Capitol Specialty Insurance Corporation v. Steadfast Insurance Co.

• Court: District Court, D. Nevada
• Decided: March 29, 2024
• Docket: 2:20-cv-01382
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 DISTRICT OF NEVADA 6 * * *

7 CAPITOL SPECIALTY INSURANCE Case No. 2:20-CV-1382 JCM (VCF) CORPORATION, 8 Plaintiff(s), ORDER 9 v. 10 STEADFAST INSURANCE COMPANY, 11 et al.,

12 Defendant(s).

13 14 Presently before the court is plaintiff Capitol Specialty Insurance Corporation (“Capitol 15 Specialty” or “plaintiff”)’s motion for summary judgment regarding the Military Road claim. 16 (ECF No. 164). Defendant Steadfast Insurance Company (“Steadfast” or “defendant”) filed a 17 response (ECF No. 171), to which plaintiff replied (ECF No. 174). 18 Also before the court is plaintiff’s motion for summary judgment relating to the Milan 19 20 property claim. (ECF No. 165). Defendant filed a response (ECF No. 172), to which plaintiff 21 replied (ECF No. 176). 22 Also before the court is defendant’s motion for summary judgment or, in the alternative, 23 partial summary judgment. (ECF No. 166). Plaintiff filed a response (ECF No. 173), to which 24 defendant replied (ECF No. 175). 25 26 I. Background 27 This is a breach of contract case arising out of a disagreement between insurance companies 28 regarding two construction projects. 1 Capitol Specialty is pursuing this action as an assignee of United Construction Company 2 (“United”). (ECF No. 37 at 1). United is a commercial construction company that provides 3 design-build services to commercial property owners. (Id. at 2). Steadfast issued a contractor’s 4 protective professional indemnity and liability insurance policy (the “policy”) to United that 5 6 incepted on April 20, 2016, and expired on April 20, 2017, with limits of $5,000,000. (Id.). 7 On October 10, 2014, United entered into the first of two design-build contracts pertinent 8 to the motions filed by both parties: a contract for the design and construction of a distribution 9 facility located at 385 Milan Avenue in Reno (the “Milan property”). (Id. at 3). United contracted 10 with RHP Mechanical Systems (“RHP”) to design a heating, ventilation, and air conditioning 11 12 (“HVAC”) system inside the property. (Id.). United completed construction of the Milan property 13 in June of 2015. (Id.). 14 The Milan property was built with a white thermoplastic (TPO) membrane roof. (Id.). On 15 April 5, 2016, physical damage, including but not limited to mold and other moisture-related 16 damage, was discovered in and around the roof membrane and components of the Milan property. 17 18 (Id.). Three months later, the owners of the Milan property asserted a claim against United, 19 alleging that the damage to the property was due to United’s design of the roof and installation of 20 the HVAC system. (Id. at 3-4). 21 United tendered the claim pertaining to the Milan property to Steadfast under the policy on 22 August 5, 2016. (Id.). Zurich North America (“Zurich”), a company related to Steadfast, denied 23 24 United’s tender of the Milan property claim on November 16, 2016. (Id.).1 In the time between 25 United’s tendering of the claim and Zurich’s denying the claim, United’s experts issued a report 26

27 1 The policy itself was issued by Zurich. (ECF No. 166-1 at 18). The parties note that 28 “Steadfast” and “Zurich” are used interchangeably through their motions, as the two entities are related companies. (See ECF No. 22). 1 concluding that the damage to the Milan property was a result of the roof’s design. (Id.). 2 On September 25, 2015, United entered into the second of two design-build contracts 3 pertinent to the motions filed by both parties: a contract for the design and construction of a 4 distribution facility located at 8730 Military Road in Reno (the “Military Road property”). (Id. at 5 6 6). United completed this project in July of 2016 and implemented the same white thermoplastic 7 (TPO) membrane roof as it did on the Milan property. (Id.). United contracted with RHP for the 8 design and installation of the HVAC system in the Military Road property. (Id. at 7). 9 On April 14, 2017, the owner of the Military Road property discovered physical damage, 10 including but not limited to mold and other moisture-related damage, within the roof substrates. 11 12 (Id.). The owner subsequently asserted a claim against United for the damage. (Id.). 13 Four days later, United asked its insurance broker, L/P Insurance Services, LLC (“L/P”) to 14 “advise the appropriate carriers that we have now found microbial growth on the [Military Road 15 property].” (Id.). The Steadfast/Zurich policy lapsed on April 20, 2017, and United did not renew 16 the policy. (Id.). On June 20, 2017, the sixty (60) day reporting period under the policy expired. 17 18 (Id.). 19 In July, United contacted Zurich to obtain a status update on the Military Road claim. (Id.). 20 Zurich advised United that it did not have a claim number in its system and offered to work with 21 L/P “to ensure we have the tender docs [sic] and that a claim number has been established and 22 assigned to the proper Claims Specialist.” (Id.). L/P notified Zurich’s claims adjuster that the 23 24 Military Road claim was related to the claim made for the Milan Road property and another 25 property located on Virginia Street, both of which Capitol Specialty alleges were tendered to 26 Zurich during the policy period. (Id. at 7, 8). On July 27, 2017, Zurich issued a letter to United 27 denying coverage under the policy for the Military Road claim. (Id.). 28 1 United filed a lawsuit against L/P seeking damages related to the Military Road claim. (Id. 2 at 11). Capitol Specialty, L/P, and United settled all of United’s claims against L/P related to the 3 Military Road claim. (Id.). As part of the settlement agreement, United assigned to Capitol 4 Specialty all of its claims against Zurich, RHP, and other defendants who have since been 5 6 terminated from the instant matter related to the Milan property and Military Road property claims. 7 (Id.). Capitol Specialty is now pursuing United’s claims against Zurich/Steadfast and RHP 8 pursuant to the assignment. (Id.). 9 Capitol Specialty’s second amended complaint asserts three causes of action against 10 Steadfast: (1) breach of contract related to the denial of coverage for the Milan property and 11 12 Military Road property claims; (2) breach of the implied covenant of good faith and fair dealing; 13 and (3) violations of Nevada’s unfair claims settlement practices act. (Id. at 12-18). 14 Both parties filed motions for summary judgment. Capitol Specialty moves for partial 15 summary judgment on its cause of action for breach of contract related to the denial of coverage 16 for the Milan property and Military Road property claims. (ECF Nos. 164; 165). Steadfast moves 17 18 for summary judgment on all causes of action Capitol Specialty asserts against it. (ECF No. 166). 19 The court finds that Capitol Specialty violated the terms of the policy relating to the Milan 20 property by incurring costs without Steadfast’s consent. Moreover, Capitol Specialty has suffered 21 no damages relating to the Military Road property due to the prior United settlement. 22 As there is no genuine dispute of material fact for the breach of contract claim because 23 24 Steadfast rightfully denied coverage, there also is no dispute as to Capitol Specialty’s bad faith 25 and unfair claims causes of action. Accordingly, the court denies both of Capitol Specialty’s 26 motions for partial summary judgment and grants Steadfast’s motion for summary judgment in its 27 entirety. 28 1 II. Legal Standard 2 The Federal Rules of Civil Procedure allow summary judgment when the pleadings, 3 depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, 4 show that “there is no genuine dispute as to any material fact and the movant is entitled to judgment 5 6 as a matter of law.” Fed. R. Civ. P. 56(a). A principal purpose of summary judgment is “to isolate 7 and dispose of factually unsupported claims . . . .” Celotex Corp. v. Catrett, 477 U.S. 317, 323– 8 24 (1986). 9 For purposes of summary judgment, disputed factual issues should be construed in favor 10 of the non-moving party. Lujan v. Nat’l Wildlife Fed., 497 U.S. 871, 888 (1990). However, to be 11 12 entitled to a denial of summary judgment, the non-moving party must “set forth specific facts 13 showing that there is a genuine issue for trial.” Id. 14 In determining summary judgment, the court applies a burden-shifting analysis. “When 15 the party moving for summary judgment would bear the burden of proof at trial, it must come 16 forward with evidence which would entitle it to a directed verdict if the evidence went 17 18 uncontroverted at trial.” C.A.R. Transp. Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 19 (9th Cir. 2000). Moreover, “[i]n such a case, the moving party has the initial burden of establishing 20 the absence of a genuine issue of fact on each issue material to its case.” Id. 21 By contrast, when the non-moving party bears the burden of proving the claim or defense, 22 the moving party can meet its burden in two ways: (1) by presenting evidence to negate an essential 23 24 element of the non-moving party’s case; or (2) by demonstrating that the non-moving party failed 25 to make a showing sufficient to establish an element essential to that party’s case on which that 26 party will bear the burden of proof at trial. See Celotex Corp., 477 U.S. at 323–24. If the moving 27 party fails to meet its initial burden, summary judgment must be denied, and the court need not 28 1 consider the non-moving party’s evidence. See Adickes v. S.H. Kress & Co., 398 U.S. 144, 159– 2 60 (1970). 3 If the moving party satisfies its initial burden, the burden then shifts to the opposing party 4 to establish that a genuine issue of material fact exists. See Matsushita Elec. Indus. Co. v. Zenith 5 6 Radio Corp., 475 U.S. 574, 586 (1986). To establish the existence of a factual dispute, the 7 opposing party need not establish a material issue of fact conclusively in its favor. It is sufficient 8 that “the claimed factual dispute be shown to require a jury or judge to resolve the parties’ differing 9 versions of the truth at trial.” T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors Ass’n, 809 F.2d 626, 10 630 (9th Cir. 1987). 11 12 In other words, the nonmoving party cannot avoid summary judgment by relying solely on 13 conclusory allegations that are unsupported by factual data. See Taylor v. List, 880 F.2d 1040, 14 1045 (9th Cir. 1989). Instead, the opposition must go beyond the assertions and allegations of the 15 pleadings and set forth specific facts by producing competent evidence that shows a genuine issue 16 for trial. See Celotex Corp., 477 U.S. at 324. 17 18 At summary judgment, a court’s function is not to weigh the evidence and determine the 19 truth, but to determine whether a genuine dispute exists for trial. See Anderson v. Liberty Lobby, 20 Inc., 477 U.S. 242, 249 (1986). The evidence of the nonmovant is “to be believed, and all 21 justifiable inferences are to be drawn in his favor.” Id. at 255. But if the evidence of the 22 nonmoving party is merely colorable or is not significantly probative, summary judgment may be 23 24 granted. See id. at 249–50. 25 The Ninth Circuit has held that information contained in an inadmissible form may still be 26 considered for summary judgment if the information itself would be admissible at trial. Fraser v. 27 Goodale, 342 F.3d 1032, 1036 (9th Cir. 2003) (citing Block v. City of Los Angeles, 253 F.3d 410, 28 1 418-19 (9th Cir. 2001)) (“[t]o survive summary judgment, a party does not necessarily have to 2 produce evidence in a form that would be admissible at trial, as long as the party satisfies the 3 requirements of Federal Rule of Civil Procedure 56.”). 4 III. Discussion 5 6 A. Breach of contract 7 Capitol Specialty and Steadfast both move for summary judgment on Capitol Specialty’s 8 cause of action for breach of contract. The court will analyze Steadfast’s denial of coverage for 9 the Milan property and Military Road property in turn. The plain language of the policy and the 10 fact that Steadfast has already settled with United, Capitol Specialty’s assignor, allows the court 11 12 to adjudicate this issue efficiently and without wading into the surfeit of exhibits provided by the 13 parties. 14 i. Milan property claim 15 Capitol Specialty asserts a claim for relief for breach of contract against Steadfast related 16 to Steadfast’s denying coverage for the Milan property claim. 17 18 “A breach of contract may be said to be a material failure of performance of a duty arising 19 under or imposed by agreement.” Bernard v. Rockhill Dev. Co., 734 P.2d 1238, 1240 (Nev. 1987) 20 (citation omitted). To prevail on a claim for breach of contract, a plaintiff must demonstrate (1) 21 the existence of a valid contract; (2) that the plaintiff performed or was excused from performance; 22 (3) that the defendant breached the contract; and (4) that the plaintiff sustained damages. Calloway 23 24 v. City of Reno, 993 P.2d 1259, 1263 (Nev. 2001); see also Sierra Dev. Co. v Chartwell Advisory 25 Group, Ltd., 223 F. Supp. 3d 1098, 1103 (D. Nev. 2016). 26 The court need not tarry in its analysis, as the plain language of the policy makes it readily 27 apparent that United is prohibited from incurring any costs or charges without Zurich’s written 28 1 consent. 2 Capitol Specialty believes the policy provides coverage to United. (ECF No. 165 at 10). 3 To determine whether Capitol Specialty is correct in its supposition, the court must turn to the 4 plain language of the policy, which is the operative document in this case. See Keife v. Metro. Life 5 6 Ins. Co., 797 F. Supp. 2d 1072, 1075 (D. Nev. 2011) (“[u]nder Nevada law . . .[t]he starting point 7 for the interpretation of any contract is the plain language of the contract.”) (internal citations 8 omitted). 9 The policy provides the following: 10 No costs, charges, or related “Claims Expenses” shall be incurred without our written 11 consent, which shall not be unreasonably withheld. 12 The “Insured” shall do nothing to prejudice our rights under this policy nor shall the 13 “Insured” admit liability or settle any “Claim” without our written consent . . . .

14 (ECF No. 166-1 at 31). 15 United incurred costs totaling $1,273,808.44 to repair mold and moisture damage to the 16 roof substrates at the Milan property. (ECF No. 165 at 7). The court finds that it is undisputed 17 18 that United failed to obtain Steadfast’s consent before incurring the remediation costs. Because 19 the Milan property remediation costs were incurred involuntarily and without Steadfast's consent, 20 denial of coverage was appropriate. 21 Capitol Specialty cites a non-binding California appellate case holding that an insured may 22 avoid a voluntary-payment provision where the previous payments were made involuntarily 23 24 because of circumstances beyond its control. (Id. at 16; see Jamestown Builders, Inc. v. Gen. Star 25 Indem. Co., 77 Cal. App. 4th 341, 348 (1999)). Ironically, the case does not buttress, but rather 26 weakens, Capitol Specialty’s argument. The court held that “no-voluntary-payments insurance 27 provisions in the absence of economic necessity, insurer breach, or other extraordinary 28 1 circumstances” should be enforced. Id. (emphasis added). 2 Nowhere in Capitol Specialty’s motion is there a citation to a Ninth Circuit case, except 3 for two instances where it cites the legal standard for summary judgment and the elements of an 4 action for breach of contract. Moreover, the facts demonstrate that Capitol Specialty voluntarily 5 6 incurred these costs. On May 12, 2016, the owner of the Milan property requested that United 7 remediate the mold issue. (ECF No. 166-1 at 85). An employee for United responded in the 8 affirmative when asked whether United “agreed to initially bear the cost of [remediation efforts] 9 but would reserve the right go back against the owner if your company concluded the ownership 10 bear it.” (Id. at 87-88). 11 12 The employee further testified that he was aware that United was paying the costs, and 13 there was no commitment from the property owner to bear any portion of it. (Id. at 92). Most 14 importantly, and as Steadfast notes, there is no written record of the owner ever indicating he had 15 agreed to pay for the costs. There is also no record of United obtaining Steadfast’s consent to incur 16 remediation expenses. 17 18 In the absence of facts pointing to the contrary, the court looks to the plain language of the 19 policy in ruling that Steadfast did not breach the policy by refusing to provide coverage for 20 United’s remediation efforts at the Milan property. See Keife, 797 F. Supp. 2d at 1075. 21 Accordingly, the court denies Capitol Specialty’s motion for summary judgment relating 22 to the Milan property claim (ECF No. 165). 23 24 ii. Military Road claim 25 Analyzing whether Steadfast breached the policy by failing to provide coverage for the 26 Military Road claim is more straightforward. 27 “An assignee stands in the shoes of the assignor and ordinarily obtains only the rights 28 1 possessed by the assignor at the time of the assignment, and no more.” Deutsche Bank Nat’l Tr. 2 Co. v. SFR Invs. Pool 1, LLC, No. 2:16-cv-00470-APG-DJA, 2020 WL 247479, at *2 (D. Nev. 3 Jan. 16, 2020). “A claim for breach of contract is not actionable without damage.” Covenant Care 4 Cal., LLC v. Shirk, No. 2:17-cv-00956-JAD-VCF, 2018 WL 3429669, at *2 (D. Nev. July 16, 5 6 2018). 7 Capitol Specialty asserts its claims against Steadfast based on an assignment of rights 8 Capitol Specialty received from United. (ECF No. 1 at 11). As Steadfast correctly avers in its 9 motion, it is undisputed that all claims asserted against Steadfast by Capitol Specialty are 10 “derivative of and based solely on rights United ostensibly possessed at the time it assigned its 11 12 rights” to Capitol Specialty. (ECF No. 166 at 14). 13 As explained, supra, L/P, who at the time was United’s insurance broker, settled the 14 litigation with United for $4,097,000. (ECF No. 166-1 at 277). This amount was paid to United 15 for remediation costs related the Military Road property. (Id.). Here, Capitol Specialty seeks 16 repair costs related to the Military Road property in that same amount. (Id. at 293). This amount 17 18 has already been paid to United, Capitol Specialty’s assignor, as reimbursement for the Military 19 Road remediation. (Id. at 277) (emphasis added). Accordingly, United suffered no damages and 20 had no rights to assign when it settled with L/P. 21 Secondly, coverage for the Military Road claim is barred pursuant to the notice provision 22 in the policy. The policy provides that “[w]ritten notice must be provided to [Zurich/Steadfast] 23 24 no later than 60 days after the expiration or termination of the policy.” (Id. at 31). The policy 25 lapsed on April 20, 2017. (ECF No. 37 at 2). L/P thus had until June 19, 2017, to provide notice 26 on behalf of United to Steadfast regarding the issues at the Military Road property. There is no 27 evidence in the record suggesting that L/P provided notice to Steadfast prior to this date. 28 1 Capitol Specialty posits that given the Military Road property damage was due to the same 2 white thermoplastic (TPO) membrane roof as used in the Milan property, the claim “relates back” 3 to the timely submitted Milan claim. (ECF No. 164 at 19). A plain reading of the policy does not 4 reveal an explicit “related claims provision”, and no provision usurps the reporting requirement, 5 6 which Capitol Specialty undoubtedly failed to satisfy. 7 Steadfast properly denied coverage for the Military Road claim. Accordingly, the court 8 denies Capitol Specialty’s motion for summary judgment relating to the Military Road claim (ECF 9 No. 164) and grants Steadfast’s motion for summary as it relates to Capitol Specialty’s cause of 10 action for breach of contract. 11 12 B. Breach of the implied covenant of good faith and fair dealing and unfair claims settlement practices act 13 Capitol Specialty asserts two more causes of action against Steadfast in addition to the 14 15 breach of contract claim: (1) breach of the implied covenant of good faith and fair dealing and (2) 16 violations of Nevada’s unfair claims settlement practices act. 17 To state a claim for breach of the implied covenant of good faith and fair dealing, a plaintiff 18 must allege (1) plaintiff and defendant were parties to a contract; (2) defendant owed a duty of 19 good faith the plaintiff; (3) defendant breached that duty by performing in a manner that was 20 21 unfaithful to the purpose of the contract; and (4) plaintiff's justified expectations were denied. See 22 Hilton Hotels v. Butch Lewis Prods., 808 P.2d 919, 923 (Nev. 1991). 23 A contractual breach of the implied covenant of good faith and fair dealing occurs “[w]here 24 the terms of a contract are literally complied with but one party to the contract deliberately 25 countervenes the intention and spirit of the contract.” Id.; see Shaw v. CitiMortgage, Inc., 201 F. 26 27 Supp. 2d 1222, 1252 (D. Nev. 2016). 28 Nevada Revised Statute 686, concerning unfair claims settlement practices, outlines 1 sixteen provisions that constitute an “unfair practice,” all of which relate to misrepresentations and 2 bad-faith actions on the part of insurers. NRS 686A.310. To proceed under the act, the plaintiff 3 must prove that the defendant acted unreasonably in violation of one or more of the provisions of 4 the act. See, e.g., Zurich Am. Ins. Co. v. Coeur Rochester, Inc., 720 F. Supp. 2d 1223, 1236 (D. 5 6 Nev. 2010). 7 The court has already found in this order that denial of the Milan property and Military 8 Road claims was proper and Steadfast did not breach its contract with United. Given that Capitol 9 Specialty cannot show that Steadfast breached its duty by performing in a manner that was 10 unfaithful to the purpose of the contract, its claim for breach of the implied covenant of good faith 11 12 and fair dealing fails. By finding that denial of coverage was proper, it is untenable for Capitol 13 Specialty to maintain a claim for unfair settlement practices under NRS 686, which requires 14 Capitol Specialty to prove that Steadfast acted unreasonably. See id. 15 Accordingly, the court grants Steadfast’s motion for summary judgment as to Capitol 16 Specialty’s causes of action for breach of the implied covenant of good faith and fair dealing and 17 18 violations of Nevada’s unfair claims settlement practices act. 19 IV. Conclusion 20 Accordingly, 21 IT IS HEREBY ORDERED, ADJUDGED, and DECREED that plaintiff Capitol Specialty 22 Insurance Corporation’s motion for summary judgment regarding the Military Road claim (ECF 23 24 No. 164) be, and the same hereby is, DENIED. 25 IT IS FURTHER ORDERED that plaintiff Capitol Specialty Insurance Corporation’s 26 motion for summary judgment regarding the Milan property claim (ECF No. 165) be, and the same 27 hereby is, DENIED. 28 1 IT IS FURTHER ORDERED that defendant Steadfast Insurance Company’s motion for 2 summary judgment (ECF No. 166) be, and the same hereby is, GRANTED. 3 The clerk is instructed to enter judgment on behalf of defendant Steadfast Insurance 4 Company only. 5 6 The clerk is further instructed to keep this case open, as defendant RHP Mechanical 7 Systems is still an active party in this action. 8 DATED March 29, 2024. 9

10 _______________________________________ 11 UNITED STATES DISTRICT JUDGE 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28