Coverage Analysis
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HAWAII

  ACCIDENTS OR OCCURRENCES

  No coverage if insured's action was deliberate and the resulting injury was the "natural and probable consequence" of the action.  State Farm Fire & Cas. Co. v. Poomaihealani, 667 F.Supp. 705 (D. Haw. 1987). 

  An incident in which the insured intentionally shot the victim was not an “accident” regardless of whether the insured expected or intended the person’s death.  State Farm Fire & Casualty Company v. Gorospe, 2000 WL 1060540 (D. Hawaii July 11, 2000).

  There is no coverage under liability insurance policies for claims of fraud.  CIM Insurance  Corp. v. Masamitsu, 1999 U.S. Dist. LEXIS 19153 (D.Hawaii December 6, 1999).
 

  ALLOCATION AND SCOPE ISSUES

  An insurer may not unilaterally restrict or modify its contractual obligations merely by claiming a right to do so in a reservation of rights letter.  First Insurance Company of Hawaii, Inc. v. Minami, 665 P.2d 648, 654 (Haw. 1983).
 

  APPELLATE PROCEDURES

   Hawaii has both an intermediate appellate court and a state Supreme Court.
 

  BAD FAITH

  H.R.S. Section 431:13-101 (1993) prohibits various unfair methods of competition and unfair and deceptive acts and practices in the business of insurance.  Unfair or deceptive consumer practices are proscribed by Haw. Rev. Stat. § 481A (1985).

  The Hawaii Supreme Court has recognized that an insured has a common law cause of action for bad faith against a first or third party insurer based on the implied covenant of good faith and fair dealing.  The Best Place, Inc. v. Penn America Ins. Co., 920 P.2d 334, 341-42 n. 10 (Haw. 1996).  However, bad faith requires more than mistaken judgment.  Punitive damages will only be awarded if "the defendant has acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference or where there has been wilful misconduct or that entire want of care which would raise the presumption of conscious indifference to consequences."  Id.  

  A liability insurer is not liable for bad faith if it declined to accept coverage based upon an unsettled question of law.  Colonial Penn Ins. Co. v. First Ins. Co. of Hawaii, 780 P.2d 1112 (Haw. 1989).

  The Hawaii Supreme Court has ruled that a liability insurer may be subject to bad faith liabilities, even in the absence of coverage, if it mishandles the defense of the policyholder, causing damage to the insured.  Delmonte v. State Farm Fire & Casualty Company, 975 P.2d 1159 (Haw. 1999).  Once assuming the defense, the insurer is under a duty to pursue the defense in good faith until such time as clear grounds for withdrawing because of the absence of coverage arise.

  A U.S. District Court has ruled in Wailua Associates v.  Aetna Casualty & Surety Co., 1998 WL 774212 (D.  Hawaii October 30, 1998), that Hawaii does not recognize a cause of action for comparative bad faith.  In view of the relative inequality of bargaining power between insurers and policyholders, Chief Judge Kay declared that the rationale underlying the Hawaii Supreme Court’s recognition of the implied covenant of good faith and fair dealing in the insurance context had little to do with reciprocal actions that insurers might bring against policyholders.  However, the insured’s misconduct may provide an equitable or contractual defense to liability.

  "BODILY INJURY"

  Held to include claims for mental distress in First Ins. Co. v. Lawrence, 881 P.2d 489 (Hawaii 1994).  But see CIM Insurance  Corp. v. Masamitsu, 1999 U.S. Dist. LEXIS 19153 (D.Hawaii December 6, 1999)(suggesting that claims for emotional distress are not a “bodily injury”).
 

  BREACH OF POLICY CONDITIONS

  Proof of prejudice required.  Standard Oil Co. v. Hawaiian Ins. & Guarantee Co., 654 P.2d 1345 (Haw. 1982).
 

  BURDEN OF PROOF

  An insured has the burden in the first instance of establishing that a claim for which coverage is sought falls within the scope of its insurance.  Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawaii, Ltd., 875 P.2d 894 (Hawaii 1994), citing 21 Appleman, Insurance Law and Practice, Section 12093 (1980).

  CHOICE OF LAWS

  Under Hawaii conflicts of law principles, Hawaii courts will apply Hawaii state law when the acts covered by the policy occur in Hawaii, the insureds are Hawaii citizens even if the insurer is not a Hawaii citizen.  Okada v. MGIC Corp., 823 F.2d 276, 284 (9th Cir. 1987); State Farm Mutual Auto Ins. Co. v. Bailey, 568 P.2d 1185 (Haw. 1977).  Otherwise, such issues are generally resolved in accordance with the law of the place where the contract was executed.  Okada v. MGIC Indem. Corp., 823 F.2d 276 (9th Cir. 1986).
 

  CONFLICTS OF INTEREST

  A liability insurer must pay for independent defense counsel where a conflict of interest arises due to matters for which it has denied coverage or is reserving its rights. First Ins. Co. of Hawaii v. State, 665 P.2d 648 (Hawaii 1983).   

  In contrast to the California Cumis doctrine, the Hawaii Supreme Court has declared that a liability insurer that is defending its insured under a reservation of rights has no obligation to pay for  independent counsel for the insured.  In Finley v. Home Ins. Co.,  975 P.2d 1145 (Hawaii1998) the court declared that the best course of action is to avoid interfering with the insurer’s contractual right to retain defense counsel and to leave the resolution of the conflict to the integrity and professional standards of conduct mandated for defense counsel.  The court reversed a ruling of the intermediate appellate court, which had found that a liability insurer has an obligation to retain independent counsel for its insured where a genuine conflict of interests exists based upon the insurer's reservation of rights
 

  "DAMAGES"

   No cases.
 

  DECLARATORY RELIEF

  An award of attorney’s fees is not payable pursuant to the court’s “supplementary payments” language in an insurance policy.  “Supplementary payments” only extend to taxable costs which do not extend to attorney’s fees.   CIM Insurance  Corp. v. Masamitsu, 1999 U.S. Dist. LEXIS 19153 (D.Hawaii December 6, 1999).
 

  DIRECT ACTION CLAIMS

  Plaintiffs have no direct right of action against liability insurers.  Olokele Sugar Co. v. McCabe, Hamilton & Renny Co., 487 P.2d 769 (Haw. 1971).  But see, Hunt v. First Ins. Co. of Hawaii, Ltd., 922 P.2d 976 (Hawaii App. 1996) (plaintiff was entitled to bring an action against an insurer where her claims were based in contract, not tort).  
 

  DISCOVERY ISSUES

   --Claims Manuals
 

   --Drafting History
 

   --Other Policyholder Claims
 

   --Reinsurance Information
 

   --Reserves
 

  DUTY TO DEFEND

  Under Hawaii law, an insurer must look both to the allegations against its insured and any additional facts brought to its attention or which could reasonably have been discovered by it in assessing whether it has a duty to defend. Sentinel v. First Hawaii, supra;  Standard Oil Company of California v. Hawaiian Ins. & Guaranty Co., Ltd., 645 P.2d 1345, 1349 (Hawaii 1982).  Where a suit raises the 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. First Ins. Co. of Haw. v. State, 66 Haw. 413, 665 P.2d 648 (1983). 

  An insured may not recover defense costs that it incurs before tendering the defense to the insurer.  Under such circumstances, the Hawaii Supreme Court ruled in Great American Ins. Co. v. Aetna Cas. & Sur. Co., 876 P.2d 1314 (Haw. 1994) that the claim is waived whether or not the insurer is prejudiced as a result thereof. 

  An insurer that wrongfully refuses to defend its insured may not dispute the reasonableness of a subsequent settlement of the underlying claim but may still question whether coverage is otherwise owed.  Sentinel v. First Hawaii, 875 P.2d  894 (Hawaii 1994).

  The issue of what constitutes a “suit” in the context of environmental law is presently pending before a trial court in Hawaii in the matter of Del Monte Fresh Produce v. Fireman’s Fund Insurance Company, No. 97-3323-08 (Haw. Cir. Ct.).  
 

  ESTOPPEL AND WAIVER

  Waiver is the intentional relinquishment of a known right.  The Best Place, Inc. v. Penn America Ins. Co.,  920 P.2d 334 (Hawaii 1996).  By contrast, estoppel requires proof of prejudice or detrimental reliance.  Id.

  A defense without a reservation of rights will not give rise to a finding of estoppel later on unless the insurer had reason at the time to anticipate a coverage dispute.  AIG Hawaii Ins. Co. v. Smith, 891 P.2d 261 (Hawaii 1995).  
 

  KNOWN LOSS/LOSS IN PROGRESS

  In Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawaii, Ltd., 875 P.2d 894 (Hawaii 1994), the court rejected a "post-manifestation" liability insurer's argument that it had no duty to defend or indemnify claims against a building contractor that had commenced prior to its policy period. the court ruled that the claims were not a "known loss" or "loss in progress" since the insured was not aware that a loss had occurred before coverage began.  The court distinguished between first and third party policies, holding that the "contingent event" for a CGL policy was the prospect of liability, therefore permitting coverage even where actual damage was already known.
 

  NUMBER OF OCCURRENCES

  No pollution or toxic tort cases.  In a suit involving allegations of poor business judgment, a federal district court ruled that there were multiple occurrences where the directors and officers made distinct and dissimilar business decisions, even though admittedly all of these decisions collectively resulted in the bank's failure.  Okada v. MGIC Indem. Corp., 608 F.Supp. 383 (D. Haw. 1985); see also St. Paul Fire & Marine Ins. Co. v. Hawaiian Ins. & Guaranty Co., 2 Haw. App. 595, 637 P.2d 1146 (1981)(in medical malpractice action, each of three separate claims of negligence, which collectively caused one death, was a distinct claim for coverage purposes).
 

  POLLUTION EXCLUSION

  No cases.

  PUNITIVE DAMAGES

  Hawaii Revised Statues §1431:10-240 (1989) provides that insurance policies do not cover punitive damages unless expressly so provided.
 

  STANDARDS FOR POLICY INTERPRETATION

  Hawaii applies strict rules of contra proferentum.  Hurtig v. Terminex Wood Treatment and Contracting Co., 692 P.2d 1153, 1154 (Hawaii 1984) ("insurance policies must be construed liberally in favor of coverage because they are contracts of adhesion").  Accordingly, a Hawaii court will examine the entire contract to ascertain and fulfill the reasonable expectations of the parties.  Sturla, Inc. v. Firemans Fund Ins. Co., 684 P.2d 960, 964 (Hawaii 1984).  

  "Reasonable expectations" doctrine followed in Crawford v. Ranger Ins. Co., 653 F.2d 1248 (9th Cir. 1981).
 

  THEORIES OF ALTERNATIVE LIABILITY

  Market share theory adopted for blood factors/AIDS case in Smith v. Cutter Biological Laboratories, Inc., 823 P.2d 717 (Hawaii 1991).
 

  TRIGGER OF COVERAGE

  Under Hawaii law, the event triggering coverage is the sustaining of actual damage by the complaining party, not the date of the act or omission that caused the damage. See Brown v. First Ins. Co., 424 F.2d 680 (9th Cir. 1970)(no coverage for defective product (hula skirt) sold during policy period that caused injury after policy expired).  The Hawaii Supreme Court has adopted an "injury in fact" trigger for continuous and progressive property loss cases.  In Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawaii, Ltd., 875 P.2d 894 (Hawaii 1994), the court rejected a "post-manifestation" liability insurer's argument that it had no duty to defend or indemnify claims against a building contractor holding instead that where "injury in fact" occurs continuously over a period covered by different insurers or policies, the claim should be equitably apportioned among all the insurers on the risk during the period of time that property damage continued.  While noting that it did not consider extrinsic evidence where the policy provisions in question were unambiguous, the court declared that this interpretation was consistent with the objective reasonable expectations of the insurance industry as reflected in the "drafting history" of this language.  To the extent that the underlying losses cannot be contributed with certainty to any specific policy period, the Hawaii Supreme Court declared that the loss should be pro-rated in proportion to the carriers' respective periods of coverage.  The court ruled that the claims were not a "known loss" or "loss in progress" since the insured was not aware that a loss had occurred before coverage began.  The court distinguished between first and third party policies, holding that the "contingent event" for a CGL policy was the prospect of liability, therefore permitting coverage even where actual damage was already known.

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