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U.S. Home Corp. v. Nationwide Mutual Fire Insurance Co.

United States District Court, E.D. Virginia, Alexandria Division

March 8, 2016

U.S. HOME CORPORATION, et. al., Plaintiffs,
v.
NATIONWIDE MUTUAL FIRE INSURANCE COMPANY, Defendant.

MEMORANDUM OPINION AND ORDER

Gerald Bruce Lee United States District Judge

THIS MATTER is before the Court on U.S. Home Corporation a/k/a U.S. Home Corp. DC Division ("U.S. Home") and Lennar Corporation's ("Lennar") (collectively as "Plaintiffs") Motion to Remand. (Doc. 7). This case concerns a contract dispute between Plaintiffs and Defendant Nationwide Mutual Fire Insurance Company ("Defendant"). Plaintiffs' Amended Complaint seeks a declaratory judgment of whether Defendant's liability insurance policy covers Plaintiffs in addition to the alleged third-party tortfeasors Rulex Plumbing, LLC a/k/a Rulex Plumbing, Inc. ("Rulex") and Rusmir Canic ("Canic") (collectively "Rulex"). (Doc. 1, Ex. 1).

The issue before the court is whether, under 28 U.S.C. § 1332(c)(1), Plaintiffs' claim against Defendant is a "direct action, " thus defeating diversity citizenship and requiring the case to be remanded back to Circuit Court for Prince William County. The Court holds that Plaintiffs' claim is not a direct action because it is based on Defendant's status as Plaintiffs' insurer and not, as required by § 1332(c)(1), on Defendant's status as the insurer of a third party tortfeasor. Accordingly, Plaintiffs' Motion is DENIED because Plaintiffs' suit does not constitute a direct action under § 1332(c)(1).

I. BACKGROUND

Defendant Nationwide is a corporation organized and existing under the laws of the State of Ohio. (Doc. 1). Rulex, previously a Virginia Limited Liability Company, and its agent Canic, were both located in the Commonwealth of Virginia. Id. Plaintiff Lennar is a foreign corporation licensed to do business in Virginia. (Doc. 1, Ex. 1). Plaintiff U.S. Home is a Delaware Corporation licensed to transact business in the Commonwealth of Virginia. Id. Together, Lennar and U.S. Home are in the business of building and selling residential communities. Id.

Beginning in 2005, Lennar was in the process of building a community in Williamsburg, Virginia known as "Colonial Heritage." (Doc. 1, Ex. 1). On June 29, 2005, Lennar and Rulex entered into a Subcontract Agreement for plumbing work at the Colonial Heritage community. Id. On September 5, 2008, Lennar and Rulex entered into a more general agreement, the Contractor Base Agreement ("Base Contract"), which provided that Rulex would perform plumbing work upon receipt of a Purchase Order from Lennar. Id. As part of its obligations under the Subcontract Agreement and the Base Contract, Rulex added Lennar as a named additional insured under Rulex's Liability Insurance Policy with Nationwide. Id.

Pursuant to the terms of the Base Contract, Rulex was obligated to perform work for Lennar:

in a good and workmanlike manner, free from defects in workmanship or materials, acceptable to Lennar, and in strict accordance with (i) the plans and specifications, (ii) any applicable manufacturer's specifications, recommendations or requirements, (iii) applicable industry standards, codes or other rules or regulations, and (iv) the requirements necessary to complete the Work in strict accordance with Lennar's schedule.

(Doc. 1, Ex. 1).

Also under the Base Contract, Rulex is responsible, at its sole cost, for promptly repairing or replacing any defective work noted by Lennar, a third-party inspector, or the homebuyer. Id. Additionally, if Rulex fails to remedy defective work or fails to perform repairs, the Base Contract states that Lennar may perform the work on behalf of Rulex and demand payment from Rulex to recover all costs and expenses. Id.

Lennar and U.S. Home allege that Rulex performed defective work on four properties in the Colonial Heritage housing development-the Ruillova property, the Bondurant property, the Schumaker property, and the Carner-Wolford property. Id. Specifically, Lennar and U.S. Home allege that the Ruillova property experienced sewage and water intrusion, the Bondurant property experienced nonfunctioning toilets, the Schumaker property experienced a sewage pipe back up, and the Carner-Wolford property experienced other sewage issues. Id. At its own cost, Lennar repaired the malfunctions at the Ruillova and Bondurant properties. Id. Lennar verbally notified Rulex of the issues at the Schumaker and Carner-Wolford properties, but Rulex denied responsibility and refused to repair the issues. Id. As a result, Lennar also paid for repairs to the Schumaker and Carner-Wolford properties. Id. Lennar and U.S. Home then filed suit, seeking reimbursement for the repairs to the defective work that Rulex performed on the properties in the Colonial Heritage housing development. (Doc. 17, Ex. 1).

Lennar and U.S. Home allege that due to Rulex's deficient work, several affected homeowners brought claims against them. (Doc. 1, Ex, 1). Lennar and U.S. Home allege that the homeowners' claims were covered by Rulex's insurance policy with Nationwide. Id. Because Lennar and U.S. Home were "additional insureds" to the Nationwide insurance policy, they allege that Nationwide has a duty to pay them indemnity benefits for the homeowners' claims. Id. Nationwide allegedly rejected Lennar and U.S. Home's requests for indemnification and failed to provide them with repayment for the homeowners' claims. Id.

II. PROCEDURAL HISTORY

On June 23, 2014, Lennar and U.S. Home filed a complaint in the Prince William Circuit Court against Rulex Plumbing, LLC, Rusmir Canic, and Nationwide Mutual Fire Insurance Company. (Doc. 1, Ex. 1). The original complaint alleged breach of contract as to Rulex and Canic and sought a declaratory judgment as to Nationwide's liability to Lennar and U.S. Home. Id. On October 5, 2015, the Prince William Circuit Court entered an order titled "Agreed Order Severing the Plaintiffs' Contract Claim Against Rulex Plumbing, LLC and Rusmir Canic from the Plaintiffs' Declaratory Judgment Against Nationwide Mutual Fire Insurance Company, and Separately Docketing Plaintiffs' Action Against Nationwide." (Doc. 17, Ex. 3). The order directed Lennar and U.S. Home to file two amended complaints: one against Rulex and Canic, and another solely against Nationwide. Id. In ...


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