The federal district court for the District of Hawaii continued its longstanding pattern of finding no coverage for claims based upon construction defects. Am. Auto. Ins. Co. v. Haw. Nut & Bolt, 2016 U.S. Dist. LEXIS 174243 (D. Haw. Dec. 16, 2016).

    Safeway filed a complaint against Hawaii Nut & Bolt (HNB). The complaint involved issues pertaining to the construction of the roof deck at a Safeway store. HNB was a subcontractor hired to supply a coating system on the roof of the store to make it waterproof. The product was manufactured by VersaFlex. After the store opened, there were water leaks from the roof. This disrupted business operations and caused damage to Safeway's business and reputation. HNB tendered the claims to its CGL carrier, Fireman's Fund Insurance Corporation (FFIC). FFIC defended the underlying lawsuit for six years under a reservation of rights.

    FFIC eventually filed suit for Declaratory Judgment against HNB to establish it had no duty to defend or to indemnify HNB. HNB settled the underlying lawsuit with Safeway. As part of the settlement HNB entered into a stipulated judgment in which it assigned its claims against FFIC to Safeway. Safeway was granted leave to join FFIC lawsuit.

    Safeway and HNB filed a Second Amended Counterclaims (SACC) raising claims against FFIC for breach of contract, bad faith, negligent misrepresentation and reformation. FFIC moved to dismiss the SACC.

    The court first granted dismissal of Count I of the SACC for breach of contract. Under the Ninth Circuit's decision in Burlington Ins. Co. v. Oceanic Design & Const., Inc., 383 F.3d 940 (9th Cir. 2004) there was no coverage under a CGL policy for contract and contract-based tort claims. Further, in Group Builders, Inc. v. Admiral Ins. Co., the Hawaii Intermediate Court of Appeals held that under Hawaii law, construction defect claims did not constitute an "occurrence." Id., 231 P.3d 67, 73 (Haw. Ct. App. 2010).

    The underlying complaint alleged that HNB entered into contracts with the general contractor to supply the VersaFlex products and with another subcontractor to aid in supplying the VersaFlex products. The underlying complaint further alleged that Safeway was the third-party beneficiary of these contracts. Therefore, the underlying claims for breach of contract, breach of the covenant of good faith and fair dealing, and breach of implied warranties were all contract-based and not covered.

    The negligence and gross negligence claims alleged that HNB owed to Safeway a duty to perform work and provided products free from defects in accordance with the construction contract and all laws, codes and regulations applicable to such work. Thus, these claims also arose from HNB's alleged contracts and warranties.

    Finally, the reformation claim was not pled with sufficient particularity. The SACC failed to plead facts regarding who at FFIC was mistaken about the scope of the policy's coverage and when and how such facts regarding the mutual mistake arose. The SACC also failed to include details of any statements or representations made by FFIC regarding its alleged mistake.

    So FFIC's motion to dismiss was granted.