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State Auto Property & Casualty Insurance Co. v. Highland Terrace Counsel of Co-Owners, Inc.

United States District Court, W.D. Kentucky, Louisville

May 7, 2015

STATE AUTO PROPERTY & CASUALTY INSURANCE COMPANY, Plaintiff,
v.
HIGHLAND TERRACE COUNSEL OF CO-OWNERS, INC., et al., Defendants.

MEMORANDUM OPINION

THOMAS B. RUSSELL, Senior District Judge.

State Auto Property & Casualty Insurance Company ("State Auto") disputes that it has a duty to defend Highland Terrace Counsel of Co-Owners, Inc. ("Highland Terrace") in a lawsuit that Pitaya, Inc. filed against it in state court. State Auto refuses to defend Highland Terrace, claiming that Highland Terrace is not covered under its insurance policy. As such, State Auto brought this declaratory action and moved for summary judgment. Because the policy does not require State Auto to provide a defense under these circumstances, the motion is granted.

I.

The state court dispute involves Highland Terrace (a condominium regime) and Pitaya (the owner of a condominium within that regime). It began after Highland Terrace imposed a $700, 000 special assessment for building repairs. Pitaya says that Highland Terrace, through its board, violated the master deed and by-laws in levying that special assessment. It sued Highland Terrace in Jefferson Circuit Court, alleging five causes of action: (1) breach of contract; (2) breach of fiduciary duties and the covenant of good faith and fair dealing; (3) negligent representation and grossly negligent representation; (4) declaration of rights action and action to quiet title; and (5) equitable relief. Specifically, the complaint alleges that Highland Terrace: (1) elected its board of directors in violation of its by-laws; (2) passed the $700, 000 special assessment in violation of the master deed; (3) assessed non-incurred expenses; (4) assessed more costs than were actually incurred; (5) failed to properly seek remuneration for the negligence and fraud of a builder and prior Highland Terrace agents; (6) denied Pitaya access to limited common elements in violation of the by-laws; and (7) failed to maintain a capital replacement fund in violation of the master deed. DN 9-2, PageID # 194-99. Confronted with this lawsuit, Highland Terrace turned to its insurer, State Auto, for a legal defense. Citing the terms of the commercial general liability policy (the "CGL Policy"), State Auto declined.

The CGL Policy provides that State Auto "will pay those sums that [Highland Terrace] becomes legally obligated to pay as damages because of bodily injury' or property damage' to which this insurance applies." DN 1-1, PageID # 105, § I, ¶ 1(a). It further states that State Auto "will have the right and duty to defend [Highland Terrace] against any suit' seeking those damages. However, [State Auto] will have no duty to defend [Highland Terrace] against any suit' seeking damages for bodily injury' or property damage' to which this insurance does not apply." Id.

It only applies if the "bodily injury" or "property damage" "is caused by an occurrence.'" Id. at § I, ¶ 1(b). "Occurrence" is defined: It "means an accident, including continuous or repeated exposure to substantially the same general harmful conditions. Faulty workmanship does not constitute an occurrence, ' however, property damage' to property other than your work' that directly results from faulty workmanship is an occurrence' under this policy." Id. at PageID # 143.

Highland Terrace also points to the "Directors, Officers, and Trustees Liability Coverage Endorsement" (the "D & O Policy"). The relevant language provides:

a. [State Auto] will pay on behalf of the named insured all "loss" in excess of the deductible shown in the Declarations for which the named insured may be required or permitted to indemnify its directors, officers, or trustees, individually or collectively, arising out of their "wrongful acts."
b. [State Auto] will pay on behalf of directors, officers, and trustees "loss" arising from any claims made against them, individually or collectively, by reason of their "wrongful acts."
[State Auto] will have the right and duty to defend any "suit" seeking "damages" and, at our discretion, investigate any "wrongful conduct" and settle any "claim" or "suit" that may result....
However, we have no duty to defend "suits" as a result of "wrongful acts" not covered by this coverage form.

Id. at PageID # 132. The sole issue before the Court is whether State Auto must defend Highland Terrace under either of those two provisions.

II.

State Auto has moved for summary judgment, which is appropriate where "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). In analyzing a motion for summary judgment, a court views the evidence in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255 (1986). But "[t]he mere existence of a scintilla of evidence in support of the plaintiff's position will be insufficient; there must be evidence on which a reasonable jury could return a verdict for the non-moving party." Id. at 248. The Court must ultimately determine whether "the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as ...


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