Opinion ID: 2612853
Heading Depth: 3
Heading Rank: 1

Heading: Sentinel's Motions for Summary Judgment

Text: Because an 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. Hawaiian Holiday Macadamia Nut Co. v. Industrial Indem. Co., 76 Hawai`i 166, 169, 872 P.2d 230, 233 (Sup.1994) (citing Commerce & Industry Ins. Co. v. Bank of Hawai`i, 73 Haw. 322, 325, 832 P.2d 733, 735, reconsideration denied, 73 Haw. 625, 834 P.2d 1315 (1992)). The CGL policies issued by First Insurance, insuring the Honofed entities, provided in part: [First Insurance] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence, and [First Insurance] shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage, even if the allegations are groundless, false or fraudulent....[ [7] ] We have recognized that under this type of liability insurance policy, the obligation to defend ... is broader than the duty to pay claims and arises wherever there is the mere potential for coverage. Commerce, 73 Haw. at 326, 832 P.2d at 735 (emphasis added) (citations omitted). In other words, 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.' Standard Oil Co. of California v. Hawaiian Ins. & Guar. Co., Ltd., 65 Haw. 521, 527, 654 P.2d 1345, 1349 (1982) (quoting Spruill Motors, Inc. v. Universal Under. Ins. Co., 212 Kan. 681, 686, 512 P.2d 403, 407 (1973)) (emphasis added). All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured[.] Trizec Properties, Inc. v. Biltmore Constr. Co., 767 F.2d 810, 812 (11th Cir.1985) (citing 7C Appleman, Insurance Law & Practice, 99-100 (Berdal ed. 1979)). In order to determine whether First Insurance had a duty to defend in the context of the present case, we must examine whether the underlying action raised the possibility that the Honofed entities would be entitled to indemnification under any of the policies issued by First Insurance. Under those policies, First Insurance had a duty to indemnify if the Honofed entities became legally obligated to pay ... damages because of property damage ... caused by an occurrence. According to the policies, an `occurrence' means an accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured. (Bold in original.) The policies define property damage as: (1) physical injury to or destruction of tangible property which occurs during the policy period, including loss of use thereof at any time resulting therefrom, or (2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period. (Bold in original.) (Underscoring added.) Because coverage under the First Insurance policies is contingent upon an occurrence or accident resulting in property damage during each policy period, the policies are occurrence policies as opposed to claims made or discovery policies. An occurrence policy provides coverage if the event insured against (the occurrence) takes place during the policy period, irrespective of when a claim is presented. Annotation, Event as Occurring Within Period of Coverage of Occurrence And Discovery Or Claims Made Liability Policies, 37 A.L.R. 4th 382, 390 (1985). Under a claims made or discovery policy, coverage is triggered by the presentation of a claim during the policy term regardless of when the event insured against took place. Id.; see also Trizec, 767 F.2d at 812 n. 3. The parties agree that, under an occurrence policy, the event that triggers potential coverage is the sustaining of actual damage by the complaining party and not the date of the act or omission that caused the damage. Trizec, 767 F.2d at 812; 11 Couch on Insurance 2d, § 44:8 at 194 (Rev. ed. 1982). Simply stated, the relevant focus under an occurrence policy is on the effect, not the cause. Significantly, the complaint in the underlying action did not contain an allegation of when the property damage occurred. The complaint simply alleges in pertinent part: 18. After taking possession of the [condominium] [p]roject, [the AOAO] and the individual apartment owners and/or their successors in interest ascertained defects and inadequacies in the design and/or construction and/or materials of said [c]ondominium including but not limited to the following: A. Water infiltration from walls and joint areas; B. Water infiltration into units from windows; C. Water infiltration and/or corrosion of post tension anchors and/or tendons; D. Inadequate or defective concrete work; E. Drywall partitions and joints; F. Deviations from plans and/or specifications; G. Related damage claims due to various water infiltration problems; H. Other construction and/or design defects. . . . . 22. By reason of the foregoing, [the AOAO] and the individual apartment owners have suffered resulting physical injury to or destruction of their tangible property or have suffered loss or diminution of use of their tangible property or have suffered economic loss or incurred out of pocket expenses, or have suffered other loss and damages. [8] Where the complaint does not address the crucial issue of whether the alleged property damage occur[red] [9] during the policy period, [a]n insurer must look beyond the effect of the pleadings and must consider any facts brought to its attention or any facts which it could reasonably discover in determining whether it has a duty to defend. . . . The possibility of coverage must be determined by a good faith analysis of all information known to the insured or all information reasonably ascertainable by inquiry and investigation. Standard Oil, 65 Haw. at 527, 654 P.2d at 1349 (quoting Spruill Motors, 212 Kan. at 686, 512 P.2d at 407). Thus, 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. See Hawaiian Ins. & Guar. Co., Ltd. v. Blanco, 72 Haw. 9, 17, 804 P.2d 876, 880 (1990). First Insurance maintains that it conducted a thorough investigation of claims asserted by the AOAO ... which consisted in large part of reviewing documents provided by the AOAO's counsel of record ... [that] established, beyond doubt, that water leakage and other damage, caused by structural defects, had manifested shortly after the complex was completed in 1981, but in no event later than 1982.... The remaining documents reviewed by [First Insurance] showed that damages were continuing, through 1984 and through the time of [Sentinel's] tender of defense to [First Insurance]. Based on its investigation, the depth and scope of which is unclear from the record, First Insurance took the position that Sentinel's declaratory relief action was without foundation and moved for summary judgment, alleging that [t]he property damage to the Park at Pearlridge occurred during SENTINEL's policy period, and well in advance of FIRST's policy period. As a basic rule of law, SENTINEL was the only insurer at risk at the time of loss, i.e., at the time damages became evident, and SENTINEL is therefore solely responsible for indemnifying the insureds. First Insurance's position was based on several fundamental assumptions, namely, that: (1) the damages alleged in the underlying action actually became manifest no later than 1982; (2) the same damages, which admittedly continued into First Insurance's policy period, constituted a single injury, that is, the loss was no longer a contingency or risk when its policy coverage began; (3) under a CGL occurrence policy, coverage is triggered by manifestation of damages; and (4) under a CGL occurrence policy, the insurer providing coverage at the time when the damage first manifests itself is solely responsible for the entire loss regardless of whether the duration of the loss continues and progresses into a period covered by another insurer's policy. Although First Insurance's motion for summary judgment was denied, it maintained the identical position in opposing Sentinel's motion for summary judgment on the issue of the duty to defend. Likewise, on appeal, First Insurance remains committed to the same arguments, claiming that the circuit court erred in granting summary judgment in favor of Sentinel on the issue of First Insurance's duty to defend issue. We hold that the circuit court ruled correctly. The record reflects that First Insurance attempted to establish that damages manifested themselves before its policy period began; however, that issue was but one of several operative assumptions that First Insurance has made. In order for the potential for coverage under First Insurance's policies to be considered non-existent, all of the operative assumptions made by First Insurance would have to be correct. For example, even assuming that the damages initially became manifested in 1982, if First Insurance was nonetheless wrong in concluding that it had no duty to indemnify the Honofed entities for damages continuing into its coverage periods, its entire argument with respect to its duty to defend collapses. Setting aside the factual questions involved, both of First Insurance's legal assumptions  that coverage is triggered by the manifestation of damages, and the insurer providing coverage at that time is solely responsible for the entire loss even though a portion of the loss extended into a period covered by another insurer  address issues unsettled in this jurisdiction. No reported Hawai`i appellate court decision has dealt with the question whether coverage under a third-party insurance policy is triggered by a manifestation of loss theory of liability (manifestation theory). We note that the First Insurance policies at issue here are third-party policies as opposed to first-party policies. A first-party policy provides coverage for loss or damage sustained by the insured (. e.g., life, disability, health, fire, theft, and casualty insurance) whereby the insurer usually promises to pay money to the insured upon the happening of the risk insured against. A third-party policy, on the other hand, provides coverage for the insured's liability to another ( e.g., CGL, directors' and officers' liability, and errors and omissions insurance) wherein the carrier generally assumes a contractual duty to pay judgments recovered against the insured arising from the insured's negligence. See generally, Garvey v. State Farm Fire & Cas. Co., 48 Cal.3d 395, 770 P.2d 704, 257 Cal.Rptr. 292 (1989). First Insurance claims that a plethora of caselaw from other jurisdictions supports its contention that the manifestation theory triggers coverage in property damage cases. However, as discussed subsequently in this opinion, there is a notable dispute nationwide over what trigger of coverage should apply in third-party liability insurance cases generally as well as what trigger should apply where the loss continues and progresses over successive policy periods involving different insurers. There is also significant conflict among jurisdictions regarding First Insurance's position that the insurer on risk at the time of manifestation is solely liable for the entire loss. In particular, First Insurance relies on Home Insurance Co. v. Landmark Insurance Co., 205 Cal.App.3d 1388, 253 Cal.Rptr. 277 (1988), a first-party case, for the proposition that the manifestation theory applies in this case; however, the California third-party cases following Home Insurance have been in conflict on this very issue. Cf., e.g., Fireman's Fund Ins. Co. v. Aetna Cas. & Sur. Co., 223 Cal.App.3d 1621, 273 Cal.Rptr. 431 (1990) and County Sanitation Dist. No. 2 of Los Angeles County v. Harbor Ins. Co., 17 Cal.App.4th 1622, 22 Cal.Rptr.2d 90, reh'g granted, September 16, 1993, with Montrose Chemical Corp. v. Admiral Ins. Co., 20 Cal. App.4th 678, 5 Cal.Rptr.2d 358, review granted, 862 P.2d 661, 24 Cal.Rptr.2d 661 (1992) and Stonewall Ins. v. Palos Verdes Estates, 18 Cal.App.4th 1234, 9 Cal.Rptr.2d 663, review granted, 834 P.2d 1147, 11 Cal.Rptr.2d 329 (1992). [10] Consequently, the fundamental legal assumptions relied upon by First Insurance in refusing to defend the Honofed entities were not principles as settled as First Insurance deemed them to be. Thus, in order to determine whether First Insurance breached its duty to defend, we need not resolve the questions regarding (1) what event(s) triggered coverage in this case for property damage under the First Insurance policies, and (2) whether First Insurance and Sentinel may be jointly and severally liable for payment of those damages. The mere fact that the answers to those questions in this jurisdiction were not then and are not presently conclusively answered demonstrates that, based on the allegations in the underlying action, it was possible that the Honofed entities would be entitled to indemnification under the First Insurance policies. This is true even assuming that the damages as alleged in the underlying action first manifested themselves in 1982. Accordingly, we affirm the circuit court's December 3, 1991 order granting summary judgment in favor of Sentinel on the duty to defend issue.