Tred R. Eyerly | Insurance Law Hawaii
The federal district court for the district of Hawaii determined that the insurer could recover defense costs from an additional insured consistent with its Reservation of Rights letter under an unjust enrichment theory. Giga, Inc. v. Kiewit Infrastructure W. Co., 2020 U.S. Dist. LEXIS 10151 (D. Haw. Jan. 22, 2020).
This case was related fall-out from the Arthur case. Arthur v. Dept. of Hawaiian Homelands, 185 Haw. 149 (Haw. Ct. App. 2015). A prior post on the case is here.
In Arthur, a resident, Mona Arthur, of the Kalawahine Streamside Housing Development, was killed when she apparently slipped and fell from a hillside adjacent to the project. She was on the hillside tending to her garden there. At the bottom of the hill was a two foot fence in front of a drainage ditch, where Mona allegedly hit her head.
Mona’s husband, William Arthur, sued a variety of defendants including the land owner, designer, developer, civil engineer and others. William alleged the defendants were negligent in the design, construction and supervision of the construction of the hillside area.
The developer hired Kiewit as general contractor for grading and site work. Kiewit subcontracted with Pacific Fence to construct a debris fence between the homes and the adjacent hillside. Among the many indemnity provisions between the various parties, Pacific Fence agreed to indemnify Kiewit “to the fullest extend permitted by law.”
Island Insurance was Pacific Fence’s CGL carrier and issued a certificate of insurance to Pacific Fence for work on the hillside. The certificate included Kiewit as an additional insured.
When sued under a third party complaint related the the death of Mona Arthur, Kiewit filed a fourth party complaint against Pacific Fence, asserting a claim for contribution because Kiewit was entitled to an immediate defense and full indemnification from Pacific Fence.
Island Insurance accepted on behalf of (Pacific Fence) Kiewit’s tender of defense to the Arthur complaint, subject to a detailed reservation of rights. Among the rights reserved was the right to seek reimbursement from Kiewit of attorneys fees and other costs if it was determined that Pacific Fence was not obligated to defend Kiewit under the subcontract.
The Island Insurance letter made clear that Kiewit was an “additional insured” under the policy, but the Kiewit/Pacific Fence subcontract appeared to be an “insured contract” of Pacific Fence. Therefore, Island would indemnify Pacific Fence for its liability to Kiewit under the subcontract’s indemnity clause, to the extent Pacific Fence’s liability to Kiewit was based upon “bodily injury” caused by an “occurrence” during the policy period and not subject to any exclusion.
In Arthur II, the Hawaii Supreme Court 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”) was not determined at the outset of the underlying litigation as in an insurance coverage case. The complaint allegation rule did not apply because the court had determined that Haw. Rev. Stat. sec. 431:10-222 prohibited a promisor in a construction contract from being contractually required to defend a promisee against liability caused by the promisee. Haw. Rev. Stats. sec. 431:10-222 established than an indemnity provision seeking to indemnify against liability for bodily injury caused by the sole negligence of the promisee was invalid as against public policy. Therefore, with respect to a construction contract, the scope of a promisor’s duty to defend was determined at the end of the litigation. Arthur II determined that the Kiewit/Pacific Fence subcontract’s indemnity clause was void and violated the statute to the extent it required an immediate defense of potentially non-covered claims. Island should not have been defending Kiewit.
After the Arthur case settled, Island filed this declaratory relief action against Kiewit, seeking declaratory relief and reimbursement of costs incurred in defending Kiewit in the Arthur litigation. Island filed a motion for partial summary judgment, arguing that it did not owe a duty to defend Kiewit, and was entitled to enforce Island’s reservation of rights letter. It was established at the end of the Arthur litigation that Pacific Fence had no duty to defend and was not responsible for any defense costs to Kiewit. Island was therefore entitled to a declaratory judgment as a matter of law. The reservation of rights letter was clear. Island reserved the right to stop paying for Kiewit’s defense if it was determined that there was no potential for Pacific Fence to have to indemnify Kiewit under the subcontract.
The decision was not based upon insurance law. Therefore, the court did not reach – and offered no opinion regarding – the unresolved question of Hawaii law whether an insurance company defending an insured under a reservation of rights would be entitled to seek reimbursement of defense costs. Instead, the court relied on a quasi-contract theory of unjust enrichment to allow Island Insurance to enforce its reservation of rights letter. Island was entitled to reimbursement.