Court Opinion

ID: 9547563
Source: CourtListenerOpinion
Date Created: 2023-08-07 17:48:58.643237+00
Date Added: 2024-06-11T15:17:51.629972
License: Public Domain

DISSENTING OPINION OF
NAKAMURA, J.,
WITH WHOM WAKATSUKI, J., JOINS
A scant six months ago, we said the “business risk” exclusions of a comprehensive general liability insurance policy “were clearly meant to negate coverage for the contractual liability of the insured ‘as a source of goods or services ... to make good on products or work which is defective or otherwise unsuitable because it is lacking in some capacity.’ Henderson, Insurance Protection for Products Liability and Completed Operations - What Every Lawyer Should Know, 50 Neb. L. Rev. 415, 441 (1971).” Sturla, Inc. v. Fireman’s Fund Insurance Co., 67 Haw. 203, 208-09, 684 P.2d 960, 963 (1984). Thus, we ruled that Fireman’s Fund was not obligated to defend a suit brought against Sturla, a carpet distributor, by a dissatisfied cus*483tómer. The court now agrees with the Intermediate Court of Appeals that a policy with identical exclusions covers the liability of Terminix Wood Treating & Contracting Co., Ltd. “for damages caused by [an] inadequate performance of its [contractual] obligation to inspect and treat [Bernard and Helen Hurtig’s house] against subterranean termites.” Hurtig v. Terminix Wood Treating & Contracting Co., 5 Haw. App____, 685 P.2d 799, 800 (1984).1 The distinction drawn by my colleagues between Sturla’s failure to supply a carpet fit for its intended purpose and Terminix’s non-fulfillment of a promise to eradicate ground termites escapes me, and I do not join in their opinion.
I.
Reading Exclusion (o) of a standard form comprehensive general liability insurance policy literally, the majority concludes Hawaiian Insurance & Guaranty Company, Limited and United National Insurance Company, Limited are responsible for the loss sustained by the Hurtigs when Terminix “failed to correctly perform” a contract to inspect their house and treat it for termite infestation. The exclusion, the court concludes, is inapplicable here because the loss claimed by the Hurtigs “exceeded the inspection and treatment and went to the home itself.” Sturla, it states, was a case where the claimed loss was confined to the insured’s own work or work product.
But in Sturla we carefully marked out the boundaries between “business risks” and occurrences giving rise to liability covered under a 'comprehensive general liability policy. We said “the risks insured by the standard form policy are ‘injury to people and damage to property caused by [a] faulty [product or] workmanship.’ ” Sturla, Inc. v. Fireman’s Fund Insurance Co., 67 Haw. at 210, 684 P.2d *484at 964 (emphasis in original) (quoting Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 239, 405 A.2d 788, 791 (1979)). We went so far as to provide an example of the essential difference between an insured and uninsured risk by quoting from the New Jersey court’s opinion to this effect.
An illustration of this fundamental point may serve to mark the boundaries between “business risks” and occurrences giving rise to insurable liability. When a craftsman applies stucco to an exterior wall of a home in a faulty manner and discoloration, peeling and chipping result, the poorly-performed work will perforce have to be replaced or repaired by the tradesman or by a surety. On the other hand, should the stucco peel and fall from the wall, and thereby cause injury to the homeowner or his neighbor standing below or to a passing automobile, an occurrence of harm arises which is the proper subject of risk-sharing as provided by the type of policy before us in this case. The happenstance and extent of the latter liability is entirely unpredictable — the neighbor could suffer a scratched arm or a fatal blow to the skull from the peeling stonework. Whether the liability of the businessman is predicated upon warranty theory or, preferably and more accurately, upon tort concepts, injury to persons and damage to other property constitute the risks intended to be covered under the CGL.
Id. at 210 n.6, 684 P.2d at 964-65 n.6 (quoting Weedo v. Stone-E-Brick, Inc., 81 N.J. at 240-41, 405 A.2d at 791-92).
“As we .. . endeavored to make clear, the policy in question does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident.” Weedo v. Stone-E-Brick, Inc., 81 N.J. at 249, 405 A.2d at 796 (citations omitted). And since the gravamen of the Hurtigs’ suit consisted of allegations of an inadequate performance of a contractual obligation and the complaint contained no averment that the neglect caused an accident resulting in personal injury or damage to other property, the policy did not protect the contractor in the situation at hand.
II.
Granted, insurance policies are contracts of adhesion that should be construed liberally in favor of the insured. Sturla, Inc. v. *485Fireman’s Fund Insurance Co., 67 Haw. at 209, 684 P.2d at 964. But “what we are committed to enforce are ‘[t]he objectively reasonable expectations of applicants and intended beneficiaries regarding the terms of insurance contracts.’ Keeton, Insurance Law Rights at Variance With Policy Provisions, 83 Harv. L. Rev. 961, 967 (1970).” Id. at 210, 684 P.2d at 964.
The qualifications on coverage imposed by the “business risk” exclusions are such that the terms of the insurance contract in question could not have given rise to an objectively reasonable expectation of protection against a claim that the service rendered by Terminix was not that for which the Hurtigs bargained. To hold otherwise would compel an insurance carrier to assume the “business risks” of an insured; it would make the insurer a guarantor of adequate performance of contractual obligations and transmute a liability policy into a performance bond.

 The contractual arrangement for the inspection of the house and treatment for termite infestation commenced in 1971 when the Hurtigs purchased their house. The original contract was renewed annually, the last agreement being effective for a one-year period beginning in July of 1979. The suit was filed in April of 1980.