Opinion ID: 2639532
Heading Depth: 2
Heading Rank: 1

Heading: WWI's Appeal

Text: With respect to the litany of errors assigned by WWI, there are essentially three groups: (1) questions relating to the interpretation of WWI's CGL policy; (2) questions relating to the propriety of summary judgment; and (3) post-summary 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 [7] and the Rapoza Estate; and (3) the post-summary judgment questions were properly 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.
WWI 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 CGL policy. WWI'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.
WWI 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 circuit court concluded that Taft was sued in his capacity as an executive officer of Tri-S. Taft is thus an insured within the mea[n]ing of the policy as to the underlying action. For the reasons set forth below, we hold that the circuit court's conclusion was correct. 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.) It is undisputed that Taft was an executive officer of Tri-S. Section II.2.a adds that Tri-S employees,  other than [Tri-S] 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 is dealt with below in Section III.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 carving out executive officers from other employees generally. Although WWI is able to cite a favorable case directly on point, we nevertheless conclude that TSC-Taft has the more persuasive argument. WWI 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 `no employee'  whether or not the employee is an executive officer. Id. at 570 (citation omitted). The Zaiontz court reasoned that executive officers are also employees and that if the second sentence in section II.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 Zaiontz 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 II.2) in the policy. When read in this way, the definition of employee for purposes of the 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 II.2.a, a completely different subsection pertaining to non-executive corporate employees. That the insured status of executive employees with respect to their executive duties was intended to be governed only by subsection 1 is indicated by the carve-out of executive officers in the first sentence of Section II.2.a. Accordingly, the bodily injury exception to insured status does not apply to Taft as an executive officer.
WWI next contends that, even if Taft was an insured under the policy, he was nevertheless not covered by virtue of various exclusions. First, WWI argues that Taft was not covered due to Section I.2.d, 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, WWI argues that Section I.2.e, the bodily injury exclusion, which excludes coverage for bodily injury to an employee of the insured arising out of and in the course of . . . [e]mployment 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 I.2.d and e turns on the meaning of the phrase the insured. Section IV.7 of the policy states that the policy applies [s]eparately to each insured against whom claim is made or `suit' is brought. This is a standard insurance contract provision known as 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 (Wyo.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 ( i.e., corporation-employer) or any insured in analyzing whether the bodily injury and worker's compensation exclusions apply. See, e.g., 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 N.W.2d 588, 592 (Iowa 1978) (collecting cases and holding that the severability-of-interests clause was inserted into 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 feasor [sic] from suing his employer for injuries received thru [sic] his employer's negligence. A reason for this is that employees are usually covered by workmen's compensation and can recover from the employer, with or without negligence. When negligence is committed by other than his employer, the logic for the exclusion disappears. If the insurer wishes to further exclude its liability, it could clearly so state in its contract and its failure to do so should be strictly construed. Especially is this true when the policy contains a severability clause, for there it can be implied that the insurer is actually recognizing a separate obligation to others, distinct and apart from the obligation it owes to the named insured. Gen'l Aviation Sup. Co. v. Ins. Co. of N. Am., 181 F.Supp. 380, 384 (E.D.Mo.1960), aff'd 283 F.2d 590 (8th 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 Severability of Interests clauses as expressing an acknowledgment on the part of insurance companies that the term insured does not always mean any insured who could claim coverage under the policy but only the insured claiming coverage. Zenti, 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 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.e.1 must be read employee of Taft. However, Rapoza was not an employee of Taft, but of Tri-S, so the exclusion does not apply. Similarly, the phrase in Section I.2.d, 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 employer; instead it was Tri-S which shouldered those burdens. Accordingly, neither exclusion applies and the circuit court did not err in concluding that Taft was covered under the WWI policy.
In addition to its arguments regarding 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. WWI 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, 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.
WWI 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, which is excluded from coverage. As set forth above, Section I.1.b of the CGL policy provides that only bodily injuries sustained in occurrences ( i.e., accidents) are included in coverage, while Section I.2.a 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 judgment 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 its part, WWI 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 alia: (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. WWI's reading of the complaint is not unreasonable ( i.e., 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 a 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 at 269. See also Ellis v. Mut. Tel. Co., 29 Haw. 604, 617 (1927) (holding that allegations of wanton misconduct may also encompass 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 coverage exists. This possibility may be remote but if it exists, the insurer owes the insured a defense. All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured. Accordingly, in connection with the issue of its duty to defend, [the insurer bears] the burden of proving that there [i]s no genuine issue of material fact with respect to whether a possibility exist[s] that [the insured] would incur liability for a claim covered by the polic[y]. In other words, [the insurer is] required to prove that it would be impossible for the [claimant] to prevail against [the insured] in the underlying lawsuit[ ] on a claim covered by the polic[y]. Conversely, [the insured's] burden with respect to its motion for summary judgment [i]s comparatively light, because it ha[s] merely to prove that a possibility of coverage exist[s]. 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 occurrence under the policy. [8] Consequently, the circuit court did not err in concluding that the conduct alleged in the complaint constituted an occurrence for purposes of WWI's duty to defend. [9]
WWI 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 summary judgment), 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 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 [i]t 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 WWI's duty to defend. Although we agree with WWI that [i]t is clear from the record that the parties were arguing over whether or not Taft was [sued as] a co-employee, it is equally clear that the material facts ( e.g., 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. What 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 conclusion of law dependent on findings of fact, this likely presents a mixed question of law and fact. [10] 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 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 ( i.e., 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. 53, 56, 575 P.2d 1299, 1301 (1978) (observing, albeit in a different context, that [it] has long been the established duty of the employer 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. [11] 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 contended by WWI, that Taft would be found liable in the underlying suit on a covered claim. See Commerce & Indus. Ins. Co. v. Bank of Hawaii, 73 Haw. 322, 327, 832 P.2d 733, 736 (1992) (An insurer has a duty to proceed in defense of a suit, at least 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 7C 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 Estate to prevail in the underlying suit on the basis that Taft breached his duty as an executive officer, the circuit court did not err in granting summary judgment in favor of TSC-Taft as to WWI's duty to defend. [12]
WWI also assigns error with respect to the rulings of the circuit court subsequent to the May 1998 grant of summary judgment in TSC-Taft's favor. First, WWI 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 circuit 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 was not an abuse of discretion because no showing of fault on the part of WWI was required, and the start date of September 6, 2000 was not clearly unreasonable.
WWI contends that the circuit court abused its discretion in denying its motion for reconsideration because the new evidence [13] it presented  specifically, the finding in the underlying action that Taft was deemed the employer of Rapoza in the worker's compensation context and thus immune from the Rapoza Estate's suit  gave rise to inconsistent findings ( i.e., 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 employer; 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 counterarguments 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. Willocks, 2004 WL 27460, at  (Acoba, J., announcing the judgment of the court). The vacated order below is thus a nullity, and any error contained therein is now without effect. See, e.g., 7-Eleven, Inc. v. Dar, 363 Ill.App.3d 41, 299 Ill.Dec. 521, 842 N.E.2d 260, 264 (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 WWI 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 refusal.  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.
WWI's final argument is that the circuit court abused 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 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 a defendant is required. For the reasons set forth below, we hold that the circuit court did not abuse its discretion in awarding prejudgment interest to TSC-Taft. An award of prejudgment interest is authorized under HRS § 636-16 (1993): Awarding interest. In awarding interest in civil cases, the judge is authorized to designate the commencement date to conform with the circumstances of each case, provided that the earliest commencement date in cases 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[.] Id. at 137, 839 P.2d at 36. Although this language standing alone would appear to support WWI's contention that this court wished to limit awards of prejudgment interest to situations 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 is to allow the court to designate the commencement date in order to correct injustice when a judgment is delayed for a long period of time for any reason, including litigation delays. Id. (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 award 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 case. Indeed, this is the interpretation that emerges from decisions of the Intermediate Court of Appeals (ICA) concerning prejudgment interest in the wake of Amfac. In Page v. Domino's Pizza, the ICA cited Amfac and noted that [a] trial court's denial of prejudgment interest is usually affirmed if the requesting party caused the delay or the opposing party did not cause the delay. 80 Hawai`i 204, 209, 908 P.2d 552, 557 (App. 1995) (citations omitted). However, in Ditto v. McCurdy, the ICA added that a trial court can award prejudgment interest for any substantial delay in the proceedings, and that no purposeful delay on the part of the non-moving party is required.  86 Hawai`i 93, 114, 947 P.2d 961, 982 (App.1997), rev'd in part on other grounds, 86 Hawai`i 84, 947 P.2d 952 (1997) (emphasis added). The ICA gave the basis for its reasoning as follows: We reiterate that prejudgment interest can be awarded when the issuance of judgment is greatly delayed for any reason. Of course, purposeful delay (or dilatory tactics) by the non-moving party, if it causes a substantial delay in the proceedings, falls within the [ ]ambit of any reason under the statute. By the same token, a trial court can and probably should deny prejudgment interest if the moving party was responsible for the delay. Still, the trial court is vested with the discretion to award prejudgment interest whether or not dilatory tactics are shown by either party, so long as the issuance of judgment was greatly delayed. Leibert v. Finance Factors, Ltd., 71 Haw. 285, 293, 788 P.2d 833, 838 (1990) (the purpose of the statute was to allow the court to designate the commencement date of interest in order to correct the injustice when a judgment is delayed for a long period of time for any reason, including litigation delays). Id. at 115 n. 22, 947 P.2d 961, 947 P.2d at 983 n. 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 WWI with respect to the delay in judgment. Here, WWI had breached its insurance contract with Tri-S by early 1997, and indeed TSC-Taft sought a February 1997 commencement date for the prejudgment interest award. 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 commencement day for interest because that was the first day on which the attorney's fees and costs ( i.e., WWI's liability for breach of its duty to defend) were reduced to a sum certain. 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 September 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 WWI. Accordingly, the circuit court did not abuse its discretion in awarding prejudgment interest to TSC-Taft.