GROUP BUILDERS, INC. v. Admiral Ins. Co.

Citations: 231 P.3d 67; 123 Haw. 142; 2010 Haw. App. LEXIS 234Docket: 29402

Court: Hawaii Intermediate Court of Appeals; May 19, 2010; Hawaii; State Appellate Court

Original Court Document: View Document

SummaryOriginalCytator Case TreatmentBackward CitatorAnalysis

EnglishEspañolSimplified EnglishEspañol Fácil

In a legal dispute involving insurance coverage, Group Builders, Inc. and Tradewind Insurance Company, along with other plaintiffs, appealed a circuit court order granting Admiral Insurance Company's motion for partial summary judgment, asserting there was no duty to indemnify. The appeal also addressed certifications of various orders and included cross-appeals from several defendants. The court previously dismissed most cross-appeals for lack of jurisdiction but allowed the appeal concerning Admiral's duty to indemnify, which was certified for interlocutory appeal. Plaintiffs contended the circuit court erred by finding no genuine issue of material fact regarding Admiral's breach of duty. The court affirmed the circuit court's decision, indicating that the findings were legally sound. The case centers around a contract between Hilton Hotels Corporation and Hawaiian Dredging for the construction of the Kalia Tower, where Group was subcontracted for specific installations. Following the completion of construction, significant mold issues were discovered, leading to the closure of numerous guest rooms for remediation and revealing multiple defects in the Tower's design and construction.

HHC and HHV initiated a lawsuit in 2003 against several defendants, including Group, for construction defects related to the Tower, alleging five causes of action: breach of contract, breach of the covenant of good faith and fair dealing, negligence, breach of express and implied warranties, and negligent misrepresentation. Admiral, upon being notified of the lawsuit, declined to provide defense or indemnification to Group. A settlement was reached involving Tradewind, Group, Zurich American Insurance Co., and Fireman's Fund Insurance Company of Hawaii, with Tradewind having provided insurance coverage to Group from October 1, 1999, to October 1, 2000, and Group obtaining subsequent policies from Zurich and Fireman's Fund after December 1, 2000. Group assigned its claims against Admiral to Tradewind as part of the settlement. On December 13, 2005, the Plaintiffs filed a complaint, later amending it on May 30, 2006, to include allegations against Admiral for its refusal to cover the Tower lawsuit. Admiral filed a "Motion for Partial Summary Judgment Re: No Duty to Indemnify" on June 25, 2008, which the circuit court granted. Subsequently, on September 3, 2008, the Plaintiffs sought Rule 54(b) certification related to various orders, which the circuit court granted, allowing for interlocutory appeal of Admiral's MPSJ under HRS § 641-1(b). This court dismissed all appeals except for the interlocutory appeal regarding Admiral's MPSJ. The review of summary judgment is conducted de novo, determining if there are no genuine issues of material fact and if the moving party is entitled to judgment as a matter of law, with evidence viewed favorably for the non-moving party.

Plaintiffs argue that the circuit court incorrectly granted a Motion for Summary Judgment (MPSJ) in favor of Admiral Insurance, asserting there was a genuine issue of material fact regarding property damage at the Kalia Tower Project during the Admiral Policy period, which is necessary for coverage. The circuit court determined that no genuine issue existed, leading to the dismissal of the indemnity claim. Admiral's Commercial General Liability (CGL) policy stipulates coverage for "bodily injury" or "property damage" only if it results from an "occurrence" within the policy period and coverage territory. 'Property damage' is defined as physical injury to tangible property or loss of use of such property. The mold damage and loss of use at Kalia Tower are considered 'property damage' under the policy, but it must be established that this damage was caused by an 'occurrence' as defined.

In the context of the case, HHC and HHV identified multiple causes of the mold damage, which led to the closure of guest rooms in July 2002. Their investigations revealed significant design and construction defects contributing to the mold growth and other issues affecting the building's operation and value. The core legal question is whether the alleged faulty construction constitutes an 'occurrence' under the CGL policy. Previous case law, specifically WDC Venture v. Hartford Accident, indicates that contractual claims may not be covered under similar insurance policies, suggesting that claims based on contractual relationships are outside the policy’s coverage scope.

In Burlington Insurance Co. v. Oceanic Design, Construction Inc., the Ninth Circuit addressed a counterclaim by homeowners against Oceanic, a builder insured under a Commercial General Liability (CGL) policy, for alleged negligent construction of their home, which caused damage. Oceanic sought defense from its insurer, Burlington, which agreed but later filed a lawsuit to declare that the CGL policy did not cover the homeowners' counterclaim. Burlington argued that the allegations were not covered under the policy. The district court sided with Burlington, leading to Oceanic's appeal.

The Ninth Circuit framed the central issue as whether a claim for negligent breach of contract qualifies as an "occurrence" under Hawaii law. It reviewed Hawaii Supreme Court precedents, noting that claims involving intentional breaches of contract do not trigger an insurer’s duty to defend under CGL policies. The court emphasized that tort recovery in Hawaii requires conduct that violates an independent tort duty beyond mere breach of contract. 

The Ninth Circuit concluded that the homeowners' negligence allegations were not independent claims but rather ancillary to the breach of contract claim, as Oceanic's alleged failure to meet contractual standards was a foreseeable consequence of its actions. The court cautioned against allowing plaintiffs to manipulate claims to gain insurance coverage for contractual disputes. Ultimately, it held that the homeowners' allegations did not represent an occurrence under Hawaii law, reinforcing that disputes over contract performance fall outside the scope of CGL coverage, aligning with prior case law in the District of Hawaii.

The Ninth Circuit rejected Oceanic's claim that WDC Venture no longer reflects Hawaii law due to changes in California law stemming from Vandenberg v. Superior Court, which abolished the tort/contract distinction for CGL insurance coverage in California. In contrast, Hawaii maintains this distinction, and Oceanic provided no authority to challenge this stance. The Hawaii Supreme Court has emphasized that permitting tort recovery for breach of contract undermines the separate theories of tort and contract law. The court referenced Burlington Insurance Co. v. United Coatings Manufacturing Co., which confirmed that under Hawaii law, contract-related claims do not fall within CGL policy coverage. Various terms have been used to describe claims that arise from a contractual relationship, and the crucial factor is whether the claims are based on a contract or an independent tort. While plaintiffs cited cases from other jurisdictions supporting coverage for construction defects under CGL policies, a majority of these jurisdictions have ruled that poor workmanship alone does not trigger coverage. Contrarily, a minority has found that damage from faulty workmanship can be considered an accident and thus an occurrence under CGL policies, provided the damage was unintended. Ultimately, the court concluded that under Hawaii law, construction defect claims do not qualify as an "occurrence" under CGL policies, ruling that breach of contract claims for poor performance and related tort claims are also not covered. The court affirmed the order granting Admiral Insurance Company's motion for partial summary judgment regarding lack of duty to indemnify.