Imperial Plaza, Association of Apartment Owners of v. Fireman's Fund Insurance Company

Filing 74

ORDER GRANTING PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT 23 . Signed by JUDGE ALAN C KAY on 04/09/2013. (eps)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
)
ASSOCIATION OF APARTMENT OWNERS )
)
OF IMPERIAL PLAZA,
)
Plaintiff, )
)
)
vs.
)
)
FIREMAN’S FUND INSURANCE
)
COMPANY,
)
Defendant. )
)

Civ. No. 11-00758 ACK-KSC

ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT
This case arises from a dispute between an insurance
company and the owners of a property as to whether an insurance
agreement covers arsenic damage to the property.

On December 11,

2011, the Association of Apartment Owners of Imperial Plaza
(“Plaintiff” or “Imperial Plaza”) filed a Complaint asking for
declaratory relief that Fireman’s Fund Insurance Company
(“Defendant” or “FFIC”) must pay benefits to Plaintiff under an
insurance policy issued by FFIC.1/

ECF No. 1.

On November 28,

2012, Plaintiff filed a Motion for Partial Summary Judgment
(“MSJ”) and a Concise Statement of Facts (“Plntf.’s CSF) asking
for a judgment that the arsenic damage is covered by the

1/

The Complaint also requested attorneys’ fees and costs as
well as “such other relief as [the Court] may deem just and
proper under the circumstances.” Complaint at 5, ECF No. 1.
-1-

insurance policy.

ECF No. 23 & 24.

Defendant filed an

opposition on March 4, 2013 (“Def.’s Opp.”) along with a Concise
Statement of Facts (“Def.’s CSF”).

ECF No. 52 & 53.

filed a reply on March 11, 2013 (“Plntf.’s Reply”).

Plaintiff
This Court

held a hearing on March 25, 2013 regarding this matter.
FACTUAL BACKGROUND
Defendant issued an all-risks insurance policy to
Plaintiff that covered the real property and building located at
725 Kapiolani Blvd., Honolulu, HI (“Building”) from the time
period of October 15, 2009 - October 15, 2010 (“Policy”).
Plntf.’s CSF Ex. 1 at 967.

Defendant provided substantially

similar coverage to Plaintiff from October 15, 2005 through
October 15, 2012.

Plntf.’s CSF Dec. of John Bouchie at 2 ¶ 6.

The Building was originally a three-story warehouse
with a roof consisting of a cement topping slab.
Ex. 2 at IP01151.

Plntf.’s CSF

A thick layer of insulation was placed on top

of the cement roof slab (“Insulation Layer”), with the roof being
placed upon the Insulation layer.

Id.

The Insulation Layer

consisted of a layer of cork, a layer of canec, and another layer
of cork.

Id.

Canec is a building material unique to Hawai’i.

Plntf.’s CSF Ex. 3 at IP 000370.

It is a fiberboard made out of

sugar cane bagasse and treated with inorganic arsenic compounds
as an anti-termite agent.

Id.

-2-

In the 1990's, a fourth floor was constructed on top of
the existing third floor roof of the Building.
2 at IP 01151; Ex. 4 at IP01308.

Plntf.’s CSF Ex.

To build the fourth floor, the

builders poured a concrete slab upon the entire existing roof
assembly of the Building before constructing the fourth floor on
top of part of the new slab.

Id.

The builders ran plumbing

lines through the third floor roof and Insulation Layer to
service the fourth floor.

Plntf.’s CSF Ex. 4 at IP01308.

On February 26, 2003, Miyasato Kuniyoshi Engineers LLC
conducted tests of the fourth floor to discover the source of
floor deflections.

Plntf.’s CSF Ex. 2 at IP 01151, Def.’s CSF

Ex. A, Attachment B at 1-3.

The report found that moisture in

the Insulation Layer was decomposing the canec.

Id.

The report

also recommended removal of the Insulation Layer and replacement
of the floor.

Id.

In 2006, polyurethane gel was injected into the
depressed areas of the fourth floor in order to increase
stability of the flooring.

Plntf.’s CSF Ex. 2 at IP 01152.

Although a 2006 and 2008 report conducted by Wiss, Janney,
Elstner Engineering concluded that the polyurethane gel
injections were effective (“WJE Report”), Trinity ERD conducted
further tests in 2010 to determine if the Insulation Layer was
dry in order to inject additional material to support the
concrete floor slab.

Plntf.’s CSF Ex. 3 at IP 00945.

-3-

On or about June 9, 2010, the date of Trinity ERD’s
report, Plaintiff discovered the presence of arsenic in the
fourth floor concrete slab above the Insulation Layer.
CSF Ex. 3.

Plntf.’s

Moisture had infiltrated the Insulation Layer and

dissolved the canec.

Plntf.’s CSF Ex. 4 at IP 01309, Def.’s CSF

Ex. A, Attachment B at Page 2 of 4.

The moisture carried the

arsenic in the canec into the cement topping slab above the
Insulation Layer.
A at 1.

Plntf.’s CSF Ex. 4 at IP 01309, Def.’s CSF Ex.

The concentration of arsenic required abatement because

it posed a health risk to the Building occupants.
Ex. 4 at IP 01310, Def.’s CSF Ex. A at 1 ¶ 4.

Plntf.’s CSF

Plaintiff reported

the arsenic damage claim to Defendant shortly thereafter.
Plntf.’s CSF Dec. Of John Bouchie at 2.
Defendant’s consultant, Allana, Buick, and Bers, Inc.
(“ABB”), completed an investigation of the damage to the Building
and sent a report to Defendant on January 12, 2011.
Ex. A.

Def.’s CSF

On February 10, 2011, Defendant sent a letter to

Plaintiff denying coverage of the damage under the Policy
(“Denial Letter” or “Denial”).
Sometime in 2011-2012, Plaintiff remediated the
Building, removing the fourth floor concrete slab and the
decomposed canec.
01307.

Plntf.’s MSJ at 4, Plntf.’s CSF Ex. 4 at IP

During remediation, Trinity ERD investigated additional

potential sources of moisture.

Plntf.’s CSF Ex. 4 at IP 01310.

-4-

As a result of the investigation, the plumbing piping and an air
handler were rehabilitated as part of the remedial construction.
Id.

Defendant did not send a consultant to examine the Building

during remediation, although the record reflects that ABB had
stated in the January 12, 2011 report to Defendant that the
Building should be remediated.
at 2.

Def. Opp. at 7; Def.’s CSF Ex. A

Additionally, Plaintiff’s engineer consultant, Colin

Murphy, communicated to Defendant’s consultant, ABB, that
Plaintiff would begin remediation and proceed with repairs.
Plntf.’s Reply Ex. 7 at 46, 66-67.

Plaintiff did not re-tender

the claim to Defendant either during or after remediation.
Def.’s CSF at 3 ¶ 6, Dec. of Paul Blanchard at 2.
While the parties agree to the above basic outline of
events; they disagree as to the causation of the moisture that
resulted in the arsenic damage.

Each party’s contentions are

explained below.
Plaintiff contends that the moisture came from either
(1) a broken domestic water line, (2) a broken waste line, (3) a
large package type air handler unit located within the space and
adjacent to the low area of the slab, or (4) cracks in the
topping slab that could have allowed water into the Insulation
Layer.

Plntf.’s CSF at 2 ¶ 5, Dec. of Colin Murphy ¶¶ 4-5, Ex.

4.

-5-

Defendant argues that the moisture came from either (1)
“leakage in the roof assembly prior to construction of the upper
floor” or (2) the exposure of edge conditions at the roof
perimeter during the construction of the fourth floor.

Def.’s

CSF at 3 ¶ 2 (citing Plntf.’s CSF Ex. 3 at IP 00962).

Defendant

also argues that the floor depressions are likely due to the
canec degradation caused by moisture trapped in the Insulation
Layer from around 1990-1991.

Def.’s CSF Ex. A at 1.
STANDARD

A party may move for summary judgment on any claim or
defense - or part of a claim or defense - under Federal Rule of
Civil Procedure (“Rule”) 56. Summary judgment “should be granted
‘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.’” Maxwell v. Cnty. of San Diego, 697 F.3d 941, 947 (9th
Cir. 2012) (quoting Fed. R. Civ. P. 56(a)).

Under Rule 56, a

“party asserting that a fact cannot be or is genuinely disputed
must support the assertion,” either by “citing to particular
parts of materials in the record” or by “showing that the
materials cited do not establish the absence or presence of a
genuine dispute, or that an adverse party cannot produce
admissible evidence to support the fact.” Fed. R. Civ. P.
56(c)(1).

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The substantive law determines which facts are
material; “only disputes over facts that might affect the outcome
of the suit under the governing law properly preclude the entry
of summary judgment.”

Nat’l Ass’n of Optometrists & Opticians v.

Harris, 682 F.3d 1144, 1147 (9th Cir. 2012). “The mere existence
of some alleged factual dispute between the parties will not
defeat an otherwise properly supported motion for summary
judgment; the requirement is that there be no genuine issue of
material fact.” Scott v. Harris, 550 U.S. 372, 380 (2007)
(citation omitted).
A genuine issue of material fact exists if “a
reasonable jury could return a verdict for the nonmoving party.”
United States v. Arango, 670 F.3d 988, 992 (9th Cir. 2012)
(quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247
(1986)). Conversely, “[w]here the record taken as a whole could
not lead a rational trier of fact to find for the nonmoving
party, there is no genuine issue for trial.” Scott, 550 U.S. at
380.
The moving party has the burden of persuading the court
as to the absence of a genuine issue of material fact.
Baca, 596 F.3d 583, 587 (9th Cir. 2010).2/

2/

Avalos v.

If the moving party

When the party moving for summary judgment would bear
the burden of proof at trial, the movant must present evidence
which would entitle it to a directed verdict if the evidence were
to go uncontroverted at trial. Miller v. Glenn Miller Prods., 454
(continued...)
-7-

satisfies its burden, the nonmoving party “must do more than
simply show that there is some metaphysical doubt as to the
material facts.” Sluimer v. Verity, Inc., 606 F.3d 584, 587 (9th
Cir. 2010). The nonmoving party must present evidence of a
“genuine issue for trial,” Fed. R. Civ. P. 56(e), that is
“significantly probative or more than merely colorable.”3/ LVRC
Holdings LLC v. Brekka, 581 F.3d 1127, 1137 (9th Cir. 2009)
(citation omitted). Summary judgment will be granted against a
party who fails to demonstrate facts sufficient to establish “an
element essential to that party’s case and on which that party
will bear the burden of proof at trial.” Parth v. Pomona Valley
Hosp. Med. Ctr., 630 F.3d 794, 798-99 (9th Cir. 2010 (citation
omitted).
When evaluating a motion for summary judgment, the
court must “view the facts and draw reasonable inferences in the
light most favorable to the party opposing the summary judgment

2/

(...continued)
F.3d 975, 987 (9th Cir. 2006) (citation omitted). In contrast,
when the nonmoving party would bear the burden of proof at trial,
the party moving for summary judgment may meet its burden by
pointing out the absence of evidence from the nonmoving party.
Id. (citation omitted).
3/

The Ninth Circuit has noted that “Legal memoranda and
oral argument, in the summary-judgment context, are not evidence,
and do not create issues of fact capable of defeating an
otherwise valid motion for summary judgment.” Flaherty v.
Warehousemen, Garage and Service Station Emp. Local Union No.
334, 574 F.2d 484, 486 n.2 (9th Cir. 1978), see also Barcamerica
Intern. USA Trust v. Tyfield Importers, 289 F.3d 589, 593 n.4
(9th Cir. 2002).
-8-

motion.” Scott v. Harris, 550 U.S. 372, 378 (2007). The court may
not, however, weigh conflicting evidence or assess credibility.
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008). Accordingly, if
“reasonable minds could differ as to the import of the evidence,”
summary judgment will be denied. Anderson, 477 U.S. at 250–51.
DISCUSSION
I.

Whether the Insurance Policy Required Plaintiff to Re-tender

the Claim After FFIC Denied Coverage
Defendant first argues that Plaintiff should be barred
from coverage under the Policy because Plaintiff failed to retender the claim after “new” potential sources of water
infiltration were discovered during remediation as stated in the
Supplemental Trinity Report.

See Def.’s Opp. At 5-7.

Defendant

specifically alleges that Plaintiff violated the cooperation
provision within the Policy, prejudicing Defendant by denying an
investigation of the potential water sources that Plaintiff now
uses to argue for coverage.4/

Def.’s Opp. At 7.

Defendant also

argues that the letter sent to Plaintiff on February 11, 2011
that first denied coverage stated that Plaintiff could submit
further evidence regarding the loss and the claim.

4/

Id.

The Policy states that Plaintiff is to permit Defendant
to inspect the property and records proving loss or damage as
well as to let Defendant take samples of the damage for
inspection, testing, and analysis. Plntf.’s CSF Ex. 1 at IP
01020.
-9-

Plaintiff argues that no duty has been breached because
Mr. Murphy informed ABB, Defendant’s consultant, that Plaintiff
had bid out the remediation and would be subsequently conducting
repairs.

Plntf.’s Reply at 4.

Defendant completed its report

without waiting for repairs to begin.

Plntf.’s Reply at 4.

Plaintiff did not receive any other requests from ABB or
Defendant to conduct another inspection after the commencement of
remediation.

Id.

Generally, an insurer seeking to avoid coverage because
of an insured’s breach of a cooperation clause must prove “(1)
the existence of substantial prejudice and (2) the exercise of
reasonable diligence to secure the insured’s cooperation before
it can deny coverage because of breach of a cooperation clause.”
Hayes v. United Fire & Cas. Co., 3 S.W.3d 853, 857 (Mo. Ct. App.
1999), Billington v. Interinsurance Exchange of Southern Cal., 71
Cal. 2d 728, 736-38, 744 (1969), Smith v. Nationwide Mut. Ins.
Co., 175 Vt. 355, 362-64 (2003), Baghaloo-White v. Allstate Ins.
Co., 270 A.D.2d 296, 296 (N.Y. App. Div. 2000), See Continental
Cas. Co. v. City of Jacksonville, 550 F. Supp. 2d 1312, 1339-40
(M.D. Fla. 2007).
Moreover, when an insurer denies coverage under a
policy, the rule used by a majority of states is that an insurer
cannot then require an insured to follow a contractual duty to

-10-

cooperate.5/

Foreign Credit Corp. v. Aetna Cas. & Sur. Co., 276

F. Supp. 791, 793-94 (S.D. N.Y. 1967) (“A repudiation of
liability by an insurance company excuses the insured from
further performance on his part of the conditions of the
policies.”), Davis v. Criterion Ins. Co., 754 P.2d 1331, 1332
(Alaska 1988)(“[I]f an insurer has wrongfully denied coverage, it
has materially breached its contractual obligation to the insured
. . . and cannot escape liability on the ground that the insured
failed to comply with other terms of the contract subsequent to
its own breach.”) Cf. Samson v. Transamerica Ins. Co., 30 Cal.3d
220, 238 (1981) (“[I]f an insurer denies coverage to the insured,
the insured’s contractual obligation to notify the insurer
ceases.”).
The rationale behind this rule is that the insurer
first breached the contract by denying coverage; accordingly, the
insured is no longer bound to cooperate under the agreement.

See

id and Arizona Property and Cas. Ins. Guar. Fund v. Helme, 153
Ariz. 129, 136-38 (1987) (“Any breach, actual or anticipatory . .
. deprives the insured of the security that he has purchased . .
. . when such a breach occurs, the insured is generally held to
be freed from his obligations under the cooperation clause.”).

5/

Defendant’s counsel conceded at the hearing on March 25,
2013, that Defendant relies upon the minority rule to argue that
Plaintiff should not receive coverage for failure to re-tender
the claim after Defendant’s denial of coverage.
-11-

Cf. Samson v. Transamerica Ins. Co., 30 Cal.3d 220, 241 (1981)
(holding that, once an insurer denies the claim, an insured
breaches no duty under an insurance policy by assigning his claim
against the insurance company to an injured plaintiff).
The Court concludes that Defendant’s denial of coverage
constituted a breach that relieved Plaintiff of the contractual
duty to cooperate in this case.

The Hawai#i Supreme Court noted

in Best Place, Inc. v. Penn America Ins. Co. that an insured buys
insurance to seek “protection and security from economic
catastrophe.”

82 Hawai#i 120, 129 (1996).

While the Best Place

case does not provide the Court with guidance as to how the
Hawai#i Supreme Court would rule,6/ the Hawai#i court’s
understanding of the insured’s expectations in an insurance
contract closely aligns with the majority rule cases holding that
an insured is not “fully bound by the cooperation clause” once an
insurer denies coverage.

See Arizona Property and Cas. Ins.

6/

Plaintiff argues that the Hawai#i Supreme Court
indicated it would follow the majority rule by examining in Best
Place “whether an insurer’s silence may be interpreted as a
denial of a claim so as to constitute a waiver of a policy’s
proof of loss requirement.” Plntf.’s Reply at 14. However,
while the Hawai#i Supreme Court found in favor of the plaintiff
on the waiver issue, the court did so on the basis of defendant’s
specific conduct instead of concluding that the insurer’s silence
constituted a denial justifying the insured’s breach of a
contract provision. Best Place, 82 Hawai#i at 139-40 (1996).
While Best Place does not provide a clear indication of how the
Hawai#i Supreme Court would address the re-tender issue in this
case; as noted above, the majority rule used by the Court in this
case aligns with the Hawai#i Supreme Court’s understanding of the
purpose of insurance contracts.
-12-

Guar. Fund v. Helme, 153 Ariz. 129, 137 (1987).

The rationale

behind relieving an insured from the cooperation provision after
a denial of coverage is that the denial exposes the insured to
the financial insecurity that the insured attempted to avoid by
purchasing the policy.

Id at 137-38.

After the security of the

policy is removed, the insured should be able to take action to
protect its interest.

Id.

The rationale behind the majority rule is particularly
applicable here, where Plaintiff needed to quickly remediate and
repair the Property to prevent the spread of the arsenic
contaminated water instead of waiting for Defendant to decide
whether or not to investigate the damage.
7 at 47-50.

See Plntf.’s Reply Ex.

Plaintiff persuasively argues that, if it was in

fact still bound by the Policy after Defendant’s Denial,
Plaintiff was confronted with the difficult position of quickly
remediating to prevent further damage or waiting for Defendant to
decide whether or not to conduct a further investigation.

See

Plntf.’s Reply at 17018 and Plntf.’s MSJ Ex. 1 at IP 01020 ¶ A.4.
Because Defendant’s Denial made Plaintiff assume the risk of
financial insecurity, Plaintiff was free to take action without
the constraints of the cooperation clause in the Policy.
Defendant relies upon minority rule cases like First
Bank of Turley to argue that “[a] breach of the insured’s
obligation to give notice of critical post-denial developments

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may modify, excuse or defeat the insurer’s performance under the
contract.”

First Bank of Turley v. Fidelity and Deposit Ins. Co.

of Maryland, 928 P.2d 298, 304-305 (1996).

However, the Oklahoma

Supreme Court does not address the rationale in the majority rule
cases that an insurer’s denial of coverage constitutes a breach
of the policy that relieves the insured from further cooperation
under the contract.

See id at 305.7/

Additionally, the Turley

rule requires Defendant to establish that Plaintiff’s notice was
insufficient for Defendant to investigate and discover all the
facts “relative to its potential liability.”

See id.

Defendant

has not proven that it had insufficient notice to investigate the
potential sources of moisture.
Defendant also cites to National Union Fire Ins. Co. of
Pittsburgh, Pa v. Cagle for the proposition that an insured “owes
the insurer the duty of complying with the contract terms
together with a general duty of performance in good faith.”
F.3d 905 (1995).

68

However, a closer examination of Cagle

indicates that Plaintiff did not breach any duty to inform the

7/

The Turley rule provides that a court must examine the
following factors to determine if, after an insurer’s denial, an
insured’s performance of its contractual duty is deficient: “(1)
the initial notice was adequate to put the insurer on notice of
potential liability under the policy, (2) the nondisclosed (or
later-revealed) facts were so material that they should have been
reported, (3) the notice was sufficient for the insurer’s
investigation and discovery of all the facts relative to its
potential liability; and (4) the insurer’s reasonable
investigation could have uncovered the excluded information.”
928 P.2d at 305 (1996).
-14-

insurer of new developments during the remediation work.

In

Cagle, the Fifth Circuit examined Louisiana law, which holds
that, “before proving a breach by the insured of the cooperation
clause, the insurer must show a diligent effort to obtain the
information.”8/

Cagle, 68 F.3d at 912.

In this case, before Defendant issued the Denial
Letter, Plaintiff’s engineer consultant, Colin Murphy, notified
Defendant’s consultant, ABB, that Plaintiff would begin
remediation and proceed with repairs.
46, 66-67.

Plntf.’s Reply Ex. 7 at

Defendant could have continued its investigation

during the remediation and repair of the Property, but Defendant
did not do so.

Defendant’s evidence of Plaintiff’s alleged lack

8/

In Cagle, the defendants insured a business for
director liability. Cagle, 68 F.3d 905, 906-07. The business
and director were sued by a former client, but the initial action
in state court was not covered by the insurance policy because
the complaint alleged fraud and intentional tort claims, which
were not covered by the policy. Id at 907. However, the parties
entered a settlement agreement where the client agreed to drop
the fraud and intentional tort claims and limit its recovery to
available insurance in exchange for certain concessions from the
director. Id. The client amended its claims to eliminate the
fraud and intentional tort claims, which restored coverage under
the policy. Id. After litigating the negligence issues in state
court, the director lost, and the client pursued the insurance
company for the sums owed under the judgment. Id at 908. The
insurance company alleged bad faith on the part of the business
because the business failed to disclose the terms of the
settlement agreement that resulted in the adjusted complaint. Id
at 912. The Fifth Circuit found that the insurer was not
diligent in attempting to obtain the information, and the insured
was not required to furnish information that was not requested by
the insurer. Id at 912.
-15-

of cooperation falls short of the standard in both Turley and
Cagle.
Defendant also attempts to use the Denial Letter to
argue that Plaintiff should have notified Defendant of the
additional evidence of water sources.

Def.’s Opp. at 8.

However, the Denial Letter did not place any duty on Plaintiff to
notify Defendant of additional facts uncovered during remediation
and repair.

The language in the letter is discretionary:

“If

you have further evidence you wish to submit to Associated
Indemnity Corporation regarding your loss and claim, please
forward it to my attention.”

Plntf.’s CSF Ex. 2 at IP 01155.

Plaintiff’s decision not to volunteer information after the
denial letter does not rise to the level of conduct establishing
a breach of the cooperation clause.

In Tran v. State Farm Fire

and Cas. Co., a case upon which Defendant relies, the plaintiff
specifically refused the insurer’s request to provide
information, failed to respond to calls and letters, and failed
to attend a scheduled meeting to arrange for the inspection of
the premises.

136 Wash.2d 214, 218-19 (1998).

The Washington

Supreme Court noted that Tran “was an extreme case, in which the
insured stonewalled the insurer’s investigation, refusing to help
or provide documentation.”

Staples v. Allstate Ins. Co., 295

P.3d 201, 209-210 (2013).

-16-

In this case, Plaintiff’s actions do not rise to the
level of “stonewalling” Defendant’s investigation because
Plaintiff has not refused a specific request by Defendant for
information.

As mentioned above, Plaintiff had notified

Defendant’s consultant as to the remediation and repair work.
Plaintiff also delivered Colin Murphy’s files to Defendant upon
request including photographs and test results.
and 48-49.

Id at 6, 13-14,

Defendant has not provided evidence of Plaintiff’s

deliberate refusal to comply with any of Defendant’s requests.
II.

Whether Plaintiff Is Entitled to Coverage Under the All-Risk

Policy as a Matter of Law.
A. Hawai#i Law Rules of Construction for Insurance
Policies
Under Hawai#i law, “the terms of an insurance policy
are to be interpreted according to their plain, ordinary, and
accepted sense in common speech, unless it appears from the
policy that a different meaning is intended.”

Great Divide Ins.

Co. v. AOAO Maluna Kai Estates, 492 F. Supp. 2d 1216, 1226 (D.
Haw. 2007) (citing Dairy Rd. Partners v. Island Ins. Co., Ltd.,
92 Hawai#i 398, 411 (Haw. 2000).

An insurance contract should be

construed “according to the entirety of its terms and conditions
as set forth in the policy.”

Haw. Rev. Stat. § 431:10-237.

Additionally, “courts are to construe insurance policies in

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accord with the reasonable expectations of a layperson.”

Hart v.

Ticor Title Ins. Co., 126 Hawai#i 448, 456 (2012).
The Hawai#i Supreme Court has held 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.”

Hart, 126 Hawai#i at 456.

“A contract is

ambiguous when the terms of the contract are reasonably
susceptible to more than one meaning.”

Airgo, Inc. v. Horizon

Cargo Transport, Inc., 66 Haw. 590, 594 (1983).

“Ambiguity

exists . . . when the policy ‘taken as a whole, is reasonably
subject to differing interpretation.”

Great Divide, 492 F. Supp.

2d at 1227 (citing Oahu Transit Servs., Inc. v. Northfield Ins.
Co., 107 Hawai#i 231, 236 n.7 (Haw. 2005).

“If the policy is

reasonably subject to differing interpretation, the ambiguity
must be resolved against the insurer.”

Id.

B. Whether Plaintiff Meets its Burden for Coverage
Under the Policy
Plaintiff has the burden to prove that a loss is
covered under the terms of the insurance policy.

Sentinel Ins.

Co. v. First Ins. Co. Of Hawaii, 76 Hawaii 277, 909 n.13 (Haw.
1994), accord Great Divide Ins. Co., v. AOAO Maluna Kai Estates,
492 F. Supp. 2d 1216, 1227 (D. Haw. 2007).
-18-

Once Plaintiff meets

its burden of proving that a loss is covered under the insurance
policy, Defendant has the burden of proving facts that bring the
claim within an exclusionary clause of the policy.

Sentinel, 76

Hawaii at 914, Great Divide, 492 F. Supp. 2d at 8.
In this case, Plaintiff must demonstrate that the
Property covered by the Policy9/ (1) suffered “direct physical
loss or damage,” and (2) the loss or damage occurred during the
term of the Policy, which covered the Property from October 15,
2009 through October 15, 2010.
00967, 01004.

See Plntf.’s CSF Ex. 1 at IP

Plaintiff argues that direct physical loss

occurred in June 2010 because (1) water infiltrated the canec
Insulation Layer, (2) the water carried arsenic into the cement
topping slab above, and (3) the arsenic concentrated and posed a
health risk that required abatement.

Plntf.’s MSJ at 15,

Plntf.’s CSF Ex. 4 at IP 01310.
The term “direct physical loss or damage” is not
defined in the Policy.

See generally, Plntf.’s CSF Ex. 1.

Black’s Law Dictionary defines “Damage” as “Loss or injury to a
person or property.”
2009).10/

Black’s Law Dictionary 445 (9th ed.

The term “direct loss” is defined as “a loss that

9/

The Policy states that it covers the Property at issue
in this litigation. Plntf.’s CSF Ex. 1 at IP 00968.
10/

The Hawai#i Supreme Court has used Black’s Law
Dictionary to interpret terms in an insurance provision;
accordingly, the Court will do likewise. See Hart v. Ticor Title
(continued...)
-19-

results immediately and proximately from an event.”
Dictionary 1030 (9th ed. 2009).

Black’s Law

While the term “immediate” may

be defined differently depending on the context; the Court adopts
the following definition:
intervening agency.”11/

“Having a direct impact; without an

Id at 816.

“Physical” means “of or

relating to natural or material things.”

Merriam-Webster,

Webster’s Third New International Dictionary 1706 (3rd ed. 2002).
“Material” is defined as “[o]f or relating to matter; physical.”
Black’s Law Dictionary 1066 (9th ed. 2009).

Based on these

terms, Plaintiff must demonstrate that an event had a direct
impact and proximately caused a loss related to the physical
matter of the Property.
The concrete slab, carpet, and interior objects are
physical matter within the ordinary use of those words.

See Ward

Gen. Ins. Servs., Inc. v. Employers Fire Ins. Co., 114
Cal.Rptr.3d 844, 850 (Cal. Ct. App. 2003).

Accordingly,

Plaintiff provides sufficient evidence to meet the first
requirement for coverage under the Policy.

10/

(...continued)
Ins. Co., 126 Hawai#i 448, 457 (2012).
11/

While “immediate” may also mean “occurring without
delay” or “instant”; Hawai#i Supreme Court cases acknowledge that
a loss may result over a longer period of time. Sentinel Ins.
Co. v. First Ins. Co. Of Hawaii, 76 Hawaii 277, 298 (1994).
Accordingly, this Court adopts a definition of “immediate” that
favors the insured and reflects the Hawai#i Supreme Court’s
understanding of the term “loss” in the context of insurance
policies. See Hart, 272 P.3d at 1223.
-20-

For the second requirement, the arsenic damage was
discovered on or about June 9, 2010 and continued to occur as of
February 10, 2011.

See Plntf.’s CSF Ex. 2 at IP 01153 ¶ c.

Regarding the water leak, Plaintiff argues that the leak
“occurred slowly over a number of years before it began to cause
the arsenic damage.
01310.

Plntf.’s MSJ at 16, Plntf.’s CSF Ex. 4 at IP

In an occurrence policy like the one before the Court,

“the event that triggers potential coverage is the sustaining of
actual damage by the complaining party and not the date of the
act or omission that caused the damage.”

Sentinel Ins. Co., Ltd.

v. First Ins. Co. of Hawai#i, Ltd., 76 Hawai#i 277, 288 (1994).
For some types of injury, the date when the property damage
occurs is often difficult or impossible to pinpoint.

Sentinel

Ins. Co. v. First Ins. Co. Of Hawaii, 76 Hawaii 277, 297 (1994).
The Hawaii Supreme Court identified different theories to
determine when damage in fact occurs.

See id.

In this case, Plaintiff argues that the court should
apply the “continuous injury” trigger of coverage.

This theory

is applied “when an injury process is not a definite, discrete
event - for example, where the damage continues progressively
over time spanning different insurer’s policy terms.”

Id at 298.

“The trigger period begins with the inception of the injury and
ends when the injury ceases.”

Id.

In order to apply the theory,

Plaintiff must establish that “(1) some kind of property damage

-21-

occurred during the coverage period, and (2) the property damage
was part of a continuous and indivisible process of injury.”
Plaintiff demonstrates that damage to the Property
occurred - namely in the form of water carrying arsenic into the
concrete slab, which resulted in accumulated arsenic that
required abatement.

Plntf.’s CSF Ex. 4 at IP 01310.

Plaintiff

also establishes that the water infiltration occurred
progressively over time as a continuous and indivisible process
of injury.

Id.

See Sentinel, 76 Hawai#i at 301 (holding that

continuous injury trigger would apply if insurance company could
not identify with reasonable certainty which damages occurred
during the policy period because the loss caused by water
infiltration into the building progressed continuously).
Defendant argues that Plaintiff should not be covered
by the Policy because Plaintiff failed to notify Defendant of the
“floor deflections and resulting damage” within two years after
Plaintiff noticed this type of damage.
Plntf.’s CSF Ex. 2 at IP 01154 - 55.

See Def.’s Opp. at 27,

Defendant references a

provision in the Policy that states as follows:

“No one may

bring a legal action against us under this Coverage Section
unless . . . The action is brought within 2 years after the date
on which the direct physical loss or damage occurred.”
CSF Ex. 1 at IP 01017.

-22-

Plntf.’s

However, Plaintiff only argues for coverage of the
arsenic damage, which Plaintiff asserts was recently discovered
and therefore meets the Policy’s requirements for timely
reporting of damage.

Plntf.’s MSJ at 5 (noting that damages for

floor deflection and cracks in the walls are “not in dispute in
this lawsuit”).

The Court concludes that Defendant was timely

notified of the Plaintiff’s claims related to the arsenic damage.
Plaintiff establishes and Defendant does not contest
that the presence of arsenic in the concrete topping slab was
first discovered on June 9, 2010.

Def.’s CSF at 2 ¶ 4.

The

Miyasato Report dated February 26, 2003, the WJE Report dated
September 5, 2006, and the WJE Report dated January 31, 2008 do
not mention the threat of arsenic contamination.
A, Attachment B, C, and D.

Def.’s CSF Ex.

Defendant also does not contest that

Plaintiff reported the arsenic damage claim to Defendant shortly
after its discovery on June 9, 2010.

Id at ¶ 6.

As noted above,

an “occurrence” under an insurance policy happens when a party
sustains actual damage as opposed to the date of the act or
omission that caused the damage.

Sentinel, 76 Hawaii at 298.

Accordingly, Plaintiff had two years from June 9, 2010 to report
the arsenic damage, and Plaintiff did in fact report the damage
to Defendant during that time.
III.

Def.’s CSF at 2 ¶ 4 & 6.

Whether Defendant As a Matter of Law Demonstrates That an

Exclusion Applies

-23-

“An ‘all risks’ policy creates a special type of
coverage extending to risks not usually covered under other
insurance, and recovery under an ‘all risk’ policy will be
allowed for all fortuitous losses . . . unless the policy
contains a specific provision expressly excluding the loss from
coverage.”

C.H. Leavell & Co. v. Fireman’s Fund Ins. Co., 372

F.2d 784, 787 (9th Cir. 1967).

Additionally, unlike a specific

peril policy, the insured “does not have to prove that the peril
proximately causing his loss was covered by the policy,”
Strubble v. United Services Auto. Ass’n., 110 Cal. Rptr. 828,
831-32 (Cal. Ct. App. 1973).12/

Such a policy “covers All risks

save for those risks specifically excluded by the policy.”

Id.

Instead, the insurer has the burden to prove that the
peril that proximately caused the insured’s loss is “specifically
excluded from the coverage of the policy.”

Id.

Additionally,

the “efficient proximate cause rule” applies “when two or more
perils combine in sequence to cause a loss and a covered peril is
the predominant or efficient cause of the loss.”

Vision One, LLC

v. Philadelphia Indem. Ins. Co., 174 Wash. 2d 501, 520 (Wash.
2012), see Strubble v. United Services Auto. Ass’n., 35 Cal. App.
3d 498, 504 (1973).

12/

In the absence of Hawai#i law or guidance, the Court
examines California court decisions because Hawai#i courts tend
to look to California for precedent on issues that have not yet
been addressed in Hawai#i. Great Divide Ins. Co. v. AOAO Maluna
Kai Estates, 492 F.Supp.2d 1216, 1227 (D. Haw. 2007).
-24-

Furthermore, if the insured raises an exception to an
exclusion, the insurer also has the burden of proving that the
exception does not apply.

Id at 832, accord Glaviano v. Allstate

Ins. Co., CV-99-04484-RSWL, 35 Fed.Appx. 493, 495-96 (9th Cir.
2002).
Accordingly, Defendant has the burden of proving that
the peril that caused Plaintiff’s loss is specifically excluded
from the Policy.

Additionally, Defendant has the burden of

showing that an exception to the exclusion does not apply.

If

Defendant provides evidence creating a genuine issue of material
fact as to whether the peril is specifically covered by an
exclusion, then summary judgment in favor of Plaintiff would be
inappropriate.

Defendant argues that the Section D.1.f Pollution

exclusion (“Pollution Exclusion”) and the Section D.3 exclusions
(“Category 3 Exclusions”) apply to remove Plaintiff’s claim from
coverage under the Policy.
A.

Whether a Category 3 Exclusion Applies

Defendant argues that the water infiltration itself was
caused by Category 3.a Exclusions such as “gradual deterioration,
latent defect, mold, wet rot,” or Category 3.i Exclusions of
“faulty, inadequate or defective design specifications or
construction.”

Def.’s Opp. at 12-14.

Accordingly, under

Defendant’s logic, because an exclusion caused the water

-25-

infiltration, the damage caused by the water infiltration is
excluded under the Policy as well.
As an initial matter, the Court finds that an issue of
material fact exists as to whether the cause of the moisture
infiltration is a covered or an excluded peril under the Policy.
Plaintiff provides engineering reports stating that the cause of
the moisture infiltration may be a covered cause of loss, i.e.,
the broken water line, broken waste line, or the air package
handler.
4.

Plntf.’s CSF at 2 ¶ 5, Dec. of Colin Murphy ¶¶ 4-5, Ex.

Defendant produces evidence that the moisture came from an

excluded peril, i.e., construction defects.
(citing Plntf.’s CSF Ex. 3 at IP 00962).

Def.’s CSF at 3 ¶ 2

This Court may not

weigh conflicting evidence when considering a motion for summary
judgment.

See In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008).

For the purposes of this motion, the Court views the evidence in
favor of Defendant, who is the non-moving party.
Harris, 550 U.S. 372, 378 (2007).

See Scott v.

Accordingly, the Court assumes

without deciding that the moisture infiltration originates from
an excluded peril.
Even though the Court assumes that the cause of the
moisture infiltration is an issue of material fact, Plaintiff’s
argument is that the Category 3 Exclusions do not apply to the
moisture infiltration itself - accordingly, the arsenic damage is
covered by the Policy because the moisture infiltration is the

-26-

“efficient proximate cause.”

Plntf.’s MSJ at 18-19.

In other

words, even if the moisture originates from an excluded peril,
the moisture itself is an included peril.
Plaintiff argues that the water infiltration falls
within an Ensuing Loss Clause attached to the Category 3
Exclusions and that coverage therefore applies.
at 20-22.

See Plntf.’s MSJ

Defendant’s three particular Category 3 Exclusions are

listed below, in addition to the Ensuing Loss Clause (see bolded
text):
3. This Coverage Section does not insure against loss,
damage or expense caused by or resulting from the
following. But if loss or damage from a covered cause
of loss results, we will pay for that resulting loss or
damage.13/
a. Wear and tear, gradual deterioration, inherent
vice, latent defect, depletion, erosion,
corrosion, mold, wet or dry rot;
. . . .
d. Settling, cracking, shrinkage, bulging, or
expansion of pavements, foundations, walls,
floors, roofs or ceilings;
. . . .
i. Faulty, inadequate or defective:
. . .
(2) Design specifications, workmanship,
repair, construction, renovation, remodeling,
grading compaction;
(3) Materials used in repair, construction,
renovation, or remodeling; or
13/

For examples of ensuing loss clause provisions, see
Harbor Communities, LLC v. Landmark American Ins. Co., Civ. No.
07-14336-CIV, 2008 WL 2986424 at *5-6 (S.D. Fla 2008) (“But if
loss or damage by a Covered Cause of Loss results, we will pay
for that resulting loss or damage.”), Swire Pacific Holdings,
Inc. v. Zurich Ins. Co., 845 So.2d 161, 165-66 (2003) (citing
numerous examples of ensuing loss provisions).
-27-

(4) Maintenance of part or all of any
property wherever located.
Plntf.’s CSF Ex. 1 at IP 01007 (emphasis added).
The Ensuing Loss Clause “operates to carve out an
exception to a policy exclusion.”

Vision One, LLC v.

Philadelphia Indem. Ins. Co., 276 P.3d 300, 307 (Wash. 2012).
“[T]he dispositive question in analyzing ensuing loss clauses is
whether the loss that ensues from the excluded event is covered
or excluded.”

Id at 307.

If a series of events take place that

result in a loss, damage resulting from an uncovered event will
not be covered, but damage resulting from covered events will
remain covered.

Id.

Another consideration is whether the peril

is “separate from and in addition to the initial excluded peril.”
Acme Galvanizing Co. v. Fireman’s Fund Ins. Co., 221 Cal.App.3d
170, 180 (Cal. Ct. App. 1990).14/

Most examples used by the

courts involve construction defects that result in subsequent
losses.

14/

In Acme, a welding defect caused a kettle to rupture,
causing molten zinc to escape and resulting in damage to the
surrounding equipment. 221 Cal. App. 3d at 174-75. The court
found that the welding defect was a latent defect excluded by the
policy. Id at 179. Although the policy contained an ensuing
loss clause, the court found that the clause did not apply to the
molten zinc because it was a “loss directly caused by such peril,
not a new hazard or phenomenon.” Id at 180. However, the court
noted a hypothetical where the loss would be covered, e.g., if
the molten zinc had started a fire or caused an explosion. Id.
The fire or explosion would constitute a new covered peril
covered by the ensuing loss clause. Id.
-28-

In Vision One, the plaintiff contracted with a company
to pour concrete for a building.

276 P.3d at 302.

A

subcontractor was hired to supply the shoring to support the
poured concrete slabs.

Id at 302.

As the concrete was poured,

the shoring gave way, causing a collapse of the finished first
section of the floor as well as the framing, rebar, and newly
poured concrete.

Id.

The insurance policy excluded losses

caused by faulty workmanship, but the faulty workmanship
exclusion had an ensuing loss clause providing coverage for loss
or damage from a covered cause of loss.

Id at 303.

The

Washington Supreme Court found that the parties contemplated that
collapse would be a covered loss under the Policy.

Id at *308.

Accordingly, while the policy excluded losses caused by faulty
workmanship, the ensuing loss clause covered the damages caused
by the collapse.

Id at 311.

Another case that is more closely analogous to the
current case is Boardwalk Condominium Ass’n v. Travelers
Indemnity Company of Illinois.
WL 1989656 (S.D. Cal. 2007).

Civ. No. 03cv505 WQH (Wmc), 2007

In Boardwalk, a condominium was

damaged when defective design or construction caused inadequate
ventilation, which resulted in the build up of condensation.
2007 WL 1989656 at *9.
damage and mold.

Id.

The condensation caused serious water
The all-risk insurance policy in Boardwalk

had an exclusion for design or construction defect, but the

-29-

policy also had an ensuing loss clause.

Id at *8.

The

California district court found that the design defect (an
excluded peril) resulted in condensation (a covered peril).
at *9.

Id

Accordingly, the water damage and mold were covered

because the loss resulted from the included peril of
condensation.

Id.

In this case, Plaintiff also seeks to obtain coverage
for the peril of moisture infiltration.

Defendant concedes that

“moisture infiltration is not an excluded cause of loss in the
all-risks policy.”

Def.’s Opp. at 14.

The question is therefore

whether the moisture infiltration is “separate from and in
addition to the initial excluded peril.”

See Acme Galvanizing

Co. v. Fireman’s Fund Ins. Co., 221 Cal.App.3d at 180 (Cal. Ct.
App. 1990).

Under the circumstances of this case, the Court

holds that the moisture infiltration is covered by the Policy.
The moisture is a separate and independent event from
Defendant’s identified cause of design defect in constructing the
fourth floor without removing the canec insulation layer.
Boardwalk, 2007 WL 1989656 at *9.

See

The moisture, like the fire

hypothetical in Acme, is a separate agent that caused damage,
even though the design defect may have allowed the agent to
enter.

See Boardwalk, 2007 WL 1989656 at *9 (“[C]ondensation,

while “resulting from” the lack of ventilation, is a new hazard

-30-

or phenomenon, separate and independent from lack of
ventilation.”).
The Winans case cited by Defendant does not convince
the Court otherwise.

In Winans, the Ninth Circuit examined the

definition of “latent defect.”
1992).

968 F.2d 884, 886 (9th Cir.

The plaintiffs in Winans did not argue that there was a

separate cause covered by an ensuing loss clause - the only issue
was whether the damage to the house fell within the “latent
defect” exclusion.

Id.

Accordingly, Winans does not apply to

the present issue before the Court.
The Aetna Casualty and Surety Co. v. Yates case cited
by Defendants is certainly more applicable to the case before the
Court.

In Aetna, insureds sued for coverage for damage to their

home caused by rot.

344 F.2d 939, 940 (5th Cir. 1965).

The

evidence established that the crawl space under the house had
been built with inadequate ventilation.

Id.

The air conditioner

chilled the trapped air in the crawl space, causing condensation
of moisture and subsequent rotting.

Id.

The Fifth Circuit found

that the ensuing loss clause did not cover the damages.

However,

Aetna is distinguishable from this case because the policy in
Aetna specifically had an exclusion for “dampness of the

-31-

atmosphere.”

Id at 941.

In this case, the Policy does not have

an exclusion for moisture infiltration.15/

See Def.’s Opp. at 14.

Defendant also argues that allowing Plaintiff to
recover for water infiltration would eviscerate the exclusions
for rot, “which necessarily involves the contact of water with
another material.”

Def.’s Opp. at 24.

Aetna case for this proposition.
Aetna, 344 F.2d at 941).

Defendant relies on the

See Def.’s Opp. at 25 (citing

However, the Aetna case made a

distinction between rot caused merely by dampness of the
atmosphere, which was excluded by the policy, and rot caused by
“the direct intrusion of water conveyed by the phrase ‘water
damage’,” which the Fifth Circuit implied would be covered by the
policy.16/

Id.

In this case, regardless of the source of the

water, both parties appear to agree that there was some direct
intrusion of water as opposed to mere atmospheric dampness.

15/

The Court notes that, in this case, Plaintiff and
Defendant appear to agree that the moisture came from some
outside source, not from humidity or condensation. Plntf.’s CSF
at 2 ¶ 5, Dec. of Colin Murphy ¶¶ 4-5, Ex. 4; Def.’s CSF at 3 ¶ 2
(citing Plntf.’s CSF Ex. 3 at IP 00962).
16/

The Fifth Circuit also noted in Aetna that the
defendant seemed to concede that the ensuing loss clause would
“protect the insured where loss from water damage ensued from an
excluded loss, e.g., if a rusty pipe burst or if a rotted wall
opened and admitted rain.” Aetna, 344 F.2d at 941 (5th Cir.
1965). The last example of a rotted wall opening and admitting
rain seems analogous to the design defect alleged by Defendant in
this case (construction defect admitting water), meaning that
Aetna’s main holding excluding coverage would not apply to this
case.
-32-

Plntf.’s CSF at 2 ¶ 5, Dec. of Colin Murphy ¶¶ 4-5, Ex. 4; Def.’s
CSF at 3 ¶ 2 (citing Plntf.’s CSF Ex. 3 at IP 00962).
Accordingly, the Court’s interpretation of the ensuing loss
clause would not eviscerate the exclusion for wet rot.
B.

Whether the Pollution Exclusion Applies

Defendant also argues that the Pollution Exclusion
applies to Plaintiff’s loss caused by the concentrated arsenic.
Def.’s Opp. at 15-16.

Defendant argues that, even if moisture

infiltration was the “efficient proximate cause” of the arsenic
damage, there would be no coverage because arsenic is a pollutant
and there is anti-concurrent causation language in the policy
with respect to the Pollution Exclusion.

Def.’s Opp. at 17 - 19.

An anti-concurrent causation clause excludes a loss if the loss
results “from a combination of covered and excluded perils.”
Preferred Mutual Ins. Co. v. Meggison, 53 F. Supp. 2d 139, 142
(D. Mass. 1999).

In other words, Defendant argues that the

damage is excluded because pollution (an excluded peril) is one
of the causes of the loss; accordingly, the damage is not covered
even if other covered perils also caused the damage.
at 19.

Def.’s Opp.

The Policy states the Pollution Exclusion and the anti-

concurrent causation language (see bolded text in ¶ D.1) as
follows:
D. Exclusions
1. This Coverage Section does not insure against loss
or damage caused directly or indirectly by any of the
following. Such loss or damage is excluded regardless
-33-

of any other cause or event that contributes
concurrently or in any sequence to the loss.
. . .
f. Pollution
The actual, alleged or threatened discharge,
dispersal, seepage, migration, release or escape
of pollutants. But, if the same is the direct
result of a covered cause of loss, we do insure
direct physical loss or damage to covered property
caused by the actual contact of the covered
property with the pollutants.
Plntf.’s CSF Ex. 1 at IP 01005 ¶ D.1.f.
Assuming arguendo that the arsenic in this case
qualifies as a “pollutant,”17/ Plaintiff still prevails because
the arsenic was caused by a covered cause of loss and therefore
falls within the exception to the Pollution Exclusion.

While the

language in Section D.1 contains anti-concurrent causation
17/

The Court declines to examine whether or not the
pollution exclusion actually applies to the leaching of the
arsenic from the canec. Such an examination would require this
Court to interpret the meaning of terms like “pollutant” that
have been heavily litigated in state and federal courts
throughout the country. See Apana v. TIG Ins. Co., 574 F.3d 679,
682 (9th Cir. 2009) (noting that there is “an absolute
fragmentation of authority” regarding the pollution exclusion)
and MacKinnon v. Truck Ins. Exchange, 31 Cal. 4th 635, 641-42
(2003). The determination of whether or not pollution occurred
in this case would require this Court to predict how the Hawai#i
Supreme Court would interpret the pollution exclusion - a task
that even the Ninth Circuit declined by certifying the question
to the Hawai#i Supreme Court. See Apana, 574 F.3d at 684.
However, because an exception to the pollution exclusion exists
in this case, the Court need not determine whether the pollution
exclusion actually applies. The outcome would be the same either the exclusion does not apply, and Plaintiff’s damage is
covered, or the exclusion does apply, but Plaintiff’s damage
falls within the exception and therefore is covered. Because
Plaintiff would prevail regardless of whether or not the
exclusion applies, the Court need not interpret the pollution
exclusion.
-34-

language that would avoid the “efficient proximate cause”
doctrine; Defendant fails to address the specific exception
contained in the Pollution Exclusion - “But, if the same is the
direct result of a covered cause of loss, we do insure direct
physical loss or damage to covered property caused by the actual
contact of the covered property with the pollutants.”
CSF Ex. 1 at IP 01005 ¶ f.

Plntf.’s

This language contradicts the anti-

concurrent clause language barring coverage regardless of “any
other cause or event” by identifying an insured cause that
restores coverage.

Plntf.’s CSF Ex. 1 at IP 01005 ¶ D.1.f

(emphasis added).
The Hawai#i Supreme Court has noted 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.”

Hart, 126 Hawai#i at 456.

Accordingly,

the plain language of the exception to the Pollution Exclusion
that allows coverage for pollution caused by a covered cause of
loss prevails over the anti-concurrent causation clause’s
restriction of coverage.

Because the arsenic was directly caused

by the water infiltration - a covered cause of loss as discussed
in Section 3.A above - the direct physical loss or damage caused
by the arsenic is covered by the Policy under the exception to

-35-

the Pollution Exclusion.

In conclusion, because Plaintiff has

established that the all-risks Policy covers the Property, and
because Defendant has not presented a genuine issue of material
fact that an exclusion applies to the arsenic damage, the Court
concludes that Defendant owes Plaintiff indemnity under the
Policy, with the amount of indemnity to be owed to be established
at trial.18/
CONCLUSION
For the foregoing reasons, the Court GRANTS Plaintiff’s
Motion for Partial Summary Judgment.
IT IS SO ORDERED.
DATED:

Honolulu, Hawai#i, April 9, 2013.

________________________________
Alan C. Kay
Sr. United States District Judge

Ass’n of Apartment Owners of Imperial Plaza v. Fireman’s Fund Ins. Co., Civ.
No. 11-00758 ACK-KSC: ORDER GRANTING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY
JUDGMENT.

18/

Because Plaintiff appears to admit that “floor deflection
and cracks in the walls” are not in dispute in this lawsuit, the
amount of damage attributable to the arsenic will likely need to
be determined at trial.
-36-