State Farm Fire and Casualty Company v. Saarman Construction, Ltd.
Filing
47
ORDER DENYING MOTION FOR SUMMARY JUDGMENT re 30 - Signed by JUDGE DERRICK K. WATSON on 3/5/2018. "Viewing the facts and drawing reasonable inferences in the light most favorable to Saarman and Ocean Tile, the Court determines that genuine issues of material fact exist that preclude awarding summary judgment to State Farm. The MSJ (Dkt. No. 30) is therefore DENIED." (emt, )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
UNITED STATES DISTRICT COURT
DISTRICT OF HAWAI‘I
STATE FARM FIRE AND CASUALTY
COMPANY, AN ILLINOIS
CORPORATION;
Plaintiff,
CIV. NO. 16-00315 DKW-KJM
ORDER DENYING MOTION FOR
SUMMARY JUDGMENT
vs.
SAARMAN CONSTRUCTION, LTD.,
and OCEAN TILE, LLC,
Defendants.
This insurance coverage dispute arises out of a fatal workplace injury to an
employee of Ocean Tile, the named insured under a commercial policy placed with
State Farm. Before the Court is State Farm’s Motion for Summary Judgment
(“MSJ”) on both its Complaint for Declaratory Judgment, and on the Counterclaim
for Declaratory Judgment and for Breach of the Covenant of Good Faith and Fair
Dealing filed by Saarman, Ocean Tile’s general contractor. MSJ, Dkt. No. 30. For
the reasons set forth below, State Farm’s MSJ is DENIED.
BACKGROUND
I.
Underlying Facts
In 2015, Saarman served as the general contractor for a renovation project
located at the Golf Villas at Maunalani Resort (the “Golf Villas”) in Waimea,
Hawaii (the “Project”). First Am. Compl. ¶ 9, Dkt. No. 17 [hereinafter FAC].
Saarman was hired to plan, conduct, oversee and inspect the renovations associated
with the Project (FAC ¶ 9), and towards this end, subcontracted with Ocean Tile to
install tiles outside of Building 1, Unit 1 of the Golf Villas (FAC ¶¶ 10, 19, Dkt.
No. 17).
On September 16, 2015, Lawrence S. Deponte, an Ocean Tile employee, fell
while working on scaffolding Saarman allegedly provided. Deponte died of his
injuries several hours later. FAC ¶ 12(A), Dkt. No. 17.
On April 8, 2016, Ashley I. Narciso, individually and as the personal
representative of Deponte’s Estate, commenced an action against Saarman in the
Circuit Court of the Third Circuit, State of Hawaii, Civil No. 16-1-126K
(“Underlying Lawsuit”). The Underlying Lawsuit alleges that on the date of the
workplace accident, Saarman controlled the Project, including the tile work
performed by Ocean Tile, and Saarman was therefore liable for the acts and
omissions of Ocean Tile under the doctrine of respondeat superior. FAC ¶¶ 12(B)–
2
(C), Dkt. No. 17.1 The Underlying Lawsuit seeks general and special damages,
including pain and suffering, emotional distress, loss of future earnings, medical
expenses, funeral and burial expenses, and all other damages provided in Hawai‘i
Revised Statutes (“HRS”) § 663-3. FAC ¶ 13, Dkt. No. 17. There is also a
“survivors’ claim” asserted by Deponte’s two children that seeks general and
special damages, including emotional distress, loss of consortium, society,
companionship, comfort, support, economic support, care and attention, under
HRS § 663-3.2
On June 12, 2016, Saarman filed a Third-Party Complaint against Ocean
Tile in the Underlying Lawsuit (“Underlying Third-Party Complaint”). FAC ¶ 15,
Dkt. No. 17; see Harada-Stone Decl., Ex. 1 [Underlying Third-Party Compl.] at 8–
28, Dkt. No. 31-2. In it, Saarman denies having caused or contributed to the
1
The Underlying Lawsuit alleges that Saarman: (i) owed Deponte a duty to provide a safe,
hazard-free work place (FAC ¶ 12(D), Dkt. No. 17), and breached that duty by both negligently
failing to properly supervise the tile work and the associated use of scaffolding (FAC ¶ 12(E)),
and by failing to ensure that the tile work was performed “in accordance with all proper
workplace safety laws and standards” (FAC ¶ 12(F)); (ii) owed Deponte a duty to keep the
scaffolding equipment in a reasonably safe condition and correct or warn of dangerous
conditions of which Saarman had notice, and breached that duty by both negligently failing to
inspect and maintain the equipment despite knowledge of dangerous conditions, and by failing to
adequately warn the Project’s workers of such dangerous conditions (FAC ¶ 12(G)); (iii) failed
to keep the scaffolding equipment in a safe condition and maintain compliance with safety codes
and laws and standards (FAC ¶ 12(J)); and (iv) failed to employ or require others to employ
special precautions even though Saarman should have known that the subject incident presented
a peculiar risk of harm, unless special precautions were taken (FAC ¶ 12(K)).
2
Deponte’s estate has also allegedly submitted a claim to Ocean Tile for workers’ compensation
benefits under Ocean Tile’s workers’ compensation insurance policy. FAC ¶ 22, Dkt. No. 17.
3
injuries and damages alleged by the plaintiffs in the Underlying Lawsuit
(“Underlying Plaintiffs”) (Underlying Third-Party Compl. ¶¶ 5–6, Dkt. No. 31-2 at
10); Saarman argues that if Underlying Plaintiffs suffered the injuries and damages
asserted therein, then “such injuries or damages were caused by the negligence,
strict liability, breach of warranty, breach of contract, improper acts or omissions,
wrongdoing or breach of duty on the part of Ocean Tile and other Third-Party
Defendants (Underlying Third-Party Compl. ¶ 7, Dkt. No. 31-2 at 3); and Saarman
contends that
if any judgment is entered against Defendant and Third Party
Plaintiff Saarman, such damages, costs, expenses and attorneys’
fees will have been caused by Ocean Tile and other Third-Party
Defendants for whom Saarman is entitled to written
indemnification, indemnification, contribution, subrogation
and/or reimbursement from Ocean Tile and other Third-Party
Defendants for the entire amount of such judgment, if any,
rendered against Saarman, together with its expenses, costs and
reasonable attorneys’ fees.
(Underlying Third-Party Compl. ¶ 8, Dkt. No. 31-2 at 3). See FAC ¶¶ 16–18.
In Count II of the Underlying Third-Party Complaint, Saarman also alleges
that the Subcontract Agreement between Saarman and Ocean Tile signed on or
about April 2, 2015 (“Subcontract”), obligated Ocean Tile to “indemnify, defend
and hold harmless Saarman from and against claims, demands, causes of action,
damages, costs, expenses, actual attorney’s fees, losses or liability arising out of or
in connection with Ocean Tile’s operation and/or performance under the
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Subcontract Agreement.” Ching Decl., Ex. A [Subcontract] § 11, Dkt. No. 34-3 at
11; see also FAC ¶ 20, Dkt. No. 17. As such, the Subcontract allegedly entitles
Saarman to a “full and complete defense and indemnification from Ocean Tile for
the claims asserted against Saarman” in the Underlying Lawsuit. Subcontract § 12,
Dkt. No. 34-3 at 12; FAC ¶ 20.
Ocean Tile has tendered the Underlying Third-Party Complaint to State
Farm pursuant to Ocean Tile’s policy, and State Farm is defending Ocean Tile
against the Underlying Third-Party Complaint pursuant to a reservation of rights.
FAC ¶ 25, Dkt. No. 17; see also Ocean Tile Counterclaim ¶¶ 8–10, Dkt. No. 24-1.
II.
Contracts and Insurance Documents
State Farm’s MSJ implicates the parties’ various insurance and other
agreements, the relevant provisions of which are described below.
State Farm–Ocean Tile Policy
State Farm issued a Business Owners Coverage insurance policy to Ocean
Tile, Policy No. 91-BF-C578-3 (the “Policy”), that spans the policy period from
January 1, 2015 to January 1, 2016. FAC ¶ 23. See Corder Decl., Exs. 3 [Policy
Declarations], Dkt. No. 31-5; 4 [Businessowners Coverage Form CMP-4100], Dkt.
No. 31-6; 5 [Sched. Endorsement CMP-4786], Dkt. No. 31-7; 6 [Blanket
Endorsement CMP-4785], Dkt. No. 31-8.
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The Policy generally obligates State Farm to provide coverage for “those
sums that the insured becomes legally obligated to pay as damages because of
‘bodily injury’” and preserves “the right and duty to defend the insured against any
‘suit’ seeking those damages” provided, however, that there will be “no duty to
defend the insured against any ‘suit’ seeking damages for ‘bodily injury[]’ . . . to
which this insurance does not apply.” Coverage Form, Section II—Business
Liability ¶ 1, Dkt. No. 31-6 at 24. The Policy further states:
2.
If we defend an insured against a “suit” and an indemnitee of
the insured is also named as a party to the “suit,” we will
defend that indemnitee if all of the following conditions are
met:
a.
The “suit” against the indemnitee seeks damages for
which the insured has assumed the liability of the
indemnitee in a contract or agreement that is an “insured
contract”;
b.
This insurance applies to such liability assumed by the
insured; [and]
c.
The obligation to defend, or the cost of the defense of,
that indemnitee, has also been assumed by the insured in
the same “insured contract”; . . . .
Coverage Form, Section II—Suppl. Payments ¶ 2, Dkt. No. 31-6 at 25.
Under exclusions, the Policy specifies that coverage does not include “any
obligation of the insured under a workers’ compensation, disability benefits or
unemployment compensation law” (Coverage Form, Section II—Exclusions ¶ 4,
Dkt. No. 31-6 at 26) or “employer’s liability” for “bodily injury” to “[a]n
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‘employee’ or a former ‘employee’ of the insured arising out of and in the course
of . . . (a) Employment by the insured; or (b) Performing duties related to the
conduct of the insured’s business” (Coverage Form, Section II—Exclusions ¶ 5a,
Dkt. No. 31-6 at 26)). See also Coverage Form, Section II—Exclusions ¶ 5b, Dkt.
No. 31-6 at 26 (explaining that the employer’s liability exclusion applies
“[w]hether the insured may be liable as an employer or in any other capacity,” and
“[t]o any obligation to share damages with or repay someone else who must pay
damages because of the injury,” but it “does not apply to liability assumed by the
insured under an ‘insured contract’”).
Under the Policy’s Endorsement CMP-4786, Saarman is listed as an
additional insured for both ongoing and completed operations. Policy Decl. at 6,
Dkt. No. 31-5; see also Counterclaim for Declaratory & Related Relief ¶¶ 12, 13,
Dkt. No. 22-1 [hereinafter Saarman Counterclaim]. As an “additional insured,”
Saarman is covered under the Policy “with respect to liability for ‘bodily injury’
caused, in whole or in part,” by the insured’s “acts or omissions” or “[t]he acts or
omissions of those acting on [the insured’s] behalf . . . in the performance of . . .
ongoing operations for that additional insured.” Sched. Endorsement CMP-4786,
Section II—Who Is An Insured ¶ 1a, Dkt. No. 31-7. Additionally, “[a]ny
insurance provided to the additional insured shall only apply with respect to a
claim made or a ‘suit’ brought for damages for which [the insured is] provided
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coverage,” and “[t]he insurance afforded the additional insured shall be primary
insurance.” Sched. Endorsement CMP-4786, Section II—Who Is An Insured ¶¶ 2,
3, Dkt. No. 31-7. And with regard to “Separation of Insureds,” the Policy sets
forth the following:
Except with respect to the SECTION II—LIMITS OF INSURANCE,
and any rights or duties specifically assigned in this policy to the first
Named Insured, this insurance applies:
a.
As if each Named Insured were the only Named
Insured; and
b.
Separately to each insured against whom claim is
made or “suit” is brought.”
Coverage Form, Section II—General Conditions ¶ 5, Dkt. No. 31-6 at 35.
Saarman–Ocean Tile Subcontract
On April 2, 2015, Saarman, as “Contractor,” entered into a Subcontract
(Dkt. No. 34-3) with Ocean Tile, as “Subcontractor,” for the installation of tile on
the exterior of the Golf Villas. See Saarman Counterclaim ¶ 8, Dkt. No. 22-1.
Article 9 of the Subcontract (see Dkt. No. 34-3 at 15–16) obligates Ocean
Tile to indemnify Saarman from claims “arising out of or in connection with
Subcontractor’s operations and/or performance under this Subcontract.” These
covered claims include, but are not limited to, those arising out of: personal injury
(Subcontract § 9.1.1), judicial penalties (Subcontract § 9.1.2), and failure to
comply with the Subcontract’s insurance provisions (Subcontract § 9.1.6); “[a]ny
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violation or infraction by Subcontractor of any law, order, citation, rule, regulation,
standard, ordinance or statute in any way relating to the occupational health or
safety of employees including, but not limited to, safety regulations, the use of any
Indemnitee’s or other’s . . . scaffolds,” except that “Subcontractor . . . shall not be
obligated under this Subcontract to indemnify an Indemnitee for Claims arising
from the sole negligence and/or willful misconduct of an Indemnitee or their
agents, employees or independent contractors who are directly responsible to an
Indemnitee” (Subcontract § 9.1.7). The Subcontract’s indemnification provisions
also state that the Subcontractor shall:
9.2.1 . . . [D]efend all Claims that may be brought or instituted by
third persons, including, but not limited to, . . employees of
Subcontractor, against any Indemnitee;
9.2.2 Pay and satisfy any judgment or decree that may be rendered
against any Indemnitee or their agents or employees, or any of them,
arising out of such Claim; and/or
9.2.3 Reimburse any Indemnitee for any and all legal expense
incurred by them in connection herewith or in enforcing the indemnity
granted in this Indemnification Rider.
Subcontract §§ 9.2.1–9.2.3, Dkt. No. 34-3 at 16.
Article 17 of the Subcontract (Dkt. No. 34-3 at 22–25) requires Ocean Tile
to procure Commercial General Liability insurance, with minimum limits of not
less than $1,000,000 each occurrence, to cover bodily injury (Subcontract
§§ 17.2.2, 17.4.1). See Saarman Counterclaim ¶ 9, Dkt. No. 22-1. Saarman claims
9
that “[t]he Subcontract between Saarman Construction and Ocean Tile constitutes
an insured contract under [Ocean Tile’s] . . . Policy” with State Farm. Saarman
Counterclaim ¶ 14, Dkt. No. 22-1.
III.
Procedural Background
State Farm initiated this action on June 15, 2016. Compl., Dkt. No. 1.
State Farm’s First Amended Complaint
State Farm filed its First Amended Complaint for Declaratory Judgment on
August 24, 2016. FAC, Dkt. No. 17. The FAC seeks two binding declarations—
(1) “that State Farm has no duty to indemnify Saarman for the claims asserted
against it in the Underlying Lawsuit or for any claims that may arise out of the
subject matter of the Underlying Lawsuit”; and (2) “that State Farm has no duty to
indemnify Ocean Tile for the claims that may arise out of the subject matter of the
Underlying Third-Party Complaint.” FAC at 15, Dkt. No .17.
Saarman answered State Farm’s FAC on September 12, 2016 (Dkt. No. 22 at
2–7), and Ocean Tile answered on September 30, 2016 (Dkt. No. 24). Saarman
also filed its own claims against both State Farm (see Saarman Counterclaim, Dkt.
No. 22-1) and against Ocean Tile (see Cross-Claim Against Defendant Ocean Tile,
LLC, Dkt. No. 22-2 [hereinafter Saarman Cross-Claim]).
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Saarman’s Claims
In its Counterclaim against State Farm, Saarman pleads two causes of action.
Saarman Counterclaim, Dkt. No. 22-1. In Count I for Declaratory Relief (id. at
¶¶ 11–18), Saarman alleges that State Farm owes a “duty to defend and indemnify
Saarman” under the Policy “with respect to the claims alleged against Saarman . . .
in the Underlying Lawsuit” (id. at ¶ 15). Saarman “tendered the defense of the
Underlying Lawsuit to [State Farm]” pursuant to this duty, and alleges that “[State
Farm] accepted the tender of defense pursuant to a reservation of right letter dated
June 2, 2016.” Saarman Counterclaim ¶ 16, Dkt. No. 22-1. In Count II (id. at
¶¶ 19–24), Saarman further alleges that State Farm has breached its Duty of Good
Faith and Fair Dealing “by refusing to defend Saarman . . . without reservation
and/or indemnify Saarman . . . for the claims made against it in the Underlying
Lawsuit” (id. at ¶ 22), and by “misrepresenting the benefits, conditions or terms of
coverage, and/or by other actions inconsistent with its duties to protect the interests
of its insureds and to place its interests ahead of the interests of its insureds,
including Saarman” (id. at ¶ 23). Saarman claims that it suffered damages from
the actions alleged, and therefore prays for defense/indemnity costs, among others,
as relief.
State Farm answered Saarman’s Counterclaim on September 30, 2016 (Dkt.
No. 23), arguing that even though “Saarman was named as an additional insured
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under the Policy by endorsement CMP-4786[,] State Farm denies that Saarman
qualifies as an additional insured under the Policy” (State Farm SC-Answer ¶ 9,
Dkt. No. 23), denies “that it has any obligation to indemnify, defend, or otherwise
contribute to any judgment against Saarman in the Underlying Lawsuit” (id. at
¶ 18), and asserts that Saarman’s claims are barred under the terms and conditions
of the Policy and the declarations and endorsements contained therein (id. at ¶ 19,
Dkt. No. 23).
In its Cross-Claim against Ocean Tile, filed September 12, 2016 (Dkt. No.
22-2), Saarman brings claims for “Declaratory Relief” (Saarman Cross-Claim at
¶¶ 9–14, Dkt. No. 22-2 (Count I)) and for “Indemnity, Contribution, Subrogation”
(Saarman Cross-Claim at ¶¶ 15–18 (Count II)). In support of Count I for
Declaratory Relief, Saarman alleges that “the Subcontract Agreement obligates
Ocean Tile to the fullest extent permitted by law to indemnify, defend and hold
harmless Saarman” from various claims and liability “arising out of or in
connection with Ocean Tile’s operations and/or performance under the Subcontract
Agreement.” Saarman Cross-Claim ¶ 11, Dkt. No. 22-2. As a result, Saarman
states that it is “entitled to a full and complete defense and indemnification from
Ocean Tile for the claims asserted against Saarman in the Underlying Lawsuit”
(Saarman Cross-Claim ¶¶ 12–14). With respect to Count II for “Indemnity,
Contribution, Subrogation,” Saarman alleges:
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If State Farm prevails on its claims resulting in the denial of defense
and indemnity coverage to Saarman Construction and/or
reimbursement of any funds expended by any other party on behalf of
or through Saarman Construction, then Saarman Construction is
entitled to indemnification, contribution, subrogation and/or
reimbursement from Ocean Tile for the damages, costs, expenses and
attorneys’ fees incurred by Saarman Construction.
Saarman Cross-Claim ¶ 17, Dkt. No. 22-2.
Ocean Tile’s Claims
On September 30, 2016, Ocean Tile filed a Counterclaim for Declaratory
Judgment against State Farm. Ocean Tile Counterclaim, Dkt. No. 24-1 [hereinafter
OT Counterclaim]. After Ocean Tile tendered defense of Saarman’s Underlying
Third-Party Complaint to its insurer (State Farm), State Farm “accepted defense of
the Underlying Third-Party Complaint against Ocean Tile” and “is currently
providing Ocean Tile a defense in the [Underlying] [L]awsuit.” OT Counterclaim
¶¶ 8–10, Dkt. No. 24-1. Indeed, Ocean Tile states that its “[r]eceipt of the [FAC]
in this matter was the first indication from State Farm to Ocean Tile that State
Farm believed it was not obligated to defend Ocean Tile” in the Underlying
Lawsuit. OT Counterclaim ¶ 11, Dkt. No. 24-1. As a result, Ocean Tile “requests
a declaratory judgment that State Farm must defend and indemnify Ocean Tile in
the [Underlying] [L]awsuit pursuant to 28 U.S.C. § 2201.” OT Counterclaim ¶ 13,
Dkt. No. 24-1.
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State Farm answered the allegations in Ocean Tile’s Counterclaim on
November 21, 2016. State Farm OT-Answer, Dkt. No. 25. In the answer, State
Farm “denies it ‘accepted’ defense of the [Underlying] Third Party Complaint
against Ocean Tile,” and instead represents that “State Farm agreed to participate
in Ocean Tile’s defense subject to a full reservation of State Farm’s rights” under
the Policy. State Farm OT-Answer ¶ 6, Dkt. No. 25 (emphasis added). State Farm
also contends that “Ocean Tile’s claim for relief is barred pursuant to the terms and
conditions of the . . . Policy and the declarations and endorsements contained
therein” and urges dismissal with prejudice of Ocean Tile’s Counterclaim. State
Farm OT-Answer ¶¶ 11, 13A, Dkt. No. 25.
State Farm Motion for Summary Judgment
State Farm seeks summary judgment against Saarman on (1) State Farm’s
Complaint for Declaratory Judgment, and (2) Saarman’s Counterclaim for
declaratory judgment and for breach of the covenant of good faith and fair dealing.
MSJ, Dkt. No. 30. State Farm principally asserts that “[b]ecause the claims [in the
Underlying Complaint] relate solely to Saarman’s own alleged negligence, and
because Ocean Tile is not covered for such claims under the . . . [P]olicy, there is
no [P]olicy coverage for the claims for Saarman as an additional insured.” Mem.
in Supp. of MSJ at 2, Dkt. No. 30-1 (relying on “Employer’s Liability” exclusion
14
to the Policy). As such, State Farm asks the Court to declare “that it has no duty to
indemnify Saarman” for claims in the Underlying Lawsuit. Id.
The Court heard oral arguments on State Farm’s MSJ on November 21,
2017 (see EP, Dkt. No. 40), after which the Court took matters under advisement.
The instant disposition follows.
LEGAL STANDARD
Pursuant to Federal Rules of Civil Procedure (“FRCP”) Rule 56(a), a party is
entitled to summary judgment “if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of
law.” The moving party is entitled to judgment as a matter of law when the
nonmoving party fails to make a sufficient showing on an essential element of a
claim in the case on which the nonmoving party has the burden of proof. Celotex
Corp. v. Catrett, 477 U.S. 317, 323 (1986).
To meet its burden, “the moving party must either produce evidence
negating an essential element of the nonmoving party’s claim or defense or show
that the nonmoving party does not have enough evidence of an essential element to
carry its ultimate burden of persuasion at trial.” Nissan Fire & Marine Ins. Co. v.
Fritz Cos., Inc., 210 F.3d 1099, 1102 (9th Cir. 2000) (citing High Tech Gays v.
Defense Indus. Sec. Clearance Office, 895 F.2d 563, 574 (9th Cir. 1990)). Once
15
the moving party has satisfied its initial burden of production, 3 the burden shifts to
the party opposing summary judgment “to demonstrate the existence of a genuine
dispute.” Kowalski v. Mommy Gina Tuna Res., 574 F. Supp. 2d 1160, 1162 (D.
Haw. 2008) (citing Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.
574, 586–87 (1986)). To meet this burden, the non-moving party must do “more
than simply show that there is some metaphysical doubt as to the material facts”
and instead must “come forward with specific facts showing that there is a genuine
issue for trial.” Matsushita Elec., 475 U.S. at 586–87 (citations and internal
quotation marks omitted). At least some “significant probative evidence tending to
support the complaint” must be produced. T.W. Elec. Serv., Inc. v. Pac. Elec.
Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987) (quoting First Nat’l Bank of
Ariz. v. Cities Serv. Co., 391 U.S. 253, 290 (1968)); see also Addisu v. Fred Meyer,
Inc., 198 F.3d 1130, 1134 (9th Cir. 2000) (“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.
3
“If a moving party fails to carry its initial burden of production, the nonmoving party has no
obligation to produce anything, even if the nonmoving party would have the ultimate burden of
persuasion at trial.” Nissan Fire & Marine Ins. at 1102–03 (citing Adickes v. S.H. Kress & Co.,
398 U.S. 144, 160 (1970); High Tech Gays, 895 F.2d at 574; A. Friedenthal, A. Miller, & M.
Kane, Civil Procedure 460 (3d ed. 1999)).
16
Arch’l Bldg. Prods., Inc. v. Franciscan Ceramics, Inc., 818 F.2d 1466, 1468 (9th
Cir. 1987) (citing Matsushita Elec., 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.”). For, if no evidence
can be mustered to sustain the nonmoving party’s position, a trial would be useless.
See Kahumoku v. Titan Mar., LLC, 486 F. Supp. 2d 1144, 1150 (D. Haw. 2007)
(explaining that one of the primary purposes of summary judgment is to “isolate
and dispose of factually unsupported claims or defenses”) (quoting Celotex, 477
U.S. at 323–24).
“[C]ourts are required to view the facts and draw reasonable inferences ‘in
the light most favorable to the party opposing the [summary judgment] motion.’”
Scott v. Harris, 550 U.S. 372, 378 (2007) (quoting United States v. Diebold, Inc.,
369 U.S. 654, 655 (1962) (per curiam)). Nevertheless, “[w]hen opposing parties
tell two different stories, one of which is blatantly contradicted by the record, so
that no reasonable jury could believe it, a court should not adopt that version of the
facts for purposes of ruling on a motion for summary judgment.” Scott, 550 U.S.
at 380.
With these basic principles in mind, the Court turns to the merits of State
Farm’s MSJ (Dkt. No. 30).
17
DISCUSSION
I.
Principles of Insurance Coverage in Hawai‘i
Insurance policies are a form of contract and subject to the general rules of
contract construction. As such, their terms must be interpreted according to their
ordinary, commonly accepted meaning, unless it appears from the language of the
policies that a different meaning is intended. C. Brewer & Co. v. Marine Indem.
Ins. Co. of Am., 347 P.3d 163, 169 (Haw. 2015) (quoting Dairy Rd. Partners v.
Island Ins. Co., 992 P.2d 93, 106 (Haw. 2000)); accord Dawes v. First Ins. Co. of
Haw., 883 P.2d 38, 42 (Haw. 1994).
Courts in Hawai‘i construe insurance policies “liberally in favor of the
insured and the ambiguities [are] resolved against the insurer.” Fortune v. Wong,
702 P.2d 299, 305 (Haw. 1985) (quoting Masaki v. Columbia Cas. Co., 395 P.2d
927, 929 (Haw. 1964)) (additional citations omitted). Moreover, “any ambiguity in
an exclusionary clause is construed in favor of the insured and ‘strictly construed
against the insurer.’” C. Brewer & Co., 347 P.3d at 169 (quoting Retherford v.
Kama, 470 P.2d 517 (1970)). Nonetheless, the Hawaii Supreme Court has clearly
explained that the construction of ambiguities against an insurer does not come
into play merely because the insured party alleges ambiguity, nor does it come into
play simply because the parties to the dispute disagree about the underlying
policy’s terms. Mem. in Supp. at 11–12, Dkt. No. 30-1 (citing Oahu Transit
18
Servs., Inc. v. Northfield Ins. Co., 112 P.3d 717, 722 n.7 (Haw. 2005)). Rather,
“[a]mbiguity exists and the rule is followed only when the [underlying insurance
policy], taken as a whole, is reasonably subject to differing interpretation.” Oahu
Transit Servs., 112 P.3d at 722 n.7.
II.
Applicability of the “Employer’s Liability” Exclusion to Coverage
The Subcontract is an “insured contract” under the Policy, and State Farm
has failed to meet its burden demonstrating that an exclusion to coverage applies.
Cf. Sentinel Ins. Co., 875 P.2d at 914 (noting insurer’s “traditional burden of proof
that an exclusionary clause applies) (citing Polaroid Corp. v. Travelers Indem. Co.,
610 N.E.2d 912, 922 n.2 (Mass. 1993)).
In support of its argument that the Policy does not cover Ocean Tile, and
therefore does not cover Saarman, State Farm points to the Policy’s “Employer’s
Liability” exclusion. That exclusion applies to “bodily injury” of an employee of
the insured arising out of, and occurring in the course of the employee’s “duties
related to the conduct of the insured’s business.” Coverage Form, Section II—
Exclusions ¶ 5a, Dkt. No. 31-6 at 26. Both Saarman and Ocean Tile point to an
exception to this exclusion, however, which provides that otherwise excluded
coverage is covered under the policy when it involves “liability assumed by the
insured under an ‘insured contract.’” Coverage Form, Section II—Exclusions
¶ 5b, Dkt. No. 31-6 at 26. See, e.g., Saarman Opp’n at 15–16, Dkt. No. 35.
19
An “insured contract” is defined as “[t]hat part of any other contract or
agreement pertaining to [the named insured’s] business (including an
indemnification of a municipality in connection with work performed for a
municipality) under which [the named insured] assume[s] the tort liability of
another party to pay for ‘bodily injury’ or ‘property damage’ to a third person or
organization.” Coverage Form, Section II—Definitions ¶ 10(f). Here, the
Subcontract between Saarman and Ocean Tile contains an indemnity provision that
applies to “bodily injury . . . or death to persons, including, but not limited to, any
employees or agents of Subcontractor . . . , regardless of whether such personal
injury or damage is caused by an Indemnitee.” Subcontract § 9.1.1, Dkt. No. 34-3
at 15. The Subcontract therefore is an “insured contract” within the meaning of the
Policy, 4 rendering as misplaced the exclusion on which State Farm attempts to
rely.
Viewing the facts in the light most favorable to Ocean Tile and Saarman, as
the parties opposing summary judgment, Scott, 550 U.S. at 378 (citing Diebold,
369 U.S. at 655), and interpreting the policy liberally in favor of the insured and
against State Farm as the insurer, Fortune, 702 P.2d at 355 (citing Masaki, 395
4
Even State Farm appears to agree. See Reply at 7–8, Dkt. No. 38. State Farm’s further
assertion that “it is only Ocean Tile’s potential contractual liability assumed under that insured
contract that may be covered, not any direct liability to the underlying plaintiffs for its
employee’s injury” (id. at 8) is a nuance, the import of which is lost on the court.
20
P.2d at 929), the Subcontract is an “insured contract” under the Policy’s definition,
and no Policy exclusions apply.
III.
“Additional Insured Coverage” For the Underlying Lawsuit
The parties also disagree about whether Saarman can qualify for additional
insured coverage with respect to the Underlying Lawsuit even though the
Underlying Plaintiffs do not direct any claims against Ocean Tile, the insured.
At the November 21, 2017 hearing on the instant MSJ, for example, State
Farm’s attorney argued that, to be covered under the Policy, claims in the
Underlying Lawsuit must involve the actions or omissions of the insured. State
Farm’s attorney reasoned that the only way State Farm could owe coverage to
Saarman under the Policy in the Underlying Lawsuit is if the Underlying Plaintiffs
sought to impose liability on Ocean Tile. State Farm continues that because
plaintiffs in the Underlying Lawsuit—e.g., Deponte’s Estate—did not allege that
Ocean Tile itself was negligent with respect to the underlying incident on
September 16, 2015 (see Ocean Tile’s Opp’n at 9, Dkt. No. 36 (conceding the
same)), then the Additional Insured Coverage provision is not triggered. See also
Mem. in Supp. at 13, Dkt. No. 30-1. These arguments are incorrect for two
reasons.
First, the claims in the Underlying Lawsuit do not relate “solely to
Saarman’s alleged negligence.” Indeed, the evidence below—for example,
21
showing that Deponte spent a significant number of hours at home after his fall
prior to seeking medical attention and prior to notifying Saarman—demonstrates
that Ocean Tile may be partly at fault for the alleged damages sought by Deponte’s
Estate. Thus, no matter what the pleadings alone allege, Ocean Tile could very
well be responsible for and/or owe Saarman indemnity in the Underlying Lawsuit.
See Saarman Opp’n at 18, Dkt. No. 35 (“The parties in the Underlying Lawsuit are
disputing whether or not Ocean Tile is liable to Saarman under its multiple
indemnity obligations based upon a determination whether Ocean Tile or any of its
employees (including [Deponte] himself) was negligent, and that determination
presents a question of fact for the jury in the Underlying Lawsuit.”).
Second, the Underlying Third-Party Complaint may serve as the touchstone
for Saarman’s coverage as an additional insured under the Policy. That is, in the
Underlying Lawsuit, although Deponte’s Estate does not assert claims directly
against Ocean Tile,5 Saarman has filed a Third-Party Complaint that does. State
Farm assumes that for underlying claims to trigger Policy coverage, they must
have been brought by plaintiffs in that suit—here: Deponte’s Estate. Yet no
authority for that limitation has been offered. Moreover, the Policy itself has no
provision stating that the claims against Ocean Tile, which trigger coverage, cannot
be brought by the prospective additional insured. In light of the liberal standards
5
The Underlying Plaintiffs do not do so apparently because of the worker’s compensation bar.
See Saarman Opp’n at 11, Dkt. No. 35.
22
of insurance contract interpretation in Hawai‘i, and in the absence of any authority
directing otherwise, the Court resolves uncertainty with respect to the additionalinsured-coverage provision under the Policy in Saarman’s favor. See Fortune, 702
P.2d at 355 (citing Masaki, 395 P.2d at 929).
Because disputed issues of material fact remain in the Underlying Lawsuit
so as to prevent the Court from making a final determination of additional insured
coverage under the Policy at this time, 6 the Court holds that State Farm is not
entitled to summary judgment.
IV.
Breach of Covenant of Good Faith and Fair Dealing
State Farm moves for summary judgment against Saarman on Saarman’s
Counterclaim for Breach of the Covenant of Good Faith and Fair Dealing. See
Mem. in Supp. at 19–20, Dkt. No. 30-1. Summary judgment on this claim is
DENIED.
In Count II of Saarman’s Counterclaim, Saarman alleges that State Farm
owes all of its insureds, including Saarman, “duties of good faith and fair dealing.”
Saarman Counterclaim ¶ 20, Dkt. No. 22-1. State Farm allegedly breached this
duty by “refusing to defend Saarman . . . without reservation and/or indemnify
6
It is firmly established that in Hawaii, an indemnitor’s obligations under a construction contract
are “determined at the end of litigation.” See Arthur v. State of Haw., 377 P.3d 26, 38 (Haw.
2016). At present, however, the Underlying Lawsuit remains unresolved. Until that changes,
“any attempt to determine whether State Farm must indemnify” either of the Defendants in this
matter is premature. See Ocean Tile Opp’n at 13, Dkt. No. 36; accord Saarman Opp’n at 18,
Dkt. No. 35.
23
Saarman . . . for the claims made against it in the Underlying Lawsuit,” by
“misrepresenting the benefits, conditions or terms of coverage, and/or by other
actions inconsistent with its duties to protect the interests of its insureds and to
place its interests ahead of the interests of its insureds, including Saarman.”
Saarman Counterclaim ¶ 23, Dkt. No. 22-1. State Farm denies these allegations
(Dkt. No. 23 at 4), and in its MSJ, argues that its “coverage position” regarding the
Policy “is a reasonable one.” Mem. in Supp. at 20, Dkt. No. 30-1 (“State Farm has
fully performed under the Policy, even while asking this [C]ourt to rule on its
rights and obligations.”). Questions of material fact remain on this claim and
preclude summary judgment at this time.
Hawai‘i law “recognizes a bad faith cause of action in the first-party
insurance context.” Best Place, Inc. v. Penn Am. Ins. Co., 920 P.2d 334, 341
(Haw. 1996). However, it is also true that “an insurer’s conduct based on an
interpretation of the insurance contract that is reasonable does not constitute bad
faith; moreover, an erroneous decision not to pay a claim for benefits due under a
policy does not by itself prove liability” without also demonstrating that the
decision not to pay the claim was made in “bad faith.” Miller v. Hartford Life Ins.
Co., 268 P.3d 418, 431 (Haw. 2011) (quoting Best Place, 920 P.2d at 347); see
also Enoka v. AIG Haw. Ins. Co., Inc., 128 P.3d 850, 865 (Haw. 2006) (“[W]here
an insurer denies the payment of no-fault benefits based on an ‘open question of
24
law,’ there is ‘obviously no bad faith on the part of the insurer in litigating that
issue’”). Indeed, an insurer uncertain as to whether coverage exists “may file a
declaratory judgment action to determine whether it is required to defend[;] it can
defend under a nonwaiver agreement or reservation of rights, or it can refuse to
defend and risk the consequences.” Nautilus Ins. Co. v. Lexington Ins. Co., 321
P.3d 634, 644 (Haw. 2014) (citing 22 Appleman, Ins. Law & Practice § 136.7, at
45 (2003)). The Hawaii Supreme Court has explained that, by filing a declaratory
judgment action to determine whether it is required to defend, a primary insurer
such as State Farm is able “to determine coverage issues, ‘allowing the insurer to
address the limits of its duty to defend without risking a later finding that it acted
in bad faith.’” Id. at 644 (quoting 22 Appleman § 136.7, at 50).
That appears to be precisely what State Farm has done here. State Farm has
both “disputed coverage in a declaratory judgment action” by filing the FAC while
also “defending Saarman under a reservation of rights.” Mem. in Supp. at 23, Dkt.
No. 30-1; see, e.g., FAC ¶¶ 24, 25, Dkt. No. 17 (alleging that “State Farm is
defending Saarman in the Underlying lawsuit pursuant to a reservation of rights”
and that “State Farm is defending Ocean Tile in the Underlying Third Party
Complaint pursuant to a reservation of rights”). As such, State Farm might be
correct in contending that it “is entitled to summary judgment on Saarman’s claim
for breach of the covenant of good faith and fair dealing because” these actions
25
have been “entirely proper and not evidence of bad faith.” Mem. in Supp. at 19,
Dkt. No. 30-1 (citing Nautilus, 321 P.3d at 644).
Nonetheless, in opposition to State Farm’s MSJ, Saarman argues that “State
Farm has accepted the duty to defend Saarman based on an apparent finding of
potential coverage but then refused to look beyond the pleadings and consider any
facts which it could reasonably discover and which could affect indemnity
coverage under its Policy.” Saarman Opp’n at 18–19, Dkt. No. 30-1 (citing Dairy
Rd. Partners v. Island Ins. Co., Ltd., 992 P.2d 93, 109–10 (Haw. 2000); Standard
Oil Co. of Calif. v. Hawaiian Ins. & Guaranty Co., Ltd., 654 P.2d 1345, 1349
(Haw. 1982)). Those facts include those described in Saarman’s Opposition,
which suggest negligence by Ocean Tile, and which State Farm appears to have
largely ignored. The Court has no evidence that State Farm could not have
discovered these facts, either before or after its reservation of rights with respect to
its obligations under the Policy. It follows, then, that the Court cannot say at this
time that State Farm has adopted a “reasonable interpretation” by defending the
Underlying Lawsuit, subject to a reservation of rights, or by seeking to avoid
indemnity coverage altogether by moving for summary judgment now. Genuine
issues of material fact remain.
26
CONCLUSION
Viewing the facts and drawing reasonable inferences in the light most
favorable to Saarman and Ocean Tile, the Court determines that genuine issues of
material fact exist that preclude awarding summary judgment to State Farm. The
MSJ (Dkt. No. 30) is therefore DENIED.
IT IS SO ORDERED.
DATED: March 5, 2018 at Honolulu, Hawai‘i
State Farm Fire And Casualty Company v. Saarman Construction, CIV. NO. 1600315 DKW; ORDER DENYING MOTION FOR SUMMARY JUDGMENT
27
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