77 Hawai'i 490, National Union Fire Ins. Co. v. Reynolds, 16091

Decision Date13 February 1995
Docket NumberNo. 16091,16091
Citation889 P.2d 67
Parties77 Hawai'i 490 NATIONAL UNION FIRE INSURANCE COMPANY and American International Adjustment Company, Inc., Plaintiffs-Appellees, v. Robert REYNOLDS, Defendant-Appellant.
CourtHawaii Court of Appeals

An "owned vehicle" exclusion which removes a vehicle owned by or furnished for the regular use of the insured or the insured's family members from underinsured motorist coverage is valid under the public policy, first announced in Kang v. State Farm Mut. Auto. Ins. Co., 72 Haw. 251, 815 P.2d 1020 (1991), prohibiting dual recovery from both the liability and underinsured motorist coverages of the same policy. It was reasoned in Kang that allowing dual recovery would transform inexpensive underinsured motorist coverage into more expensive liability coverage. Id. at 256, 815 P.2d at 1022. The Hawai'i Supreme Court's conclusion that dual recovery would violate the objective of the underinsured motorist statute necessarily forecloses any interpretation of insurance coverage which would permit such recovery. Thus, Kau v. State Farm Mut. Auto. Ins. Co., 58 Haw. 49, 564 P.2d 443 (1977), which held an "owned vehicle" exclusion from uninsured motor vehicle coverage as violative of public policy, is not applicable.

Magali V. Richter and Hilary Benson Gangnes (McKenzie, Trecker & Fritz, of counsel), on the briefs, Honolulu, for defendant-appellant.

Carleton B. Reid and John T. Hassler (Reid, Richards & Miyagi, of counsel), on the briefs, Honolulu, for plaintiffs-appellees.

Before BURNS, C.J., ACOBA, J., and PERKINS, Circuit Judge, in place of WATANABE, Associate Judge, recused.

ACOBA, Judge.

This appeal is from an April 24, 1992 order granting summary judgment and a September 23, 1992 judgment in favor of Plaintiffs-Appellees National Union Fire Insurance Company and American International Adjustment Company, Inc., (collectively National Union) and against Defendant-Appellant Robert Reynolds (Defendant) on National Union's contention that an automobile owned by its insured was not an "underinsured motor vehicle" under its insured's automobile insurance policy so as to afford Defendant, insured's passenger, "underinsured" benefits. We agree and so affirm the order and judgment.

Summary judgment is appropriately granted " 'if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.' " Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 104, 839 P.2d 10, 22 (1992) (quoting Gossinger v. Association of Apartment Owners of The Regency Ala Wai, 73 Haw. 412, 417, 835 P.2d 627, 630 (1992)).

The material facts are not in dispute.

On October 3, 1987, Defendant, a passenger in an automobile driven by Mark Smith (Smith), was injured when Smith's automobile National Union paid Defendant the maximum amount for bodily injury benefits under Smith's liability coverage and under Defendant's own underinsured coverage but denied Defendant's claim for underinsured benefits under Smith's policy. Defendant sought to resolve the denial of underinsured coverage under Smith's policy by requesting arbitration under the arbitration clause in Smith's policy.

                [77 Hawai'i 492]  collided with another vehicle.  Smith was insured by National Union.  National Union's automobile insurance policy provided Smith with both liability 1 and underinsured motorist 2 insurance coverages. 3  Defendant filed a claim for benefits under the liability and underinsured coverages of Smith's policy.  In addition, Defendant filed a claim for benefits under the underinsured motorist provision of his own automobile insurance policy, also issued by National Union

Rather than proceeding to arbitration, National Union filed a complaint for declaratory relief against Defendant, alleging that he was not entitled to underinsured benefits under Smith's policy. National Union moved for summary judgment on the ground that Smith's policy provisions barred recovery of such benefits because Smith's automobile was not an "underinsured vehicle" with respect to Smith or passengers such as Defendant and because such provisions were not void as against public policy under Kang v. State Farm Mut. Auto. Ins. Co., 72 Haw. 251, 815 P.2d 1020 (1991).

Defendant opposed summary judgment on the basis that (1) the question of coverage was subject to arbitration under the arbitration provisions of the policy, (2) the express language excluding underinsured coverage in Kang was not in the policy, and (3) a policy provision excluding a vehicle owned by the insured or regularly used by the insured or the insured's family from underinsured coverage, a so-called "owned vehicle exclusion," was void because a similar provision was held void under the Hawai'i uninsured motorist 4 statute in Kau v. State Farm Mut. Auto. Ins., 58 Haw. 49, 564 P.2d 443 (1977). After summary judgment was granted, Defendant appealed.


We consider, first, Defendant's contention that the arbitration clause in Smith's policy required the dispute to be arbitrated. The policy, in pertinent part, provides:


If we and a covered person do not agree:

1. Whether that person is legally entitled to recover damages under this [underinsured motorist] endorsement; or

2. as to the amount of damages; either party may make a written demand for arbitration.

(Emphasis in original.)

"Covered person " as used in this endorsement means:


2. An [sic] other person occupying your covered auto.

(Emphases in original.)

It is not disputed that Defendant was a "covered person" because he was an occupant of the automobile insured under the policy. Being a covered person, Defendant could invoke the arbitration clause in any The foregoing provision is substantially the standard form used for underinsured motorist coverage:

[77 Hawai'i 493] dispute. Focusing on the words "legally entitled to recover damages," he asserts that they encompass the ascertainment of underinsured motorist coverage, as opposed to a limited factual determination of the underinsured driver's fault.

The standard form coverage terms for the underinsured motorist insurance state that either party may make a written demand for arbitration in the event the claimant and the insurer do not agree:

1. Whether that person is legally entitled to recover damages under this endorsement; or

2. As to the amount of damages.

3 A. Widiss, Uninsured and Underinsured Motorist Insurance § 45.3, at 134 (2d ed. 1992). A few jurisdictions, including Pennsylvania 5 and Connecticut, 6 have adopted a broad approach to such provisions by relegating all issues concerning recovery under the policy to arbitration. Annotation, What Issues are Arbitrable Under Arbitration Provision of Uninsured Motorist Insurance, 29 A.L.R.3d 328, 337 (1970) (Annotation). 7 One jurisdiction has adopted a "reasonably debatable" test, "and allow[ed] arbitration of the scope of the arbitration clause where ... the parties' intention as to its scope is reasonably debatable." Dunshee v. State Farm Mut. Auto. Ins. Co., 303 Minn. 473, 482, 228 N.W.2d 567, 572 (1975).

Our review indicates, however, that most courts hold that arbitration is generally limited to issues of the offending motorist's fault or liability to the covered person and the amount of damages resulting from the accident, leaving issues relating to policy coverage to the courts. Annotation at 339. For example, in New York, the provision "submits to arbitration the issues of fault and damages, but it does not include the issue of compliance with a condition precedent to coverage[.]" United States Fidelity & Guar. Co. v. Mitchell, 168 A.D.2d 941, 942, 564 N.Y.S.2d 894, 895 (1990) (citing Rosenbaum v. American Sur. Co., 11 N.Y.2d 310, 314, 229 N.Y.S.2d 375, 378, 183 N.E.2d 667, 668, (1962) ("arbitration clause was particular, not general")). California adopts a similar approach. State Farm v. Superior Court, 23 Cal.App. 4th 1297, 1304, 28 Cal.Rptr.2d 711, 715 (1994) ("the issue of the insolvency of the tortfeasor's insurer, a prerequisite to uninsured motorist coverage based upon insolvency, must be determined by the court before the issues of the tortfeasor's liability and the insured's damages are arbitrable"); Furlough v. Transamerica Ins. Co., 203 Cal.App.3d 40, 45, 249 Cal.Rptr. 703, 706 (1988) (arbitration limited to issues of liability). Many other states affirm limitations on the arbitrator's jurisdiction. 8 2 A. Widiss, supra We acknowledge that "the proclaimed public policy of our legislature is to encourage arbitration as a means of settling differences and thereby avoid litigation." Gregg Kendall & Assoc., Inc. v. Kauhi, 53 Haw. 88, 93, 488 P.2d 136, 140 (1971).

§ 24.4, at 277. The United States Court of Appeals for the Ninth Circuit, faced with this issue in an appeal from the United States District Court for the District of Hawai'i, held that coverage issues are not subject to arbitration. State Farm Mut. Auto. Ins. v. Fernandez, 767 F.2d 1299, 1301 (9th Cir.1985).

But, we believe our decisions are most consistent with holdings of jurisdictions which invest courts with the obligation to determine coverage issues. For, it has been held that " 'the scope of ... [an agreement to arbitrate is an] issue[ ] that a court must decide.' " Koolau Radiology, Inc....

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