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National Union Fire Insurance Company of Pittsburgh, PA v. Intrawest ULC

United States District Court, District of Colorado

March 20, 2015

NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA, Plaintiff and Intervenor Defendant
v.
INTRAWEST ULC f/k/a Intrawest Corporation, FEDERAL INSURANCE COMPANY, NATIONAL FIRE INSURANCE COMPANY OF HARTFORD, and CONTINENTAL CASUALTY COMPANY, Defendants, INTRAWEST ULC f/k/a INTRAWEST CORPORATION, Third Party Plaintiff,
v.
WILLIS NORTH AMERICA, INC. f/k/a Willis Corroon Corporation, WILLIS OF NEW YORK, INC., WILLIS INSURANCE BROKERAGE OF UTAH, INC., WILLIS OF NEW JERSEY, INC., WILLIS CONSTRUCTION SERVICES CORPORATION OF NEW JERSEY f/k/a Willis Corroon Construction Services Corporation of New Jersey, WILLIS CORROON CONSTRUCTION SERVICES CORPORATION OF CONNECTICUT, WILLIS CORROON CONSTRUCTION SERVICES CORPORATION, WILLIS OF NEW HAMPSHIRE, INC. f/k/a Willis Corroon Corporation of New Hampshire, WILLIS OF MASSACHUSETTS, INC., and JOHN DOE WILLIS ENTITY, Third Party Defendants
v.
INTRAWEST U.S. HOLDINGS INC., INTRAWEST RESORTS, INC., UPPER BENCH DEVELOPMENT CORPORATION, INTRAWEST CALIFORNIA HOLDINGS, INC., SIERRA STAR THREE DEVELOPMENT CORPORATION, THE STRATTON CORPORATION, and INTRAWEST STRATTON DEVELOPMENT CORPORATION, Intervenor Plaintiffs.

ORDER

PHILIP A. BRIMMER UNITED STATES DISTRICT JUDGE

This matter is before the Court on the Motion to Dismiss Intervenors’ Bad Faith Claims and Memorandum of Law in Support [Docket No. 231] filed by plaintiff and intervenor defendant National Union Fire Insurance Company of Pittsburgh, PA (“National Union”).

I. BACKGROUND

A. National Union’s Complaint

This action arises out of an insurance coverage dispute. Intrawest ULC, f/k/a Intrawest Corporation (“Intrawest”) and its affiliates develop ski resorts in the United States and Canada. Docket No. 1 at 4, ¶ 10. National Union and Intraw est entered into an indemnity agreement. Id. at 6, ¶ 18. As a result of the indemnity agreement, National Union provided Intrawest insurance coverage under the Owner Controlled Insurance Program (“OCIP”). Id. at 6, ¶¶ 18-20. Pursuant to the OCIP, National Union issued five commercial general liability (“CGL”) insurance policies (the “National Union policies”). Id. at 8, ¶ 25. As part of the OCIP, National Union and Intrawest entered into a Paid Loss Addendum and Policy and Funding Schedule, which was applicable to policies starting from April 30, 1998 to April 30, 2001, and a subsequent Paid Loss Addendum and Policy and Funding Schedule, which was applicable to policies starting from April 30, 2001 to December 31, 2002 (collectively, the “Paid Loss Addenda”). Id. at 7, ¶ 22. National Union alleges that the Paid Loss Addenda placed a $5, 000, 000 Completed Operations Aggregate limit on coverage for all projects. Id. at 7, ¶ 24.

Defendant Federal Insurance Company issued a CGL policy to Intrawest, a policy which National Union claims applies in excess of the National Union policies. Id. at 9, ¶¶ 29-30. National Fire Insurance Company and Continental Casualty Company issued CGL policies to Engelberth Construction, Inc. (“Engelberth”) incident to certain condominium construction projects developed by Intrawest, policies which National Union claims may implicate coverage for Engelberth under the OCIP. Id. at 10, ¶ 31.

Beginning in 1998, Intrawest and its affiliates began developing a number of ski resort properties. Id. at 4, ¶ 11. Various homeowners associations instituted claims and lawsuits against Intrawest and its affiliates seeking compensation for property damage allegedly caused by construction defects. Id. at 4, ¶ 12. At least seven lawsuits were commenced in the United States and Canada against Intrawest, its affiliates, general contractors, and subcontractors. Id. at 4, ¶ 13. Although not brought directly against Intrawest or its affiliates, at least three other lawsuits have been filed that potentially implicate coverage under the National Union policies. Id. at 5, ¶ 15. The claims all relate to allegations of faulty construction and design. Id. at 5-6, ¶ 16.

On January 14, 2013, National Union filed the instant case seeking a declaratory judgment that the National Union policies’ aggregate limit is $5 million and that, upon paying the aggregate limit, National Union’s obligations under the National Union policies are satisfied. Docket No. 1 at 11-12. On November 19, 2013, Intrawest filed a third party complaint in this case against Willis North America, Inc. f/k/a Willis Corroon Corporation and its affiliates (collectively, the “Willis entities”). Docket No. 136. Intrawest claims that it engaged the Willis entities to acquire the OCIP, but that the Willis entities breached their duty to ensure that the National Union policies provided a $5 million per-project, rather than aggregate, limit. Id. at 4, ¶ 16. Intrawest alleges that, if National Union’s declaratory judgment action is successful, the Willis entities will be responsible for Intrawest’s damages. Id.

B. The Intervenors’ Complaint[1]

On February 18, 2014, the assigned magistrate judge granted a motion to intervene filed by Intrawest U.S. Holdings, Inc. (“U.S. Holdings”), Intrawest Resorts, Inc. (“Intrawest Resorts”), Upper Bench Development Corporation (“Upper Bench”), Intrawest California Holdings, Inc. (“Intrawest California”), Sierra Three Star Development Corporation (“Sierra”), the Stratton Corporation (“Stratton”), and Intrawest Stratton Development Corporation (“Intrawest Stratton”) (collectively, the “intervenors”). Docket No. 204. That same day intervenors filed their complaint. Docket No. 205.

Intervenors developed real estate projects covered by the National Union policies or are named defendants in lawsuits arising from real estate projects covered by the National Union policies. Id. at 3, ¶ 13; see also Id. at 4-5, ¶¶ 14-19. National Union knew that Intrawest purchased the OCIP for liability coverage. It agreed to provide such coverage and continued to acknowledge its agreement to provide a $5 million per project limit. Id. at 5, ¶ 21. The National Union policies were the primary, or first layer, of coverage for the OCIP and were written and intended to provide coverage for construction defect claims. Id. at 7, ¶ 30.

Intervenors and others tendered 20 claims to National Union under the OCIP, most involving construction defects and resulting property damage at properties developed by Intervenors. Id. at 6, ¶ 22. Intervenors’ claims under the policy exceeded $25 million. Id. at 6, ¶ 23.

Intervenors claim that National Union unreasonably failed to properly investigate intervenors’ claims or provide consistent coverage under the OCIP throughout the entire course of Intrawest’s and intervenors’ relationship with National Union. Id. at 6-7, ¶ 24, 29. In some instances, National Union paid intervenors’ claims after delay, but, in other instances, National Union failed to respond or asserted that the OCIP was not intended to provide coverage for construction defect claims despite its clear understanding to the contrary. Id. at 6, ¶ 22. When confronted with intervenors’ claims, National Union “invented” its theory that the OCIP had a $5 million aggregate limit and thereby attempted to change the terms of the National Union policies. Id. at 6-7, ¶¶ 25-26.

Stratton developed the Solstice Trailside project in Vermont. Id. at 9, ¶ 35. After construction was completed, the Solstice Trailside HOA demanded that Stratton repair the roof and related damage, which Stratton did at a cost of approximately $2 million. Id. at 9, ¶ 36. Stratton developed the Long Trail House project in Vermont and, after completing construction, received and paid more than $7 million to resolve claims against it for damage associated with construction defects. Id. at 9, ΒΆΒΆ 38-39. Stratton submitted claims to ...


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