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KB Home Jacksonville LLC v. Liberty Mutual Fire Insurance Co.

United States District Court, M.D. Florida, Jacksonville Division

September 5, 2019




         THIS 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.

         I. Background[1]

         A. The Underlying Florida Litigation

         This 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).

         B. The Insurance Policies

         During 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).[2]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, 000.[3] 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.

         C. The Instant Action and the South Carolina Litigation

         On 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.[4] 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.

         The 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).[5] 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.

         On June 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).[6] 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).

         On 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 ...

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