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Arrowood Indemnity Co. v. Drees Co.

United States District Court, E.D. Kentucky, Northern Division, Covington

January 9, 2015

ARROWOOD INDEMNITY COMPANY, Plaintiff,
v.
THE DREES COMPANY, et al., Defendants.

MEMORANDUM OPINION AND ORDER

DAVID L. BUNNING, District Judge.

Plaintiff Arrowood Indemnity Company ("Arrowood") commenced this action against Defendant, the Drees Company ("Drees"), pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. Arrowood seeks a ruling that it has no obligation to defend or indemnify Drees in connection with a state court lawsuit filed by Co-Defendant, the Summits Council of Co-Owners, Inc. (the "Summits"). The parties were ordered to submit memoranda addressing whether the Court should hear this matter based on the Grand Trunk factors. Having carefully considered the parties' arguments, and for the reasons set forth below, the Court finds it appropriate to decline jurisdiction in this case. Accordingly, Arrowood's amended complaint and the Summits' counter-claim are dismissed without prejudice.

I. Factual and Procedural Background

Drees is a homebuilding company with its principal place of business located in Ft. Mitchell, Kentucky. (Doc. # 6 at 2, ¶ 2). From 1993 through 2000, Drees developed a multi-phase condominium project in Florence, Kentucky, known as the Summits of Oakbrook (the "Condos"). ( Id. at 2, ¶ 8). The Summits is a non-profit corporation responsible for the overall administration of the Condos. (Doc. # 19-1 at 2, ¶ 4). It is tasked with ensuring that certain areas of the Condos are properly maintained, "including, but not limited to, the foundations, main walls, roof, halls, basements, and all other elements of or on the property rationally of common use or necessary to the existence, upkeep, and safety of the owners and of the [Condos].'" ( Id. )

On or about August 27, 2012, the Summits filed a lawsuit against Drees in the Boone Circuit Court, alleging that water had penetrated the exterior of the Condos, causing structural and other damages in excess of $750, 000 (the "Summits Lawsuit").[1] ( Id. at 2-3, ¶ 9). The complaint brings four separate causes of action, stating that Drees: (1) breached an implied warranty that the Condos were built in a workmanlike manner using suitable materials; (2) constructed the Condos in such a way that violated the Uniform State Building Code and/or other applicable building codes; (3) breached its duty to construct the Condos in a non-negligent manner using reasonable care; and (4) incorporated numerous defective products in building the Condos. ( Id. at 2-5, ¶¶ 6-24). The Summits Lawsuit has been ongoing for more than two years. (Doc. # 14 at 1). Both parties have taken considerable discovery. ( Id. at 6).

Arrowood is one of Drees' various liability insurers. Arrowood is defending Drees in the Summits Lawsuit pursuant to a commercial general liability ("CGL") policy, issued by the Royal & Sun Alliance Group (the "Royal Policy"), a company that Arrowood purchased in 2007. (Doc. # 6 at 2, ¶ 7). The defense being provided to Drees is subject to a reservation of rights letter, sent by Arrowood on December 20, 2012. (Doc. # 6 at 4, ¶ 13).

Arrowood filed the instant declaratory judgment action on September 18, 2014. (Doc. # 1). According to the complaint, the Condos were not built, nor could the alleged water penetration have occurred, "during the period when the Royal Policy was in force and effect." (Doc. # 6 at 9, ¶ 24); (Doc. # 6 at 10, ¶ 30). Additionally, Arrowood asserts that claims of faulty workmanship are not covered by CGL insurance as a matter of law. (Doc. # 6 at 9, ¶ 26). Based on these arguments, Arrowood maintains that "[t]here are no allegations against Drees in the Summits Lawsuit of any occurrences or property damages that would trigger coverage under the Royal Policy." (Doc. # 6 at 10, ¶ 31).

Arrowood's position in this matter implicates the following provisions and definitions within the Royal Policy:

Section I - Coverages
1. Insuring Agreement.
a. 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 any "suit" seeking those damages. However, we will have no duty to defend the insured against any "suit" seeking damages for "bodily injury" or "property damage" to which this insurance does not apply. We may at our discretion investigate any "occurrence" and settle any claim or "suit" that may result.
b. This insurance applies to "bodily injury" and "property damage" only if:
(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory"; and
(2) The "bodily injury" or "property damage" occurs during the policy period.
Section V - Definitions
8. "Occurrence" means an accident, including continuous or repeated exposure to substantially the same general harmful conditions.

(Doc. # 6-1 at 35, 45).[2]

II. Analysis

1. Standard of ...


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