Insurers’ Motion to Knock Out Bad Faith, Negligent Misrepresentation Claims in Construction Defect Case Denied

Tred Eyerly – August 12, 2013

Having previously decided that construction defect claims did not arise from an occurrence and were consequently not covered under Hawaii law, the Hawaii Federal District Court refused to dismiss the insured’s second amended counterclaim alleging various claims for relief. Ill. Nat’l Ins. Co. v. Nordic PCL Construc., Inc., 2013 U.S. Dist. LEXIS 108932 (D. Haw. July 31, 2013). [prior post here].

In earlier proceedings, the court determined that the Nordic’s allegedly deficient performance on construction contracts was not an “occurrence.”  The court also rejected Nordic’s argument that the Hawaii legislature’s Act 83 required the court to deviate from the Ninth Circuit’s opinion in Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940 (9th Cir. 2004) or the Hawaii Intermediate Court of Appeals’ decision in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010).

Admiral now moved for summary judgment on its complaint and for dismissal of Nordic’s second amended counterclaim, alleging bad faith and negligent misrepresentation, among other counts. Summary judgment as to the Safeway claim was denied. The underlying allegations alleged pre-contract negligence and misrepresentations, independent of any actual contract between Nordic and Safeway. If the pre-contract statements were not part and parcel of the actual contract, then they could relate to a covered “occurrence.”

Admiral’s motion for summary judgment was granted, however, in regards to the Moanalua claim. No pre-contract misrepresentation claims were alleged.

Turning to Admiral’s motion to dismiss, the court considered Nordic’s allegations that the insurer had acted in bad faith by refusing to provide coverage that the parties mutually intended would be provided. The court refused to dismiss this bad faith claim.

Further, Nordic pled a cognizable negligent misrepresentation claim. The counterclaim alleged that when the policy was purchased by Nordic, Admiral negligently misled Nordic into believing that no discrepancy existed between what the policy actually covered and the scope of coverage expected by Nordic.

The claim for reformation to reform the policy to what the parties mutually intended as to coverage for property damage claims arising out of construction defects also survived the motion to dismiss.

Only the claim for equitable estoppel was dismissed by the court. This count lacked clarity in that it was repetitive of the negligent misrepresentation claim.

via Insurance Law Hawaii: Insurers’ Motion to Knock Out Bad Faith, Negligent Misrepresentation Claims in Construction Defect Case Denied.

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