Court Opinion

ID: 2653298
Source: CourtListenerOpinion
Date Created: 2014-02-14 01:02:13.931184+00
Date Added: 2024-06-11T12:56:16.043795
License: Public Domain

***FOR PUBLICATION IN WEST’S HAWAI#I REPORTS AND PACIFIC REPORTER***

                                                              Electronically Filed
                                                              Supreme Court
                                                              SCCQ-12-0000977
                                                              13-FEB-2014
                                                              10:17 AM

           IN THE SUPREME COURT OF THE STATE OF HAWAI#I

                     NAUTILUS INSURANCE COMPANY,
                         Plaintiff-Appellant,

                                    vs.

        LEXINGTON INSURANCE COMPANY, DOE DEFENDANTS 1-10,
                      Defendants-Appellees.

                            SCCQ-12-0000977

                          ORIGINAL PROCEEDING

                           February 13, 2014

  RECKTENWALD, C.J., NAKAYAMA, ACOBA, McKENNA, AND POLLACK, JJ.

                  OPINION OF THE COURT BY ACOBA, J.

          The United States Court of Appeals for the Ninth

Circuit (Ninth Circuit) certified the following questions of law

to this court:
          1.    Whether an insurer may look to another insurer’s
          policy in order to disclaim the duty to defend, where the
          complaint in the underlying lawsuit alleges facts within
          coverage.
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            2.    Whether an “other insurance” clause that purports to
            release an otherwise primary insurer of the duty to defend
            if the insurer becomes excess as to liability is
            enforceable.

            3.    Whether the irreconcilability of “other insurance”
            provisions in otherwise primary insurance policies should be
            determined before or after the operation of the “other
            insurance” provisions is determined.

            4.    Whether, and when, an excess insurer, or an otherwise
            primary insurer who becomes an excess insurer by operation
            of an “other insurance” clause, has a duty to defend.

                                      I.

                                      A.

            VP & PK (ML) LLC (VP & PK) is the owner and developer

of a tract of land in the Maui Lani Project District.               VP & PK

purchased a Commercial General Liability insurance policy1 for

its work on the Maui Lani site from Defendant-Appellee Lexington

Insurance Company (Lexington).        The policy’s Occurrence Form

included the following “Other Insurance” provision:

      4.    Other Insurance

            If other valid and collectible insurance is available
            to the insured for a loss we cover under Coverages A
            or B of this Policy, our obligations are limited as
            follows:

            a.    Primary Insurance

            This insurance is primary except when b. Excess Insurance,
            below, applies. If this insurance is primary, our
            obligations are not affected unless any of the other
            insurance is also primary. Then, we will share with all
            that other insurance by the method described in c. Method of
            Sharing, below.

      1
            “Liability insurance” is defined as “[a]n agreement to cover a
loss resulting from the insured’s liability to a third party, such as a loss
incurred by a driver who injures a pedestrian.” Black’s Law Dictionary 873
(9th ed. 2009). “The insured’s claim under the policy arises once the
insured’s liability to a third party has been asserted.” Id.

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                       b.    Excess Insurance

                This insurance is excess over:

                . . . .

                (2)    Any other primary insurance
                       available to you covering
                       liability for damages arising
                       out of the premises or
                       operations of the “products-
                       completed operations” hazard
                       for which you have been added
                       as an additional insured by
                       attachment of an endorsement.

                When this insurance is excess, we will have no
                duty under Coverages A or B to defend the
                insured against any “suit” if any other insurer
                has a duty to defend the insured against that
                “suit”. If no other insurer defends, we will
                undertake to do so, but we will be entitled to
                the insured’s rights against all those other
                insurers.

                . . . .

          c.    Method of sharing

                If all of the other insurance permits contribution by
                equal shares, we will follow this method also. Under
                this approach each insurer contributes an equal amount
                until it has paid its applicable limit of insurance or
                none of the loss remains, whichever comes first.

                If any of the other insurance does not permit
                contribution by equal shares, we will contribute by
                limits. Under this method, each insurer’s share is
                based on the ratio of its applicable limit of
                insurance to the total applicable limits of insurance
                of all insurers.

(Emphases added.)     Lexington did not include Kila Kila

Construction (Kila Kila) as an additional insured.

          Kila Kila was one of VP & PK’s subcontractors for the

Maui Lani development.      Kila Kila purchased a Commercial General

Liability Coverage insurance policy for its work on the Maui Lani

site from Plaintiff-Appellant Nautilus Insurance Company

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(Nautilus).     The Commercial General Liability Coverage form

contained an “Other Insurance” provision, which stated as

follows:

           4.     Other Insurance

                  If other valid and collectible insurance is available
                  to the insured for a loss we cover under Coverages A
                  or B of this Coverage Part, our obligations are
                  limited as follows:

                  a.    Primary Insurance

                        This insurance is primary except when b. below
                        applies. If this insurance is primary, our
                        obligations are not affected unless any of the
                        other insurance is also primary. Then, we will
                        share with all that other insurance by the
                        method described in c. below.

                  b.    Excess Insurance

                        This insurance is excess over:

                        . . . .

                        (2)   Any other primary insurance
                              available to you covering liability
                              arising out of the premises or
                              operations for which you have been
                              added as an additional insured by
                              attachment of an endorsement.

(Emphases added.)      Nautilus’s policy also contained an

“Additional Insured Endorsement” modifying the Commercial General

Liability Coverage and adding VP & PK as an additional insured:

           SECTION II - WHO IS AN INSURED is amended to include as an
           insured the person or organization shown in the Schedule
           below, but only for liability arising out of your negligence
           and only for occurrences or coverage not otherwise excluded
           in the policy to which this endorsement applies.

                                    SCHEDULE

           Name of Person or Organization:

           VP & PK (ML) LLC and Central Pacific Bank
           98-880 Iwaena St
           Aiea, HI 96701

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                      Project: The Fairways at Maui Lani     Cost $1.7
                      Million

(Emphases added.)

           Both parties’ General Commercial Liability policies

include duties to both defend and indemnify.

                                    B.

           On June 3, 2008, Karen Goo and a number of Maui

residents sued VP & PK, Kila Kila, and other VP & PK

subcontractors for damages resulting from construction in Maui

Lani.   The complaint alleged facts falling within the coverage of

both policies.    Nautilus funded the defense of both Kila Kila and

VP & PK during the entirety of the Goo lawsuit.            Ultimately, VP &

PK was found solely liable on some claims and ordered to pay

damages totaling $232,700.      Kila Kila was not found liable on any

claims.

                                    C.

           Lexington acknowledged that it would indemnify VP & PK

for the jury verdict, and satisfied the entirety of the judgment

against VP & PK.    It does not appear to dispute its obligation to

pay the full amount of damages.       However, Lexington denies any

obligation to contribute to Nautilus’s costs in funding the

defense.

                                    D.

           On September 14, 2009, Nautilus filed a Complaint in

the Hawai#i Circuit Court of the Second Circuit, seeking, inter

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alia, a declaration that Lexington owed VP & PK a duty to defend

and that it breached that duty, and (2) equitable contribution

from Lexington for defense costs.         On November 10, 2009,

Lexington removed the case to the District Court,2 pursuant to 28

U.S.C. 1332(a)(1).3     On November 17, 2010, the District Court

granted summary judgment to Lexington on all of Nautilus’s

claims.

            The District Court found that (1) Lexington was

permitted to look beyond the face of the complaint and its policy

-- and, specifically, to Nautilus’s policy -- to determine

whether it had a duty to defend; (2) Lexington’s policy was in

excess to Nautilus’s policy; (3) as a result, Lexington’s duty to

defend had never been triggered; and (4) Nautilus was entitled to

neither a declaratory judgment nor any contribution for the

defense costs.     Nautilus Ins. Co. v. Lexington Ins. Co., Cv. No.

90-00537 DAE-LEK, 2010 WL 4812742, at *12-16 (D. Haw. Nov. 17,

2010).

            Nautilus appealed to the Ninth Circuit on December 14,

2010, and on October 9, 2012, the Ninth Circuit sua sponte

requested that the parties file supplemental briefing addressing

      2
            The Honorable David A. Ezra presided.

      3
            28 U.S.C. 1332(a)(1) provides that “[t]he district courts shall
have original jurisdiction of all civil actions where the matter in
controversy exceeds the sum or value of $75,000, exclusive of interest and
costs, and is between (1) citizens of different States[.]”

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whether questions in the case should be certified to this court,

and inviting them to comment on four proposed questions for

certification.    Neither party objected to certification in their

briefs, and both concede that Hawai#i law governs this

controversy.

            On November 2, 2012, the Ninth Circuit filed a request

with this court to answer four certified questions.           Hawai#i

Rules of Appellate Procedure Rule 13(a) provides that “[w]hen a

federal district or appellate court certifies to the Hawai#i

Supreme Court that there is involved in any proceeding before it

a question concerning the law of Hawai#i that is determinative of

the cause and that there is no clear controlling precedent in the

Hawai#i judicial decisions, the Hawai#i Supreme Court may answer

the certified question by written opinion.”          On January 10, 2013,

this court accepted the certified questions.          Nautilus filed its

Opening Brief on August 5, 2013, Lexington filed its Answering

Brief on September 12, 2013, and Nautilus filed a Reply Brief on

September 26, 2013.

                                   II.

            Question 1:   Whether an insurer may look to another

insurer’s policy in order to disclaim the duty to defend, where

the complaint in the underlying lawsuit alleges facts within

coverage.

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                                       A.

                                       1.

             Both parties’ arguments on this question focus on this

court’s 2000 opinion in Dairy Road Partners v. Island Ins. Co.,

92 Hawai#i 398, 992 P.2d 93 (2000).          However, we hold that Dairy

Road Partners does not clearly resolve the scenario presented by

this certified question.

             In Dairy Road Partners, the insurer, Island Insurance,

disclaimed its duty to defend insureds Dairy Road Partners (DRP)

and Shell in a pending action.          92 Hawai#i at 408, 992 P.2d at

103.    The complaints against the insureds alleged facts that

would fall within Island Insurance’s coverage, thereby requiring

that Island Insurance defend the claims.4            Id. at 414, 992 P.2d

at 109.     However, Island Insurance conducted its own

investigation and disclaimed the defense based on the facts

uncovered in that investigation, which would apparently put the

underlying events outside the scope of Island Insurance’s

coverage.      Id. at 409, 992 P.2d at 104.

             In reaching its conclusion as to whether Island

Insurance had a duty to defend under these circumstances, this

court relied on Hawai#i insurance law principles with respect to

the duty to defend.        Id. at 411-13, 992 P.2d at 106-08.         The

      4
            The opinion noted that “Island [Insurance] does not dispute that
the complaints in both of the underlying lawsuits allege claims that, if
proven, would be covered by the policy.” Id. at 414, 992 P.2d at 109.

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operative question was whether, “for the purposes of overcoming

the duty to defend, Island [Insurance] was permitted to conduct a

factual investigation despite the allegations of the underlying

complaints.”   Id. at 415, 992 P.2d at 110 (emphases in original).

          Prior case law in Hawai#i had indicated that “insurers

may generally overcome their duty to defend by relying on

‘factual’ sources beyond the pleadings[,]” and Dairy Road

Partners expressed concern about this holding, because of the

potential for adverse consequences to insureds.           Id. at 417, 992

P.2d at 112.   First, the insured could “be saddled with the

Procrustean dilemma of being forced to adduce facts proving his

or her own liability in the underlying lawsuit in order to

satisfy the insurer that there may be merit to the underlying

covered claim.”    Id.   For example, in Dairy Road Partners, DRP

would have had to prove that its employee was acting within the

scope of his employment in order to demonstrate to Island

Insurance that DRP had coverage under its policy and thus Island

Insurance was required to defend.        Id.   However, DRP would be

liable in the underlying litigation if its employee was found to

be acting within the scope of his employment.          Id.   Thus, DRP

would be compelled to take inconsistent positions.           Id.

          Second, this court was also concerned with the

inconsistent judgments that could result if an insurer could look

to facts outside the complaint in disclaiming its duty to defend.

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Id.   Dairy Road Partners explained that “[a] circuit court

presiding over a declaratory judgment action might rule, based on

an insurer’s superior production of evidence concerning material

facts that will be directly in dispute in the underlying lawsuit,

that there is no possibility of coverage[,]” and “[s]ubsequently,

the trier of fact in the underlying lawsuit . . . might find that

the insured is liable on a claim covered by the policy.”              Id.

(emphasis in original).

            This court noted that “the majority of jurisdictions

addressing the issue forbade insurers from relying upon extrinsic

evidence for the purposes of disclaiming the duty to defend.”

Id. at 418, 992 P.2d at 113.         Dairy Road Partners ultimately

adopted the majority rule, with a limited exception, wherein an

insurer “may only disclaim its duty to defend by showing that

none of the facts upon which it relies might be resolved

differently in the underlying lawsuit.”           Id. at 422, 992 P.2d at

117 (emphasis in original).        In other words, the decision held an

insurer who relied on extrinsic facts in disclaiming its duty to

defend would have to show that those facts could not be disputed

in the underlying lawsuit.        Id.    Otherwise, the insurer would not

be allowed to disclaim its duty to defend based on those

extrinsic facts.      Id.   To illustrate, where an insurer argues

that an occurrence was outside of the effective period of the

policy, an insurer would likely be able to rely on that extrinsic

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fact, because “the parameters of the effective period of the

policy would not normally be subject to dispute in the underlying

action.”   Id. at 422 n.14, 992 P.2d at 117 n.14.

           Holding thus, Dairy Road Partners concluded that Island

Insurance was required to defend DRP and Shell, because the

additional facts it uncovered through its own investigation were

“inextricably intertwined in the factual matters at issue in the

underlying lawsuits and [could not], therefore, serve as a basis

for disclaiming the duty to defend.”        Id. at 423, 992 P.2d at 118

(emphasis added).

                                    2.

           Nautilus interprets the Dairy Road Partners decision as

dispositive on the issue of whether an insurer may look to “other

insurance” to disclaim its duty to defend.         Under Dairy Road

Partners, Nautilus asserts, “an insurer that issues a general

liability policy to an insured is obligated to defend a claim

whenever there is a ‘mere potential for coverage’ under the

policy.”   (Emphasis in original.) (Quoting id. at 413, 992 P.2d

at 108.)   According to Nautilus, Dairy Road Partners completely

excluded the possibility for an insurer to look to any extrinsic

evidence beyond the allegations in the complaint in determining

whether it had the duty to defend, unless such evidence would not

bear any relation to the question of liability in the underlying

suit.

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          Nautilus avers that the provision in its policy, adding

VP & PK as additional insureds, would constitute extrinsic

evidence bearing a relation to the question of liability in the

underlying suit, and thus cannot be considered by Lexington in

disclaiming its duty to defend.       In Nautilus’s view, the “facts”

this court referred to in Dairy Road Partners “(1) must be

relevant to the underlying lawsuit, and (2) cannot be open to a

different resolution than what the insurer believes them to be.”

          Lexington, on the other hand, responds that “[t]o find

that insurers may not consider other policies covering their

insured would deprive them of essential information in

ascertaining whether there is a duty to defend.”           Lexington

argues that to hold otherwise “would render ‘other insurance’

clauses meaningless, in contravention of this court’s case law

holding that contract provisions should not be interpreted such

that they are rendered meaningless.        (Citing Stanford Carr Dev.

Corp. v. Unity House, Inc., 111 Hawai#i 286, 297, 141 P.3d 459,

470 (2006).) (Other citations omitted.)

          As to the import of Dairy Road Partners, Lexington

avers that that decision does not preclude an insurer from

looking at the available insurance policies in order to determine

whether or not it has a duty to defend an insured.           According to

Lexington, this court “focused on the unintended consequences of

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permitting insurers to rely on factual sources beyond the

pleadings.”   (Emphasis added.)

           Lexington emphasizes that the two concerns articulated

by this court in Dairy Road Partners, first, that an insured

would have to prove his or her own liability in the underlying

lawsuit in order to satisfy the insurer that it has the duty to

defend, and second, that allowing insurers to rely on factual

sources behind the pleadings that may result in inconsistent

judgments, are not present in this case.         Instead, it argues, “VP

& PK was not forced to allege facts proving its own liability in

order to trigger the duty to defend because Nautilus had already

agreed to provide a defense; and [] there was no risk of

inconsistent judgments because the Nautilus and Lexington

policies were not before the jury in the [u]nderlying [a]ction.”

                                    3.

           Dairy Road Partners clearly established the principles

that the duty to defend is broader than the duty to indemnify,

and that “[a]ll doubts as to whether a duty to defend exists are

resolved against the insurer and in favor of the insured[.]”               92

Hawai#i at 412, 992 P.2d at 107 (citations and internal quotation

marks omitted).    In the same vein, this court has held 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.’”        Id. (emphasis in original)

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(quoting Standard Oil Co. of California v. Hawaiian Ins. & Guar.

Co., Ltd., 65 Haw. 521, 527, 654 P.2d 403, 407 (1973)) (other

citation and internal quotation marks omitted).           These precepts

are ultimately relevant to our answers to the certified questions

presented to this court.

            However, the specific holding in Dairy Road Partners

does not appear dispositive of the outcome of the first certified

question.    The extrinsic evidence considered in Dairy Road

Partners included factual matters relevant to the outcome of the

underlying litigation.     Here, in contrast, the question is

whether an insurer may take into account the operation of its

policy in conjunction with other insurance policies, to determine

if it must defend a particular suit.        Thus, the insurer would be

looking at the construction and operation of other insurance

policies in disclaiming a duty to defend, which presents some

different considerations than the “extrinsic evidence” that was

at issue in Dairy Road Partners.

            The clearest signal that Dairy Road Partners does not

control in this case is the rationale expressed in Dairy Road

Partners that allowing insurers to rely on extrinsic factual

evidence could potentially (1) compel the insured to adduce facts

proving his or her own liability in the underlying suit; and (2)

result in inconsistent judgments regarding facts that would be in

dispute in the underlying lawsuit as well as relevant to the

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insurer’s duty to defend.       92 Hawai#i at 417, 992 P.2d at 112.

As Lexington correctly points out, these concerns will generally

not be implicated when the question is whether an insurer should

be able to look to other insurance companies’ policies when

disclaiming the duty to defend.        The question of whether the

insured has coverage under another policy is typically one of

contract interpretation, and thus may not involve issues that

could be in dispute in the underlying action.5

            While the insurance company in Dairy Road Partners

conducted independent investigative research into the

circumstances of the underlying occurrence, here, in contrast,

the “research” contemplated would be identifying and interpreting

the policies of other companies that had potentially applicable

insurance.    Therefore, extrinsic “facts” may be distinguished

analytically from extrinsic “policies”, and Dairy Road Partners

does not mandate a specific answer to the first certified

question.

                                     B.

            “Primary insurance is typically the first layer of

coverage.”    See 23 Appleman, Insurance Law and Practice § 145.1,

      5
            As this case illustrates, however, sometimes the question of
whether the insured is covered under another policy will involve facts that
could be relevant to the underlying litigation. As will be explained infra,
the question of whether VP & PK is covered under Nautilus’s policy turns on
whether Kila Kila was negligent -- an issue squarely addressed in the
underlying litigation.

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at 3 (2003) [hereinafter “Appleman”]; Liberty Mut. Ins. Co. v.

Sentinel Ins. Co., 120 Hawai#i 329, 354, 205 P.3d 594, 619 (App.

2009).    A carrier’s obligations under a primary policy attach

whenever there is a possibility of coverage, even when that

possibility is remote.       See, e.g., Dairy Road Partners, 92

Hawai#i at 412, 992 P.2d at 107.         “The second layer of coverage

is excess coverage.”       23 Appleman § 145.1, at 4.        The difference

between coverages has been explained thusly:
            Because separate premiums are assessed against the insured
            for excess and primary coverage, excess coverage is not
            triggered until the underlying primary policy limits are
            exhausted within the meaning of the excess policy. Also, in
            contrast to primary policies, a pure excess policy provides
            specific coverage above an underlying limit of primary
            insurance and often will refer directly within the excess
            policy declaration and policy itself to primary insurers as
            well as other excess insurers.

Id.

                                      1.

            Here, Lexington’s policy provides that its otherwise

primary insurance becomes excess in the event that “other

insurance” is available.        This is known as an “other insurance”

clause.    See Walton v. State Farm Mut. Auto Ins. Co., 55 Haw.
326, 329, 518 P.2d 1399, 1401 (1974).          Such clauses have been

upheld in this jurisdiction, so long as “‘they are not in

contravention of statutory inhibitions or public policy.’”

Liberty Mut. Ins. Co., 120 Hawai#i at 349-50, 205 P.3d at 614-15

(quoting First. Ins. Co. of Hawai#i v. State, 66 Haw. 413, 423,

665 P.2d 648, 655 (1983) (other citation omitted)).             As relevant

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to this case, Lexington’s otherwise primary policy becomes an

excess policy by operation of the “other insurance” clause.

            The relationship between the potential primary and

excess coverages in this case is different from many other types

of cases where excess coverage is considered.           Here, Lexington’s

policy was primary coverage for VP & PK (not taking into

consideration the “other insurance clause”), and Nautilus’s

policy was primary coverage for Kila Kila, and possibly also

provided primary coverage for VP & PK by operation of Nautilus’s

“Additional Insureds” endorsement.         Thus, presumably, VP & PK

negotiated with Lexington and paid premiums for a primary

coverage policy that included, inter alia, the “other insurance”

clause, and Kila Kila negotiated with Nautilus and paid premiums

for a primary coverage policy that included, inter alia, the

additional insured endorsement of VP & PK.6

                                     2.

            To reiterate, the policy that Nautilus issued to Kila

Kila included an endorsement of VP & PK as an “additional

insured”, stating that “WHO IS INSURED is amended to include as

an insured [VP & PK], but only for liability arising out of [Kila

Kila’s] negligence and only for occurrences or coverage not

      6
            Nautilus’s policy also contained a substantially similar “other
insurance” provision, but as will be explained infra, since there are no
allegations that Kila Kila had “other insurance”, this provision from
Nautilus’s policy is not at issue.

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otherwise excluded in the policy to which this endorsement

applies.” (Emphasis added.)      Lexington’s “other insurance”

clause, in turn, only applies if VP & PK has other insurance, and

so in order for Lexington’s “other insurance” clause to become

operable, it appears that the “additional insured” endorsement in

Nautilus’s policy must also be triggered.

          Nautilus alleges that the “additional insured”

endorsement in its policy could have been resolved in two

different ways, depending on the outcome in the underlying case.

Based on the language of the endorsement, Nautilus asserts that

VP & PK would only be covered as an additional insured under its

policy in the event that Kila Kila were found to be negligent.

According to Nautilus, the coverage of VP & PK was contingent on

the outcome of the underlying litigation, and therefore,

Lexington had no right to consider Nautilus’s policy when

disclaiming the duty to defend.

          Nautilus further cites to a New York case, 83 Kajima

Const. Servs., Inc. v. Cati, Inc., 302 A.D.2d 228 (N.Y. App. Div.

2003), in support of its contention.        Nautilus analogized the

circumstances in Cati, Inc., which involved two insurers with

“additional insured” language in one of the policies, to those in

this case.   According to Nautilus, the coverage of one of the

insureds in Cati, Inc. was contingent on “the negligence or

responsibility of the named insured.”        (Quoting Cati, Inc., 302

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A.D. at 228.)   The New York Appellate Division, First Department,

held that under those circumstances, the duty of one of the

insurers to defend could be “deferred pending determination of

the underlying action.”     (Quoting id. at 229.)       Nautilus contends

that in this case, based on its additional insureds provision,

Nautilus’s duty to defend VP & PK could have similarly been

deferred until Kila Kila’s negligence was determined in the

underlying case, and that, until such a determination was made,

Lexington would have been obligated to defend VP & PK.

          Nautilus also alleges that Lexington wrongly assumed

that it was an excess insurer pursuant to its “Other Insurance”

clause. In Nautilus’s view, “Lexington was primary as to the

liability of its named insured, and could have been primary

throughout the entire defense[,]” because Nautilus’s Additional

Insured Endorsement did not even apply until Kila Kila was found

negligent.   According to Nautilus, it had the right to place

conditions on its additional insured endorsement obligation, and

if those conditions were not met, then VP & PK would not have

been an additional insured to Nautilus’s policy.

          Moreover, Nautlius alleges that “[if] members of the

Hawai#i Supreme Court can come to two different interpretations

with respect to the same insurance policy,” as they did in Dairy

Road Partners, where two justices dissented to the majority’s

interpretation of the business automobile liability policy,

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“surely Lexington can appreciate the possibility that when it

interpreted Nautilus’ policy that there may be an interpretation

of the policy that was different from its own interpretation.”

As a policy matter, Nautilus maintains that, “[b]ased on the

complexity of an insurance policy, an insurer should not be

allowed to look at another insurer’s policy when deciding whether

or not the insurer owes its insured a duty to defend.”

          As to the significance of the limitations on Nautilus’s

“Additional insured Endorsement,” Lexington argues that it does

not matter whether it was conditioned on Kila Kila’s negligence,

because there were allegations in the underlying action that Kila

Kila had been negligent, and Nautilus had a duty to defend based

on those allegations.     According to Lexington, “[j]ust because it

was later determin[ed] that Kila Kila was not negligent, does not

negate Nautilus’ duty to defend.”

          Lexington avers that, by operation of its “Other

Insurance” provision, Nautilus was the primary insurer of VP &

PK, and was defending, and therefore Lexington had no duty as an

excess insurer to defend under the circumstances.           Lexington

distinguishes Cati, Inc. on the basis that the additional insured

provision in that case was worded differently than Nautilus’s

Additional Insured Endorsement.       In Cati, Inc., the policy

provided that “additional insured coverage will be primary only

if the underlying claim is determined to be solely as a result of

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the negligence or responsibility of the named insured[,]” (some

emphasis omitted) (quoting Cati, Inc., 302 A.D.2d at 229),

whereas Nautilus’s Additional Insured Endorsement does not

contain that specific contingent language.         Therefore, Lexington

asserts, because there was negligence on the part of Kila Kila

alleged in the underlying action, Nautilus “had the primary duty

to defend as determined at the outset pursuant to the language of

the Additional Insured Endorsement and Hawai#i law.”

          In its Reply Brief, Nautilus responds that in a

coverage dispute all relevant insurance policies may be

considered, but that when an insurer is determining its duty to

defend its insured, “[t]he fact that there is another insurer

providing a defense to the insured is irrelevant [because] [a]n

insurance policy between an insurer and its insured is personal.”

Nautilus argues that allowing one insurer to look at another

insurer’s policy would increase the risk of prejudice, for

example, should the insurer misinterpret another insurer’s

policy.   Nautilus explains that, illustrative of such, Lexington

has misinterpreted Nautilus’s Additional Insured endorsement to

be contingent on “alleged negligence” when in actuality it is

contingent on “actual negligence.”        According to Nautilus, if

Lexington’s interpretation of the Additional Insured Endorsement

were accurate, then Nautilus would have had to pay the judgment

against VP & PK so long as the complaint alleged negligence

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against Kila Kila, regardless of whether the jury found Kila Kila

to actually be negligent.

           Nautilus also counters Lexington’s argument that

limiting an insurer’s ability to consider other insurance

policies would render “other insurance” provisions meaningless.

Nautilus avers that “other insurance” clauses, like the one in

Lexington’s policy, relate to the duty to indemnify, rather than

the duty to defend. The duty to indemnify would not be affected

by any limitations on what an insurer can consider in deciding

whether it has the duty to defend.

                                    3.

           In recognition of the fact that the duty to defend is

broader than the duty to indemnify, Hart v. Ticor Title Ins. Co.,

126 Hawai#i 448, 458, 272 P.3d 1215, 1225 (2012), courts have

held that “if an exclusion may operate to relieve an insurer of

its duty to indemnify and the applicability of the exclusion

cannot be determined until after a trial, the insurer must defend

the underlying suit.”     Ostrager & Newman, Insurance Coverage

Disputes   § 5.02(a), at 312.      Nautlius’ argument is that since

the “other insurance” provision in Lexington’s policy would

operate to relieve Lexington of its duty to indemnify only if

Kila Kila was negligent, an issue to be determined at trial,

Lexington had the duty to defend the underlying suit.

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                                    C.

            Ultimately, in deciding whether insurers may look to

other policies in disclaiming the duty to defend, we rely on

policy considerations behind why the duty to defend exists,

including what options are available to insurers, Hawai#i

jurisprudence on the duty to defend, the possible risks in

allowing insurers to disclaim their duty based on other policies,

and the reasonable expectations of insureds.

            We have observed that “insurers have the same rights as

individuals to limit their liability[] and to impose whatever

conditions they please on their obligation, provided they are not

in contravention of statutory inhibitions or public policy.”

First Ins. Co. of Hawai#i, Inc. v. State, 66 Haw. 413, 423, 665
P.2d 648, 655 (1983) (internal citations and quotation marks

omitted).    On the other hand, however, we have long held that any

ambiguities in an insurance contract regarding coverage are

resolved in favor of the insured as against the insurer.            See

Tri-S Corp. v. W. World Ins. Co., 110 Hawai#i 473, 489, 135 P.3d
82, 98 (2006) (explaining that ambiguities must be resolved in

favor of the insured and “policies are to be construed in accord

with the reasonable expectations of a layperson”); Allstate Ins.

Co. v. Ponce, 105 Hawai#i 445, 458, 99 P.3d 96, 109 (2004)

(holding that the ambiguity in the term of the insurance contract

should be resolved in favor of the insured); Estate of Doe v.

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Paul Revere Ins. Group, 86 Hawai#i 262, 277, 948 P.2d 1003, 1118

(1997) (stating that this court must “resolve any contractual

ambiguities against the insurer”); see also Allstate Ins. Co. v.

Pruett, 118 Hawai#i 174, 186 P.3d 609 (2008) (applying these

principles in interpreting ambiguous language in an insurance

contract exclusion).

           When it comes to the duty to defend, a heavy burden is

placed on the insurer if that insurer wishes to disclaim its

duty.   To reiterate, “‘the duty to defend rests primarily on the

possibility that coverage exists.’”        Tri-S Corp., 110 Hawai#i at

488, 135 P.3d at 97 (emphasis in original) (quoting Dairy Road

Partners, 92 Hawai#i at 412, 992 P.2d at 107).          Furthermore, to

reiterate, all doubts as to a duty to defend are resolved against

the insurer and in favor of the insured.         Id.

           “The contractual obligation to defend is triggered by

the insured tendering the defense to the insurer.”           22 Appleman §

136.1, at 8.   If an insurer is not certain as to whether coverage

exists, there are several options available to that insurer.               The

insurer may file a declaratory judgment action to determine

whether it is required to defend, it can defend under a non-

waiver agreement or reservation of rights, or it can refuse to

defend and risk the consequences.        22 Appleman § 136.7, at 45.

           The first of these options enables an insurer to

establish in a court action whether it must defend.           This permits

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an insurer to determine coverage issues, “allowing the insurer to

address the limits of its duty to defend without risking a later

finding that it acted in bad faith.”         Id. at 50.     However, as

will be explained, an otherwise primary insurer may not disclaim

its duty to defend on the basis of a general “other insurance”

provision.7    By requiring that a primary insurer have the duty to

defend, regardless of its “other insurance” clause, an insured

will be ensured a defense where he or she may be entitled to one.

            The second option, defending under a non-waiver

agreement or reservation of rights, permits an insured to

“satisfy its duty to defend the policyholder while simultaneously

preserving its ability to rely later on any available policy

defenses that might have vitiated the duty.”           Id.; see AIG Hawaii

Ins. Co., Inc. v. Smith, 78 Hawai#i 174, 179-80, 891 P.2d 261,

266-67 (1995) (discussing the validity of a reservation of rights

by the insurer in connection with tendering a defense).             It has

been explained that “[a] reservation of rights agreement is

notice by the insurer to the insured that the insurer will defend

the insured but that the insurer is not waiving any defenses

. . . it may have under the policy.”         First Ins. Co. v. Hawaii,

Inc. v. State, 66 Haw. at 422, 665 P.2d at 654 (internal

      7
            Of course, where one insurance policy explicitly contemplates the
operation of another specifically named policy by reference, the insurer will
not be looking outside its own policy, and therefore may look to that named
policy in disclaiming its duty to defend.

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quotation marks and citation omitted).         In the event that it is

later determined that the insurer had no duty to defend, the

insurer may recoup its expenses from the insured.           See 22

Appleman § 136.7, at 46.

          This ability of an insurer to tender a defense under a

reservation of rights, without necessarily acceding to the notion

that its policy provides coverage, supports the conclusion that

insurers should not be permitted to look to other policies in

disclaiming the duty to defend.       Insofar as an insurer may

believe that another policy provides coverage, in lieu of its

policy, that insurer may tender a defense under a reservation of

rights -- leaving open the possibility that another insurer may

be ultimately   responsible for the costs of coverage.

          It is the third of these options -- an insurer refusing

to defend and risking the consequences -- that we hope to avoid

in situations where the insurer would be primary, except by

operation of its “other insurance” clause.         Where an insured has

contracted for primary insurance, an insurer should not be able

to refuse to defend and place the risk on the insured, of the

insurer’s erroneous understanding of another insurance policy

that is not part of the original contract.         Instead, all primary

carriers should be involved in the initial proceedings where the

complaint alleges facts within the scope of coverage.            See Dairy

Road Partners, 92 Hawai#i at 422, 992 P.2d at 117.

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            In Hawai#i, it has been established that insurers may

look to the facts of the complaint8 and their own policies in

determining whether they have the duty to defend a particular

action.   In Lexington’s view, insurance companies should be able

to interpret other policies as well in disclaiming the duty to

defend.   The danger in this approach, as Nautilus points out, is

that the insurance company may misinterpret the other policy in

disclaiming its duty.      Of course, an insurer may misinterpret its

own policy, but misinterpretation may be of a greater risk where

the insurer is examining a contract to which it is not a party.

            We have held that “[t]o ascertain whether coverage

exists in insurance coverage disputes, we must look to the

language of the insurance policy consistent with the insurer and

insured’s intent and expectations.”         Methven-Abreu v. Hawaiian

Ins. & Guar. Co., 73 Haw. 385, 390, 834 P.2d 279, 283 (1992)

(internal quotation marks omitted); but cf. Willis v. Swain, 129

Hawai#i 478, 485 n.12, 304 P.3d 619, 626 n.12 (2013) (“While

courts say they are looking for the intention of the parties, in

reality they are making a judgment about the scope of coverage

based on the text of the policy, the circumstances, and public

policy.” (emphasis omitted) (internal quotation marks and

citation omitted)).      An insurer who is not a party to a

      8
            As explained supra, Dairy Road Partners limited the ability of
insurers to use extrinsic facts in disclaiming their duty to defend.

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particular “other” contract may not be able to accurately

ascertain the expectations of the insurer and insured who are the

actual parties to the other contract.

             Moreover, the relationship between the insured and its

primary insurer with respect to the duty to defend is a personal

one.    See, e.g., Am. Fid. & Cas. Co. v. Penn. Thresherman &

Farmers’ Mut. Cas. Ins. Co., 280 F.2d 453, 459 (5th Cir. 1960)

(stating that “the duty to defend is one which is personal to the

relationship of [the] insurer and [the] assured”).              The insured

chose a particular insurer as its primary insurer, and as such, the

insured has the reasonable expectation that that insurer will come

to the insured’s defense where coverage is applicable.               See Dairy

Road Partners, 92 Hawai#i at 422, 992 P.2d at 117; Commerce & Indus,

Ins. Co. v. Bank of Hawai#i, 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 that it merely might not be.” (internal quotation marks and

citation omitted)).

             Accordingly, where an insured has contracted for primary

insurance, that insured should be entitled to a defense by its

insurer.     See Hawaiian Holiday Macadamia Nut Co. v. Indust. Indem.

Co., 76 Hawai#i 166, 169, 872 P.2d 230 (1994) (holding that the

“insurer’s duty to defend its insured is contractual in nature”).

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In General Motors Acceptance Corp. v. Nationwide Insurance Co., 828
N.E.2d 959 (N.Y. 2005), for example, the New York Court of Appeals

addressed a similar situation where there were two coincidental

primary insurance policies, but where one was deemed “excess” by

the operation of an “other insurance” clause. 828 N.E.2d at 962.

That court reasoned that “[p]rimary insurance premiums are based,

at least in part, on the insurer’s consideration that it may be

liable to defend an action[,]” and held that “[r]elieving primary

insurers of the duty to defend would provide a windfall to the

carrier insofar as the costs of defense -- litigation insurance --

are contemplated by, and reflected in, the premiums charged for

primary coverage.”       Id.

            Therefore, we hold that a primary insurer may not look to

another insurance policy in disclaiming its duty to defend.                 If a

primary insurer is tendered a defense, and believes that it is

actually an excess insurer or otherwise has no duty to defend by

operation of its “other insurance” clause, then that primary

insurer must still defend in the action.          This is the appropriate

remedy, rather than leaving the defense up to other insurers or,

potentially up to the insured, where the insured has contracted for

primary insurance coverage.9       The options available for a primary

      9
            However, where an insurer holds a true excess policy, then the
parties have bargained for excess insurance. As noted, in many of these true
excess policies, the other applicable primary insurance is specifically
listed, and such policies are designed to provide coverage over and above
                                                                   (continued...)

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insurer that believes it has been rendered an excess insurer by the

operation of its “other insurance” clause are discussed below.

                                      III.

           Question 2:     Whether an “other insurance” clause that

purports to release an otherwise primary insurer of the duty to

defend if the insurer becomes excess as to liability is

enforceable.

                                     A.

           As to this question, the bulk of Nautilus’s arguments

are premised on the specific provisions of Lexington’s policy,

rather than as addressed toward the more general question posed

by the Ninth Circuit to this court.          Nautilus avers that

Lexington’s “Other Insurance” clause violated “‘the rule the

insurance provisions that take away or limit coverage must be

conspicuous, plain, and clear.’”          (Quoting Carmel Dev. Co. v. RLI

Ins. Co., 126 Cal. App. 4th 502, 516 (2005).)           It reiterates that

Lexington’s “Other Insurance Clause” is contingent on the outcome

at trial, and since Kila Kila was found not to be negligent,

     9
       (...continued)
other existing primary policies. See 23 Appleman § 145.1, at 5 (“[I]n
contrast to primary policies, a pure excess policy provides specific coverage
above an underlying limit of primary insurance and often will refer directly
within the excess policy declaration and policy itself to primary insurers as
well as other excess insurers.”). In such cases, an insurer may look to other
insurance policies in disclaiming its duty to defend in order to avoid
needless litigation either in the form of declaratory judgment actions, or
contribution of defense costs after the fact, where the insured did not
bargain for primary coverage from that insurer in the first instance, as was
explicitly considered in the contract between the insurer and insured.

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Nautilus was not responsible for any loss and therefore VP & PK

had no “other valid and collectible insurance.”           Nautilus further

argues that Lexington’s “Other Insurance” clause should be

interpreted to limit indemnification only.         As to “Other

Insurance” clauses generally, however, Nautilus does posit that

an “Other Insurance” clause that purports to release an otherwise

primary insurer of the duty to defend if the insurer becomes

excess as to liability should not be enforceable because it

“fails to give the insured adequate notice that it may not

receive a defense it believed it bargained for” and “blurs the

distinction between an insurer’s duty to defend and duty to

indemnify.”

          In response, Lexington alleges that there is no public

policy against enforcement of “other insurance” provisions, and

that the ICA has recognized the utility of excess “other

insurance” clauses in the context of uninsured motorist

insurance.    Liberty Mut. Ins. Co, 120 Haw. at 353-354, 205 P.3d

at 618-19.    Lexington maintains that under California law,

federal and state courts routinely enforce excess other insurance

clauses in the absence of prejudice to the insured.           (Citing

Fireman’s Fund Ins. Co. v. Md. Cas. Co., 65 Cal. App. 4th 1279,

1304 (1998) (“The courts will generally honor the language of

excess ‘other insurance’ clauses when no prejudice to the

interests of the insured will ensue.”).)         Lexington avers that

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the insured in this case was not prejudiced by the enforcement of

the “other insurance” clause, and was not left without a defense

due to the circularity of other insurance provisions.             Lexington

also declares that the placement of its clause does not violate

“the rule that insurance provisions that take away or limit

coverage must be conspicuous, plain, and clear”, that if Nautilus

had refused to defend VP & PK, Lexington would have defended

under the terms of its policy and contrary to Nautilus’s

suggestion, the insured would not be left “in a lurch”.

            In its Reply Brief, Nautilus reiterates that

“[i]nsureds should not be left to wonder if the carriers that

they have been paying premium rates to may or may not come to

their defense because they have been added on to another policy

as an additional insured.” As a policy matter, Nautilus suggests

that “[i]f insureds are added on as additional insureds on

another policy, let the insureds reap the benefits, not the

insurance companies who have been receiving premiums to provide

primary coverage.”

                                     B.

                                     1.

            In Liberty Mutual Insurance Co., the ICA majority10

      10
            The Honorable Corinne K.A. Watanabe filed an opinion dissenting in
part, holding that the excess “other insurance” clause “invalidly limited
Liberty Mutual’s [uninsured motorist] liability, as defined by Hawai#i
statutes and case law, is against public policy and is, therefore void and
                                                                (continued...)

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addressed an “other insurance” clause of an insurance policy

sharing some characteristics with the type of policy described in

the Ninth Circuit’s certified question -- specifically, it made

the named insurer into an excess insurer if there was any other

collectible insurance, under certain circumstances.            120 Hawai#i

at 345, 349, 205 P.3d at 610, 614.         The “Other Insurance”

provision in Liberty Mutual’s policy stated, in part, that “any

insurance we [Liberty Mutual] provide with respect to a vehicle

you [the named insured] do not own shall be excess over any other

collectible insurance.”      Id. at 345, 205 P.3d at 610 (emphases

added).   Thus, as with the “Other Insurance” provision presented

in this case, the Liberty Mutual provision transformed some of

its apparently primary coverage into excess coverage, if there

was other collectible insurance available.          See id.

           Rather than the duty to defend, the question in Liberty

Mutual Insurance Co. was whether Liberty Mutual was required to

pay for uninsured motorist benefits as a primary insurer or as an

excess insurer.     Id. at 336, 205 P.3d at 601.        In addressing this

issue, the ICA referred to policy considerations, and also

considered the statutory scheme governing automobile insurance

coverage, which is not at issue in this case.           The ICA majority

      10
        (...continued)
unenforceable.” Liberty Mut. Ins. Co., 120 Hawai#i at 356, 205 P.3d at 621
(Watanabe, J., dissenting in part).

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upheld the excess “other insurance” clause in Liberty Mutual’s

policy, stating that “such clauses serve valid purposes, such as

helping to keep costs of premiums down[,]” and that “[b]y

allowing insurance companies to set the priority of payment

through excess provisions, they are better able to assess the

risk of providing the coverage and to charge the insured

accordingly.”     Id. at 353, 205 P.3d at 619.

                                     2.

            This case presents a different question, however, in

that Liberty Mutual Insurance Co. considered an excess “other

insurance” clause in the context of the duty to indemnify -- and

here we consider the validity of that type of provision when it

allows the insurer to escape or become excess11 as to the duty to

defend where the insurer is excess as to liability.            In the

discussion supra, it was explained how the duty to defend is

broader than the duty to indemnify, Hart, 126 Hawai#i at 458, 272
P.3d at 1225, and in accordance with that axiom, Nautilus urges

us to make unenforceable any clauses relieving the primary

insurer of the duty to defend if the insurer becomes excess as to

liability.

      11
            Lexington avers that the operation of its “other insurance” clause
makes it only excess as to the duty to defend, and does not allow it to escape
the duty to defend entirely when it becomes excess as to liability. Both
situations are addressed herein, and the same result would apply in either
situation.

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          However, in light of our holding as to the first

certified question, we conclude that we need not render those

clauses completely unenforceable.        Instead, we simply reiterate

that a primary insurer has the initial duty to defend, regardless

of any “other insurance” provision purporting to relieve that

insurer of the duty to defend if it is deemed excess as to

liability, but that an insurer may enforce such an “other

insurance” clause when obtaining equitable contribution or

reimbursement for defense costs where it believes that it has

been made excess by operation of an “other insurance” clause.

          This result is consistent with the expectations of the

insured, specifically that where the insured is paying for

primary insurance, it will be defended where there is a

possibility of coverage.      See Dairy Road Partners, 92 Hawai#i at

412, 992 P.3d at 107.     The insured will not be “left in a lurch,”

as Nautilus avers, because the primary insurer, regardless of its

“other insurance” clause, will have a responsibility to defend.

Moreover, while such clauses may not be used to allow an

otherwise primary insurer to refuse to tender a defense

altogether, they will be enforced to achieve an equitable result

between two or more insurance companies, an approach that allows

the terms of the contract to take effect, without placing an

undue burden on the insured.       Cf. Sentinel Ins. Co., 76 Hawai#i

at 302, 875 P.2d at 919 (holding that under the circumstances of

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the case, “[e]quity . . . dictates that the court allocate

contribution among liable insurers in proportion to the time

periods their policies covered”).

          We note that some courts have held that if a primary

insurer undertakes the insured’s defense, it may not seek

reimbursement from another primary insurer, on the grounds that

there is no contractual relationship between the two insurers and

that the defending insurer was undertaking duties consistent with

its contract with the insured.       22 Appleman § 136.10 at 80-81;

see, e.g., Jostens, Inc. v. Mission Ins. Co., 387 N.W.2d 161, 166

(Minn. 1986) (“This court has held that when there is a bona fide

dispute between two carriers with overlapping coverages as to

which is primary, whichever undertakes to defend cannot pass on

its defense expense to the other carrier.”).          However, we

conclude that the better approach is to allow one insurer to

obtain contribution from another co-insurer that is also

contractually obligated to defend the insured.          See Nat’l Indem.

Co. v. St. Paul Ins. Co., 724 P.2d 544, 544-45 (Ariz. 1986)

(“When an insurer has a duty to defend the insured, there should

be no reward to the insurer for breaching that duty.            A breach of

the obligation to defend should not be encouraged, but the rule

which allows an insurer to avoid the costs of defense tends to

encourage an avoidance of the insurer’s responsibilities.”).

This contribution or reimbursement shall be in accordance with

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all contract terms, including those purporting to make one

insurer excess to the other where “other insurance” is

available.12

            As to the Ninth Circuit’s second certified question, we

therefore answer “yes”, but conditionally.          “Other insurance”

clauses purporting to relieve the insurer of the duty to defend

if the insurer becomes excess as to liability are enforceable,

but only in an action between two or more insurers for recovery

of defense costs.

                                     IV.

            Question 3:    Whether the irreconcilability of “other

insurance” provisions in otherwise primary insurance policies

should be determined before or after the operation of the “other

insurance” provisions is determined.

            The “irreconcilability” referenced by the Ninth Circuit

in this question is the concept, mentioned above, that “other

insurance” provisions may become irreconcilable, or mutually

repugnant, where identical clauses are presented in two primary

liability policies.      “When both policies contain ‘other

insurance’ clauses which provide that the coverage afforded shall

be deemed excess insurance if other insurance exists to cover the

      12
            As will be discussed infra, where both primary insurers have
“other insurance” clauses purporting to relieve them of the duty to defend,
such clauses are irreconcilable, or “mutually repugnant” and therefore will
not be enforced, leaving both insurers as primary insurers for purposes of
cost allocation.

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loss, most courts hold that the excess clauses operate to cancel

each other out and the policies of both insurers must be

considered primary insurance.”       Ostrager & Newman, 2 Handbook on

Insurance Coverage Disputes § 11.03, at 1001.

                                    A.

            Nautilus argues that it should be first determined

whether the two policies insured against the same risk at the

same level of coverage, then determine whether or not the two

policies conflict, and only then determine the operation of the

“Other Insurance” provisions.       According to Nautilus, the two

policies in this case did not insure against the same risk at the

same level of coverage, and so there was no need to determine

whether the policies conflict.       Nautilus further alleges that,

even assuming that the two policies did provide the same level of

coverage, the policies contain almost identical “other insurance”

language and therefore are irreconcilable.         Finally, Nautilus

contends that the operation of the “other insurance” provisions

should be determined last because until it has been determined

that there is a “loss”, which is typically determined at the end

of the underlying lawsuit, it is not necessary to determine the

operation of the “other insurance” provisions.

            Lexington responds that a court should first determine

whether “other insurance” provisions in two policies actually

conflict.    In Lexington’s view, “[t]he rule of repugnancy should

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only apply if there is an actual conflict between the two “other

insurance” clauses,” and here, there was no such conflict.

(Citation omitted.) (Emphasis in original.)          Contrary to

Nautilus’s argument, Lexington maintains that there is no need to

decide whether there is the same level of coverage or level of

risk between the two policies, because the duty to defend does

not require this determination.       Instead, Lexington notes,

“‘other insurance’ provisions must be reviewed at the inception

of litigation,” because “[i]f there is a covered claim . . .

then there is a duty to defend; but then where there are multiple

insurers, then the policy language, the contractual language,

must be reviewed and analyzed to determine if there is a priority

or primary in that defense.”

                                    B.

          As noted, the majority view is that “other insurance”

policies that are irreconcilable, or “mutually repugnant” will

negate each other, and neither will be enforced.           See Liberty

Mut. Ins. Co., 120 Hawai#i at 354, n.23, 205 P.3d at 619 n.23

(explaining, but not applying, this concept).          The underlying

proposition is that where both policies have identical “other

insurance” provisions which provide that the coverage afforded

will be deemed excess insurance if other insurance exists to

cover the loss (or tender a defense), these excess clauses

operate to “cancel each other out”, and the policies of both

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insurers must be considered primary insurance.           See, e.g., CSE

Ins. Grp. v. Northbrook Prop. & Cas. Co., 23 Cal. App. 4th 1839

(1994); Empire Cas. Co. v. St. Paul Fire & Marine Ins. Co., 764
P.2d 1191, 1199 (Colo. 1998); Universal Underwriters Ins. Co. v.

Allstate Ins. Co., 592 A.2d 515, 517 (N.H. 1991).            Put another

way, if each excess clause was given effect, neither policy would

provide primary coverage.13      See, e.g., Fed. Ins. Co. v. Atl.

Nat’l Ins. Co., 250 N.E.2d 193 (N.Y. 1969).

            Setting the issue of irreconcilability aside

temporarily, we note that although both policies in this case

contain an “other insurance clause,” by their operation the

clauses do not create a scenario in which the two policies would

“cancel each other out” and neither would provide primary

coverage.    Only Lexington’s “other insurance” provision could

potentially take effect in this case, because VP & PK was added

as an “additional insured” onto Nautilus’s policy.            By contrast,

the “other insurance” provision in Nautilus’s policy would not

have taken effect because Kila Kila was not an “additional

insured” on Lexington’s policy.        By adding VP & PK as an

“additional insured” under certain circumstances, Nautlilus

understood that it may have had to provide coverage for VP & PK.

      13
            This same reasoning applies where two or more primary policies
contain “escape” clauses, which, if both were enforced, would deprive the
insured of all coverage. See 22 Appleman § 140.3, at 399.

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Presumably this consideration was taken into account as part of

the premiums that Nautilus charged to Kila Kila.

            These circumstances are distinguishable from the

situation argued by Nautilus in its briefs.          A more typical

situation arises where there is one insured and two insurance

companies, and both insurance companies are deemed excess by

operation of the “other insurance” provisions, thereby leaving

the insured with no primary insurance.         Here, instead, VP & PK

will either be covered by Nautilus as a primary insurer, because

it is listed as an “additional insured” on Nautilus’s policy, or,

the “additional insured” provision will not come into play, so VP

& PK will not be covered by Nautilus, and therefore, the “other

insurance” provision in Lexington’s policy will not be triggered,

and Lexington will remain the primary insurer.

            Where it is possible to avoid a finding of “mutual

repugnance” altogether, therefore, it should be determined from

the face of the two policies, and the allegations in the

complaint, whether such allegedly “mutually repugnant” clauses

are actually relevant before both clauses are deemed inoperable.

For example, it has been explained that “[w]hen only one of two

policies co-insuring the same loss contains an ‘other insurance”

clause, courts generally will give effect to the ‘other

insurance’ provision (if it is not contrary to statute or public

policy).”    Ostrager & Newman, 2 Handbook on Insurance Coverage

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Disputes § 11.03[b], at 999.       This rule seeks to effectuate the

intent of the insurers and avoid cancelling out contract terms

that need not be voided.      Similarly, when only one of the “other

insurance” clauses in two or more policies would be relevant in a

given case based on the terms of the clause and the allegations

in the underlying case, the clause that does become operational

should be given effect.

          This is not to say, however, that the full operation of

the clauses must be determined before irreconcilability may be

considered.   For example, here, there is a dispute about whether

VP & PK was actually covered as an “additional insured” under

Nautilus’s policy, based on the issue of Kila Kila’s negligence,

which was resolved only in the underlying trial.           A court looking

at the insurance contracts at any time prior to the conclusion in

the underlying litigation would not necessarily be able to

ascertain whether Lexington’s “other insurance” would actually

become fully operational.      However, in this case one would be

able to determine whether the clauses would even be relevant by

looking at the face of the contracts and the allegations of the

complaint.    Lexington’s clause is relevant and Nautilus’s is not.

Based on this preliminary determination, there would be no need

to consider irreconcilability or mutual repugnance.

          By determining whether an “other insurance” clause is

triggered first, a court may be able to avoid irreconcilability

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or mutual repugnance, such as in this case, and better effectuate

the contract language.     This is consistent with the principle

that “[i]nsurance policies are subject to the general rules of

contract construction,” and thus, “the court must . . . respect

the plain terms of the policy and not create ambiguity where none

exists.”   First Ins. Co. of Hawai#i, Inc., 66 Haw. at 423-24, 665

P.2d at 655 (alteration in original) (internal brackets,

citations, and quotation marks omitted).         We hold, therefore,

that it must first be determined whether two or more “other

insurance” provisions are relevant, based on the face of the

policies and the complaint, and only then must it be decided

whether the provisions are irreconcilable.         The complete

operation of the “other insurance” clauses may be resolved

thereafter.

                                    V.

           Question 4:    Whether, and when, an excess insurer, or

otherwise primary insurer who becomes an excess insurer by

operation of an “other insurance” clause, has a duty to defend.

                                    A.

                                    1.

           As to this question, as noted before, Nautilus avers

that a primary insurer who becomes an excess insurer by operation

of an “Other Insurance” clause has the duty to defend its insured

because “the duty to defend is one which is personal to the

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relationship of [the] insurer and [the insured].”           Nautilus

analogizes the facts to those of American Fidelity & Casualty

Co., where, according to Nautilus, two individuals, Clay and

Britt, were covered by two different insurers.          (Citing 280 F.2d

at 455.)   “American” was Clay’s primary insurer and

“Pennsylvania” was Britt’s primary insurer.          (Citing id.)

American brought an action seeking a declaration that it did not

have a duty to defend Clay, because Clay was an additional

insured under the insurance policy between Britt and

Pennsylvania.   (Citing id. at 457.)

           American’s argument was based on the “other insurance”

clause in its policy, which American alleged rendered its policy

excess and Pennsylvania’s primary, thus relieving American of any

duty to defend Clay until Pennslyvania had exhausted its policy

limitations in doing so.      (Citing id. at 456-57, 456 n.4.)

Nautilus refers to the Fifth Circuit’s holding stating that

American was incorrect in believing that based on the “other

insurance” clause, “‘it was merely an ‘excess’ insurer, its duty

to defend, like the obligation to pay, was excess also.’”

(Quoting id. at 458.)     The Fifth Circuit concluded that “‘there

can be no possible basis for American’s denial of its contractual

duty of defense.’”    (Quoting id. at 457.)

           Thus, Nautilus maintains that Lexington is still

required to defend VP & PK even if it were excess as to its

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defense obligations.     In support of this contention, Nautilus

cites to Southern Farm Bureau Casualty Insurance Co. v. Allstate

Insurance Co., 150 F. Supp. 216 (W.D. Ark. 1957), for the

proposition that even where the insured’s primary insurer was

excess to another insurer for damages, it still had the duty to

defend the named insured, and to State Farm Mutual Automobile

Insurance Co. v. Foundation Reserve Insurance Co., 431 P.2d 737,

741 (N.M. 1967), which held that even though Allstate’s insurance

was excess, that did not relieve it of its duty to defend.             In

Nautilus’s view, the better rule is to require a primary insurer

who finds itself in an excess position because of an “other

insurance” clause to defend its named insured, because this rule

would “benefit an insured who paid for primary coverage and

expected primary coverage,” closing loopholes that would allow an

insurance company to “shirk its responsibility.”

          If the rule were otherwise, Nautilus points to the

possibility for oscillating coverage in this case, where

Lexington looked at Nautilus’s policy and concluded it was excess

and therefore did not owe a duty to defend, but where because at

trial Kila Kila was found not negligent, Nautilus’s policy then

became inapplicable to VP & PK, making Lexington VP & PK’s

primary insurer again.     Nautilus concludes that because there is

only a possibility that a primary insurer may become excess, that

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insurer has the duty to defend regardless of what the “other

insurance” clause may state.

                                    2.

          Lexington answers that by operation of its “other

insurance” clause, it did not have a duty to defend unless and

until Nautilus had exhausted its coverage, or unless Nautilus

refused to defend.    Lexington avers that despite Nautilus’s

allegations about the expectations the insured, here it is

undisputed that VP & PK never tendered its claim to Lexington,

but instead directly to Nautilus, “who VP & PK must have assumed

would provide them a defense.”       Lexington states that it is “not

asserting that it had no duty to defend, but rather by its policy

terms, [its] duty to defend was excess to Nautilus’s duty under

[both insurance companies’] policy language.”

          According to Lexington, some courts hold to the

contrary of the Fifth Circuit’s decision in American & Casualty

Co., with respect to the respective duties that subsist among one

or more otherwise primary liability insurers.          Lexington

maintains that the better approach is to “follow those courts

that give effect to or reconcile competing clauses dealing with

the existence of other insurance, at least where the insured is

being provided a defense by one or more of its carriers.”             In

connection with this proposal, Lexington cites to United States

Fidelity & Guaranty Co. v. Federated Rural Electric Insurance

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Corp., 37 P.3d 828 (Okla. 2001), for the proposition that

“‘[W]here an insured has both primary and excess liability

insurance, the excess insurer is not responsible to participate

in the costs of defense until after the limits of the primary

policy are exhausted[,]’” (quoting U.S. Fid. & Guar. Co., 37 P.3d

at 832-33), and to Western Casualty & Surety Co. v. Western World

Insurance Co., 769 F.2d 381 (7th Cir. 1985), for the view that

“‘when one policy is primary and the other is excess, only the

primary insurer need defend claims below the limits of the

primary policy.”     (Quoting W. Cas. & Sur. Co., 769 F.2d at

385).)14

            Finally, Lexington asserts that its approach is

consistent with the insurance law principles of “(1) honoring

insurers’ rights to limit their liability and impose whatever

conditions they please on their obligation, provided they are not

in contravention of statutory inhibitions or public policy; and

(2) that every insurance contract shall be construed according to

the entirety of its terms and conditions as set forth in the

policy.”    Lexington also points out that there is no prejudice to

      14
            Lexington also cites Liberty Mutual Insurance Co. v. Pacific
Indemnity Co., 579 F. Supp. 140, 145 (W.D. Pa. 1984), Continental Casualty Co.
v. Pacific Indemnity Co., 134 Cal. App. 3d 389 (1982), Hartford Accident &
Indemnity Co. v. Ryder Truck Rental, Inc., 85 A.D.2d 145, 447 (N.Y. App. Div.
1982), and U.S. Fire Insurance Co. v. United Service Auto Ass’n, 772 S.W.2d
218, 220 (Tex. Ct. App. 1989).

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the insured, apparently under terms such as those at issue in

this case, “because it must be and will be defended.”

                                    3.

          Nautilus replies that the cases cited by Lexington in

support of its position are not applicable to this case.

Nautilus argues that United States Fiduciary & Guarantee Co.

dealt with a true excess carrier, not one who becomes excess

through an “other insurance” provision, and that similarly,

Pacific Indemnity Co. dealt with “true excess” insurers.

Additionally, it states that Continental Casualty Co., Hartford

Accident & Indemnity Co., and U.S. Fire Insurance Co. do not

involve an additional insured issue.

          With respect to the Seventh Circuit’s decision in

Western Casualty & Sururety Co., Nautilus maintains that that

case supports its position that Lexington owed a duty to defend.

According to Nautilus, Western Casualty & Sururety Co. held that

“‘when a case is settled the claims of the two insurers must be

resolved according to the terms of the excess clauses.’”

(Quoting W. Cas. & Sur. Co., 769 F.2d at 385.)          Nautilus points

out the hypothetical Western Casualty & Sururety Co., regarding

the possible outcome had that case gone to trial, and “the

judgment revealed” that the first primary insurer did not cover

the “loss”, then that court may have allowed that primary insurer

to recover from a second primary insurer who had been deemed

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excess because there was other primary insurance covering the

“loss”.   (Citing id. at 386.)      Nautilus says that it, like the

first primary insurer in the hypothetical, did not cover the

“loss” and therefore Nautilus should be able to recover the costs

of defense from Lexington.

                                    B.

            In response to this certified question, we hold that

an otherwise primary insurer who becomes an excess insurer by

operation of an “other insurance” clause owes the duty to defend

from the time the defense is tendered.         “[T]he duty to defend

must be determined when the claim is initially asserted.”             Hart,

126 Hawai#i at 458, 272 P.3d at 1225 (internal quotation marks

and citation omitted).

                                    1.

           Our disposition as to the first question essentially

resolves this question as well -- because we hold that primary

insurers who could allegedly become excess insurers by operation

of an “other insurance” clause are not permitted to look to other

policies when determining whether they have a duty to defend.

Therefore, the duty to defend will arise as if they are the

primary insurers, inasmuch as they have not yet been deemed an

“excess insurer” by operation of the “other insurance” provision.

Pursuant to our holding herein, only if an otherwise primary

insurer is deemed an “excess insurer” in an action seeking

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contribution or reimbursement of defense costs may that insurer

look to the operation of an “other insurance” clause making it

excess.

            As to question 2, we held that “other insurance”

clauses purporting to release an otherwise primary insurer of its

duty to defend if it becomes excess as to liability are

enforceable in certain circumstances.        However, the question of

liability cannot be determined until after the conclusion of

litigation (or sometimes at all, in the event that the case

settles).    “[A]n insurer’s ultimate non-liability should not free

it from its concurrent and distinct contractual duty to defend.”

Id. (internal quotation marks and citation omitted).            Therefore,

the duty to defend may not be disclaimed by an otherwise primary

insurance carrier during the proceedings on the basis of a clause

purporting to make that insurer excess.

            The instant case illustrates the problem with allowing

an insurer to disclaim the duty to defend at any time before the

conclusion of the litigation based on such a clause.            For

example, the underlying litigation has been concluded in this

case, and it does not appear that Lexington can actually be

deemed an “excess insurer”.      As explained supra, Lexington can

only be an excess insurer if VP & PK is covered by another

policy.   VP & PK is covered by Nautilus’s policy only for

occurrences arising out of Kila Kila’s negligence.           Kila Kila was

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found not to be negligent in the underlying litigation.            Hence,

the additional insured coverage of VP & PK in Nautilus’s policy

was not operable, and, accordingly, Lexington’s “other insurance”

policy was also not operable.       It would appear to answer the

question presented, that Lexington, therefore, is the primary

insurer, and Nautilus should be able to recover defense costs in

full from Lexington.     None of this could necessarily have been

determined before the close of litigation, however, since VP &

PK’s indemnity coverage was dependent upon a particular finding.

          As explained supra, our case law holds that the duty to

defense arises where there is a mere possibility of coverage.

See Dairy Road Partners, 92 Hawai#i at 413, 992 P.2d at 108.

Extrapolating from this principle, we conclude that where it

cannot be determined whether an otherwise primary insurer becomes

an excess insurer until the conclusion of the underlying

litigation, that an otherwise primary insurer has the duty to

defend, from the time it receives tender of the defense.            In the

Seventh Circuit decision cited by parties’ briefs, Western

Casualty & Surety Co., that court stated that “[t]he state [of

Illinois] seeks to encourage all carriers to participate in the

initial proceedings, and as the state courts have found, it is a

bad idea to inform insurance carriers that whichever is the least

faithful to its obligation to the insured will escape all

liability as long as a responsible carrier covers the loss.”               769

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F.2d at 383.    We agree that all carriers must be encouraged to

participate in initial proceedings, and our holding as to these

questions is intended to mandate otherwise primary insurers to

defend and avoid uncertainty on the part of insureds as to who

will in fact provide his, her, or its defense.

                                     2.

            We turn briefly to the cases cited by the parties in

support of their respective positions.          In American Fiduciary &

Casualty Co., cited by Nautilus, the Fifth Circuit appears to

have reached the same conclusion that we reach herein, namely

that where the insurance coverage of an otherwise primary insurer

would become excess over other “valid and collectible insurance”

by operation of an “other insurance” clause, that primary insurer

must undertake the defense. 280 F.2d at 457.        The Fifth Circuit

explained that the duty to defend is one which is personal to the

relationship of the insurer and the insured -- and as such,

“[w]hatever may be the right ultimately to saddle off a part of

the cost of defense actually undertaken once payment has been

made, . . . it is contrary to the very nature of the contract

that the insurer can scout around in hopes that it can find

someone whose defense the [insured] is compelled to accept.”15

      15
            The Fifth Circuit does also appear to rely,   in part, on the fact
that the “other insurance” clause at issue in that case   did not refer to the
duty to defend. American Fiduciary & Casualty Co., 280 F.2d at 459. As
quoted supra, the “other insurance” clause in this case   does refer to the duty
                                                                  (continued...)

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Id. at 459-60 (emphasis added).

             Lexington does not appear to dispute the holding of

American Fiduciary & Casualty Co., but instead sets forth case

law from other jurisdictions in support of a different approach.

In U.S. Fiduciary & Guarantee Co., the Oklahoma Supreme Court

held that an excess insurer has no duty to participate in defense

costs. 37 P.3d at 830.     In that case, however, one of the

insurance companies involved was a primary insurer and one was a

true excess insurer, and thus it is not relevant in deciding this

certified question.      Id.    In Pacific Indemnity Co., the Western

District of Pennsylvania held that two insurance policies

covering the same risk both contained competing excess clauses,

and therefore neither clause was given effect and the two

insurers stood on equal ground. 579 F. Supp. at 143.       The costs

of the defense were then pro-rated in proportion with the policy

limits of the primary policies.        Id. at 144.     Thus, Pacific

Indemnity Co. also appears not to support Lexington’s position

because the two competing “other insurance” clauses were deemed

irreconcilable and not given effect.         Id. at 143.

             In Continental Casualty Co., the California Court of

Appeal addressed a dispute between two insurance carriers over

      15
       (...continued)
to defend. However, the Fifth Circuit’s reasoning remains persuasive
regardless of the presence or absence of a reference to the duty to defend in
the “other insurance” clause.

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their respective liability for settlement of a malpractice case.
134 Cal. App. 3d at 393.      That court construed the two “other

insurance” clauses in the policies, where the issue was

“conflicting excess insurance coverage[,]” id. at 397, and

accordingly concluded that it could “see no justification for

choosing one policy over the other as being primarily liable for

the excess liability.”     Id.   Continental Casualty Co. thus

allocated liability where there were irreconcilable clauses,

unlike this case, where the issue is defense costs.

           Hartford Accident & Indemnity Co. is also inapposite,

in that it appears to rest its holding on the fact that the

action involved an accident with a lessee driver, where one

insurer was the lessor’s insurer and one insurer was the driver’s

insurer. 85 A.D.2d at 147 (“There is no reason why the insurer

of a lessor should not be required to defend against an accident

of a lessee driver even when the driver has his own separate

insurance coverage.”).     In U.S. Fire Insurance Co., moreover, it

was “undisputed and uncontested” by one of the insurers that if

both insurers’ automobile liability policies provided coverage,

then under Texas law, its policy would be the primary policy and

the other one would be the excess policy. 772 S.W.2d at 222.

Thus, the primary/excess issue had already been resolved by

operation of Texas law, id., and as such, U.S. Fire Insurance Co.

is not on point.

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             In the Seventh Circuit’s decision in Western Casualty &

Surety Co., one otherwise primary insurer was deemed excess based

on a provision in its policy deeming it excess if the insured had

“other insurance insuring against a loss covered by this policy.”
769 F.2d at 383-84 (emphasis added).           That court’s holding

appears to be based on the fact that the case settled, and

therefore there was an established “loss” that would make one of

the insurers excess.        Id. at 384.     It stated that “when a case is

settled the claims of the two insurers must be resolved according

to the terms of the excess clauses[.]”            Id. at 385.    Although the

Seventh Circuit did explain that “when one policy is primary and

the other is excess, only the primary insurer need defend claims

below the limits of the primary policy[,]” this statement was in

a context where one insurer sought compensation from the other

for the costs of litigating and settling the suit.              Id. at 383,

385.

             In sum, none of the cases cited by Lexington evince

policy rationales that would support an approach different from

the one we take in responding to the Ninth Circuit’s certified

questions.      We therefore hold that the duty to defend arises at

the outset of the litigation for an otherwise primary insurer who

could become an excess insurer by operation of an “other

insurance clause.”

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                                   VI.

            Based on the foregoing, we answer the certified

questions as follows:

     1.     Whether an insurer may look to another insurer’s policy

in order to disclaim the duty to defend, where the complaint in

the underlying lawsuit alleges facts within coverage.

            Unless another insurer’s policy is specifically named

in the first insurer’s policy, an insurer may not look to another

insurer’s policy in order to disclaim the duty to defend, where

the complaint in the underlying lawsuit alleges facts within

coverage.

     2.     Whether an “other insurance” clause that purports to

release an otherwise primary insurer of the duty to defend if the

insurer becomes excess as to liability is enforceable.

            An “other insurance” clause purporting to release an

otherwise primary insurer of the duty to defend if the insurer

becomes excess as to liability is enforceable, but only as

between two or more insurers seeking to allocate or recover

defense costs.

     3.     Whether the irreconcilability of “other insurance”

provisions in otherwise primary insurance policies should be

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determined before or after the operation of the “other insurance”

provisions is determined.

          The relevance of the “other insurance” provisions

should be determined from the face of the policies and the

allegations in the complaint first.        Then, it can be decided

whether the relevant “other insurance” provisions are

irreconcilable or “mutually repugnant.”         If the provisions are

reconcilable, the operation of the “other insurance” provisions

may then be considered.

     4.   Whether, and when, an excess insurer, or an otherwise

primary insurer who becomes an excess insurer by operation of an

“other insurance” clause, has a duty to defend.

          An otherwise primary insurer who becomes an excess

insurer by operation of an “other insurance” clause has a duty to

defend as soon as a claim is tendered to it and there is the mere

possibility that coverage of that claim exists under its policy.

Roy F. Hughes and                    /s/ Mark E. Recktenwald
Charlene Tran Murata,
for plaintiff-appellant              /s/ Paula A. Nakayama

Randall Y. Yamamoto and              /s/ Simeon R. Acoba, Jr.
Christine E. Savage,
for defendant-appellee               /s/ Sabrina S. McKenna

                                     /s/ Richard W. Pollack

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