321 P.3d 634
Haw.2014Background
- VP & PK (owner/developer) had a CGL policy from Lexington; Kila Kila (subcontractor) had a CGL policy from Nautilus that named VP & PK as an additional insured only for liability "arising out of [Kila Kila]’s negligence."
- Goo lawsuit alleged facts that, if true, fell within coverage of both policies; Nautilus funded defense for both Kila Kila and VP & PK and ultimately defended through trial.
- Jury found VP & PK liable and Kila Kila not liable; Lexington paid the judgment but refused to contribute to Nautilus’s defense costs.
- Nautilus sued Lexington for declaratory relief and equitable contribution; District Court granted summary judgment to Lexington; Ninth Circuit certified four Hawai‘i-law questions to the Hawai‘i Supreme Court.
- Key contractual features: Lexington’s policy contained an "other insurance" clause converting otherwise-primary coverage to excess if other valid/collectible insurance exists and stating Lexington has no duty to defend if another insurer has that duty; Nautilus’s policy had an Additional Insured Endorsement conditioned on Kila Kila’s negligence.
Issues
| Issue | Plaintiff's Argument (Nautilus) | Defendant's Argument (Lexington) | Held |
|---|---|---|---|
| May an insurer look to another insurer's policy to disclaim duty to defend when complaint alleges coverage? | Dairy Road requires defense whenever a "mere potential" of coverage exists; insurer cannot rely on extrinsic policy terms that relate to liability; Lexington may not consult Nautilus’s policy to disclaim. | Insurers must be able to examine other policies ("other insurance" clauses) to determine priority; otherwise clauses are meaningless and insurers cannot allocate risk. | A primary insurer may not look to another insurer’s policy (unless the other policy is specifically named in its own policy) to disclaim the duty to defend when the complaint alleges facts within coverage; primary insurer must defend but may seek contribution later. |
| Are "other insurance" clauses that relieve a primary insurer of duty to defend enforceable? | Such clauses blur defense vs indemnity, risk leaving insured without expected defense, and should be invalid as to the duty to defend. | Such clauses serve valid purposes (risk/pricing) and are enforceable absent prejudice to insured. | Enforceable only in insurer-to-insurer actions for allocation/recovery of defense costs; they cannot be used to allow a primary carrier to refuse defending the insured. |
| When should irreconcilability (mutual repugnance) of other-insurance clauses be determined—before or after their operation? | Determine whether the policies cover same risk/level first, then check for conflict, then operate clauses only if necessary. | Courts should first assess whether clauses actually conflict; review "other insurance" provisions at outset. | First determine relevance of each clause from face of policies and complaint; if relevant clauses conflict, then consider irreconcilability; only thereafter (if reconcilable) determine full operation. |
| When does an excess insurer or a primary insurer that becomes excess have a duty to defend? | A primary insurer that becomes excess by clause still has a personal contractual duty to defend from tender. | If insurer is excess by its clause, it owes defense only after primary limits are exhausted or primary refuses to defend. | An otherwise-primary insurer who may become excess by "other insurance" clause must defend upon tender when there is a mere possibility of coverage; it can later seek contribution/reimbursement if it was in fact excess. |
Key Cases Cited
- Dairy Road Partners v. Island Ins. Co., 992 P.2d 93 (Haw. 2000) (holds insurer generally cannot disclaim defense on extrinsic facts that could be disputed in underlying suit; duty to defend triggered by mere potential of coverage)
- Tri-S Corp. v. W. World Ins. Co., 135 P.3d 82 (Haw. 2006) (resolve ambiguities in insurance contracts in favor of insured; reasonable expectations guide construction)
- Hart v. Ticor Title Ins. Co., 272 P.3d 1215 (Haw. 2012) (reiterates duty-to-defend principles and timing at claim outset)
- Liberty Mut. Ins. Co. v. Sentinel Ins. Co., 205 P.3d 594 (Haw. App. 2009) (addresses excess "other insurance" clauses in indemnity/uninsured-motorist context and insurers’ ability to set priority)
- General Motors Acceptance Corp. v. Nationwide Ins. Co., 828 N.E.2d 959 (N.Y. 2005) (primary insurer premiums reflect expected defense costs; relieving primary of duty to defend yields insurer windfall)
- Am. Fid. & Cas. Co. v. Penn. Thresherman & Farmers' Mut. Cas. Ins. Co., 280 F.2d 453 (5th Cir. 1960) (duty to defend is personal to insurer–insured relationship; insurer deemed primary must defend despite being made excess by clause; may seek contribution later)