Nautilus Insurance is asking a federal court to rule it has no duty to cover a messy business fight in Hawai‘i, arguing the claims are outside its policy.
On Sept. 3, Nautilus Insurance Company filed a complaint in the US District Court for the District of Hawai‘i, seeking a declaratory judgment that it has no duty to defend or indemnify C&C Farmlands LLC in a lawsuit involving claims of breach of contract, breach of fiduciary duty, fraudulent misrepresentation, conversion, unjust enrichment, and civil conspiracy. The dispute centers on the sale of reserved agricultural lots and alleged financial harm to a co-member, with Nautilus arguing that the claims fall outside the scope of its commercial general liability (CGL) policies.
Here’s what’s going on. C&C Farmlands, a Hawai‘i limited liability company, is facing a lawsuit from WKK LLC, one of its three equal members. WKK alleges that C&C and its other members – CDK Farms and Malako Farms – sold reserved lots, specifically Lot 99, without the unanimous written consent required by the Partner Lots Agreement. WKK claims this violated the company’s operating agreement and that the sale was improper because the project was incomplete and all creditors had not been paid. The lawsuit, filed in the First Circuit Court, State of Hawai‘i, seeks at least $2,669,603.34 in damages, as well as declaratory and injunctive relief to prevent further unauthorized sales and to affirm WKK’s rights to Lot 10.
Nautilus says its commercial general liability policy does not cover these claims. The insurer points out that its policy is designed to cover “bodily injury” or “property damage” caused by an “occurrence,” which is defined as an accident. Nautilus argues that the underlying lawsuit alleges only intentional misconduct and economic loss, not accidental conduct or physical injury to tangible property.
The insurer’s complaint details several policy exclusions. There is an “Expected or Intended Injury” exclusion, which bars coverage for “bodily injury” or “property damage” expected or intended from the standpoint of the insured. There is also a “Contractual Liability” exclusion, which excludes coverage for damages the insured is obligated to pay by reason of the assumption of liability in a contract or agreement. Nautilus also points to the “Exclusion – Personal and Advertising Injury,” which precludes coverage for claims such as wrongful eviction or invasion of the right of private occupancy, and a punitive damages exclusion. The complaint further notes that the policies only cover sums the insured is legally obligated to pay as damages because of “bodily injury” or “property damage,” and do not provide coverage for declaratory or injunctive relief.
In plain terms, Nautilus is telling the court: this is a business dispute over money and contracts, not the kind of accident or mishap the policy is meant to cover. The insurer is seeking a declaratory judgment that it has no duty to defend or indemnify C&C Farmlands in the underlying lawsuit, as well as reimbursement of defense costs and any amounts paid in judgment or settlement.
For insurance professionals, this case highlights the limits of CGL coverage in disputes involving intentional acts and contractual obligations. The outcome may affect how insurers approach coverage determinations in similar cases where business partners allege fraud or breach of contract and seek primarily economic damages.
As the case proceeds, insurance industry stakeholders will be watching to see how the court interprets the policy language and exclusions at issue.
