United States District Court, D. Rhode Island
GEOVERA SPECIALTY INSURANCE COMPANY f/k/a USF&G SPECIALTY INSURANCE COMPANY, Plaintiff,
v.
KURT POULTON, Defendant.
MEMORANDUM AND ORDER
William E. Smith, Chief Judge.
I.
Background
Plaintiff
GeoVera Specialty Insurance Company (“GeoVera”)
issued a homeowner's insurance policy to Defendant Kurt
Poulton (“Poulton”) in 2006 for his residence
located in Tiverton, Rhode Island. The policy was effective
from October 2006 through October 2007, and was renewed for
one year thereafter, expiring in October 2008. The policy
included a $500, 000 limit for personal liability. In June
2016, Poulton asked GeoVera to defend and indemnify him in a
civil action pending in Newport County Superior Court
involving property he owned in Portsmouth, Rhode Island. The
background of that lawsuit is as follows: In 2005, Sandy
Point Farms, Inc. (“the Farm”) initiated
litigation against Sandy Point Village, LLC (controlled by
co-members Poulton and Robert J. Kielbasa) about its alleged
misuse of its real property in Portsmouth that abuts the
Farm's property, and the resulting damage to the
Farm's property (“state court action”). The
Farm alleged that Sandy Point Village, LLC used impermissible
drainage systems to drain effluent and water from the
apartment complex located on the land and that this drainage
caused erosion and a permanent change to the water table on
the Farm's property, which in turn led to the delay of
the development of the Farm's property. In 2010, the Farm
amended its complaint to add Poulton and Kielbasa as
individually named defendants, allegations about damage
caused by a second lot of abutting land owned by Poulton and
Kielbasa, and a count for negligence.
GeoVera
replied to Poulton's request for defense and
indemnification with a letter stating that, in order to
finalize its investigation into Poulton's claim, it
needed additional information and documents. GeoVera was
clear that it was neither accepting nor rejecting
Poulton's tender of the state court action for defense
and indemnification. Poulton quickly responded to
GeoVera's letter with another letter, claiming that
GeoVera had a legal obligation to immediately accept his
request to defend and indemnify and giving GeoVera an
ultimatum: either agree to defend him or he would file a
third-party complaint.
GeoVera's
response in early August asserted that, while its
investigation thus far had not indicated that it had a duty
to defend and indemnify Poulton, GeoVera was willing to
provide a defense under a reservation of rights pending the
completion of its investigation and/or a judicial
determination of coverage. GeoVera also filed its complaint
in this case, seeking a series of declaratory judgments that
GeoVera's policy did not cover Poulton for his alleged
wrongdoing to the Farm's property and GeoVera did not
have a duty to defend or indemnify Poulton in the state court
action.
Poulton
filed a counterclaim, alleging that GeoVera's offer to
defend him under a reservation of rights was made in bad
faith in violation of Rhode Island General Laws §
9-1-33. Poulton seeks a declaratory judgment that GeoVera
owes him a duty of defense and indemnification against the
Farm's claims and that GeoVera is not entitled to recover
any expenses it incurs under a reservation of rights.
There
are four motions currently pending before the Court: (1)
GeoVera's combined Motion for Judgment on the Pleadings
declaring that Poulton is not entitled to insurance coverage
and Motion To Dismiss Poulton's counterclaim (ECF No. 8);
(2) Poulton's Motion for Judgment on the Pleadings that
Poulton is entitled to a defense from GeoVera in the state
court action (ECF No. 13); (3) Poulton's Motion To
Dismiss or, in the alternative, to stay this case pending
resolution of the state court action (ECF No. 14); and (4)
Poulton's Motion To Certify a Question of Law to the
Rhode Island Supreme Court (ECF No. 15).
II.
Legal Standard
“To
survive a motion to dismiss, a complaint must contain
sufficient factual matter, accepted as true, to ‘state
a claim to relief that is plausible on its face.'”
Coll. Hill Properties, LLC v. City of Worcester, 821
F.3d 193, 195-96 (1st Cir. 2016) (quoting Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009)). “A claim has
facial plausibility when the plaintiff pleads factual content
that allows the court to draw the reasonable inference that
the defendant is liable for the misconduct alleged.”
Iqbal, 556 U.S. at 678. The Court may supplement the
facts and inferences drawn from the complaint with
information “gleaned from documents incorporated by
reference into the complaint, matters of public record, and
facts susceptible to judicial notice.”
Guadalupe-Baez v. Pesquera, 819 F.3d 509, 514 (1st
Cir. 2016) (quoting Haley v. City of Boston, 657
F.3d 39, 46 (1st Cir. 2011)). In this case, GeoVera's
complaint includes the complaints from the state court
action, the insurance policy, and a series of letters it
exchanged with Poulton, all of which the Court has considered
in resolving the pending motions.
The
legal lens through which the Court considers a motion for
judgment on the pleadings is the same as that for a motion to
dismiss for failure to state a claim. See Perez-Acevedo
v. Rivero-Cubano, 520 F.3d 26, 29 (1st Cir. 2008)
(citing Curran v. Cousins, 509 F.3d 36, 43-44 (1st
Cir. 2007)). “Because [a Rule 12(c)] motion calls for
an assessment of the merits of the case at an embryonic
stage, the court must view the facts contained in the
pleadings in the light most favorable to the nonmovant and
draw all reasonable inferences therefrom . . . .”
Id. (quoting R.G. Fin. Corp. v.
Vergara-Nunez, 446 F.3d 178, 182 (1st Cir. 2006)).
III.
Discussion
A.
Whether GeoVera has a Duty To Defend Poulton in the State
Court Action
GeoVera
moves for judgment on the pleadings on three of its ten
requests for declaratory judgment that it does not have a
duty to defend or indemnify Poulton for any claim asserted by
the Farm because: (1) the Farm's allegations in its
Verified Amended Complaint (“Complaint”) about
the damage, the discovery of the damage, the communication of
the damage to Poulton, and the initiation of litigation for
the alleged damages caused by Poulton's use of his
Portsmouth property, all predate the start of GeoVera's
policy coverage, meaning that the Farm has not alleged
“property damage” caused by an
“occurrence” as defined in GeoVera's
insurance policies (Count I); (2) the Farm's claims are
precluded from coverage by the policy's “business
exclusion” (Count V); and (3) the Farm's claims are
precluded from coverage by the policy's “pollution
exclusion” (Count VI). Poulton is moving for judgment
on the pleadings that it is entitled to a defense from
GeoVera in the state court action.
Insurance
companies have two broad obligations to their insureds: the
duty to defend and the duty to indemnify. Travelers Cas.
& Sur. Co. v. Providence Washington Ins. Co., 685
F.3d 22, 25 (1st Cir. 2012). As the First Circuit has
explained:
Whether an insurer's duty to defend arises from the
inception of a lawsuit against its policyholder hinges
‘on whether the complaint in the underlying tort action
alleges facts and circumstances bringing the case within the
coverage afforded by the policy. That question is resolved by
comparing the complaint in that action with the policy issued
by the insurer; if the complaint discloses a statement of
facts bringing the case potentially within the risk coverage
of the policy the insurer will be duty-bound to defend
irrespective of whether the plaintiffs in the tort action can
or will ultimately prevail.'
Id. (quoting Flori v. Allstate Ins. Co.,
388 A.2d 25, 26 (R.I. 1978)); see also Emhart Indus.,
Inc. v. Century Indem. Co., 559 F.3d 57, 65 (1st Cir.
2009), as amended on denial of reh'g and
reh'g en banc (Apr. 17, 2009). Pursuant to this
“pleadings test, ” the Court must focus
exclusively on the factual allegations in the pleadings.
Emhart Indus., Inc., 559 F.3d at 65 (citations
omitted). “In determining whether the allegations in a
complaint are sufficient to create a duty to defend, [the
Court] appl[ies] general rules of contract construction and
give[s] words their ‘plain, ordinary
meaning.'” Narragansett Jewelry Co. v.
St. Paul Fire and Marine Ins. Co., 555 F.3d 38, 41 (1st
Cir. 2009) (quoting Allstate Ins. Co. v. Russo, 641
A.2d 1304, 1306-07 (R.I. 1994)). “Any doubts about the
sufficiency of the allegations are resolved in favor of the
insured.” Id. “Rhode Island's
pleadings test triggers the duty to defend only when the
pleading allegations show the potential that property damage
occurred during the policy period.”
Travelers Cas. & Sur. Co., 685 F.3d at
32. Once the duty to defend is triggered, the duty continues
“until the coverage question is resolved either by the
establishment of facts showing no potential for coverage or
by the conclusion of the underlying lawsuit.”
Id. at 25 (citations omitted).
1.
“Occurrence” of “Property Damage”
The
personal liability section of the policy issued by GeoVera
states, in relevant part, that:
If a claim is made or a suit is brought against an
‘insured' for damages because of . . .
‘property damage' caused by an
‘occurrence' to which this coverage applies, we
will:
. . .
2. Provide a defense at our expense by counsel of our choice,
even if the suit is groundless, false or fraudulent. We may
investigate and settle any claim or suit that we decide is
appropriate. Our duty to settle or defend ends when our limit
of liability for the ‘occurrence' has been
exhausted by payment of a judgment or
settlement.[1]
Property
damage is defined in the policy as “physical injury to,
destruction of, or loss of use of tangible
property.”[2] An occurrence is defined in the policy as
“an accident, including continuous or repeated exposure
to substantially the same general harmful conditions, which
results, during the policy period, in . . . property
damage.”[3]
The
operative complaint for assessing GeoVera's duty to
defend is the Complaint filed by the Farm in state court in
2010. In the Complaint, the Farm clearly states that it
“seeks to recoup the damage that defendants'
unreasonable drainage has caused, and also seeks injunctive
relief ordering Defendants Poulton and Kielbasa to remediate
their properties so as to eliminate the unreasonable flow of
drainage and erosion onto [the Farm's]
property.”[4] The Complaint reflects several allegations
that are tied to specific years or time periods, such as
“[s]tarting no later than 2003, defendants illegally
drained effluent and water from a 29 bedroom apartment
complex and its parking lots onto Lot 17 through the use of
illicit drainage conduits and due to failed septic systems of
Lot 191.”[5]In addition, the Farm alleges that it
discovered the damage to its land allegedly caused by the
Poultons in 2003, and thereafter experienced delays to the
development of its property.[6] Moreover, Poulton and Kielbasa
allegedly made promises in Fall 2004 to “undertake
remedial measures to stop the illegal run-off” from
their two lots, but did not complete these
measures.[7] The Farm also alleges that Poulton and
Kielbasa “consolidate[d] failed septic systems
servicing” the apartment units on one of the lots in
2005, which “materially redirected water flow
onto” the Farm's property.[8] All of these ...