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

Heading: Travelers' Cross-Appeal

Text: Like WWI, Travelers assigns a plethora of errors below. The errors alleged by Travelers can be divided into four groups: (1) pre-summary 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 judgment; and (4) post-summary 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 WWI.
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 such 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.
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 simply strategic. Plaintiffs respond that because they were free to file a separate lawsuit against Travelers ( i.e., 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: (1) When it shall be necessary or proper to make a person a party defendant and the party desiring the inclusion of the person as a party defendant has been unable to ascertain the identity of a defendant, the party desiring the inclusion of the person as a party defendant shall in accordance with the criteria of Rule 11 of these rules set forth in a pleading the person's interest in the action, so much of the identity as is known (and if unknown, a fictitious name shall be used), and shall set forth with specificity all actions already undertaken in a diligent and good-faith effort to ascertain the person's full name and identity. . . . . (3) Any party may, by motion for certification, make the name or identity of the party defendant known to the court within a reasonable time after the moving party knew or should have known the name or identity of the party defendant. The motion shall be supported by affidavit setting forth all facts substantiating the movant's claim that the naming or identification has been made in good faith and with due diligence. When the naming or identification is made by a plaintiff, it shall be made prior to the filing of the pretrial statement by that plaintiff, or within such additional time as the court may allow. The court shall freely grant reasonable extensions of the time in which to name or identify the party defendant to any party exercising due diligence in attempting to ascertain the party defendant's name or identity. (4) When a party defendant has been named or identified in accordance with this rule, the court shall so certify and may make any order that justice requires to protect any party from undue burden and expense in any further proceedings involving the party defendant. (5) A party defendant who has been named or identified in accordance with this rule may have dismissal of one or more claims against the defendant if the defendant shows in a timely manner that the delay in naming or identifying that defendant has caused that defendant substantial prejudice and if the interests of justice so require. (Emphases added.) Unlike most of the [HRCP], Rule 17(d) is not patterned after a federal rule; it was drafted by our Committee on Civil Rules[.] Tobosa v. Owens, 69 Haw. 305, 316, 741 P.2d 1280, 1287 (1987). As this court has stated, a primary purpose of the rule is to toll the statute of limitations with respect to Doe defendants who cannot be identified prior to the running of the statute. Wakuya, 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 a 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 HRCP 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 was in no danger of running. [14] The question remains, however, as to whether and what sanctions might 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 Wakuya, plaintiffs filed suit against an identified defendant and various Doe Defendants. 65 Haw. at 593, 656 P.2d at 86. As in the instant case, the defendant in Wakuya 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 Wakuya ) 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 circuit 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, 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 597, 656 P.2d at 88. See also Kaczmarczyk v. City & County of Honolulu, 65 Haw. 612, 621-22, 656 P.2d 89, 96 (1982) (applying Wakuya 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 18, 1998, but an extension of time to move for certification was granted by the circuit court, and thus the holding in Wakuya was not offended. Second, in the Tobosa case, the plaintiffs filed a complaint naming various Doe Defendants whose identities, along with the facts giving rise to a cause of action against them, were already known to the plaintiffs at the time. Id. at 316, 741 P.2d at 1287. The court found in Tobosa that Rule 17(d) 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, a pleader who has knowledge of the identities of defendants yet files a John Doe complaint undoubtedly commits a wilful violation of [HRCP Rule 11]. Id. at 317, 741 P.2d at 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(d), we nevertheless conclude that Tobosa requires neither sanctions nor 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 that 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 the underlying suit, they had no reason to delay and were only endeavoring to conform their pleadings to take account of WWI's third-party complaint against Travelers. Finally, Travelers' claims of prejudice due to insufficient notice and opportunity for discovery lack substance. Travelers was impleaded in the instant action by WWI in April 1999, almost one year before Plaintiffs moved to amend their own 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.
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, time in which plaintiff may amend. When a defendant, against whom action has been timely brought, brings in a third-party defendant who is or may be liable to the defendant or to the plaintiff for all or part of the plaintiff's claim against the defendant, plaintiff within thirty days after the date of filing of the third-party defendant's answer, may assert against the third-party defendant any claim, arising out of the original transaction or occurrence that is also the subject matter of the third-party plaintiff's claim against the third-party defendant, which would have been timely if the third-party defendant had been joined originally as a defendant, notwithstanding any statutory period of limitations otherwise applicable to plaintiff's claim. Nothing herein shall preclude the plaintiff from asserting any claim which the plaintiff might have asserted without the benefit of this section. (Emphases 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 a third-party defendant by WWI. As is obvious from the plain language of the statute, however, its purpose is to extend the statute of limitations with respect to parties brought in as third-party defendants; a plaintiff is explicitly not precluded, however, from asserting a claim that is not otherwise time-barred. 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 run; HRS § 657-7.5 is thus not germane; and therefore the circuit court did not err in allowing the Plaintiffs' amended complaint to be filed more than thirty days after Travelers was made a third-party defendant. Because 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.
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' [15] favor. Plaintiffs respond that Travelers was obligated to indemnify Tri-S for any moneys that Tri-S was in turn obligated to expend to indemnify 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 indemnify 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 Tri-S was never breached, summary judgment should have been granted in Travelers' favor and against Plaintiffs. First, as the circuit court noted, there is no dispute that Taft was not a named or additional insured under the policy issued by Travelers, and that Tri-S was the named insured. Second, it is also not disputed that, as set forth above, the Travelers policy provided in relevant part: We will pay all sums you legally must pay as damages because of bodily injury to your employees. . . . The damages we will pay, where recovery is permitted by law, include damages . . . for which you are liable to a third party by reason of a claim or suit against you by that third party to recover the damages claimed against such third party as a result of injury to your employee[.] . . . . We have the right and duty to defend, at our expense, any claim, proceeding or suit against you for damages payable by this insurance. . . . We have no duty to defend a claim, proceeding or suit that is not covered 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, the only insured under the policy, third party is read as Taft, and employee is read as Rapoza, the relevant provisions (Part II, sections B & D) yield: [Travelers] will pay all sums [Tri-S] legally must pay as damages because of bodily injury to [Rapoza]. . . . The damages [Travelers] will pay, where recovery is permitted by law, include damages . . . for which [Tri-S is] liable to [Taft] by reason of a claim or suit against [Tri-S] by [Taft] to recover the damages claimed against [Taft] as a result of injury to [Rapoza.] . . . . [Travelers has] the right and duty to defend, at our expense, any claim, proceeding or suit against [Tri-S] for damages payable by this insurance. . . . [Travelers has] no duty to defend a claim, proceeding or suit that is not 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, not to 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 agreed), however, that it would be unreasonable to force Tri-S to pay first and require Taft to formally make a claim against Tri-S ( i.e., 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 WWI, the worker's compensation and employer's liability policy issued by Travelers is a form contract whose language has been interpreted previously by various courts outside this jurisdiction. The recent decision in Missouri Employers Mut. Ins. Co. [MEMIC] v. Nichols, 149 S.W.3d 617 (Mo.Ct.App.2004), which involves not only policy language but also facts virtually identical to those presented in the instant case, is particularly instructive. In that case, the plaintiff filed a wrongful death action against Nichols, the owner and employee of a small business, for the work-related death of her father, a co-employee of Nichols. Id. at 620. The business was the named insured on a worker's compensation and employer's liability policy issued by MEMIC and containing language identical to that found in the Tri-S policy issued by Travelers. Id. After refusing to defend or indemnify Nichols in the wrongful death action on the basis that he was not an insured under the policy, MEMIC filed an action seeking a declaratory judgment to that effect. Id. at 620-21. When summary judgment was granted in favor of MEMIC in the trial court, the plaintiff in the wrongful death action appealed. Id. at 621. On appeal, the plaintiff argued, as do Plaintiffs here, that even though Nichols was not a named insured under the policy, he was nevertheless covered under the provisions of Part II, sections B and D, quoted above. Id. at 625-26. The appellate court disagreed and affirmed the judgment below, reasoning: [T]he appellant contends that . . . coverage exists as to [the business owner-employee] in the underlying wrongful death suit, pursuant to the express language of [part II, section B]. The contention is without merit. The Policy clearly limits liability coverage to the named employer . . . in such sums that it legally must pay as damages because of bodily injury to [its] employees. [Section] B sets out the damages to be paid, if, and only if, [the company] is first found to be legally liable in damages. The language of section B does not create liability coverage, but simply delineates and limits the damages to be paid, provided liability is found first. Id. at 627 (emphasis in original). In other words, when read as a whole, it is clear that section B covers claims only where Tri-S is liable for the injuries. Here, not only was Tri-S not sued in 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 indemnify. 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 claims and would thus be an illusory contract. TSC-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.2d 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 a `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`i worker's compensation exclusivity  fails to be met. For example, employers in Hawai`i are not immune, under worker's compensation law, from suits for negligent infliction of emotional distress. HRS § 386-5, supra note 3; see also Nelson v. Univ. of Hawai`i, 97 Hawai`i 376, 395, 38 P.3d 95, 114 (2001) (confirming that worker's compensation law exclusivity does not bar suits against an employer for negligent infliction of emotional distress). Similarly, general contractors are not immune under worker's compensation law from suits by employees of their subcontractors. HRS § 386-1; see also Fonseca v. Pac. Constr. Co., Ltd., 54 Haw. 578, 585, 513 P.2d 156, 160 (1973) ([T]hird-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 employer-employee relationship[.]); Crompton v. Tern Corp., 83 Hawai`i 1, 11, 924 P.2d 169, 179 (1996) (same). Here, the Tri-S policy issued by Travelers covers non-intentional torts resulting in bodily injury to employees, and thus would likely cover an employee's claim against Tri-S for negligent infliction of emotional distress resulting in bodily injury, as well as possibly a claim brought by an employee of a Tri-S subcontractor for bodily injury negligently inflicted by Tri-S. While the scope of coverage afforded Tri-S under the employer's liability portion of the policy appears to be limited at best, it is nevertheless more than illusory. See Lakota v. Westfield Ins. Co., 132 Ohio App.3d 138, 724 N.E.2d 815, 818 (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 indemnify Tri-S or Taft. Therefore, the circuit court erred in granting summary judgment in favor of Plaintiffs. [16]