GGA, Inc. v. Kiewit Infrastructure West Co.
Filing
76
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT, ECF NOS. 36 , 49 , 51 , 57 - Signed by CHIEF JUDGE J. MICHAEL SEABRIGHT on 1/22/2020. "For the f oregoing reasons, the court GRANTS Kiewit's amended countermotion, ECF No. 57 and motion for summary judgment as to Pacific Fence, ECF No. 49, in PART. Pacific Fence is DISMISSED as a plaintiff. In all other respects, those motions are DENIE D. Kiewit's motions for summary judgment as to Island Insurance, ECF No. 51 is DENIED. Plaintiffs' motion for partial summary judgment, ECF No. 36, is GRANTED in part as to Island Insurance. Island Insurance had no duty to defend Kiewit, and may enforce its May 4, 2006 reservation-of-rights letter. The parties are directed to meet and confer within two weeks of this order to discu ss whether or to what extent other aspects of this case remain. By way of example only, although Island Insurance's complaint alleges that it incurred $213,867.46 in defense fees and costs, are further proceedings necessary to confirm or challenge that amount? Does Kiewit intend to pursue its bad faith counterclaim against Island Insurance? After meeting and conferring, the parties are further directed to contact Magistrate Judge Wes Porter to arrange a scheduling or status conference to discuss a schedule for any further proceedings in this action." (jo)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF HAWAII
GGA, INC. dba PACIFIC FENCE; and
ISLAND INSURANCE COMPANY,
LIMITED,
Plaintiffs,
vs.
Civ. No. 18-00110 JMS-WRP
ORDER GRANTING IN PART AND
DENYING IN PART MOTIONS FOR
SUMMARY JUDGMENT OR
PARTIAL SUMMARY JUDGMENT,
ECF NOS. 36, 49, 51, 57
KIEWIT INFRASTRUCTURE WEST
CO., fka KIEWIT PACIFIC CO.; ET
AL.
Defendants.
ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR
SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT, ECF
NOS. 36, 49, 51, 57
I. INTRODUCTION
In this complicated declaratory-relief action, the parties raise an open
and important question of Hawaii insurance law: whether (or under what
circumstances) an insurer that defends an insured after issuing a reservation-ofrights letter may seek reimbursement of defense costs and fees. Compare
Scottsdale Ins. Co. v. Sullivan Props., Inc., 2007 WL 2247795, at *7 (D. Haw.
Aug. 2, 2007) (predicting under the Erie doctrine that the Hawaii Supreme Court
would allow reimbursement from an insured where the insurer expressly reserved
the right to recoup costs) with Exec. Risk Indem., Inc. v. Pac. Educ. Servs., Inc.,
451 F. Supp. 2d 1147, 1163 (D. Haw. 2006) (declining to adopt such a ruling,
commenting that “a ruling on reimbursement would be a major decision on Hawaii
insurance law that could have a tremendous impact on the duty to defend in
hundreds of other cases”) and Burlington Ins. Co. v. Panacorp, Inc., 758 F. Supp.
2d 1121, 1133 (D. Haw. 2010) (staying declaratory relief action, reasoning in part
that “Burlington’s entitlement to reimbursement while it is currently defending
Panacorp, Norva, and PSC implicates important and unsettled state interests”).
After carefully analyzing the voluminous record, however, the court
does not weigh in on the insurer-insured reimbursement question—this action’s
complex procedural history provides a poor vehicle to address it. And, ultimately,
the main issue is different. Here, the court addresses reimbursement based on
narrow construction-contract indemnity provisions (that is, not based on an
insurance contract), and where an insurance company is not seeking
reimbursement from its insured. Moreover, this court is deciding motions after
Hawaii state courts have already specifically ruled, in a unique set of
circumstances, that the indemnitor owed no duty to defend (and never should have
had such a duty). Based on these unique factors, the court issues this narrow, but
necessarily lengthy order. The court turns to the specifics:
2
In this action, Plaintiffs GGA, Inc., dba Pacific Fence (“Pacific
Fence”) and Island Insurance Company, Ltd. (“Island Insurance”) (collectively,
“Plaintiffs”) seek reimbursement from Kiewit Infrastructure West Co. (“Kiewit”)
of the fees and costs incurred by Island Insurance for defending Kiewit in an
underlying state court action, Arthur v. Department of Hawaiian Homelands, et al.,
Civ. No. 05-1-1981-11 (JPC) (Haw. 1st Cir. Ct.) (“the Arthur litigation”). The
court now faces four motions. Plaintiffs move for partial summary judgment, ECF
No. 36, seeking a declaration that they owed no duty to defend Kiewit in the
Arthur litigation. Kiewit opposes and responds with counter-motions for summary
judgment, arguing that Plaintiffs’ action fails on several waiver-related grounds—
judicial estoppel, res judicata (claim preclusion), prior lack of a compulsory
counterclaim, statute-of-limitations bar—or fails because reimbursement of
defense fees and costs is unavailable as a matter of law. See ECF Nos. 49, 51, 57.
As detailed to follow, the court GRANTS the motions in part and
DENIES them in part. Specifically, the court GRANTS Kiewit’s motion directed
at Pacific Fence, ECF No. 49, and DISMISSES Pacific Fence as a Plaintiff.
Pacific Fence was dissolved in 2013, and lacks standing to seek reimbursement
relating to duties arising out of the indemnity provisions of its October 15, 1999
subcontract with Kiewit. Nevertheless, co-Plaintiff Island Insurance does have
3
standing to seek declaratory relief, and its claims are not barred. The court
DENIES Kiewit’s motions arguing otherwise, ECF Nos. 51 & 57.
The court GRANTS Plaintiffs’ motion seeking declaratory relief, ECF
No. 36, in favor of Island Insurance. Pacific Fence—and thus Island Insurance,
which covered Pacific Fence’s potential liability arising out of the indemnity
provisions of Pacific Fence’s subcontract with Kiewit—owed no duty to defend
Kiewit in the Arthur litigation. This conclusion follows from (1) the main holding
in Arthur v. Department of Hawaiian Homelands, 138 Haw. 85, 377 P.3d 26
(2016) (“Arthur II”); and (2) subsequent October 2017 rulings in the Arthur
litigation by the First Circuit Court of the State of Hawaii. Island Insurance is
entitled to enforce its May 8, 2006 reservation-of-rights letter against Kiewit.
II. BACKGROUND
The underlying historical facts are largely undisputed. To explain the
context for the current motions, the court draws upon (1) the Hawaii Intermediate
Court of Appeals’ 2015 opinion in Arthur v. Department of Hawaiian Home
Lands, 135 Haw. 149, 346 P.3d 218 (Haw. Ct. App. 2015) (“Arthur I”); (2) the
Hawaii Supreme Court’s 2016 opinion in Arthur II, which affirmed Arthur I in part
and vacated it in part; and (3) specific documents from the Arthur trial court
proceedings (both before and after Arthur II’s remand) that the parties have made
4
part of this court’s record or are viewable on the public docket. The Arthur
litigation spanned nearly thirteen years, involving questions of negligence and
extensive proceedings regarding duties to defend and indemnify arising out of
various construction contracts between several parties. The court recounts only the
background necessary to understand the current dispute between Island Insurance
and Kiewit, although that background is nevertheless quite lengthy.
A.
Relevant Contracts and Indemnity Provisions
In 1998, the State of Hawaii Department of Hawaiian Home Lands
(“DHHL”) retained Kamehameha Investment Corporation (“KIC”) to develop a
Honolulu residential subdivision, the Kalawahine Streamside Housing
Development (“Kalawahine Streamside”), on Hawaiian home lands. KIC then
contracted with, among others, (1) Sato and Associates, Inc. (“Sato”) for civil
engineering work, (2) Coastal Construction Co. (“Coastal”) as the general
contractor, (3) Design Partners, Inc. (“Design Partners”) as an architect, and
(4) Kiewit as a general contractor for grading and site work. See generally Arthur
II, 138 Haw. at 87-88, 377 P.3d at 28-29. In turn, Kiewit subcontracted with
Pacific Fence to construct a “debris fence between the constructed homes and the
adjacent hillside.” Id. at 89, 377 P.3d at 30.
5
The KIC/Kiewit contract was large—KIC paid Kiewit over $5
million. See Arthur I, 135 Haw. at 156, 346 P.3d at 225. The Kiewit/Pacific Fence
subcontract was not—Kiewit paid Pacific Fence “approximately $18,235.74” for
construction of a “chain link fence.” Id. at 157, 346 P.3d at 226; see also ECF No.
36-5 at PageID #772.
KIC’s contracts with Sato, Coastal, Design Partners, and Kiewit each
included similar indemnity (or “hold harmless”) clauses, ostensibly requiring the
contractors to indemnify KIC for harm caused by the contractor’s negligence or
willful actions or omissions. For example, a March 10, 1998 Project Consultant
Agreement between KIC and Sato contained the following hold harmless clause:
Consultant [Sato] hereby agrees to indemnify, defend and
hold harmless Developer [KIC], and each of its officers,
directors and employees, from and against any and all
claims, demands, losses, liabilities, actions, lawsuits,
proceedings, judgments, awards, costs and expenses
(including reasonable attorneys’ fees), arising directly or
indirectly, in whole or in part, out of work undertaken by
Consultant [Sato] outside the scope of this Agreement
and/or out of the negligence or any willful act or
omission of Consultant [Sato], or any of its officers,
directors, agents or employees, in connection with this
Agreement or Consultant’s [Sato’s] services or work
hereunder, whether within or beyond the scope of its
duties or authority hereunder. The provisions of this
Section shall survive completion of Consultant’s [Sato’s]
services hereunder and/or the termination of this
Agreement.
6
Arthur II, 138 Haw. at 88, 377 P.3d at 29 (names and emphasis added). 1 KIC had
an equivalent provision with Kiewit, requiring Kiewit to indemnify KIC as
follows:
To the fullest extent permitted by law, [Kiewit] shall
indemnify, defend, and hold harmless [KIC], [Sato], [and
DHHL] . . . from and against all claims, damages, losses,
costs, and expenses, including but not limited to
attorney’s fees, arising out of or resulting from
performance of the Work, provided that such claim,
damage, loss or expense is attributable to bodily injury,
sickness, disease or death, or to injury to or destruction of
tangible property (other that (sic) the Work itself)
including loss of use resulting therefrom, but only to the
extent caused in whole or in part by any negligent acts or
omission of the Contractor, a Subcontractor, . . . or
anyone for whose acts they may be liable, regardless of
whether such claim, damage, loss, or expenses is caused
in part by a party indemnified hereunder.
Arthur I, 135 Haw. at 156-57, 346 P.3d at 225-26 (square brackets in original).
In turn, Kiewit’s October 15, 1999 subcontract with Pacific Fence
included a similar indemnity provision requiring Pacific Fence to indemnify
Kiewit for “claims, suits, or liability” for damages caused by Pacific Fence. Much
of the present action arises from disputes regarding the scope of this subcontract’s
indemnity provision. The subcontract provided:
1
Likewise, DHHL’s contract with KIC had an indemnity provision requiring KIC to
indemnify DHHL for claims arising out of that contract. See Arthur I, 135 Haw. at 155, 346
P.3d at 224.
7
Section 11. INDEMNIFICATION. To the fullest extent
permitted by law, Subcontractor [Pacific Fence]
specifically obligates itself to Contractor [Kiewit],
Contractor’s surety, Owner [KIC] and any other party
required to be indemnified under the Prime Contract,
jointly and severally, in the following respects, to-wit:
....
(b) To defend and indemnify them against and
save them harmless from any and all claims, suits or
liability for damages to property including loss of use
thereof, injuries to persons, including death, and from
any other claims, suits or liability on account of acts or
omissions of Subcontractor [Pacific Fence] or any of its
subcontractors, suppliers, officers, agents, employees or
servants, whether or not caused in part by the active or
passive negligence or other fault of a party indemnified
hereunder; provided however, Subcontractor’s [Pacific
Fence’s] duty hereunder shall not arise if such claims,
suits or liability, injuries or death or other claims or suits
are caused by the sole negligence of Contractor [Kiewit],
unless otherwise provided in the Prime Contract.
ECF No. 36-5 at PageID #775 (emphasis added).
Island Insurance was Pacific Fence’s commercial general liability
(“CGL”) insurance carrier during relevant periods. In 1999, Island Insurance
issued a certificate of insurance to Pacific Fence for work on Kalawahine
Streamside that included Kiewit as an “additional insured” of the Island Insurance
CGL policy. See Toby Tonaki Decl. ¶ 4, ECF No. 36-4 at PageID #766. But, by
2003, Pacific Fence’s Island Insurance CGL policy for Kalawahine Streamside no
longer included Kiewit as an “additional insured.” Id. ¶ 9, ECF No. 36-4 at
8
PageID #767. Instead, the policy covered Pacific Fence’s liability for damages for
“bodily injury” or “property damage” assumed under an “insured contract.” See
ECF No. 36-11 at PageID #810. A CGL policy often excludes coverage for
damages resulting from an insured’s contractual liability, but Pacific Fence’s 2003
policy included coverage for certain contractual liability by way of an exception to
the contractual exclusion. See id. (“This exclusion [for contractual liability] does
not apply to liability for damages . . . (2) [a]ssumed in a contract or agreement that
is an ‘insured contract[.]’”). 2
B.
The Underlying Arthur Litigation
Mona Arthur and her husband William leased a home in Kalawahine
Streamside from the DHHL on October 31, 2000. “They typically gardened on the
hillside behind their home about three times a week.” Arthur II, 138 Haw. at 87,
377 P.3d at 28. The hillside was steep. “To access the hillside, the Arthurs
crossed a concrete drainage ditch and climbed over a two-foot high chain link
2
The 2003 policy defined an “insured contract” in part as:
That part of any other contract or agreement pertaining to your
business (including an indemnification of a municipality in
connection with work performed for a municipality) under which
you assume the tort liability of another party to pay for “bodily
injury” or “property damage” to a third person or organization.
Tort liability means a liability that would be imposed by law in the
absence of any contract or agreement.
ECF No. 36-11 at PageID #819.
9
fence. Mona wore sneakers with snow spikes to prevent her from sliding down the
hill.” Id. at 87, 377 P.3d at 28. “Mona accessed the hillside from the Arthurs’
backyard by walking across a four-foot by eight-foot wooden board to cross the
drainage ditch and then William Arthur would help her over the fence.” Arthur I,
135 Haw. at 154-55, 346 P.3d at 223-24.
On November 10, 2003, the Arthurs were gardening on the hillside.
William left for a few minutes to get water. When he returned, he found Mona
lying in the concrete ditch. “No one witnessed how Mona came to be in the ditch.
Mona suffered severe head injuries, fell into a coma, and died on March 9, 2004.”
Arthur II, 138 Haw. at 87, 377 P.3d at 28.
On November 4, 2005, the Arthurs (i.e., Mona Arthur’s estate and
William Arthur) instituted the Arthur litigation by filing a wrongful death action in
the First Circuit Court of the State of Hawaii. Their November 8, 2005 first
amended complaint named the DHHL, KIC, Design Partners, Coastal, and Sato
(along with the Association of Kalawahine Streamside Apartment Owners or
“AOAO”) as defendants, asserting claims (among others) for:
a.
Negligent design of the hillside area, including the
fence and culvert;
b.
Negligent construction of the hillside area,
including the fence and culvert; [and]
10
c.
Negligent supervision of the construction of the
hillside area, including the fence and culvert.
Id. at 87, 77 P.3d at 28. 3 The Arthurs, however, did not name Kiewit or Pacific
Fence as defendants. See id. at 89, 377 P.3d at 30; id. at 90 n.3, 377 P.3d at 31 n.3.
C.
The Parties Seek Indemnity and Defenses
Facing a lawsuit from the Arthurs, the various defendants (i.e., the
DHHL, KIC, Sato, Coastal, and Design Partners) began invoking the
indemnity/hold harmless clauses in the various construction contracts, tendering
their defenses to different parties. These tenders of defenses resulted in a
complicated series of letters, supplemental pleadings, motions, and rulings in the
Arthur litigation. See, e.g., Arthur I, 135 Haw. at 161-66, 346 P.3d at 230-36
(describing multiple tenders, crossclaims, and other trial-court proceedings from
2005 to 2013).
As detailed to follow, the ultimate result (at least before Arthur I and
Arthur II were published in 2015 and 2016) was that almost all of the Arthur
defendants looked contractually to Pacific Fence for a complete or partial defense
against the Arthurs’ suit. Pacific Fence—only a minor subcontractor for
3
On December 3, 2009, the Arthurs filed a second amended complaint against the same
defendants that added a claim for punitive damages against KIC, based on allegations that a KIC
employee willfully and wantonly ordered Sato to lower the height of the fence from four feet to
two feet to increase profits, and that a four-foot fence would have prevented Mona Arthur from
falling into the ditch. See Arthur II, 138 Haw. at 88, 377 P.3d at 29.
11
Kalawahine Streamside’s construction—at one point was responsible for solely or
jointly defending almost everyone based on a “pass through” theory, and by
applying insurance law principles and an interpretation of Pancakes of Hawaii, Inc.
v. Pomare Properties Corp., 85 Haw. 286, 292, 944 P.2d 83, 89 (Haw. Ct. App.
1997) (examining a commercial indemnity contract and applying the “complaint
allegation” rule whereby an insurer has a duty to defend an entire suit—alleging
both covered and uncovered claims—that raises a potential for indemnification
liability, and where such a duty to defend begins when the underlying complaint is
filed).
Essentially, the DHHL and others tendered defenses to KIC, KIC
tendered those defenses to Kiewit and others, and Kiewit and others then tendered
to Pacific Fence. Because Pacific Fence allegedly had at least some potential
liability for its part in its construction of the fence, Pacific Fence was required—
according to subsequent rulings by the state circuit court and its interpretation of
Pancakes of Hawaii—to defend the entire suit (or share in its defense). This
responsibility included defending against uncovered claims for alleged liability of
the DHHL, KIC, Sato, Design Partners, and Kiewit. And those duties to defend
began when Arthur was filed in November 2005. To follow, the court summarizes
relevant proceedings.
12
In a December 15, 2005 letter, KIC tendered its defense of Arthur to
Sato pursuant to the hold harmless provisions of the KIC/Sato contract. See Arthur
II, 138 Haw. at 89, 377 P.3d at 30. KIC also tendered its defense to Kiewit in a
December 1, 2005 letter. KIC followed with formal legal action on December 21,
2005 by filing (1) a third-party complaint in Arthur against Kiewit, and
(2) crossclaims against Sato, Design Partners, and Coastal, seeking declarations,
among other relief, that those parties owed a duty to defend and indemnify KIC
against the Arthurs’ suit based on indemnity provisions in their respective
contracts. See id. at 89, 377 P.3d at 30.
Similarly, on January 12, 2006, the DHHL filed crossclaims in Arthur
against “KIC, Design Partners, Coastal, AOAO, and Sato, alleging, among other
things, that the [DHHL] was ‘entitled to defense, indemnification, contribution,
subrogation and/or reimbursement from one or more Cross-claim Defendants.’”
Id. at 89, 377 P.3d at 30.
After the December 21, 2005 third-party complaint was filed against
Kiewit, Kiewit filed a fourth-party complaint against Pacific Fence on January 31,
2006, asserting claims for contribution and that Kiewit was “entitled to an
immediate defense and full indemnification from Pacific Fence,” id. at 89, 377
P.3d at 30, based on the hold harmless provision in the Kiewit/Pacific Fence
13
subcontract. Kiewit formally tendered its defense to Pacific Fence on February 9,
2006. Id. at 89, 377 P.3d at 30.
Pacific Fence answered Kiewit’s fourth-party complaint, denying that
Kiewit was entitled to an immediate defense and full indemnification. Pacific
Fence also filed a counterclaim against Kiewit alleging, among other things, that
Pacific Fence was entitled to indemnity and/or contribution from Kiewit (although
the factual basis for that allegation was not explained). See Arthur I, 135 Haw. at
161, 346 P.3d at 230; ECF No. 36-15 at PageID #896 (amended counterclaim). 4
Pacific Fence’s counterclaim, however, did not specifically seek reimbursement
from Kiewit of any defense costs it might incur.
On February 9, 2006, KIC tendered its defense to Pacific Fence by
filing a crossclaim against Pacific Fence in Arthur, asserting that because Pacific
Fence must defend and indemnify Kiewit (based on the hold harmless provision in
the Kiewit/Pacific Fence subcontract), Pacific Fence was also required to defend
and indemnity KIC. See Arthur II, 138 Haw. at 89, 377 P.3d at 30; ECF No. 36-16
at PageID #909. Similarly, the DHHL followed its previous crossclaims with a
formal tender letter to KIC on March 6, 2006, and “[i]n turn, KIC tendered the
4
Both Kiewit’s fourth-party complaint against Pacific Fence, and Pacific Fence’s
counterclaim were amended in April 2010 after the Arthurs filed a second amended complaint in
2009. See Arthur II, 138 Haw. at 89, 377 P.3d at 30; ECF Nos. 36-14 & 36-15.
14
defense of DHHL to Kiewit. Kiewit then tendered that defense to Pacific Fence.”
Arthur II, 138 Haw. at 89, 377 P.3d at 30.
D.
Island Insurance Provides Defenses While Reserving Rights
Facing multiple tenders, Pacific Fence turned to its CGL carrier,
Island Insurance, for protection. By letter of May 4, 2006, Island Insurance
accepted (on behalf of Pacific Fence) Kiewit’s tender of defense to the Arthurs’
complaint, subject to a detailed reservation of rights. The letter told Kiewit the
following:
Island will provide [Kiewit] with a defense to the
complaint, subject to the following reservation of
rights. . . .
By paying for Kiewit’s defense, Island does not waive,
and will not be estopped from asserting, any of the terms
or conditions contained in the referenced insurance
policy or any defenses Island may have to any alleged
liability under the policy, including but not limited to any
alleged liability to settle any claims made against Kiewit
to indemnify Kiewit against any judgment for damages.
Island will not indemnify Kiewit for any liability not
covered under the insurance policy. Island reserves the
right to stop paying for Kiewit’s defense or to decline to
participate in any settlement of claims against Kiewit
should it be determined that there is no potential for
Pacific Fence to have to indemnify Kiewit under the
subcontract for the Kalawahine Streamside project.
Island reserves the right to seek reimbursement from
Kiewit of attorneys fees and other costs of defense if it is
determined that Pacific Fence was not obligated to
defend Kiewit under the subcontract. Island also reserves
15
the right to seek partial reimbursement from Kiewit of
attorneys fees and other costs of defense if it is
determined that Pacific Fence is not obligated to
indemnify Kiewit under the subcontract.
ECF No. 36-17 at PageID #913 (emphasis added). Island Insurance examined both
its 1999 policy (under which Kiewit was an “additional insured”) and the 2003
policy (which covered certain contractual liability of Pacific Fence as an exception
to an exclusion) and concluded that the Arthurs’ suit was covered under the 2003
policy because Mona Arthur was injured by an “occurrence” in November 2003.
Id. at PageID #915.
The May 4, 2006 letter made clear that “Kiewit is not entitled to a
defense from Island under Pacific Fence’s insurance policy [with Island]” because
Kiewit was not an “additional insured.” It concluded, however, that the
Kiewit/Pacific Fence subcontract “appears to be an ‘insured contract’” of Pacific
Fence under the CGL policy, id. at PageID #916, explaining as follows:
Accordingly, Island would indemnify Pacific Fence for
Pacific Fence’s liability to Kiewit under the subcontract’s
indemnity clause, to the extent Pacific Fence’s liability to
Kiewit is based upon “bodily injury” caused by an
“occurrence” during the policy period and not subject to
any exclusion. Pacific Fence’s policy also states that
Kiewit’s claim against Pacific Fence for attorney’s fees
and costs of defending against KIC’s third party
complaint would be considered to be damages because of
“bodily injury” for which Pacific Fence is potentially
covered under the policy. Thus, although Kiewit itself
16
does not qualify as an “insured” under Pacific Fence’s
insurance policy, Island will pay for Kiewit’s defense.
However, Island will not indemnify Kiewit against any
liability for which Kiewit would not be entitled to
indemnity from Pacific Fence under the subcontract.
Id. 5
Similarly, on July 26, 2006, Island Insurance’s coverage counsel,
Keith Hiraoka, issued separate letters to KIC and the DHHL that accepted their
tenders “on a pro rata basis with all other persons and entities who are obligated to
defend and indemnify [KIC and the DHHL].” ECF Nos. 73-2 at PageID #2274,
2280. Just as the May 4, 2006 letter did as to Kiewit, those letters reserved rights
as to KIC and the DHHL as follows:
Island reserves the right to stop participating in KIC’s [or
the DHHL’s] defense or to decline to participate in any
settlement of claims against KIC [or the DHHL] should it
5
Island Insurance’s coverage counsel reiterated Island Insurance’s position in a letter to
Kiewit dated September 4, 2007, reading in part:
Just so there is no misunderstanding, Island wishes to re-explain
that it is not obligated to defend any party other than Pacific Fence.
As explained in previous correspondence, Kiewit does not qualify
as an “insured” under Pacific Fence’s CGL policy. Island agreed
to . . . defend Kiewit in order to discharge its duty to indemnify
Pacific Fence against Kiewit’s claim for a defense under its
subcontract.
ECF No. 44-2 at PageID #1319. It appears that the letter was actually issued on September 4,
2006 (not 2007). See S. Storm Decl. ¶ 3, ECF No. 44-1 at PageID #1317. In either case,
whether it was 2006 or 2007, Island Insurance was reiterating its position that Kiewit was not an
“insured” under the Island Insurance/Pacific Fence CGL policy.
17
be determined that there is no potential for Pacific Fence
to have to indemnify KIC [or the DHHL] under the
[Kiewit/Pacific Fence] subcontract for the Kalawahine
Streamside project. Island reserves the right to seek
reimbursement from KIC [or the DHHL] of attorneys
fees and other costs of defense if it is determined that
Pacific Fence was not obligated to defend KIC [or the
DHHL] under the subcontract.
ECF No. 73-2 at PageID #2275 (KIC) & 2281 (DHHL). Those letters included
similar analysis as in the May 4, 2006 letter, indicating to KIC and the DHHL that
they were not entitled to a defense from Island Insurance under the Island
Insurance/Pacific Fence CGL policy because they were not “additional insureds.”
Rather, Island Insurance informed them they were entitled to defenses based on the
Kiewit/Pacific Fence subcontract’s indemnity clause because such defense costs
were potentially-covered contractual damages of Pacific Fence. See ECF No. 73-2
at PageID #2278 (KIC) & 2284 (DHHL).
And in a May 8, 2007 letter to counsel for Kiewit, KIC, and the
DHHL, Island Insurance’s coverage counsel reiterated the scope of the defense it
was providing. See ECF No. 44-3 at PageID #1321. The letter was responding to
letters concerning Kiewit’s tender to Island Insurance of KIC’s and the DHHL’s
corresponding tenders to Kiewit. The May 8, 2007 letter stated in pertinent part:
Island’s position with respect to each of your clients is
the same: Island is not obligated to defend or indemnify
any of your clients because none of them qualifies as an
18
“insured” under the liability insurance policy issued by
Island to Pacific Fence.
Island had agreed to participate in each of your clients’
respective defenses. Copies of the reservation of rights
letter are enclosed, for your reference. Island is
participating in your clients’ defenses because Pacific
Fence’s policy covers Pacific Fence’s liability to Kiewit,
KIC, and the [DHHL] under the indemnity provisions of
Pacific Fence’s subcontract with Kiewit. The attorneys
fees and necessary litigation expenses incurred by
Kiewit, KIC, and the [DHHL] constitute damages
because of “bodily injury” for which Pacific Fence is
entitled to coverage. Accordingly, the attorney’s fees
and other litigation expenses paid by Island to defense
counsel for Kiewit, KIC, and the [DHHL] reduce the $1
million per occurrence limit of liability applicable to the
Arthurs’ claims.
ECF No. 44-3 at PageID #1321-22 (bold and italicized emphasis in original). It
also took the position that, under various other contracts, other Arthur defendants
(e.g., Coastal, Design Partners, and Sato) also had “independent duties to
indemnify and to participate in KIC’s defense.” Id. at PageID #1322.
As summarized earlier, Island Insurance was accepting immediate
defenses—even if it might have also been defending uncovered claims (e.g.,
damages to the Arthurs caused solely by negligence or wrongful acts of the DHHL,
KIC, Kiewit, or Sato)—based on an earlier holding of the Hawaii Intermediate
Court of Appeals in Pancakes of Hawaii. In particular, Pancakes of Hawaii
recognized well-accepted duty-to-defend insurance-law principles:
19
The law governing the duty to defend in insurance cases
is well settled. The duty to defend is fairly broad and
separate and distinct from the duty to indemnify.
As provided in an insurance contract, the duty to
defend is much broader than the duty to pay
claims. Commerce & Indus. Ins. Co. v. Bank of
Hawaii, 73 Haw. 322, 326, 832 P.2d 733, 735
(1992). The duty arises whenever there is a
potential for indemnification liability of the insurer
to the insured. “Furthermore, ‘where a suit raises a
potential for indemnification liability of the insurer
to the insured, the insurer has a duty to accept the
defense of the entire suit even though other claims
of the complaint fall outside the policy’s
coverage.’” Id. at 327, 832 P.2d at 736 (quoting
First Ins. Co. of Hawaii v. State, 66 Haw. 413,
417, 665 P.2d 648, 652 (1983)).
Pancakes of Hawaii, 85 Haw. at 291, 944 P.2d at 88 (block-quoting Hawaiian
Holiday Macadamia Nut Co., Inc. v. Indus. Indem. Co., 76 Haw. 166, 169, 872
P.2d 230, 233 (1994) (other citation omitted)). It then followed some other
jurisdictions and imported these insurance-law principles into a more general
indemnity-contract context:
In our opinion, the procedure used to determine the duty
to defend based on indemnity contracts can follow the
same procedure used in the insurance context. If a
complaint alleges claims that fall within the coverage of
the indemnity provision, then, according to the complaint
allegation rule, the duty to defend begins. This is
separate and distinct from the duty to indemnify. Once
the trier of fact makes a determination on the claims in
the lawsuit, the duty to indemnify will either arise or lie
20
dormant. Claims falling within the indemnity provision
will trigger the duty to indemnify, while claims falling
outside the provision will relieve the indemnitor of his or
her duty to indemnify. In our view, this is the only
equitable interpretation that gives life to non-insurance
indemnity clauses and prevents indemnitors from
benumbing the duty to defend until after a case has been
litigated.
Id. at 292, 944 P.2d at 89.
Given Pancakes of Hawaii, and given that the Kiewit/Pacific Fence
subcontract was a type of commercial indemnity contract, Island Insurance’s
decision (made with experienced coverage counsel) to accept the immediate
defenses with conditions seems to have been entirely prudent. For example,
among many other Arthur litigation rulings, the state circuit court on August 8,
2007 granted a motion for partial summary judgment brought by Kiewit against
Pacific Fence regarding Pacific Fence’s duties, finding that:
. . . . Pacific Fence had a duty to defend Kiewit, KIC,
DHHL, and Sato; that any duty to defend DHHL that had
passed to Kiewit, passed through to Pacific Fence as a
matter of law; and any obligation that Kiewit had to
defend KIC and Sato also passed through to Pacific
Fence.
///
///
///
21
Arthur I, 135 Haw. at 163, 346 P.3d at 232; see also ECF No. 36-18 at PageID
#921-22.6
Looking back, however, Kiewit argues that Island Insurance, in
addition to issuing reservation-of-rights letters in 2006, should have also filed a
declaratory-relief action in that time frame (i.e., 2006-2007) challenging the
conclusion that an immediate defense was required under Pancakes of Hawaii and
seeking reimbursement of such defense costs. According to Kiewit, it’s too late
now—over twelve years after reserving rights—for Island Insurance to seek
declaratory relief and obtain reimbursement from Kiewit. Similarly, Kiewit also
argues that Pacific Fence’s failure to file a “compulsory counterclaim” in the
Arthur litigation that specifically sought reimbursement of defense costs (although
the amount was not yet known) also precludes Plaintiffs from seeking
reimbursement now. Understanding the context for these and related questions
6
The state circuit court later issued similar rulings based on Pancakes of Hawaii against
Sato and Kiewit, finding that Sato and Kiewit had joint and several duties to defend KIC
beginning in December 2005. See Arthur I, 135 Haw. at 165, 346 P.3d at 234 (discussing a May
27, 2011 order granting a motion for partial summary judgment brought by KIC). As discussed
later, Sato challenged that ruling on appeal both to the Intermediate Court of Appeals and
(ultimately, successfully) to the Hawaii Supreme Court.
22
requires the court to explain some of the other relevant coverage rulings from the
Arthur litigation.7
E.
State Court Proceedings Regarding Duties to Defend and Related Issues
1.
State Circuit Court Decisions
On December 3, 2009, the Arthurs filed a second amended complaint,
adding punitive-damage allegations against KIC, but otherwise leaving the
negligence claims unaltered against the DHHL, KIC, Design Partners, Coastal, and
Sato. See Arthur II, 138 Haw. at 87-88, 377 P.3d at 28-29; ECF No. 36-13 at
PageID #845. Given the new version of the complaint, KIC filed a new third-party
complaint against Kiewit on April 1, 2010, reasserting its contribution,
indemnification, and defense claims. See ECF No. 50-8 at PageID #1444. Kiewit
followed with, among other pleadings, an April 16, 2010 fourth-party complaint
against Pacific Fence that reasserted Kiewit’s contribution, indemnification, and
defense claims. See ECF No. 50-9 at PageID #1467. Likewise, Pacific Fence filed
a new counterclaim against Kiewit, seeking contribution and indemnification (and,
as before, not specifically seeking reimbursement of defense costs from Kiewit).
See ECF No. 50-10 at PageID #1482. Other parties also re-filed related
7
Again, much more went on in the Arthur litigation. The court here explains only
enough to understand the issues raised in the current motions.
23
crossclaims regarding defenses against Pacific Fence. Island Insurance continued
to defend Kiewit against the second amended complaint, and participated in the
defense of others.
Some, if not all, of the defenses provided by Island Insurance were
successful.8 On September 16, 2010, the state circuit court granted a motion for
partial summary judgment brought by Pacific Fence, determining that “there was
no question of fact that in installing the fence in the Project, Pacific Fence did so to
specifications, and therefore was neither negligent, nor acted wrongly nor breached
its contract with Kiewit.” Arthur II, 138 Haw. at 90, 377 P.3d at 31; see also S.
Storm Decl. ¶ 5, ECF No. 36-3 at PageID #758. Similarly, on October 18, 2010,
the state circuit court granted a motion for summary judgment brought by Kiewit,
determining that Kiewit was not liable for damages to the Arthurs. See S. Storm
Decl. ¶ 5, ECF No. 36-3 at PageID #758; ECF No. 36-20 at PageID #932.9
Although the Arthurs had not brought direct claims against Kiewit and Pacific
8
In addition to defending Kiewit and others, Island Insurance would have also been
defending Pacific Fence (its insured) against any covered allegations of Pacific Fence’s own
potential liability in the Arthur litigation.
9
The circuit court later also granted various motions for summary judgment in favor of
the other Arthur defendants (the AOAO, KIC, Sato, and Design Partners), although those
judgments were subsequently vacated in Arthur I. See 135 Haw. at 167-68, 346 P.3d at 236-67.
No one, however, appealed the 2010 dismissals of Kiewit and Pacific Fence.
24
Fence, these orders (although not reduced to final judgment at the time) apparently
resolved third- or fourth-party claims against them for contribution at that stage. 10
On October 3, 2011, the state circuit court granted a motion brought
by Kiewit to enforce the earlier August 8, 2007 order against Pacific Fence (i.e.,
the earlier order finding that Pacific Fence had a duty to defend Kiewit, KIC,
DHHL, and Sato on a “pass through” theory). “This [October 3, 2011] order found
that Kiewit’s obligation to reimburse KIC and to make future payments for KIC’s
defense fees and costs passed through Kiewit as a matter of law to Pacific Fence.”
Arthur I, 135 Haw. at 166, 346 P.3d at 235. “The circuit court required Pacific
Fence to reimburse KIC for the pro rata share of defense fees and costs allocated to
Kiewit within the time period specified [in an earlier order].” Id. at 166, 346 P.3d
at 235.
On April 2, 2013, the state circuit court issued an amended final
judgment, see ECF No. 73-2 at PageID #2179, that, among other matters, allocated
the parties’ defense obligations as follows:
1) defense of DHHL, is jointly and severally owed by
KIC, Coastal, Kiewit, and Pacific Fence; wherein KIC’s
obligation is owed jointly and severally by Coastal and
10
On March 9, 2010 the Arthurs filed a motion for leave to file a third amended
complaint, seeking to name Kiewit directly as a defendant, but the state circuit court denied that
motion, and that denial was upheld on appeal. See Arthur I, 135 Haw. at 164, 346 P.3d at 238.
25
Kiewit; and wherein any obligation of Kiewit is passed
through to Pacific Fence;
2) defense of KIC, is jointly and severally owed by
Design Partners, Sato, Coastal, Kiewit, and Pacific
Fence; wherein Kiewit’s obligation is passed through to
Pacific Fence;
3) defense of Sato, which was tendered to and accepted
by Kiewit, is passed through to Pacific Fence.
Arthur II, 138 Haw. at 90, 377 P.3d at 31 (internal footnote omitted). And,
With respect to KIC’s defense expenses, the court
apportioned costs among Kiewit, Coastal, Sato, Design
Partners, and Pacific Fence for various periods from
December 1, 2005 through April 30, 2011, taking into
consideration the various dates of tenders of defense and
relevant court orders. The court did not apportion
defense costs based on specific claims.
Id. at 90, 377 P.3d at 31; see also ECF No. 73-2 at PageID #2191-92.
2.
The Hawaii Intermediate Court of Appeals Decides Arthur I
Several appeals and cross-appeals were taken from the state circuit
court’s April 3, 2013 amended judgment.11 On May 18, 2015, the Hawaii
11
Meanwhile, on December 3, 2013, Pacific Fence was “dissolved administratively” by
the Hawaii Department of Commerce and Consumer Affairs for failure to file reports or remit
fees. See ECF No. 41-7; ECF No. 1-1 at PageID #7 (“Pacific Fence is no longer in business, and
was involuntarily dissolved on December 3, 2013.”). Pacific Fence was a small business, and at
oral argument the parties represented that its principal had passed away. Indeed, Pacific Fence
may have ceased doing business as early as 2009. See ECF No. 73-6 at PageID #2601 n.1
(“According to Pacific Fence’s Settlement Conference Statement filed back on January 20, 2009,
Pacific Fence as of that time had sold its assets and was no longer in business due to the death of
(continued . . .)
26
Intermediate Court of Appeals vacated the summary judgment orders that had been
entered on the merits against the Arthurs, concluding that genuine issues of
material fact existed such that “the circuit court erred by granting partial summary
judgment to the AOAO, KIC, Sato, and Design Partners.” Arthur I, 135 Haw. at
168, 346 P.3d at 237. It remanded the merits for further proceedings against those
defendants. Id. at 179, 346 P.3d at 248. 12
On a coverage issue, Pacific Fence challenged on appeal rulings that
allowed KIC and Kiewit to “pass through” to Pacific Fence all their respective
duties to defend KIC, Sato, and the DHHL. In its appellate brief, “Pacific Fence
[did] not contest the circuit court’s application of the complaint allegation rule to
determine the duty to defend at the outset of litigation,” id. at 174, 346 P.3d at 243,
but, rather, argued that “it is improper to require a private indemnitor to defend
both covered and non-covered claims like an insurer.” Id. at 174, 346 P.3d at 243
(internal quotation marks omitted). It argued that “Pancakes did not require that
an indemnitor be solely responsible for the defense of an indemnitee where there
(. . . continued)
its principal George Aoki.”). Nevertheless, Pacific Fence remained as a party in the Arthur
litigation, presumably under authority of Hawaii Revised Statutes (“HRS”) § 414-385(b)(6)
(“Dissolution of a corporation does not . . . [a]bate or suspend a proceeding pending by or against
the corporation on the effective date of dissolution”).
12
As noted earlier, no party appealed the 2010 orders granting summary judgment in
favor of Kiewit and Pacific Fence.
27
are other indemnitors with concurrent obligations to defend or where the
indemnitee itself is independently negligent.” Id. at 174-75, 346 P.3d at 243-44.
The Intermediate Court of Appeals agreed with Pacific Fence’s “pass
through” arguments. Arthur I concluded that the Kiewit/Pacific Fence
subcontract’s indemnity provision “did not extend to Kiewit’s liability unless it
arose at least in part from Pacific Fence’s work under their subcontract.” Id. at
176, 346 P.3d at 245. Under the subcontract, “Pacific Fence assumed a duty to
defend those whom Kiewit was obligated to defend under the Kiewit Contract, but
only insofar as applicable to Pacific Fence’s work.” Id. at 176, 346 P.3d at 245.
Arthur I concluded:
Kiewit retained an independent duty to defend . . . KIC,
DHHL, and Sato, and . . . this duty did not exclusively
pass through to Pacific Fence. Therefore, Kiewit has an
independent duty to defend DHHL and KIC and should
contribute to defense costs of DHHL and KIC, as well as
the cost of its own defense in the Arthur litigation.
Id. at 176, 346 P.3d at 245. Accordingly, Arthur I held that “Pacific Fence did not
assume duties to defend Kiewit, KIC, Sato, and DHHL to the exclusion of these
other parties’ independent obligations to also contribute to defense costs.” Id. at
176, 346 P.3d at 245. Even after Arthur I, however, Pacific Fence was still
required to contribute jointly and severally to the defense of Kiewit, KIC, the
DHHL, and Sato.
28
And on a cross-appeal by Sato—which will become important in its
eventual application as to Pacific Fence—Arthur I rejected Sato’s related argument
that Sato should not have been required to defend KIC for KIC’s alleged
negligence or wilful misconduct. Sato argued that, because its hold harmless
clause only required it to indemnify KIC for its own (i.e., Sato’s) wrongdoing, it
should not have to defend against KIC’s sole wrongdoing. Id. at 170, 346 P.3d at
239. Sato argued that requiring it immediately to defend uncovered claims was
contrary to public policy and Hawaii law set forth in HRS § 431:10-222, which
specifically invalidates certain types of indemnity agreements used in the
construction industry. 13 In making this argument, Sato went further than Pacific
13
Section 431:10-222 provides:
Construction industry; indemnity agreements invalid. Any
covenant, promise, agreement or understanding in, or in
connection with or collateral to, a contract or agreement relative to
the construction, alteration, repair or maintenance of a building,
structure, appurtenance or appliance, including moving, demolition
or excavation connected therewith, purporting to indemnify the
promisee against liability for bodily injury to persons or damage to
property caused by or resulting from the sole negligence or wilful
misconduct of the promisee, the promisee’s agents or employees,
or indemnitee, is invalid as against public policy, and is void and
unenforceable; provided that this section shall not affect any valid
workers’ compensation claim under chapter 386 or any other
insurance contract or agreement issued by an admitted insurer
upon any insurable interest under this code. (Emphasis added.)
29
Fence did—Sato specifically asked the Intermediate Court of Appeals to overrule
or distinguish Pancakes of Hawaii.
Sato’s arguments regarding Pancakes of Hawaii, however, failed
before the Intermediate Court of Appeals. In this regard, Arthur I concluded:
In sum, HRS § 431:10-222 restricts the scope of
indemnification provisions in construction contracts, but
it does not invalidate the application of the provision in
the Sato Contract to Arthur’s claims here, and Sato’s
duty to ultimately indemnify KIC and/or others is
separate from its duty to defend. Under Pancakes, Sato’s
obligation to defend KIC extended to claims that fell
outside the scope of Sato’s duty to indemnify KIC.
Pancakes, 85 Hawai‘i at 291, 944 P.2d at 88. For these
reasons, we conclude that the indemnification provision
in the Sato Contract was not void under HRS § 431:10–
222.
135 Haw. at 172, 346 P.3d at 241. Sato, however, sought certiorari on that issue,
and the Hawaii Supreme Court agreed to review it. See Arthur II, 138 Haw. at 87,
377 P.3d at 28.
3.
The Hawaii Supreme Court Decides Arthur II
Arthur II vacated Arthur I in part. Limited to the duty-to-indemnify
and defend issues, Arthur II focused on the language of HRS § 431:10-222, and its
legislative history, finding that both clearly indicate that any indemnity provision
in a construction contract is void as against public policy if it requires an
indemnitor (e.g., Sato or Pacific Fence) to indemnify an indemnitee (e.g., KIC or
30
Kiewit) for liability resulting from “an [indemnitee’s] sole negligence or willful
misconduct.” 138 Haw. at 93, 377 P.3d at 34. The purpose of the statute was “to
invalidate, as against public policy, the prevalent practice in the construction
industry of causing contractors to assume liability for the negligence of others by
contract.” Id. at 93, 377 P.3d at 34 (quoting legislative history). The legislature
was concerned about prohibitive costs to small contractors of obtaining broad and
disproportionate insurance coverage, and a lack of bargaining power in the
construction industry. Id. at 94, 377 P.3d at 35.
Next, Arthur II concluded that although Ҥ 431:10-222 and its
predecessor . . . do not employ language prohibiting the imposition on contractors
of a contractual duty to defend owners,” nevertheless, “as a matter of law, claims
that fall outside the scope of contractual indemnity do not trigger a promisor’s duty
to defend.” Id. at 94, 377 P.3d at 35. It held:
[B]ecause HRS § 431:10-222 voids as against public
policy indemnification clauses in construction contracts
between owners and contractors as to “liability for bodily
injury to persons or damage to property caused by or
resulting from the sole negligence or wilful misconduct
of the promisee, the promisee’s agents or employees, or
indemnitee[s],” HRS § 431:10-222 also operates to
invalidate defense clauses for that same subset of claims.
Id. at 95, 377 P.3d at 36. “[P]ursuant to HRS § 431:10-222, in the construction
industry, a contractor is not contractually liable for the sole negligence or willful
31
misconduct of another, or for the defense thereof[.]” Id. at 95, 377 P.3d at 36
(emphasis added). Under the statute, “each party to a construction contract [is]
responsible for its [own] ‘sole negligence or willful misconduct.’” Id. at 97, 377
P.3d at 38.
And, in the key holding for purposes of the present action, Arthur II
concluded that any duty to defend based on an indemnitor’s own potential
wrongdoing (i.e., not based on an indemnitee’s “sole negligence or willful
misconduct”) is not determined at the outset of the underlying litigation. It
reasoned that the “complaint allegation rule” does not apply because § 431:10-222
“clearly prohibits” a promisor in a construction contract “from being contractually
required to defend a promisee against ‘liability . . . caused by or resulting from the
sole negligence or willful misconduct of the promisee.” Id. at 97, 377 P.3d at 38
(quoting the statute). “[I]f the complaint allegation rule were to apply, it is
possible in a case where initial allegations were brought against multiple parties,
for example, that a promisor would be compelled to defend a promisee against
negligence claims where ultimate liability is attributed solely to the promisee.” Id.
at 97, 377 P.3d at 38. Rather, Arthur II held:
[W]ith respect to a duty to defend in a construction
contract, the scope of a promisor’s duty to defend is
determined at the end of litigation. HRS § 431:10-222
32
effectively renders coextensive the duties to indemnify
and defend in construction contracts.
Id. at 97, 377 P.3d at 38.
Arthur II did not overrule Pancakes of Hawaii, but it did clarify
Hawaii law by distinguishing it because Pancakes of Hawaii did not involve a
construction contract. It reasoned that “the holding in Pancakes does not apply”
because “HRS § 431:10-222 makes clear that the legislature does not view all noninsurance indemnity contracts the same.” Id. at 97, 377 P.3d at 38. And Arthur II
specifically did not “determine whether Pancakes is applicable to all non-insurance
indemnity contracts.” Id. at 97 n.9, 377 P.3d at 38 n.9.
In short, Sato prevailed before the Hawaii Supreme Court. Sato had
no duty to defend KIC at the outset of the Arthur litigation, and should not have
been defending it, as the trial court and Arthur I had incorrectly concluded. To that
extent, Arthur II vacated Arthur I, and remanded to the state circuit court “for
further proceedings consistent with [the] opinion.” Id. at 97, 377 P.3d at 38.
4.
Relevant Post-Arthur II rulings
a.
Arthur II applies to other indemnitors besides Sato
Upon remand, on November 22, 2016, the state circuit court granted a
motion brought by Arthur co-defendant Coastal entitled “Motion for Partial
Summary Judgment on its Indemnity and Defense Duties to Defendants
33
Department of Hawaiian Homelands and Kamehameha Investment Corporation,
and for Entry of a Final Judgment Under Rule 54(b).” ECF No. 36-26 at PageID
#1089. Among other rulings, that November 22, 2016 order concluded that Arthur
II’s holdings as to Sato also “appl[ied] to the defense obligations of other
indemnitors, such as Defendant Coastal.” Id. at PageID #1092.14 The state circuit
court also found that “[Arthur II’s] construction of HRS § 431:10-222 applies
retroactively, and applies to similarly situated parties who come within the ambit
of the statute.” Id. at PageID #1093. Under that order, Coastal—like Sato—
should not have been defending or contributing to defending KIC or the DHHL;
the scope of any duty to defend would not be determined until the end of the
litigation.
14
Specifically, the state circuit court found that the following holdings from Arthur II
applied “to the defense obligations of other indemnitors,” ECF No. 36-26 at PageID #1092:
(1) [HRS] § 431:10-222 renders invalid any provision in a
construction contract requiring the promisor to defend “the
promise against liability for bodily injury to persons or damage to
property caused by or resulting from the sole negligence or willful
misconduct of the promisee, the promisee’s agents or employees,
or indemnitee”;
(2) [Pancakes of Hawaii], 85 Hawaii 286, 944 P.2d 83 (App.
1997), does not apply to defense provisions in construction
contracts; and
(3) the scope of a promisor’s duty to defend that is imposed by a
construction contract is determined at the end of litigation.
Id. at PageID #1091-92.
34
b.
Arthur II also applies to Pacific Fence
Following the November 22, 2016 Order, Pacific Fence filed an
omnibus motion on June 21, 2017, seeking, among other matters, the same relief
that Coastal had obtained—that is, a ruling declaring that Arthur II’s holdings
applied equally to Pacific Fence such that Pacific Fence did not have a duty to
defend Kiewit and others in the Arthur litigation. It argued that any such duty
would have been determined at “the end of litigation” (and, at that point, where it
had been determined to have no duty to indemnify Kiewit). See ECF No. 73-2 at
PageID #1917-20. Pacific Fence also sought reimbursement of all defense costs
and expenses that it had incurred in defending Kiewit, KIC, DHHL and Sato. See
id. at PageID #1911.
The DHHL, KIC and Kiewit opposed Pacific Fence’s request for
reimbursement on several grounds. 15 The DHHL argued, among other grounds,
that (1) Arthur II should not be applied retroactively, (2) Hawaii law does not
allow reimbursement of defense costs as a matter of law, and (3) Pacific Fence was
not the real party in interest for reimbursement because Island Insurance—which
15
Sato also opposed the reimbursement request, but only on the ground that Island had
insufficient documentation of the amount of costs it was seeking. See ECF No. 73-7 at PageID
#2620.
35
was not a party to the Arthur litigation—actually incurred the expenses (not Pacific
Fence). See ECF No. 73-4 at PageID #2315.
For its part, KIC pointed out that Pacific Fence had previously never
disputed that it had a duty to defend at the outset of Arthur, and had only objected
to defending both covered and uncovered claims—an issue on which Pacific Fence
prevailed before the Intermediate Court of Appeals in Arthur I. Further, given that
Pacific Fence did not participate in subsequent proceedings before the Hawaii
Supreme Court (which were brought by Sato), KIC contended that Pacific Fence
was bound by Arthur I’s decision regarding Pacific Fence’s duties. See ECF No.
73-5 at PageID #2441-44. KIC also argued that Pacific Fence was not the real
party in interest for any reimbursement claim, taking the position that “[t]o the
extent that Island has some right to recover fees from parties for whom it paid legal
expenses, Island must file its own action.” Id. at PageID #2446.
Kiewit opposed reimbursement as well, pointing out that Pacific
Fence had not even pled such a claim in Pacific Fence’s counterclaim against
Kiewit. ECF No. 73-6 at PageID #2600.16 Like the others, it also argued that,
because Island Insurance (not Pacific Fence) incurred the defense costs, Pacific
16
KIC joined in this specific argument. See ECF No. 73-9 at PageID #2633 (“Pacific
Fence’s Cross-Claims against KIC did not alleged a claim for ‘reimbursement.’ Like its
Counterclaim against Kiewit, Pacific Fence’s Cross-Claims against KIC alleged claims for
implied indemnity and contribution.”).
36
Fence had no basis to seek reimbursement. See id. at PageID #2601. It contended
that “[i]n order for Island Insurance to pursue its own recovery, it should have
instituted an independent action filed by its own counsel on its own behalf.” Id. at
PageID #2603. But Kiewit argued that it was too late for Island Insurance to do so:
Island Insurance could have initiated an independent
declaratory relief action to determine if it had an ongoing
duty to defend at any time during the ten years that it
agreed to provide a defense to Kiewit and others. Having
failed to do so, Island Insurance is estopped and has no
right to reimbursement even if it were to bring a separate
action in its own name under Hawaii law.
ECF No. 73-6 at PageID #2603; see also id. at 2606 (arguing that “Island
Insurance cannot protect its own interest by agreeing to defend Kiewit before any
judicial determination of coverage and then fail to pursue a declaratory relief
action for ten years, only to unilaterally claim that it has a right to reimbursement
of the defense fees and costs that it voluntarily paid during that entire time
period”). Kiewit also argued that it was premature to determine Pacific Fence’s
defense obligations because the litigation was not over, and, under Arthur II, the
duty to defend is not decided until the “end of litigation.” Finally, Kiewit
maintained that reimbursement was barred as a matter of law, reasoning that no
Hawaii appellate court had recognized the right of an insurer to obtain
37
reimbursement of defense costs. See id. at PageID #2604-05 (citing non-Hawaii
cases that disallow reimbursement to an insurer from an insured).
On October 10, 2017, the state circuit court filed a written order
(signed on October 9, 2017) granting in part and denying in part Pacific Fence’s
June 21, 2017 omnibus motion. In relevant part, the court ruled as follows:
1.
Pacific Fence’s Motion for Partial Summary
Judgment on its contractual duties to defend and
indemnify [Kiewit, KIC, the DHHL, and Sato] is
GRANTED.
2.
Pacific Fence’s Motion for Partial Summary
Judgment on All Claims of Contribution and Equitable
Indemnification is GRANTED.
3.
Pacific Fence’s Motion to Dismiss the cross-claims
for defense and indemnity asserted by [Sato] is
GRANTED.
....
5.
Pacific Fence’s Motion for Reimbursement of
Costs of Defense and Attorney’s Fees is DENIED without
prejudice. The Court finds that there is currently no
properly asserted reimbursement claim before it.
ECF No. 36-27 at PageID #1100-01 (emphases added). Under this October 9,
2017 order, Pacific Fence had no duty to defend Kiewit and others—just as Sato
and Coastal had no immediate duties to defend KIC and the DHHL as decided in
38
Arthur II and in the state circuit court’s November 22, 2016 order. 17 At that point
(if not earlier), it appears clear that Pacific Fence had no possible indemnification
obligations to Kiewit, and thus had no defense obligations either (as determined at
the “end of litigation” under Arthur II).
///
///
17
This reading also follows from the state circuit court’s August 4, 2017 minute order,
which ruled on Pacific Fence’s motion after a July 5, 2017 hearing. Regarding Pacific Fence’s
motion as to its duties to defend and indemnify Kiewit, KIC, the DHHL, and Sato, the minute
order stated:
The motion is granted. The court both agrees with, and follows as
law of the case, Judge Nakasone’s 11/22/16 order regarding
Coastal [Construction’s] MPSJ . . . which essentially decided the
same issue.
As to Pacific Fence’s “MPSJ on all Claims of Contribution and Equitable Indemnification,” the
minute order stated:
Again, the court both agrees with, and follows as law of the case,
Judge Nakasone’s 11/22/16 order on contractual duties. As
described in Judge Nakasone’s 11/22/16 ruling, the Hawaii
Supreme Court opinion [Arthur II] is applicable and determinative.
And as to Pacific Fence’s Request for Entry of Final Judgment, the minute order stated:
This motion is granted. Since Pacific Fence was found not liable,
there is no contractual duty to defend or indemnify under the
Hawaii Supreme Court’s decision [Arthur II], and for the same
reasons, no right of equitable indemnification or contribution.
The minutes, however, were later amended to reflect that Pacific Fence had orally withdrawn its
Rule 54(b) request. (Docket available at eCourt kokua, https://www.courts.state.hi.us/
legal_references/records/ (last visited, Jan. 21, 2020)).
39
c.
An October 10, 2017 Judgment in Favor of Kiewit
The state circuit court was considering Pacific Fence’s June 21, 2017
omnibus motion in conjunction with a related motion brought earlier by Kiewit on
April 17, 2017. See ECF No. 73-10. Kiewit had filed that motion primarily “to
confirm that there are in fact no claims remaining against Kiewit for the upcoming
September 2017 trial” which was then pending against remaining Arthur
defendants after Arthur I’s remand on the merits. Id. at PageID #2647. Because
trial was upcoming and because Island Insurance was apparently no longer
defending Kiewit (given Arthur II), Kiewit sought entry of judgment in its favor
under Rule 54(b). See id. at PageID #2648. Kiewit looked back to October 18,
2010, where Kiewit (through counsel retained by Island Insurance) had obtained a
summary judgment order determining that Kiewit was not liable for any damages
to the Arthurs, see ECF No. 36-20 at PageID #932, and that order had not been
appealed. Thus, Kiewit sought a Rule 54(b) judgment on all claims against it to
confirm that “[the Arthurs] have no direct claims against Kiewit remaining in this
case.” ECF No. 73-10 at PageID #2646. And Kiewit recognized that Pacific
Fence had obtained a similar order in 2010 regarding Pacific’s Fence’s lack of
liability for the death of Mona Arthur, and noted that “if a final judgment is entered
in favor of Kiewit on all claims, then any remaining claims in [] Kiewit’s Fourth-
40
Party Complaint against Pacific Fence and Pacific Fence’s Counterclaim against
Kiewit should also be dismissed as moot.” Id. at PageID #2647 n.3.18
Accordingly, on October 10, 2017, the state circuit court issued a
“Final Judgment in Favor of Third-Party Defendant/Fourth-Party Plaintiff Kiewit
Pacific Co.,” ECF No. 36-28. The Rule 54(b) judgment stated that it was issued
“pursuant to the Order Granting Third-Party Defendant and Fourth-Party Plaintiff
Kiewit Pacific Co.’s Motion for Summary Judgment, Filed Herein on May 17,
2010, Filed October 18, 2010.” Id. at PageID #1108 (emphasis in original). It
entered judgment on third-party claims or crossclaims made against Kiewit by
KIC, the DHHL, the AOAO, and Sato. Id. As to Pacific Fence, it entered
judgment:
in favor of Kiewit and against Pacific Fence on FourthParty Defendant Pacific Fence, Inc.’s Counterclaim
Against Third-Party Defendant and Fourth-Party Plaintiff
Kiewit Pacific Co. filed April 29, 2010[.]
Id. It then included the following language (the meaning of which Kiewit disputes
in analyzing the pending motions between Plaintiffs and Kiewit):
18
Kiewit’s April 27, 2017 motion was not opposed, although KIC and the DHHL filed
statements explaining their positions. See ECF Nos. 73-12 & 73-14. The briefing did not focus
on duty-to-defend issues regarding Pacific Fence, but in their filings KIC and Kiewit discussed
the scope of any remaining claims that KIC might have had for reimbursement of defense costs.
See ECF No. 73-12.
41
No Other Claims. Plaintiffs [Arthurs], [Design
Partners], and [Coastal] have not asserted any claims
against Kiewit in this case. The foregoing judgments
adjudicate all of the claims asserted against Kiewit by
any or all of the other parties to this action; provided,
that this Final Judgment does not determine or prejudice
any right KIC has to seek reimbursement from Kiewit for
any legal expenses KIC has related to the tender of
defense.
It is the Judgment of this Court that all other
claims, cross-claims, counterclaims, and fourth-party
claims asserted by Kiewit against DHHL, KIC,
Association, Sato, Miyasato, DPI, Coastal, and Pacific
Fence shall be moot and are hereby dismissed.
Id. at PageID #1109 (emphases added).
On October 17, 2017, the state circuit court formally granted a motion
to withdraw as co-counsel brought in April 2017 by Cary Tanaka, who had been
retained by Island Insurance to defend Kiewit in the Arthur litigation. See Civ. No.
05-1-1981-11 (Haw. 1st Cir. Ct.) (docket available at eCourt kokua,
https://www.courts.state.hi.us/legal_references/records/ (last visited, Jan. 21,
2020)).
The state circuit court Arthur docket reflects that the remaining parties
settled with the Arthurs prior to trial. Various stipulations to dismiss were filed in
June of 2018, and the case was terminated. See Civ. No. 05-1-1981-11 (Haw. 1st
Cir. Ct.) (docket available at eCourt kokua, https://www.courts.state.hi.us/
legal_references/records/ (last visited, Jan. 21, 2020)).
42
F.
Procedural History in This Court
Plaintiffs filed this declaratory relief action on February 28, 2018 in
the First Circuit Court for the State of Hawaii, ECF No. 1-1, seeking declaratory
relief and reimbursement of costs incurred in defending Kiewit in the Arthur
litigation. On March 21, 2018, Kiewit removed the action to federal court based
on diversity of citizenship under 28 U.S.C. § 1332. ECF No. 1. As alleged in the
notice of removal, complete diversity exists because Plaintiffs are Hawaii
citizens—Pacific Fence is a dissolved Hawaii corporation, and Island Insurance is
a Hawaii corporation with a principal place of business in Honolulu—and Kiewit
is a Delaware corporation with a principal place of business in Nebraska. Id. at
PageID #3. Well over $75,000 is in controversy as Plaintiffs are seeking
reimbursement of over $213,000 in defense fees and costs. Id.
On March 27, 2018, Kiewit answered and filed a counterclaim with
counts for declaratory relief and bad faith. ECF No. 7-1. On April 17, 2018,
Plaintiffs moved to remand the action to state court but this court eventually denied
that motion. See ECF Nos. 15, 23.
On March 4, 2019, Plaintiffs filed their Motion for Partial Summary
Judgment, seeking a declaration that they owed no duty to defend Kiewit. ECF
No. 36. Kiewit opposed, and filed a countermotion for partial summary judgment
43
on April 26, 2019, seeking a declaration that it was owed a defense, as well as
dismissal of Plaintiffs’ claim for reimbursement. ECF No. 40; see also ECF No.
57 (amended countermotion, correcting minor formatting errors in the original
countermotion but seeking identical relief). On May 15, 2019, Kiewit followed its
countermotion with two similar motions for summary judgment, raising the same
issues, but with individual motions directed specifically at each Plaintiff. See ECF
No. 49 (motion directed at Pacific Fence); ECF No. 51 (motion directed at Island
Insurance).
The court held a hearing on the motions on July 19, 2019, ECF No.
66, and later directed Kiewit to supplement the record with certain filings from the
Arthur litigation as needed to help understand prior state-court proceedings. ECF
No. 72. Kiewit filed the supplemental material on October 29, 2019. ECF No. 73.
III. STANDARD OF REVIEW
Summary judgment is proper where there is no genuine issue of
material fact and the moving party is entitled to judgment as a matter of law. Fed.
R. Civ. P. 56(a). Rule 56(a) mandates summary judgment “against a party who
fails to make a showing sufficient to establish the existence of an element essential
to the party’s case, and on which that party will bear the burden of proof at trial.”
44
Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986); see also Broussard v. Univ. of
Cal. at Berkeley, 192 F.3d 1252, 1258 (9th Cir. 1999).
“A party seeking summary judgment bears the initial burden of
informing the court of the basis for its motion and of identifying those portions of
the pleadings and discovery responses that demonstrate the absence of a genuine
issue of material fact.” Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th
Cir. 2007) (citing Celotex, 477 U.S. at 323); see also Jespersen v. Harrah’s
Operating Co., 392 F.3d 1076, 1079 (9th Cir. 2004). “When the moving party has
carried its burden under Rule 56[(a)] its opponent must do more than simply show
that there is some metaphysical doubt as to the material facts [and] come forward
with specific facts showing that there is a genuine issue for trial.” Matsushita
Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586-87 (1986) (citation and
internal quotation marks omitted).
“An issue is ‘genuine’ only if there is a sufficient evidentiary basis on
which a reasonable fact finder could find for the nonmoving party, and a dispute is
‘material’ only if it could affect the outcome of the suit under the governing law.”
In re Barboza, 545 F.3d 702, 707 (9th Cir. 2008) (citing Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248 (1986)). When considering the evidence on a
motion for summary judgment, the court must draw all reasonable inferences in the
45
light most favorable to the nonmoving party. Friedman v. Live Nation Merch.,
Inc., 833 F.3d 1180, 1184 (9th Cir. 2016).
“When the party moving for summary judgment would bear the
burden of proof at trial, ‘it must come forward with evidence which would entitle it
to a directed verdict if the evidence went uncontroverted at trial.’” C.A.R. Transp.
Brokerage Co. v. Darden Rests., Inc., 213 F.3d 474, 480 (9th Cir. 2000) (quoting
Houghton v. South, 965 F.2d 1532, 1536 (9th Cir. 1992)). And so a Plaintiff
moving for summary judgment on an affirmative claim “must establish beyond
peradventure all of the essential elements of the claim . . . to warrant judgment in
his favor.” Fontenot v. Upjohn Co., 780 F.2d 1190, 1194 (5th Cir. 1986). Put
another way, “[its] showing must be sufficient for the court to hold that no
reasonable trier of fact could find other than for the moving party.” Calderone v.
United States, 799 F.2d 254, 259 (6th Cir. 1986) (quoting W. Schwarzer, Summary
Judgment Under the Federal Rules: Defining Genuine Issues of Material Fact, 99
F.R.D. 465, 488 (1984)).
IV. DISCUSSION
The court first addresses Kiewit’s various defenses. Next, because
Kiewit’s arguments mostly fail, the court addresses Plaintiffs’ motion seeking a
declaration that Plaintiffs had no duty to defend Kiewit such that they (or only
46
Island Insurance) may seek reimbursement of defense costs incurred defending
Kiewit in the Arthur litigation.
Both Kiewit’s Amended Countermotion for Summary Judgment, ECF
No. 57, and Kiewit’s “Motion for Summary Judgment Against Plaintiff GGA, Inc.
dba Pacific Fence,” ECF No. 49, raise multiple, alternative arguments seeking
summary judgment and dismissal of Pacific Fence as a Plaintiff. Specifically,
Kiewit argues that Pacific Fence’s claims fail because (1) Pacific Fence lacks
standing to seek reimbursement; (2) Pacific Fence failed to file a compulsory
counterclaim in the Arthur litigation, and (3) its claims are barred by judicial
estoppel and res judicata.19
A.
Summary Judgment is Entered in Favor of Kiewit and Against Pacific
Fence for Lack of Standing
As noted earlier, Pacific Fence was administratively dissolved as a
corporation in 2013 after ceasing to do business, apparently in 2009. See ECF No.
73-6 at PageID #2601. Its authority to bring the current action as a dissolved
19
To be clear, these arguments are directed specifically at Pacific Fence (not Island
Insurance). Nevertheless, Kiewit also raises the same grounds when seeking summary judgment
as to Island Insurance. See ECF No. 51-1 at PageID #1574 (arguing that “[A]ny defenses to
Pacific Fence’s claim also bars Island’s claim [and so] Kiewit incorporates by reference the
arguments and law presented in Kiewit’s Motion for Summary Judgment against [Pacific
Fence]”). Because the court grants summary judgment in favor of Kiewit against Pacific Fence
based on a lack of standing, it discusses the other grounds as necessary later when separately
addressing defenses against Island Insurance’s claims.
47
corporation is unclear. Hawaii law allows a dissolved corporation to “collect its
assets” as part of winding up its affairs, but Plaintiffs have not argued (much less
established) such a theory here. See, e.g., HRS § 414-385(a) (“A dissolved
corporation continues its corporate existence but may not carry on any business
except that appropriate to wind up and liquidate its business and affairs, including:
(1) Collecting its assets; . . . and (5) Doing every other act necessary to wind up
and liquidate its business and affairs.”). Another provision of Hawaii law indicates
that Pacific Fence’s dissolution would not necessarily prevent it from bringing an
action “in its corporate name.” See HRS § 414-385(b) (providing that dissolution
of a corporation does not . . . (5) Prevent commencement of a proceeding by or
against the corporation in its corporate name”).
Nevertheless, whatever theory might have justified Pacific Fence
being named as a Plaintiff, Plaintiffs (both in their opposition, and at the hearing
on the motions) effectively conceded that Pacific Fence should be dismissed. See,
e.g., ECF No. 58 at PageID #1712 (Plaintiffs’ opposition acknowledging that “the
naming of Pacific Fence in this action was done for identification purposes only”);
48
id. at PageID #1713 (“Island Insurance does not dispute that Pacific Fence, as a
creature of corporation law, likely has no standing[.]”). 20
More importantly, regardless of such concessions, nothing in the
record indicates that Pacific Fence itself ever expended any costs or fees defending
Kiewit. As Plaintiffs acknowledge—and as the DHHL, KIC and Kiewit argued to
the state circuit court in 2017—there is nothing to be reimbursed to Pacific Fence
because it did not spend anything. See, e.g., ECF No. 58 at PageID #1712-13
(Plaintiffs’ opposition stating that “[a]t no time has it ever been suggested that
Pacific Fence was entitled to reimbursement of attorneys’ fees paid by Island
Insurance. Instead, and as pointed out by Kiewit, Island Insurance recognizes that
its right to reimbursement ‘flows’ from its own insurer-insured relationship with
Pacific Fence”). Pacific Fence did not actually defend Kiewit much less reserve
any rights from Kiewit—Island Insurance did.
It follows that, because Pacific Fence lost nothing and suffered no
“injury in fact,” Pacific Fence has no standing to seek reimbursement. See Lujan v.
Defs. of Wildlife, 504 U.S. 555, 560 (1992) (requiring, among other elements, a
plaintiff to have suffered an “injury in fact,” i.e., an “invasion of a legally protected
20
Island Insurance, however, denies that dismissal of Pacific Fence precludes Island
Insurance from seeking reimbursement from Kiewit. See ECF No. 58 at PageID #1713-14.
49
interest which is (a) concrete and particularized, and (b) actual or imminent, not
conjectural or hypothetical”) (citations and internal quotation marks omitted). To
that extent, Kiewit’s counter-motion as to Pacific Fence, ECF No. 57, and motion
for summary judgment against Pacific Fence, ECF No. 49, are GRANTED. That
is, the court GRANTS summary judgment against Pacific Fence in favor of Kiewit,
and DISMISSES Pacific Fence as a plaintiff in this action.
B.
Island Insurance Has Standing and Kiewit’s Other Defenses Fail
The real questions are whether the dismissal of Pacific Fence also
prevents Island Insurance from bringing this action, and, if not, whether Kiewit’s
defenses otherwise prevent Island Insurance from seeking reimbursement. For
reasons explained to follow, the answer to both questions is no.
1.
Standing of Island Insurance
Kiewit argues that Pacific Fence’s dismissal and dissolution prevents
Island Insurance from seeking reimbursement, as Island Insurance has itself
purportedly acknowledged by stating that any reimbursement rights “flow from”
Pacific Fence. See ECF No. 57-1 at PageID #1693-94. But this argument appears
to be based on the false premise that Pacific Fence was actually incurring expenses
defending Kiewit, and that therefore Island Insurance would be limited to being
reimbursed from Pacific Fence. As set forth above, however, Pacific Fence
50
incurred no expenses, and lacks standing to seek reimbursement. Island Insurance,
on the other hand, defended Kiewit by hiring defense counsel and—according to
the complaint—spent over $213,000 in defense costs. See ECF No. 1-1 at Page ID
#9. It has standing to seek to enforce its reservation-of-rights letter. Moreover,
Kiewit’s refusal (whether valid or not) to reimburse defense costs creates an
“actual controversy” for purposes of this declaratory relief action under either HRS
§ 632-1 (providing a declaratory relief remedy under state law) or 28 U.S.C.
§ 2201 (same under federal law). 21
2.
Kiewit’s Other Defenses
a.
Lack of a Compulsory Counterclaim in the Arthur litigation
Kiewit argues that a reimbursement claim was a compulsory
counterclaim in the Arthur litigation and, having not been brought, is barred under
Hawaii Rule of Civil Procedure 13(a), which provides:
A pleading shall state as a counterclaim any claim which
at the time of serving the pleading the pleader has against
21
See, e.g., Tri-S Corp. v. W. World Ins. Co., 110 Haw. 473, 490 n.7, 135 P.3d 82, 99 n.7
(2006) (“Tri-S has showed that it suffered financial injury (i.e., the payment of Taft’s attorney’s
fees) that is fairly traceable to WWI’s failure to defend Taft in the underlying action . . . .
Accordingly, Tri-S has a stake in the outcome of this case such as to give it standing.”); Gov’t
Emps. Ins. Co. v. Dizol, 133 F.3d 1220, 1222 (9th Cir. 1998) (en banc) (“A lawsuit seeking
federal declaratory relief must first present an actual case or controversy within the meaning of
Article III, section 2 of the United States Constitution.”) (citation omitted); cf. id. at 1222 n.2
(“[W]e have consistently held that a dispute between an insurer and its insureds over the duties
imposed by an insurance contract satisfies Article III’s case and controversy requirement.”).
51
any opposing party, if it arises out of the transaction or
occurrence that is the subject matter of the opposing
party’s claim and does not require for its adjudication the
presence of third parties of whom the court cannot
acquire jurisdiction.
Haw. R. Civ. P. 13(a). See, e.g., Bailey v. State, 57 Haw. 144, 148, 552 P.2d 365,
369 (1976) (“[W]here a defendant has had the opportunity but has failed to assert a
compulsory counterclaim in an action, Rule 13(a) estops him from asserting such
claim in a subsequent action.”); JPMorgan Chase Bank, N.A. v. Moniz, 2016 WL
6433841, at *4 (D. Haw. Oct. 25, 2016) (applying Haw. R. Civ. P. 13(a) to bar a
subsequent claim in federal court).
Hawaii law applies a “logical relationship” test to determine whether
two claims arise out of the same “transaction or occurrence.” See Booth v. Lewis,
8 Haw. App. 249, 252-53, 798 P.2d 447, 449 (1990). “Under Hawaii law, a
counterclaim is compulsory if there is a logical relation between the original claim
and the counterclaim—i.e., it arises out of the same aggregate of operative facts as
the original claim.” E. Sav. Bank, FSB v. Esteban, 129 Haw. 154, 161 n.13, 296
P.3d 1062, 1069 n.13 (2013) (citing Haw. R. Civ. P. 13(a)).
But even assuming a counterclaim for reimbursement by Pacific
Fence against Kiewit might have had a “logical relationship” with Kiewit’s claim
for indemnification and a defense against Pacific Fence, the argument fails as to
52
Island Insurance because Island Insurance was not a party to the Arthur litigation.
Without more, Island Insurance could not have filed a claim for reimbursement.
Indeed, when Pacific Fence was—improperly, given its lack of standing—seeking
reimbursement in June 2017 in the state circuit court, KIC argued that Island
Insurance needed to file its own action. Island Insurance did just that by filing the
present action for declaratory relief. Moreover, in its October 9, 2017 order on
Pacific Fence’s omnibus motion, the state circuit court did not preclude
reimbursement even though it recognized that “there is currently no properly
asserted reimbursement claim before it,” ECF No. 36-27 at PageID #1101. Rather,
it denied Pacific Fence’s reimbursement request “without prejudice.” Id.
In short, this argument does not preclude Island Insurance from
seeking reimbursement.
b.
Judicial Estoppel
Next, Kiewit repeats an argument made to the state circuit court that
judicial estoppel prevents reimbursement because Plaintiffs (Pacific Fence at that
time) materially changed positions in the Arthur litigation. 22
22
Again, Kiewit argues that defenses as to Pacific Fence also necessarily bar Island
Insurance’s claims, ECF No. 51-1 at PageID #1574. Thus, in the next three sections, the court
sometimes refers to Kiewit’s defenses against “Plaintiffs’” claims, even though they are
applicable here only as to Island Insurance.
53
The Supreme Court describes the judicial estoppel doctrine as
follows:
[w]here a party assumes a certain position in a legal
proceeding, and succeeds in maintaining that position, he
may not thereafter, simply because his interests have
changed, assume a contrary position, especially if it be to
the prejudice of the party who has acquiesced in the
position formerly taken by him.
New Hampshire v. Maine, 532 U.S. 742, 749 (2001) (quoting Davis v. Wakelee,
156 U.S. 680, 689 (1895)). The rule “generally prevents a party from prevailing in
one phase of a case on an argument and then relying on a contradictory argument
to prevail in another phase.” Id. (quoting Pegram v. Herdrich, 530 U.S. 211, 227
n.8 (2000)). It is “an equitable doctrine invoked by a court at its discretion.” Id. at
750 (quoting Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir. 1990)).
Kiewit argues that Plaintiffs (1) acknowledged an immediate duty to
defend under the “complaint allegation” rule and Pancakes of Hawaii, (2) only
argued that Pacific Fence (and thus Island Insurance) should not have to defend
uncovered claims under a “pass through” theory, and (3) specifically represented to
the Hawaii Intermediate Court of Appeals in Arthur I that Pacific Fence was not
contesting that it had an immediate duty to defend, a representation purportedly
relied upon by the appellate court. Plaintiffs have now changed positions, arguing
54
that they had no duty to defend, or at least that the duty does not arise immediately
but, rather, is determined at the end of the litigation.
But Plaintiffs’ position only changed after Arthur II announced the
new rule that, with an indemnity provision in a construction contract, a duty to
defend is not determined until the end of the litigation. Even if Plaintiffs did not
advocate for that position, they are not judicially estopped from raising and
benefitting from the change in controlling law. See Maui Land & Pineapple Co. v.
Occidental Chem. Corp., 24 F. Supp. 2d 1083, 1086 (D. Haw. 1998) (explaining
that the application of judicial estoppel is “inappropriate when a party is merely
changing its position in response to a change in the law”) (citing Arizona v.
Shamrock Foods Co., 729 F.2d 1208, 1215 (9th Cir. 1984)); Biomedical Patent
Mgmt. Corp. v. Cal. Dept. of Health Servs., 505 F.3d 1328, 1342 (Fed. Cir. 2007)
(“[Defendant] is not judicially estopped from asserting a new position that resulted
from a change in the law.”) (applying Ninth Circuit law after citing Maui Land &
Pineapple); Saleh v. Bush, 848 F.3d 880, 887 (9th Cir. 2017) (“[T]he new position
rests on an intervening change in law and therefore is not subject to judicial
estoppel.”) (citing Longaberger Co. v. Kolt, 586 F.3d 459, 470 (6th Cir. 2009)
(collecting cases), abrogated on other grounds by Montanile v. Bd. of Trs. of Nat’l
55
Elevator Indus. Health Benefit Plan, 136 S. Ct. 651 (2016)). In short, judicial
estoppel does not apply.
c.
Res Judicata/Claim Preclusion 23
Similar to its compulsory-counterclaim argument, Kiewit also argues
that Plaintiffs’ claims are barred by res judicata or “claim preclusion” because
Pacific Fence (and thus Island Insurance which, Kiewit argues, was in “privity”
with Pacific Fence) could have sought reimbursement in the Arthur litigation but
did not. See Bremer, 104 Haw. at 53, 85 P.3d at 160 (explaining that claim
preclusion includes not only “issues [that] were actually litigated in the first action,
but also . . . all grounds of claim and defense which might have been properly
litigated in the first action but were not litigated or decided”) (quoting Foytik v.
Chandler, 88 Haw. 307, 314, 966 P.2d 619, 626 (1998) (emphasis omitted)).
This court looks to Hawaii law to determine the preclusive effect of a
Hawaii judgment. See Migra v. Warren City Sch. Dist. Bd. of Educ., 465 U.S. 75,
81 (1984) (“It is now settled that a federal court must give to a state-court
judgment the same preclusive effect as would be given that judgment under the law
of the State in which the judgment was rendered.”). Under Hawaii law, Kiewit has
23
Hawaii law prefers the modern term “claim preclusion” instead of “res judicata.” See
Bremer v. Weeks, 104 Haw. 43, 53 n.14, 85 P.3d 150, 160 n.14 (2004).
56
“the burden of establishing that (1) there was a final judgment on the merits,
(2) both parties are the same or in privity with the parties in the original suit, and
(3) the claim decided in the original suit is identical with the one presented [or
could have been presented] in the action in question.” Bremer, 104 Haw. at 54, 85
P.3d at 161.
Kiewit points to its October 10, 2017 Rule 54(b) judgment which was
issued “in favor of Kiewit and against Pacific Fence on [Pacific Fence’s]
Counterclaim Against [Kiewit],” and which “adjudicate[d] all of the claims
asserted against Kiewit by any or all of the other parties to this action.” ECF No.
36-28 at PageID #1108-09. Kiewit argues that this is a final judgment on the
merits, involved the same parties or those in privity, and adjudicated the issues that
are the same or could have been properly raised and decided in the Arthur
litigation. Under this judgment, so the argument goes, Kiewit prevailed on its
claim seeking a defense from Pacific Fence and cannot challenge that ruling here.
But Kiewit’s claim-preclusion argument is double-edged and if
anything cuts against Kiewit, in favor of Island Insurance. As described earlier,
the state circuit court issued Kiewit’s October 10, 2017 judgment based
specifically on an earlier October 18, 2010 order that concluded that Kiewit had no
liability (whether for contribution or otherwise) for harm to the Arthurs. The
57
judgment was issued to confirm that Kiewit was out of the case and need not
participate in the upcoming 2017 trial by the Arthurs against other remaining
defendants. And because Pacific Fence also had no liability for harm to the
Arthurs (based on an earlier September 16, 2010 order) there was no possibility
that Kiewit could have any liability for contribution or indemnity to Pacific Fence
for harm to the Arthurs. And so, just as Kiewit had noted in its motion to the state
circuit court, the October 10, 2017 judgment determined that “fourth-party claims
asserted by . . . Pacific Fence shall be moot and are hereby dismissed.” ECF No.
36-28 at PageID #1109. Although the Rule 54(b) judgment stated that it was “in
favor of Kiewit and against Pacific Fence,” there is no indication that this
judgment meant that Pacific Fence must defend Kiewit.
To the contrary, a different state circuit court order, signed a day
earlier on October 9, 2017 regarding Pacific Fence’s concomitant omnibus motion,
found exactly the opposite—it specifically determined that Pacific Fence had no
duty to defend Kiewit. ECF No. 36-27 at PageID #1100.24 In so doing, the state
circuit court faced and rejected almost every argument that Kiewit now raises
before this court. If anything, the state circuit court’s October 9, 2017 order
24
Contrary to Kiewit’s argument, it is not significant that the Pacific Fence order signed
on October 9, 2017 was actually filed three minutes after the Kiewit Rule 54(b) judgment was
entered on October 10, 2017. Essentially, they were filed together, with complimentary rulings.
58
specifically ruling in favor of Pacific Fence on the duty-to-defend question is
entitled to res judicata effect and precludes Kiewit from arguing otherwise.25
d.
Statute of Limitations
Next, Kiewit argues that Island Insurance’s request for declaratory
relief and reimbursement is time-barred because Island Insurance failed to seek
such relief for nearly twelve years after it began defending Kiewit in May 2006.
According to Kiewit, Island Insurance should have filed a declaratory relief action
within a reasonable time after it issued the May 4, 2006 reservation-of-rights letter,
and its failure to do so bars it from seeking relief now. Kiewit argues that:
Island, for example, could have sought to overturn
Pancakes or argued that it had no current obligation to
defend Kiewit under the insured contract exception to the
contractual liability exclusion to its policy. Island instead
chose to retain and pay its own panel counsel, not
Kiewit’s counsel, in order to control the defense of
Kiewit for a decade and opportunistically sought to
25
The October 9, 2017 order was apparently never reduced to a judgment (the Arthur
docket reflects that Pacific Fence withdrew its June 2017 request for a Rule 54(b) judgment),
leading to some uncertainty whether the first element of the claim-preclusion test is met to be
able to apply the doctrine against Kiewit. See Bremer, 104 Haw. at 54, 85 P.3d at 161 (requiring
“a final judgment on the merits” for claim preclusion to apply). Nevertheless, the Arthur docket
has been closed for over a year, given stipulations to dismiss the remaining Arthur defendants in
2018. In practical effect, the October 9, 2017 order is final. In any event, as discussed to follow,
Kiewit’s Rule 54(b) judgment—which is certainly final—establishes that Pacific Fence has no
duty to indemnify Kiewit and so, under Arthur II (determining the duty to defend “at the end of
the litigation”) Pacific Fence has no corresponding duty to defend. Thus, the court need not rely
on res judicata to rule in favor of Island Insurance, and it addresses each of Kiewit’s defenses on
their merits.
59
capitalize on a holding that its own insured Pacific Fence
advocated against in the same action.
ECF No. 51-1 at PageID #1577.
Initially, the court rejects Kiewit’s arguments that Island Insurance
was motivated to “control the defense of Kiewit for a decade,” and is now
improperly taking a position “that its own insured Pacific Fence advocated against
in the same action.” Id. The record reflects that Island Insurance hired
independent counsel (Cary Tanaka) to defend Kiewit, and absolutely nothing in the
current record suggests that Island Insurance improperly controlled that counsel
(and certainly no more than Kiewit’s own CGL carrier might have). Although
retained by Island Insurance, that counsel represented Kiewit—not Island
Insurance—with duties owed to Kiewit to account for Kiewit’s interest’s only. See
Finley v. Home Ins. Co., 90 Haw. 25, 33, 975 P.2d 1145, 1153 (1998) (rejecting
the position that retained counsel engages in “dual representation”). Nothing
indicates that Island Insurance interfered with Tanaka’s representation of Kiewit,
or somehow coordinated (or refrained from coordinating) a position regarding
Island Insurance’s coverage duties. See id. (reiterating that an insurer may not
interfere with a retained attorney’s professional judgment). Indeed, retained
counsel successfully defended Kiewit, obtaining a binding order finding Kiewit
had no liability for possible damages to the Arthurs.
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With 20/20 hindsight, especially given that Sato eventually prevailed
in Arthur II, it may be that Island Insurance could have taken a more aggressive
position and—instead of acknowledging under the “complaint allegation” rule that
it should defend Kiewit because of the potential for liability on the part of its
insured, Pacific Fence—formally challenged the nature of its (and Pacific Fence’s)
duty to defend by filing a separate declaratory relief action at that time. But, again,
given the nature of Hawaii law at the time, a decision through experienced
coverage counsel to provide coverage while reserving rights seems to have been
both sensible and pragmatic. 26 Somewhat ironically, a less conservative position
by Island Insurance might have been to Kiewit’s detriment, and might have invited
a bad faith suit by Pacific Fence against Island Insurance or a breach-of-contract
claim by Kiewit against Pacific Fence.
In any event, it is unclear what an earlier declaratory relief action
would have accomplished. As Island Insurance points out, the legal questions
regarding Pancakes of Hawaii and defense duties in construction contracts under
26
Island Insurance owed different duties to its insured, Pacific Fence, than it owed to
Kiewit (which was only owed contractual duties from Pacific Fence). Under Kiewit’s theory, if
Island Insurance had filed a declaratory relief action at that time against Kiewit, it appears that it
would also have been required to name its own insured, Pacific Fence, as a defendant. This may
have been necessary to argue that the Kiewit/Pacific Fence subcontract’s indemnity provision
was void under HRS § 431:10-222 and thus was not a covered “insured contract” such that
Island Insurance owed no duty to indemnify Pacific Fence. This issue might also have factored
into a decision whether to file a declaratory relief action.
61
HRS § 431-10-222 were already being litigated in the Arthur litigation itself. And
for that reason, a separate declaratory relief action might (or might not) simply
have been stayed to prevent duplicative litigation. See, e.g., Burlington Ins. Co.,
758 F. Supp. 2d at 1133 (staying declaratory relief action seeking a ruling
regarding reimbursement of costs in an ongoing action). And a damages claim for
reimbursement of defense costs might not have been ripe until the amount of those
costs were actually known.
Ultimately, however, after analyzing the long and complex history of
the Arthur litigation, it is evident that the claims Island Insurance is currently
making—its duty to defend and entitlement to reimbursement—are different than
those it could have brought in 2006 when it issued its reservation-of-rights letter to
Kiewit. That is, the precise claims Island Insurance are making now did not arise
until June 27, 2016 at the earliest when the Hawaii Supreme Court published
Arthur II. It was then that it became established that, with an indemnity provision
like that in the Pacific Fence/Kiewit construction subcontract, a duty to defend
would not be determined until the end of the litigation. And at that point, it had at
least arguably been established (based on the state circuit court orders from 2010)
that Pacific Fence had no duty to indemnify Kiewit—and thus, under Arthur II,
also had no duty to defend. And later state circuit court decisions in 2017
62
confirmed that Arthur II applied retroactively to similarly-situated parties in the
Arthur litigation. It was at that point when Island Insurance had a sufficient factual
basis to file a declaratory relief action under Arthur II. Cf. Selective Way Ins. Co.
v. Hosp. Grp. Servs., Inc., 119 A.3d 1035, 1050 (Pa. 2015) (“Until an insurance
company has a sufficient factual basis to decline to defend (and thus, decline to
indemnify) its insured in a third party’s action, there is no justiciable controversy
for the trial court to decide, and no cause of action for declaratory judgment.”)
(citations omitted).
Given an earliest accrual date of June 27, 2016, Plaintiffs brought the
current declaratory relief action in a timely fashion. Indeed, they brought this
action shortly after the October 9, 2017 state circuit court order in the Arthur
litigation that denied without prejudice Pacific Fence’s reimbursement request.
Accordingly, Kiewit’s statute of limitations defense fails.
C.
Plaintiffs’ Motion is Granted in Favor of Island Insurance
Finally, the court addresses Plaintiffs’ initial motion for partial
summary judgment, ECF No. 36, seeking a declaration that they did not owe a duty
to defend Kiewit, and thus are entitled to enforce Island Insurance’s May 4, 2006
reservation-of-rights letter. Because Pacific Fence itself has no standing to bring
these claims, the court’s rulings are limited to Island Insurance. And, having
63
survived Kiewit’s waiver-related challenges, Island Insurance is entitled to such a
declaration.
This conclusion follows from Arthur II and the state circuit court’s
October 2017 orders. As noted earlier, if these questions are not otherwise
established by claim preclusion, this court confirms that Island Insurance is entitled
to a declaration that it has (and had) no duty to defend Kiewit in the Arthur
litigation. The facts fit squarely within the Island Insurance’s reservation-of-rights
letter.
Under Arthur II, for construction-contract indemnity provisions, “the
scope of [the] duty to defend is determined at the end of litigation.” 138 Haw. at
97, 377 P.3d at 38. That is, “the duties to indemnify and defend in construction
contracts” are “coextensive.” Id. at 97, 377 P.3d at 38. Nothing in Arthur II
specifically requires a final judgment to determine the “end of litigation.” Rather,
an indemnitor’s (or potential indemnitor’s) duty to defend is determined when the
concomitant duty to indemnify is final. (For example, Arthur II’s rule appears to
work like this: if at the “end of litigation,” a hypothetical defendant-indemnitor
was found to be liable for fifty percent of a plaintiff’s damages based on that
defendant-indemnitor’s own negligence, then that defendant-indemnitor would be
64
liable not only for indemnifying the indemnitee for half the damages, but also for a
corresponding amount of defense costs.)
Here, the state circuit court’s October 9, 2017 order granting Pacific
Fence’s omnibus motion, and its October 10, 2017 Rule 54(b) judgment entered in
favor of Kiewit, both confirm (if it was not clear earlier) that Kiewit has no
possible liability to the Arthurs. They both confirm that Pacific Fence can have no
possible indemnification responsibility. It has therefore been established—at the
“end of the litigation”—that Pacific Fence had no corresponding duty to defend
and is not responsible for any defense costs to Kiewit. Island Insurance is entitled
to such a declaration as a matter of law under either HRS § 631-1 or 28 U.S.C.
§ 2201.
Moreover, Island Insurance’s May 4, 2006 reservation-of-rights letter
was perfectly clear. Island Insurance told Kiewit—a major construction and
engineering firm and sophisticated corporate entity—that “Island reserves the right
to stop paying for Kiewit’s defense . . . should it be determined that there is no
potential for Pacific Fence to have to indemnify Kiewit under the subcontract for
the Kalawahine Streamside project,” and that “Island reserves the right to seek
reimbursement from Kiewit of attorneys fees and other costs of defense if it is
determined that Pacific Fence was not obligated to defend Kiewit under the
65
subcontract.” ECF No. 36-17 at PageID #913. Under the terms of that letter, it has
been determined (if not by the state circuit court, then by this court) that “Pacific
Fence was not obligated to defend Kiewit under the subcontract,” and thus Island
Insurance has the right to seek reimbursement.
Kiewit argues, as it did to the state circuit court, that no Hawaii court
has specifically allowed the enforcement of such a reservation-of-rights letter by an
insurance company. It asks the court to follow what appears to be an “emerging
rule” that insurance companies may not seek reimbursement of defense costs for
non-covered claims against an insured, especially where the insurance policy itself
does not contain a right to reimbursement (and where Pacific Fence’s Island
Insurance CGL policy did not include a right of reimbursement). See, e.g.,
National Sur. Corp. v. Immunex Corp., 297 P.3d 688, 693 (Wash. 2013) (en banc)
(“More recently, however, courts deciding in the first instance whether insurers can
recover defense costs have generally concluded that they cannot.”); Gen. Agents
Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 828 N.E.2d 1092, 1102 (Ill.
2005) (“As a matter of public policy, we cannot condone an arrangement where an
insurer can unilaterally modify its contract, through a reservation of rights, to allow
for reimbursement of defense costs in the event a court later finds that the insurer
owes no duty to defend.”); Am. & Foreign Ins. Co. v. Jerry’s Sport Ctr., Inc., 2
66
A.3d 526, 544 (Pa. 2010) (“Where the insurance contract is silent about the
insurer’s right to reimbursement of defense costs, permitting reimbursement for
costs the insurer spent exercising its right and duty to defend potentially covered
claims prior to a court’s determination of coverage . . . would amount to a
retroactive erosion of the broad duty to defend.”); see also Restatement of the Law
of Liability Insurance § 21 (Oct. 2019 update) (“Unless otherwise stated in the
insurance policy or otherwise agreed to by the insured, an insurer may not seek
recoupment of defense costs from the insured, even when it is subsequently
determined that the insurer did not have a duty to defend or pay defense costs.”)
(adopting “minority” position).
On the other hand, Island Insurance points to other case law holding
the opposite—i.e., that an insurer is allowed to seek reimbursement from an
insured of defense costs incurred defending uncovered claims, if the insured is
given proper notice by a reservation of rights letter. See, e.g., Scottsdale Ins. Co.,
2007 WL 2247795, at *7 (predicting Hawaii law under the Erie doctrine); Buss v.
Superior Court, 939 P.2d 766, 776 (Cal. 1997) (holding that “[a]s to the claims that
are not even potentially covered . . . the insurer may indeed seek reimbursement for
defense costs . . . . The insurer therefore has a right of reimbursement that is
implied in law as quasi-contractual, whether or not it has one that is implied in fact
67
in the policy as contractual.”); Sec. Ins. Co. of Hartford v. Lumbermens Mut. Cas.
Co., 826 A.2d 107, 125 (Conn. 2003) (“Where the insurer defends the insured
against an action that includes claims not even potentially covered by the insurance
policy, a court will order reimbursement for the cost of defending the uncovered
claims in order to prevent the insured from receiving a windfall.”); Hecla Mining
Co. v. N.H. Ins. Co., 811 P.2d 1083, 1089 (Colo. 1991) (en banc) (“The
appropriate course of action for an insurer who believes that it is under no
obligation to defend, is to provide a defense to the insured under a reservation of
its rights to seek reimbursement should the facts at trial prove that the incident
resulting in liability was not covered by the policy, or to file a declaratory
judgment action after the underlying case has been adjudicated.”).
This caselaw, however, is inapplicable one way or the other, and
ultimately has little bearing on the question before the court. As emphasized
throughout, Kiewit was not an insured of Island Insurance. This case does not, for
example, involve Island Insurance seeking reimbursement from Pacific Fence for
costs Island Insurance incurred in defending Pacific Fence. Nor does it involve
Island Insurance’s right to seek reimbursement from Pacific Fence for costs that
Island Insurance expended for a potential “loss” under its CGL policy’s “insured
contract” clause (now that Arthur II has clarified the legal landscape). Rather, it
68
involves enforcing an unambiguous reservation-of-rights letter against Kiewit, a
third-party, to recover costs of defense that Island Insurance incurred based on a
theory that the Hawaii Supreme Court in Arthur II discredited.27 Arthur II held
that the Kiewit/Pacific Fence subcontract’s indemnity clause was void and violated
HRS § 431:10-222 to the extent it required an immediate defense of potentially
non-covered claims. Island Insurance should not have been defending Kiewit.
The tension in case law regarding the insurer-insured reimbursement
question generally turns on whether the insurance policy itself contains a right to
reimbursement—as opposed to being asserted only in a reservation-of-rights letter.
And cases disallowing reimbursement are based in significant part on the wellestablished principle of insurance law that a duty to defend an entire suit (including
uncovered claims) arises immediately whenever there is a potential for
27
Kiewit—which was receiving a defense under an “insured contract” provision in
Pacific Fence’s Island Insurance CGL policy—was not an intended third-party beneficiary
entitled to enforce provisions of that CGL policy. See, e.g., York Int’l Grp. v. Cincinnati Ins.
Co., 2007 WL 2667984 at *8 (E.D. Pa. Sept. 5, 2007) (“[T]he fact that the CGL Policy contains
an ‘insured contract’ clause does not manifest sufficient intent to confer third-party beneficiary
status upon the [indemnitee].”); Tremco, Inc. v. Penn. Mfrs. Ass’n Ins. Co., 832 A.2d 1120,
1122-23 (Pa. Super. Ct. 2003) (finding an indemnitee was not an intended third-party beneficiary
although covered under a CGL policy for “damages . . . [a]ssumed in a contract or agreement
that is an ‘insured contract’”—the same “insured contract” provision in Island Insurance’s CGL
policy); cf. Simmons v. Puu, 105 Haw. 112, 118, 94 P.3d 667, 673 (2004) (concluding that an
injured third-party claimant is not a third-party beneficiary of a self-insurer, and that the tort of
bad faith only arises out a contractual relationship between an insurer and an insured).
Indeed, under Simmons, it appears that Kiewit’s bad faith counterclaim against Island
Insurance fails as a matter of law.
69
indemnification. See, e.g., Jerry’s Sport Ctr., 2 A.3d at 544 (“[P]ermitting
reimbursement for costs the insurer spent exercising its right and duty to defend
potentially covered claims prior to a court’s determination of coverage . . . would
amount to a retroactive erosion of the broad duty to defend[.]”).
But neither of those factors exists here. Kiewit was not a party to
Pacific Fence’s Island Insurance CGL policy and was not an intended third-party
beneficiary entitled to enforce it. See, e.g., York Int’l Grp., 2007 WL 2667984 at
*8. Thus, any lack of (or inclusion of) reimbursement language in that policy is
only significant as to reimbursement from Pacific Fence, and is immaterial to
determining Kiewit’s rights. And, after Arthur II, the duty to defend with a
construction-contract indemnity provision is not determined until the end of
litigation. In this context, the duty to defend is narrow, not broad—there is no
“complaint allegation” rule.
Accordingly, the court need not reach—and offers no opinion
regarding—the still apparently unresolved question of Hawaii law whether (or
under what circumstances) an insurance company defending an insured under a
reservation of rights would be entitled to seek reimbursement of defense costs.
As it is, then, the court relies on a quasi-contact theory of unjust
enrichment to allow Island Insurance to enforce its reservation-of-rights letter.
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See, e.g., Durette v. Aloha Plastic Recycling, Inc., 105 Haw. 490, 505, 100 P.3d 60,
75 (2004) (recognizing the doctrine of unjust enrichment where someone
“conferred a benefit upon the opposing party and that the retention of that benefit
would be unjust”) (citation, quotations, and brackets omitted); Small v. Badenhop,
67 Haw. 626, 636, 701 P.2d 647, 654 (Haw. 1985) (“[I]t is axiomatic that ‘[a]
person who has been unjustly enriched at the expense of another is required to
make restitution to the other.’”) (quoting Restatement of Restitution § 1); Hong v.
Kong, 5 Haw. App. 174, 181, 683 P.2d 833, 840 (1984) (indicating that an action
in quasi-contract lies to prevent one person from being inequitably enriched at
another’s expense).
As previously explained, Island Insurance was defending Kiewit
based on an indemnity clause that violated Hawaii law. It should not have been
defending Kiewit, and had no such duty. Nevertheless, it successfully defended
Kiewit. The court recognizes, especially after reviewing and analyzing the
complex and lengthy background of this action, that this may be a unique situation
necessarily resulting from Arthur II’s application to existing parties. Even so,
however, unjust enrichment principles apply. And as set forth in the plain terms of
its reservation-of-rights letter, Island Insurance is entitled to reimbursement.
71
V. CONCLUSION
For the foregoing reasons, the court GRANTS Kiewit’s amended
countermotion, ECF No. 57 and motion for summary judgment as to Pacific Fence,
ECF No. 49, in PART. Pacific Fence is DISMISSED as a plaintiff. In all other
respects, those motions are DENIED.
Kiewit’s motions for summary judgment as to Island Insurance, ECF
No. 51 is DENIED.
Plaintiffs’ motion for partial summary judgment, ECF No. 36, is
GRANTED in part as to Island Insurance. Island Insurance had no duty to defend
Kiewit, and may enforce its May 4, 2006 reservation-of-rights letter.
The parties are directed to meet and confer within two weeks of this
order to discuss whether or to what extent other aspects of this case remain. By
way of example only, although Island Insurance’s complaint alleges that it incurred
$213,867.46 in defense fees and costs, are further proceedings necessary to
confirm or challenge that amount? Does Kiewit intend to pursue its bad faith
counterclaim against Island Insurance? 28 After meeting and conferring, the parties
are further directed to contact Magistrate Judge Wes Porter to arrange a scheduling
28
As noted above, Simmons indicates that an injured third-party claimant may not sue the
tortfeasor’s insurer for bad faith. See 105 Haw. at 118, 94 P.3d at 673.
72
or status conference to discuss a schedule for any further proceedings in this
action.
IT IS SO ORDERED.
DATED: Honolulu, Hawaii, January 22, 2020.
/s/ J. Michael Seabright
J. Michael Seabright
Chief United States District Judge
GGA, Inc., dba Pacific Fence et al. v. Kiewit Infrastructure West Co., Civ. No. 18-00110 JMSWRP, Order Granting in Part and Denying in Part Motions for Summary Judgment or Partial
Summary Judgment, ECF Nos. 36, 49, 51, 57
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