North River Insurance Company, The v. H.K. Construction Corporation, 462 F.Supp.3d 1080

Background

TNRIC issued a Primary and an Excess commercial general liability policy covering HK Construction for the 2016–2017 period; the Primary policy included a broad "Subsidence and Earth Movement and Earth Pressure" exclusion that disclaims coverage for property damage "directly or indirectly arising out of, caused by, resulting from, contributed to, or aggravated by 'Subsidence and Earth Movement' or 'Earth Pressure'" and excludes such damage "regardless of any other cause . . . including any product, work or operation provided or performed by or on behalf of the insured."
In March 2017 HK excavated on the Nitahara property; the adjacent slope failed, causing a landslide that damaged the neighboring Bingle property and disrupted a pending sale. The Bingles sued HK (and the Nitaharas) in Hawaii state court for withdrawal of lateral support, failure to obtain a grading permit, and negligence, seeking damages > $433,000.
TNRIC notified HK in August 2017 that it would not provide coverage, but continued to defend under a reservation of rights and later filed this declaratory-judgment action seeking a judicial declaration that it has no duty to defend or indemnify HK under the Primary or Excess policies.
HK conceded its excavation caused the loss but argued the Earth Movement Exclusion applies only to earth movements caused entirely by natural phenomena (and thus coverage should remain for work-caused events); TNRIC argued the exclusion unambiguously bars coverage for earth movement losses caused by natural forces, the insured’s work, or any combination thereof.
The dispositive legal question was whether the Earth Movement Exclusion unambiguously precludes coverage (and therefore TNRIC’s duties to defend and indemnify) for the claims in the underlying Bingle complaint.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Construction/ambiguity of the Earth Movement Exclusion	Exclusion is broad and unambiguous: it excludes damage from land movement whether caused by natural forces, the insured’s work, or both.	Exclusion is ambiguous and should be read to apply only to natural phenomena-caused earth movement (not human-caused).	Exclusion is unambiguous and covers earth movement-related damage caused by natural forces, the insured’s work/operations, or any combination.
Duty to defend	No duty to defend because the Bingles’ complaint alleges slope failure and erosion arising from excavation—facts that fall within the exclusion.	Duty to defend exists because insured’s work could be the sole cause and because of possible coverage under policy ambiguity.	No duty to defend: the complaint’s allegations unambiguously fit the Earth Movement Exclusion.
Duty to indemnify	No duty to indemnify for the same reason—the exclusion removes coverage as a matter of law.	Indemnity determination is premature because factual causation and negligence remain to be decided in the underlying case.	No duty to indemnify: insurer met burden to establish absence of coverage under plain policy language, so declaratory relief on indemnity is appropriate now.
Estoppel by acquiescence / equitable estoppel	N/A (insurer denies estoppel; acted in good faith, issued reservation of rights, and formally denied coverage after investigation).	TNRIC verbally assured coverage then later denied; estoppel should bar the denial.	Estoppel rejected: HK did not show insurer had full knowledge of material facts when alleged assurances were made, insurer timely reserved rights and denied coverage, and no reasonable detrimental reliance occurred.

Key Cases Cited

Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940 (9th Cir.) (applies the complaint-allegation rule for duty to defend)
Hart v. Ticor Title Ins. Co., 272 P.3d 1215 (Haw. 2012) (resolve doubts on duty to defend in favor of insured; focus on facts alleged)
Dairy Road Partners v. Island Ins. Co., 992 P.2d 93 (Haw. 2000) (coverage and insurer/insured burdens; complaint-allegation rule)
Nautilus Ins. Co. v. Lexington Ins. Co., 321 P.3d 634 (Haw. 2014) (insurer must show impossibility of coverage to disclaim duty to defend)
Tri-S Corp. v. W. World Ins. Co., 135 P.3d 82 (Haw. 2006) (distinct burdens for duty to defend vs duty to indemnify)
Enoka v. AIG Hawai’i Ins. Co., 128 P.3d 850 (Haw. 2006) (limits on using estoppel/equitable estoppel to expand insurance coverage)