76 Hawai'i 277, Sentinel Ins. Co., Ltd. v. First Ins. Co. of Hawai'i, Ltd.

Decision Date10 May 1994
Docket NumberNo. 16499,16499
Citation76 Hawaii 277,875 P.2d 894
Parties76 Hawai'i 277 SENTINEL INSURANCE COMPANY, LTD., a Hawai'i corporation, Plaintiff-Appellee/Cross-Appellant, v. FIRST INSURANCE COMPANY OF HAWAI'I, LTD., a Hawai'i corporation, Defendant-Appellant/Cross-Appellee, and Does 1-10, Defendants.
CourtHawaii Supreme Court

Syllabus by the Court 1. On appeal, an order of summary judgment is reviewed under the same standard applied by the trial courts. Summary judgment is appropriate where the moving party demonstrates that there are no genuine issues of material fact and it is entitled to judgment as a matter of law.

2. Because an insurer's duty to defend its insured is contractual in nature, we must look to the language of the policy involved to determine the scope of that duty.

3. Under a comprehensive general liability insurance policy, the obligation to defend is broader than the duty to pay claims and arises wherever there is the mere potential for coverage.

4. Under a comprehensive general liability insurance policy, 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.

5. All doubts as to whether a duty to defend exists are resolved against the insurer and in favor of the insured.

6. An "occurrence" policy provides coverage if the event insured against takes place during the policy period, irrespective of when a claim is presented.

7. Under a "claims made" or "discovery" policy, coverage is triggered by the presentation of a claim during the policy term regardless of when the event insured against took place.

8. Under an occurrence policy, the event that triggers potential coverage is the sustaining of actual damage by the complaining party and not the date of the act or omission that caused the damage.

9. Where the complaint does not address the crucial issue of whether the alleged property damage occurred during the policy period, an insurer must look beyond the effect of the pleadings and must consider any facts brought to its attention or any facts which it could reasonably discover in determining whether it has a duty to defend. The possibility of coverage must be determined by a good faith analysis of all information known to the insured or all information reasonably ascertainable by inquiry and investigation.

10. Whether an insurer's refusal to defend was justified must be answered in light of the information available to the insurer at the time it made the refusal.

11. A "first-party" policy provides coverage for loss or damage sustained by the insured (e.g., life, disability, health, fire, theft, and casualty insurance) whereby the insurer usually promises to pay money to the insured upon the happening of the risk insured against. A "third-party" policy provides coverage for the insured's liability to another (e.g., CGL, directors' and officers' liability, and errors and omissions insurance) wherein the carrier generally assumes a contractual duty to pay judgments recovered against the insured arising from the insured's negligence.

12. In order to determine whether an insurer breached its duty to defend based on non-coverage, the appellate court need not resolve questions on issues not yet resolved in this jurisdiction that may or may not justify the insurer's position.

13. The appellate court employs the abuse of discretion standard in reviewing the circuit court's denial of a motion for reconsideration of its grant of summary judgment.

14. The circuit court abuses its discretion when it clearly exceeds the bounds of reason or disregards rules or principles of law or practice to the substantial detriment of a party litigant.

15. The duty to provide coverage and the duty to defend on the part of an insurer are separate and distinct.

16. An insurer that has been notified of an action and refuses to defend on the ground that the alleged claim is not within the policy coverage is bound by a judgment in the action, in the absence of fraud or collusion, as to all material findings of fact essential to the judgment of liability of the insured. The insurer is not bound, however, as to issues not necessarily adjudicated in the prior action and can still present any defenses not inconsistent with the judgment against the insured.

17. If factual matters upon which the issue of coverage turns are expressly or impliedly determined in the prior action, such determinations bind the insurer in the subsequent suit to enforce the provisions of the policy.

18. The insurer is liable whenever the trial in the underlying action involved a theory of recovery within the coverage of the policy and it was not clear whether the jury's verdict was based upon that theory.

19. Under the doctrine of collateral estoppel, the determination of a litigated fact or law that is essential to a valid and final judgment is conclusive between the parties or their privies in a subsequent claim. Collateral estoppel applied between the insured and insurer is predicated upon an assumed identity of interests of the parties to the contract of indemnity in opposing the injured person's claim. Having been given the opportunity to appear on behalf of the insured in the tort suit to protect that common interest, the insurer will be bound by that judgment. The purpose of the doctrine is to combine two potential lawsuits--injured v. insured and injured or insured v. insurer--and dispense with the delay and expense of two trials on the same issue.

20. Equity requires that the consequences of an insurer's breach of its duty to defend must be considered on a case by case basis.

21. Where the insured has been prejudiced in some way by the insurer's failure to provide a defense or where the insurer has taken inconsistent positions with regard to defense and coverage, the application of waiver or estoppel may be appropriate.

22. The insurer will be collaterally estopped from relitigating material factual findings actually or implicitly adjudicated in the underlying suit.

23. If the insurer loses its claim of no duty to defend, it will be obliged to reimburse the insured for all reasonable defense fees and costs properly incurred.

24. The breaching insurer waives its right to approve of any settlement. If the insurer loses its claim of no duty to defend, the insured is entitled to negotiate a reasonable and good faith settlement of the underlying claim which amount may then be utilized as presumptive evidence of the breaching insurer's liability.

25. Where the insured seeks indemnification after the insurer has breached its duty to defend, coverage is rebuttably presumed, and the insurer bears the burden of proof to negate coverage and, where relevant, carries the traditional burden of proof that an exclusionary clause applies.

26. Under the "injury-in-fact" trigger theory, whereby coverage is triggered by the actual occurrence during the policy period of an injury-in-fact, an injury occurs whether detectable or not; in other words, an injury need not manifest itself during the policy period, as long as its existence during that period can be proven in retrospect.

27. Under the "continuous injury" trigger theory, property damage is deemed to have occurred continuously for a fixed period (the "trigger period"), and every insurer on the risk at any time during that trigger period is jointly and severally liable to the extent of their policy limits, with the entire loss equitably allocated among the insurers.

28. Under the "continuous injury" trigger theory, the trigger period begins with the inception of the injury and ends when the injury ceases. Before the continuous injury trigger may be applied, the party urging its application must make two factual showings. It must be established that: (1) some kind of property damage occurred during the coverage period of each policy under which recovery is sought; and (2) the property damage was part of a continuous and indivisible process of injury.

29. The injury-in-fact trigger theory is applicable to all standard comprehensive general liability policies because it is compelled by the plain language of the policies and does not violate the objectively reasonable expectations of the parties or relevant policy considerations.

30. We must respect the plain terms of the insurance policy and not create ambiguity where none exists.

31. Where the policy language admits of only one reasonable interpretation, the court need not look to extrinsic evidence of the parties' intent or to rules of construction to ascertain the contract's meaning.

32. Where injury-in-fact occurs continuously over a period covered by different insurers or policies and actual apportionment of the injury is difficult or impossible to determine, the continuous injury trigger may be employed to equitably apportion liability among insurers.

33. All that is necessary in determining injury-in-fact is reasonably reliable evidence that the injury more likely than not occurred during a period of coverage.

34. Under the continuous injury trigger, equity dictates that, once it is determined which policies were triggered, the court must allocate contribution among the liable insurers in proportion to the time periods their policies covered.

35. The "loss-in-progress" rule is a variant of the "known loss" or "known risk" rule. The "known loss" rule is based on the fundamental principle of insurance law that insurance is intended to cover risks or contingencies which are not definitely known to the insured.

36. Under the "known loss" rule, a loss is uninsurable when the insured knew or should have known that there was a substantial probability of loss before the policy period began.

37. The "loss-in-progress" rule provides that one cannot insure against a loss that is already in progress.

38. The "loss-in-progress" rule precludes insurance coverage where the...

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