Case Title: House of Finance, Inc. v. Financial Solutions Insurance Services, Inc.

Citation: 

Docket Number: 

State: hawaii

Court: Hawaii Supreme Court

Date: 2006-07-13T00:00:00Z

Document:
NOT FOR PUBLICATION ***

No. 25292

 

aatd

IN THE SUPREME COURT OF THE STATE OF HANA!

  

3
HOUSE OF FINANCE, INC., a Hawai'i corporation]
Plaintiff-Appellant,

S26)W¥ €1 Tor sone

vs.

FINANCIAL SOLUTIONS INSURANCE SERVICES, INC., dba BANKERS

INSURANCE SERVICE, an Underwriter at Lloyd’s, London on Behalf of
Itself and All Those Other Lioyd’s Underwriters Subscribing to
Mortgage Bankers Bond No. MBB-97-00355; GULF UNDERWRITERS
INSURANCE COMPANY; on Behalf of Itself and All Those Other
Lloyd’s Underwriters Subscribing to Mortgage Bankers Bond No.
MBB-97~00355, Defendants-Appellees,

and

PARTNERSHIPS 1-10; DOE

JOHN DOES 1-10; JANE DOES 1-10;
Defendants.

CORPORATIONS 1-10; and DOE ENTITIES 1-10,

APPEAL FROM THE FIRST CIRCUIT COURT
(CIV. NO. 01-1-0723)

(By: Moon, C.J., Levinson, Nakayama, Acoba, and Duffy, JJ.)

Plaintiff-Appellant House of Finance, Inc. (“House of

Finance”) appeals from the Findings of Fact, Conclusions of Law

nd Order, and Judgment of the Circuit Court of the First Circuit

(“circuit court”) filed August 1, 2002, following the granting of

summary judgment in favor of the above-named defendants

("Underwriters”).' Following cross-motions for summary judgment,
the circuit court found that the plain language of the insurance
policy between insurer Underwriters and insured House of Finance

“must be construed according to its terms,” such that House of

 

5 the Honorable Sabrina 8, McKenna presided.
 

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Finance was precluded from indennification thereunder as a matter
of law, where (1) the liability policy had a $15,000 deductible,
(2) House of Finance had settled the underlying action from which
indemnity was sought for only $3,500, (3) “defense fees and costs
cannot be included as part of [the “loss”] based on the
applicable law as well as the contract,” and (4) “there can be no
claim for ‘{insurer] bad faith’ based on legitimate
interpretations of an insurance contract.” In the same ruling,
the circuit court also denied House of Finance’s motion to compel.
answers to interrogatories and production of documents from
Underwriters, finding that the motion “does not request any
information that would in any way alter the court’s legal |
conclusions.”

on appeal, House of Finance argues, in substance, that
the circuit court erred inasmuch as: (1) given (a) the applicable
“rule” of Hawai'i law that House of Finance need only show
potential liability for the underlying claim under the particular
circumstances of the instant case, (b) the complaint from
underlying claim allegedly giving rise to indemnity coverage, (c)
the $82,826.85 in attorney's fees and court costs House of
Finance expended in its own defense and ultimate settlement of
the underlying claim, and (d) a $2,500 payment from House of
Finance to a different third party in connection with the
underlying claim (in addition to the $3,500 settlement), there
was a compensable loss in excess of $15,000 as per the plain
language of the liability policy such that coverage was due
(subject to the deductible); (2) alternatively, the relevant

policy terms were ambiguous and must be construed in favor of

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coverage; (3) Underwriters’ plain language interpretation of the
policy violates public policy: and (4) there were numerous
genuine issues of material fact as to whether Underwriters
committed insurer bad faith.

At issue is Insuring Clause Al of the policy, which is
subject to a $15,000 deductible and. provides coverage for

alizect Linenciel loss sustained by the Assured at any tine and

Giscovered by the Assured during the Bond Period by reason of and directly
caused by

 

‘any cther dishonest acts by any Eaployee of the
Assured, whether committed alone or in collusion with
cthers, ‘conmitted by raid Eeployee with the manifest intent
to obtain Inproper Personal Financial Cain for said

Loyee, or for any other person oF entity intended by the
Esployee to receive such Improper Personal Financial Gaia

 

 

 

 

Upon carefully reviewing the record and the briefs
submitted by the parties and having given due consideration to
the arguments advanced and the issues raised, we hold as follows:

(2) The language of insurance policy at issue is
unambiguous, and its plain terms must be given effect. See Dairy
Boad Partners v. Island Ins. Co., Ltd., 92 Hawai'i 398, 411-12,
992 P.2d 93, 106-07 (2000), and Barabin v. AIG Hawai‘! Ins. Cou
Ince, 82 Hawai'i 258, 263, 921 P.2d 732, 737 (1996). Although
the policy may be somewhat detailed and might require a more-
than-cursory reading, the mere fact that a policy is complex does
te ambiguity. See Barabin, 62 Hawai'i at 263, 921 P.2d
at 737. As per the policy’s plain language, court costs and

not eri

 

attorney's fees are clearly separate from “direct financial loss”
under Insuring Clause Al, and holding otherwise would effectively

result in re-writing the insurance policy, which this court

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cannot do. See Fortune v. Wong, 68 Haw. 1, 11, 702 P.2d 299, 306
(2985). Thus, in order for House of Finance to be entitled to
any indemnification, it must show a “direct financial loss” in
excess of $15,000 separate and apart from court costs and
attorney's fees. However, assuming arquendo that House of
Finance has suffered a qualifying “direct financial loss” under
Insuring Clause Al, this loss is no more than $6,000 as per House
of Finance’s own Opening Brief.

Even assuming that this court were to follow the “rule
of potential, not actual liability” when determining whether
Underwriters has a duty to indemnify, as purportedly set forth in
Hawaiian Ins, @ Guar, Cou, Ltd. v. Higashi, 4 Haw. App. 608, 610,
672 P.2d 556, 558 (1983), rev'd, 67 Haw. 12, 675 P.2d 767 (1984),
the “rule” states in pertinent part: “In cases involving a
written indemnity agreement, the ultimate decision turns upon the

anguage of the contractual undertaking.” (Emphasis added.)
Thus, assuming that the “rule” advanced by House of Finance
survived our reversal of the ICA’s opinion in Higashi, it appears
to be in accord with Hawaii's insurance law, in that “[a) court
must respect the plain terms of the policy and not create
ambiguity where none exists.” Barabin, 82 Hawai'i at 263, 921
P.2d at 737. ‘Thus, the circuit court did not err in ruling that
House of Finance could not recover under the policy.

(2) No public policy concerns exist in the present
case. First, contrary to House of Finance's suggestion, the
cirewit court’s ruling and the plain language of the insurance
policy do not operate to impose a “double application” of the
$15,000 deductible. Second, while House of Finance correctly
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points out that Hawai'i has a public policy favoring settienent,?
it 4s inapposite to the instant case. Any duty to mitigate
damages under an insurance policy exists separate and apart from
the insured’s balancing of a lower insurance premium against
higher deductible (or vice versa) at the time thie policy is
obtained. Taking on a deductible necessarily means that certain
otherwise insurable losses may sometimes go uncovered. Beniamin
Moore v. Aetna Cas. & Sur. Co,, 843 A.2d 1094, 1108 (N.J. 2004).
Since House of Finance does not contend that the $15,000
deductible was forced upon them by Underwriters, or that its
premiums were unreasonably high, we see no reason to disturb the
plain language of the insurance policy and perceive no dilenma
arising from the deductible’s existence. Because there are no
public policy viclations arising from the instant appeal, House
of Finance's azgunent in this regard is without merit.

(3) There aze no genuine issues of material fact
precluding sunmary judgment in favor of Underwriters as to House
of Finance's bad faith claim. With respect to insurer bad faith,
this court hae explicitly held tht

there $e a legal duty, smplied ina fizst-and third-party

{nsurance contract, that the insurer must act in good faith in

SieeatZite'to'an inseperdent tore cause of action.” The Breech of

Ene eaprese covenant fo gay clains, however, ie not the sine gua

hon for an action for breach of the Inplied covenant of good faith

Ghd fair Geelings the implied covenant is Breached, smether the

Cerrier pays the claim or not, when its conduct damages the very
protection or security which the insured sought to gain by buying

 

 

The Best Place, Inc. v. Penn America Ins, Co., 82 Hawai'i 120,

 

* see e.g, cos y,
Resources, 110 Hawat's 419, 439, 154 P34 $85, 605 (2006) this court has
Scknowiedjed the strong public policy in favor of settlement of claime”
{citing cases) )=
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132, 920 P.2d 334, 346 (1996). This court has further explained

that in the context of a first-party bad faith claim,

the ingured need not chow a conscious awareness of wrongdoing oF
Unjustifisble conduct, nor an evil motive or intent to harm the
Unnured, An unreasonsble delay in payment of benefits will
werrant recovery fer compensatory danages (-] However, conduct
not const Tn eadition, an
Erroneous decision not to pay a claim for benefits due under a
Policy does not by Stself Justify an award of compensatory
Etnagea. Rather, the decision not to pay a claim must be in “bad
faith.

Id. at 133, $20 P.2d at 347 (emphasis added). As Underwriters

 

 

demonstrated in their motion for summary judgment, a “plain
language” reading of the policy at issue is reasonable because
the relevant policy terms are unambiguous. The burden of
production therefore shifted from Underwriters to House of
Finance. However, House of Finance merely advanced unsupported
allegations, almost exactly as it now does on appeal, that
the record in this case enbraces numerous questions of fact on
whether the Underwriters (a) unreasonably interpreted the
frovisions of the folicy: (b) nade “unreasonably low settlement
Séfers": (c) engaged in unreasonable conduct after the £1ling of
this complaint in thie bad faith action” [sic]; (a) negligently
Investigeted the House ef Finance's claim? (e) failed to promptly
determine its position on coverage; (f) failed "to effectuate
prompt settlenent”; (g) compelled the House of Finance to initiate
Eleigacion in erder to recover Benefits under the Policy? and (h)
viclated any of the provisions of HRS § ¢3113-103(a).. The
Gxistence of such genuine issues of material fact preclude the
Granting of sonnary judgment in favor of Defendants on the House
Of Finance's claim of bad faith.
(footnote omitted.) (Emphasis added.) House of Finance had the
burden of producing specific facts in order to defeat sunmary

judgment. Hawai'i Rules of Civil Procedure ("HRCP”) Rule 56(e)
(2000); see also Lee v. Puamana Community Ass'n, 109 Hawai'i 561,
567, 128 P.3d 874, 880 (2006) (quoting French v, Hawai'i Pizza

Hut, Inc., 105 Hawai'i 462, 99 P.3d 1046 (2004). However, House

of Finance’s memorandum in opposition to Underwriters’ motion for

 

 

 

   

 

 
 

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summary judgment as to the bad faith issue is comprised entirely
of conclusory statements and legal argument and is devoid of a
single factual assertion or record reference to any matter within
the 558-page volume of “Stipulated Facts” prepared by the
parties. The same can be said of House of Finance’s Opening
Brief on this issue. As such, House of Finance’s argument on
appeal as to bad faith is in violation of HRAP 28(b) (7) (2004)
(operative text unchanged from 2000 version),® and we decline to
review this point on appeal. See Citicorp Nortaage, Inc. vs
Bartolome, 94 Hawai'i 422, 433, 16 P.3d 827, 838 (App. 2000)
(*laln appellate court does not have to address matters for which

the appellant has failed to present discernible argument”

(citations omitted)); see also Int’) Brotherhood of Elec.
Workers, Local 1357 v, Hawaiian Telephone Co., 68 Haw. 316, 322

n.7, 713 P.2d 943, 950 n.7 (1986) ("Counsel has no right to cast
upon the court the burden of searching through a voluminous
record to find the ground of an objection” (citation omitted)).
In any event, upon careful review of the record, there
is no evidence that Underwriters acted in bad faith. In its
correspondence with House of Finance, Underwriters reasonably
interpreted their insurance contract and correctly determined
that there was no indemnification coverage because House of
Finance's clained “direct financial loss” of $6,000 did not
exceed the $15,000 deductible. Consequently, the circuit court

 

» RAP 28(b) (7) provides in pertinent part: “(T]he appellant shall
file an opening brief, containing .- - - [t]he argunent, containing the
Contentions of the appellant on the points presented and the reasons therefor,
With citations to the authorities,

Pointe not argued may be deened waived.” (Snphacis added.)

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properly granted summary judgment for Underwriters on the issue
of bad faith.

(4) As to House of Finance’s breach of contract claim,
insofar as (a) Underwriters’ policy was unambiguous and (b)
underwriters properly interpreted its own policy, Underwriters
did not breach its contract with House of Finance, such that
summary judgment thereon was properly granted for Underwriters.

(5) Similarly, with respect to House of Finance's
motion to compel answers to interrogatories and production of
documents, because there already was an adequate record upon
which to decide Underwriters’ motion for summary judgment below,
we hold that any additional discovery sought by House of Finance
would not affect the outcome of this case, as the circuit court
ruled, such that the motion was properly denied.

‘Therefore,

I IS HEREBY ORDERED that the judgment from which the

appeal is taken is affirmed.

 

DATED: Honolulu, Hawai'i, July 13, 2006.

on the briefs:

craig T. Kugisaki,

Dennis M. Klein, and 24

Camille N. Sirivattha

for Plaintiff-Appellant

House of Finance Rit

Jeffrey Daniel Lau, and

Kurt K. Leong, Esq. Naceiee Corte ren

(of Oliver, Lau, Lawhn,
Ogawa & Nakamura) for

Defendants-Appellees ay