the time of the installation, no one knew or should have known that the drywall was defective. In 2009 American Home began this action by seeking a declaratory judgment as to its obligations under its policies to defend and indemnify Peninsula, Gryphon, and Skyline for claims arising from the installation of Chinese drywall. (DE 1). Peninsula, Gryphon and Skyline filed counterclaims against American Home and filed Third-Party Complaints against Westchester ...

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