C. Brewer & Co. v. Marine Indem. Ins. Co. of Am.

• Decision Date: 27 March 2015
• Docket Number: No. SCWC–28958.,SCWC–28958.
• Court: Hawaii Supreme Court
• Parties: C. BREWER AND COMPANY, LTD., Respondent/Plaintiff–Appellant, v. MARINE INDEMNITY INSURANCE COMPANY OF AMERICA ; Fireman's Fund Insurance Company of Hawaii; and James River Insurance Company, Petitioners/Defendants–Appellees, and Industrial Indemnity Company; Industrial Insurance Company Of Hawaii, Ltd.; National Union Fire Insurance Company Of Pittsburgh ; United States Fire Insurance Company; Liberty Mutual Insurance Company; Tig Insurance Company; Columbia Casualty Company ; The Home Insurance Company; Reliance Insurance Company; Lexington Insurance Company; Cigna Property And Casualty Insurance Co. ; Pacific Employers Insurance Co., Inc. ; Scottsdale Insurance Company; First State Insurance Co.; Kilauea Irrigation Co., Inc.; Kehalani Holdings Co., Inc.; State Of Hawai‘i; And Hawaii Insurance Guaranty Association ; Respondents/Defendants–Appellees, and State of Hawai‘i, Respondent/Third–Party Plaintiff–Cross–Appellant, v. Marsh USA, Inc., Respondent/Third–Party Defendants–Appellees, and Kehalani Holdings Company, Inc., Respondent/Third–Party Plaintiff–Cross–Appellant, v. United National Insurance Company; Commonwealth Insurance Company; Alexander Howden Limited; Integrity Insurance Company; Hawaiian Insurance & Guaranty Company, Limited; Holland–America; International Insurance Company ; Tradewind Insurance Company, Limited; and Island Insurance Company, Limited, Respondent/Third–Party Defendants–Appellees.

135 Hawai'i 190

347 P.3d 163

C. BREWER AND COMPANY, LTD., Respondent/Plaintiff–Appellant,

v.MARINE INDEMNITY INSURANCE COMPANY OF AMERICA ; Fireman's Fund Insurance Company of Hawaii; and James River Insurance Company, Petitioners/Defendants–Appellees,andIndustrial Indemnity Company; Industrial Insurance Company Of Hawaii, Ltd.; National Union Fire Insurance Company Of Pittsburgh ; United States Fire Insurance Company; Liberty Mutual Insurance Company; Tig Insurance Company; Columbia Casualty Company ; The Home Insurance Company; Reliance Insurance Company; Lexington Insurance Company; Cigna Property And Casualty Insurance Co. ; Pacific Employers Insurance Co., Inc. ; Scottsdale Insurance Company; First State Insurance Co.; Kilauea Irrigation Co., Inc.; Kehalani Holdings Co., Inc.; State Of Hawai‘i; And Hawaii Insurance Guaranty Association ; Respondents/Defendants–Appellees,

and

State of Hawai‘i, Respondent/Third–Party Plaintiff–Cross–Appellant,

v.Marsh USA, Inc., Respondent/Third–Party Defendants–Appellees,andKehalani Holdings Company, Inc., Respondent/Third–Party Plaintiff–Cross–Appellant,

v.United National Insurance Company; Commonwealth Insurance Company; Alexander Howden Limited; Integrity Insurance Company; Hawaiian Insurance & Guaranty Company, Limited; Holland–America; International Insurance Company ; Tradewind Insurance Company, Limited; and Island Insurance Company, Limited, Respondent/Third–Party Defendants–Appellees.

No. SCWC–28958.

Supreme Court of Hawai‘i.

March 27, 2015.

Keith K. Hiraoka, Jodie D. Roeca, Honolulu, Robert J. Romero, pro hac vice and Maria S. Quintero, pro hac vice, for petitioner/defendant-appellee James River Insurance Company.

Kenneth R. Kupchak, Tred R. Eyerly, and Mark M. Murakami, Honolulu, for respondent/plaintiff-appellant C. Brewer and Company, Ltd.

NAKAYAMA, Acting C.J., McKENNA, POLLACK, and WILSON, JJ., and Circuit Judge KUBO, in Place of RECKTENWALD, C.J., Recused.

Opinion of the Court by McKENNA, J.

I. Introduction

On March 14, 2006, a large portion of the Kaloko Dam ("Dam") in Kîlauea, Kaua‘i collapsed, releasing over three million gallons of water, resulting in the loss of seven lives as well as extensive property damage ("Dam Breach"). At the time of the Dam Breach, James Pflueger ("Pflueger") owned the Dam. Pflueger filed a lawsuit in the Circuit Court of the First Circuit seeking damages and indemnification from C. Brewer and Company, Ltd. ("C. Brewer") for claims brought against him arising out of the Dam Breach. Pflueger v. State, Civ. No. 06–1–1391 ("Pflueger complaint"). According to the Pflueger complaint, C. Brewer sold him property, including the Dam, while aware of the Dam's questionable structural stability. C. Brewer then filed a complaint in the Circuit Court of the Fifth Circuit ("circuit court") seeking rulings regarding obligations owed by seventeen insurance companies that had issued various insurance policies to C. Brewer covering different time periods.

This opinion addresses issues arising out of the policy issued to C. Brewer by James River Insurance Company ("James River"), a commercial general liability ("CGL") policy¹ in effect at the time of the Dam Breach. The circuit court granted summary judgment in favor of James River, ruling that a "Designated Premises Endorsement" ("DPE"), which purported to limit coverage to specific premises listed in a separate "Schedule of Locations" ("Schedule"), precluded coverage. The circuit court ruled that James River was therefore not required to defend or indemnify C. Brewer against Pflueger's claims. On appeal, the Intermediate Court of Appeals ("ICA") concluded that the parties' intent as to the DPE was ambiguous, and remanded the case for a determination of the parties' intent regarding the DPE.

James River raised the following question on certiorari:

Did the ICA gravely err when it reversed the circuit court's finding that the "Limitation of Coverage to Designated Premises Endorsement" in the James River liability policy issued to C. Brewer, considered in the context of the entire policy, unambiguously precludes coverage as a matter of law, for the bodily injury and property damage claims stated against C. Brewer in underlying actions arising from the March 2006 failure of the Ka Loko Dam and Reservoir.

We hold that the James River DPE provides coverage for injury and damage that occurs on premises not listed in the Schedule if the injury or damage arises out of the ownership, maintenance or use of a designated premises. In determining whether an injury or damage arose out of the use of a designated premises, we adopt the legal interpretation of "arising out of" in American Guarantee and Liability Insurance Co. v. 1906 Co., 129 F.3d 802 (5th Cir.1997) : "The phrase ‘arising out of’ is ordinarily understood to mean ‘originating from,’ ‘having its origin in,’ ‘growing out of,’ or ‘flowing from.’ In the insurance context, this phrase is often interpreted to require a causal connection between the injuries alleged and the objects made subject to the phrase." 129 F.3d at 807. We therefore hold that the DPE unambiguously provides coverage for negligence claims against C. Brewer arising out of the use of designated premises.

We further hold that language in a designated premises endorsement "must be clear and unequivocal[ ]" to convert a CGL policy to a premises liability policy² that limits coverage to injuries occurring on specific premises. American Empire Surplus Lines Insurance Co. v. Chabad House of North Dade, Inc., 771 F.Supp.2d 1336, 1343 (S.D.Fla.2011), aff'd, 450 Fed.Appx. 792 (11th Cir.2011). In this case, the DPE is not sufficiently "clear and unequivocal" to limit coverage to injuries occurring on the designated premises, as argued by James River. Thus, the DPE does not limit liability to injury and damage occurring on designated premises.

Therefore, the circuit court erred in granting summary judgment in favor of James River, and the ICA erred in concluding that it is necessary to determine the parties' intent as to the effect of the DPE. Accordingly, we affirm in part and vacate in part the ICA's October 22, 2013 judgment, and instruct the circuit court to further proceed consistent with this opinion.

II. Background

A. Kaloko Dam and Irrigation System

The Kaloko Irrigation System ("System") was constructed in the late 1800s by Kilauea Sugar Company ("KSC"), a C. Brewer subsidiary, to collect and distribute water to irrigate sugar cane fields in Kîlauea, Kaua‘i. The System relied on rain water from a State-owned mauka³ watershed, which was funneled through ditches, flumes, and gates into the Kaloko Ditch, then into the Kaloko Reservoir ("Reservoir"). The water was held in the Reservoir by the earthen Dam, and then distributed through flumes, ditches, and pipes to sugar cane fields makai⁴ of the Reservoir.

KSC exited the sugar cane industry in about 1970 and stopped maintaining the System, which then fell into disrepair. In 1971, C. Brewer began to sell off some of its lands, specifically those makai of the Dam, which were later developed for agricultural or residential uses.

In 1977, the State of Hawai‘i ("State") and C. Brewer entered into an agreement that required C. Brewer to, among other things, restore and expand the System.⁵ C. Brewer formed the Kilauea Irrigation Company ("KIC") to satisfy its obligations to the State, revitalize the System, and sell System water to local farmers for irrigation.

In February 1987, KIC entered into a Water Rights Agreement ("WRA") with an owner of property adjoining C. Brewer's land. The WRA made KIC solely responsible for operating, inspecting, maintaining, and repairing the System and Dam. In 1987, C. Brewer sold the land under the Reservoir to Pflueger.

B. Circuit Court Proceedings

James River's CGL policy was the only policy in effect on the date of the Dam Breach. Before filing suit, C. Brewer tendered the defense of the Pflueger complaint to James River, which refused to defend.

C. Brewer's second amended complaint ("complaint")⁶ noted that C. Brewer was a named insured under James River policy number 00013398–0, policy period 12/15/2005 to 12/15/2006. According to the complaint, the insuring agreement under the policy stated:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies.... This insurance applies to "bodily injury" and "property damage" only if: (2) The "bodily injury" or "property damage" occurs during the policy period[.]

Accordingly, C. Brewer alleged that the James River policy covered claims against it related to the Dam Breach. C. Brewer also asserted that James River was obligated to defend and indemnify it because none of the policy's exclusions applied.

James River moved for summary judgment, arguing inter alia, that various endorsements and exclusions in its policy precluded coverage for damages from the Dam Breach. In particular, James River argued that the policy's DPE limited coverage to liability arising out of the ownership, maintenance, or use of specifically identified premises. The Dam site was not listed as a designated premises.

The circuit court granted summary judgment in favor of James River based upon the DPE, concluding that it unambiguously precluded coverage for claims against C. Brewer arising out of the Dam Breach, and that, therefore, James River was not obligated to provide a defense or coverage to C. Brewer. In granting summary judgment, the circuit court concluded that the James River policy contained no ambiguous terms, and that C. Brewer's assertion of coverage for claims arising out of the "use" of its corporate headquarters exceeded the bounds of the plain and ordinary meaning of the policy terms.

C. Appeal to the ICA

On appeal, the ICA noted:

The key question is whether the language ‘arising out of the ownership, maintenance, and use of the [designated] premises' can be interpreted to encompass the use of C. Brewer

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