Charter Oak Fire Insurance Company v. Endurance American Specialty Insurance Company

Filing 31

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT re 22 - Signed by CHIEF JUDGE SUSAN OKI MOLLWAY on 8/20/2014. Partial summary judgment is granted in favor of Charter Oak. Endurance owes VSE a duty to defend VSE from the Liability Suits, and Endurance's policy is "primary" to Charter Oak's policy. Endurance must reimburse Charter Oak for reasonable amounts spent defending VSE. The court does not here decide what amount is reasonable. Endurance is ordered to begin providing VSE with a defense forthwith. If the parties anticipate asking the court to determine the amount that Endurance must reimburse Charter Oak for, a motion seeking that determination must be filed no later than September 30, 2014. Before filing any such motion, the parties must meet and confer in an attempt to agree as to amounts and/or particular issue(s)." (emt, )CERTIFICATE OF SERVICEParticipants registered to rec eive 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
THE CHARTER OAK FIRE
INSURANCE COMPANY,

)
)
)
Plaintiff,
)
)
vs.
)
)
ENDURANCE AMERICAN SPECIALTY )
INSURANCE COMPANY,
)
)
Defendant.
)
_____________________________ )

CIVIL NO. 13-00558 SOM/KSC
ORDER GRANTING MOTION FOR
PARTIAL SUMMARY JUDGMENT

ORDER GRANTING MOTION FOR PARTIAL SUMMARY JUDGMENT
I.

INTRODUCTION.
This motion calls upon the court to determine whether

Endurance American Specialty Insurance Company owes VSE
Corporation a duty to defend it from state-court claims arising
out of an explosion that killed five people.

VSE’s insurer, The

Charter Oak Fire Insurance Company, moves for summary judgment,
asking this court to rule that Endurance owes a duty to defend
VSE from those claims.

Charter Oak also seeks a determination

that Endurance’s insurance policy is “primary” to Charter Oak’s
insurance policy.

Charter Oak contends that the requested

rulings require Endurance to reimburse Charter Oak for money
spent defending VSE from such claims, and to provide VSE with a
defense going forward.

The court grants Charter Oak’s motion

with the caveat that any reimbursement obligation is limited to

reasonable defense expenditures, the amount of which the record
does not allow the court to determine.
II.

BACKGROUND FACTS.
VSE had a contract with the federal government to

destroy seized fireworks.

VSE subcontracted with Donaldson

Enterprises, Inc., to have Donaldson destroy those fireworks.
See ECF No. 23-3.

On April 11, 2011, an explosion occurred where

the fireworks were being stored that killed Bryan Dean Cabalce,
Kevin Donor Freeman, Neil Benjamin Sprankle, Robert Leahey, and
Justin Joseph Kelii.

All five were Donaldson employees who were

in the process of destroying the fireworks at the time of the
explosion.
Four suits were filed in state court arising out of the
deaths of the five Donaldson employees.

The court refers to

these actions as the “Liability Suits.”

See ECF Nos. 23-4 to 23-

7.

Each suit asserts similar claims arising out of the same

facts.

Id.

Each of the suits has been removed to federal court.

See Civ. Nos. 12-00373 JMS/RLP, 12-00376, JMS/RLP 12-00377
JMS/RLP, and 12-00391 JMS/RLP.
The complaint filed in connection with the death of
Bryan Dean Cabalce, for example, alleges that, on or about April
8, 2011, Cabalce was killed in an explosion at a storage facility
in which confiscated fireworks were being stored and destroyed.
That complaint alleges that Cabalce was employed by Donaldson,

2

which had been hired by VSE to store, transport, destroy, and
dispose of illegal fireworks that had been seized by the federal
government.

See ECF No. 23-4, ¶¶ 14-16, 21, PageID # 322.

The

complaint asserts: 1) that VSE was negligent in a number of ways
(Count I); that Thomas E. Blanchard & Associates, hired by VSE to
inspect, monitor, and supervise the warehousing, storage, and
destruction of the fireworks by Donaldson, was also negligent
(Count II); 3) that VSE and Thomas E. Blanchard & Associates were
liable for punitive damages (Count III); 4) that Defendants HIDC
Small Business Storage, LLC; Hawaiian Island Development Co.,
Inc.; Hawaiian Island Homes Ltd.; Hawaiian Island Commercial
Ltd.; and Ford Island Ventures, LLC, were the owners, lessees,
and/or managing entities of the storage facility at which the
explosion occurred and were also negligent (Count IV); and
5) that all the defendants were liable “under the theories of
strict liability for breach of warranty, defective design,
conducting an ultra-hazardous activity, breach of implied
warranty of habitability, implied warranty of fitness for a
particular purpose, other applicable warranties, respondeat
superior, res ipsa loquitur, agency liability, partnership
liability, and/or otherwise.”

ECF No. 23-4, ¶ 51, PageID # 330

(Count V).
Charter Oak, part of the Travelers insurance group,
insured VSE under Policy Number P-630-1133x365-COF-11 for the

3

policy period from January 1, 2011, through January 1, 2012.
ECF No. 23-14.

See

Charter Oak has been providing VSE with a defense

in the Liability Suits.

See ECF No. 23-8.

On or about August 27, 2013, Charter Oak sent a demand
to Endurance that Endurance reimburse Charter Oak for $637,672.98
that Charter Oak said it had paid defending VSE in the Liability
Suits.

See ECF No. 23-12, PageID # 414.

By the time the present

motion was filed, Charter Oak had apparently paid $968,000.
ECF No. 22-1, PageID # 255.

See

By the time the reply memorandum was

filed, that amount may have grown to “nearly $1.5 million.”
ECF No. 72, PageID # 1031.

See

The court is not here determining

what Charter Oak actually paid in defending the Liability Suits,
noting only that it claims to have spent a significant amount in
that defense and to be spending more as time passes.
Charter Oak seeks reimbursement of VSE’s defense costs
on the ground that VSE is an additional insured under the policy
Endurance issued to Donaldson.

See ECF No. 23-2 (copy of Policy

Number ECC101003708-02 for policy period from November 15, 2010,
to November 15, 2011).

That policy includes Endorsement Number

5, which modifies the policy’s Commercial General Liability
Coverage.

Endorsement Number 5 states, “Any person(s) or

organization(s) whom the Named Insured agrees, in a written
contract, to name as an additional insured . . . . for the
project specified in that contract . . . . is included as an

4

insured, but only with respect to that person’s or organization’s
vicarious liability arising out of [Donaldson’s] ongoing
operations performed for that insured.”
# 308.

ECF No. 23-2, PageID

There is no dispute that VSE qualifies as an organization

that Donaldson agreed in a written contract was an additional
insured.

According to Endorsement Number 16 to the Endurance

policy, the Endurance policy is “primary” to other insurance.
See id., PageID # 309.
The Commercial General Liability Coverage included in
the Endurance policy provides that, for “occurrences” taking
place during the “policy period,” Endurance “will pay those sums
that the insured becomes legally obligated to pay as damages
because of ‘bodily injury’ or ‘property damage’ to which this
insurance applies.”

ECF No. 23-2, PageID # 287.

The policy

defines “occurrence” as “an accident, including continuous or
repeated exposure to substantially the same general harmful
conditions.”

Id., PageID # 296.

The policy has multiple

exclusions from coverage, including one for “pollution.”
PageID # 289.

That exclusion excludes coverage for the

following:
“Bodily injury” or “property damage” arising
out of the actual, alleged or threatened
discharge, dispersal, seepage, migration,
release or escape of “pollutants” . . . [a]t
or from any premises, site or location which
is or was at any time used by or for any
insured or others for the handling, storage,
disposal, processing or treatment of waste.
5

Id.,

See copy of policy attached to Concise Statement of Endurance,
ECF No. 26-9, PageId # 782-83.

The policy defines “Pollutants”

as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.

Waste includes materials to be recycled,

reconditioned or reclaimed.”

ECF No. 23-2, PageID # 296.

On or about August 16, 2012, Endurance “agreed to
defend VSE against the [Cabalce] Lawsuit subject to a reservation
of rights,” noting that “there are significant coverage issues.”
See ECF No. 23-9, PageID # 393.
On October 17, 2013, Endurance reiterated that it had
“previously agreed to defend VSE pursuant to a reservation of
rights” and that it would “continue to defend VSE pursuant to a
reservation of rights.”

See ECF No. 23-13, PageID # 417.

Endurance reserved the right to withdraw from that defense and
seek reimbursement for all funds paid for the defense.

Id.

Although the record includes statements by Endurance agreeing to
defend VSE, Endurance has paid nothing towards VSE’s defense.
On August 23, 2013, HIDC Small Business Storage, LLC, a
storage facility defendant in the Liability Suits, filed a
complaint in state court seeking a declaration that Endurance had
a duty to defend and indemnify it under the insurance policy
Endurance had issued to Donaldson.

See ECF No. 26-11.

Endurance

filed a third-party complaint in that action against VSE on

6

October 21, 2013, three days before Charter Oak filed the
Complaint in the present action.

The third-party complaint

sought a declaration that Endurance had no duty to defend VSE
(First Claim for Relief) or indemnify VSE (Second Claim for
Relief) with respect to the Liability Suits.

See ECF No. 26-2.

On November 25, 2013, about one month after Charter Oak had filed
the suit now before this court, VSE filed a counterclaim in state
court against Endurance seeking a declaration that Endurance owed
a duty to defend and indemnify VSE with respect to the Liability
Suits.

See ECF No. 26-12, PageID #s 922-29.

The record before

this court does not indicate the progress of the state-court
coverage case since that time.
III.

SUMMARY JUDGMENT STANDARD.
Summary judgment shall be granted when “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.”
R. Civ. P. 56(a) (2010).

Fed.

See Addisu v. Fred Meyer, Inc., 198

F.3d 1130, 1134 (9th Cir. 2000).

The movants must support their

position that a material fact is or is not genuinely disputed by
either “citing to particular parts of materials in the record,
including depositions, documents, electronically stored
information, affidavits or declarations, stipulations (including
those made for the purposes of the motion only), admissions,
interrogatory answers, or other materials”; or “showing that the

7

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).

One of the principal purposes of summary judgment is to identify
and dispose of factually unsupported claims and defenses.
Celotex Corp. v. Catrett, 477 U.S. 317, 323-24 (1986).
Summary judgment must be granted against a party that fails to
demonstrate facts to establish what will be an essential element
at trial.

See id. at 323.

A moving party without the ultimate

burden of persuasion at trial--usually, but not always, the
defendant--has both the initial burden of production and the
ultimate burden of persuasion on a motion for summary judgment.
Nissan Fire & Marine Ins. Co. v. Fritz Cos., 210 F.3d 1099, 1102
(9th Cir. 2000).
The burden initially falls on the moving party to
identify for the court those “portions of the materials on file
that it believes demonstrate the absence of any genuine issue of
material fact.”

T.W. Elec. Serv., Inc. v. Pac. Elec. Contractors

Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (citing Celotex Corp.,
477 U.S. at 323).

“When the moving party has carried its burden

under Rule 56(c), its opponent must do more than simply show that
there is some metaphysical doubt as to the material facts.”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
586 (1986) (footnote omitted).

8

The nonmoving party must set forth specific facts
showing that there is a genuine issue for trial.
Serv., Inc., 809 F.2d at 630.

T.W. Elec.

At least some “‘significant

probative evidence tending to support the complaint’” must be
produced.

Id. (quoting First Nat’l Bank of Ariz. v. Cities Serv.

Co., 391 U.S. 253, 290 (1968)).

See Addisu, 198 F.3d at 1134 (“A

scintilla of evidence or evidence that is merely colorable or not
significantly probative does not present a genuine issue of
material fact.”).

“[I]f the factual context makes the non-moving

party’s claim implausible, that party must come forward with more
persuasive evidence than would otherwise be necessary to show
that there is a genuine issue for trial.”

Cal. Arch’l Bldg.

Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468
(9th Cir. 1987) (citing Matsushita Elec. Indus. Co., 475 U.S. at
587).

Accord Addisu, 198 F.3d at 1134 (“There must be enough

doubt for a ‘reasonable trier of fact’ to find for plaintiffs in
order to defeat the summary judgment motion.”).
All evidence and inferences must be construed in the
light most favorable to the nonmoving party.
Inc., 809 F.2d at 631.

T.W. Elec. Serv.,

Inferences may be drawn from underlying

facts not in dispute, as well as from disputed facts that the
judge is required to resolve in favor of the nonmoving party.
Id.

When “direct evidence” produced by the moving party

conflicts with “direct evidence” produced by the party opposing

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summary judgment, “the judge must assume the truth of the
evidence set forth by the nonmoving party with respect to that
fact.”
IV.

Id.
THE COURT DECLINES TO STAY THIS ACTION PENDING THE
OUTCOME OF THE STATE-COURT DECLARATORY RELIEF INSURANCE
COVERAGE CLAIMS.
This court begins by examining whether it should reach

the merits of the insurance coverage issues before it, given the
coverage case pending in state court.

The plaintiff in that

case, a storage facility defendant in the Liability Suits, seeks
a defense and indemnification from Endurance.

Endurance, three

days before the lawsuit now before this court was filed, filed a
third-party complaint in state court against VSE, seeking a
declaration that it owed VSE neither a duty to defend nor a duty
to indemnify with respect to the Liability Suits.
“[T]he power to stay proceedings is incidental to the
power inherent in every court to control the disposition of the
causes on its docket with economy of time and effort for itself,
for counsel, and for litigants.”
248, 254 (1936).

Landis v. N. Am. Co., 299 U.S.

See Leyva v. Certified Grocers of Cal., Ltd.,

593 F .2d 857, 864 (9th Cir. 1979) (“[T]he court may order a stay
of [an] action pursuant to its power to control its docket and
calendar and to provide for a just determination of the cases
pending before it.”).

In addition, “the Declaratory Judgment Act

has been understood to confer on federal courts unique and

10

substantial discretion in deciding whether to declare the rights
of litigants.”

Wilton v. Seven Falls Co., 515 U.S. 277, 286

(1995).
Consistent with the nonobligatory nature of
the remedy, a district court is authorized,
in the sound exercise of its discretion, to
stay or to dismiss an action seeking a
declaratory judgment before trial or after
all arguments have drawn to a close. In the
declaratory judgment context, the normal
principle that federal courts should
adjudicate claims within their jurisdiction
yields to considerations of practicality and
wise judicial administration.
Id. at 288 (footnote omitted).
That discretion, however, is not unfettered.

See Gov’t

Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1223 (9th Cir. 1998) (en
banc).

Guidance on whether to stay an insurance coverage action

pending resolution of an underlying state court action is
provided by Brillhart v. Excess Insurance Co. of America, 316
U.S. 491 (1942), and its progeny.
In Brillhart, the Supreme Court stated that it would
ordinarily
be uneconomical as well as vexatious for a
federal court to proceed in a declaratory
judgment suit where another suit is pending
in a state court presenting the same issues,
not governed by federal law, between the same
parties. Gratuitous interference with the
orderly and comprehensive disposition of a
state court litigation should be avoided.

11

Brillhart, 316 U.S. at 495.

Brillhart set forth a nonexhaustive

list of factors to be considered in determining whether to stay
or dismiss a federal court Declaratory Judgment Act case:
Where a district court is presented with a
claim such as was made here, it should
ascertain whether the questions in
controversy between the parties to the
federal suit, and which are not foreclosed
under the applicable substantive law, can
better be settled in the proceeding pending
in the state court. This may entail inquiry
into the scope of the pending state court
proceeding and the nature of defenses open
there. The federal court may have to
consider whether the claims of all parties in
interest can satisfactorily be adjudicated in
that proceeding, whether necessary parties
have been joined, whether such parties are
amenable to process in that proceeding, etc.
Id.
“The Brillhart factors remain the philosophic
touchstone for the district court.

The district court should

avoid needless determination of state law issues; it should
discourage litigants from filing declaratory actions as a means
of forum shopping; and it should avoid duplicative litigation.”
Dizol, 133 F.3d at 1225 (citation omitted).

The following

additional factors are sometimes considered:
whether the declaratory action will settle
all aspects of the controversy; whether the
declaratory action will serve a useful
purpose in clarifying the legal relations at
issue; whether the declaratory action is
being sought merely for the purposes of
procedural fencing or to obtain a “res
judicata” advantage; or whether the use of a
declaratory action will result in
12

entanglement between the federal and state
court systems.
Id. at 1225 n.5 (quoting Am. States Ins. Co. v. Kearns, 15 F.3d
142, 145 (9th Cir. 1994) (J. Garth, concurring)) (some quotation
marks omitted).

District courts might also consider “the

convenience of the parties, and the availability and relative
convenience of other remedies.”

Id. (quoting Kearns, 15 F.3d at

145 (Garth, J., concurring)).
When there are parallel state proceedings, “there is a
presumption that the entire suit should be heard in state court.”
Id. at 1225.

However, the existence of a state-court action does

not automatically bar a request for federal declaratory relief.
Id.

“[T]here is no presumption in favor of abstention in

declaratory actions generally, nor in insurance coverage cases
specifically.”

Id.

This court declines to stay this case in favor of the
state-court action in which Endurance has filed a third-party
complaint seeking a declaration that it has no duty to defend or
indemnify VSE with respect to the claims in the Liability Suits.
Although those coverage issues overlap the issues in this action,
this case does not involve all of the same issues and parties.
First, the present case involves only the duty to
defend.

Any reference in the present case to indemnification is

a reference to indemnification for defense costs, not for any

13

judgment that might be entered against an insured in the
Liability Suits.
Second, here, Charter Oak, VSE’s insurer, as opposed to
VSE itself, is seeking declaratory relief.

VSE is not a party in

the case before this court.
Third, the present action involves a claim that the
Endurance policy is “primary” to the Charter Oak policy.

See

Complaint, ECF No. 1, PageID # 11 (“Charter Oaks seeks a judicial
determination of the rights and duties of itself on the one hand
and Endurance on the other hand . . . , including but not limited
to the following issues: . . . B.

Whether Endurance’s duty to

defend VSE in the Underlying Actions is primary to Charter
Oak’s”).
Because not all of the issues or parties in this case
are identical to issues in the state-court action, this case is
not entirely “parallel” to the state-court case.
Nor does this case appear to involve a needless
determination of state law.

Instead of turning on unsettled

issues of state law, the coverage issues raised by the present
motion appear to turn on factual issues.

See Allstate Ins. Co.

v. Davis, 430 F. Supp. 2d 1112, 1120 (D. Haw. 2006).

In

particular, as discussed in greater detail later in this order,
exactly how the fatal explosion occurred will affect whether
policy provisions apply.

14

Although the complaint commencing the lawsuit in state
court was filed by a storage company on August 23, 2013, about
two months before the Complaint in the present action was filed
on October 24, 2013, the third-party complaint in which Endurance
raised the issue of any obligation owed to VSE was filed on
October 21, 2013, only three days before Charter Oak commenced
the present action against Endurance.

Nothing in the record

establishes that Charter Oak even knew about Endurance’s thirdparty complaint in state court at the time Charter Oak filed the
Complaint in this case.

This court has no basis for concluding

that the present case was filed to obtain a “res judicata” effect
or to “forum shop.”
The parties have not informed this court what progress
has been made in state court.

This court understands that, if it

allows the case before it to proceed, Endurance will have to
litigate coverage disputes with different parties simultaneously
in state and federal court.
be short-lived.

That burden, however, is likely to

This court’s determination in this order that

Endurance has a duty to defend VSE leaves little for further
adjudication in this district court.

The court also notes that

any inconvenience is not geographic; the state-court action is
proceeding in a building right across the street from this court.
Moreover, any inconvenience inflicted on Endurance by having to
litigate in two separate courts would be at least matched by the

15

inconvenience Charter Oak would suffer if this court were to
abstain, forcing Charter Oak to attempt to join the state-court
action, file a separate declaratory action in state court, or
face uncertainty about its obligations for the duration of the
state-court action.
V.

ENDURANCE HAS A DUTY TO DEFEND VSE, WHICH INCLUDES A
DUTY TO REIMBURSE CHARTER OAK FOR THE REASONABLE
DEFENSE COSTS INCURRED IN DEFENDING VSE FROM THE
LIABILITY SUITS.
A.

General Law Concerning Insurance Policies.

This is a diversity action.
PageID # 2.

See Complaint, ECF No. 1,

Federal courts sitting in diversity apply state

substantive law and federal procedural law.

See Snead v. Metro.

Prop. & Cas. Ins. Co., 237 F.3d 1080, 1090 (9th Cir. 2001).

When

interpreting state law, a federal court is bound by the decisions
of a state’s highest court.

Ariz. Elec. Power Coop. v. Berkeley,

59 F.3d 988, 991 (9th Cir. 1995).

In the absence of such a

decision, federal courts attempt 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)).
16

Under Hawaii law, general rules of contract
construction apply to the interpretation of insurance contracts.
Dawes v. First Ins. Co. of Haw., 77 Haw. 117, 121, 883 P.2d 38,
42 (1994).

Insurance policies must be read as a whole and

construed in accordance with the plain meaning of its terms,
unless it appears that a different meaning is intended.

Id. at

121, 883 P.2d at 42; First Ins. Co. of Haw. v. State, 66 Haw.
413, 423, 665 P.2d 648, 655 (1983); see also Haw. Rev. Stat.
§ 431:10-237 (Michie 2011) (“[e]very insurance contract shall be
construed according to the entirety of its terms and conditions
as set forth in the policy”).
Because insurance contracts are contracts of adhesion,
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 accordance
with the reasonable expectations of a layperson.

Tri-S Corp. v.

W. World Ins. Co., 110 Haw. 473, 489, 135 P.3d 82, 98 (2006)
(citations omitted); Dawes, 77 Haw. at 131, 883 P.2d at 42.
This court is concerned here with whether Endurance has
a duty to defend VSE.

The duty to defend arises when there is

any potential or possibility for coverage.

Sentinel Ins. Co. v.

First Ins. Co. of Haw., 76 Haw. 277, 287, 875 P.2d 894, 904
(1994) (as amended on grant of reconsideration).

“In other

words, the duty to defend rests primarily on the possibility that

17

coverage exists.

This possibility may be remote, but if it

exists, the insurer owes the insured a defense.”

Id.

(alterations, quotation marks, and citations omitted).

Any doubt

as to the duty to defend “is resolved against the insurer and in
favor of the insured.”

Id. (citation omitted).

However, when the pleadings fail to allege any basis
for recovery under an insurance policy, the insurer has no duty
to defend.

Pancakes of Haw. v. Pomare Props., 85 Haw. 286, 291,

944 P.2d 83, 88 (1997).

For this court to conclude that

Endurance has no duty to defend VSE from the Liability Suits, the
court must determine that it would be impossible for a claim in
the underlying Liability Suits to be covered by Endurance’s
insurance policy.

See Dairy Road Partners, 92 Haw. at 412-13,

922 P.2d at 107-08.
Because the duty to defend turns on the possibility of
coverage, this court looks at how coverage is determined.

The

burden is on the insured to establish coverage under an insurance
policy.

See Sentinel, 76 Haw. at 291 n.13, 875 P.2d at 909 n.13.

The insurer has the burden of establishing the applicability of
an exclusion.

See id. at 297, 875 P.2d at 914.

The duty to indemnify is owed “for any loss or injury
which comes within the coverage provisions of the policy,
provided it is not removed from coverage by a policy exclusion.”
Dairy Road Partners v. Island Ins., 92 Haw. 398, 413, 922 P.2d

18

93, 108 (2000).

The obligation to defend an insured is broader

than the duty to indemnify.
B.

Endurance has a Duty to Defend VSE under the
Comprehensive General Liability Insurance Coverage
Issued to Donaldson.

Charter Oak seeks a determination that Endurance has a
duty to defend VSE under the Comprehensive General Liability
Coverage of the policy Endurance issued to Donaldson, under which
VSE was an “additional insured.”

While Endurance argues that it

owes no duty to VSE under other coverages provided by that
policy, those arguments are irrelevant to the present motion.1
There is no dispute that the Liability Suits assert
claims of “bodily injury” arising out of an “occurrence” (an
accident) during the “policy period” for purposes of the
Comprehensive General Liability Coverage of the policy Endurance
issued to VSE.

Endurance instead argues that VSE is not an

1

Endurance argues that there is no coverage under the
policy’s Professional Liability Coverage because Endorsement
Number 5 does not make VSE an “additional insured” with respect
to that coverage. Endurance also argues that it owes no duty
under the Contractor’s Pollution Liability Coverage because the
policy excludes from coverage intentional, willful, and
deliberate noncompliance with statutes, regulations, ordinances,
etc. Endurance further argues that, under the Contractor’s
Pollution Coverage, there is a limit for “claims expenses,” and
that defense fees should be shared on a “pro rata” basis. If
this court concludes that Endurance owes VSE a duty to defend
under the Comprehensive General Liability Coverage, the issue of
whether a duty to defend is or is not owed under other parts of
Endurance’s policy need never be reached. In any event, no one
is asking the court to find any duty under those other coverages
at this time.
19

“additional insured” and that, even if it is, Endurance owes VSE
no duty to defend because coverage is excluded by the “pollution”
exclusion.

The court is not persuaded by Endurance’s arguments.
1.

VSE is an Additional Insured Under the
Comprehensive General Liability Coverage.

Although VSE is indisputably named as an “additional
insured” for purposes of Endorsement Number 5, Endurance argues
that it owes no duty to VSE as an “additional insured” because
that endorsement applies only to claims of vicarious liability
arising out of Donaldson’s ongoing operations.

Endurance

contends that the Liability Suits state no claim for such
vicarious liability.

This court disagrees.

Section 59 of the Restatement (Third) of Torts
discusses the vicarious liability of a person who hires an
independent contractor to perform an activity that poses a
peculiar risk.

That section states:

An actor who hires an independent contractor
for an activity that the actor knows or
should know poses a peculiar risk is subject
to vicarious liability for physical harm when
the independent contractor is negligent as to
the peculiar risk and the negligence is a
factual cause of any such harm within the
scope of liability.
Illustration 3 of that section states:
The County hires a private prisoner
transportation service to move several
prisoners from one prison to another. The
van provided by the service is designed with
four separately locked cells; each cell holds
up to three prisoners. The lock on one of
20

the cells does not function properly due to
careless maintenance by the service. A
prisoner riding in the cell works open the
lock, breaks out of the cell, and tries to
overpower the driver; the van crosses several
lanes of traffic and hits another vehicle,
injuring the other driver. Leaving aside
possible issues of immunity, the County is
subject to vicarious liability to the other
driver under this Section because
transporting prisoners is an activity that
poses a peculiar risk.
The Liability Suits allege that Donaldson was hired by
VSE “to warehouse, store, transport, dismantle and dispose of
fireworks and other explosives seized by the government.”
No. 23-4, PageID # 325.

ECF

The complaints in the Liability Suits

allege that VSE is liable for its own negligence, as well as for
the negligence of its employees, agents, and/or representatives.
Id.

Protected from employees’ negligence suits by Hawaii’s

worker’s compensation law, Donaldson is not named as a defendant
in the Liability Suits.

Nevertheless, the question of whether

any Donaldson employees were VSE’s “employees, agents, and/or
representatives” is at least arguable on the record before this
court.

Accordingly, the court reads the complaints in the

Liability Suits as asserting claims based on the acts and/or
omissions of Donaldson employees that the plaintiffs in those
actions appear to be alleging VSE is vicariously liable for.
This assertion, if viewed as consistent with section 59 of the
Restatement (Third) of Torts, concerns more than simple, direct
negligence on the part of VSE.
21

The court recognizes that reading the complaints in the
Liability Suits as including vicarious liability assertions risks
reading the complaints as alleging that Donaldson employees
themselves committed negligent acts that VSE is vicariously
liable for.

It would, of course, be anomalous for any plaintiff

to allege a plaintiff’s own contributory or comparative
negligence in a complaint.

But that is not the only reading that

would give meaning to a vicarious liability claim.

The

plaintiffs in the Liability Suits could be alleging that VSE is
vicariously liable for the acts of Donaldson actors other than
themselves.
Interestingly, Endurance has included in the record
before this court a report by the U.S. Chemical Safety and Hazard
Investigation Board, which conducted an investigation following
the fatal explosion.

The reports noted that the Bureau of

Alcohol, Tobacco, Firearms and Explosives had concluded:
that the explosion was likely triggered when
loose explosive pyrotechnic powder, initially
generated as the fireworks were disassembled
outside, spilled or leaked from the boxes
onto the storage magazine floor and was
ignited due to a friction or a metal-to-metal
spark as [Donaldson] employees moved
materials around inside the magazine.
ECF No. 26-14, PageID # 975.

The same report concluded that VSE

had not had personnel with the necessary background and expertise
to recognize the hazards associated with Donaldson’s fireworks
disposal and had deferred to Donaldson’s expertise.

22

Id., PageID

# 993.

The report noted that it was Donaldson that had

“developed a fireworks disposal methodology that evolved into
disassembling seized fireworks and separating and accumulating
their explosive components–-black powder and aerial shells–-into
cardboard boxes.”

Id., PageID # 1004.

This “created a much

larger explosive hazard than the original fireworks represented.”
Id.
The court is not called upon to determine what actually
happened and is certainly not undertaking that task here.

Nor is

the court suggesting that vicarious liability should attach.
Referring above to the discussion in the report, the court seeks
only to show that, not only is reading the complaints in the
Liability Suits as asserting vicarious liability claims against
VSE consistent with the language of those pleadings, it is
consistent with inferences in other materials in the record.
2.

Endurance Fails to Demonstrate that the
Policy’s Pollution Exclusion Applies.

The court turns next to the policy’s pollution
exclusion.

See Policy, ECF No. 23-2, PageID # 289.

That

exclusion states that coverage is excluded for
“Bodily injury” or “property damage” arising
out of the actual, alleged or threatened
discharge, dispersal, seepage, migration,
release or escape of “pollutants” . . . [a]t
or from any premises, site or location which
is or was at any time used by or for any
insured or others for the handling, storage,
disposal, processing or treatment of waste.

23

See copy of policy attached to Concise Statement of Endurance,
ECF No. 26-9, PageId # 782-83.

The policy defines “Pollutants”

as “any solid, liquid, gaseous or thermal irritant or
contaminant, including smoke, vapor, soot, fumes, acids, alkalis,
chemicals and waste.

Waste includes materials to be recycled,

reconditioned or reclaimed.”

ECF No. 23-2, PageID # 296.

Arguing that the fireworks qualify as “waste,”
Endurance says that the explosion was an “actual . . . discharge
of ‘pollutants’” that caused bodily harm and that such harm falls
under the pollution exclusion contained in the policy.

The

burden is on Endurance to establish the applicability of the
pollution exclusion.
914.

See Sentinel, 76 Haw. at 297, 875 P.2d at

This court is unpersuaded that the pollution exclusion so

clearly applies that Endurance is relieved of even the duty to
defend.
If this were VSE’s motion seeking to establish
Endurance’s duty to defend, VSE, as the insured, would only have
to establish a possibility that the claims against it were
covered.
108.

See Dairy Road Partners, 92 Haw. at 413, 922 P.2d at

Even with Charter Oak as the movant, this court concludes

that Endurance may not rest on the pollution exclusion as
relieving it of a duty to defend VSE, given the possibility that
the exclusion is inapplicable.
The California Supreme Court examined a pollution
exclusion in detail in MacKinnon v. Truck Insurance Exchange, 73
24

P.3d 1205 (Cal. 2003).

That case involved an insurer’s

contention that the pollution exclusion in a comprehensive
general liability insurance policy issued to an apartment owner
excluded coverage for claims against the owner for the death of a
tenant caused by the spraying of a pesticide intended to
eradicate yellow jackets in the apartment building.

Id. at 1207.

Noting that the scope of the pollution exclusion had been
“litigated extensively in other jurisdictions,” the court
remarked, “To say there is a lack of unanimity as to how the
clause should be interpreted is an understatement.”2

Id. at

1208.
The California Supreme Court determined that the
insurer’s contention would lead to “absurd results” and ignore
“the familiar connotations of the words used in the exclusion.”
Id. at 1216.

The policy at issue in that case, like Endurance’s

policy, defined “pollutant” as “any solid, liquid, gaseous or
thermal any irritant or contaminant, including smoke, vapor,

2

In Group Builders, Inc. v. Admiral Insurance Company,
2013 WL 1579600, *10 (Haw. Ct. App. Apr. 15, 2013), the Hawaii
Intermediate Court of Appeals noted that the insurer owed a duty
to defend “because the courts were split as to whether
construction defect claims constituted an ‘occurrence’ under a
CGL policy.” This is not a position that has been articulated by
the Hawaii Supreme Court. On the present motion, this court need
not examine whether, because it raises the possibility of
coverage, a split of authority automatically triggers a duty to
defend. See Sentinel, 76 Haw. at 287, 875 P.2d at 904 (insurer
owes duty to defend if there is any possibility of coverage and
any doubt must be resolved in favor of insured). There are
grounds independent of any split that require Endurance to
provide VSE with a defense.
25

soot, fumes, acids, alkalis, chemicals and waste materials.”
at 1207.

Id.

Quoting Regional Bank of Colorado v. St. Paul Fire and

Marine Insurance Company, 35 F.3d 494 (10th Cir. 1994), the court
noted that a reasonable policy holder would not have understood
the policy to exclude coverage for “anything that irritate[d].”
Instead, the court reasoned that “irritant” had to be “construed
in the context of how it is used in the policy, i.e., defining
‘pollutant.’” Id. at 1216.

The court relied on the following

statement from Regional Bank of Colorado:
While a reasonable person of ordinary
intelligence might well understand carbon
monoxide is a pollutant when it is emitted in
an industrial or environmental setting, an
ordinary policyholder would not reasonably
characterize carbon monoxide emitted from a
residential heater which malfunctioned as
“pollution.” It seems far more reasonable
that a policyholder would understand it as
being limited to irritants and contaminants
commonly thought of as pollution and not as
applying to every possible irritant or
contaminant imaginable.
MacKinnon, 73 P.2d at 1216 (quoting 35 F.3d at 498).
The MacKinnon court limited the pollution exclusion to
injuries arising from events commonly thought of as pollution,
“i.e. environmental pollution.”

Id.

With the term so limited,

the court concluded that the pollution exclusion did not exclude
coverage for the wrongful death claims arising out of the
spraying of a pesticide.

Id. at 1218.

In the District of Hawaii, at least two federal judges
have interpreted Hawaii law as diverging from the articulation of
26

California law in MacKinnon.

In Apana v. TIG Insurance Company,

504 F. Supp. 2d 998 (D. Haw. 2007), Judge J. Michael Seabright
determined that the pollution exclusion at issue in that case
excluded coverage for injuries caused when a plumber “poured an
extremely strong drain cleaner down the maintenance drain,
releasing noxious fumes” at a Wal-Mart store.
1006.

Id. at 1001 and

Judge Seabright ruled that the insurer had no duty to

indemnify, predicting that the Hawaii Supreme Court would find
that the discharge of an extremely strong drain cleaner into the
air falls within the pollution exclusion “under a plain, common,
and ordinary understanding.”

Id. at 1006.

Judge Seabright

rejected any limitation of the pollution exclusion to
environmental pollution, given the absence of such a limitation
in the exclusion itself.

Id.

Judge Seabright, did however, note

that the interpretation of the pollution exclusion under the
facts in that case involved “an open question under Hawaii law.”
Id. at 1004.

Adopting the notion that uncertainty about the law

triggers a duty to defend, he ruled that the insurer had a duty
to defend its insured given the possibility that the insured was
entitled to indemnification.

Id.

In Allen v. Scottsdale Insurance Company, 307 F. Supp.
2d 1170 (D. Haw. 2004), Judge David Alan Ezra similarly applied a
pollution exclusion to exclude coverage under an insurance
policy.

In that case, the issue of insurance coverage concerned

claims of allergic reactions and other physical and emotional
27

injuries caused by the escape of concrete dust from a concrete
recycling plant.

Id. at 1172.

Like Judge Seabright in Apana,

Judge Ezra concluded that the pollution exclusion was unambiguous
and that concrete dust qualified as a “pollutant.”
78.

Id. at 1176-

However, he concluded that the insurer lacked even a duty to

defend its insured.

Id. at 1179.

Because only the duty to defend is at issue in the case
before this court, this court need not decide whether the
pollution exclusion actually applies here.

This court only needs

to determine whether coverage is possible, i.e., whether there is
a possibility that the exclusion is inapplicable.
Partners, 92 Haw. at 412-13, 922 P.2d at 107-08.

See Dairy Road
Unlike in Apana

and Allen, this case does not clearly involve something that is a
“pollutant.”

Of course, like the drain cleaner in Apana,

fireworks are inherently dangerous.

Fireworks might be

considered hazardous waste on their own, but it was not the
fireworks themselves that caused the injury.

Unlike the drain

cleaner (or the dust in Allen), fireworks can sit out exposed
without necessarily emitting fumes, causing irritation, or
generating what a layperson would consider pollution.
Even if the court looks at the flammable components of
the fireworks, not at the manufactured fireworks, the mere
presence of those components did not cause any irritation or
contamination, so it is not clear that the components fit the
definition of “pollutants” for purposes of this case.
28

“Pollutants” are defined as “any solid, liquid, gaseous or
thermal irritant or contaminant.”

ECF No. 23-2, PageID # 296.

Endurance points out that the definition goes on to say
“including smoke, vapor, soot, fumes, acids, alkalis, chemicals
and waste.

Waste includes materials to be recycled,

reconditioned or reclaimed.”

Id.

According to Endurance,

because what Donaldson was destroying should qualify as “waste,”
it also qualifies as a “pollutant.”

This court reads the words

following “including” as examples of “irritants” or
“contaminants.”

That is, “waste” cannot be a “pollutant” without

being an “irritant” or “contaminant.”

Because “waste” does not

expand the definition of “pollution” beyond “irritants” and
“contaminants,” some forms of “waste” (i.e., waste that is nether
an “irritant” nor a “contaminant”) may not necessarily be
“pollutants.”

Thus, while “vapor” is part of the list that

includes “waste,” not all “vapors” are “pollutants.”

Water

vapor, when it is not an “irritant” or “contaminant,” would not
be a “pollutant.”
Even if pollutants could be said to be unquestionably
involved here, the possibility remains that the pollution
exclusion is inapplicable and that coverage is available under
Endurance's policy.

The components might not have caused the

injuries at the heart of the Liability Suits had they not
ignited.

Unlike a coverage provision, an exclusion is read

narrowly.

See Island Ins. Co. v. Arakaki, 2010 WL 2414924, *6
29

(Haw. Ct. App. June 16, 2010) (“Hawai`i courts construe the
exclusions in policies narrowly.”);3 see also Fortune v. Wong, 68
Haw. 1, 10, 702 P.2d 299, 305 (Haw. 1985) (approving general
proposition that insurance policies are construed broadly and
exclusions are construed narrowly).

The pollution exclusion

provides for exclusion of coverage for bodily injury arising out
of the “discharge, dispersal, seepage, migration, release or
escape” of pollutants.

Even if the fatal explosion could be said

to have “arisen out of” the presence of the fireworks or their
components, and even if the fireworks or their components were
“pollutants,” it is not at all clear that, in the Liability
Suits, VSE is being sued in connection with an explosion
allegedly arising out of “the discharge, dispersal, seepage,
migration, release or escape” of pollutants.
For example, in paragraph 25 of the complaint filed in
the Cabalce case, the plaintiffs in that case allege:
25. VSE failed its safety
responsibilities in, among other things,
allowing the disposal of explosives and fireworks in the same
location where the explosives and fireworks were being stored;
the use of tools which could cause ignition and/or explosion of
the explosives and fireworks; the use of equipment such as pumps
powered by electrical motors which could cause ignition and/or
explosion of the explosives and fireworks; the storing and
disposal of explosives and fireworks in an environment that was
susceptible to static electricity which could cause ignition
and/or explosion of the explosives and fireworks; storing and
dismantling explosives and fireworks in the same location where
3

After July 1, 2008, any disposition of the Hawaii
courts, including unpublished opinions, may be cited in any
proceeding. Such unpublished dispositions “are not precedent,
but may be cited for persuasive value.” Haw. R. App. P. 35(c).
30

other flammable and explosive materials such as diesel oil were
also being kept or used; dismantling fireworks and explosives in
a confined space; using a flammable material such as diesel oil
to dismantle the fireworks and explosives; and/or conducting
storage and dismantling operations of explosives and fireworks
without an adequate safety plan, analysis and/or warnings.
ECF No. 23-4.
Static electricity and sparks from electrical equipment
are cited as possibly having ignited the fireworks or fireworks
components.

If the fireworks exploded after catching on fire via

static or an equipment spark, it is difficult to see how the
“discharge, dispersal, seepage, migration, release or escape” of
pollutants could be said to have caused the death of Donaldson
employees, even assuming the fireworks or the fireworks
components are pollutants.
This court stresses that it is not here opining on the
cause of the explosion.

Rather, the court is confining itself to

examining what VSE is being sued for, and comparing those claims
to what is covered and what is excluded.

That examination and

comparison do not permit the conclusion that the existence of the
pollution exclusion leaves no possibility of coverage.

Endurance

therefore owes VSE a duty to defend it in the Liability Suits
notwithstanding the pollution exclusion.
C.

Endurance’s Insurance Policy is “Primary.”

Having determined that Endurance owes a duty to defend
VSE, the court turns to the relationship between the Endurance
and Charter Oak policies.

Endorsement Number 16 to Endurance’s

31

policy states that “it is hereby agreed that this policy shall be
considered primary to any similar insurance held by third parties
in respect to work performed by you [Donaldson] under any written
contractual agreement with such third party.”
PageID # 309.

See ECF No. 23-2,

Under this provision, Endurance’s obligation to

defend and indemnify VSE under its policy is “primary” to Charter
Oak’s obligation.
Endurance argues that, instead of being primarily
responsible for those costs under Endorsement Number 16, it need
only share defense costs.

In that regard, Endurance points to

the Contractor’s Pollution Liability Coverage, which states,
K. OTHER INSURANCE
If any part of either damages or claims
expenses is insured under this Policy and any
other current, prior or subsequent Policy,
the Policy shall provide coverage for such
damages or claims expenses on a pro rata
basis with such other Policy according to the
applicable Limits of Liability of this Policy
and such other Policy.
As noted above, the Contractor’s Pollution Liability Coverage is
not at issue on this motion, and the Comprehensive General
Liability Coverage provisions contain no analogous pro rata
provision.
VI.

ENDURANCE’S RULE 56(d) REQUEST IS DENIED.
At the hearing on the motion, Endurance requested a

continuance of this motion pursuant to Rule 56(d) of the Federal
Rules of Civil Procedure, claiming that it needed to conduct

32

discovery as to the cause of the explosion.

That request is

denied.
Endurance submitted no affidavit or declaration
explaining why, without discovery, it could not present facts
essential to justifying its opposition.
required by Rule 56(d).

Such an explanation is

Moreover, it is not clear how discovery

into the cause of the explosion would affect this court’s
determination as to whether Endurance has a duty to defend VSE
from the Liability Suits.

The claims in the complaints filed in

the Liability Suits control whether a duty to defend is
triggered, regardless of whether those claims are ultimately
proven to be meritorious.
VII.

CONCLUSION.
Partial summary judgment is granted in favor of Charter

Oak.

Endurance owes VSE a duty to defend VSE from the Liability

Suits, and Endurance’s policy is “primary” to Charter Oak’s
policy.

Endurance must reimburse Charter Oak for reasonable

amounts spent defending VSE.
amount is reasonable.

The court does not here decide what

Endurance is ordered to begin providing

VSE with a defense forthwith.
If the parties anticipate asking the court to determine
the amount that Endurance must reimburse Charter Oak for, a
motion seeking that determination must be filed no later than
September 30, 2014.

Before filing any such motion, the parties

33

must meet and confer in an attempt to agree as to amounts and/or
particular issue(s).
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, August 20, 2014.

/s/ Susan Oki Mollway
Susan Oki Mollway
Chief United States District Judge
The Charter Oak Fire and Insurance Company v. Endurance American Specialty Insurance
Company, Civ. No. 13-00558 SOM/BMK; ORDER GRANTING MOTION FOR PARTIAL SUMMARY

JUDGMENT

34