Tracy v. USAA Casualty Insurance Company
Filing
33
ORDER Granting Defendant's 13 MOTION for Summary Judgment. Signed by JUDGE LESLIE E. KOBAYASHI on 3/16/2012. (gab, )CERTIFICATE OF SERVICEParticipants registered to receive electronic notifications received this document electronically at the e-mail address listed on the Notice of Electronic Filing (NEF). Participants not registered to receive electronic notifications were served by first class mail on the date of this docket entry
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
CIVIL NO. 11-00487 LEK-KSC
BARBARA TRACY,
)
)
Plaintiff,
)
)
vs.
)
)
USAA CASUALTY INSURANCE
)
COMPANY,
)
)
Defendant.
)
_____________________________ )
ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
Before the Court is Defendant USAA Casualty Insurance
Company’s (“Defendant”) Motion for Summary Judgment (“Motion”),
filed on October 20, 2011.
Plaintiff Barbara Tracy (“Plaintiff”)
filed her memorandum in opposition on January 10, 2012, and
Defendant filed its reply on January 13, 2012.
on for hearing on January 30, 2012.
This matter came
Appearing on behalf of
Defendant was Ward Fujimoto, Esq., and appearing on behalf of
Plaintiff was Ivan Van Leer, Esq.
Plaintiff filed her
Supplemental Declaration in Opposition (“Plaintiff’s Supplemental
Declaration”) on February 6, 2012, and Defendant filed its
Supplemental Reply Memorandum in Support of Its Motion for
Summary Judgment [ECF No. 13] (“Supplemental Reply”) on
February 9, 2012.
After careful consideration of the Motion,
supporting and opposing documents, and the arguments of counsel,
Defendant’s Motion is HEREBY GRANTED because the cultivation of
marijuana, even for the State-authorized medical use, violates
federal law and the enforcement of an insurance policy under the
particular circumstances of this case is contrary to public
policy, as set forth more fully below.
BACKGROUND
Plaintiff filed the instant action in the Circuit Court
of the Third Circuit, State of Hawai`i, on July 11, 2011.
Defendant removed the action on August 10, 2011, based on
diversity jurisdiction.
Plaintiff’s Complaint alleges that Defendant breached
the parties’ insurance coverage contract by failing to pay
Plaintiff’s insurance claims for stolen property.
Plaintiff, who
owns and resides at a property in the Puna District of the State
and County of Hawai`i, purchased a homeowners insurance policy
from Defendant (“the Policy”) on May 18, 2010.
1, 5.]
[Complaint at ¶¶
On or about July 30, 2010, twelve plants were stolen from
Plaintiff’s property.
Nine of the twelve plants were fully
matured cannabis sativa, commonly known as marijuana plants.
remaining three plants were less mature plants.
The
[Id. at ¶ 7.]
Plaintiff states that she “lawfully possessed, grew, nurtured and
cultivated the plants consistent with the laws of the State of
Hawaii . . . permitt[ing] individuals to possess and grow
2
marijuana for medical purposes[.]”
[Id. at ¶ 12(b).1]
Plaintiff asserts that she is entitled to coverage
under the Policy for the loss of these plants because the Policy
includes coverage for loss to “‘trees, shrubs, and other
plants.’”
[Id. at ¶ 8 (quoting Policy, Replacement Cost Coverage
- Personal Property HO-728 (08-97) at ¶ 3).]
Plaintiff alleges
that she notified Defendant of the loss of the twelve plants,
presenting a claim of $4,000 for each mature plant and $3,200 for
each of the less mature plants, for a total of $45,600.
¶¶ 9-10.]
[Id. at
Defendant initially agreed to pay Plaintiff’s claim
and issued a payment to Plaintiff for the loss, but Plaintiff
claimed that the amount was insufficient.
[Id. at ¶ 12(e).]
Plaintiff alleges that, on or about May 27, 2011,
Defendant notified Plaintiff that it would not make any further
payment for the loss because Plaintiff did not have an insurable
interest in the plants, which could not be lawfully replaced.
Plaintiff argues that Defendant could have inspected Plaintiff’s
property at any time during the Policy period, and Defendant had
notice that Hawai`i law permits individuals such as Plaintiff to
lawfully grow marijuana for medical purposes.
1
[Id. at ¶¶ 11-
The only exhibit attached to Defendant’s separate and
concise statement of facts in support of the Motion (“Defendant’s
CSOF”), [filed 10/20/11 (dkt. no. 14),] is the Complaint. [Dkt.
no. 14-2.] Defendant contends that there are no genuine issues
of fact for trial. For the purposes of the instant Motion,
Defendant assumes, but does not admit, that the factual
allegations of the Complaint are true. [Def.’s CSOF at 1-2.]
3
12(c).]
Plaintiff alleges that the Policy specifically allows
for coverage of irreplaceable “plants”, without excluding any
particular type of plant, with payment in the form of actual cash
value.
She alleges that insurers regularly pay for such claims.
[Id. at ¶¶ 12(d)-(e).]
Although not clearly enumerated in the Complaint,
Plaintiff’s claims appears to be as follows: breached the
insurance contract; unreasonable/bad faith denial of her
insurance claim; and a violation of Haw. Rev. Stat. Chap. 480.
Plaintiff seeks: the fair and reasonable value of the stolen
plants; contract and Chapter 480 damages; reasonable attorneys’
fees and court costs; and interest.
I.
[Id. at pgs. 4-5.]
Motion for Summary Judgment
In the instant Motion, Defendant argues that it is
entitled to judgment as a matter of law because Plaintiff lacks
an insurable interest in the marijuana plants under State and
Federal law, and therefore Defendant is not obligated to provide
coverage under the Policy.
First, in order to have an insurable interest, the
insured’s interest in the property must be “lawful” property
under Hawai`i Revised Statutes § 431:10E-101.
Second, Hawai`i
law generally prohibits the enforcement of illegal contracts, and
Plaintiff cannot insure her marijuana plants unless her
possession was legal.
[Mem. in Supp. of Motion at 3 (citing Haw.
4
Rev. Stat. § 1-5).]
Third, Defendant argues that Hawaii’s
medical marijuana law, Haw. Rev. Stat. § 329-125, does not create
an insurable interest because it merely “provides an affirmative
defense to marijuana-related state law crimes for the medical use
of marijuana.”
[Id. at 4 (emphasis omitted).]
Defendant argues
that there is no affirmative defense for the promotion, purchase,
or sale of marijuana, even for medical use, and therefore
Plaintiff cannot legally use the insurance proceeds to purchase
replacement marijuana plants.
Further, Haw. Rev. Stat. § 329-124
expressly disclaims insurance coverage for medical marijuana.
[Id. at 4-5.]
Defendant points out that the statutory law in force
and effect at the time an insurance policy is issued becomes part
of the insurance contract, as though it were expressly written
into the contract.
Further, courts should not interpret
insurance contracts to provide coverage when coverage would be
against public policy, such as when an insured’s activities
relate to an illegal controlled substance.
[Id. at 5-6.]
Defendant contends that requiring insurance coverage
for marijuana plants would be against federal public policy
because coverage presupposes that the insured will purchase,
sell, and/or distribute marijuana plants with insurance proceeds.
Defendant emphasizes that in Gonzales v. Raich, 545 U.S. 2195
(2005), the United States Supreme Court held that distributing,
5
possessing, and using marijuana, even for medical purposes, are
illegal under federal law with the sole exception of federallyapproved research.
[Id. at 10.]
Defendant acknowledges that
“[w]hile the Gonzales Court did not specifically hold that
federal prohibitions on marijuana preempts contrary state medical
marijuana laws, a growing number of other courts have applied
Gonzales and/or the Supremacy Clause, and have so held.”
12.]
[Id. at
Defendant argues that Hawaii’s medical marijuana laws do
not purport to legalize medical use and do not require insurance
coverage for medical use.
Even if Hawai`i law required insurance
coverage for medical marijuana use, such coverage would conflict
with, and therefore be preempted by, federal law prohibiting such
use.
[Id. at 15.]
Defendant argues that, at a minimum, it is entitled to
summary judgment on Plaintiff’s extra-contractual claims for
unreasonableness/bad faith and Plaintiff’s Chapter 480 claim.
Defendant argues that Plaintiff did not produce any evidence of
Defendant’s bad faith, and Plaintiff failed to meet her burden of
showing that Defendant unreasonably denied her claim.
Defendant
argues that, where an insurance company denies a claim based on a
correct interpretation of the law, there can be no unreasonable
denial of insurance coverage.
Even if there is a dispute over
the validity of Plaintiff’s claim, the dispute demonstrates that
Defendant reasonably disagreed with Plaintiff’s claim based on an
6
unresolved legal issue.
[Id. at 15-17.]
Defendant further argues that Haw. Rev. Stat. Chapter
431, Article 13 preempts Haw. Rev. Stat. Chapter 480 in the area
of insurance.
Defendant contends that Chapter 480 does not apply
because an insurance beneficiary is not a “consumer”, and an
insurance policy does not involve “goods” or “services”.
17-18.]
[Id. at
Defendant emphasizes that Haw. Rev. Stat. § 480-11(b)
expressly exempts insurance companies from the scope of Chapter
480.
Defendant also argues that Chapter 480 should not apply to
the insurance claims in this case because of Haw. Rev. Stat.
§ 329-124, which states that Hawaii’s medical marijuana laws do
not require insurance coverage for the medical use of marijuana.
[Id. at 20-21.]
Even if Chapter 480 applies, Defendant argues that
there is no evidence to support Plaintiff’s claim that the denial
of her insurance claim constituted a violation of Chapter 480.
At a minimum, the denial was supported by a reasonable legal
argument.
There is nothing to support Plaintiff’s conclusory
allegation that Defendant violated Chapter 480, and Defendant
contends that it is entitled to summary judgment on Plaintiff’s
Chapter 480 claim.
[Id. at 21-23.]
Defendant also argues that it is entitled to summary
judgment on the issue of Plaintiff’s entitlement to punitive
damages.
Under Hawai`i law, the issue of punitive damages cannot
7
be submitted to the jury based upon evidence of merely a possible
breach of contract or mere inadvertence, mistake, or errors of
judgment.
Defendant emphasizes that Hawai`i law requires more
than just the commission of a tort; clear and convincing evidence
of wanton, oppressive, malicious, or wilful conduct is required.
Defendant contends that, because it had at least a reasonable
legal basis to deny Plaintiff’s claim, Plaintiff cannot establish
any conduct that would warrant punitive damages.
[Id. at 23-26.]
III. Plaintiff’s Memorandum in Opposition
In her Memorandum in Opposition, Plaintiff states that
the facts of this case are essentially uncontested.
She
emphasizes that the Policy expressly covers losses to “‘Trees,
Shrubs and Other Plants’” caused by, inter alia, theft.
[Mem. in
Opp. at 1-2 (quoting Policy at 3-4).]
Plaintiff argues that Defendant is a sophisticated and
experienced insurance company that likely provided similar
services in Hawai`i for many years prior to the events at issue
in this case.
Plaintiff contends that the Policy, which
Defendant prepared, specifically contemplated the coverage of
marijuana plants, and Defendant was aware of both the federal law
and Hawai`i law relevant to this issue when it issued the Policy.
[Id. at 2-3.]
Plaintiff states that paragraph J on page 13 of
the Policy excludes coverage for losses involving illegal
narcotics, including cocaine, LSD, and marijuana, but the Policy
8
expressly states that the exclusion “‘does not apply to the
legitimate use of prescription drugs by a person following the
orders of a licensed physician.’”
[Id. at 3 (emphasis omitted).]
Plaintiff points out that Haw. Admin. R. § 23-20213(b)(1) provides that an individual who qualifies for medical
marijuana use may supply herself by growing the plant at her home
address.
Plaintiff argues that there is no basis for Defendant
to deny coverage because Defendant was on notice that, by
covering “trees, shrubs or plants”, it was required to cover
marijuana/cannabis plants where the insured was a licensed
medical marijuana user.
The contract terms are not ambiguous and
must be interpreted according to their plain meaning.
Further,
Hawai`i courts honor the objectively reasonable expectations of
the parties concerning insurance coverage, and the objectively
reasonable expectations are construed from a layperson’s
perspective.
Plaintiff emphasizes that Defendant initially
acknowledged coverage and paid $8,801.90 on Plaintiff’s claim in
February 2011.
Defendant only raised its objections after
Plaintiff sought more money on May 27, 2011.
[Id. at 3-4.]
Plaintiff argues that she had an insurable interest in
the plants, as defined by § 431:10E-101, because she is permitted
by Hawai`i law to have the plants for medical use.
She contends
that, by enacting Haw. Rev. Stat. § 329-127, which governs the
return of marijuana an other paraphernalia after seizure, the
9
State Legislature acknowledged that a medical marijuana user has
a substantive interest in the source of her medical marijuana.
Where the government seizes the plants, they must be returned to
the owner upon a showing that the owner was in compliance with
the medical marijuana statute.
Plaintiff emphasizes that courts
widely hold that an “insurable interest” need not be a free and
unencumbered interest.
[Id. at 5.]
Plaintiff argues that Defendant’s reliance on Haw. Rev.
Stat. § 329-124 is misplaced because the statute only addresses
medical insurance coverage for marijuana use.
As to the bad
faith claim, Plaintiff argues that her allegations are sufficient
because a plaintiff can establish a bad faith claim by proving
that the insurer unreasonably handled claims, denied claims, or
interpreted its policies.
Plaintiff contends that this issue is
fact specific and is not appropriate for summary judgment.
[Id.
at 6-7.]
IV.
Defendant’s Reply
In its Reply, Defendant emphasizes that Plaintiff does
not contest that an insured must have an “insurable interest” in
property to insure it, or that marijuana, even when used for
medical purposes, is a Scheduled I controlled substance under 21
U.S.C. §§ 841(a) and 812(c).
Plaintiff has not cited any
authority for the proposition that medical marijuana is legally
insurable, nor has she responded to Defendant’s argument that a
10
contract insuring marijuana would be inconsistent with public
policy under federal law.
Defendant also reiterates that § 329-
125 merely provides an affirmative defense for the use of medical
marijuana; neither it nor any other statute provides a similar
defense for the promotion, purchase, or sale of marijuana.
Thus,
medical marijuana plants cannot be insured because purchasing
replacement plants with insurance proceeds would be illegal.
Defendant also points out that nothing in § 329-124 limits the
provision to health insurance.
Thus, pursuant to § 329-124,
Defendant is not required under Hawai`i law to provide insurance
for medical marijuana.
[Reply at 3-5.]
Defendant argues that the general view precludes
insurance coverage of a controlled substance or an insured’s
activities relating to that substance.
any contrary law.
Plaintiff has not cited
Thus, even if medical marijuana was insurable
under Hawai`i law, such insurance would be contrary to federal
law, which would preempt Hawai`i law.
[Id. at 5-7.]
Defendant also argues that Plaintiff’s reliance on
exclusion 1(j) on page 13 of the Policy is misplaced because
exclusions cannot create coverage which did not already exist
under the terms of a policy and the applicable law.
Further,
exclusion 1(j) does not directly apply in this case because it
addresses personal liability, not payments for the insured’s
medical coverage.
Even if the exclusion did apply, it expressly
11
precludes coverage for marijuana.
[Id. at 7 n.3.]
Defendant reiterates that Plaintiff has not presented
any evidence of unreasonableness or bad faith, particularly
because she has not presented any affidavits or declarations
setting forth specific facts.
material fact for trial.
Thus, there is no genuine issue of
Defendant also emphasizes that,
pursuant to Fed. R. Evid. 408, evidence of its prior settlement
payment for her insurance claim is not admissible as evidence of
Defendant’s alleged obligation to provide coverage.
Similarly,
Defendant argues that Plaintiff has not presented any evidence
showing a genuine issue of material fact regarding either her
Chapter 480 claim or her allegation that she is entitled to
punitive damages.
IV.
[Id. at 8-11.]
Supplemental Briefing
At the hearing on the Motion, this Court raised the
issue whether the twelve plants that were the subject of
Plaintiff’s insurance claim exceeded an “adequate supply” of
marijuana and rendered her ineligible to lawfully use marijuana
for medical purpose.
See Haw. Rev. Stat. §§ 329-122(a), 329-121;
State v. Vincent, No. 27357, 2009 WL 120308, at *1 (Hawai`i Ct.
App. Jan. 20, 2009).
The Court permitted the parties to file
supplemental briefing on this issue.
Plaintiff’s Supplemental Declaration states that she
resides with her significant other, Greg J. Rodenbaugh, who is
12
the caretaker for Alicia Ell.
Plaintiff, Mr. Rodenbaugh, and
Ms. Ell all have medical marijuana licenses from the State, and
all three licenses give Plaintiff’s address as the location of
the marijuana.
[Pltf.’s Suppl. Decl. at ¶¶ 1-2, Exh. B.]
Plaintiff therefore argues that she was legally authorized to
have the nine mature marijuana plants and the three immature
plants which were the subject of her insurance claim at her
residence.
Further, she emphasizes that Section I - Property
Coverages, Coverage C - Personal Property insures personal
property owned by others when the personal property is in the
insured’s residential premises.
[Id. at ¶¶ 2-3.]
In its Supplemental Reply, Defendant argues that
Plaintiff made binding admissions in the Complaint that she
possessed all twelve plants which were the subject of her claim.
Defendant also challenges Plaintiff’s Supplemental Declaration
because Plaintiff does not have personal knowledge about the
marijuana possession of non-parties; she only has personal
knowledge of her own marijuana certificate and use.
Even if the
Court considers Plaintiff’s Supplemental Declaration, it does not
establish that Plaintiff complied with the strict limitations on
joint possession of an adequate supply of marijuana pursuant to
Haw. Rev. Stat. § 329-125.
[Id. at 2-3, 8.]
DISCUSSION
At the outset, the Court notes that federal
13
jurisdiction in this case is based on diversity.
Removal at ¶ 3.]
[Notice of
This district court has recognized that:
Federal courts sitting in diversity apply
state substantive law and federal procedural law.
See Mason & Dixon Intermodal, Inc. v. Lapmaster
Int’l LLC, 632 F.3d 1056, 1060 (9th Cir. 2011)
(“When a district court sits in diversity, or
hears state law claims based on supplemental
jurisdiction, the court applies state substantive
law to the state law claims.”); Zamani v. Carnes,
491 F.3d 990, 995 (9th Cir. 2007) (“Federal courts
sitting in diversity jurisdiction apply state
substantive law and federal procedural law.”
(quotations omitted)). When interpreting state
law, a federal court is bound by the decisions of
a state’s highest court. Trishan Air, Inc. v.
Fed. Ins. Co., 635 F.3d 422, 427 (9th Cir. 2011).
In the absence of a governing state decision, a
federal court attempts to predict how the highest
state court would decide the issue, using
intermediate appellate court decisions, decisions
from other jurisdictions, statutes, treatises, and
restatements as guidance. Id.; see also
Burlington Ins. Co. v. Oceanic Design & Constr.,
Inc., 383 F.3d 940, 944 (9th Cir. 2004) (“To the
extent this case raises issues of first
impression, our court, sitting in diversity, must
use its best judgment to predict how the Hawaii
Supreme Court would decide the issue.” (quotation
and brackets omitted)).
U.S. Fire Ins. Co. v. Estate of James Campbell, Civil No. 1100006 LEK-KSC, 2011 WL 6934566, at *3 (D. Hawai`i Dec. 30, 2011)
(citation omitted).
Before the Court can address the substantive issues in
this matter, it must address the procedural issue of whether
Plaintiff’s submission of the Policy is properly before the
Court.
14
I.
The Policy
Plaintiff submitted a copy of the Policy with her
memorandum in opposition.
[Dkt. no. 24-1.]
The Court notes that
Plaintiff failed to file a concise statement of facts, as
required by Local Rule 56.1(b), and that the memorandum in
opposition does not include a declaration authenticating the
Policy.
Although the Court does not condone the failure to
follow court rules, insofar as Defendant has not contested the
accuracy of Plaintiff’s exhibit, the Court will exercise its
discretion and consider the document.
See Fed. R. Evid.
901(b)(4) (evidence may be authenticated by examining its
“appearance, contents, substance, internal patterns, or other
distinctive characteristics of the item, taken together with all
the circumstances.”).
The Policy states, in pertinent part:
3.
Trees, Shrubs and Other Plants. We cover
trees, shrubs, plants or lawns, on the
residence premises, for loss caused by the
following Perils Insured Against: . . .
Vandalism or malicious mischief or Theft.
We will pay up to 5% of the limit of
liability that applies to the dwelling for
all trees, shrubs, plants or lawns. No more
than $500 of this limit will be available for
any one tree, shrub or plant. We do not
cover property grown for business purposes.
This coverage is additional insurance.
[Policy, Agreement (Homeowners 3R Special Form (04-93) HO-93
Program), Section I - Property Coverages, Additional Coverages,
15
at 4 of 17 (emphases omitted).]
Plaintiff also cites the following exclusion as
evidence that the Policy’s coverage encompasses medical marijuana
plants:
1.
Coverage E - Personal Liability and Coverage
F - Medical Payments to Others do not apply
to bodily injury or property damage:
. . . .
j.
arising out of the use, sale,
manufacture, delivery, transfer or
possession by any person of a controlled
substance(s). Controlled substances
include but are not limited to cocaine,
LSD, marijuana and all narcotic drugs.
However, this exclusion does not apply
to the legitimate use of prescription
drugs by a person following the orders
of a licensed physician.
[Id., Section II - Exclusions, at 12 of 17 to 13 of 17 (emphases
omitted).]
II.
Hawaii’s Medical Marijuana Laws
The State Legislature enacted Hawaii’s medical-use-of-
marijuana laws in 2000.
2000 Haw. Sess. Laws Act 228 at 595-96.
Haw. Rev. Stat. § 329-125(a) states: “A qualifying patient or the
primary caregiver may assert the medical use of marijuana as an
affirmative defense to any prosecution involving marijuana under
this [part] or chapter 712; provided that the qualifying patient
or the primary caregiver strictly complied with the requirements
of this part.”
(Alteration in original) (emphasis added).
Some
of the requirements that a qualifying patient must comply with
16
are set forth in Haw. Rev. Stat. § 329-122(a), which states:
Notwithstanding any law to the contrary, the
medical use of marijuana by a qualifying patient
shall be permitted only if:
(1) The qualifying patient has been diagnosed
by a physician as having a debilitating
medical condition;
(2) The qualifying patient’s physician has
certified in writing that, in the physician’s
professional opinion, the potential benefits
of the medical use of marijuana would likely
outweigh the health risks for the particular
qualifying patient; and
(3) The amount of marijuana does not exceed
an adequate supply.
(Emphasis added.)
Haw. Rev. Stat. § 329-121 states:
“Adequate supply” means an amount of marijuana
jointly possessed between the qualifying patient
and the primary caregiver that is not more than is
reasonably necessary to assure the uninterrupted
availability of marijuana for the purpose of
alleviating the symptoms or effects of a
qualifying patient’s debilitating medical
condition; provided that an “adequate supply”
shall not exceed three mature marijuana plants,
four immature marijuana plants, and one ounce of
usable marijuana per each mature plant.
(Emphasis added.)
The applicable administrative rule reiterates
the limits on the numbers of mature and immature marijuana
plants.
Haw. Admin. R. § 23-202-13(c).
The rule also provides
that an individual who exceeds an adequate supply is “not
exempted from the criminal laws of the State.”
§ 23-202-13(d).
III. Plaintiff’s Supply
At the hearing on the Motion, the Court sua sponte
raised the issue that Plaintiff’s twelve marijuana plants,
17
including nine mature plants, exceeded an adequate supply.
Plaintiff’s failure to strictly comply with the statutes
regarding an adequate supply would mean that she could not avail
herself of the Hawai`i medical marijuana laws.
See Vincent, 2009
WL 120308, at *1 (noting that, unless the patient meets the
requirements of § 329-122(a), “a qualifying patient is not
permitted to use marijuana for medical purposes”).
If
Plaintiff’s possession of the marijuana plants was not protected
by the Hawai`i medical marijuana laws, it would be unnecessary
for the Court to rule upon the arguments that the parties
addressed in their memoranda because the Hawai`i state courts
recognize the common law principle that a court may refuse to
enforce a contract that is illegal or in violation of public
policy.
See, e.g., Inlandboatmen’s Union of the Pac., Hawai`i
Region, Marine Div. of Int’l Longshoremen’s & Warehousemen’s
Union v. Sause Bros., Inc., 77 Hawai`i 187, 194, 881 P.2d 1255,
1262 (Ct. App. 1994) (citations omitted).
In Plaintiff’s Supplemental Declaration, Plaintiff
states that both she and Mr. Rodenbaugh, who resides with her,
have medical licenses to grow marijuana plants.
In addition,
their friend, Ms. Ell has a medical marijuana license listing
Mr. Rodenbaugh as Ms. Ell’s caretaker.2
2
[Pltf.’s Suppl. Decl. at
Haw. Admin. R. § 23-202-13 states, in pertinent part:
(a) A qualifying patient who possesses a
(continued...)
18
¶ 2.]
Plaintiff submitted a copy of the three Patient
Identification Certificates from the State Medical Marijuana
Registry.
Each certificate identifies Plaintiff’s residence as
the “Location of Marijuana”.
[Id. at ¶ 1, Exh. B.]
Plaintiff
asserts that, based on the three certificates, there were
lawfully nine mature marijuana plants at her residence, and the
three immature plants were for Ms. Ell’s supply.
[Id. at ¶ 2.]
Defendant objects to Plaintiff’s submissions because they are
contrary to the admissions in the Complaint and because Plaintiff
does not have personal knowledge of Mr. Rodenbaugh’s and
Ms. Ell’s possession of marijuana plants.
First, the Court finds, for purposes of the instant
Motion only, that Plaintiff has sufficient personal knowledge
regarding Mr. Rodenbaugh’s and Ms. Ell’s marijuana plants because
2
(...continued)
registry identification certificate issued
pursuant to section 329-123, Hawaii Revised
Statutes, may engage in and a registered primary
caregiver of the patient may assist in, the
medical use of marijuana only as justified to
mitigate the symptoms or effects of the qualifying
patient’s debilitating medical condition.
(b) The medical marijuana shall be grown only
at the following locations:
(1) The qualifying patient’s home address; or
(2) The primary caregiver’s home address or
other location owned or controlled by the
qualifying patient or the primary caregiver that
is approved by the administrator and designated on
the registry certificate issued by the department.
§ 23-202-13(a), (b).
19
they are kept at Plaintiff’s residence.
This Court will
therefore consider both the representations about those plants in
Plaintiff’s Supplemental Declaration and Plaintiff’s submission
of Mr. Rodenbaugh’s and Ms. Ell’s certificates from the State
Medical Marijuana Registry.3
The Complaint alleges that, in general, the Policy
constitutes Defendant’s agreement that “in the event that
plaintiff suffered a loss to her personal property at her
residence, . . . the defendant would pay to plaintiff the
replacement costs of such loss.”
[Complaint at ¶ 5.]
Specifically, the Complaint alleges: “[o]n or about July 30,
2010, plaintiff suffered an event where twelve (12) plants were
taken from her property . . . and that the taking constituted a
theft[;]” [id. at ¶ 7;] and “plaintiff lawfully possessed, grew,
nurtured and cultivated the plants consistent with the laws of
the State of Hawaii[;]” [id. at ¶ 12.b].
Defendant emphasizes
that the Complaint does not mention Mr. Rodenbaugh’s and
Ms. Ell’s ownership of some of the plants which were the subject
of Plaintiff’s insurance claim.
Plaintiff argues that the
allegations of the Complaint do not constitute an admission that
she owned all twelve plants because the Policy covers “‘personal
property owned by: 1. others while the property is on the part of
3
This Court also considers Plaintiff’s representations
about her own marijuana plants and her certificate, about which
she clearly has personal knowledge.
20
the residential premises occupied by an insured.’”
[Pltf.’s
Suppl. Decl. at ¶ 3 (quoting the Policy, Section 1 - Property
Coverages, Coverage C).]
Without ruling on the issue whether
Section 1 - Property Coverages, Coverage C applies, this Court
FINDS that there are genuine issues of material fact as to whom
the marijuana plants stolen from Plaintiff’s residence were
legally attributable.
Thus, this Court cannot conclude as a
matter of law that Plaintiff’s possession of marijuana plants
excluded her from the Hawai`i medical marijuana laws.
See Fed.
R. Civ. P. 56(a) (“The court shall grant summary judgment 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.”).
The Court now turns to the issues addressed in the
parties’ memoranda.
IV.
Insurable Interest
Defendant first argues that Plaintiff does not have an
insurable interest in the marijuana plants.
Haw. Rev. Stat. §
431:10E-101 states:
No contract of insurance on property or of any
interest therein or arising therefrom shall be
enforceable except for the benefit of persons
having an insurable interest in the property
insured. Insurable interest means any lawful and
substantial economic interest in the safety or
preservation of the subject of the insurance free
from loss, destruction, or pecuniary damage.
Defendant does not dispute that Plaintiff had a substantial
economic interest in the plants.
21
The dispute in this case
centers around whether Plaintiff’s interest in the plants was
lawful.
Defendant emphasizes that Haw. Rev. Stat. § 329-125
“does not legalize the medical use of marijuana, but provides an
affirmative defense to marijuana-related state law crimes for the
medical use of marijuana.”
(emphasis omitted).]
[Mem. in Supp. of Motion at 4
Further, Defendant argues that Haw. Rev.
Stat. § 329-124 “expressly disclaims any legislative intent to
require insurance coverage for marijuana, even for medical
purposes[.]”
[Id. at 5.]
There is no Hawai`i Supreme Court case law analyzing
the Hawai`i medical marijuana laws.
The Intermediate Court of
Appeals (“ICA”) has stated that § 329-125 “provides an
affirmative defense to marijuana-related crimes.”
State v.
Manzano-Hill, No. 29063, 2010 WL 359901, at *1 (Hawai`i Ct. App.
Jan. 27, 2010).
The ICA, however, has cited § 329-122(a) for “an
entitlement to the medical use of marijuana[.]”
State v. Blagus,
No. 30016, 2010 WL 3759788, at *2 (Hawai`i Ct. App. Sept. 27,
2010).
It has also stated that “unless the foregoing
requirements [of § 329-122(a)] are met, a qualifying patient is
not permitted to use marijuana for medical purposes.”
2009 WL 120308, at *1.
Vincent,
It follows from the ICA’s analysis that,
if a qualifying patient meets the requirements of § 329-122(a),
22
and all other applicable provisions of Chapter 329, Part IX,4 the
patient is permitted to use marijuana for medical purposes.
In addition, the Court notes that, in enacting Chapter
329, Part IX, the Hawai`i State Legislature stated:
The legislature finds that modern medical
research has discovered a beneficial use for
marijuana in treating or alleviating the pain or
other symptoms associated with certain
debilitating illnesses. There is sufficient
medical and anecdotal evidence to support the
proposition that these diseases and conditions may
respond favorably to a medically controlled use of
marijuana.
The legislature is aware of the legal
problems associated with the legal acquisition of
marijuana for medical use. However, the
legislature believes that medical scientific
evidence on the medicinal benefits of marijuana
should be recognized. Although federal law
expressly prohibits the use of marijuana, the
legislature recognizes that a number of states are
taking the initiative in legalizing the use of
marijuana for medical purposes. Voter initiatives
permitting the medical use of marijuana have
passed in California, Arizona, Oregon, Washington,
Alaska, Maine, Nevada, and the District of
Columbia.
The legislature intends to join in this
initiative for the health and welfare of its
citizens. However, the legislature does not
intend to legalize marijuana for other than
medical purposes. The passage of this Act and the
policy underlying it does not in any way diminish
the legislature’s strong public policy and laws
against illegal drug use.
Therefore, the purpose of this Act is to
ensure that seriously ill people are not penalized
4
Chapter 329, Part IX includes Haw Rev. Stat. § 329-121 to
§ 329-128.
23
by the State for the use of marijuana for strictly
medical purposes when the patient’s treating
physician provides a professional opinion that the
benefits of medical use of marijuana would likely
outweigh the health risks for the qualifying
patient.
2000 Haw. Sess. Laws Act 228, § 1 at 595-96.
Defendant emphasizes that the Legislature expressly
disclaimed any requirement that insurers provide coverage for the
medical use of marijuana.
Haw. Rev. Stat. § 329-124 states:
“This part shall not be construed to require insurance coverage
for the medical use of marijuana.”
Plaintiff responds that
§ 329-124 “seems more likely to relate to health insurance
coverage, wherein health insurers would not have to reimburse
medical marijuana users . . . .”
[Mem. in Opp. at 6.]
Plaintiff, however, cites no authority for her interpretation of
§ 329-124.
The plain language of the statute does not support
such a limited interpretation, and there is nothing in the
legislative history that suggests the Legislature intended to
limit § 329-124 to medical insurance.
Cf. Steigman v. Outrigger
Enters., Inc., 126 Hawai`i 133, 148-49, 267 P.3d 1238, 1253-54
(2011) (“Although the statutory language of HRS § 663–31 is plain
and unambiguous, we may resort to the legislative history to
confirm this interpretation of the statute.” (citing E & J Lounge
Operating Co. v. Liquor Comm’n of City & County of Honolulu, 118
Hawai`i 320, 335, 189 P.3d 432, 447 (2008) (“Legislative history
may be used to confirm interpretation of a statute’s plain
24
language.”); State v. Entrekin, 98 Hawai`i 221, 228, 47 P.3d 336,
343 (2002) (“Although we ground our holding in the statute’s
plain language, we nonetheless note that its legislative history
confirms our view.”))).
Even assuming, arguendo, that § 329-124
applies to all forms of insurance, that interpretation does not
compel summary judgment for Defendant.
Section 329-124 merely
states that the State does not require insurers to provide
coverage for medical marijuana usage; it does not preclude
insurers from agreeing to provide coverage for medical marijuana
usage.
Thus, the Court predicts that the Hawai`i Supreme Court
would hold that a qualifying patient who is in strict compliance
with the Hawai`i medical marijuana laws has a lawful interest in
her marijuana supply for purposes of Haw. Rev. Stat. § 431:10E101.
This Court therefore CONCLUDES that Plaintiff had a
insurable interest in her marijuana plants which were the subject
of her insurance claim.
V.
Marijuana and Federal Law
Defendant next argues that, even if Plaintiff has an
insurable interest in her marijuana plants under Hawai`i law,
Defendant is precluded from providing coverage for the plants
because it would be contrary to federal law and federal public
policy.
As noted, supra, under Hawai`i law, a court may refuse
25
to enforce a contract that is illegal or in violation of public
policy.
Inlandboatmen’s Union, 77 Hawai`i at 194, 881 P.2d at
1262 (some citations omitted) (citing Aiea Lani Corp. v. Hawaii
Escrow & Title Inc., 64 Haw. 638, 647 P.2d 257 (1982) (contract
for “kickbacks” which was illegal is not enforceable); Wilson v.
Kealakekua Ranch, 57 Haw. 124, 551 P.2d 525 (1976) (a contract
will be unenforceable if the violation of public policy was
intended to protect the public from fraud and incompetence, but
not if the public policy was only malum prohibitum or to raise
revenue); Miehlstein v. King Market Co., 24 Haw. 540 (1918) (a
contract involving a city official performing work he is
prohibited from performing by law violates public policy and is
unenforceable); Goo Wan Hoy v. McKeague, 24 Haw. 263 (1918)
(promissory note was void because consideration for the note was
intoxicating liquors sold without a liquor license which was
prohibited by criminal law); Cosmopolitan Fin. Corp. v. Runnels,
2 Haw. App. 33, 625 P.2d 390 (1981) (the law will not be used to
enforce any part of an illegal bargain)); see also Haw. Rev.
Stat. § 1-5.
Defendant’s position is that, even if a layperson would
have reasonably expected that Plaintiff’s Policy included
coverage for the loss of medical marijuana plants,5 this Court
5
The Hawai`i Supreme Court has stated:
(continued...)
26
should not enforce that interpretation of the Policy6 because it
would be contrary to federal public policy.
Defendant argues
that Gonzales v. Raich, 545 U.S. 1 (2005), held that the federal
Controlled Substances Act (“CSA”), 21 U.S.C. § 801 et seq.,
prevails over any state law permitting the medical use of
5
(...continued)
adherence to the plain language and literal
meaning of insurance contract provisions is not
without limitation. We have acknowledged that
because insurance policies are contracts of
adhesion and are premised on standard forms
prepared by the insurer’s attorneys, we have long
subscribed to the principle that they must be
construed liberally in favor of the insured and
any ambiguities must be resolved against the
insurer. Put another way, the rule is that
policies are to be construed in accord with the
reasonable expectations of a layperson.
Guajardo v. AIG Hawai`i Ins. Co., 118 Hawai`i 196, 202, 187 P.3d
580, 586 (2008) (quoting Dairy Rd. Partners v. Island Ins. Co.,
92 Hawai`i 398, 411–12, 992 P.2d 93, 106–07 (2000)). The Hawai`i
Supreme Court has also stated: “[t]he objectively reasonable
expectations of [policyholders] and intended beneficiaries
regarding the terms of insurance contracts will be honored even
though painstaking study of the policy provisions would have
negated those expectations. These ‘reasonable expectations’ are
derived from the insurance policy itself . . . .” Del Monte
Fresh Produce (Hawaii), Inc. v. Fireman’s Fund Ins. Co., 117
Hawai`i 357, 368, 183 P.3d 734, 745 (2007) (citations and some
quotation marks omitted) (some alterations in original).
6
There is no allegation that the alleged illegality of any
provision of the Policy which arguably provides coverage for the
medical marijuana plants rendered the Policy as a whole
unenforceable. Under Hawai`i law, where part of a contract is
illegal and the remainder is legal, a court should sever the
illegal provision and enforce the legal portion of the contract,
provided that the illegal provision “is not central to the
parties’ agreement.” Courbat v. Dahana Ranch, Inc., 111 Hawai`i
254, 263 n.11, 141 P.3d 427, 436 n.11 (2006) (citation and
quotation marks omitted).
27
marijuana.
In Gonzales, the respondents were California
residents who used marijuana for medical purposes under
California’s Compassionate Use Act and pursuant to the
recommendation of their licensed, board-certified, family
practitioners.
The respondents sued the Attorney General of the
United States and the head of the Drug Enforcement
Administration, seeking injunctive and declaratory relief
prohibiting the enforcement of the CSA to the extent that it
prevented them from possessing, obtaining, or manufacturing
marijuana for their personal medical use.
Id. at 6-7.
The
Supreme Court vacated the Ninth Circuit’s opinion reversing the
denial of a preliminary injunction and ordering the district
court to enter the injunction.
Id. at 8, 33.
The Supreme Court
held that the intrastate, non-commercial cultivation, possession,
and use of marijuana was still subject to the CSA.
Id. at 32-33.
In so holding, the Supreme Court stated that:
The CSA designates marijuana as contraband for any
purpose; in fact, by characterizing marijuana as a
Schedule I drug, Congress expressly found that the
drug has no acceptable medical uses. Moreover,
the CSA is a comprehensive regulatory regime
specifically designed to regulate which controlled
substances can be utilized for medicinal purposes,
and in what manner . . . . Thus, even if
respondents are correct that marijuana does have
accepted medical uses and thus should be
redesignated as a lesser schedule drug, the CSA
would still impose controls beyond what is
required by California law. . . . [T]he mere fact
that marijuana-like virtually every other
controlled substance regulated by the CSA-is used
for medicinal purposes cannot possibly serve to
28
distinguish it from the core activities regulated
by the CSA.
. . . .
. . . [L]imiting the activity to marijuana
possession and cultivation “in accordance with
state law” cannot serve to place respondents’
activities beyond congressional reach. The
Supremacy Clause unambiguously provides that if
there is any conflict between federal and state
law, federal law shall prevail. . . .
Id. at 27-29 (emphasis in original).
Other federal courts have repeatedly recognized that
Gonzales establishes that the possession and cultivation of
marijuana for medical use is illegal under federal law, even when
it is permitted under state law.
For example, in United States
v. Stacy, the United States District Court for the Southern
District of California stated:
Under California’s Compassionate Use Act
(Cal. Health & Safety Code § 11362.5), a patient
who possesses or cultivates marijuana for the
personal medical purposes of the patient upon the
written or oral recommendation or approval of a
physician, cannot be prosecuted under Cal. Health
& Safety Code § 11357, relating to the possession
of marijuana, or Cal. Health & Safety Code §
11358, relating to the cultivation of marijuana.
However, California law does not purport to render
the use of medical marijuana lawful under federal
law. In fact, the use of medical marijuana
remains unlawful under federal law. See Gonzales
v. Raich, 545 U.S. 1, 27, 125 S. Ct. 2195, 162 L.
Ed. 2d 1 (2005) (explaining that even if marijuana
is used “for personal medical purposes on the
advice of a physician,” it is still considered
contraband under the CSA, which designates
marijuana as contraband “for any purpose”); United
States v. Katz, 2010 WL 183863, *1 (9th Cir. Jan.
19, 2010) (vacating pretrial detention order,
29
which modified defendant’s bond order to permit
defendant to use and possess marijuana for medical
purposes in compliance with California law,
because it is illegal to possess marijuana under
federal law); United States v. Scarmazzo, 554 F.
Supp. 2d 1102, 1105 (E.D. Cal. 2008) (“The use of
medical marijuana remains unlawful.”).
No. 09cr3695 BTM, 2010 WL 4117276, at *5 (S.D. Cal. Oct. 18,
2010) (some emphases added).
In United States v. Hicks, the United States District
Court for the Eastern District of Michigan stated:
It is indisputable that state
medical-marijuana laws do not, and cannot,
supercede federal laws that criminalize the
possession of marijuana. See Gonzales, 545 U.S.
at 29, 125 S. Ct. 2195 (“The Supremacy Clause
unambiguously provides that if there is any
conflict between federal and state law, federal
law shall prevail.”); United States v. $186,416.00
in U.S. Currency, 590 F.3d 942, 945 (9th Cir.
2010) (“The federal government has not recognized
a legitimate medical use for marijuana, however,
and there is no exception for medical marijuana
distribution or possession under the federal
Controlled Substances Act[.]”); United States v.
Landa, 281 F. Supp. 2d 1139, 1145 (N.D. Cal. 2003)
(“[O]ur Congress has flatly outlawed marijuana in
this country, nationwide, including for medicinal
purposes.”).
722 F. Supp. 2d 829, 833 (E.D. Mich. 2010) (alterations in Hicks)
(some citations omitted) (emphasis added).
Further, when it
enacted Hawaii’s medical marijuana laws, the State Legislature
expressly recognized that the use of marijuana was prohibited
under federal law.
2000 Haw. Sess. Laws Act 228, § 1 at 595.
The rule under Hawai`i law that courts may decline to
enforce a contract that is illegal or contrary to public policy
30
applies where the enforcement of the contract would violate
federal law.
The employer in Inlandboatmen’s Union argued that
the court should decline to enforce one aspect of the
arbitrator’s interpretation of the collective bargaining
agreement because its implementation would cause the employer to
violate 46 U.S.C. § 8104 (1988).7
at 1258-59.
77 Hawai`i at 190-91, 881 P.2d
The Hawai`i Supreme Court, however, ultimately held
that the employer had not established that the arbitrator’s
finding conflicted with § 8104.
Id. at 196, 881 P.2d at 1264.
Insofar as Defendant seeks summary judgment, this Court
must view the evidence in the light most favorable to Plaintiff.
See Miller v. Glenn Miller Prods., Inc., 454 F.3d 975, 988 (9th
Cir. 2006) (noting that, on a summary judgment motion, “the
nonmoving party’s evidence is to be believed, and all justifiable
inferences are to be drawn in that party’s favor” (citations,
quotation marks, and brackets omitted)).
The Court therefore
assumes, for purposes of the instant Motion, that the “Trees,
Shrubs and Other Plants” provision of the Policy covered the loss
of Plaintiff’s medical marijuana plants.
Even in light of that
assumption, this Court cannot enforce the provision because
Plaintiff’s possession and cultivation of marijuana, even for
7
The Hawai`i Supreme Court in Inlandboatsmen’s Union noted
the recognition of the general rule regarding the enforcement of
illegal contracts in connection with the limited public policy
exception to the deference typically given to arbitration awards.
77 Hawai`i at 193-94, 881 P.2d at 1261-62.
31
State-authorized medical use, clearly violates federal law.
To
require Defendant to pay insurance proceeds for the replacement
of medical marijuana plants would be contrary to federal law and
public policy, as reflected in the CSA, Gonzales, and its
progeny.
The Court therefore CONCLUDES that, as a matter of law,
Defendant’s refusal to pay for Plaintiff’s claim for the loss of
her medical marijuana plants did not constitute a breach the
parties’ insurance contract.
The Court GRANTS Defendant’s Motion
as to Plaintiff’s breach of contract claim.
VI.
Plaintiff’s Remaining Claims
Insofar as this Court has concluded that it cannot
enforce the provision of the Policy which purportedly covers the
loss of medical marijuana plants, this Court also CONCLUDES that,
as a matter of law, Defendant’s denial of Plaintiff’s claim did
not constitute either a violation of Haw. Rev. Stat. Chapter 480
or the tort of unreasonableness/bad faith.
The Court therefore
GRANTS Defendant’s Motion as to Plaintiff’s Chapter 480 claim and
Plaintiff’s unreasonableness/bad faith claim.
CONCLUSION
On the basis of the foregoing, Defendant’s Motion for
Summary Judgment, filed October 20, 2011, is HEREBY GRANTED.
Court directs the Clerk’s Office to enter judgment in favor
Defendant and to close the case.
IT IS SO ORDERED.
32
The
DATED AT HONOLULU, HAWAII, March 16, 2012.
/S/ Leslie E. Kobayashi
Leslie E. Kobayashi
United States District Judge
BARBARA TRACY V. USAA CASUALTY INSURANCE COMPANY; CIVIL NO. 1100487 LEK-KSC; ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY
JUDGMENT
33
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