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IN THE SUPREME COURT OF THE STATE OF HAWAIʻI 

---o0o--- 

ST. PAUL FIRE AND MARINE INSURANCE COMPANY, THE TRAVELERS 

INDEMNITY COMPANY OF AMERICA, THE PHOENIX INSURANCE COMPANY, 

TRAVELERS PROPERTY CASUALTY COMPANY OF AMERICA, 

Plaintiffs-Appellants, 

 

vs. 

BODELL CONSTRUCTION COMPANY, SUNSTONE REALTY PARTNERS X, LLC, 

STEADFAST INSURANCE COMPANY, 

Defendants-Appellees. 

SCCQ-22-0000658 

CERTIFIED QUESTIONS FROM THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF HAWAIʻI 

(CASE NO. 20-cv-00288-DKW-WRP) 

NOVEMBER 14, 2023 

RECKTENWALD, C.J., McKENNA, AND EDDINS, JJ., 

CIRCUIT JUDGE TONAKI AND CIRCUIT JUDGE CATALDO, 

ASSIGNED BY REASON OF VACANCIES 

OPINION OF THE COURT BY EDDINS, J. 

Electronically Filed

Supreme Court

SCCQ-22-0000658

14-NOV-2023

09:16 AM

Dkt. 112 OP
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I. 

 The United States District Court for the District of Hawaiʻi 

certified two questions to this court. We accepted those 

questions per Hawaiʻi Rules of Appellate Procedure Rule 13. 

 The federal court’s order frames the issue: “[W]hether the 

State of Hawaiʻi authorizes the equitable reimbursement of 

defense fees and costs incurred by an insurer in litigating on 

behalf of its insured.” The court asks: 

(1) Under Hawaiʻi law, may an insurer seek equitable 

reimbursement from an insured for defense fees and costs 

when the applicable insurance policy contains no express 

provision for such reimbursement, but the insurer agrees to 

defend the insured subject to a reservation of rights, 

including reimbursement of defense fees and costs? 

(2) If an insurer may seek equitable reimbursement of 

defense fees and costs under Hawaiʻi law, (A) for what 

specific fees and costs may the insurer obtain 

reimbursement, (B) which party carries the burden of proof, 

and (C) what is the burden of proof?

 We answer question 1 No. 

We do not answer question 2. 

 We hold that an insurer may not recover defense costs for 

defended claims unless the insurance policy contains an express 

reimbursement provision. A reservation of rights letter will 

not do. 

II. 

 If there’s the possibility of coverage, there’s a duty to 

defend. See Dairy Rd. Partners v. Island Ins. Co., Ltd., 92 

Hawaiʻi 398, 412, 992 P.2d 93, 107 (2000). The “possibility may 
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be remote, but if it exists the [insurer] owes the insured a 

defense.” Standard Oil Co. of Cal. v. Hawaiian Ins. & Guaranty 

Co., Ltd., 65 Haw. 521, 526, 654 P.2d 1345, 1349 (1982) (cleaned 

up). 

 As long as a complaint alleges one claim that the policy 

possibly covers, the duty to defend absorbs all claims. Finley 

v. Home Ins. Co., 90 Hawaiʻi 25, 29, 975 P.2d 1145, 1149 (1998). 

 Some jurisdictions allow insurers to recoup defense costs 

for defending uncovered claims. See, e.g., Buss v. Superior 

Court, 939 P.2d 766 (Cal. 1997). 

Other jurisdictions do not. See, e.g., Am. & Foreign Ins. 

Co. v. Jerry’s Sport Ctr., Inc., 2 A.3d 526, 543 (Pa. 2010). 

Neither this court, nor Hawaiʻi’s federal district court has 

decided the repayment issue. Scottsdale Ins. Co. v. Sullivan 

Properties, Inc. came close, predicting this court would find a 

right to reimbursement. No. 04-00550 HG-BMK, 2007 WL 2247795, 

at *3 (D. Haw. Aug. 2, 2007). Other cases from our federal 

district court have dampened that forecast. See Exec. Risk 

Indem., Inc. v. Pac. Educ. Servs., Inc., 451 F. Supp. 2d 1147, 

1163 (D. Haw. 2006); Choy v. Cont’l Cas. Co., No. 15-00281 

SOM/KSC, 2015 WL 7588233, at *10 (D. Haw. Nov. 25, 2015); GGA, 

Inc. v. Kiewit Infrastructure W. Co., 611 F. Supp. 3d 1000, 1031 

(D. Haw. 2020). 
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We reject a putative right to reimbursement for defense 

fees and costs. Hawaiʻi’s stout duty to defend clashes with 

repayment. So we side with policyholders and hold that insurers 

do not have a right to reimbursement of defense costs. 

Three main reasons shape our decision. First, the initial 

contract governs. See Dairy Rd. Partners, 92 Hawaiʻi at 411–12, 

992 P.2d at 106-07. Second, reimbursement erodes the duty to 

defend. See First Ins. Co. of Haw., Inc. v. State, by Minami, 

66 Haw. 413, 416, 665 P.2d 648, 651 (1983). Third, the insured 

is not unjustly enriched. See Small v. Badenhop, 67 Haw. 626, 

635-36, 701 P.2d 647, 654 (1985). 

A. 

The initial contract governs. 

Mutual understanding and consent animate a contract’s 

terms. See Moss v. Am. Int’l Adjustment Co., Inc., 86 Hawaiʻi 

59, 63, 947 P.2d 371, 375 (1997). An insurance policy is a 

contract. “[I]nsurance policies are subject to the general 

rules of contract construction.” Dairy Rd. Partners, 92 Hawaiʻi 

at 411, 992 P.2d at 106 (cleaned up). 

When a court interprets an insurance policy it reads the 

contract to the policyholder’s advantage. A while ago this 

court – talking about insurance policies - said it had “long 

subscribed to the principle that they must be construed 

liberally in favor of the insured and any ambiguities must be 
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resolved against the insurer.” Tri-S Corp. v. W. World Ins. 

Co., 110 Hawaiʻi 473, 489, 135 P.3d 82, 98 (2006). 

The possibility of coverage typically depends on the 

policy’s language. The contract’s words. Or its missing words. 

See Hawaiian Holiday Macadamia Nut Co., Inc. v. Indus. Indem. 

Co., 76 Hawaiʻi 166, 169, 872 P.2d 230, 233 (1994) (“Because the 

insurer’s duty to defend its insured is contractual in nature, 

we must look to the language of the policy involved to determine 

the scope of that duty.”). 

Here, the federal district court - in a declaratory 

judgment action - found a duty to defend. Like most standard 

insurance policies, the words called for defense. And no words 

called for pay back. 

 A reservation of rights letter reinforces defenses and 

exclusions placed in the contract. “[A]ffording an insured a 

defense under a reservation of rights agreement merely retains 

any defenses the insurer has under its policy.” First Ins., 66 

Haw. at 422, 665 P.2d at 654. 

 Insurers may reserve contractual rights, not create new 

ones. “[P]ermitting reimbursement by reservation of rights, 

absent an insurance policy provision authorizing the right in 

the first place, is tantamount to allowing the insurer to 

extract a unilateral amendment to the insurance contract.” 

Jerry’s Sport, 2 A.3d at 544. A reservation of rights letter 
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does not alter policy coverage or remake a contract. It “does 

not relieve the insurer of the costs incurred in defending its 

insured where the insurer was obligated, in the first instance, 

to provide such a defense.” First Ins., 66 Haw. at 422, 665 

P.2d at 654. 

 Hawaiʻi statutory law favors the policyholder and supports 

the primacy of the contract. Hawaiʻi Revised Statutes (HRS) 

§ 431:10-220(a) reads: “No agreement in conflict with, 

modifying, or extending any contract of insurance shall be valid 

unless in writing and made a part of the policy.” And HRS 

§ 431:10-220(b) instructs: “No insurer or its representatives 

shall make any insurance contract or agreement relative thereto 

that is not plainly expressed in the policy.” 

 Most policies call for a duty to defend. If an insurance 

contract has no express right to reimbursement, there’s no 

reimbursement. 

B. 

 Reimbursement erodes the duty to defend. 

 The duty to defend and the duty to indemnify differ. 

“[T]he obligation of an insurer to defend its insured is 

separate and distinct from an insurer’s obligation to pay a 

judgment entered against its insured.” First Ins., 66 Haw. at 

416, 665 P.2d at 651. 
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The duty to defend is broader than the duty to indemnify. 

Hawaiian Holiday, 76 Hawaiʻi at 169, 872 P.2d at 233. An insurer 

only indemnifies covered claims. Tri-S Corp., 110 Hawaiʻi at 

488, 135 P.3d at 97. But an insurer must defend when there is 

possible coverage, even “groundless, false, or fraudulent” 

claims. First Ins., 66 Haw. at 417, 665 P.2d at 652. And the 

insurer has to defend mixed actions: some claims covered, others 

not. Finley, 90 Hawaiʻi at 29, 975 P.2d at 1149. “[T]he insurer 

is obligated to provide a defense against the allegations of 

covered as well as the noncovered claims.” First Ins., 66 Haw. 

at 418, 665 P.2d at 652. 

Hawaiʻi’s duty to defend is determined up front, at the 

start. Not the end. See Nautilus Ins. Co. v. Lexington Ins. 

Co., 132 Hawaiʻi 283, 303, 321 P.3d 634, 654 (2014). “Although 

an insurer’s duty to indemnify arises only after damages are 

fixed, the duty to defend arises as soon as damages are sought.” 

Gen. Agents Ins. Co. of Am., Inc. v. Midwest Sporting Goods Co., 

828 N.E.2d 1092, 1103 (Ill. 2005). When a claim may fit a 

contract’s confines, “the insurance company’s refusal to defend 

at the outset of the controversy is a decision it makes at its 

own peril.” Jerry’s Sport, 2 A.3d at 542. 

If insurers recover for defending uncovered claims, our law 

flips: the duty to defend may be determined after the insurer 

tenders a defense. Not only does this sequence narrow the broad 
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duty to defend, it dilutes an insurer’s good faith duty to take 

on a defense; worse it may bring on bad faith. “[A]llowing an 

insurer to exercise an independent right to reimbursement . . . 

before it obtains a declaratory judgment would be wholly 

inconsistent with and likely constitute a breach of, its duty 

under established law to undertake the defense in good faith.” 

Burlington Ins. Co. v. Panacorp. Inc., 758 F. Supp. 2d 1121, 

1141 (D. Haw. 2010). 

Reimbursement for defense costs undercuts the duty to 

defend. “It would amount to a retroactive erosion of the broad 

duty to defend . . . by making the right and duty to defend 

contingent upon a court’s determination that a complaint alleged 

covered claims.” Jerry’s Sport, 2 A.3d at 544. Letting the 

insurer recoup costs “would effectively require that insurers 

only defend to the same extent that they must ultimately 

indemnify.” Gen. Star Indem. Co. v. Driven Sports, Inc., 80 F. 

Supp. 3d 442, 463 (E.D.N.Y. 2015). As far as an insured, rather 

than protection for all possible claims, they are only protected 

from repaying costs for claims eventually deemed covered. 

 Insurers though are not out of luck. As part of doing 

business, insurers assess claims for potential coverage. If 

insurers are unsure, they can go to court. Jerry’s Sport, 2 

A.3d at 542. 
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C. 

 Last, the insurers say that when they defend uncovered 

claims, policyholders are unjustly enriched. We disagree. 

Defense is part of the deal. 

 By nature, contracts benefit both sides. Though it owes a 

duty to defend, the insurer benefits. It retains the premiums. 

It directs litigation. It runs the case, decision-making-wise. 

 Why? Money. Since the insurer faces indemnity exposure, 

it deserves what it bargained for – near total control over a 

case. “Normally, an insurer’s duty to defend is coupled with 

the right to control the defense of the litigation. . . . 

Giving the insurer exclusive control over litigation against the 

insured safeguards the orderly and proper disbursement of the 

large sums of money involved in the insurance business.” 

Finley, 90 Hawaiʻi at 34 n.11, 975 P.2d at 1154 n.11. 

 An insurance company that tenders a defense protects 

itself, at least as much as it protects its insured. See 

General Agents, 828 N.E.2d at 1103. No scrubs, say the 

insurers. An insurer has the right to defend its own way to 

avoid the risks of “an inept or lackadaisical defense of the 

underlying action.” Terra Nova Ins. Co., Ltd. v. 900 Bar, Inc., 

887 F.2d 1213, 1219 (3d Cir. 1989). 

 If we allowed reimbursement, the unjustly enriched party 

may very well be the insurer. When the insured pays back 
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defense costs to the insurer, it pays for the insurer to protect 

itself. Id. If a court later determines that there is no duty 

to defend, then reimbursement protects the insurer from bad 

faith or breach of contract actions - without any responsibility 

for defense costs. See Nat’l Sur. Corp. v. Immunex Corp., 297 

P.3d 688, 694 (Wash. 2013). An “all reward, no risk” 

proposition creates a win-win situation for the insurer: 

buffered from bad faith, it defends all claims, yet has no 

obligation to pay for the whole defense. Meanwhile, the insured 

“receives no greater benefit than if its insurer had refused to 

defend outright.” Id. 

 What does the policyholder get for ceding control? 

Defense. The insured receives a benefit. But it’s not unjust. 

Both sides benefit. 

 The insurance companies argue that the sky will fall and a 

world without a right to reimbursement is “rife with temptation 

to deny . . . costly and questionable claims.” But insurers are 

seasoned, skilled, and well positioned to evaluate whether they 

need to defend. And bad faith or breach actions motivate them 

to honor contractual obligations. See Best Place, Inc. v. Penn 

Am. Ins. Co., 82 Hawaiʻi 120, 131-32, 920 P.2d 334, 345-46 

(1996). 
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III. 

 An insurer may not seek reimbursement from an insured for 

defending claims when an insurance policy contains no express 

provision for reimbursement. 

 We answer No to question 1. We do not answer question 2. 

Raymond E. Brown 

(Matt A. Tsukazaki, Tyler A. 

Tsukazaki, Lindsee B. Falcone on 

the briefs) 

for appellants 

Tred R. Eyerly 

(Casey T. Miyashiro, Jonathan N. 

Marchuk on the briefs) 

for appellee Bodell Construction 

Company 

Cid H. Inouye 

(Kelvin H. Kaneshiro, Katherine 

B. Hughes on the briefs) 

for appellee Sunstone Realty 

Partners X, LLC 

Alan Van Etten and Tristan S.D. 

Andres 

for Amicus Curiae 

United Policyholders 

/s/ Mark E. Recktenwald

/s/ Sabrina S. McKenna 

/s/ Todd W. Eddins 

/s/ John M. Tonaki 

/s/ Lisa W. Cataldo