Title: Tri-S Corporation v. Western World Insurance Company

State: hawaii

Issuer: Hawaii Supreme Court

Document:

LAW LIBRARY

*** FOR PUBLICATION ***

IN THE SUPREME COURT OF THE STATE OF HAMAT'T

=--000-=-

‘TRI-S CORPORATION and KARL MILTON TAFT, Plaintiffs-Appellees,
and

CHARLES L. RAPOZA, SR., Individually and as Special
Administrator of the Estate of CHARLES L. RAPOZA, JR.,
DECEASED: CHARLA PUA LINDSEY, as Next Friend of CHAE-LYNN

KEALAPUA LINDSEY; THERESA’ HOLICEK; and CASEY SOUZA,
Plaintiffs In Intervention-Appellees,

WESTERN WORLD INSURANCE COMPANY; JOHN DOES 1-107
DOE CORPORATIONS 1-10; and

DOE PARTNERSHIPS 1-10;
DOE ENTITIES 1-10, Defendants~Appellants.

 

5
“ia

 

Ele =
WESTERN WORLD INSURANCE COMPANY, FSIE = ma
Third-Party Plaintiff-Cross-Appellee, Sif & ad
ve BP: 68

Be 8

oH or 2

THE TRAVELERS INSURANCE COMPANY;
DOE CORPORATIONS 1-10; DOE

1-10; JANE DOES 1-107
PARTNERSHIPS 1-10; ROE NON-PROFIT CORPORATIONS
‘and ROE GOVERNMENTAL AGENCIES 1-10,

1-10;
Third-Party Defendant-Cross~Appellant.

 

No. 26202
APPEAL FROM THE THIRD CIRCUIT COURT
(CIV. NO. 97-358)
May 18, 2006

LEVINSON, NAKAYAMA, AND DUFFY JJ. AND
‘IN PLACE OF ACOBA, J., RECUSED

 

MOON, C.J.
CIRCUIT JUDGE HIFO,
*** FOR PUBLICATION ***

 

AMENDED OPINION OF THE COURT BY DUFFY, J.

‘The instant declaratory judgment action concerns an
insurance coverage dispute arising out of a wrongful death action
brought following the 1994 work-related death of Charles L.
Rapoza, Jr. (Rapoza). Defendant-Appellant/Third Party Plaintiff-
Cross Appellee Western World Insurance Co. (WWI) appeals from the
October 10, 2003 final judgment of the Circuit Court of the Third
Circuit! in favor of Plaintiffs-Appellees Tri-S Corporation (Tri-
5) and Karl Milton Taft (hereinafter individually, Taft, and
collectively with Tri-S, TSC-Taft] and Plaintiffs in
Intervention-Appellees Charles L. Rapoza, Sr., et al.
(hereinafter, Rapoza Estate,* and collectively with TSC-Taft,
Plaintiffs]. Defendant/Third-Party Defendant-Cross Appellant The
‘Travelers Insurance Co. (Travelers) cross-appeals from the sane
judgment.

The WWI Appea

On appeal, WWI argues that the circuit court erred in:
(2) granting summary judgment on May 12, 1998 in favor of
Plaintiffs and against WI when there were genuine issues of
material fact, including (a) whether Taft had been sued as a co-

employee of Rapoza or executive officer of Tri-S, and (b) whether

ded over this matter from 1997 to
‘Yoshioka presiaed over this matter in 2003,

 

2002. the Honorable Terence 7.

 

+ Rapoza Estate is used herein to refer collectively both to the
plaintiffs in intervention in the instant case as well as the plaintiffs in
fhe underlying wrongful death suit
*** FOR PUBLICATION ***

 

Taft had a reasonable expectation of coverage under Tri-s’s
comprehensive general loss (CGL) insurance policy issued by WHI
(2) concluding that Taft was an “insured” as defined in the CGL
policy: (3) concluding that no exclusion to coverage applied: (4)
concluding that “occurrence” as defined in the CGL policy
Included “wilful and wanton misconduct? (5) concluding that WWI
breached its duty to defend Taft in the underlying wrongful death
action and thus was obligated to reimburse TSC-Taft for its share
of $124,644.07 in attorney's fees and coats expended by TSC~Taft
in defending that suit and prosecuting the instant declaratory
Judgment actions (6) concluding that WéI had not rebutted the
presumption that Taft was covered under the CGL policy and thus
wit had 2 duty to indemnify Taft for special and general damages
for which he might be held liable in the underlying action; (7)
denying WWI's motion for reconsideration on July 13, 1996 on the
grounds that WWI had failed to present any new evidence that
could not have been presented in the original motion; and (8)
calculating and awarding prejudgment interest accruing from
September 6, 2000 even though there was no showing of
unreasonable delay by WWI and Travelers in moving to judgment
Accordingly, WWI prays that the judgment below be vacated and
remanded with directions to enter judgment in favor of WWI.
‘Tsc-Taft responds that the circuit court did not err

with respect to any of the points presented by WWI and thus the
 

*** FOR PUBLICATION **
eee

Judgment below should be affirmed. The Rapoza Estate, ina
separate answering brief, essentially seconds the defense of the
circuit court judgment mounted by TSC-Taft. Finally, Travelers
also takes issue with WWI’s appeal, although only to the extent

WHI rais

 

‘any suggestion, inference, or implication . . . that
‘rravelers somehow provides . . . coverage for Taft with respect
to the claims asserted against him(.]"

n os: 1

 

In dts cross-appeal, Travelers contends that the
circuit court erred in: (1) (a) concluding in its May 12, 1998
summary judgnent order that Taft was sued as a co-employee of
Rapoza, and (b) applying that conclusion to Travelers when
Travelers was not @ party to the lawsuit in 1998 and did not have
an opportunity to be heard on the issue; (2) concluding that Taft
had a reasonable expectation of coverage under Tri-s's worker's
compensation and employer's liability insurance policy issued by
Travelers; (3) granting WwI’s motion for leave to file a third-
perty complaint for indennification and contribution against
Travelers; (4) granting TSC-Taft’'s notion to certify Doe
corporation (iufs, the motion to add Travelers as a direct
defendant); (5) granting summary judgment on May 7, 2001 in favor
of Plaintiffs and WI and against Travelers when there were
genuine issues of material fact, including how much of Tri-s’s

stock Taft held at the time of Rapoza’s death; (6) concluding
*** FOR PUBLICATION ***

 

that (a) Article 19, Section 2 of Tri-s’s bylaws requires that
the corporation indemnify Taft as a director and officer for all

Liability in connection with the dk

 

th of Rapoza, and (b) Taft.
properly tendered the defense of his indemnity claim to
‘Travelers; (7) concluding that Travelers breached a duty to
defend and indemnify Taft for fees, costs, and damages in
connection with the wrongful death action and thus was obligated
to reimburse TSC~Taft for its share of $124,644.07 attorney's
fees and costs expended by TSC-Taft in defending that suit and
prosecuting the instant declaratory judgment action? and (8)
calculating and awarding prejudgment interest accruing from
September 6, 2000 even though there was no showing of
unreasonable delay by Travelers in moving to judgment.
Therefore, like WWI, Travelers asks this court to vacate the
judgment below and remand for entry of judgment in its favor.
‘Tsc-Taft again counters that the judgment below was
correct and should be affirmed. The Rapoza Estate joins in the
answering brief of TSC-Taft on cross-appeal. WI did not file an
answering brief to Travelers’ opening brief on cross-appeal.
Based on the following, we affirm the circuit court's
final judgment in favor of Plaintiffs and against WWI, but vacate
the judgment against Travelers and remand for entry of judgment

in favor of Travelers and against Plaintiffs and WWI.
 

FOR PUBLICATION ***

‘The instant appeal, No. 26202, relates to an appeal
decided by memorandum opinion of this court on January 2, 2004 in
Rapoza v. Willocks Constr, Corp, (hereinafter, Willocks], No.
22052, 103 Hawai" 399, 83 P.3d 114, 2004 WL 27460 (Jan. 2,
2004), This court's previous opinion dealt with the wrongful
death action resulting from Rapoza’s electrocution, while the
present case deals with the insurance coverage dispute connected
thereto. Accordingly, this opinion briefly sets forth facts
taken from the opinion in No. 22052 in addition to the background
of the instant appeal.
AL Eacts in Willocks

on November 16, 1994, Rapoza, a construction worker
employed by Tri-S, was killed as a result of electrical discharge
from high voltage power lines located in close proximity to his
work site in North Kona, Hawai'i. Willocks, 2004 WL 27460, at *1
(Acoba, J., announcing the judgment of the court). On February
12 and Novenber 15, 1996, the Rapoza Estate filed wrongful death
actions (the suits were subsequently consolidated) sounding in
negligence against various parties including Taft, the owner-
president of Tri-S. Id, at *3. Tri-S itself, however, was not
named as a defendant, presumably because it was immune from suit

due to the worker’s compensation exclusivity provision of Hawai'i
*** FOR PUBLICATION ***

 

Revised Statutes (HRS) § 386-5 (1993).? Id, The suit alleged
that Taft had a duty to provide a safe workplace for Rapoza and
wilfully and wantonly breached that duty by failing to implement
certain safety standards. Jd, at *4. Therefore, the Rapoza
Estate alleged, Taft was liable in tort for Rapoza’s death as a
co-employee under the exception to worker’s compensation
exclusivity found in HRS § 386-8 (1993). Ida

Specifically, the Rapoza Estate made, inter alia, the
following allegations against Taft:

31, Ae all material times, Defendant Karl tafe was employed ae
Bresigent snd manager of Tri-s, and was a fellow employee of
TRapozal «

 

 

32, AE all naterigl tines, Tri-g had ¢ duty to provide a sate

Work site to its employee, (Rapoza)

33. At all material tines, Taft's duties at Tri~s includes (1)
Fesponsibility for its compliance with (Hawal'l safety Lave
‘and construction standards}; (2) enguring that Tri-5
euployees have a safe work site; snd (3) planaing,
Scheduting, coord ‘rvieing the employment
activities of his fellow employees at Tri-S, including
tRapozal

 

   

 

Y HRS § 386-5 stat:

 

im relevant part:

‘The rights and renedies herein granted to an employee or the
enployee’s dependents on account of 2 work injury suffered by the
employee shall exclude all other liability of the employer to the
employee, the esployee's legal representative, spouse, dependents,

ret of kin, oF anyone else entitles to recover damages from the
employer, at common law or otherwise, en account of the injury,
except for sexual haracenent oF sexual assault and infliction of
emotional distress or invasion of privacy related thereto, in
hich case a civil action may also be brought

‘uns § 386-8 states in relevant part that “[a)nother employee of the
sane employer shall not be relieved of his Liability ae a third party, if the
personel injury 18 caused by his wilful and wanton misconduct.”

 

 

 

 

 

7
 

*** FOR PUBLICATION **

37, At all material tines, Taft knew that serious bodily injury
oF death to (Rapoza) was the highly probable result of
Ehnesct by, or close proximity of, Trics's drill rig with
The high voltage Line which caused [Rapora’s] death, unless
iproper safety precautions) were taken!

    

 

38, Te was the duty and responsibility of Tatt, as manager of
Teils, tolimplenent the foregoing [safety standarcs) and and
Tate) to ensure that the necessary special safety
precautions weve taken at the work site uoere [Rapozs) was
Electrocoted, in order to prevent serious Bodily injury or
Seat to [Rapoze)

 

 

39, Taft consciously and wilfully failed to implenent the
foregoing [safety standards], and to ensure that the
foregoing special safety precautions were taken, in spive of
ie thonedge that serigus bodily injury or Geath to
(Rapoza) was the highly probable result of such failure.

 

 

40. Taft's failure to ensure that the foregoing special
Tafety precactions were taken was direct and proximate
Rkuse of [Rapoze’s| “death, and the damages and injuries to
the Flaintifés herein

 

 

 

42, Taft’s failure to... ensure that special safety
precautions were taken, in conscious and wilful disregaré
For the high probability of (Rapoza’ s] serious bedily injury
Or death as a result of such fatiure, constituted wilful end
Manton misconduct within the meaning of [HRS §) 286-€.

LOL, As e dizect and proximate result of the negligence and
Siuful end wanton misconduct of the Defendants, (Rapoza)
doffered (damages)

on December 29, 1997, the circuit court orally granted
taft’s motion for summary judgment, finding that he could not be
sued under HRS § 386-8. Willocks, 2004 WL 27460, at *3. The
circuit court found that Taft was neither present at the work
site on November 16, 1994, nor involved in the direction of
Rapoza’s work that day. Id. at *3-*4. The circuit court also
reasoned that because Taft was the sole owner of Tri~S, he was

effectively the employer of Rapoza and not a co-employee as
*** FOR PUBLICATION ***

 

Gefined by HRS § 386-1 (1993).? Id, at *4. AS such, the circuit
court concluded that he was immune from suit under HRS § 386-5,
and entered an order to that effect on February 13, 1998. Id, at
+3.

On appeal, we vacated the circuit court’s sunmary
judgment order in favor of Taft. Id. at 17. This court
rejected the circuit court’s conclusion that Taft was the
employer of Rapoza and instead stated that “Tri-S and not Taft
was the employer of Rapoza.” Id, at *5.

B. Background of the Instant Case, No. 26202

Faced with the wrongful death suit brought by the
Rapoza Estate, Taft first asked WWI, Tri-S’s commercial insurer,
to defend him, but WHI refused by letters dated December 19, 1996
and May 1, 1997 on the grounds that the Tri-S CGL policy did not

provide coverage based on the facts alleged in the wrongful death

 

S Rs § 386-1 states in relevant pert ae follows

“employee” meant any individual in the employment of another
person

“employment” does not include the following service:

(8) Service performed by an individual for a corporation if the
Sndivisusl owns st least fifty per cent of the
corporation|.)

‘there was, however, no holding of the court with respect to this or
any other iscue in No, 22052; none of the other four justices of this court
Joined Justice Acoba’s memorandum opinion, although each concurred in the
result. Jd at *17
*** FOR PUBLICATION ***

eee

complaint. In relevant part, Tri-S’s CGL policy from WaT
provided as follows:

‘Throughout this policy the words "you" and “your” refer to the
Nened Insured [261-8] shown in the Declarations, and any other
person or organization qualifying as a Named Insured under this
Policy. + = +

‘the word “insured” means any person or organization qualifying
Boch" onder WHO 18 AN IRSURED (SECTION 17)»

 

SECTION I ~ COVERAGES
COVERAGE A. BODILY INJURY AND PROPERTY DAMAGE LIABILITY
1, Insuring Agreenent.

a. We will pay those suns that the insured becomes
Tegully Sbligeced to pay as danages because of "bodily
injury” or "property Gamage” to which this insurance
applies. Me wil have the right and duty to defend
any “suit” seeking those damages.

 

b. This Angurance applies to “bodily injury" and
Nproperty damage” only If:

(2) the “bodily injury" or “property damage” is
Gaused by an “occurrence” »

2. Exclusions
Tate insurance does not apply to:
a. Expected or Intended Injury

“Bodily injury” or “property damage” expected or
intended from the standpoint of the insured...

6, Workers Compensation and Similar Laws
Any obligation of the insured under a workers
Compensation, dissbility benefits or unemployment
Compensation law oF any sinilar low.

fe. Employer’ Liability

*eodiay injury” to:

20
*** FOR PUBLICATION ***

(2) An employse of the insured arising out of and in
the course of!

(a) Employment by the insured; or
‘This exclusion applies

(2) Whether the insured may be liable ae en employer
oF in any other capacity? and

SECTION IT ~ WHO TS AN sHSUREO

 

- TE you are designated in the Declarations as:

c: An organization other than a partnership or joint
venture, you sre an insured. Your “executive
officers” and directors are insureds, bat only «ith
Eespect to their duties as your officers or directors.
Your stockholders are iso insureds, but only with
respect to their Iiabilities ae stockholders:

2, Each of the following is also an insure

 

Your “employees,” other than your “executive
officers,” aut only for acts within the scope of their
employment by you or while performing duties related
othe conduct of your business. However, ‘ho
“employee” is an insured fort

 

(2) “Bodily injury” or “persona injury”

(a) To you or to a co-employee” while
in the Course of his oF her employment or
while performing duties related to the
Conduct of your busin

 

SECTION IV ~ COMMERCIAL GENERAL LIABILITY CONDITIONS

1, Separation of Insureds.

Except with respect to the Limits of Insurance, and any rights or
duties Specifically assigned in this Coverage Part te the fisst
Naned insured, this insurance applies:

28. As Af each Named Insured were the only Named Ineure
ane

 

a
*** FOR PUBLICATION *** .

a

Separately to each insured against whom claim is made
or suit” 1s brought

 

Section V = DEFINITIONS

3. “Bodily injury” mean bodily injury, sickness or disease
Tustelned by 4 person, including death resulting from any of
these st any time

 

    

12. “Occurrence” means an accident, including continuous or
repeated exposure to substantially the sane general harmful
conditions

lihen Wt refused to defend, Taft then asked Tri-s's
worker’'s compensation and employer's liability insurer,
Travelers, to defend him by a letter dated December 31, 1996. In
a letter dated January 28, 1997, Travelers also refused, stating
that it was not the Liability carrier for either Tri-S or Taft.
In relevant part, Tri-s’s policy fron Travelers provided as

follows:

GENERAL SECTION

B, who Te tneured

‘You are insured if you are an employer naned in Item 1 of the
Information Page.

PART TWO - EMPLOYERS LIABILITY INSURANCE
A. How This Insurance Applics
this employers liability insurance applies to bodily injury by
Teefocnt of beatly injury by disease. Bodily injury includes
Fesulting death.
1. The bodily injury sust arise out of and in the course
Of the injured employes’ s employment by you.

2
*** FOR PUBLICATION ***

B, We Will Pay

We will pay all sums you Legally must pay as damages because of
bodily sniuey te your employees, provided the bodily ingury ie
Covered by this ERployers Liability Insurance,

‘The danages we will pay, where recovery Le permitted by lau,
include damages:

1. for which you ave Liable to a third party by reason of
fa claim or sust against you by that third party co

Tecover the damages claimed against such third party
as a result of injury to your employee:

c. Exclusions

This insurance does not cover

 

any obligation imposed by @ workers compensation,
Sedupationsl disease, unemployment compensation, oF
Sisability benefits law, oF any similar lat

 

5. bodily injury intentionally caused or aggravated by
your

D. Me Will Defend

We have the right and duty to defend, at our expense, any clain,
proceeding er suit against you for danages payable by this

 

We have no duty to defend 2 claim, proceeding or suit that is not
covered by this insurance.

the named insured listed in the above-referenced Item
additional insureds were listed.

In response to the denials of defense and coverage,

Tri-S and Taft filed a three-count complaint against WHI (but not

Travelers) on July 17, 1997, seeking to establish that WHI owed

Taft a duty to defend the suit. On August 6, 1997, WI removed

the case to federal court, after which the Rapoza Estate

a
*** FOR PUBLICATION ***

 

successfully moved to intervene. The case was then remanded to
state court on November 14, 1997.

On January 12, 1998, WI filed a motion for summary
judgment. On March 18, 1998, TSC~Taft filed their pretrial
statement. Shortly thereafter, TSC-Taft filed their opposition
to the motion for summary judgment (which doubled as a cross-
motion for summary judgment), in which the Rapoza Estate joined.
Apart from a copy of the CGL policy, WWI submitted no evidence in
Support of its motion. TSC-Taft, on the other hand, supplied,
inter alia, an affidavit from Taft, which stated in relevant

part:

4. Twas the President, sole shareholder, and an employee of
inrits} ‘ae the tine of the accident [in whieh Rapoes died)

5. At the time of the accident, I, as the chief executive
officer and sole shareholder of [Tri-s], nas the only person
Fesponsible for overseeing the work related duties of [tri
5). That In my capacity of precicent and general manager of
(te1-6], 1 was the individual at the company responsible for
safety training of the company's employees, and for insuring
that Feasonable and prudent practices were carried ovt in
Gonnection with the company's drill rig operations in
proximity to high voltage wires.

 

8. informed my workers, including [Rapoza], that safety rules
prohibited then from operating the driii rige within 10 feet
bf electrical lines. + Considering ay warnings and
instruction given to my workers... I'did not expect that
any of my Workers would be injured of die aes result of
Glectrocstion. That on Novenber 16, 1994, T wag not at the
Sork sites. . where Rapoza waa electrocuted. s+ That
tino tine pridr ta November 16, 1994 did T'antend or expect
That Rapoza. be or would be shocked because of hic assisting
in'the grill rig operation st the [work site].

 

 

On May 12, 1998, the circuit court entered a written

order granting summary judgment in favor of TSC-Taft and the

u
*** FOR PUBLICATION ***

Rapoza Estate and against WWI. In relevant part, the order

stated as follow:

 

{The Court makes the following findings of fact and conclusions
of law:

 

+ Plaintiets, Defendant (WWI) and Plaintiffs In Intervention
have 11 moved for sumary judgment on the issue of whether
wwi"s) itability insurance policy issued to Tri-s .
provides indemnity coverage to and obligates [Ki] to defend
(Tafel in Plaintiffs In Intervention's action against him .
arising fron the death of. = = Rapoza ss

 

All parties to this action agree that no material issues of
fact'are in aispute on either of the above issued [sicl
raised by the parties’ Notions for Summary Judgent. (sic)

   

 

(wmr) argues that, ae a matter of law, St has no duty to
indemnify... Taft in the underlying action nee to defend
hin because, ‘alternatively, (1). - - Taft is not an insured
Under the policy, (2) exclusion ¢ tothe policy, wnvch
excludes from coverage claims for Bodily injury brought by
‘employees of the “insured” negates coverage to... Tatty
Snd (3) the injury te Rapoza was not an “occurrence” within
the meaning of the policy.

 

 

4, The policy expressly includes, a5 insureds, executive
officers of corporate named insureds in their capacity as
executive officers. (Sec. IT lc of the policy). The
evidence is undispites that... Taft is an, executive
officer of the named insured on the policy, Tei-S. - =

Paragraphs 36 and 40 of the Complaint in the underlying
action: . . alleged that it was... Taft's duty ang
Fesponsibitity at Tri-s to implement dafety etandacda and to
ensure that necessary safety precautions were taken for the
ety of Trics exployees 1ike Rapoza and that Taft failed
to Go’ so. ‘Faragraph Sof . .. Taft's Affidavit, which 1s
undisputed, acknowledges this duty and responesbilsty,
sithough ne Gisputes that he falled to carry cut nis duty
and responsibility. It is thus undisputed that, in the
Gnderlying action, Mr. Tage uss sued in his capacity es an
executive officer of Tri-s. “Mr. Taft ie thus an insured
within the meaing (sic) of the policy as to the underlying

 

 

 

5. Exclusion ¢ to the policy excludes coverage for bodily
injury to an employee of the insured arising out of and sn
the course of employment by the insured (Coverage A, Section
2e(i.)}. Tt ie undisputed that Repozs was an employee of
Tei-é'at che time of the accident. s,s) the policy
provides coverage separately to each insured against whom
Suit is brought (Section IV, Faragraph 7b-). in accordance
ith the sajority rule in American Jurisdictions, “the
insured” in Exclusion © is... . Taft rather than Tri-S, and
thus Exclusion e does not exclude coverage to... Taft,

 

 

1s
*** FOR PUBLICATION *** .

ee

10.

a

who was not Rapoza’s employer for purposes of the policy.
Seg sige, Zentl iu P B62 K.W.2a 868, 592
Trove 194); ba Mats Mut, Cab Ine, Co, v. Bierman, 292
Aid 674, 617 (lade Cee Apps] 39T2) ©

Coverage A of the policy applies to bodily injury only if
SGused by on “occurrence” (Section Ib(1})- “occurrence” is
Getined in the policy as 7... an accident, including
SShtinuoes or repeated exposure to substantially the same
General harmful conditions.” [Section V3.) Taft was sued
Ye'the underlying action for “wilful and wanton misconduct”
under Section 386-8, HRS. "wilful and wanton misconduct”
Jheludes recklers conduct that does not require a specific
[ntene to cause injury. Lddines v MescLae, 62 law[ai't] 1,
S29 P.20 263 (1996). The ondispured Afficavit of Karl Tart
Indicates that he was not atthe work site when Rapoze was
Glectrocoted, was not aware that fapoza was working in
Proximity to nigh voltage wires, and did fot intend oF
Expect that Rapoza would of could be shocked. Based
thereon, it ie clear that the shock to Rapoza was an
Sceigent within the meaning sf the policy, which was neither
Gntended nor expected from Taft's perspective.
Aacordingly, [WWE's] policy provides indeanity cover
wetatt for a Judgment for special and general danages
nich may be entered against hin in the underlying action,
Gnd s duty to defend him in that action.

 

 

 

 

 

 

Additionally, the Court has 2 duty to enforce the
Spjectively reasonable expectations of the party claiming

Seerages which are construed in accord with the Feasonaple
Gepectations of » layperson. co.

SoD Haw 80, 87-86T, 607

 

Preise, 1259-60) 1981)

“rt is well settled that the duty to provide coverage and
the daty to sefend on the part of an insurer are separate
and distinct.” gentinel ins. v. iret Ina, of Hawai, 76
Baw(sit) 279, 2801, 818 €.20 898) (1994). "An insures! s
Guty to detend ie Independent of, and not Limited by, its
uty to pay.” ide

‘the Court concludes therefore thet (Taft) had a reasonable
pectation of insurance coverage under che policy issued by
wwe

‘the Court further concludes that {WWi] had a duty to defend
iteft]. in the personal injury suit filed and served on his
ihen the suit vas properly end timely tendered to it, and
Uhereforer it breached its dury te defend.

 

If en insurer has breached its duty to defend its insured,
then the insurer i obligated te reimburse the insured for
Ene attorney's fees and costs incurred in defending the
Gndetlying suit and for the fees and costs incurred in
prosecuting the declaratory relief action. Sentinal, 76
Roweii at 297, 675 P-24 at 914). Seg also HS Section
Gsisld-242 [insurer obligated to pay sttorney’s fees and

 

 

16
*** FOR PUBLICATION ***

 

coste where it has contested its obligation to pay insurance
Benefits and is ordered to do so) pe

12, [omit Ls therefore obligated and ordered to reimburse (Taft)
and/or (Tri-S] for the attorney’s fees and costs incurred in
Gefending [Taft] in the underlying action and for the
attorney”s fees and costs in prosecuting this declaratory
relie® action:

 

13, Where the insured seeks indemnification after the insurer
‘Breached its duty to defend (1) coverage 1s rebuteably
iS, (2) the insurer bears the burden of proc! to,
Regate coverage, and (3) where relevant, the insurer carts
ite traditional burden of proof that an’ exclusionary clause
applies. Gentinel(, 76 Haass at 207, 675 P.zd at 914)

 

  

 

14, The Court concludes that [WZ] has not rebutted the
presumption for indeanification, it has not satisfied ite
Burden of proof to negate coverage, and it has not satisfied
its traditional burden of proof that an exclusionary clause
applies, and therefore, under the policy, (WMI) is obligated
and is So ordered to indeanify (Taft) for special and
General damages as an executive officer of [Tei-8) in the
Bnderlying action.

 

Wr moved for reconsideration of the May 12 order on the grounds
that it was inconsistent with the circuit court’s February 13,
1998 ruling in the underlying action that Taft was Rapoza’s
employer rather than co-employee. The February 13, 1998 order
provided in relevant part:

6. All of the allegations made against (Taft), even if deemed
to be true, are made against hin with respect to his duties
as the employer of [Rapoza]. The Court concludes that
ehin the workers’ compensation context, [Tafe) 1a deemed
the exployer in this suit brought against him by the [Rapoza
Estate] end is therefore snmine fron suit for [Rapoza’s]
werk accident death

 

 

Wwr’s motion for reconsideration was denied on July 13, 1998, on
the grounds that it presented no new evidence that could not have
been presented before.

on February 12, 1998, WHI filed for leave to file a

third-party complaint against Travelers. The circuit court
*** FOR PUBLICATION ***
—_—_ sss

granted the motion on April 7, 1999, and WHI filed its third-
party complaint on April 17, 1999, alleging that Travelers, not
Wwz, owed Taft a duty to defend and to indemnify. After some

procedural jousting and discovery practice, TSC-Taft filed, and

 

the Rapoza Estate and WWI joined, a motion on March 13, 2000 (1)
to extend the time to certify Doe Corporation, (2) for
certification of third-party defendant Travelers as Doe
Corporation No. 1, and (3) for leave to file a first amended
complaint, Attached to the motion was a declaration from one of

‘Tsc-taft’s attorneys stating in relevant part:

7. Prior to (the filing of 78C-Tafe’s pre-trial statement on
Maren 18, 1998] and for a substantia: period afterwards, sy
Snslysie of the liability insurance policies held by
Plaistife Tries led me to concluge that. - . (cloverage
Gnder Traveler’ workers compensation insurance policy was]
Uncertain. Accordingly, there was no reason to identity
Travelers when Plaineiffe ultimately obtained their fall
Tenedy of defense and indemnity coverage pursuant to the
Court's order of May 12, 1998.

 

 

 

it was only on April 7, 1999, that the Court allowed (WHT)
£5 bring in travelers ae a third-party decendant. However
pursuant to representations made by counsel for IMAI} that
Frevelers had reconsidered its position regarding no~
Coverage for Plaintiff Taft, I was given the impression that
Senveless’ inclusion in the case would result ih a guick
Fesclution between those two parties to satisfy the judgment
ther Plaintités already bad against [WWI]. Obviously, it
ade no sense for Plaintiffs to bring in Travelers as a
party defendant when such a move was un(njecessary and could
Rave been unproductive to 6 resolution of the case at thet
tine:

 

  

 

 

After several months of having Travelers in the ct
Became evident that Travelers wes net going to brings
resolution £0 the case.

 

in short, the rather unsgual factual circunstances of this
Case make() it very clear that the earliest and most proper
Eine fer Plaintités £0 identify and bring in Travelers os a
party cefendant is right now. Due diligence and good faith

 

 

we
*** FOR PUBLICATION ***

in identifying Travelers could not have been made prior to
this tine aa noted by the facts stated above.

Also on March 13, 2000, (1) TSC-Taft filed a motion for
attorney's fees and costs, (2) Travelers filed a motion for
summary judgment, and (3) TSC-Taft filed a cross-notion for
summary judgment in which the Rapoza Bstate and WWI joined.

on May 26, 2000, the circuit court entered a written
order granting TSC-faft’s motion for certification of Travelers
‘as a Doe Defendant and granting leave to file 2 first amended
complaint. on June 1, 2000, TSC~aft duly filed its amended
complaint, keeping its three counts against WWI and adding three
new counts against Travelers (which mirrored the claims against
Wat). On June 26, 2000, WAI counterclaimed against TSC-Taft for
declaratory relief that WWI's CGL policy did not provide coverage
to Taft on the underlying claim and cross-clained against
Travelers for indemnification and contribution.

on June 28, 2000, the circuit court resumed the hearing
on the motions for summary judgment and motion for fees and
costs. After hearing argument from the parties regarding the
distinction between Tri-s and Taft and the effect of that
distinction, if any, on the issue of Travelers’ duty to defend in
the underlying suit, the circuit court observed:

Here Tei-8, who 1 believe T said on the record is in effect Karl
Taft, purchased all this insurance to be sure that it had all this
Coverage, Whether he was eved personally or the company was sued.
So'he nad the CGL policy through (mr), he had the... worker's
Comp through Travelers... . And then you have the lew ang the

»
 

*** FOR PUBLICATION

 

Teics bylaws that say, Listen, any officer ss going to get covered
by this policy. Soin hindsight we can ee all (these
distinctions Clearly}. But at the tine when [TSC-Taft’s counsel]
vas trying to fing out if there was any insurance company that,
Would defend, he was really stuck. And the stuck part 18 =~ yoo
ur Tei-S in's position of having to say, do we hire one lawyer to
to of both of these entities, meaning Karl Tage and 741-5,
‘chat we can hav
sEtorneys can say clearly this person Fepresented this
Company and this person representes Mr. Taft? Do we hire two
'7°"In which case we'll be looking at double the attorne;
‘and costs. it would not have been efficient: And it was'a
very difficult position to be in.

 

    

  

 

   

 

Now that takes us to the lax, which is pretty clear that once the
tender (of defense) is made ~~ and (Travelers] might not conasser
ittender, but let's just for the sake of srgunent consider that @
tender -~'that the insurance company has a duty to investigate,
which makes sense. Had there been a proper investigation, then
that clarity might be ours today.

 

Travelers nevertheless maintained that Tri-S had failed to tender
to it the defense of a third-party indennification claim by Taft,
with the consequence that its duty to investigate was never
triggered, After 2 lengthy back-and-forth debate as to whether
Travelers had sufficient notice of a possible claim by Taft
against Tri-S such as to trigger Travelers’ duty to investigate,
the circuit court found that Travelers did have sufficient notice
based on the material facts not in dispute. Accordingly, the
court granted summary judgment in favor of TSC~Taft and WWI and
against Travelers. TSC-Taft’s motion for fees and costs was also
granted, with the amount to be fixed later, and a written order
to that effect was entered on August 24, 2000.

On Septenber 6, 2000, the circuit court entered a
weitten order fixing the sum certain of $124,644.07 on TSC-Taft’s

motion for fees and costs. On October 6, 2000, the court entered

20
 

** FOR PUBLICATION ***

a written order containing findings of fact and conclusions of
low (1) denying WHI’s motions for summary judgment on the
counterclaim and for reconsideration of the May 12, 1998 order,
and (2) granting TSC-Taft’s cross-motion for summary judgment on
the counterclaim, in its order, the circuit court concluded that
all of the claims made by WWI in ite counterclaim had “already
been decided against it by this [clourt in its Order of May 12,
1998."

on May 7, 2001, the circuit court entered a written
order in furtherance of its June 28, 2000 oral grant of summary
judgment in favor of Plaintiffs and WHI and against Travelers.
In relevant part, the order stated as follows:

‘he facts are not disputed and all parties agree that there are no
Genuine iseues of material fact. The Court therefore enters the
following findings of fact:

1, ‘The parties to this action are involved in two related cas
Civil Nor 97-358 and Civil No. 98-597.

 

2, Both cases arize out of an industrial injury where 2 Tri-s
Corporation employes sustained fatal injuries when equipment cane
[nEontact with ef close proimity to 2 high voltage Line,

 

3, Karl 4. tafe de the president, stockholder and chief executive
oiticer of Tri-s Corporation:

4, The employee's estate and survivors filed suit against various
Gofendante, including Karl M, Taft.

5, Tei-$ Corporation was insured by (Travelers) under 2 worker's
Compensation and employers iiabiliey insurance policy.

 

Part Two, paragraph B.1, provides: .

6. (HRS) § 415-8 provides for the indennification of corporate
officers, directors, employees and agents.

7. Article 19, Section 2, of the Triv$ By-Laws requires that the
Lorporation indemnity directors ana officers against all expenses

a
 

FOR PUBLICATION ***

 

‘and Liability in connection with claims or lawsuits asserted
Against directors or officers

8. Tri-8 Corporation te the naned insured under the [Trave
Afsurance policy. Karl M. Taft 1s not a named insured.

 

The May 7, 2001 order also contained the following
conclusions of law:

1. Tei-s Corporation is liable to Karl M. Taft for
Sbdonni fication against all reasonable costs, expenses and
Labilities (including counsel fees) actually and necessarily
incurred by or imposed upen him in connection with or resulting
from the clains asserted against him, involving the death of a

Tits Corporation employee, which is the subject of this end other
Telated actions.

 

 

 

 

 

2. The (Travelers) combination workers’ conpensation and
eiployers Liability policy provides coverage for its insured, Tri-
S Corporation, for defense and indennity, for ite obligation to
indennify Kari M, Taft for expenses of defense and for damages
elaine against Karl M. Taft se a result of injury to a Tri-3
Corporation employee.

 

3. There is 2 reasonable expectation of coverage under the
(iravelers) policy, for workers’ compensation benefits under the
workers’ compensation part, and non-workere’ cospensation clains
Under the employers lisbilicy part, to provide comprehensive

protection for all claims relating to enployee injuries oF death,

 

 

4. The construction of an insurance policy is a question of Law
for the Court, in the absence of any genuine issue of material
face

8. There of material fact

 

6 no genuine issu

 

It is hereby ordered and decreed that [Travelers] ie obligated to
Provide Tris Corporation coverage, for beth defense and
Indennity, for the Liability ef Tri-8 Corporation to Karl M. Taft
for indemnity relating to claina asserted against Kerl M. Taft
arising out of the death of a Trins Corporstion employee.

 

on May 21, 2002, the circuit court entered an order

containing: (1) a stipulation for dismissal without prejudice of

 

(2) WWWI's third-party complaint against Travelers, and (b) WaI’s

 

crossclaim against Travelers; and (2) @ summary noting the

disposition of claims including (a) summary judgment in favor of

22
*** FOR PUBLICATION ***

oe

Plaintiffs against WWI on May 12, 1998, (b) summary judgment in
favor of Plaintiffs and WWI against Travelers on May 7, 2002, (c)
dismissal with prejudice of WWI’s counterclaim on October 6,
2000, and (d) award of fees and costs in favor of TSC-Taft on
August 24, 2000.

on May 2, 2003, TSC-Taft filed a motion to set the form
of the final judgment and to obtain prejudgment interest in order
sto compensate them for the substantial delay that has occurred
in setting the finai judgment.” The motion then came on for a
hearing on July 16, 2003. After hearing argument, the circuit
court ruled as follows:

You know, one of the things that 1 believe that the function of
Yee Migtuco%as tor wos basically te be compensatory ang not to be

 

 

punstive

And that is whet I am seeking to do in -- in looking at the
BMfuation, dress not te punish anyone for any.» «dil
SEEEREICGS sr Gay ss conducts =. to which fault can be
attached.

pasicaily with this attitude in mind, Af I wore to award interests

 

{ning thet whet I would be stuck with is Basically the
5 Senay 12, 2998, or September 6, 2000... . But at
eee SEMEL ting aboce it, it as not known to anyone what the
AREEchey’e gece were on May 125, "1898. Tt was just an award of
SEESERSY:£ fees, ‘bet no one hod determined what that was and it
Gbin'e forasiiy determined until Septenber 6", 2000.

 

 

 

Now, as of September 6, 2000, the defendants were nade a
Mist the attorney's feos were. They had a definite figu

 

and... in tems of ay assesenent of what is fair and equitable
And adring the Interest of the plaintif£ and the interest of the
SSEEEGREcTZonpenies, f fing thar! it would be feir and equitable to
Shard interest at of Septesber 6%, 2000.

iow, with respect to the reasons for the delay in reducing that
perkicular award to final judgment, it's not of concern to this
Beet and think that [it] would be an inefficient use
Se Eke courtis time to bare its decieion upon whether or not fault
Should or should not be attrizutabie to one party or the other.

2
*** FOR PUBLICATION ***
OO

I think this awaré of interests . . . trom September €*, 2000
suneil it’s paid will be oufficiene incentive to’ai?
Barties to work towards finalizing the issue and in afranging for
Payment as properly as possible.

A written order awarding prejudgment interest, accruing from
September 6, 2000 at the statutory rate of 108 per annum untii
the judgment is satisfied, was entered on October 10, 2003.
Also on October 10, 2003, final judgment purporting to
@ispose of ali claims and parties as stated above was entered in
the circuit court. On October 31, 2003, WWI filed a tinely
notice of appeal in this court. On November 10, 2003, Travelers

filed a timely notice of cross-appeal.

1, STanpy EVI
A. on ar nt in surance Cove

Sontext

Yio review the circuit court's grant or denial of summary
judgment de neve. sie a ce .
Keka, 94 Hawar' 213, 221, 11 Baa 1, 3 (2000) The stands Toe
Granting @ motion Sr summary Judgment se sett iedt

(Shunmacy judgeent is eppropriate if the pleadings,
depositions, answers to interrogatories, nd
adnissions on file, together with the affidevits, if
fany, show that there is no genuine issue as to any.
materiel fact and that the moving party is entitled to
Judgment os a matter of law.” A fact ie material if
roof of that fact would have the effect of
establishing or refuting one of the essential elements
of @ cause of action or defense asserted by the
Parties. The evidence must be viewed in the light
Rest favorable to the non-noving party. In other
words, we mst view all of the evidence and che
inferences drawn therefrom in the light most favorable
20 the party opposing the movion

 

 

 

 

1a, (citations and internal quotation marks omitted)

o of Me p98 Hawai'i 233, 244-45, 47
Pid 348, 253-60 (2002) (second alteration in origina).

2
*** FOR PUBLICATION ***

 

Kau. City and County of Honolulu, 104 Hawai'i 468, 473-74, 92
P.3d 477, 482-83 (2004). This court has further explained the
burdens of the moving and non-moving parties on summary judgment
as follows:

The burden ie on the party moving for summary judgment
(moving party) to show the absence of any genuine isaue ae to all
material facts, which, under applicable principles of substantive
Tow, entities the moving party to Judgment as a matter of law
nis burden hae two components.

 

First, the moving party has the burden of producing support
for its claim that: (1) no genuine issue of material fact exists
ith respect to the essential elements of the claim or defense
“hic the notion seeks to establish oF which the motion questions:
dna (2) based on the undisputed facts, it is entitied to summary
judguent as a matter of law. Only when the moving party satisfies
Iee"nitial burden of production does the burden shite to the
non-noving party to respond to the motion for summary judgment and
denonatrate specific fects, as opposed to general allegations,
that present # genuine issue worthy of trial

 

 

   

Second, the moving party bears the ultimate burden of
persuasion. This burden always remains with the moving party and
Fequires the moving party to convince the court thet ne. genuine
{stue of material act enises and that the moving pert is entitied
fo summary iudgeent as 2 matter of law

‘Exench v. Hawaii Pizza Hut, Inc., 105 Hawai'i 462, 470, 99 P.3d

1046, 1084 (2004) (quoting GECG Fin, Corp, v. Jaffarian, 79

 

Hawai's 516, 521, 904 P.2¢ 530, 535 (App. 1995)) (emphasis

deleted). In the insurance context, with specific regard to the
insurer's duties to defend and indennify under the policy, this
court has distilled the summary judgment standard still further:

It 4s well settled chat the duty to provide coverage [dueai the
duty to indennify,) and the duty to defend on the part of an
Snevrer are separate end distinct. Moreover, the parties’
Eespective burdens of proof with respect to the duties to
indemnify and to defend are leo distinct,

 

 

 

With respect to [an insurer's) prayer for a declaration that
At has no duty to defend"... pursuant to the paliely, its)
already heavy burden of proof ar a novant for summary judgment
(sis significantly augmented, The obligation to defena is broader

2
*** FOR PUBLICATION ***

‘than the duty to pay claine and arises wherever there is the mere
Entantial for coverage. In other words, the duty to defend rests
Frinsrily on the possibility that coverage exists. this
Possibility may be remote but if 1 exists, the insurer owes the
Fitured a defense, All doubts as to whether a duty to defend
onists are resolved against the insurer and in favor of the
Sneures.

 

Accordingly, in connection with the isaue of its duty to
defend, [the sasiter bears] the Durden of proving that, there [i)5
fe goncine issue of material fact with respect to whether a
Bespipility exist(s) that. {the inaured) would incur Liebility for
Selgin coveres by the policly]. in ether words, (the insurer is]
Eequized to prove shat fe would be impossible for the. (claisant]
te prevail

Glalm covered by the policies.
Sith respect te ite motion for summary Judgnent [i]s comparatively
Tgher"becouse st hale] merely to prove ther « possibility of
coverage exist(s]

 

 

 

with respect to [an insurer's] prayer for a declaration that
it ne[s] po duty to dademnify [the insured] pursuant to the
poliely, se is) uot required to disprove any possibility that its
[isured might be iiable for a clain asserted in the underlying
Towsuites Rather, without reference to what the eventual outcome
Of the underlying Iawoults might actually be, (the insurer 13]
fequired only to establish the absence of a genuine issue of
Eateriel fact regerding the question of coverage pursuant to the
Plain langoage of the insurance polic[y] and the consequent
Entituement to the entry of Judgment ae a matter of law.

   

Dairy Rd. Partners v, Island Ins. Cow Ltd., 92 Hawai'i 398,
422-13, 992 P.2d 93, 107-08 (2000) (internal citations, quotation
signals, and footnote omitted: some brackets and ellipses deleted
and some brackets and ellipses added; emphases in original)

B, ons of a Bul struct, surance
Bolicies

“A trial court's conclusions of law are reviewed de
nove, under the right/wrong standard of review.” Child Support
Enforcement Agency v. Roe, 96 Hawai'i 1, 11, 25 P.3d 60, 70
(2001) (quoting State v. Bb Loo, 94 Hawai'i 207, 209, 10 P.3d

728, 730 (2000)) (internal brackets and quotation marks omitted) «

26
*** FOR PUBLICATION ***

 

The construction of a contract is a question of lew subject to
this de novo stendard of review. Hanagami v, China Airlines.
Lida, 67 Haw. 357, 364, 688 P.2d 1139, 1144 (1984). Moreover,
because an insurance policy is a contract,

insurance policies are subject to the general rules of contract
Constructioas the terms of the policy should be interpreted
Sccording to their plain, ordinary, and accepted sense in common
Speech unless 1t appears from the policy that a different meaning
[e'Sktendes. Moreover, every insurance contract shall be

Const rued according to the entirety of its terms and conditions as
Set foren in the policy

Nevertheless, adherence to the plain language and Lite:
meaning of insurance contract provisions 1s not without
Tinttation, We have acknowledged that. because sngurance policies
are contracts of adhesion and ere premised on standard forms
Prepares by the insurer's attorneys, we have long subscribed to
Phe principle that they must be construed Liberally in favor of
the Insured and any ambiguities must be resolved against the
Insurer. Put another nay, the rule 1s that policies are to be
Construed in accord with the reasonable expectations of a
Tayperson.

1

 

 

   

  

 

Dairy Rd, Partnere, 92 Hawai'i at 411-12, 992 P.2d at 106-07
(internal citations, quotation marks, brackets, and ellipses

omitted) .

 

wars ment
An award of prejudgment interest is reviewed for abuse
of discretion. Amfac, Inc, v. Waikiki Beachcomber Inv, Co., 74
Hew. 5, 137, €39 P.2d 10, 36 (1992). “Generally, to constitute
an abuse [of discretion,] it must appear that the court clearly
exceeded the bounds of reason or disregarded rules or principles
of law or practice to the substantial detriment of a party
litigant.” State v. Sacoco, 45 Haw. 288, 292, 367 P.2d 11, 13

(2361).

2
*** FOR PUBLICATION ***

 

 

Motion for Reconsideration
This court also employs the abuse of discretion

standard in reviewing a circuit court’s denial of a motion for

 

reconsideration. Sentinel, 76 Hawai'i at 290, 875 P.2d at 907.
A circuit court does not abuse its discretion when no new
argument is presented on reconsideration. Id.

E.
Motion for Certification of Doe Defendants

Hawai'i Rules of Civil Procedure (HRCP) Rule 17(d) (3)
(2000) provides in relevant part:

linen the naming or identification [of an unknown defendant) is
made by a plaintiff, it shall be made pricr to the filing of the
pretrial statement oy thet plaintiff, cr within guch additional
Eine az the court gay allow. The court shall creeiy grant

Of the time in whieh to name oF identity the
iy party exercising due diligence in
fertain the party defendant's name of identity.

 

 

Party defendant
Steempting te

  

 

(Emphases added.) As the use of the word “nay” implies, the
circuit court has discretion to grant extensions of time, and
thus we review its orders in this regard for abuse of that
discretion. See State v. Kahawai, 103 Hawal's 462, 465, 83 P.3d
725, 728 (2004) (“The term ‘may’ (used) in describing the court's

power . . . denotes discretion.”

 

See also Wakuva v, Oahu
Plumbing & sheet etal, Ltd., 65 Haw. 592, 597, 656 P.2d 84, 88
(1982) (holding that “the matter of extensions is addressed to
the sound judgment of the trial court”).

As for the motion to certify itself, HRCP Rule 17(d) (4)

states:

2
*** FOR PUBLICATION ***

 

lien 9 party defendant has been naned cr identified in accordance
Wien this rile, the court shal] so certify and may make any order
thet justice requires to protect any party from undue burden ang
expense in any further proceedings involving the party defendant

 

(Emphasis added.) The use of the word “shall” indicates that the
grant or denial of certification is mandatory. See Taome v.
Lingle, 108 Hawai'i 245, 251, 116 P.3d 1188, 1194 (2005) ("The
term ‘shall’ is ordinarily used in a mandatory sense.” (Citation
omitted.)). Therefore, the grant or denial of a motion for
certification is a question of law reviewed de nove.

F. Motion £ we to File compl,

HRCP Rule 15(a) (2000) provides that “leave [to amend a
complaint] shall be freely given when justice so requires.” This
court has interpreted the rule as meaning that “the grant or
denial of leave to amend under Rule 15(a) is within the
discretion of the trial court.” Bs na! rs 6 Contra
vs State, S@ Haw. 187, 218, 567 2.26 397, 417 (1977) (citing
Bishop Trust Cou, Ltd. v. Kanokila Dev. Corp., 57 Haw. 330, 555
P.2d 1193 (1976)).

In the absence of any apparent or declared reason ~~ such es undue
delay, bad faith of dilstory motive on the part of the movant,
Fepeated failure to cure deficiencies by amendments previously
Allowed, undue presudice to the opposing party by virtue of
allowance cf the enendment, futility of amendment, etc. —~ the
Jeave sought should, as the rules require, be "sreely given.”

Associated Eng’rs Contractors, 58 Haw. at 218-19, 567 P.2d at
417 (quoting Eonan vs Davis, 371 U.S. 178, 182 (1962).

 

2
*** FOR PUBLICATION ***

 

TIT. DISCUSSION
A. WHI's Appeal

With respect to the litany of errors assigned by WHI,
there are essentially three groups: (1) questions relating to
the interpretation of WiI’s CGL policy: (2) questions relating to
the propriety of summary judgment; and (3) post-sunmary judgment
questions, For the reasons set forth below, we hold that: (1)
Taft was covered under the CGL policy such that WWI had a duty to
defend and indemnify; (2) the circuit court did not err in

granting summary judgment in favor of TSC-Taft’ and the Rapoza

 

Estate: properly

 

and (3) the post-sunmary judgment questions wei
decided by the circuit court. For purposes of analytical
clarity, we first address the purely legal questions relating to
interpretation of the policy, the resolution of which is
necessary to dispose of the second, and, in turn, third group of

questions.

 

"As a prelininacy matter, WAT challenges the grouping of Tri-s and
Fett, arguing that Tri-s lacks standing to bring the instant action becuse st
Ss nota defendant in the underlying action. However, we hold that Tri-S hae
‘adequately denonstrated its standing. It is well settled that to establish
standing, party aust show: (1) actual or threatened injury resulting from
the defendant"s conduct; (2) that is fairly traceable to the defendant’ =
actions; and (3) relief will Likely be provided for the party ss the result of
2 fovorable decision. Bush v, Matson, $2 Hawai'i 474, 479, 918 P.2a 1130,
1135" (1986). Here, ri-S has ahowed that it suffered financial injury (Le,
the payment of Taft's attorney's fees) thet ie fairly traceable to MWE's
failure to defend Taft in the underlying action (Lag,, but for MWI's failure
to pay for Taft's defense, Tri-s would not have had to pay Taft's fees), and @
favorable decision in she instant case will 1ikely result in relief for Tries
(die. wit would be forced to reimburse Taft, who in turn would reimburse Tri-
Sir “hecordingiy, Tri-S has a stake in the outcome of this cage such as £0
oive ie standing.

 

 

 

 

  

 

20
*** FOR PUBLICATION ***

 

Interpretation of the CGL Policy.

 

Wat argues that, as a matter of law, it was not
obligated to defend or indemnify Taft with respect to the
underlying wrongful death suit based on the language of the CcL
policy. WHI's arguments regarding the interpretation of the
policy are divisible into two types: first, that Taft was not an
“insured” under the terms of the policy for purposes of the
underlying claim; and second, that even if Taft was an “insured,”
he was nevertheless not covered in the instant case due to an
applicable policy exclusion. For the reasons set forth below,

neither group of arguments has merit.

a. Taft falle within the CGL pelicv's definition of
2 +

Wait contends, correctly, that “[i]n order for [WWI] to
have a duty to defend or to indemnify Mr. Taft in the underlying
case, he must first be an insured with respect to the claim made
against him.” TSC-Taft responds that Taft was an insured by
virtue of his status as an executive officer of Tri-S. The
cirevit court concluded that “Taft was sued in his capacity as an
executive officer of Tri-S. Taft is thus an insured within the
mea(nling of the policy ae to the underlying action.” For the
reasons set forth below, we hold that the circuit court's

conclusion was correct.

a
*** FOR PUBLICATION ***

 

As noted above, Section II.1.c of the CGL policy
provides that the executive officers of Tri-S “are insureds, but
only with respect to their duties as (Tri-s‘s) officers.”
(Emphasis added.) Tt is undisputed that Taft was an executive
officer of Tri-s. Section II.2.a adds that Tri-s employees,
“other than (Tri-Si executive officers, [are also insureds,} but
only for acts within the scope of their employment by [Tri-S]

+ However, no ‘employee’ is an insured for . . . ‘Bodily
injury’ . . . to a co-‘employee’[.]” (Emphases added.) It is

also undisputed that Rapoza, an employee of Tri-S, suffered a

 

bodily injury, that Taft was an employee of Tri-S and thus a co-
employee of Rapoza, and that both were acting within the scope of
their employment at the relevant times. Accordingly, Taft is an
insured for purposes of the underlying suit if: (1) he was sued
with respect to performance of his duties as a Tri-s officer, and
(2) the bodily injury exception does not apply to executive
officers. The first question 1s dealt with below in Section
IIL.A.2, while the second is addressed herein.

WWI argues that the phrase “no employee” means that no
employee -- whether executive officer or otherwise -- is insured
with respect to the bodily injury of a co-employee. TsC-Taft
replies that while the phrase “no employee,” when taken alone,
might suggest that the bodily injury exception applies to all co-

employees, it must be read in context with the previous sentence

2
 

*** FOR PUBLICATION

 

carving out executive officers from other employees generally.
Although Wr is able to cite a favorable case directly on point,
We nevertheless conclude that TSC-Taft has the more persuasive
argument.

Wwr refers us to Zaiontz v, Trinity Universal Ins. Co.,
87 S.W.3d 565 (Tex. App. 2002). There, the court considered
policy language identical to that in the Tri-s CGL policy and
held that “the phrase ‘no employee’ must be interpreted to mean
tno employee’ -- whether or not the employee is an executive
officer.” Id, at $70 (citation omitted). The Zaiontz court
reasoned that executive officers are also employees and that “if
the second sentence in section 11.2.a.(1) had been intended to
deny insured status only to employees who were not executive
officers, it would have used the phrase ‘these employees,’ not
‘no employee.’" id. (citation omitted) .

While the reading adopted by the court in Zajontz is
persuasive when the sentence is examined in isolation, this court
is bound to interpret an insurance contract in its entirety.
Dairy Rd, Partners, 92 Hawai'i at 411-12, 992 P.2d at 106-07. As
such, the second sentence must be considered in connection with
the first, as well as in the context of the separation of
executive officers (insured under Section II.1) from other
employees (insured under Section IT.2) in the policy. When read

in this way, the definition of employee for purposes of the
*** FOR PUBLICATION ***

 

phrase “no employee” does not include executive officers. This
interpretation, as TSC-Taft notes, is supported by the placement

of the clauses -- Taft claims insured status under Section

 

II.1.c, which governs insured status for officers and directors,

while the bodily injury exception is located in Section 11.2

 

completely different subsection pertaining to non-executive

corporate employees. That the insured status of executive

 

 

employees with respect to their executive duti intended to
be governed only by subsection 1 is indicated by the carve-out of

executive officers in the first sentence of Section I1.2.a.

 

Accordingly, the bodily injury exception to insured status does

cutive officer.

 

not apply to Taft as an e:

b. No exclusions are applicable due to the operation

WWE next contends that, even if Taft was an insured
under the policy, he was nevertheless not covered by virtue of
various exclusions. First, WiI argues that Taft was not covered
due to Section 1.2.4, the worker’s compensation exclusion. AS
set forth above, that exclusion provides that coverage does not

exist for “[a]ny obligation of the insured under a workers

 

compensation, disability benefits or unemployment compensation
law or any similar law.” Second, WHI argues that Section 1.2.¢,
the bodily injury exclusion, which excludes coverage for bodily

injury to an “employee of the insured arising out of and in the

™
*** FOR PUBLICATION ***

 

course of . . . [elmployment by the insured,” applies. TSC-Taft
counters that Tri-S, not Taft, was the employer of Rapoza, and
thus neither exclusion applies to Taft. TSC-Taft’s position has
merit.

The interpretation of Sections 1.2.4 and e turns on the
meaning of the phrase “the insured.” Section IV.7 of the policy
states that the policy applies “[sJeparately to each insured
against whom claim is made or ‘suit’ is brought.” This is a
standard insurance contract provision known ae a severability-of-
Interests clause, the import of which has been extensively
discussed in the Literature and case law outside of Hawai'i, see
generally Barnette v. Hartford Ins, Grp, 653 P.2d 1375, 1376-83
(yo. 1982), although it presents an issue of first impression
here. The majority view is that, by operation of the
severability clause, “the insured” must be read to mean the party
seeking coverage rather than the named insured (ices,
coxporation-employer) or “any insured” in analyzing whether the
bodily injury and worker’s compensation exclusions apply. See,
e.c., Barnette, 653 P.2d at 1379-80 (collecting cases and holding
that an executive officer is not the employer for purposes of
determining coverage but rather an additional insured to whom the
employee exclusion does not apply); Zenti v. The Home Ins. co.,
262 W.W.2d 588, $92 (Iowa 1978) (collecting cases and holding

that “the severability-of-interests clause was inserted into

3
 

*** FOR PUBLICATION **

 

insurance contracts to make clear that the employee exclusion is
applicable only when the person claiming coverage as insured is
the employer”).

The rationale for this interpretation of the
severability-of-interests clause was first expressed nearly fifty

years ago as follows:

 

‘The logical theory for the employee exclusion is to prevent (an!
employee] of the tort fessor (sic] fron suing Ais employer for
Snjuries received thru [sic] bis employer's negligence. "A reason
for this is that employees are usually covered by workuen’ ©
Gcapensation and can recover from the exployer, with oF without
Regiigence. When segiigence is conmitted by other than his
employer, the logic for the exclusion Sisappeare. If the insurer
Wishes co further exclude its liability, it could clearly so state
In ite Contract and ite failure to do so should be strictly
construed)

severabilicy Clause, for there it can be inplied that the inaurer
As aciually recoanizing a separate oblisation te-others, distinct
and-abart fron the eblication it owes to the nased insured

 

Gen’] Aviation Sup, Co. v. Ins, Co, of N, Ams, 181 F.Supp. 380,
384 (E.D. Mo. 1960), aff'd 263 F.2d 590 (Bth Cir. 1960), quoted
in Barnette, 653 P.2d at 1380 (emphasis and bracketed material
added). The Zenti court emphasized this last point regarding
separate obligations to each insured, noting:
Indeed, as we have pointed out, most courts now interpret
NSeversbility of Interests” clauses as expressing en
acknowledgment on the part of insurance companies that the term
Sineured” does not alusye meen any insured who could claim
coverage under the policy but
Benti, 262 N.W.2d at 590-91 (citations omitted: first emphasis in
original, second emphasis added).
Based on the foregoing, we adopt the majority rule and
hold that where an insurance policy contains a severability-of-

interests clause, the phrase “the insured” in a policy exclusion

36
*** FOR PUBLICATION ***

 

must be read to refer to the insured seeking coverage as opposed
to the “named insured” or “any insured.” Here, the insured

claiming coverage is Taft: thus the phrase “employee of the

 

insured” under Section I.2.¢.1 must be read “employee of Taft.”
However, Rapoza was not an enployee of Taft, but of Tri-s, so the
exclusion does not apply. Similarly, the phrase in Section
4.2.4, “obligation of the insured,” under worker's compensation
law, must be read “obligation of Taft.” Again, however, Taft had
no obligations to Rapoza under Hawai'i worker’s compensation law
because he was not Rapoza’s employers instead it was Tri-S which
shouldered those burdens. Accordingly, neither exclusion applie
and the circuit court did not err in concluding that Taft was
covered under the Will policy.

2. The Circuit Court Did Not Exr in Granting Summary

Judgment in Favor of Plaintiffs as to WWI’s Duty to

Defend and Indennify Taft in the Underlying Lawsuit.

In addition to its arguments regerding the
interpretation of the CGL policy, WWI also argues that there were
genuine issues of material fact that should have prevented the
circuit court from granting summary judgment in TSC-Taft’s favor.
Wirt essentially contends that there were genuine issues of
material fact whether (1) the conduct alleged in the underlying
suit constituted an “occurrence” within the meaning of the

policy, and (2) Taft was sued in his capacity as an executive

officer, Based on our holding in Dairy Road Partners, however,

 
*** FORPUBLICATION ***
SSS

we conclude that the circuit court did not err in granting
summary judgment because TSC-Taft carried its light burden of
establishing the possibility that coverage existed.

ina si veda sd cla: use
exel fal and wanton mii 7

wr contends that the claim in the underlying suit does

not constitute an “occurrence” within the meaning of the CGL
Policy because the complaint alleges intentional misconduct,
\hich is excluded from coverage. As set forth above, Section
I.l.b of the CGL policy provides that only bodily injuries
sustained in “occurrences” (ie., accidents) are included in
coverage, while Section 1.2.2 provides that bodily injuries
“expected or intended” from the standpoint of the insured are
excluded from coverage. TSC-Taft counters that the undisputed
facts set forth in Taft's affidavit in support of TSC~Taft’s
cross-motion for summary judgnent make it clear that Rapoza’s
death was not expected or intended from Taft’s standpoint. As
set forth below, we hold that summary judgment was properly

granted in TSC-Taft's favor on this issue because, as the circuit

 

court found, TSC-Taft carried its burden of establishing the
Possibility that the underlying claim involved an “occurrence”

and was thus covered under the policy.
*** FOR PUBLICATION ***

 

For its part, Wit relies upon allegations in the
underlying complaint that “Taft knew that serious bodily injury
or death to [Rapoza] was the highly probable result” of contact
with high voltage power lines but nevertheless “consciously and
wilfully failed” to implement proper safety standards despite
this knowledge. Specifically, WWI argues, “These are all words
of expectation. We expect that highly probable events will
happen.” TSc~Taft, on the other hand, relies on the complaint’s
allegations of “wilful and wanton” misconduct and negligence, as
well as Taft's undisputed statements in his affidavit that, inter
alla: (1) Taft was not present at Rapoza’s worksite the day he
was electrocuted; (2) he did not know that Rapoza was drilling in

Proximity to high voltage wires; and (3) he did not intend or

 

expect that Rapoza would be injured.
WwWI’s reading of the complaint is not unreasonable
(deez, the complaint does encompass allegations of intentional
misconduct), but it is nevertheless incomplete. That is, WWI
fails to recognize the assertion of non-intentional misconduct
also included in the complaint’s allegations of “wilful and
wanton misconduct” and negligence. As this court made clear in
Iddings, wilful and wanton misconduct “does not require proof
that the injuring co-employee possessed specific intent to
cause injury[.]” Iddings, 82 Hawai'i at 6, 919 P.2d at 268.

Instead, “wanton” also includes recklessness. Id. at 7, 919 P.2d

38
*** FOR PUBLICATION ***

at 269, See also Ellis v. Mut, Tel. Co., 29 Haw. 604, 617 (1927)
(holding that allegations of “wanton” misconduct may also

enconp:

 

8 simple negligence).

In view of the fact that the underlying complaint
alleges a claim for relief against Taft that may be supported by
evidence of either intentional or non-intentional misconduct, it

bears repeating that

 

the duty to defend rests primarily on the possibility that
Storage exists, this possibility nay De Fenote but if it exists,
the insurer owes the insured a defense. All doubts as to whether
a uty to defend existe are resolved against the insurer and in
favor of the insured.

 

Aecordingly, in connection with the issue of its duty te
defend, (the inauter bears] the Durden of proving that there (i]s
fhe genuine issue cf material fact with respect co whether a

‘exist is] that [the insured) would incur Liability for
elaine covered by the policly]. in other words, [the insurer 18)
fequired to prove that it would be impossible for the (claimant)
{evprevasl against (the insured) in the underlying lewsuit{] on a
Claim covered by the poliely]. Conversely, (the insures’ s) burden
with respect to its mbtion for summary judiment. (i]s comparatively
Ligne, because it hale) merely fo prove thet 0 possibility of
coverage exists)

 

Dairy Rd, Partners, 92 Hawai'i at 412-13, 992 P.2d at 107-08. It
goes without saying that, in light of Iddings and the undisputed
evidence in Taft's affidavit, WWI cannot prove that it would be
impossible for the Rapoza Estate to prevail against Taft on a
“wilful and wanton” misconduct claim based upon evidence only of
non-intentional misconduct because the possibility exists that
‘Taft could be found liable for recklessness, which does not

involve intent or expectation of injury and is thus a covered

«
*** FOR PUBLICATION ***

 

 

occurrence under the policy. Consequently, the circuit court

 

© tn nolding that recklessly caused injuries are not excluded under the
vexpected of intended” injury exclusion found in Section T.2.a of the policy,
we adopt the interpretation of that exclusion followed in psi-nerav, tac. ¥,
Hone ins.co,, 801 N.£.20 708 (Ind. Ct. App. 2004). There, the court reasoned
Snd Teld'as follows:

(olur court (haa) made the following observations with regard to
the “standard ‘intended or expected” exclusionary Clauses:”

The intent aspect . . . contemplate(s) the ‘volitional
performance of an act with an intent to cause injury,
Bithougn not necessarily the precise injury or severity of
Ganage that in fact oacurs.’ “It is met esther by showing an
Setual intent to injure, or by showing the neture and
Gharacter ef the act £0 be such that an intent to cause harm
fo the other party must be inferred es e matter of Lew

 

sexpected’ injury meant injury that occurred when the
inaured acted even though he was conscLously aware that harm
ae practically certain co occur from his actions. fawever,

the definition of ‘expected’ does not exclude hare that the
insured “shosid have anticipated!\" —Conscicasness of the
Ifkelihoed of certain rerults occurring is detersinea by
Guanination of the subjective mestal state of the insured.

Ganev. Monticelle Ins Co, 676 N.B.26 1099, 1202 (ind. Ct. App.
3957], Exane, denied (quoting Stevenson v. Ha .

692 Newz 467, 470-72 (Ind. Ce. App. 1996), Eran, denied). our
Court has algo’ concluded that negligent and’ reckless conduct “is
fot enough to sect the ‘practically certain’ standard required for
fh Ungurance policy to ewelude expected injuries.” Cov v. Nat”
ay 713 N.f.23 395, 360. (Ind. ct. App. 1999) (exting Bolin

ate Fart F S87 NoE.2d 1064, 1088 (Ind, Cee
App. 1990), trans, denied). ‘Therefore, even if the evidence
Genonatrates a disregara for safety, such evidence “is not enough
to warrant exclusion under either the lesser ‘expected injuries"
Standard or the greater "intended injuries’ standard.” 1d.

 

 

Ada at 728 (onphasis added). Accord Ohio Cas. Ins. Co. v Henderson, 939 P.2d
T350, 1443 (Ariz. 1997), (holding that the “expected or Tntendea” injury

exclusion excludes injuries thet were intended or "substantially certain” to
Scour from the standpoint of the insured); Conte] i Ing Co vs Taal, 244
Rome2d 121, 125 n.3. Minn. 1976) [observing that “expected” requires a "high
degree of Certainty"); Skate fam Fire 4 Caz, Co ws Muth, 207 N.W.2d 364, 366
ne. 1973) (the term “expected” wnen used Ih ssgociation with ‘intended!
Gareies the connotation of 2 high Gegree of certainty or probability and scene
fo be used to practically equate with “intended,” because one expects. the
Sonsequences of what one intenas.” (Citation onitted.)); United Services Auto.
oe "S17 °he2d 962, 909 (Po. Super. Ce. 1986) (noleing that the
SGepected cr intended” injury exclusion excludes injuries that were designe:
of planned, ae well as those that were “substantially certain” to occur from
the’ standpoint of the insured). Here, because the underlying complaint
Eonteine silegetions that fapoza's death wes "highiy probable,” rather than
(ont ined...)

 

 

 

 

a
*** FOR PUBLICATION *** .

 

did not err in concluding that the conduct alleged in the
complaint constituted an occurrence for purposes of WWI’s duty to
defend.’

b. =
sued _in his capacity as an executive

Tics.
Ww also argues that it is clear from the allegations
in the wrongful death complaint that Taft was being sued for
breach of his duty as a co-employee (or in the alternative that
there was a genuine issue of material fact precluding resolution
by sunmary judoment), not for breach of his duty as an executive
officer, because the Rapoza Estate may recover against Taft only
as a co-employee. TSc~Taft counters that the Rapoza Estate's
chances of success in the underlying suit are not relevant to
whether WWI had a duty to defend under the policy. TSC-Taft adds
that it met its burden of production with respect to summary

judgment by offering Taft's undisputed affidavit, which stated

"( continued}
“practically certain,” to occur from Taft's standpoint, the alleged conduct
does not fall under the policy's “expected or intended” bodily injury
exclusion.

* re should slso be noted that, to the extent thet WT relies on the
underlying complaint in ite opposition to summary judgnent ag geidense (rather
than at a pleasing thet may or may not have triggered ies outy to Gefend),
Arguing thet the conplaint’s allegations are evidence of a material fact to
Gispute the facts alleged in Taft's affidavit, such reliance 1s misplaced. A
Party say not rely on en unverified complaint to support or oppose = motion
for gunnary Judgment because such pleadings are not evidence within the scope
of the summary jusgnent rule. See, s.a., Kelly v, United States, 924 F-23
3ss, 357 {ist chr. 1991) (*(7)he non-movant may not rest open mere allegations
in," say, an unveritied Complaint or lawyer's brief, but must produce evidence
which would be admissible at trial to make cut the requisite issue of material
fact." (Citation oniteed.))

 

    

a
*** FOR PUBLICATION ***

that, as chief executive officer, he was the only person
responsible for safety training and supervision of construction
practices at Tri-S. TSC-Taft continues that because WWI failed
to dispute this fact, it thus failed to meet its burden of
production in opposing TSC~Taft’s motion. As set forth above,
the circuit court held, based on Taft's affidavit and the
allegations in the complaint, that “[iJt is . . . undisputed

that, in the underlying action, . . . Taft was sued in his

 

capacity as an executive officer of Tri-s.” For the reasons set

forth below, we hold that this conclusion was correct with

 

respect to whether summary judgment was proper as to WHI’s duty
to defend.

Although we agree with WWI that “[1Jt is clear from the

 

record that the parties were arguing over whether or not Taft was

[sued as] @ co-employee,” it is equally clear that the material

 

facts (e.a., who was responsible for safety practices at Tri-s,
who was present at Rapoza’s worksite on the day of his death,
Taft's positions at Tri-s, etc.) are themselves not in dispute.
lihat is actually in dispute is the legal significance of those
facts -~ Taft, as the proprietor of a small business, wore
multiple, non-mutually exclusive hats at Tri-S, including those
of owner, executive officer, manager, and employee; thus, the
question is, which hat was Taft wearing in connection with the

alleged breach of duty that resulted in Rapoza’s death? As a
*** FOR PUBLICATION ***

 

conclusion of law dependent on findings of fact, this likely
presents a mixed question of law and fact. Booth v. Booth, 90
Hawai'i 413, 416, 978 P.2d 851, 854 (1999).

However, under Dairy Road Partners, which demands only
that the possibility of coverage be established for an insured to
prevail on a motion for summary judgment as to the insurer's duty
to defend, the legal question at issue can be distilled still
further to, “Was it possible that Taft’s alleged breach of duty
occurred in his capacity as an executive officer?” The
allegations in the complaint, naming Taft as both president and
manager of Tri-S, raise the possibility that Taft could have been
found Liable in his capacity as president. Moreover, Taft's
affidavit stating that, as an executive officer, he was
responsible for Tri-S policies and practices regarding drilling
and safety also raises the possibility that Rapoza’s death could
be characterized as the result of a breach of Taft’s duty, in his

capacity as executive officer, to design and execute corporate

' put note that where the facts are undisputed, the question may becone
one of law. ‘Seg Steuagt s. Sealding, 23 Haw. 502, 817 (1918) (holding that
Sehere the facte are undisputed and are susceptible of but one reasonable
inference [a nixed question of law and fact) becones one of law for the
court") (citations anicted). Thic court need not further analyze either the
ature of the question oF the ultimate answer, however, because the sunsary.
Sodgnent. standard in the context of an insurers duty to defend requires ofly
the poseibilicy that the answer be favorable to the insures. seg sentinel, 76
Hawai'i at 290, 875 P.2d at 907 (holding that ceternining breach of duty to
Sefend does not require resolution of open questions in the underlying case
Because the fact that, based on the allegations in the complaint, the
Guestions are open in itself Genonstrates the possibility that the insured
SILI be entitied to coverage)

 

   

“
*** FOR PUBLICATION ***

 

policy, rather than a breach of his duty, as a supervisory co-
employee, to carry out corporate policy.

On the other hand, it is possible, if not likely, that
a court or jury would conclude that Taft breached his duties as a
manager (ise., supervisory co-employee) rather than as an
executive officer, as WWI notes, just as it is possible, if not
Likely, that a court might rule that the duty to provide a safe
work place is a non-delegable duty owed by the employer rather
than the co-employee, and thus Taft could not be liable to
Rapoza. See Michel v, Valdastri, Ltd,, 59 Haw. $3, 56, $75 P.2d
1299, 1301 (1978) (observing, albeit in a different context, that
“[it} has long been the established duty of the emplover to
provide his employees a reasonably safe place to work") (citation
omitted; emphasis added). It is also possible that a jury would
conclude that Taft was at most negligent rather than reckless,
and thus not liable to the Rapoza Estate under Iddings."*
However, neither the allegations in the complaint nor any
evidence adduced by WWI foreclose the possibility that Taft could

be found liable for a covered claim (i.e., non-intentional

 

 

misconduct in his capacity as an executive officer). As such,

WWI had a duty to defend Taft despite any-unlikelihood, as

 

% tn this connection, we note that nothing in the instant opinion
should be taken to expend, diminish, or in any way disturb our holding in
Lddings regercing the scope of the “wilfol end wanton misconduct” exception to
workers conpensstion exclusivity found in HRS $366

 

“
*** FOR PUBLICATION ***

 

contended by WiI, that Taft would be found liable in the
underlying suit on a covered claim. See Commerce & Indus, Ins.
Co. vy, Bank of Hawaii, 73 Ha

("An insurer has a duty to proceed in defense of a suit, at least

 

322, 327, 832 P.2d 733, 736 (1992)

to the point of establishing that liability upon which plaintiff
was relying was in fact not covered by the policy, and not merely
that it might not be.” (Quoting 7¢ J. Appleman, Insurance Law
and Practice § 4683.01 at 69 (Berdal ed. 1979).)) (Footnote
omitted.). Because WWI submitted no evidence to rebut Taft’s
affidavit and prove that it would be impossible for the Rapoza
As that Taft

 

Estate to prevail in the underlying suit on the bi
breached his duty as an executive officer, the circuit court did
not err in granting summary judgment in favor of TSC-Taft as to

Wt’s duty to defend.

% With respect to MMI"s duty to indemnify, WHI assigns as separate
error the cizesit court's conclusion chat Mil is also cbligated to indesnify
Taft, because, having Breached ite duty to defend, WII failed to rebut. the
presumption of coverage and carry its Burden of proof to negate coverage
However, WWI makes no argusent in support of this point of error ~~ the only
point argued is that mI had no duty to indemnity because it had no duty to
Sefend -- and thus the argiment that wT hed no duty to indemnity even if it
had’ duty to defend is deened waived, See Havai'd Rules of Appellave
Procedure (HRAP) Sule 26(p)(7) (*Pounts not argued may be deemed wasved.").
To be clear, we note that our finding that WHT waived the argunent that it
does not owe Taft a duty of indemnification (or that such 3 determination is
premature) should got be taken either as a comment on the nerite of the
Elzeuie court's application ef our decision in Sentinel to the instant case of
Ss precedent for the general proposition that the Guty to indemnify nay be
Lerebuttably presuned from che duty to defend.

 

 

 

 

 

 

   

“
 

*** FOR PUBLICATION *

3. The Circuit Court Did Not Err Either in Denying WHI's

Motion for Reconsideration or in Awarding Prejudgment

Interest in Favor of TSC-Taft.

Wit also assigns error with respect to the rulings of
the circuit court subsequent to the May 1998 grant of sunmary
judgment in TSC-Taft’s favor. First, WNT argues that the circuit
court erred in denying its May 21, 1998 motion for
reconsideration of the summary judgment order, Second, WWI
argues that the circuit court's October 10, 2003 award of

prejudgment interest in favor of TSC-Taft was both unreasonable

 

and incorrectly calculated. For the reasons set forth below, we
hold that the circust court did not abuse its discretion in
denying the motion for reconsideration, and even assuming the
circuit court abused its discretion, the issue is moot.

Moreover, we conclude that the award of prejudgment interest wes
not an abuse of discretion because no showing of fault on the
part of WI was required, and the start date of September 6, 2000
was not clearly unreasonable.

a reuit not al s disc

wz contends that the circuit court abused its
discretion in denying its motion for reconsideration because the
new evidence” it presented -- specifically, the finding in the

D the Rapoza Estate notes that, in fact, the evidence adduced by MI

was not "new," but was instead know ‘te WWI at least five days before it

"ignea ite reply memorandum on the sotion for summary judgment and twelve days
(continued, «+1
 

FOR PUBLICATION ***

 

underlying action that Taft was deened the employer of Rapoza in
the worker’s compensation context and thus immune from the Rapoza
Estate's suit -- gave rise to inconsistent findings (ives, that
taft was found to be the employer in the underlying action when
Tri-s was found to be the employer in the instant action). TSC-
Taft raises three counterarguments: (1) the findings are not
necessarily inconsistent because Taft was found to be the
employer for purposes of Hawai'i worker’s compensation law only?
(2) the point is now moot because this court reversed the circuit

court’s summary judgment order on the basis that Taft was not

 

Rapoza’s employers and (3) the finding in the underlying suit is

 

in any event irrelevant because the duty to defend is determined
at the time defense is refused, which was at least seven months
prior to the December 1997 issuance of the finding in the
underlying suit. Assuming without deciding that the findings are
in fact directly contradictory, TSC~Taft’s second and third
counterargunents nevertheless have merit.

First, the point is moot. This court vacated the
summary judgment order in favor of Taft in the underlying suit,
ruling that “Tri-S and not Taft was the employer of Rapoza.”

Willecks, 2004 WL 27460, at *5 (Acoba, J., announcing the

(, continued)
before she April 6, 1998 hearing on the motion. Although the Rapoza Estate's
argusent appears £0 have merit, we eesume without deciding that WHI"s argument
'S "new" enough tobe considered on the merits.

 

 
*** FOR PUBLICATION ***

 

judgment of the court). The vacated order below is thus a
nullity, and any error contained therein is now without effect.
See, 2.9., T-Eleven, Inc. v, Dar, 842 N.E.2d 260, 264 (311. App.
2005) (“The effect of a vacated order is that of a void order.”
(Citation omitted.)).

Second, the summary judgment order in the underlying
suit was irrelevant to a determination of whether Wat had a duty
to defend. This court has held that “whether an insurer's
refusal to defend was justified must be answered in light of the
information available to the insurer at the time it made the
kefusal.” Sentinel, 76 Hawai'i at 288, 875 P.2d at 905 (citation
omitted; emphasis added). Here, WWI refused coverage to Taft in
December 1996 and affirmed the coverage denial in May 1997, while
the summary judgment order in the underlying suit was not entered
until February 1998. Therefore, the circuit court did not abuse
its discretion in denying WWI’s motion for reconsideration where
that motion was based on an order entered subsequent to its
refusal to defend.

The circuit i a
te) =

 

WWi’s final argument is that the circuit court abuse
its discretion in awarding prejudgment interest to TSC-Taft,
commencing from September 6, 2000, pursuant to its October 10,

2003 order. Specifically, WWI argues that “[p]re~judgment

“
*** FOR PUBLICATION *** .

interest is not typically awarded unless there is a finding of
undue delay by a defendant.” ‘TSC-Taft counters that no finding
of fault on the part of @ defendant is required. For the reasons
set forth below, we hold that the circuit court did not abuse its
discretion in avarding prejudgment interest to TSC-Tatt.

An award of prejudgment interest is authorized under
RE § 636-16 (1993):

Awarding interest, In awarding interest in civil cases, the judge
[S'butherized to designate the commencement date to conform with
the circumstances of each case, provided that the earliest
conmencenent date in eases arising - . - by breach of contract, it
may be the date when the breach first occurred,

 

 

In interpreting the statute, this court has held that an award of
prejudgment interest is reviewed for abuse of discretion. Amfac,
74 Haw. at 136-37, 839 P.2d at 36. In Amfac, this court held
that a denial of prejudgment interest was not an abuse of
discretion where there was “no evidence in the record that any of
[the opposing party’s} conduct unduly delayed proceedings |.1”
Id, at 137, 039 P.2d at 36. Although this language standing
alone would appear to support War's contention that this court

© to situations

 

Wished to limit awards of prejudgment int
where Litigation delays were connected to the fault of the party
opposing the award, the Amfac court also cited cases supporting
the contrary proposition that fault was not required:
‘the purpose of the statute 1s to allow the court to designate the
Gomnencenest cate in order fo corfect snjustice when a juggeent 5

Gelayes fora long period of tine for any raagca, including
Ueigseion deieys.

 

so
*** FOR PUBLICATION ***

a
‘Ida (internal quotation marks, citations, brackets, and ellipsis

omitted; emphasis added).

 

to the extent that Amfac created a tension regarding
the issue of whether fault is required for an avard of
prejudgment interest, we resolve it today by observing that this
court meant only to signal that: (1) if fault is found on the
part of the party seeking interest, denial of interest will not
be considered an abuse of discretion; (2) if fault is found on
the part of the party opposing interest, an award of interest
will not be considered an abuse of discretion: and (3) where no
fault is found on either side, the trial court may still award or
deny prejudgment interest in its discretion, depending on the

circumstances of the ca:

 

Indeed, this is the interpretation
that emerges from decisions of the Intermediate Court of Appeals
(aca) concerning prejudgment interest in the wake of Amfac. In
page v. Domino's Pizza, the ICA cited Antac and noted that “(a]
trial court’s denial of prejudgnent interest is usually affimned”
Lf the requesting party caused the delay or the opposing party
did not cause the delay. @0 Hawai'i 204, 209, 908 P.2d 552, $57
(app. 1995) (citations omitted). However, in v, Mocurdy,
the ICA added that “a trial court can award prejudgment interest
for any substantial delay in the proceedings, and that no
purposefu) delay on the part of the non-moving party is
required.” 86 Hawai'i 93, 114, 947 P.2d 961, 982 (App. 1997),

st
*** FORPUBLICATION ***

 

rev'd in part on other arounds, 86 Haw. 84, 947 P.2d 952 (1997)

(emphasis added). The ICA gave the basis for its reasoning as
follows:

lie reiterate that prejudgnent interest can be awarded when the
issuance of Judgnent is greatly delayed for any ressons Of
course, purposeful delay (or dilatory tactics) by the fon-moving
party, sf it causes a substantial delay in the proceedings, falis
within the (Janpit of “any reason” onder the statute. gy the sae
foken, a trial court can and probebly should deny projudgment
interest if the moving party wes responsible for the deli

Still, the trial court ig vested with tne ciscration to
Brejudgnent interest whether or not dilatory tactics are shown by
either party, ‘so long 2s the iscusnce of judgnent wag greatiy
Gelayed: rT Haw. 208, 293, 788
Pi2d'623, $38" (1580} (rene purpose of the statute was to allow the
court £0 designate the conmencenent date of interest in order to
correct the injustice wien a judgment is delayed for 2 long period
of tine for any reason, including litigation delays”

 

   

    

 

 

Ide at 115 n.22, 947 P.2d at 983 0.22.
In light of Amfac and its progeny, we conclude that the
circuit court did not abuse its discretion in awarding
prejudgment interest to TSC-Taft even though it did not find
fault on the part of WAI with respect to the delay in judgment.
Here, WiI had breached its insurance contract with Tri-s by early
1997, and indeed TSc~Taft sought a February 1997 conmencement
date for the prejudgment interest avard. Nevertheless, the
circuit court stated that it did not find, or seek to find,
fault, but instead sought only to compensate TSC-Taft for the
delay in reaching judgment. As such, it chose September 6, 2000
as the conmencenent day for interest because that was the first
day on which the attorney's fees and costs (S.e., WWI’s liability

for breach of its duty to defend) were reduced to a sum certain.

82
*** FOR PUBLICATION ***

—_—_— ee

Based on the case law, the long delay from summary judgment
(granted in May 1998) to final judgment (entered in October
2003), and the reasoned basis given by the circuit court for the
choice of Septenber 6, 2000 as the commencement date for the
interest award, it cannot be said that the circuit court clearly
exceeded the bounds of reason or disregarded the rules of law or
practice to the substantial detriment of WAI. Accordingly, the
circuit court did not abuse its discretion in awarding
prejudgment interest to TSC-Taft.
B. Travelers’ Cross)

Like WH, Travelers assigns a plethora of errors below.
The errors alleged by Travelers can be divided into four groups:
(1) pre-sunmary judgment procedural questions; (2) questions
relating to the interpretation of the Travelers’ worker's
compensation and employer’s Liability policy; (3) questions
relating to the propriety of summary judgments and (4) post-
sunnary judgment questions. For the reasons set forth below, we
hold that, though Travelers was properly joined as a direct party
defendant, the circuit court erred as a matter of law in its
interpretation of the policy, such that summary judgment should
have been granted in favor of Travelers and against Plaintiffs

and war.

3
*** FOR PUBLICATION ***

 

1, The Circuit Court Did Not Abuse Its Discretion in
Allowing Plaintiffs to Assert Direct Claims Against
‘Travele:

 

Travelers first argues that (1) Plaintiffs failed to
comply with the strict procedural requirements of HRCP Rule 17(d)
for preserving claims against Doe Defendants, and (2) the amended
complaint by which Plaintiffs asserted claims against it was
untimely under HRS § 657-7.5 (1993). For the reasons set forth
below, we conclude that, even if the circuit court did not
strictly comply with HRCP Rule 17(d), Travelers suffered no
prejudice auch as to warrant dismissal of the case, and, thus,
any error in granting the motion for certification was harmless.
Moreover, HRS § 657-7.5 is inapplicable on its face to the
instant action. Accordingly, the circuit court did not abuse its
discretion in allowing Plaintiffs leave to file an amended
complaint to assert claims against Travelers as a party
defendant.

a. The circuit court erred in allowing the Plaintitts
fo Join Travelers under HRCP Bule 17id), but that
prrorwas harsless and did not constitute an abuse
of discretion,

‘Travelers asserts that Plaintiffs failed to exercise
due diligence and good faith in identifying it as a defendant
because, far from being unknown at the time suit was filed,
Travelers was known to all as Tri-S’s worker’s compensation

carrier, and Plaintiffs’ decision not to sue at the outset was

st
 

*** FOR PUBLICATION **

 

simply strategic. Plaintiffs respond that because they were free

to file

 

@ separate lawsuit against Travelers (ie., the statute
of limitations had not run), “it was reasonable and practical to

allow (them) to align their pleadings with the [third-party]

 

claim already asserted by (WWI), rather than file a separate

lawsuit for later consolidation.” Though Travelers is correct in
its contention that HRCP Rule 17(d) was misused, we do not
believe that such misuse warrants any relief, much less summary
dismissal of the claims against Travelers.

HRCP Rule 17(d) provides in pertinent part:

(2) When it shall be necessary or proper to make # person a party
defendant and the party desiring the inclusion of the person as a
party defendant

Seiendant, the party desiring the inclusion of the personas
arty defendant. shail in accordance with the criteria of Rule 11
Ek these rules set forth ina pleading the person's interest in
Ehe action, so much of the identity as is known (and if unknown, @
Hiseitious name shail be used}, and shall set forth with
specificity ali actions already undertaken in a diligent and goed-
Feith effort to ascertain the person's full name and identity:

 

     

 

(3) Any party may, by motion for certification, make the nane or
Adentityof the party defendant known to the coure uithin-s’
warty knee ar

The motion shall be
Supported by affidavit setting forth al facts substantiating the
ovant’s claim that the naning or identification has been made in
eed faith and with due diligence. when the
identification is made by 2 pleinti¢f, it shall be nade prior to
the filing of the pretrial statement by that plaintiff, or withia
such aaditicnal tine as the court may allow. “The court shall
freely grant reasonable extensions of the tine in which eo name or
identity the party defendant to any party exercising due diligence
in attempting to ascertain the party defendant's name or identity.

 

 

 

(4) When 2 party defendant has been named or identified in
Accordance with this rule, the court shell so certify and may make
Sry oraer that justice requires to protect any party from undue
Burden and expense in any further proceedings involving the party
sefendent

   

 

ss
*** FOR PUBLICATION ***
ee

(5) A party defendant who has been naned or identified in
SSlordunce with this rule may have dismissal of one or sore cla}
Ggeinet the defendant if the defendant shows in 3 timely manner
Uhe"the delay in naming or dentifying that defendant as ca
Ehst defendant substantial prejudice and if the interests of
Justice vo require.

 

 

(Emphases added.)
“unlike most of the [HRCP], Rule 17(d) is not patterned

after a fed

 

fal rule; it was drafted by our Committee on Civil

Rules(.J” Zobosa v, Ovens, 69 Haw. 305, 316, 741 F.2d 1280, 1287
(1987). As this court has stated, a primary purpose of the rule

As to “toll the statute of Limitations with respect to Doe
defendants who cannot be identified prior to the running of the
statute.” fiakuya, 65 Haw. at 596, 656 P.2d at 88. See also
Russell v. Attco, Inc., 82 Hawai'i 461, 466, 923 P.2d 403, 408
(1996) (*HRCP Rule 17(d) provides @ method by which the statute
of limitations may be tolled relative to a claim against the as~
yet unidentified defendants." (Emphasis added.)). Both with
respect to plain text and purpose, then, it would appear that
RCP Rule 17(d) was an inappropriate vehicle by which to join
Travelers inasmuch as Plaintiffs, as they concede, had long known
of Travelers’ identity, and the six-year statute of limitations
for breach of contract actions vas in no danger of running.”

\ tadeed, it oppears thet the proper vehicle for joining Travelers as 8
party defendant was Hace Rule 20(a) (2000). That rule provides in pertinent
pare:

All persons may be joined in one action as defendants if there is

Risersed against the jointly, severally, or in the elternstive,

Gsy right to relief in respect of or arising out of the sane
(continued...)

 

36
*** FOR PUBLICATION ***

 

‘The question remains, however, as to whether and what sanctions
night be required under the circumstances of this case for misuse
of the rule.

This court has previously confronted situations
involving HRCP Rule 17(d)’s apparent misuse. First, in Hakuva,
plaintiffs filed suit against an identified defendant and various

Doe Defendants. 65 Haw. at $93, 656 P.2d at 86. As in the

 

instant case, the defendant in Wakuva then filed a third-party
complaint, and, also as in the instant case, the plaintiffs moved
for certification of the third-party defendants as the Doe
Defendants several months (thirteen months, in Wakuva) after they
had been impleaded as third-party defendants (and thus their
identity known). Id. at 593-94, 656 P.2d at 86-87. The circust
court then granted the Doe Defendants’ motion to dismiss the
action on the grounds that they had been prejudiced by the delay

and lack of notice. Id. at 594, 656 P.2d at 87. On appeal,

 

M(..,continved)
‘Eransaction, occurrence, of series of transactions or occurrences
and if any question of law o fact common to all defendants will
Grice in the action.

Here, Plaintiffs asserted: (1) joint, several, or alternative liability
ageinet RHI and Travelers for the costs of defense and indennification; (2)
S2ESIES Sut Of the death of Rapoza and underlying suit Brought by his estate;
Where 13) conron questions of fact regarding the fees and expenses incurred by
[Se-tafe. sn defending the underlying suit arose. Accordingly, the
Fequirenents for permissive Jeinder wovld have been met, and Plaintiffs could
hove “added (Travelers) by ofder of the court cn motion’... « at any stage of
the action and on such teres as (we]re just.” RCP Rule Zi.” The notion to
Sad Travelers could have been sade under NRCP Rule 15(a) (ai in fact was the
Rotion that wes ultimately sade and granted in order to add Travelers after,
Rep male 7a) certification wae allowed), whieh provides for motions. for
Teave to file amended pleadings and requires that they be “freely granted.”

 

 

 

2
*** FOR PUBLICATION ***

 

however, the ICA reversed and this court affirmed, holding that,
‘as long as identification of Doe Defendants is made within a
reasonable time after the filing of pretrial statements, or “the
court has, even after (the pretrial statements’] filing, extended
the time for identifying the Doe defendants,” certification is
proper. Id, at $97, 656 P.2d at 88. See also Kaczymarczvk vy.
City 6 County of Honolulu, 65 Haw, 612, 621-22, 656 P.2d 89, 96
(2982) (applying Wakuva and holding that identification of Doe
Defendants made three and a half months after the filing of
pretrial statements was too late when no extension had been
granted). Here, TSC-Taft filed its pretrial statement on March
28, 1998, but an extension of time to move for certification was
granted by the circuit court, and thus the holding in Wakuva was
not offended.

Second, in the Zobosa case, the plaintiffs filed a

 

complaint naming various Doe Defendants whose identities, along
with the facts giving rise to a cause of action against then,
were already known to the plaintiffs at the time. Id. at 316,
741 P.26 at 1287. The court found in Tobosa that Rule 17(¢) had
been violated and applied an HRCP Rule 11 analysis, concluding
that “[t}hough an attorney's obligation [under Rule 11) may be a
moral one, 2 pleader who has knowledge of the identities of
defendants yet files a John Doe complaint undoubtedly commits

wilful violation of [HRCP Rule 11].” Id. at 317, 741 P.2d at
*** FOR PUBLICATION ***

 

1288 (footnote omitted). The Tobosa court added, however, that
the remedy for such a violation is not to strike the pleading if
it would serve no constructive purpose, but to hold counsel
personally liable for any excess in fees and costs caused by the
violation. Id, at 318, 741 P.2d at 1288.

‘Though the circuit court here erred in allowing
Plaintiffs to join Travelers as a defendant under HRCP 17(4), we

neither sanctions nor

 

nevertheless conclude that Tobosa require:
dismissal of the complaint in the instant case. First, to strike
the pleading would serve no constructive purpose ~~ had the
circuit court properly denied HRCP Rule 17(d) certification of
Travelers, Plaintiffs, as they argued to the circuit court, could
still have brought a timely, separate action against Travelers at
that point (which ultimately could, and probably would, have
later been consolidated with the instant action), or they could
have properly joined Travelers in the instant action under HRCP
Rule 20(a). Second, sanctions are not warranted because: (1) it
does not appear thet Plaintiffs’ motion gave rise to excessive
fees and costs -- indeed, they likely saved all parties
additional fees that would have been incurred in filing and
consolidating a separate action; and (2) the violation of HRCP
Rule 11, though knowing, was clearly not malicious or in bad
faith -- as Plaintiffs note, already having a judgment in their

favor against WWI for the full amount of their defense costs in

‘9
*** FOR PUBLICATION ***

 

the underlying suit, they had no reason to delay and were only
endeavoring to conform their pleadings to take account of WNI’s
third-party complaint against Travelers.

Finally, Travelers’ clains of prejudice due to
insufficient notice and opportunity for discovery lack substance.
Travelers was impleaded in the instant action by WAI in April
1999, almost one year before Plaintiffs moved to amend their ovn

complaint. Moreover, defense of the underlying suit had been

 

tendered to Travelers in 1996. Under the circumstances, then,
‘Travelers had ample notice of both the instant and underlying
actions, as well as at least a year in which to conduct discovery
in the instant action before the direct claims were asserted.
Consequently, Travelers’ claims of due process violations fail,
and we hold that the circuit court’s error in allowing the
Plaintiffs to join Travelers as a party defendant by means of the
wrong procedural rule was harmless.
b. HRS € 657-7.5 is irrelevant to the instant action.
In addition to its HRCP Rule 17(d) argument, Travelers
makes a related argument under HRS § 657-7.5. That statute
states:
‘Third-party defendants, tine in which plaintif® may amend, When @
Gefendant, ageinst whom action has been timely brooght, brings sn
S third-party defendant who is or may be liable to the defendant
or to the plaintiff fer all or part of the plaintiff's claim
against the defendant, plainei#f within thirty days after the date
of filing of the third-party defendant's answer, Bay assert
against the third-party defendant any claim, arising out of the

original transaction oF occurrence that ie also the subject matter
of the third-party plainesef’e claim against the third-party

 

 

 

«
#** FOR PUBLICATION ***
a

“defendant, which would have been timely Sf the third-party
Gefengant’ yaa been joined originally as ¢ defendant,
Sefendan ahaing any stacutory period of Limitations’ otherwise
plicable te plaintiff's claim. herein

appticable . Nothing herein shall_preclude,

(eaphases added.) Travelers argues that the word “may” in HRS $
657-7.5 actually means “must,” and that the circuit court erred
in not dismissing Plaintiffs’ amended complaint on the basis that
it was filed more than thirty days after Travelers was made 2
third-party defendant by WWI, As is obvious from the plein
language of the statute, however, its purpose is to extend the
statute of Limitations with respect to parties brought in as
eniza-party defendants; a plaintiff is explicitly not precluded,
however, from asserting @ claim that is not otherwise tine-
parred. As such, there is no cause to read the word “may” in any
sense other than its ordinary one, which is permissive, Here,
the six-year statute of Limitations applicable to actions in

contract had, as previously stated, not yet runs HRS § 657-7.5 is

 

thus not germane; and therefore the circuit court did not err in
atlowing the Plaintiffs’ amended complaint to be filed more than
enirty days after Travelers was made a third-party defendant,
peceuse the circuit court did not clearly exceed the bounds of
reason or disregard any rule of law or practice to the
substantial detriment of Travelers in allowing Plaintiffs leave

to file their amended complaint, it did not abuse its discretion.

a
*** FOR PUBLICATION ***

 

‘The Circuit Court Erred in Granting Judgment in
Favor of Plaintiffs and Against Travelers.

Travelers argues that Taft was not an insured under the
Tri-S worker’s compensation and employer's liability policy
issued by Travelers and thus summary judgment should have been
Granted in its favor rather than in Plaintiffs’ favor.
Plaintiffs respond that Travelers was obligated to indemnify Tri-
§ for any moneys that Tri-s was in turn obligated to expend to
indemnity Taft with respect to defense and liability in the
underlying action, and thus Taft was effectively an insured. the
circuit court concluded that the “policy provides coverage for
its insured, Tri-s Corporation, for defense and indemnity, for
its obligation to indemnity Karl M. Taft for expenses of defense
and for damages claimed against Karl M. Taft as a result of
injury to a Tri-S Corporation employee." As set forth below, we
hold that Travelers did not have a duty to defend or indemnify
Taft, and because its duty to defend and indemnify Tring was
never breached, summary judgnent should have been granted in
Travelers’ favor and against Plaintiffs.

First, as the circuit court noted, there is no dispute
that Taft was not 2 named or additional insured under the policy
issued by Travelers, and that Tri-S was the named insured.

\s For purposes of this subsection only, “Plaintiffs” includes Wt,
hich Joined in TSc-Taft and the Rapoza Estate's motion for sumary Josguent
egainst Travelers,

a
4 ** FOR PUBLICATION ***

the

 

Second, it is also not disputed that, as set forth abo

travelers policy provided in relevant part:

ne wilt gay all suns you legally aust pay as damages because of
Beally snjury to your employees .

 

‘the danoges we will pay, where recovery is permicted by 2aw,
The damages ween + P*Yor which you are Tiable to ¢ third party PY
snchude dansgitia or soit against you by that third Party Te.
reason of 2 Glaagen clained against such third party a5 ® result
Uf Gnjury to your enployeel-1

 

tie nave the right and duty to defend, at our expense, any claim
We Reusing or suit against you for danages payable by this
Gneurances =~ =

 

 

te nave po duty to defend a clain, proceeding or suit that 42 ner
Soveres By this insurance

provisionally inserting the names of the parties in the instant

case, where “we” is read as Travelers, "you" is read as Tri-S,

tne only insured under the policy, “third party” 4# read a Taft,

and “employee” is read as Rapoza, the relevant provisions (Part

11, sections 8 & D) yield:

craveiers) will poy al) suns {tni-S] eaally must say +" damages
ATENSe of boaily injury to (Rapoza) = ~~

mye damages (Travelers) will pay, where recovery, is permsesed 2
The damages Csuges cs for which (frig sa] 1iable fo [70s
amy iociese GUchaim ox’ suit ageinst [Teic8] by (Taft), fo, sscover
by reason Cf Sained against (Taft) a@ & result of injury te
Rapoza.)

 

[neavelers has] the right and duty to defends at ovr enpense, 317
[reqvetere mee) sree suit gaginst (Zxic8] fer damages payable BY
hie insurance. «+

Ieavelers has) ne duty to defend # claim, proceeding or exit chat
[Tifot Covered by this insurance.

 

(emphases added.) The plain language of the policy thus clearly

states that Travelers owed a duty to defend to Tri=S, net to

63
*** FOR PUBLICATION ***

Taft, and would thus not have a duty to defend Taft in the
underlying suit even if it eventually might be liable for
indemnification. Plaintiffs contend (and the circuit court
2ereed), however, that it would be unreasonable to force Tri-s to
Pay first and require Taft to formally make a claim against Tri-s
(dite, sue himself) for indemnification in order to secure
benefits under the policy.

However, even if one accepts the proposition that it
would be unreasonable to require a separate indemnification claim
and also that Taft would prevail on such a claim, it is not
responsive to the prior question of whether the indemnification
claim, formal or informal, would itself be covered under the
Policy. Based on the following, we hold that the answer to that
question is no.

Like the CGL policy issued by Wat, the worker's
compensation and enployer’s liability policy issued by Travelers
4s @ form contract whose language has been interpreted previously
by various courts outside this jurisdiction. The recent decision
in Missouri Emplovers Mut, Ins, Co, IMENICI v. Nichole, 149
S-#34 617 (Mo. Ct. App. 2004), which involves not only policy
Janguage but also facts virtually identical to those presented in
fhe instant case, is particularly instructive. In that case, the
Plaintiff filed a wrongful death action against Nichols, the

owner and enployee of @ small business, for the work-related

“
#** FOR PUBLICATION ***

Geath of her father, 2 covemployee of Nichols. Idk at 620, The
business was the naned insured on a worker’s compensation and
employer's Liability policy issued by MEMIC and containing
language identical to that found sn the Tei-S policy sesved PY
qravelers. Id, After refusing to defend or indemnify Nichols is
the wrongful death action on the basis that he was not an insured
under the policy, MENIC filed an action seeking a declaratory
judgnent to that effect. Id, at 620-221. When summary judgment
vias granted in favor of MEMIC in the trial court, the plasntstt
In the wrongful death action appealed. Id. at 621-

on appeal, the plaintiff argued, as do Plaintiffs here,
‘that even though Nichols was not @ named insured under the
policy, he was nevertheless covered under the provisions of Part
11, sections B and b, quoted above. Id, at 625-26. The
appellate court disagreed and affirmed the judgment Below,

reasoniné

 

[tine appetiant contends that... coverage exists as to [che
[Tube appel tert gpioyee) in the underlying wrongful death elt»
business Cs"the express Lenguege of [part IZ) section S| Die,
purauant 0, ON thour merit. the Folucy clearly linite 1éaPilsby,
concention 12, cpaned employer. 38 such sane, chat st, “eget
coverage $2 Sueages because of bodily injury to (its) employeer
must FAY 5 Coeevout che conages to be paid, £, end only 2f, [the
isectionl © $etge found to be legally Lieble in damages. The
soupany] £4 Stétion & does not create Liability coverage, Bo
Longusss {nescer and Limits the damages to be paid, Provided
{lability ie found first.

 

  

 

Jaa at 627 (emphasis in original). In other words, when read as
a whole, it is clear thet section B covers claims only where Zki=

g is Liable for the injuries. Here, not only was TricS nok sued

6
*** FOR PUBLICATION ***

Se

An the underlying action (and hence never found liable in damages
for Rapoza’s death), but there is also no dispute that it is
immune from liability under Hawai'i worker's compensation law
(and hence never could be found liable). Therefore, Travelers
had no duty to defend or indemnity.

TSC-Taft’s final argument against this interpretation
of the policy is that, so construed, the employer's liability
section would provide no coverage for any non-worker’s
compensation clains and would thus be an illusory contract. 79C~
Taft is correct that employer’s Liability insurance is “intended
to be a ‘gap-filler’ to provide protection from employee tort
suits.” See Reliance Nat'l Ins, Co. v. Vitale, 183 F. supp. 24
506, 509-510 (D. Conn. 2001) (noting that employer's liability
insurance is “traditionally written in conjunction with workers
compensation policies, and is intended to serve as « ‘gap-
filler,’ providing protection to the employer in situations where
the employee has a right to bring a tort action despite the
Provisions of the workers compensation statute”) (citation
omitted). Consequently, if there were no gaps in worker's
compensation exclusivity to fill, the employer's liability policy
would provide no benefits and the contract would be illusory.

However, the condition precedent to the success of TSC-
Taft's illusory contract argument -- namely, the contention that

there are no gaps in Hawai' worker's compensation exclusivity —-

6
*** FOR PUBLICATION ***

Tails to be met. For exanple, employers in Hawai't are not
immune, under worker’s compensation law, fron suits for negligent
intiiction of enotional distress. HRS § 386-5, supra note 37 See
alse Nelson vs Univ. of Hawai'i, 97 Hawas's 376, 395, 38 F.3d 997
114 (2001) (confizming that worker's compensation law exclusivity
does not bar suits against an employer for negligent infliction
of emotional distress). Similarly, general contractors #6 not
jnmine under vorker’s compensation law from suits by employees of
their subcontractors. HRS § 266-17 see also Fonscca v. Pace
Constr, Cou Ltda, 54 Haw. 978, 585, 513 P.24 196, 160 (2973)
(str]nird-party general contractors are not immune [under
worker's compensation law] to common law negligence actions on

the part of employees of their subcontractors, absent the

 

incidents of a true enployer-enployee relationship[.J”)/ Grompten
ee tax Corp., 83 Hawas't 2, 11, 924 7,26 169, 179 (1996) (same)
lore, the Tri-f policy issued by Travelers covers non-intentional
torte resulting in bodily injury to employees, and thus would

likely cover an enployee’s claim against Tri-S for negligent

 

jntiiction of enotional distress resulting in bodily injury, 2s
well as possibly @ claim brought by an employee of a Tri-S
subcontractor for bodily injury negligently inflicted by Tri-S
nile the scope of coverage afforded Tri-$ under the employer's
diapility portion of the policy appears to be limited at best, if

ig nevertheless more than illusory. See Lakota v. Westfield ins.
*** FOR PUBLICATION *** .

Sou, 724 N.E.2d 815, 618 (Ono Ct. App. 1998) (considering the
same worker’s compensation/employer's liability policy at issue
here and rejecting the illusory contract argument because the
Policy was only virtually, and not completely, worthless) .

For the foregoing reasons, we hold that the Tri-s
worker's compensation and employer's liability policy issued by
Travelers did not cover the wrongful death suit brought by the
Rapoza Estate against Taft. As such, Travelers had no duty to
defend or indemnity Tri-s or Taft. Therefore, the circuit court
erred in granting summary judgment in favor of Plaintifts.\

TV. concLusioN

Based on the foregoing, we affirm the circuit court’s
October 10, 2003 final judgment in favor of Plaintiffs and
against WiI, but vacate the judgment as to Travelers and renand

for entry of summary judgment in its favor.

On the briefs: oor
John H. Price .
aha anand 5S Wooton Ronee
foe defensani-appeliant/

third-party plaintiffs Beuute OS roe or

cross-appellee Western

World Insurance Company Cem «De bss
‘
blew Neti Ue

Because the foregoing error ie dispositive, we do not reach
‘Travelers’ remaining asciganents of error.

6
*** FOR PUBLICATION ***
ee

Jeffrey H.K. Sia
‘and Steven L. Goto

(of Ayabe, Chong,
Nishimoto, Sia &
Nakamura)’ for third-party
defendant~cross~appellant
The Travelers Insurance
company

Raymond K. Hasegawa,
Bert S. Sakuda, and
Paul K. Hamano

for plaintiffs-appellees
TRI-S Corporation and
Karl Milton Taft

George W. Ashford

(of Ashford & Associates) for
plaintiffs in intervention~
Eppellees Charles L. Rapoza,
Sr., individually and as
special administrator of the
Estate of Charles L. Rapoza,
Sr., Deceased; Charla Pua
Lindsey, as Next Friend of
Chae-Lynn Kealapua Lindsey+
Theresa Holicek: and Casey
Souza

cy