North River Insurance Company, The v. H.K. Construction CorporationNorth River Insurance Company, The v. H.K. Construction Corporation
The North River Insurance Company (TNRIC) brought this action under the
Because the “Subsidence and Earth Movement” exclusion clause in question unambiguously excludes coverage for earth movement-related damage caused by natural phenomena, HK‘s “work or operation[s],” or any combination thereof, and because the underlying lawsuit is clearly based on claims involving such damages, TNRIC‘s motion, Dkt. No. 17, is GRANTED.
FACTUAL & PROCEDURAL BACKGROUND
TNRIC issued two insurance policies to HK: a Primary Policy and an Excess Policy. TNRIC issued the Primary Policy, Dkt. No. 18-4, for the period May 1, 2016 to May 1, 2017. Dkt. No. 22, ¶ 7. TNRIC issued the Excess Policy, Dkt. No. 18-5, for the period April 14, 2016 to May 1, 2017. Dkt. No. 22, ¶ 8.
A. Relevant Primary Policy Terms
Under the Primary Policy, the relevant coverage provision is contained in Section I. In relevant part, the first paragraph of Section I states that TNRIC: (1) “will pay those sums that the insured becomes legally obligated to pay as damages because of ‘bodily injury’ or ‘property damage’ to which this insurance applies“; and (2) “will have the right and duty to defend the insured against any ‘suit’ seeking those damages.” Dkt. No. 18-4 at 56.
Coverage under the Primary Policy is modified by an Endorsement containing a “SUBSIDENCE AND EARTH MOVEMENT AND EARTH PRESSURE EXCLUSION.” Dkt. No. 18-4 at 98. That exclusion clause states:
This insurance does not apply to any liability for “Bodily Injury“, “Personal and Advertising Injury“, or “Property Damage” directly or indirectly arising out of, caused by, resulting from, contributed to, or aggravated by “Subsidence and Earth Movement” or “Earth Pressure.” Such loss or damage is excluded regardless of any other cause or event, including any product, work or operation provided or performed by or on behalf of the insured, that contributes concurrently or in any sequence to the loss or damage.
It is further agreed that Section I - Coverages Supplementary Payments - Coverages A and B do not apply to any claim or “suit” seeking damages excluded by this endorsement.
“Subsidence and Earth Movement” means: any movement of land, including, but not limited to, subsidence, settling, sinking, slipping, fаlling away, caving in,
shifting, eroding, mud flow, rising, tilting, bulging, cracking, shrinking or expansion of foundations, walls, roofs, floors, or ceilings, or any other movements of land or earth. “Earth Pressure” means: pressure exerted by land or earth, whether or not combined with water.
Id. (emphasis added) (hereinafter the “Earth Movement Exclusion“).
B. Relevant Excess Policy Terms
Under the Excess Policy, the relevant coverage terms are contained in Section I. Dkt. No. 18-5 at 12. Section I provides as follows:
[TNRIC] will pay on [HK‘s] behalf the ULTIMATE NET LOSS (1) in excess of all UNDERLYING INSURANCE and (2) only after аll UNDERLYING INSURANCE has been exhausted by the payment of the limits of such insurance for losses arising out of occurrences insured by all of the policies designated in the Declarations as UNDERLYING INSURANCE. If any UNDERLYING INSURANCE does not pay a loss for reasons other than the exhaustion of an aggregate limit of insurance, then [TNRIC] shall not pay such loss.
. . . .
The Definitions, Terms, Conditions, and Exclusions of the “CONTROLLING UNDERLYING INSURANCE” scheduled in Item 5 of the Declarations, in effect at the inception of this policy, apply to this coverage unless they are inconsistent with the provisions of this policy, or relate to premium, subrogation, or any obligation to defend, the payment of expenses, limits of insurance, cancellation or any renewal agreement.
Dkt. No. 18-5 at 12.
C. The Underlying Lawsuit
On March 1, 2019, Bruce and Yulin Bingle (the “Bingles“) sued HK and Edward and Teruko Nitahara for damage caused to the Bingle property (the “Underlying Lawsuit“).1 See Dkt. No. 18-3. In adhering to the “complaint allegation rule” applicable where there is a question whether claims alleged in a separate lawsuit are covered under an insurance policy, see Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 944 (9th Cir. 2004), the following facts are taken from “within the four corners” of the Bingles’ complaint. See Hart v. Ticor Title Ins. Co., 272 P.3d 1215, 1225 n.19 (Haw. 2012) (quoting Dairy Road Partners v. Island Ins. Co., 992 P.2d 93, 112 (Haw. 2000)).2
In March 2017, the Nitaharas hired HK as the contractor for the construction of a new residence and improvements on their property in Kaneohe, Hawaii. Dkt. No. 18-3, ¶¶ 2, 5. As part of the project, HK proceeded to excavate near the boundary between the Nitahara property and the Bingle property in order to “cut the existing slope to build a retaining wall.” Id. at ¶ 6. On March 3, 2017, “due to the excavation work that HK performed,” the slope on the Bingle property “failed and substantial amounts of soil eroded away,” causing damage to a moss rock wall and drainage easement. Id. at ¶ 7. At the time, the Bingles were selling their property, which was in escrow. As a result of the “landslide,” however, the buyer declined to purchase the Bingle property. Id. at ¶¶ 8-9. HK allegedly promised the Bingles that
The Department of Planning and Permitting for the City and County of Honolulu (DPP) investigated the landslide incident and, on April 5, 2017, DPP issued a Notice of Violation to the Nitaharas and HK for failure to obtain a grading permit. Dkt. No. 18-3, ¶ 12. After HK notified TNRIC of the incident, TNRIC hired a civil engineer (Duane Lee, P.E.) to investigate the matter. Id. at ¶ 14. When Lee recommended a geotechnical evaluation, TNRIC hired Kokua Geotech, LLC (Geotech) to provide that evaluation of the Bingle property. Id. at ¶ 15. On August 17, 2017, Geotech issued its report, recommending that a soil anchor systеm and shotcrete facing be installed to remediate and stabilize the slope. Id. at ¶¶ 16-17. The Bingles ultimately engaged HK‘s civil engineer to serve as engineer of record for the remediation work and hired Prometheus Construction, as the low bid, to do the work. Id. at ¶¶ 18-22. Prometheus commenced the remediation work in January 2019. Id. at ¶ 23.
In the Underlying Lawsuit, the complaint asserts three claims against the Nitaharas and HK: (1) withdrawal of lateral support from the slope on the Nitahara property; (2) violation of
D. Procedural Posture
On August 18, 2017 - over 18 months before the Underlying Action was filed - TNRIC Claims Specialist Andy Miller informed HK by letter that TNRIC would not provide coverage for HK‘s claim arising from the landslide incident at the Bingle property. See Dkt. No. 24-5 at 1-2, 6. Nevertheless, TNRIC is currently defending HK in the Underlying Lawsuit pursuant to a full reservation of rights under the subject insurance policies issued by TNRIC. Dkt. No. 18-2, ¶ 4.
On April 19, 2019, TNRIC filed this lawsuit against HK under the
STANDARD OF REVIEW
Summary judgment under
In the context of an insurance coverage dispute, the рarties’ respective burdens of proof as to the insurer‘s duties to defend and to indemnify are “distinct.” Tri-S Corp. v. W. World Ins. Co., 135 P.3d 82, 97 (Haw. 2006) (brackets in original) (quoting Dairy Road Partners v. Island Ins. Co., Ltd., 992 P.2d 93, 107 (Haw. 2000)). “Generally, the insured has the burden to prove that a loss is covered under the terms of the insurance policy.” Sentinel Ins. Co. v. First Ins. Co., 875 P.2d 894, 909 n.13 (Haw. 1994). But where, as here, the insurer seeks “a declaration that it has no duty to defend . . . [the insurer is] required to prove that it would be impossible for the [claimant] to prevail against [the insured] in the underlying lawsuit[] on a claim covered by the policies.” Tri-S Corp., 135 P.3d at 97 (alterations in original) (quoting Dairy Road, 992 P.2d at 107-08). That is, “an insurer ‘may only disclaim its duty to defend by showing that none of the facts upon which it relies might be resolved differently in the underlying lawsuit.‘” Nautilus Ins. Co. v. Lexington Ins. Co., 321 P.3d 634, 639 (Haw. 2014) (quoting Dairy Road, 992 P.2d at 117). “All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured.” Hart v. Ticor Title Ins. Co., 272 P.3d 1215, 1225 (Haw. 2012) (citation omitted).
With respect to an insurer‘s request for a declaration that it has no duty to indemnify the insured, the insurer is ”not required to disprove any possibility that its insured might be liable for a claim asserted in the underlying lawsuits.” Tri-S Corp., 135 P.3d at 97 (quoting Dairy Road, 992 P.2d at 108). Instead, the insurer is “required only to establish the absence of a genuine issue of material fact regarding the question of coverage pursuant to the plain language of the insurance polic[y]...” Tri-S Corp., 135 P.3d at 97 (alterations in original) (quoting Dairy Road, 992 P.2d at 108). Moreover, as relevant here, “whenever the insurer relies on an exclusionary clause of a policy . . ., it has the burden of proving facts which bring the case within the exclusion,” and “any ambiguity in [the] exclusionary clause is construed in favor of the insured and ‘strictly construed against the insurer.‘” C. Brewer & Co. v. Marine Indem. Ins. Co. of Am., 347 P.3d 163, 169 (Haw. 2015) (citations omitted).
DISCUSSION
The controlling question before the Court is whether the Earth Movement Exclusion precludes insurance coverage for the claims asserted against HK in thе Underlying Lawsuit. Dkt. No. 18-4 at 98. In moving for summary judgment, TNRIC argues it has no duty to defend or indemnify HK in the Underlying Lawsuit because the Earth Movement Exclusion encompasses claims arising from both natural phenomena as well as HK‘s own operations. Dkt. No. 17-3 at 1-2, 18; Dkt. No. 24 at 3, 10. HK concedes that its “work was the sole cause of the loss,” but it contends the damage is covered by TNRIC‘s policy because the exclusion only applies to earth movements caused entirely by natural phenomena, not those caused by humаn action.3 Dkt. No. 21 at 8-10.
A. Relevant Legal Principles
Under Hawaii insurance law, “[i]t is well settled that the duty to provide coverage [i.e., the duty to indemnify,] and the duty to defend on the part of an insurer are separate and distinct.” Tri-S Corp., 135 P.3d at 97 (brackets in original) (quoting Dairy Road, 992 P.2d at 107). As noted, these two duties also give rise to “distinct” burdens of proof for both the insurer and the insured. Id.
An insurеr‘s “duty to defend ‘is broader than the duty to pay claims and arises whenever there is a mere potential for coverage,‘” even if that “possibility may be remote.” Allstate Ins. Co. v. Pruett, 186 P.3d 609, 623 (Haw. 2008) (emphasis in original) (quoting Sentinel, 875 P.2d at 904). The duty to defend, however, “is limited to situations where the pleadings [in the underlying case] have alleged claims for relief which fall within the terms for coverage of the insurance contract.” Id. (quoting Hawaiian Holiday Macadamia Nut Co., Inc. v. Indus. Indem. Co., 872 P.2d 230, 233 (Haw. 1994)). Under this so-called “complaint allegation rule,” Burlington, 383 F.3d at 944, the focus of the inquiry is on “the facts alleged in the underlying complaint,” not the label placed on a claim through “artful pleading.” Hart, 272 P.3d at 1225 n.19 (emphasis in original) (quoting Dairy Road, 992 P.2d at 112). “All doubts as to whether a duty to defend exists are resolved аgainst the insurer and in favor of the insured.” Id. at 1225 (citation omitted). “[W]hen the facts alleged in the underlying complaint unambiguously exclude the possibility of coverage, conclusory assertions contained in the complaint regarding the legal significance of those facts . . . are insufficient to trigger the insurer‘s duty to defend.” Id. at 1225 n.19 (quoting Dairy Road, 992 P.2d at 112).
Because “[a]n insurer‘s duty to defend stems from the policy contract . . ., the language of the policy involved determines the scope of that duty.” Hart, 272 P.3d at 1223; Brewer, 347 P.3d at 169 n.12 (“[T]he broader duty to defend rests on the possibility that the insured would be entitled to indemnification under the policy.“). Insurance policies are contracts and, as such, they “are subject to the general rules of contract construction.” Guajardo v. AIG Haw. Ins. Co., 187 P.3d 580, 587 (Haw. 2008) (quoting Dairy Road, 992 P.2d at 106-07). “[T]he construction and legal effect to be given a contract is a question of law” and “whether a contract is ambiguous is likewise a question of law.” Brown v. KFC National Mgmt. Co., 921 P.2d 146, 159 (Haw. 1996).
In construing an insurance policy, courts must do so “according to the entirety of its terms and conditions as set forth in the policy,” including any “endorsement or application attached to and made a part of the policy.”
“A contract is ambiguous when its terms are reasonably susceptible to more than one meaning.” Hawaiian Ass‘n of Seventh-Day Adventists v. Wong, 305 P.3d 452, 461 (Haw. 2013). The mere fact that the parties offer сompeting interpretations of contract terms “does not render clear language ambiguous.” State Farm Fire & Cas. Co. v. Pacific Rent-All, Inc., 978 P.2d 753, 762 (Haw. 1999) (collecting cases). And by the same token, a term left undefined in the contract - without more - does not constitute an ambiguity. See, e.g., Hawaii Ass‘n of Seventh-Day Adventists, 305 P.3d at 463-64; Hart, 272 P.3d at 1224; Pruett, 186 P.3d at 619. In the end, “[a] court must respect the plain terms of the policy and not create ambiguity where none exists.” Hart, 272 P.3d at 1223 (citation omitted) (quoting Smith v. New England Mut. Life Ins. Co., 827 P.2d 635, 638 (Haw. 1992)).
B. TNRIC Has No Duty to Defend or Indemnify HK
Because the Earth Movement Exclusion employs broad and unambiguous terms to exclude coverage for property damage arising from land movement-related damage caused by natural forces, the “work or operation” of HK, or any combination thereof, TNRIC has no duty to defend or indemnify HK for the claims asserted in the Underlying Lawsuit.
The Court looks first “to the language of the insurance policy” to determine whether coverage exists under TNRIC‘s policies. Nautilus, 321 P.3d at 645. As relevant here, the Earth Movement Exclusion excludes coverage for “‘Property Damage’ directly or indirectly arising out of, caused by, resulting from, contributеd to, or aggravated by ‘Subsidence and Earth Movement’ or ‘Earth Pressure’ . . . regardless of any other cause or event, including any product, work or operation provided or performed by or on behalf of the insured, that contributes concurrently or in any sequence to the loss or damage.” Dkt. No. 18-4 at 98 (emphasis added). “Subsidence and Earth Movement” and “Earth Pressure” are both broadly defined.4
The Earth Movement Exclusion is unambiguous. When the provision is interpreted according to its “plain, ordinary, and accepted sense in common speech,” Pruett, 186 P.3d at 617, the provision unambiguously states that if the ground soil “sink[s], slip[s], or ‘fall[s] away,‘” and “directly or indirectly” results in property
Here, the factual allegations in the Underlying Lawsuit fit comfortably within the terms of the Earth Movement Exclusion. In particular, the complaint filed in the Underlying Lawsuit states that shortly after HK began excavating part of a slope near the boundary line between the Nitahara and Bingle properties, the slope failed and eroded, causing damage to the Bingle property. Dkt. No. 18-3, ¶¶ 5-7. These allegatiоns “unambiguously exclude the possibility of coverage” because the damage arises from “Earth Subsidence and Movement” in connection with HK‘s work. See Hart, 272 P.3d at 1225 & n.19. This holds true regardless of whether or not a jury concludes that HK was negligent. See Nautilus, 321 P.3d at 639; Dairy Road, 992 P.2d at 117. As such, TNRIC does not have a duty to defend HK in the Underlying Lawsuit. See Hart, 272 P.3d at 1225 & n.19. Because “the broader duty to defend rests on the possibility that the insured would be entitled to indemnification under the policy,” Brewer, 347 P.3d at 169 n.12, it follows that TNRIC also has no duty to indemnify HK for damages alleged in the Underlying Lawsuit.5
To reach a contrary result, HK makes two arguments, both of which are unavailing. First, the cases HK relies upon are inapposite. Dkt. No. 21 at 8-10. In each of the cases cited by HK, the court held that the earth movement exclusion in question was ambiguous because it described types of natural earth movements (such as earthquakes, volcanic eruptions, sinkholes, erosion, and landslides) without any mention of human-related “causes” of those events. See, e.g., Murray v. State Farm Fire & Cas. Co., 509 S.E.2d 1, 8 (W. Va. 1998); Nautilus Ins. Co. v. Vuk Builders, Inc., 406 F. Supp. 2d 899, 904 (N.D. Ill. 2005); Mattis v. State Farm Fire & Cas. Co., 454 N.E.2d 1156, 1160-61 (Ill. App. Ct. 1983); Ins. Co. of State of Pennsylvania v. ALT Affordable Housing Services, Inc., 1999 WL 33290622, *3 n.31 (W.D. Tex. 1999); Am. Motorists Ins. Co. v. R & S Meats, Inc., 526 N.W.2d 791, 795-96 (Wis. Ct. App. 1994); Henning Nelson Constr. Co. v. Fireman‘s Fund Am. Life Ins. Co., 383 N.W.2d 645, 652-53 (Minn. 1986). Therefore, these courts limited the earth movement exclusion in question to claims arising from earth movements caused by natural phenomena but not those movements caused by human action. But none of the cases HK relies upon involved an earth movement exclusion, like the one here, that explicitly excludes earth movement-related damage caused, in whole or in part, by the “work or operаtion[s] . . . of the insured.” Dkt. No. 18-4 at 98. HK does not grapple with this glaring distinction.
To be sure, although Hawaii courts have not construed an earth movement exclusion like the one involved here,6 “the absence
Second, HK invokes the doctrine of “estoppel by acquiescence” and argues that TNRIC should be estopped from denying coverage because it assured HK that the incident would be covered and then later changed positions. See Dkt. No. 21 at 14-16; Dkt. No. 22-1, ¶¶ 5-8. The argument has no footing in the law or facts. To establish estoppel by acquiescence, a litigant must show that their opponent (1) acquiesced or affirmatively approved a course of conduct; and (2) “possesse[d] full knowledge of all the material particulars and circumstances and was fully apprised of the effect of the acts ratified and of [their] legal rights in the matter.” See Harrison v. Casa De Emdeko, 418 P.3d 559, 573-74 (Haw. 2018) (citation and internal quotation marks omitted).
Here, HK maintains it received “assurances” regarding coverage for the claim during “conversations with representatives of TNRIC” that allegedly took place “[s]hortly after the March 3, 2017 incident.” Dkt. No. 22-1, ¶ 5. At that time, however, the incident had yet to be investigated. Geotech did not issue its report until August 17, 2017. Dkt. No. 18-3, ¶¶ 16-17. And the next day - over 18 months before the Underlying Action was filed - TNRIC issued a letter formally denying HK‘s claim. Dkt. No. 24-5 at 1-2. As such, HK has not established that, with respect to coverage for the claim, TNRIC “possesse[d] full knowledge of all the material particulars and circumstances” at the time TNRIC representatives allegedly made verbal assurances that the claim would be covered.
To the extent HK also contends equitable estoppel applies, as a general rule, “the doctrine of estoppеl may not be used to broaden the coverage of an insurance policy so as to protect the insured against risks not included therein or expressly excluded therefrom.” Enoka v. AIG Hawai‘i Ins. Co., 128 P.3d 850, 869 (Haw. 2006). The Hawaii Supreme Court has recognized the following three exceptions to this general rule: (1) “the insurer, or its agent, made a misrepresentation at the policy‘s inception that resulted in the insured being prohibited from procuring the coverage [the insured] desired“; (2) the “insurer has represented the insured without a reservation of rights“; and (3) “the insurer has acted in bad faith.” Id. at 870-71 (citation omitted).
As important, HK has not shown that it “detrimentally relied on the representation or conduct of [TNRIC], and that such reliance was reasonable.” Enoka, 128 P.3d at 870 (citаtion and internal quotation marks omitted). Contrary to HK‘s averments, Dkt. No. 21 at 16; Dkt. No. 22-1, ¶¶ 6-8, it is irrelevant that TNRIC did not consult HK before hiring a civil engineer or Geotech. Nor is it relevant that HK did not have the opportunity to approve or weigh in on the remedial recommendations provided by these specialists. The Primary Policy expressly provides that TNRIC “may, at [its] discretion, investigate any offense and settle any claim or ‘suit’ that may result.” Dkt. No. 18-4 at 61. Because TNRIC has maintained “there is no coverage under [the] policy” since it first issued its denial letter, HK could not have, as a matter of law, reasonably “relied on any of [TNRIC]‘s representations to [its] detriment,” and, therefore, TNRIC is not estopped from denying coverage. See Enoka, 128 P.3d at 870 (quoting State Farm Mut. Auto. Ins. Co. v. GTE Hawaiian Telephone Co., 915 P.2d 1336, 1344 (Haw. 1996)); Best Place, 920 P.2d at 354-55.
In sum, although HK assumed that claims of the type alleged in the Underlying Lawsuit would be covered under TNRIC‘s policies, Dkt. No. 22-1, ¶ 3, “insurers have the same rights as individuals to limit their liability and to impose whatever conditions they pleasе on their obligation, provided they are not in contravention of statutory inhibitions or public policy.” Nautilus, 321 P.3d at 643 (citation and internal quotation marks omitted). TNRIC‘s Earth Movement Exclusion in the policy it issued to HK unambiguously precludes coverage for property damage arising from land movement caused by natural phenomena, HK‘s “work or operation[s],” or any combination thereof. Because this broad exclusion encompasses the basis for the Underlying Lawsuit against HK, TNRIC has no duty to defend оr indemnify HK for the claims asserted by the Bingles in the Underlying Lawsuit.
CONCLUSION
For the reasons set forth herein, TNRIC‘s motion for summary judgment, Dkt. No. 17, is GRANTED. The Clerk is instructed to enter judgment in favor of Plaintiff and then close this case.
IT IS SO ORDERED.
DATED: May 22, 2020 at Honolulu, Hawai‘i.
Derrick K. Watson
United States District Judge
The North River Insurance Company v. H.K. Construction Corporation; Civil No. 19-00199-DKW-KJM; ORDER GRANTING PLAINTIFF‘S MOTION FOR SUMMARY JUDGMENT