Court Opinion

ID: 4024648
Source: CourtListenerOpinion
Date Created: 2016-08-15 21:29:18.079246+00
Date Added: 2024-06-11T07:45:04.266203
License: Public Domain

***   FOR PUBLICATION IN WEST’S HAWAIʻI REPORTS AND PACIFIC REPORTER   ***

                                                               Electronically Filed
                                                               Supreme Court
                                                               SCWC-13-0000531
                                                               27-JUN-2016
                                                               12:52 PM

            IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

                            ---oOo---
________________________________________________________________

              WILLIAM A. ARTHUR, SR., Individually, and
        THE ESTATE OF MONA ARTHUR thru William A. Arthur, Sr.
                   as the Personal Representative,
         Respondents/Plaintiffs/Appellants/Cross-Appellees,

                                     vs.

      STATE OF HAWAII, DEPARTMENT OF HAWAIIAN HOME LANDS;
    KAMEHAMEHA INVESTMENT CORPORATION; DESIGN PARTNERS INC.,
        Respondents/Defendants/Appellees/Cross-Appellees,

                                     and

                   COASTAL CONSTRUCTION CO., INC.;
         SATO AND ASSOCIATES, INC.; and DANIEL S. MIYASATO,
         Petitioners/Defendants/Appellees/Cross-Appellants,
                         ____________________

               KAMEHAMEHA INVESTMENT CORPORATION,
   Respondent/Third-Party Plaintiff/Appellee/Cross-Appellee,
                               vs.
                       KIEWIT PACIFIC CO.,
    Respondent/Third-Party Defendant/Appellee/Cross-Appellee
                      ____________________
                       KIEWIT PACIFIC CO.,
   Respondent/Fourth-Party Plaintiff/Appellee/Cross-Appellee,
                               vs.
                      PACIFIC FENCE, INC.,
   Respondent/Fourth-Party Defendant/Appellee/Cross-Appellee.
________________________________________________________________

                          SCWC-13-0000531

        CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
           (CAAP-13-0000531; CIVIL NO. 05-1-1981-11)

                           JUNE 27, 2016

  RECTENWALD, C.J., McKENNA, POLLACK, WILSON, JJ., AND CIRCUIT
    COURT JUDGE BROWNING, IN PLACE OF NAKAYAMA, J., RECUSED

               OPINION OF THE COURT BY McKENNA, J.

                         I.   Introduction

         This case is a contract dispute between Petitioners/

Defendants/Appellees/Cross-Appellants Sato and Associates, Inc.

and Daniel S. Miyasato (collectively, “Sato” or “Engineer”), and

Respondent/Defendant/Appellee/Cross-Appellee Kamehameha

Investment Corporation (“KIC” or “Developer”).   Sato timely

applied for writ of certiorari (“Application”) on August 7, 2015

from a June 8, 2015 Judgment entered by the Intermediate Court

of Appeals (“ICA”) pursuant to its February 27, 2015 Opinion

(“Opinion”).   In relevant part, the ICA affirmed the Circuit

Court of the First Circuit’s (“circuit court[’s]”) “Order

Granting Defendant and Third-Party Plaintiff Kamehameha

Investment Corporation’s Motion for Partial Summary Judgment

Against Defendant Sato & Associates, Inc. . . .” filed May 27,

                                 2
2011.   Heavily relying on Pancakes of Hawaii, Inc. v. Pomare

Properties Corp., 85 Hawaii 286, 944 P.2d 83 (App. 1997), the

ICA concluded that pursuant to the Project Consultant Agreement

(“Agreement”) between Sato and KIC, Sato had a duty to defend

KIC in the wrongful death action brought by Respondents/

Plaintiffs/Appellants/Cross-Appellees, William A. Arthur, Sr.

(“William”) and the Estate of Mona Arthur (collectively,

“Arthurs”) upon KIC’s tender of defense to Sato.          See Arthur v.

State, Dep’t of Hawaiian Home Lands, 135 Hawaii 149, 171, 346
P.3d 218, 241 (App. 2015).

          In its Application, Sato presented two questions:

          1) Was Pancakes wrongly decided?

          2) In applying Pancakes, did the ICA fail to strictly
             construe the indemnity contracts at issue by treating
             Sato and other contractual indemnitors as insurers and
             the subject indemnity contracts as insurance policies?

(formatting added).    KIC opposed the Application, whereas

Coastal Construction Co., Inc. (“Coastal”), a co-defendant in

the Arthurs’ suit, filed a response in support of the

Application.

          The Application was accepted on September 18, 2015.

This court requested supplemental briefing from the parties

addressing the following:

          (1) Is the duty to defend presented in Sato’s non-
          insurance, construction contract with KIC coextensive with
          Sato’s duty to indemnify?

          (2) Given case law and legislative history, does Hawaii
          Revised Statutes [(“HRS”)] § 431:10-222 (2005), render void

                                    3
           any provision in a construction contract requiring the
           promisor to defend “the promisee against liability for
           bodily injury to persons or damage to property caused by or
           resulting from the sole negligence or wilful misconduct of
           the promisee, the promisee’s agents or employees, or
           indemnitee?”

           Upon considering the parties’ briefs, oral arguments,

and the relevant law, we hold as follows:

     (1)   HRS § 431:10-222 renders invalid any provision in a

           construction contract requiring the promisor to defend

           “the promisee against liability for bodily injury to

           persons or damage to property caused by or resulting

           from the sole negligence or wilful misconduct of the

           promisee, the promisee’s agents or employees, or

           indemnitee”;

     (2)   Pancakes, 85 Hawaii 286, 944 P.2d 83 (App. 1997), does

           not apply to defense provisions in construction

           contracts; and

     (3)   the scope of a promisor’s duty to defend that is

           imposed by a construction contract is determined at

           the end of litigation.

                             II.   Background

A.   The Arthurs’ Wrongful Death Action

           Mona Arthur (“Mona”) and her husband, William, lived

on property in the Kalawahine Streamside Housing Development

(“Project”) under an Assignment of Lease and Consent they

executed with the Department of Hawaiian Home Lands (“DHHL”) on

                                     4
October 31, 2000.    They typically gardened on the hillside

behind their home about three times a week.    To access the

hillside, the Arthurs crossed a concrete drainage ditch and

climbed over a two-foot-high chain link fence.     Mona wore

sneakers with snow spikes to prevent her from sliding down the

hill.

            On November 10, 2003, Mona and William gardened on the

hillside.    William left Mona’s side for a few minutes to get

some water for Mona, and when he returned, he found her lying in

the concrete ditch.    No one witnessed how Mona came to be in the

ditch.   Mona suffered severe head injuries, fell into a coma,

and died on March 9, 2004.

            The Arthurs subsequently filed suit for Mona’s

wrongful death on November 4, 2005.     Their First Amended

Complaint, filed November 8, 2005, alleged that Mona, while

gardening on the hillside, “slipped and fell, rolled down the

slope of the hillside over a fence, fell into the drainage

embankment and hit her head against the concrete walling. . . .

[Mona] . . . sustained injuries such that she was in a coma

until her death . . . .”     The Arthurs asserted Mona’s injuries

and death were due to the negligence of DHHL, KIC (as the

developer), Design Partners, Inc. (“Design Partners”) (as the

architect), Coastal (as the general contractor), Sato (as the

                                   5
civil engineer), and other “Does”; and that that negligence was

composed of, but was not limited to, the following:

           a. Negligent design of the hillside area, including the
           fence and culvert;

           b. Negligent construction of the hillside area, including
           the fence and culvert;

           c. Negligent supervision of the construction of the
                                                           1
           hillside area, including the fence and culvert.[ ]

           These claims were unaltered in the Arthurs’

Second Amended Complaint, filed December 3, 2009.            [95:315]

The Second Amended Complaint differed from the first

primarily due to the addition of the following allegations,

which asserted a punitive damages claim against KIC:

             20. ELTON WONG was the project manager for [KIC].
             21. At all times relevant, WONG was acting within the
           scope of his employment with [KIC].
             22. ELTON WONG, ordered [Sato] to lower the chain link
           fence guarding the concrete drainage ditch from 4 feet to 2
           feet.
             23. The lowering of the fence reduced the construction
           costs and thereby increased Defendant’s profits.
             24. ELTON WONG, in his own handwriting, directed that
           the chain link fence be looked at for “value engineering”.
             25. ELTON WONG knew that the fence was intended to
           protect persons from falling into the drainage culvert.
             26. ELTON WONG specifically met MONA ARTHUR at least 20
           times and knew that she was going onto the steep
           hillside[.]
             27. If ELTON WONG had allowed the fence to remain 4 feet
           high, MONA ARTHUR would not have been fatally injured;
           because of her lower center of gravity, a 4 foot high fence
           would have prevented MONA ARTHUR, who was 5’4” in height,
           from falling into the drainage ditch.
             27.[sic] Instead of maintaining the safety of a 4 foot
           high fence, ELTON WONG ordered the fence lowered to 2 feet.
           He ordered the fence lowered simply to increase the
1
   The Arthurs also separately alleged the Association of Kalawahine
Streamside Association (“AOAO”) “was negligent with respect to the above
including, but not limited to negligent inspection, maintenance and warning
regarding the hillside area, including the fence and culvert.”

                                      6
            Defendants [sic] profits, without consideration to the
            safety of persons such as MONA ARTHUR. He reduced the
            height of the fence knowing that residents, such as MONA
            ARTHUR, were required to maintain the steep hillside.
              28. [KIC]’s overriding concern was for a minimum-expense
            operation, regardless of the peril involved.
              29. [KIC] acted wantonly or oppressively or with such
            malice as implies a spirit of mischief or criminal
            indifference to civil obligations.
              30. [KIC]’s conduct constituted wilful misconduct or an
            entire want of care which would raise the presumption of a
                                                    2
            conscious indifference to consequences.[ ]

B.    KIC’s Tenders of Defense against the Arthurs’ Claims
      Pursuant to the Hold Harmless Clauses in Its Agreements
      with Parties Involved in the Project’s Construction

            A March 10, 1998 Project Consultant Agreement

(“Agreement” or “Contract”) between KIC and Sato with respect to

the Project described Sato’s “scope of work” to involve

preparing, among other things, grading and drainage plans,

electric and telephone plans, and sitework civil drawings for

various permit applications as necessary.          The Agreement also

contained a paragraph titled, “Indemnity by Consultant,” which

stated:

            Consultant [Engineer] hereby agrees to indemnify, defend
            and hold harmless Developer, and each of its officers,
            directors and employees, from and against any and all
            claims, demands, losses, liabilities, actions, lawsuits,
            proceedings, judgments, awards, costs and expenses
            (including reasonable attorneys’ fees), arising directly or
            indirectly, in whole or in part, out of work undertaken by
            Consultant [Engineer] outside the scope of this Agreement
            and/or out of the negligence or any willful act or omission
            of Consultant [Engineer], or any of its officers,
            directors, agents or employees, in connection with this
            Agreement or Consultant’s [Engineer’s] services or work
            hereunder, whether within or beyond the scope of its duties
            or authority hereunder. The provisions of this Section

2
   Partial summary judgment was later granted in KIC’s favor with respect to
the punitive damages claim. See infra Part II.C.

                                      7
         shall survive completion of Consultant’s [Engineer’s]
         services hereunder and/or the termination of this
         Agreement.

(“Hold Harmless Clause”).     KIC’s contracts with Design Partners,

Coastal, and the general contractor for grading and site work,

Kiewit Pacific Co. (“Kiewit”), each contained indemnity

language, similar to that in the Hold Harmless Clause, requiring

the subcontractor to “indemnify, defend, and hold harmless” KIC.

Kiewit’s contract with Pacific Fence, Inc. (“Pacific Fence”) to

construct a debris fence between the constructed homes and the

adjacent hillside also contained language requiring Pacific

Fence to indemnify and defend Kiewit.

         By a letter dated December 15, 2005, KIC tendered its

defense against the Arthurs’ claims to Sato, pursuant to the

Hold Harmless Clause.   Although Kiewit was not named in the

First Amended Complaint, based on its agreement with Developer,

KIC also tendered its defense to Kiewit through KIC’s attorney,

Brad S. Petrus, by letter dated December 1, 2005.

         On December 21, 2005, KIC then filed a third-party

complaint against Kiewit, seeking, among other things, a

declaration that Kiewit owed a duty to defend and indemnify KIC

pursuant to their contract.     KIC also filed cross-claims against

Sato, Design Partners, and Coastal, alleging, among other

things, that each party, pursuant to respective contracts,

                                   8
“agreed to defend and indemnify” KIC against allegations such as

those made by the Arthurs.

           On January 31, 2006, Kiewit filed a fourth-party

complaint against Pacific Fence, alleging, among other things,

that Kiewit was contractually “entitled to an immediate defense

and full indemnification from Pacific Fence” with respect to

KIC’s third-party complaint against Kiewit.     By letter dated

February 9, 2006, Kiewit tendered its defense to Pacific Fence.

           Also on February 9, 2006, KIC filed a cross-claim

against Pacific Fence, asserting, among other things, that by

way of Pacific Fence’s contract with Kiewit (and Kiewit’s

contract with KIC), that Pacific Fence agreed to defend and

indemnify KIC against claims such as the ones brought by the

Arthurs.    KIC sought a declaration that “Pacific Fence owes a

joint and several duty to defend . . . KIC” against the Arthurs’

claims.    KIC’s February 9 filing was later construed by the

circuit court to be KIC’s tender of its defense to Pacific

Fence.

           Concurrent with KIC’s filings and requests for defense

and indemnity, DHHL filed a cross-claim on January 12, 2006

against KIC, Design Partners, Coastal, AOAO, and Sato, alleging,

among other things, that the State was “entitled to defense,

indemnification, contribution, subrogation and/or reimbursement

from one or more Cross-claim Defendants.”     By letter dated March

                                  9
6, 2006, DHHL tendered its defense to KIC.     In turn, KIC

tendered the defense of DHHL to Kiewit.    Kiewit then tendered

that defense to Pacific Fence.

         By letters dated May 4, 2006 and July 26, 2006, Island

Insurance Co., Pacific Fence’s insurer, agreed to provide a

defense to KIC, Kiewit, and DHHL.

         According to KIC’s attorney, by separate letters dated

April 24, 2006, Sato and Kiewit agreed to participate on a pro-

rata basis in KIC’s defense subject to several conditions.

C.   Circuit Court Proceedings with Respect to the Parties’
     Duties to Defend

         Numerous motions were heard by the circuit court

regarding the merits of the Arthurs’ claims and the parties’

respective contractual duties to defend.     A summary of motions

relevant to this appeal follows.

         In September 2009, upon the available evidence after a

lengthy period of discovery, Coastal filed a renewed motion for

summary judgment based on the fact that its work did not extend

beyond the individual dwellings in the Project; i.e., did not

include the hillside, fence, or culvert.    In February 2010, the

circuit court ruled on Coastal’s Motion: (1) summary judgment

was granted in favor of Coastal and against the Arthurs with

respect to claims raised in the First Amended Complaint or the

Second Amended Complaint; (2) partial summary judgment was

                                 10
granted in favor of KIC and against any other party on claims

“arising out of, resulting from, attributed to, connected with,

or otherwise premised upon the work contracted to and/or

performed by . . . Coastal”;   and (3) any duty of Coastal’s to

defend KIC did not extend beyond February 25, 2010, the date of

entry of the Order.

         On March 2, 2010, KIC filed a “Motion for Partial

Summary Judgment as to Plaintiffs’ Claim for Punitive Damages

[in its Second Amended Complaint],” arguing that even if the

decision to lower the fence from 4 feet to 2 feet was “motivated

by a desire to cut costs and boost profits,” that was

insufficient as a matter of law to prove the requisite elements

justifying punitive damages.   The circuit court granted KIC’s

Motion on May 24, 2010.

         On May 6, 2010, Pacific Fence filed a Motion for

Partial Summary Judgment, arguing that there was no question of

fact that in installing the fence in the Project, Pacific Fence

did so to specifications, and therefore was neither negligent,

nor acted wrongly nor breached its contract with Kiewit.    On

September 16, 2010, the circuit court granted Pacific Fence’s

motion for partial summary judgment.

         After ruling on multiple motions for partial summary

judgment with respect to the parties’ duties to defend, and in

light of the circuit court’s rulings on Coastal’s, KIC’s, and

                                11
Pacific Fence’s motions for partial summary judgment, the

circuit court’s allocation of the parties’ defense obligations

as reflected in the Amended Final Judgment are:

1) defense of DHHL, is jointly and severally owed by KIC,
Coastal, Kiewit, and Pacific Fence; wherein KIC’s obligation is
owed jointly and severally by Coastal and Kiewit; and wherein
any obligation of Kiewit is passed through to Pacific Fence;3

2) defense of KIC, is jointly and severally owed by Design
Partners, Sato, Coastal, Kiewit, and Pacific Fence; wherein
Kiewit’s obligation is passed through to Pacific Fence;

3) defense of Sato, which was tendered to and accepted by
Kiewit, is passed through to Pacific Fence.

            With respect to KIC’s defense expenses, the court

apportioned costs among Kiewit, Coastal, Sato, Design Partners,

and Pacific Fence for various periods from December 1, 2005

through April 30, 2011, taking into consideration the various

dates of tenders of defense and relevant court orders.             The

court did not apportion defense costs based on specific claims.
3
   Pacific Fence prevailed on its appeal to the ICA with respect to any pass-
through duty to defend from Kiewit. In strictly construing the indemnity
provision in Pacific Fence’s subcontract with Kiewit, the ICA concluded that

            it did not extend to Kiewit’s liability unless it arose at
            least in part from Pacific Fence’s work under their
            subcontract. . . . Pacific Fence’s alleged acts or
            omissions, as set forth in Arthur’s Complaint,[*] were the
            basis for its duties to defend itself as well as portions
            of the defense of its contractors insofar as their
            liabilities potentially arose from Pacific Fence’s acts or
            omissions.

Arthur, 135 Hawaiʻi at 176, 346 P.3d at 245.

*The ICA is incorrect. To clarify, Pacific Fence was not named as a
defendant to the Arthurs’ claims in either the First or Second Amended
Complaints. Rather, Pacific Fence became a party to the litigation due to
Kiewit’s Fourth-party Complaint against it.

                                      12
D.   Appeal to the ICA

            The various parties appealed the circuit court’s

Amended Final Judgment dated April 2, 2013, which encompassed

its various orders.4      Relevant here, Sato timely filed a Notice

of Cross-Appeal of the Amended Final Judgment filed pursuant to

the circuit court’s May 27, 2011 “Order Granting [KIC]’s Motion

for Partial Summary Judgment Against [Sato] and [Kiewit], and

For Enforcement of Order Granting Motion.”           On June 4, 2013,

Sato’s Cross-Appeal was consolidated under CAAP-13-531.

            Sato stated the following three points of error in its

Opening Brief:

            1. It was error for the lower court to order that Sato
            “had a joint and several duty to defend . . . KIC from
            December 15, 2005”, and to enter judgment in accordance
            therewith. . . .

            2. It was error for the lower court to find that Sato was
            obligated to pay KIC fees or costs in any amount or any
            percentage or for any period, and to enter judgment in
            accordance therewith. . . .

            3. It was error for the lower court to enter judgment
            finding that Sato had “a contractual duty to indemnify and
            defend KIC,” and to enter a declaratory judgment in favor
            of KIC and against Sato, jointly and severally, that Sato
            “had a contractual, joint and several duty to defend KIC.”

Sato stated the circuit court erred in apportioning KIC’s

defense costs partly to Sato as the court should not have relied

on Pancakes in arriving at its decision because Pancakes was

“wrongly decided.”      Sato argued that the Hold Harmless Clause
4
   The Arthurs succeeded before the ICA with respect to their appeal of the
circuit court’s judgment entered in favor of AOAO, KIC, Sato, and Design
Partners as to their negligence claims. See Arthur, 135 Hawaiʻi at 167–68,
346 P.3d at 236–37. Thus, litigation in this matter continues.

                                     13
should be strictly construed, and when so construed, (1) Sato

would not be liable for KIC’s defense costs until a finding of

liability against Sato with respect to the Arthurs’ claims, and

(2)

         Sato’s indemnity obligations apply only to those claims
         which “arise out of” its own wrongful conduct. All other
         claims against KIC fall outside of Sato’s defense
         obligation and the applicable indemnity provision. For
         example, the once-asserted punitive damages claim against
         KIC . . . is outside of Sato’s defense obligation because
         it was premised on KIC’s own allegedly egregious conduct on
         the Project.

Specifically, Sato asserted that HRS § 431:10-222, voids as

against public policy, “construction contracts that purport to

indemnify another for the other’s own negligence.”         The statute

reads:

         Construction industry; indemnity agreements invalid. Any
         covenant, promise, agreement or understanding in, or in
         connection with or collateral to, a contract or agreement
         relative to the construction, alteration, repair or
         maintenance of a building, structure, appurtenance or
         appliance, including moving, demolition or excavation
         connected therewith, purporting to indemnify the promisee
         against liability for bodily injury to persons or damage to
         property caused by or resulting from the sole negligence or
         wilful misconduct of the promisee, the promisee’s agents or
         employees, or indemnitee, is invalid as against public
         policy, and is void and unenforceable; provided that this
         section shall not affect any valid workers’ compensation
         claim under chapter 386 or any other insurance contract or
         agreement issued by an admitted insurer upon any insurable
         interest under this code.

HRS § 431:10-222.   Sato suggested that the circuit court’s

application of Pancakes “imposed large, potentially catastrophic

costs upon the smallest players in [a construction] project,

costs over which they have no ability to control by, e.g.[,] the

selection of counsel.”

                                  14
         KIC argued that Pancakes was not flawed and was

consistent with relevant case law.      Moreover, it argued that HRS

§ 431:10-222 did not apply to Sato’s case, as the statute does

not refer to “professional design services” or to defense

obligations.   KIC concluded by emphasizing that the “devastating

consequences” to Hawaii’s construction industry suggested by

Sato has not, and will not, occur as a result of applying

Pancakes to construction contracts as parties should have

appropriate insurance protection to cover both liability and

defense costs.

         Upon re-examining Pancakes and the scope of a duty to

defend as compared to the scope of a duty to indemnify, the ICA

concluded:

               Expanding an insurer’s duty to defend based on the
         “complaint allegation rule” to general indemnity contracts
         makes sense “because if the duty to defend was determined
         only after the ultimate issue of liability on each claim
         has been made, the case would be fully resolved before the
         duty [to defend] was triggered, and there would be nothing
         left to defend.” . . . .

               In light of such reasoning and the lack of a
         competing argument in Pancakes, we “discern[ed] no logical
         reason why the duty to defend based on indemnity contracts
         should not follow the same philosophy [of imposing a duty
         to defend at the outset of litigation] used in the
         insurance context.” . . . .

               Once an indemnitor is found to have a duty to defend,
         “[t]he indemnitor must bear the cost of a defense whenever
         any of the claims asserted may potentially come within the
         scope of an indemnity agreement, and the defense must
         continue until it is clear that the liability cannot
         possibly come within the scope of the indemnity.” Contrary
         to Sato’s contention that its duty to defend would not be
         triggered until wrongful conduct on the part of Sato “is
         shown to have occurred, and be causally related to claims
         asserted by [Arthur],” Sato’s duty to defend KIC was
         triggered upon the filing of the complaint and/or the

                                  15
          tender of KIC’s defense to Sato and that duty encompassed
          all claims that could potentially come within the scope of
          the indemnity.

Arthur, 135 Hawaii at 170–71, 346 P.3d at 239–40 (citations

omitted) (brackets in original).

          Moreover, in response to Sato’s argument that,

pursuant to HRS § 431:10-222 it was not required to defend

claims wholly unrelated to its actions, such as the Arthurs’

punitive damages claim raised solely against KIC in the Second

Amended Complaint, the ICA concluded:

                HRS § 431:10-222 establishes that Sato could not be
          held liable for the sole negligence or willful misconduct
          of KIC, but it does not bar Sato’s duty to defend, and
          possibly to indemnify, in this case because Sato, as well
          as the other defendants were alleged to have been
          negligent. Thus, this application of HRS § 431:10-222 does
          not conflict with the circuit court’s determination (1)
          that Sato’s duty to defend KIC includes all claims
          potentially arising under the Sato Contract and not only
          for those arising from Sato’s negligence or wilful
          misconduct, and (2) as discussed in the prior section, that
          Sato was liable for defense costs when KIC tendered its
          defense rather than after a judicial determination of
          Sato’s fault.

                In sum, HRS § 431:10-222 restricts the scope of
          indemnification provisions in construction contracts, but
          it does not invalidate the application of the provision in
          the Sato Contract to [the] Arthur[s’] claims here, and
          Sato’s duty to ultimately indemnify KIC and/or others is
          separate from its duty to defend. . . .

Id. at 241, 346 P.3d at 172.

E.   Arguments before the Supreme Court

          The arguments raised by Sato and KIC with respect to

Sato’s Application largely mirror the arguments the parties had

raised before the ICA.    However, in supplemental briefing, the

parties raised additional points.

                                   16
         Sato asserted that the duty to indemnify and duty to

defend imposed by the Agreement were coextensive because the

duties were contained in one sentence.   Sato also argued that

HRS § 431:10-222 is “clearly a remedial statute” and therefore

“must be liberally construed to effect its intended purpose.”

Sato reasoned that a liberal construction would mean that the

statute also banned promises to defend a promisee against

liability caused by the sole negligence of the promisee in a

construction contract.

         Coastal emphasized that Pancakes inappropriately

treated commercial contracts and policies of liability insurance

similarly, when such agreements are markedly different.   Among

the differences include “their respective contractual purposes”

and how indemnity provisions are construed in each type of

contract: in commercial contracts, indemnity provisions are

construed strictly against the indemnitee, whereas indemnity

provisions in insurance policies are liberally construed in

favor of the insured.    Coastal echoed Sato’s argument that HRS §

431:10-222 should be liberally construed, and added that the

statute necessarily “precludes courts from determining the

existence of any duty to defend at the commencement of

litigation. . . .   [as] [t]here would be no way of knowing

whether a defense will end up violating H.R.S. § 431:10-222.”

                                 17
             KIC argued that the duty to defend and the duty to

indemnify are “distinctly different matters,” and therefore are

not coextensive.      KIC pointed out that this court cited to

Pancakes with approval in Haole v. State, 111 Hawaii 144, 140
P.3d 377 (2006), when considering the scope of a duty to defend

outlined in Hawaii Administrative Rules (“HAR”) § 19-41-7.5               KIC

reasoned: “By the foregoing, the Court endorsed the concept that

the duty to defend, outside the context of an insurance contract

but like an insurance contract, is not coextensive with the duty

to indemnify.      Rather, the duty to defend is broader than the

duty to indemnify.”       Lastly, KIC urged this court to focus on

the plain language of HRS § 431:10-222, which does not refer to

the duty to defend, as did the Court of Appeals of Massachusetts

when it was called upon to construe its state anti-indemnity

statute in Herson v. New Boston Garden Corp., 40 Mass. App. Ct.
779, 786–87, 667 N.E.2d 907, 914 (1996).

5
    HAR § 19–41–7 provides:

             Liability. Agencies, masters, owners, operators, or
             charterers loading or unloading at state wharves shall
             indemnify, defend, and save harmless the department, its
             members, and employees from and against all losses, claims,
             demands, and suits for damages, including death and
             personal injury, and including costs and attorneys’ fees,
             incident to or resulting from their operations on the
             property of the department and the use of its facilities
             except where the department has been proven to be solely
             and legally negligent.

Haole, 111 Hawaii at 150, 947 P.2d at 383 (emphases removed).

                                      18
                       III.    Standard of Review

A.   Interpretation of a Contract

          “As a general rule, the construction and legal effect

to be given a contract is a question of law freely reviewable by

an appellate court.”    Casumpang v. ILWU Local 142, 108 Hawaii

411, 420, 121 P.3d 391, 400 (2005) (citation omitted).

B.   Interpretation of a Statute

          “Interpretation of a statute is a question of law

which [is] review[ed] de novo.”        Dupree v. Hiraga, 121 Hawaii

297, 312, 219 P.3d 1084, 1099 (2009) (citation omitted).

                              IV.   Discussion

A.   HRS § 431:10-222 Voids As Against Public Policy
     Indemnification and Defense Clauses of a Promisee’s Sole
     Negligence or Wilful Misconduct in Construction Contracts

          HRS § 431:10-222 states in full:

          Construction industry; indemnity agreements invalid. Any
          covenant, promise, agreement or understanding in, or in
          connection with or collateral to, a contract or agreement
          relative to the construction, alteration, repair or
          maintenance of a building, structure, appurtenance or
          appliance, including moving, demolition or excavation
          connected therewith, purporting to indemnify the promisee
          against liability for bodily injury to persons or damage to
          property caused by or resulting from the sole negligence or
          wilful misconduct of the promisee, the promisee’s agents or
          employees, or indemnitee, is invalid as against public
          policy, and is void and unenforceable; provided that this
          section shall not affect any valid workers’ compensation
          claim under chapter 386 or any other insurance contract or
          agreement issued by an admitted insurer upon any insurable
          interest under this code.

The text of HRS § 431:10-222 is identical to its predecessor

statute, HRS § 431-453 (1985), when that statute was initially

                                     19
introduced and passed, save for the removal of gendered terms

(e.g., replacing “workmen’s compensation” with “workers’

compensation,” and “his agents” with “the promisee’s agents”),

and the replacement of “chapter” with “code,” and deletion of

“however.”   Compare HRS § 431:10-222, with 1970 Haw. Sess. Laws

Act 169 (“Act”), § 2 at 304–05, and H.B. 1925, 5th Leg., Reg.

Sess. (1970).

         The legislature clearly stated its reasons for the

Act’s passage:

         The purpose of this Act is to invalidate, as against public
         policy, the prevalent practice in the construction industry
         of causing contractors to assume liability for the
         negligence of others by contract. Such so-called “hold
         harmless” agreements are usually incorporated into
         contracts for construction projects on a “take-it-or-leave-
         it” basis; (i.e., to take out the necessary insurance or
         leave the bidding to someone else), and frequently require
         the contractor, engineer or architect, for example, to
         undertake assumption of liability for personal injury or
         property damage even where the same results from the “sole
         negligence” of persons over whom the indemnitor has no
         control or right of control. This practice is, and
         precipitates further, a form of economic coercion by
         placing contractors in the inequitable position of paying
         prohibitive insurance premiums, which, if a small
         contractor cannot afford, precludes him from performing
         upon a project for which he is otherwise qualified, thereby
         effectively disenfranchising him under a system of free
         enterprise. In an economy in which the construction
         industry contributes so significantly, this practice can
         only be considered as contrary to the public interest.

               This Act does not serve to relieve a contractor from
         liability when he is negligent; but when he is not, it
         places the responsibility for injury or damage where it
         properly belongs, any promise of indemnification
         notwithstanding.

Act 169, § 1 at 304.   See also S. Stand. Comm. Rep. No. 962-70,

in 1970 Senate Journal, at 1441–42 (observing that “[a]s a

result [of then-industry practice], general contractors, in

                                  20
order to protect themselves, are compelled to include similar

clauses in contracts with their subcontractors, and so forth.”).

Testimony submitted to the House Judiciary Committee from the

Board of Underwriters of Hawaii noted that the then-industry

practice “force[d] contractors to obtain broader insurance

coverage than they would normally need with resulting increased

costs in insurance premiums.”     Board of Underwriters of Hawaii,

“Statement on Bill Relating to Declaring the Invalidity of

Certain Indemnity Agreements in the Construction Industry,” Mar.

19, 1970 (testifying in favor of H.B. 1925-70).        Such increased

premiums for “broad form contractual liability insurance

[necessary to protect assets from uninsured losses caused by the

negligence of third parties] is at least 300-400% of the cost of

normal coverage.”   H. Stand. Comm. Rep. No. 420-70, in 1970

House Journal, at 979 (quoting testimony submitted by an

insurance company executive who testified on behalf of the

Construction Industry Legislative Organization).         The House

specifically elaborated upon the impact of the then-present

practice on Hawaii’s construction industry:

         Your Committee is satisfied that this practice is, and
         precipitates further, a form of economic coercion,
         particularly in instances where the small contractor is
         bidding in an open and highly competitive market involving
         owners of substantial means, such that where there is a
         wide disparity in bargaining power, it may be impossible
         for the contractor to refuse to enter into a contract
         containing such a provision, or, alternatively, even
         precluding him from performing upon a project for which he
         is otherwise qualified if he cannot afford the premium.

                                  21
H. Stand. Comm. Rep. No. 420-70, in 1970 House Journal, at 979

(emphasis added).     The House went on to reason:

            Furthermore, it is apparent to your Committee that such
            “hold harmless” clauses contribute, at least in part, to
            the increasing costs of construction. In an economy in
            which the construction industry contributes so
            significantly this is a very real problem which can only be
            remedied by legislative invalidation.

Id.

            In sum, when enacting Act 169, the legislature was

plainly concerned with the prohibitive cost of insurance

policies to contractors — particularly, “small contractors,” and

subcontractors, and so forth — necessitated by the inclusion of

“hold harmless” clauses in their contracts with owners.6             Absent

its intervention, the legislature concluded that high insurance

premiums caused higher construction costs, which would

negatively impact Hawaii’s economy given that the construction

industry “contributes so significantly” to it.           See id.

            HRS § 431:10-222, and its predecessor, HRS § 431-453,

do not employ language prohibiting the imposition on contractors

of a contractual duty to defend owners.          However, as a matter of

law, claims that fall outside the scope of contractual indemnity

do not trigger a promisor’s duty to defend.           The framework of

6
   This contrasts with the primary purpose of anti-indemnification statutes in
other states. See, e.g., 1800 Ocotillo, LLC v. WLB Group, Inc., 196 P.3d
222, 225 (Ariz. 2008) (“Anti-indemnification statutes are primarily intended
to prevent parties from eliminating their incentive to exercise due care.”)
(citation omitted).

                                     22
the court’s analysis in Haole v. State, 111 Hawaii 144, 140 P.3d
377, illustrates this premise.7

           In Haole, the court determined whether a duty to

defend imposed by Hawaii Administrative Rule § 19-41-7 was

lawful by first analyzing whether a duty to indemnify imposed by

the same regulation was valid.       The court reasoned that even if

the duty to defend was triggered at the outset of litigation by

claims as alleged in the complaint (potentially rendering the

scope of the duty to defend larger than the duty to indemnify),

i.e., according to the “complaint allegation rule,” if HAR § 19-

41-7 was invalid as to imposing a duty to indemnify, then the

rule was also invalid as to imposing a duty to defend.            See

Haole, 111 Hawaii at 151, 140 P.3d at 384 (“[U]nder the

‘complaint allegation rule,’ if there is no potential for

indemnification, then no duty to defend will arise.”).

           In the same manner, because HRS § 431:10-222 voids as

against public policy indemnification clauses in construction

contracts between owners and contractors as to “liability for

bodily injury to persons or damage to property caused by or

resulting from the sole negligence or wilful misconduct of the

promisee, the promisee’s agents or employees, or indemnitee[s],”

7
   In argument, KIC relied on Haole for the premise that this court had
“approved” Pancakes because Haole had cited to Pancakes. Nothing in Haole
supports this assertion.

                                     23
HRS § 431:10-222 also operates to invalidate defense clauses for

that same subset of claims.8       In sum, pursuant to HRS § 431:10-

222, in the construction industry, a contractor is not

contractually liable for the sole negligence or wilful

misconduct of another, or for the defense thereof, as such

contractual requirements would cause higher insurance premiums

and greater construction costs, thereby harming Hawaii’s

economy.

           Thus, to the extent the ICA’s opinion suggests

otherwise, we clarify that KIC’s defense costs associated with

defending against the Arthurs’ punitive damages claim must be

borne solely by KIC.

B.   Pancakes, 85 Hawaiʻi 286, 944 P.2d 83 (App. 1997), Does Not
     Apply to Defense Provisions in Construction Contracts

     1.    The Pancakes decision did not distinguish among non-
           insurance indemnity contracts.

           At issue in Pancakes was not a construction contract,

but rather a management and leasing agreement signed between

Pomare Properties Corporation (“Pomare”), a managing agent of

Lahaina Shopping Center, and Sofos Realty Corporation (“Sofos”),

that handled managing and leasing duties.          Pancakes, 85 Hawaii

8
   Moreover, we observe that as a practical matter, Act 169’s mitigation of
excessive insurance premiums would not be realized if the statute did not
similarly prohibit defense clauses — litigation costs can be substantial, and
insuring against such costs would likewise result in heightened premiums.

                                     24
at 288, 944 P.2d at 85.    The managing and leasing agreement

between Pomare and Sofos contained the following clause:

         Any actions taken by [Sofos] pursuant to the terms of this
         Agreement shall be done as agent of [Pomare Properties] and
         all obligations or expenses incurred hereunder will be for
         the account, on behalf of and at the expense of [Pomare
         Properties], with [Pomare Properties’] prior review and
         approval.

               Further, except for the willful misconduct or gross
         negligence of [Sofos], [Pomare Properties] shall indemnify,
         defend and hold [Sofos] harmless from and against any and
         all claims, demands, losses, liabilities and damages of
         every kind and nature arising from any cause whatsoever
         when [Sofos] is acting under this Agreement or the
         instructions of [Pomare Properties] or its designated
         representative. . . .

Id. at 289 n.2, 944 P.2d at 86 n.2 (“Responsibility Clause”)

(alterations in original).

         In an effort to fill the shopping center with tenants,

Lee Carter (“Carter”), a real estate salesperson working for

Sofos, contacted the president of Pancakes of Hawaii, Inc.

(“Pancakes”).   According to Pancakes, Carter represented that

the center would soon reach an eighty to eighty-five percent

occupancy level.   After several months of negotiations, Pancakes

entered into a lease agreement with Pomare in June 1990, built

and opened a restaurant by September 1991, and ultimately closed

the restaurant in December 1991 after suffering huge financial

losses due to a lack of foot traffic through the mall as the

shopping center was less than thirty-five percent occupied.

Pancakes brought suit against the lessee of the shopping center,

James Romig (“Romig”), Pomare, and Sofos, alleging fraud,

                                  25
intentional and/or negligent misrepresentation, and breach of

the covenant of good faith and fair dealing against all

defendants; breach of contract against Romig and Pomare; and

professional negligence against Sofos.    See id. at 288–89, 944

P.2d at 85–86.

         Sofos tendered the defense of the action to Pomare

based on the Responsibility Clause.   Pomare rejected the tender

and Sofos filed a cross-claim against Pomare, demanding that

Pomare honor the Responsibility Clause.     See id. at 289, 944

P.2d at 86.   The trial court ultimately ordered Pomare to defend

Sofos against Pancakes’s claims, and held Pomare liable for one-

half of accrued attorney’s fees and costs.     See id. at 289–90,

944 P.2d at 86–87.   Pomare subsequently filed a motion for

reconsideration on the issue, stating that it had reached a

settlement with Pancakes, dismissing all claims except the fraud

and misrepresentation claims against Sofos.    Accordingly, Pomare

argued that the remaining claims were not covered under the

Responsibility Clause and therefore Pomare’s duty to defend

Sofos was extinguished.   The trial court denied Pomare’s motion,

stating that a fully executed agreement had not been submitted

to the court, leaving “too many unanswered questions.”       Id. at

290, 944 P.2d at 87 (brackets omitted).   Sofos ultimately

succeeded in defeating Pancakes’s claims.    Upon entry of

                                26
judgment, Pomare filed a timely appeal on the issue of its duty

to defend Sofos.    See id.

            On appeal, the ICA made the following determinations

as to the scope of the duty to defend as presented in non-

insurance indemnity contracts.

            First, the ICA noted that the duty to defend as

presented in insurance contracts is “fairly broad and separate

and distinct from the duty to indemnify.”     Id. at 291, 944 P.2d

at 88.     The “complaint allegation rule” is followed with respect

to these contracts, i.e., “where a suit raises a potential for

indemnification liability of the insurer to the insured, the

insurer has a duty to accept the defense of the entire suit even

though other claims of the complaint fall outside the policy’s

coverage.”    Id. (quoting Hawaiian Holiday Macadamia Nut Co. v.

Industrial Indem. Co., 76 Hawaii 166, 169, 872 P.2d 230, 233

(1994)).    The ICA then acknowledged that “Hawaii has not yet

expanded the insurer’s duty to defend based on the complaint

allegation rule to non-insurance indemnity contracts,” but that

it could “discern no logical reason why the duty to defend based

on indemnity contracts should not follow the same philosophy

used in the insurance context.”     Id. at 291–92, 944 P.2d at 88–

89.   The ICA noted that “[a] number of jurisdictions have freely

imported the common law reasoning from insurance cases to

                                  27
contractual indemnity cases.”       Id. at 292, 944 P.2d at 89 (cases

cited).

           Finally, the ICA concluded:

           The duty to defend, to have any effect at all, must be
           determined when the complaint is filed. Otherwise, an
           indemnitor can simply refuse to [accept a] tender [of]
           defense whenever a suit alleges claims that are not covered
           by the indemnity provision. This kind of result would
           defeat the purpose of a duty to defend provision by forcing
           the indemnitee to shoulder the entire cost of defending
           suits that raise the potential for indemnification.

                 In our opinion, the procedure used to determine the
           duty to defend based on indemnity contracts can follow the
           same procedure used in the insurance context. If a
           complaint alleges claims that fall within the coverage of
           the indemnity provision, then, according to the complaint
           allegation rule, the duty to defend begins. This is
           separate and distinct from the duty to indemnify. Once the
           trier of fact makes a determination on the claims in the
           lawsuit, the duty to indemnify will either arise or lie
           dormant. Claims falling within the indemnity provision
           will trigger the duty to indemnify, while claims falling
           outside the provision will relieve the indemnitor of his or
           her duty to indemnify. In our view, this is the only
           equitable interpretation that gives life to non-insurance
           indemnity clauses and prevents indemnitors from benumbing
           the duty to defend until after a case has been litigated.

Id.   In applying this legal framework to Pomare’s appeal, the

ICA held that Pomare’s duty to defend arose when Pancakes filed

its initial complaint because Pancakes made at least some claims

that fell within the scope of the Responsibility Clause, and

Sofos’s conduct fell within the purview of the management and

leasing agreement.     See id. at 295, 944 P.2d at 92.

      2.   Pancakes does not apply to construction contracts.

           HRS § 431:10-222 makes clear that the legislature does

not view all non-insurance indemnity contracts the same.

Rather, as a matter of public policy, the legislature

                                    28
statutorily limited the enforceable terms in construction

contracts, as promises to indemnify or defend “the promisee

against liability for bodily injury to persons or damage to

property caused by or resulting from the sole negligence or

wilful misconduct of the promisee, the promisee’s agents or

employees, or indemnitee” are voided by HRS § 431:10-222.

            Accordingly, the holding in Pancakes does not apply to

this case.9    In Pancakes, the court applied the complaint

allegation rule to the management and leasing agreement between

Sofos and Pomare after it “discern[ed] no logical reason why the

duty to defend based on indemnity contracts should not follow

the same philosophy used in the insurance context.”            Pancakes,

85 Hawaii at 291–92, 944 P.2d at 88–89.          Here, however, there is

a cogent reason why a construction contract’s duty to defend

should not necessarily follow insurance law: HRS § 431:10-222

and the legislature’s express intent that each party to a

construction contract be responsible for its “sole negligence or

wilful misconduct.”

C.    The Scope of a Promisor’s Duty to Defend That Is Imposed by
      a Construction Contract Is Determined at the End of
      Litigation

            HRS § 431:10-222 does not expressly provide whether a

contractual duty to defend (outside the prohibited bounds of HRS

9
   We do not, and need not, determine whether Pancakes is applicable to all
non-insurance indemnity contracts.

                                     29
§ 431:10-222) is determined at the outset of litigation based on

the complaint allegation rule, or whether it is determined at

the culmination of litigation based only on meritorious claims.

It clearly prohibits, however, a promisor in a construction

contract from being contractually required to defend a promisee

against “liability for bodily injury to persons or damage to

property caused by or resulting from the sole negligence or

wilful misconduct of the promisee, the promisee’s agents or

employees, or indemnitee.”   See HRS § 431:10-222; Part IV.A.

Thus, if the complaint allegation rule were to apply, it is

possible in a case where initial allegations were brought

against multiple parties, for example, that a promisor would be

compelled to defend a promisee against negligence claims where

ultimate liability is attributed solely to the promisee.    Such a

result contravenes HRS § 431:10-222 and our caselaw holding that

“contracts of indemnity are [to be] strictly construed” against

the indemnitee.   Kamali v. Hawaiian Elec. Co., 54 Haw. 153, 161,

504 P.2d 861, 866 (1972).

         As such, we hold that with respect to a duty to defend

in a construction contract, the scope of a promisor’s duty to

defend is determined at the end of litigation.   HRS § 431:10-222

effectively renders coextensive the duties to indemnify and

defend in construction contracts.

                                30
                             V.   Conclusion

         For the foregoing reasons, we vacate the ICA’s June 8,

2015 Judgment on Appeal entered pursuant to its February 27,

2015 Opinion, and remand this matter to the circuit court for

further proceedings consistent with this opinion.

Kevin P.H. Sumida                       /s/ Mark E. Recktenwald
for petitioners, Sato and
Associates, Inc. and Daniel             /s/ Sabrina S. McKenna
S. Miyasato
                                        /s/ Richard W. Pollack
Brad S. Petrus
for respondent, Kamehameha              /s/ Michael D. Wilson
Investment Corporation
                                        /s/ R. Mark Browning
Michiro Iwanaga and
Wayne M. Sakai
for respondent, Coastal
Construction Co., Inc.

                                   31