United States District Court, M.D. Florida, Jacksonville Division
MORALES HOWARD UNITED STATES DISTRICT JUDGE.
CAUSE is before the Court on Defendant Liberty
Mutual Fire Insurance Company's Motion for Partial
Summary Judgment on the Duty to Defend (Doc. 44; Motion),
filed on September 14, 2018. Plaintiff KB Home filed a
response in opposition on October 5, 2018. See
Plaintiff KB Home Jacksonville LLC's Opposition to
Defendant Liberty Mutual Fire Insurance Company's Motion
for Partial Summary Judgment on the Duty to Defend (Doc. 48;
Response). Accordingly, the Motion is ripe for review.
The Underlying Florida Litigation
insurance coverage dispute arises out of almost 100 lawsuits
filed in 2017 in Florida state court (the Florida Litigation)
by individual homeowners against KB Home regarding KB
Home's allegedly defective construction and development
of 6 residential developments in St. Johns County and Clay
County, Florida (the Project). See Amended Complaint
(Complaint; Doc. 14), Exhibit 5: Homeowner Claims Against KB
Home (Doc. 14-5). KB Home served as the general contractor
for the Project and, in doing so, utilized various
subcontractors. See Complaint at 4. As relevant
here, as part of the Project, in 2006, KB Home subcontracted
with Florida State Plastering, LLC (FSP) to install stucco.
See id., Exhibit 1: Subcontract (Doc. 14-1).
The Insurance Policies
the Project, Liberty Mutual insured FSP under two consecutive
commercial general liability insurance policies (the
Policies), which together provided coverage from February 1,
2007 to February 1, 2009. See id., Exhibit 2:
2007-08 Liberty Mutual Policy (Doc. 14-2; 2007 Policy);
Exhibit 3: 2008-09 Liberty Mutual Policy (Doc. 14-3; 2008
Policy).In addition to FSP, the Policies identified
South Carolina State Plastering, LLC (SCSP) and Integrity
Wall Systems, LLC (Integrity), among others, as named
insureds. See 2008 Policy at 2, 13. The parties
agree that KB Home is an additional insured under the
Policies. See Complaint at 5-6; Motion at 6; Joint
Notice of Partial Settlement and Motion for Approval of
Briefing Schedule (Doc. 41; Joint Notice) at 2. The Policies
each provide a per occurrence limit of $1, 000, 000, a
general aggregate limit of $2, 000, 000, and a
products/completed operations aggregate limit of $2, 000,
See 2008 Policy at 9. Importantly, the Policies
provide that Liberty Mutual's “right and duty to
defend ends when we have used up the applicable limit of
insurance in the payment of judgments or settlements . . .
.” Id. at 65.
The Instant Action and the South Carolina Litigation
March 19, 2018, KB Home initiated the instant declaratory
judgment action seeking a declaration that Liberty Mutual is
obligated to defend KB Home in the Florida Litigation.
See Original Complaint (Doc. 1). Specifically, KB
Home contends that because the underlying complaints in the
Florida Litigation allege that FSP's defective stucco
installation resulted in property damage to other parts of
the Project, Liberty Mutual has a duty to defend KB Home in
that litigation as an additional insured under the Policies.
See Complaint at 2. On August 20, 2018, the parties
informed the Court that Liberty Mutual “agree[d] that
its defense obligation was triggered” by the
allegations of the underlying complaints. See
Joint Notice at 2. However, Liberty Mutual asserts that its
duty to defend KB Home ended on June 2, 2017, when Liberty
Mutual offered its policy limits to settle an unrelated class
action against SCSP, Integrity, and other additional insureds
in South Carolina state court (South Carolina Litigation).
See generally Motion.
South Carolina Litigation consists of more than 4, 000
lawsuits against SCSP, Integrity, and Del Webb (an additional
insured under the Policies), among others, regarding their
allegedly defective construction and development of a
retirement community known as Sun City Hilton Head by Del
Webb. See generally Grazia v. South Carolina State
Plastering, LLC, No. 2007-CP-1936 (14th Jud. Cir.,
Beaufort County, SC). See also Defendant Liberty Mutual
Fire Insurance Company's Memorandum in Opposition to
Plaintiff KB Home Jacksonville, LLC's Motion for Partial
Summary Judgment, Exhibit 1: Declaration of Eric Rinehimer
(Doc. 40-1; Rinehimer Declaration). On May 31, 2017, Del Webb
demanded that Liberty Mutual pay the remainder of the
Policies' limits to settle the South Carolina Litigation.
See Rinehimer Declaration, Exhibit 7: Demand Letter
(Doc. 40-7). Specifically, Del Webb demanded “that
Liberty Mutual pay the entirety of its remaining limits on
behalf of both Del Webb and [SCSP] to the trust account of
Del Webb's defense counsel . . .” as well as $2,
500, 000 in defense costs. Id. at 2. In doing so,
Del Webb noted “that Liberty Mutual has approximately
$2.3 to $2.4 Million of available limits remaining on the
Policies whether said amounts are based on the per
occurrence, general aggregate or products completed
operations hazard limits as set forth on the declarations
pages of the Policies.” Id. at 1-2. Del Webb
stated that its “settlement demand [was] being made
with the understanding that the Liberty Mutual policies
issued to [Integrity] and [SCSP] [would] be fully exhausted
through the payment of this claim.” Id. at 2.
2, 2017, Liberty Mutual responded to the Demand Letter with
the following settlement offer:
1. Payment of remaining policy limits of approximately
$2, 300, 000.00 directly to plaintiff in return for a
full release of the damage claims during our policy periods
up to the amount of settlement, protecting both [SCSP] and
Del Webb to the full extent of payment.
2. Payment of $156, 250.00 to Del Webb in full and complete
satisfaction of Liberty Mutual's defense obligation.
3. An Order that policy limits have been exhausted, that
Liberty Mutual's indemnity obligation has been fully
satisfied and that no defense obligation exists beyond this
settlement as to either [SCSP] or Del Webb.
See Rinehimer Declaration, Exhibit 8 (Doc. 40-8):
Response Letter at 1 (emphasis added). In the Response
Letter, Liberty Mutual also noted the existence of a second
letter from Del Webb dated May 31, 2017 (that the parties
have not submitted to the Court), in which Del Webb objected
to Liberty Mutual paying its policy limits directly to the
plaintiffs without Del Webb's consent. See id.
at 3. With regard to this objection, Liberty Mutual advised
Del Webb that it had “been asked to participate in the
Right To Cure (‘RTC') offer process. Participation
would include commitment of the remaining limits of the
policies and, if accepted, would be direct
payments to individual plaintiffs in return for an individual
release of claims against [SCSP] and Del Webb.”
Id. (emphasis added). Seeking further clarification
of Del Webb's May 21, 2017 letters and Del Webb's
position regarding Liberty Mutual's participation in the
Right to Cure process, Liberty Mutual stated:
The first letter demanded that [Liberty Mutual] pay the
remaining limits to Del Webb to be held in escrow. The second
letter demanded that no money be paid directly to plaintiffs.
Today, we received a document purportedly authored by [Del
Webb's defense counsel] indicating that “Del Webb
does not object” to the RTC offers. A conflict exists
among these communications. The RTC offers could result in
payments directly to plaintiffs. Liberty Mutual cannot
fund the RTC offers and pay the remaining limits into your
escrow account. We would like an express definitive statement
from Del Webb on this issue.
Id. (emphasis added).
January 30, 2018, the South Carolina state court approved
individual settlements under South Carolina's right to
cure process. See Declaration, Exhibit 9: Order
Approving Individual Settlements Under the Right to Cure
Process and Dismissal of Claims/Properties from the Class
(Doc. 40-9; Right to Cure Order). In doing so, the court
stated that SCSP had “made written settlement offers to
numerous members of the Class, ” and that “[a]
group of homeowners/Class Members had elected to accept these
offers . . . .” Id. Notably, the ...