Great American Insurance Company v. Association of Apartment Owners of Lahaina Residential Condominum
1:24-cv-00075
D. Haw.Aug 29, 2024Background
- Great American Insurance Company (GAIC) issued an errors and omissions policy covering the Association of Apartment Owners of Lahaina Residential Condominium (AOAO) and its property manager, Quam Properties Hawaii, Inc.
- After the Lahaina wildfire in August 2023 destroyed the condominium, some homeowners alleged AOAO failed to obtain adequate insurance prior to the fire and demanded mediation under Hawaii's condominium laws.
- AOAO and Quam tendered the claim to GAIC, which denied coverage based on a property damage exclusion in the policy but agreed to pay defense costs for mediation under a reservation of rights.
- GAIC filed a federal declaratory judgment action seeking a determination that it had no duty to defend or indemnify AOAO/Quam for this claim.
- AOAO sought dismissal or a stay, arguing the case raised unresolved questions of state law and thus was best suited for state court. Quam joined this motion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Should the federal court exercise jurisdiction (Brillhart)? | Federal court should decide coverage now | State law issues unsettled; state court better forum | Court declined jurisdiction; dismissed case |
| Is there a 'parallel state proceeding' that warrants abstention? | Mediation/future suits speculative; not parallel | Mediation under state law & pending state court suit are relevant | No presumption for state court, but state forum better |
| Does the property damage exclusion bar coverage for underinsurance claims? | Exclusion applies broadly to any claim 'arising out of' property damage | Liability for inadequate insurance arose before property damage; exclusion shouldn't bar claim | Not decided—unsettled state law; dismissal appropriate |
| Is there a compelling federal interest to justify federal jurisdiction? | Diversity jurisdiction sufficient | No compelling federal interest; state regulates insurance | No compelling federal interest; state law controls |
Key Cases Cited
- Brillhart v. Excess Ins. Co. of America, 316 U.S. 491 (1942) (provides factors for federal courts to consider in deciding whether to exercise discretionary jurisdiction in declaratory judgment cases)
- Wilton v. Seven Falls Co., 515 U.S. 277 (1995) (confirms district courts’ broad discretion in declaratory judgment actions)
- Gov’t Emps. Ins. Co. v. Dizol, 133 F.3d 1220 (9th Cir. 1998) (en banc) (sets out Ninth Circuit framework for abstention in insurance coverage declaratory actions)
- Conestoga Servs. Corp. v. Exec. Risk Indem., Inc., 312 F.3d 976 (9th Cir. 2002) (on independent/concurrent causation and exclusions in E&O policies)
- Argonaut Ins. Co. v. St. Francis Med. Ctr., 17 F.4th 1276 (9th Cir. 2021) (articulates standards for discretionary jurisdiction when counterclaims are involved)