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Rockhill Insurance Co. v. Hoffman-Madison Waterfront, LLC

United States District Court, District of Columbia

September 30, 2019




         On September 10, 2018, plaintiff Rockhill Insurance Company (“Rockhill”) brought this suit concerning the interpretation of a commercial general liability policy. Plaintiff seeks a declaration that it does not owe a duty under the policy to defend or indemnify, Wharf Horizontal REIT Leaseholder, LLC (“WHRL”), or a number of affiliated entities, Hoffman-Madison Waterfront, LLC (“HMW”), Hoffman-Struever Waterfront, LLC (“HSW”), Wharf District GP Joint Venture, LLC (“WDGPJV”), Wharf District Joint Venture, LLC (“WDJV”), Wharf Horizontal REIT, LLC (“WHR”), and Wharf Fish Market REIT Leaseholder, LLC (“Fish Market REIT”) (collectively, “developer defendants”), in a civil suit brought against the developer defendants by commercial tenants located in the Southwest Waterfront area in the District of Columbia. Compl. [Dkt. # 1] ¶ 1, 12. The underlying suit was filed in United States District Court for the District of Columbia and is captioned, The Wharf, Inc., et al. v. The District of Columbia, et al., 1:15-CV-01198-CKK (2015) (“Wharf Suit”). Id.

         Plaintiff Rockhill's complaint raises three claims:

• Count I alleges that under the insurance policy, Rockhill “does not owe a duty to defend or indemnify” the developer defendants in the underlying suit, and it seeks “recoupment of attorneys' fees, costs, and expenses paid by Rockhill in defense of the Wharf Suit.” Compl. ¶ 77.
• Count II pleads in the alternative, that Rockhill is equitably “entitled to recover . . . defense costs that are incurred in connection with non-covered claims and issues.” Id. ¶ 79.
• Count III alleges that Rockhill has no duty to defend or indemnify individual defendant Fish Market REIT because it is not an “‘insured under the Rockhill Policy with respect to its own conduct, or the conduct of any ‘insured' under the Rockhill Policy, with respect to the Wharf Suit, ” id. ¶ 83. It seeks reimbursement of at least 50% of all defense costs incurred since Fish Market REIT joined the Wharf Suit in February 2017, and contends that moving forward, Fish Market REIT must share in defense costs or retain separate defense counsel. Id. ¶¶ 85-88.

         Defendants filed an answer and counterclaim on November 16, 2018. Developer Defs.' Answer to Rockhill's Compl. & Countercl. [Dkt. # 17] (“Defs.' Answer” or “Countercl.”). They raise three counts in their counterclaim:

• Count I alleges that Rockhill entered into a subsequent separate “binding and enforceable contract” with defendants in December 2015 (“December 2015 Agreement”), Countercl. ¶ 76, and that Rockhill breached the terms of that agreement by refusing to pay certain defense costs incurred in the underlying suit, id. ¶¶ 79-80, and “by attempting to control the defense.” Id. ¶ 81.
• Count II pleads that Rockhill breached its duty to defend the developer defendants under the terms of the insurance policy by refusing to pay for certain costs incurred in the underlying suit, demanding developer defendants allocate costs between what Rockhill believes are covered and non-covered claims, and by delaying payment of defense costs owed. Countercl. ¶¶ 85-89.
• Count III alleges that Rockhill breached the implied covenant of good faith and fair dealing arising under both the Policy and the December 2015 Agreement. Countercl. ¶¶ 91-96.

         Now pending before the Court is plaintiff Rockhill's motion for judgment on the pleadings with respect to Counts I and III of its complaint and Counts I, II, and III of developer defendants' counterclaim. Rockhill's Mot. for J. on the Pleadings [Dkt. # 24] (“Pl.'s Mot.”); Mem. of P. & A. in Supp. of Pl.'s Mot. [Dkt. # 24-1] (“Pl.'s Mem.”). The developer defendants opposed that motion, and cross-moved for judgment on the pleadings on Count I of Rockhill's complaint. Developers' Cross-Rule 12(c) Mot. for J. on Count I of Rockhill's Compl. [Dkt. # 25] (“Defs.' Cross-Mot.”); Developers' Consolidated Brief in Opp. to Pl.'s Mot. & in Supp. of Cross-Mot. [Dkt. # 25-1] (“Defs.' Cross-Mem.”). They did not cross-move on any of the other counts in Rockhill's complaint, or in their counterclaim. Id. The issues have been fully briefed and are ripe for decision.[1] For the reasons stated below, plaintiff's motion for judgment on the pleadings is denied in part and granted in part, and defendants' motion is granted in part and denied in part. The Court finds that Rockhill owes a duty to defend under the insurance policy WHRL, HMW, HSW, WDGPJV, WDJV, and WHR. Rockhill does not owe a duty to defend Fish Market REIT under the policy. As to the December 2015 Agreement, the Court finds that there remain questions of fact so judgment on the pleadings is not appropriate.


         I. Factual Background

         On April 23, 2014, the District of Columbia assigned its landlord rights and duties on several commercial barges located at the Municipal Fish Market on the District of Columbia's Southwest Waterfront to defendant WHRL. Compl. ¶ 2; Defs.' Answer ¶ 2. That same day, WHRL purchased a “Lessor's Risk” commercial liability insurance policy insuring the Municipal Fish Market located at 1100 Maine Avenue, S.W., Washington D.C. 20024. Compl. ¶ 3; Defs.' Answer ¶ 3; Ex. I to Compl. [Dkt. # 1-10] (the “Policy”) at RHIC000009.[2] The tenants of the insured property operate three seafood businesses at the Municipal Fish Market. Compl. ¶ 1; Defs.' Answer ¶ 1.

         On July 23, 2015 those tenants sued WHRL and HMW, alleging that the defendants' major redevelopment project along the Southwest Waterfront disrupted their businesses and breached their lease agreements, and they brought a number of tort claims arising out of the defendants' actions, including trespass and nuisance violations, among other claims.[3] Ex. A to Pl.'s Compl. [Dkt. # 1-2] (“Wharf Compl.”) ¶¶ 229-73.

         On July 29, 2015, a few days after the Wharf Suit was filed, defendants HMW and WHRL tendered their defense to Rockhill pursuant to the commercial general liability policy. Countercl. ¶ 14; Rockhill's Answer & Affirmative Defenses to the Developer Defs.' Countercl. [Dkt. # 20] (“Rockhill Answer”) ¶ 14. Rockhill disclaimed the duty to defend them in the Wharf Suit and rejected their tender. Countercl. ¶ 15; Rockhill Answer ¶ 15. Defendants HMW and WHRL asked the insurance company to reconsider its position in a letter dated September 11, 2015. Countercl. ¶ 16; Rockhill Answer ¶ 16. Specifically, defendants asked that Rockhill provide a defense under “Coverage B” of the Policy. Countercl. ¶ 16; Rockhill Answer ¶ 16

         Rockhill agreed. On or about October 9, 2015, Rockhill sent a letter to defendants HMW and WHRL in which it agreed to defend them in the Wharf Suit pursuant to a reservation of rights. Ex. E to Compl. [Dkt. # 1-6] (“Oct. 9, 2015 Rockhill Letter”). The letter provided in relevant part:

Rockhill's continued handling of this matter is not an admission of any kind on the part of Rockhill. No act by a Rockhill representative while investigating, negotiating a settlement of the claim, or defending the Lawsuit should be construed as waiving any company rights. Rockhill reserves its rights under the Policy to deny coverage to HMW, WHRL, or anyone else claiming coverage under this policy.

Id. at 2. The letter further explained that “based on the facts as we understand them, coverage is uncertain right now or may be significantly limited, ” id., and that “[a]fter careful review” the insurance company believed that “only the ‘personal advertising offense' relative to ‘wrongful eviction from, wrong entry into, or the invasion of the right of private occupancy' [was] implicated” under Coverage B. Id. at 7. The letter also informed HMW and WHRL that the insurance company had retained the law firm of Leder & Hale, PC to represent them in the Wharf Suit. Id. at 2.

         Shortly thereafter, Rockhill adjustor Leslie Bowles, who was assigned to the claim, participated on a conference call with defendants' counsel, Pillsbury, who had been representing HMW and WHRL in the Wharf Suit. Countercl. ¶ 20; Rockhill Answer ¶ 20. The parties dispute what happened on the call. According to defendants, Bowles and the Pillsbury attorneys negotiated the terms of a new agreement by which defendants would be allowed to proceed with their counsel of choice, Pillsbury, but the insurance company would pay past and future defense costs at the lower Laffey rates. Countercl. ¶ 23. Defendants allege that under this agreement “Rockhill would fund the entirety of the defense of the Wharf Suit, ” Id. ¶ 24, “without any reservation of rights regarding the duty to defend.” Id. ¶ 1. According to defendants, the new agreement was “memorializ[ed]” in a December 1, 2015 email exchange between Bowles and a Pillsbury attorney. Id. ¶ 1 n.1; Ex. A to Defs.' Countercl. [Dkt. # 17-1] (“December 2015 Agreement”).

         Rockhill insists that “[a]t no point did Rockhill or the developer defendants discuss or agree that the reservations pursuant to which the defense was provided would be altered, withdrawn, or otherwise waived.” Rockhill Answer ¶ 23. But it acknowledges that it did agree “that the defense provided under the reservation of rights could be provided through [defendants'] choice of counsel at agreed-upon rates.” Id.

         In February 2016, Pillsbury sent Rockhill invoices for defense costs incurred between July 2015 through December 2015 at Laffey Matrix rates, and Rockhill paid those invoices in full. Countercl. ¶ 29; Rockhill Answer ¶ 29.

         Defendant WHRL filed a counterclaim in the Wharf Suit on March 29, 2016, Compl. ¶ 33; Defs.' Answer ¶ 33, and on May 9, 2016, it amended its counterclaim, alleging that the commercial tenants breached their leases and that as their landlord, it is entitled to evict them. Compl. ¶ 35; Defs.' Answer ¶ 35; Ex. D to Compl. [Dkt. # 1-5].

         Pillsbury continued to send invoices to Rockhill, but the insurance company began raising concern about the costs of pursuing counterclaims in the Wharf Suit, and it deducted certain amounts from invoices during the billing period of May 2016 through October 2016. Countercl. ¶¶ 31-32; Rockhill Answer ¶¶ 31-32.

         While the Wharf Suit was underway, on or about October 31, 2016, defendant WHRL assigned its interest in the commercial leases to a separate entity, defendant Fish Market REIT. Compl. ¶ 36, Defs.' Answer ¶ 36. WHRL then moved to join the new landlord of the leases, Fish Market REIT, in the Wharf Suit as a defendant and counterclaim plaintiff, and that motion was granted on February 12, 2017 by the district court. Compl. ¶ 37; Defs.' Answer ¶ 37.

         On February 27, 2017, days after Fish Market REIT joined the suit, Rockhill's counsel sent a letter to defendants “supplement[ing]” its initial October 9, 2015 letter. Ex. F to Compl. [Dkt. # 1-7] (“Feb. 27, 2017 Rockhill Letter”) at 1. In the letter, Rockhill listed a number of issues raised in the Wharf Suit that in its view were not covered by the Policy and it advanced several proposals to limit or terminate the insurance company's funding of the litigation, including an “equitable allocation of future defense costs between covered and non-covered claims” or a “policy buy-back.” Id. at 2-3. Rockhill expressed a desire to work with defendants to find a resolution to the dispute, but it informed them that if no accord was reached, court proceeding may be necessary. Id. at 3.

         The supplemental letter included a “coverage analysis” explaining why the plaintiffs' claims in the Wharf Suit were “likely” outside of the policy's coverage, id. at 6-8, and why the policy did not cover the costs of prosecuting counterclaims. Id. at 8-9. The letter also stressed that the newly-added defendant, Fish Market REIT, did not qualify as an insured. Id. at 8. The supplemental letter repeated the insurance company's reservation of rights: “Nothing in this letter should be construed as waiving any defenses raised in Rockhill's initial letter or otherwise.” Id. at 6.

         Three of the defendants, HMW, WHRL, and Fish Market REIT, responded by letter on April 22, 2017, contending that Rockhill owed them a duty to defend against the entire Wharf Suit under both the Policy and the separate December 2015 Agreement. Ex C. to Defs.' Cross-Mot. [Dkt. # 25-4] (“April 22, 2017 Defs.' Letter”) at 1-8. In the letter, they also acknowledged that Fish Market REIT is not an insured under the Policy: “You correctly point out that Wharf Fish Market REIT Leaseholder (“WFMRL”) is not [Rockhill's] insured.” Id. at 6. But they took the position that Rockhill “cannot escape responsibility for defense costs on the ground that some defense work also benefits entities that are not insured of the developer defendants' counterclaim.” Id. at 7.

         On April 26, 2017, the underlying plaintiffs filed a Second Amended Complaint in the Wharf Suit, naming other affiliates of HMW, WHRL, and Fish Market REIT - that is, WDGPJV, WHR, HSW, and WDJV, as additional defendants. Compl. at ¶ 38; Defs.' Answer ¶ 38. The Third Amended Complaint, which is now the operative complaint in the Wharf Suit, followed in September 2017. Compl at ¶ 39; Defs.' Answer ¶ 39.

         The Third Amended Complaint alleges that in April 2014 the District assigned its rights as landlord to WHRL, an alter ego of HMW. Wharf Compl. ¶¶ 8, 61. The underlying plaintiffs claim that “[u]nder the terms of each lease, [they] are entitled to exclusive use of certain water frontages to operate open air fish markets and a seafood deli, ” and that they “also have the right to access and use the Common Area.” Id. ¶ 106. The Common Area is “designated for general use, convenience, and benefit of the commercial tenants in the area and their customers on the Municipal Fish Market (e.g. restrooms, parking areas, driveways, walkways, loading and unloading for deliveries).” Id. ¶ 47.

         The underlying plaintiffs allege, among other things, that the developer defendants breached the terms of their leases through repeated unauthorized encroachments onto the Municipal Fish Market, Wharf Compl. ¶ 248, and that developer defendants violated their property rights through trespass and nuisance violations. See Id. ¶¶ 263, 268 (alleging defendants “wrongfully excercis[ed] ownership, dominion, and control over portions of the Municipal Fish Market, ” and that defendants' activities have interfered with plaintiffs' “private use and enjoyment of their leased property”).

         Rockhill followed up with two letters to Fish Market REIT dated January 15, 2018 and February 16, 2018, demanding that it contribute 50% of defense costs incurred since it joined the Wharf Suit on February 13, 2017. Ex. G to Compl. [Dkt. # 1-8] (“January 15, 2018 Rockhill Letter”); Ex. H to Compl. [Dkt. # 1-9] (“February 16, 2018 Rockhill Letter”). The letter states that if no agreement is reached, “Rockhill reserves its right to request court allocation as to the equitable distribution of defense costs, fees, and expenses.” January 15, 2018 Rockhill Letter at 2.


         Federal Rule of Civil Procedure 12(c) authorizes a party to move for judgment on the pleadings at any time “after the pleadings are closed - but early enough not to delay trial.” Fed.R.Civ.P. 12(c). Pleadings include any “copy of a written instrument that is an exhibit to a pleading.” Fed.R.Civ.P. 10(c). Here, the parties have attached to their pleadings copies of their correspondence, the insurance policies, the purported December 2015 Agreement, and the Third Amended Complaint in the underlying suit, among other documents. See Exs. A-J to Compl. [Dkt. # 1-2 to 1-11]; Ex. A to Countercl. [Dkt. # 17-1]; Exs. B-C to Defs.' Cross-Mot. [Dkt. # 25-3 to 25-4]. For the purpose of resolving the pending motions, the Court may only consider the contents of the pleadings.[4]

         As the D.C. Circuit recently observed, “judgment on the pleading is rare, ” and because it “provides judicial resolution at an early stage of a case, the party seeking . . . [it] shoulders a heavy burden of justification.” Dist. No. 1, Pac. Coast Dist., Marine Eng'rs Beneficial Ass'n, AFL-CIO v. Liberty Mar. Corp., 933 F.3d 751, 760 (D.C. Cir. 2019) (“Liberty Mar.”). Parties are entitled to pretrial judgment on the pleadings “if the moving party demonstrates that no material fact is in dispute and that it is entitled to judgment as a matter of law.” Schuler v. PricewaterhouseCoopers, LLP, 514 F.3d 1365, 1370 (D.C. Cir. 2008), quoting Peters v. Nat'l R.R. Passenger Corp., 966 F.2d 1483, 1485 (D.C. Cir. 1992). When analyzing a motion for judgment on the pleadings, the Court must “accept as true the allegations in the opponent's pleadings, and as false all controverted assertions of the movant.” Liberty Mar., 933 F.3d at 761, quoting Haynesworth v. Miller, 820 F.2d 1245, 1249 n.11 (D.C. Cir. 1987) (collecting cases), abrogated on other grounds by Hartman v. Moore, 547 U.S. 250 (2006). The Court must “view the facts presented in the pleadings and the inferences to be drawn therefrom in the light most favorable to the nonmoving party.” Peters, 966 F.2d at 1485, quoting Jablonski v. Pan Am. World Airways, Inc., 863 F.2d 289, 290-91 (3d Cir. 1988). “Under this standard, ‘a judgment on the pleadings is not appropriate' if there are ‘issues of fact which if proved would defeat recovery,' ‘even if the trial court is convinced that the party opposing the motion is unlikely to prevail at trial.'” Liberty Mar., 933 F.3d at 761, quoting Wager v. Pro, 575 F.2d 882, 884 (D.C. Cir. 1976).


         Choice of Law

         Both parties presume that District of Columbia of law applies. That presumption is correct for two reasons. District of Columbia law is appropriate in this case because the place of performance and the insured risk is in the District of Columbia. Adolph Coors Co. v. Truck Ins. Exch., 960 A.2d 617, 620 (D.C. 2008). Additionally, insurance law dictates that courts interpret the allegations in an underlying lawsuit based on where the suit was filed. Travelers Indem. Co. of Illinois v. United Food & Commercial Workers Int'l Union, 770 A.2d 978, 988 (D.C. 2001) (“Travelers”) (applying District of Columbia law to interpret the insurance contract but not the allegations in the underlying suit which was filed in South Carolina). Therefore, the Court will interpret both the insurance policy and the underlying lawsuit under District of Columbia law.

         Construction of Insurance Contracts & Duty to Defend

         In the District of Columbia, “[a]n insurance policy is a contract between the insured and the insurer, and in construing it [a court] must first look to the language of the contract.” Travelers, 770 A.2d at 986, quoting Cameron v. USAA Prop. & Cas. Ins. Co., 733 A.2d 965, 968 (D.C. 1999). When interpreting an insurance contract, the Court must construe “ambiguities . . . against the insurer and in favor of ‘the reasonable expectations of the purchaser of the policy.'” Chase v. State Farm Fire & Cas. Co., 780 A.2d 1123, 1127 (D.C. 2001), Smalls v. State Farm Mut. Auto. Ins. Co., 678 A.2d 32, 35 (D.C. 1996). Under this principle, if a Court finds that a term “is reasonably open to two constructions, the one most favorable to the insured will be adopted.” Id. However, an insurance contract is not “ambiguous merely because the parties do not agree on the interpretation of the contract provision in question.” Byrd v. Allstate Ins. Co., 622 A.2d 691, 695-94 (D.C. 1993). The D.C. Court of Appeals has held that “[p]olicy language is not genuinely ambiguous unless it is susceptible of more than one reasonable interpretation, ” and it has instructed courts not to “indulge in forced constructions to create an obligation against the insurer.” Chase, 780 A.2d at 1127-28 (emphasis in original) (internal citation omitted).

         The duty to defend is determined by comparing the allegations in the underlying complaint against the terms of the insurance policy. Cont'l Cas. Co. v. Cole, 809 F.2d 891, 896 (D.C. Cir. 1987). This is referred to the as the “eight corners rule.” Fogg v. Fidelity Nat'l Title Ins. Co., 89 A.3d 510, 515 (D.C. 2014) (“[O]ur jurisdiction, like the majority of jurisdictions, adheres to the ‘eight corners rule.'”). Under District of Columbia law:

If the [underlying] complaint states a cause of action within the coverage of the policy, the insurance company must defend. Any doubt as to whether the cause of action falls within the terms of the policy must be resolved in the insured's favor.

Cont'l Cas., 809 F.2d at 895, citing Boyle v. National Casualty Co., 84 A.2d 614, 615-16 (D.C. 1951).

         “An insurer's duty to defend is conceptually distinct from and legally independent of its duty to indemnify, that is, its obligation to pay a judgment.” Salus Corp. v. Cont'l Cas. Co., 478 A.2d 1067, 1069 (D.C. 1984); Stevens v. United Gen. Title Ins. Co., 801 A.2d 61, 67 (D.C. 2002). “The duty to defend is broad, requiring the defense of all claims even if only one potentially falls within the terms of the policy.” Council For Responsible Nutrition v. Hartford Cas. Ins. Co., No. 06-cv-1590, 2007 WL 2020093, at *3 (D.D.C. July 12, 2007), citing Cont'l Cas., 809 F.2d at 895; see also Commonwealth Lloyds Ins. Co. v. Marshall, Neil & Pauley, Inc., 32 F.Supp.2d 14, 18 (D.D.C. 1998) (collecting cases). Also, while the duty to defend depends only on allegations in the complaint, the duty to indemnify depends upon the truth of those allegations. S. Freedman & Sons, Inc. v. Hartford Fire Ins. Co., 396 A.2d 195, 197 (D.C. 1978). Accordingly, “if the allegations of a plaintiff's complaint may bring the claim within the coverage of the defendant's policy, the insurance company must honor its duty to defend, even if ultimately relieved of any duty to indemnify.” Sherman v. Ambassador Ins. Co., 670 F.2d 251, 259 (D.C. Cir. 1981). “[I]t is appropriate to examine the complaint for all plausible claims encompassed within the complaint and to ascertain whether the allegations of the complaint state a cause of action within the policy coverage and give fair notice to the insurer that the insured is being sued upon an occurrence which gives rise to a duty to defend under the terms of the policy.” Am. Cont'l Ins. Co. v. Pooya, 666 A.2d 1193, 1197 (D.C. 1995).

         At this stage, the Court has been called upon only to determine the duty to defend.


         a. Count I

         Rockhill alleges in Count I of its complaint that it “does not owe a duty to defend or indemnify the developers, ” under the terms of the Policy, and that it is “entitled to recoupment of attorneys' fees, costs, and expenses paid by Rockhill in defense of the Wharf Suit.” Compl. ¶ 77. Both Rockhill and defendants moved for judgment on the pleadings related to (1) the duty to defend and (2) recoupment. Pl.'s Mem. at 3; Defs.' Cross-Mem. at 39. For the reasons that follow, the Court finds that Rockhill owes the insured defendants, WHRL, HMW, HSW, WDGPJV, WDJV, and WHR, a duty to defend under the Policy, and that it is not entitled to the recoupment of defense costs from the insured defendants. This ruling does not apply to Fish Market REIT, which the Court finds is not insured under the Policy. See Section I, b (“Count III”).

         i. Duty to Defend: Coverage B, Personal and Advertising Injury Liability

         The insured bears the burden of showing that the underlying complaint comes within the policy's grant of coverage, and the insurer bears the burden of showing that an exclusion under the policy applies. Cameron v. USAA Prop. & Cas. Ins. Co., 733 A.2d 965, 969 (D.C. 1999).

         In their cross-motion, defendants contend that the trespass (Count VIII), nuisance (Count IX), tortious interference with prospective business advantage (Count X), and unjust enrichment claims (Count XI), fall within the scope of the Policy's Coverage B. Defs.' Cross-Mem. at 39.

         The provision in the Policy entitled “Coverage B Personal and Advertising Injury Liability” provides:

We will pay those sums that the insured becomes legally obligated to pay as damages because of “personal and advertising injury” to which this insurance applies. We will have the right and duty to defend the insured against any “suit” seeking those damages.

         Policy at RHIC000029.

         The “Definitions” section of the Policy defines “personal and advertising injury” as “injury, including consequential ‘bodily injury,' ...

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