Urban Oaks Builders LLC v. Gemini Ins. Co.

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URBAN OAKS BUILDERS LLC, et al., Plaintiffs, v. GEMINI INSURANCE COMPANY, et al., Defendants.

Civil Action No. 4:19-cv-4211

United States District Court, S.D. Texas, Houston Division

July 19, 2024

ORDER

Andrew S. Hanen, United States District Judge

Pending before the Court is Plaintiffs, Urban Oaks Builders LLC (“UOB”), Hines Interests Limited Partnership 1662 Multifamily LLC, Hines 1662 Multifamily LLC, Hines Investment Management Holdings Limited Partnership, HIMH GP LLC, Hines Real Estate Holdings Limited Partnership, and JCH Investments, Inc. (collectively, the “Plaintiffs”) Motion for Summary Judgment and Motion for Supplemental Relief on Underlying Defense Fees Costs, and Expenses. (Doc. No. 361). Defendant Gemini Insurance Company (“Gemini”) responded in opposition. (Doc. No. 380), and Plaintiffs replied (Doc. No 405).

Also pending before the Court is Defendant Gemini Insurance Company (“Gemini”)'s related Motion for Partial Summary Judgment on Bankruptcy Legal Fees, Costs, and Expenses. (Doc. No. 359). Plaintiffs responded in opposition. (Doc. No. 389). For the reasons discussed below, the Court hereby GRANTS IN PART and DENIES IN PART Gemini's Motion (Doc. No. 359). The Court DENIES Plaintiffs Motion. (Doc. No. 361).

BACKGROUND

The following facts were for the most part previously laid out in a Memorandum and Recommendation (M&R) adopted by this Court. (Doc. Nos. 313, 328). For ease of reference, they are reproduced in part here. The facts in this section are undisputed unless otherwise noted.

In July 2014, Urban Oaks Builders, LLC (UOB) contracted with 1662 Multifamily LLC to be the general contractor on the construction of six apartment buildings and a clubhouse in Celebration, Florida. UOB entered into contracts with various subcontractors that in turn were enrolled in a controlled insurance program (CIP) to provide general liability insurance for the project. As a result, the term “insureds” under the CIP policies includes UOB the project owners/developers, and the subcontractors. Defendants Gemini Insurance Company, Ironshore Specialty Insurance Company, Navigators Specialty Insurance Company, and Great American Assurance Company issued policies as part of the CIP.

Gemini issued “Commercial General Liability Policy” number VCWP001075 covering the period June 28, 2012 through July 31, 2017 (“Gemini Policy”). The Gemini Policy has limits of $2,000,000 each occurrence; $4,000,000 general aggregate; and $4,000,000 products-completed operations aggregate. The Gemini Policy includes a “Supplementary Payments” provision that provides that “we will pay, with respect to any claim we investigate or settle, or any ‘suit' against an insured we defend...all expenses we incur...these payments will not reduce the limits of insurance.” (Doc. No. 354-3 at 14). Ironshore and Navigators (respectively) issued the next two layers of insurance in excess of the Gemini policy limits, followed by a policy issued by Great American.

The construction project in Celebration, Florida was completed in February 2016. Southstar Capital Group I, LLC, as agent for Cottington Road TIC, LLC and Durban Road TIC, LLC, (collectively Southstar) purchased the project from 1662 Multifamily in July 2016. Southstar subsequently asserted claims against Plaintiffs due to allegedly defective construction of the project. In June 2017, Southstar entered an agreement with UOB to perform warranty work at the project. UOB made a claim on the Gemini Policy for the cost of the warranty work. Gemini paid UOB $164,734.80 on October 10, 2017 and $935,005.43 on November 9, 2017. On November 14, 2017, Southstar and UOB entered a “Standstill Agreement” pursuant to which UOB agreed to pay $2,050,398.72 (to be credited against any future judgment if Southstar prevailed in litigation). On January 23, 2018, Gemini made its most recent payment to UOB in the amount of $900,259.77.

In February 2018, Southstar filed suit against UOB and others in state court in Florida asserting the following claims: Count I-Piercing the Corporate Veil/Alter Ego; Count II- Fraudulent Non-Disclosure/Fraudulent Inducement; Count III-Breach of Contract-Intentional Withholding of Material Information; Count IV-Statutory Violations of Florida Statutes 553.84; and Count V-Negligence (“Southstar Complaint”). Although the Southstar Complaint alleges that all defendants are liable on all counts because they are alter egos, Counts I-III allege specific conduct by 1662 Multifamily and Counts IV-V allege conduct by UOB. Gemini initially hired counsel to defend UOB against Southstar's claims, but after tendering payments totaling $2,000,000, declared its policy limits were exhausted and that therefore its duty to defend terminated. With the Southstar lawsuit pending in Florida and insurance coverage in dispute, UOB filed a petition for bankruptcy in the United States Bankruptcy Court for the Southern District of Texas.

Southstar's claims against UOB were transferred to the Bankruptcy Court and incorporated into a Proof of Claim. Southstar's claims against other defendants remained pending in Florida state court. UOB and others filed a lawsuit in Florida state court against the CIP insurers for coverage and indemnity. When that suit became mired in a jurisdictional dispute, Plaintiffs voluntarily dismissed the Florida case and refiled their claims against the insurers and others as an adversary action in its bankruptcy case.^[1]

Southstar filed a proof of claim in the bankruptcy action asserting over $45,000,000 in damages. UOB objected. The Bankruptcy Court held a hearing on UOB's objection and entered an estimation judgment against UOB in favor of Southstar in the amount of $26,103,717.38 (“estimation judgment”). The estimation judgment includes “(i) $8,226,243.00 in lost profits; plus (ii) non-legal professional fees and costs in the amount of $732,262.00; plus (iii) restoration costs of $18,439,945.46; minus (iv) the Debtor's prepetition payments in the amount of $2,251,263.33,” plus prejudgment interest. (Doc. No. 228-11 at 2). The Bankruptcy Court did not apportion these charges between those covered by insurance and those that were not. Southstar did not appeal. On the Bankruptcy Court's Recommendation, the District Court withdrew the reference to the Bankruptcy Court for this adversary action.

Plaintiffs filed a First Amended Complaint in this case asserting claims against the insurers for (1) turnover under 11 U.S.C. § 542 (against Gemini and Ironshore); (2) breach of contract; (3) declaratory relief; (4) violations of the Texas Insurance Code; (5) violation of Section 624.155, Florida Statutes; and (6) Florida common law bad faith. (Doc. No. 78). The Court previously dismissed the turnover claim with prejudice and all extracontractual claims without prejudice. (Doc. Nos. 177, 178, 194).

The M&R, which this Court adopted, concerned whether Plaintiffs' claims for defense and indemnity under the Policies involve a single occurrence or multiple occurrences as defined in the Gemini Policy.^[2] (Doc. No. 313). The Magistrate Judge found (and this Court agreed) that the Southstar claims involve multiple occurrences rather than a single occurrence. In effect, the Court determined that Gemini had a duty to defend its insureds until it reached the aggregate limits of liability for multiple occurrences under the Gemini policy. The Court did not rule on the precise number of occurrences because the issue to be decided at that point was whether the claimed damages resulted from “one proximate, uninterrupted, and continuing cause,” rather than the number of defects or “effects” from the alleged accident. (Doc. No. 313 at 17). The Court accordingly saw no need to decide the exact number of occurrences. After the Court's ruling on the multiple occurrences issue, the parties filed various dispositive motions seeking rulings on the duties to indemnify and defend as both the primary carrier (Gemini) and the first and second level excess carriers (Ironshore and Navigators).^[3]

The Court has already determined that Gemini breached its duty to defend UOB. (Doc. Nos. 313, 328). The cross-motions at issue (Doc. Nos. 359, 361) concern the narrow issue of the attorney's fees and expenses owed by Gemini to UOB as a result of this breach. Plaintiffs request that this Court enter judgment in the amount of $7,529,236.94 as to UOB's defense fees and costs, and $901,134.67 as to the Hines Entities' defense fees and costs. (Doc. No. 361 at 9). As to UOB, this includes $4,520,731.95 incurred in defense of the underlying action and $3,008,504.99 incurred as a result of the bankruptcy action. Gemini objects. It argues that UOB is demanding costs incurred as a result of its bankruptcy proceeding and that those costs are not recoverable either as defense costs owed directly under the Gemini Policy or as consequential damages resulting from Gemini's breach of the duty to defend. (Doc. No. 359 at 2).

LEGAL STANDARD

Summary judgment is warranted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). “The movant bears the burden of identifying those portions of the record it believes demonstrate the absence of a genuine issue of material fact.” Triple Tee Golf, Inc. v. Nike, Inc., 485 F.3d 253, 261 (5th Cir. 2007) (citing Celotex Corp v. Catrett, 477 U.S. 317, 322-25 (1986)).

Once a movant submits a properly supported motion, the burden shifts to the non-movant to show that the court should not grant the motion. Celotex, Ml U.S. at 321-25. The non-movant then must provide specific facts showing that there is a genuine dispute. Id. at 324; Matsushita Elec Indus. Co. v. Zenith Radio Corp., MS U.S. 574,...