87 Hawai'i 430, Salviejo v. State Farm Fire and Cas. Co.

• Decision Date: 17 June 1998
• Docket Number: No. 20811,A-B,20811
• Citation: 958 P.2d 552
• Parties: 87 Hawai'i 430 Indalescia T. SALVIEJO, Armando M. Salviejo, and Felipe B. Salviejo, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY CO., an Illinois corporation, Defendant-Appellee, and CKI, Inc., a Hawai'i corporation, dba McDonald's Waipahu; Bounce-out, Inc., an Iowa corporation; Wapello Fabrications Company, an Iowa corporation; John Does 1-10; Jane Does 1-10; Doe Partnerships 1-10; Doe Corporations 1-10; Roe "Non-Profit" Corporations 1-10; and Roe Governmental Entities 1-10, Defendants.
• Court: Hawaii Court of Appeals

Page 552

958 P.2d 552

87 Hawai'i 430

Indalescia T. SALVIEJO, Armando M. Salviejo, and Felipe B Salviejo, Plaintiffs-Appellants, v. STATE FARM FIRE AND CASUALTY CO., an Illinois corporation Defendant-Appellee and CKI, Inc., a Hawai'i corporation, dba McDonald's Waipahu Bounce-A-Bout, Inc., an Iowa corporation; Wapello Fabrications Company, an Iowa corporation; John Does 1-10; Jane Does 1-10; Doe Partnerships 1-10; Doe Corporations 1-10; Roe "Non-Profit" Corporations 1-10; and Roe Governmental Entities 1-10, Defendants.

No. 20811.

Intermediate Court of Appeals of Hawai'i.

June 17, 1998.

Roy K.S. Chang and Henry N. Kitamura (Shim Tam & Chang), and Kenneth T. Okamoto and Susan C. Yi (Price Okamoto Himeno & Lum), on the briefs, Honolulu, for plaintiffs-appellants.

Randall Y. Yamamoto and John S.Sasaki (Watanabe, Ing & Kawashima), on the brief, Honolulu, for defendant-appellee.

Before WATANABE and ACOBA, JJ., and Circuit Judge LIM in place of KIRIMITSU, J., recused.

ACOBA, Judge.

We uphold the validity of a homeowner's insurance policy provision that excludes personal liability coverage for bodily injury sustained by a named insured or a resident of the named insured's household, if the resident is a relative or "any other person under the age of 21 who is in care of" either a named insured or a relative. Although similar exclusions in automobile insurance policies have been invalidated, the cases which so hold have relied upon public policies expressed in statutes regulating automobile insurance. In this case, we have not been referred to any similar public policy basis for invalidating this type of exclusion in a homeowner's policy. Thus, we are constrained to hold that this exclusion does not violate public policy and is therefore valid and enforceable.

Accordingly, we affirm the December 5, 1996 order granting summary judgment to Defendant-Appellee State Farm Fire and Casualty Company (State Farm) and the June 5, 1997 final judgment entered in favor of State Farm and against Plaintiffs-Appellants Indalescia T. Salviejo (Indalescia), Armando M. Salviejo (Armando), and Felipe B. Salviejo (Felipe) (collectively referred to herein as Plaintiffs).

I.

A.

Plaintiffs have alleged that on or about February 10, 1994, Felipe took his granddaughter, Angeline Salviejo (Angeline), to the McDonald's restaurant in Waipahu, Hawai'i, where Angeline purportedly injured her right hand in an "unguarded air compressor" while she was playing in McDonald's "Play Place." At the time of Angeline's accident, Plaintiffs were covered by a homeowner's insurance policy (the policy) issued by State Farm. In Section II, the policy provided coverage for "personal liability" and for "medical payments to others":

COVERAGE L--PERSONAL LIABILITY

If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage to which this coverage applies, caused by an occurrence, we will:

1. pay up to our limit of liability for the damages for which the insured is legally liable; and

2. provide a defense at our expense by counsel of our choice....

COVERAGE M--MEDICAL PAYMENTS TO OTHERS

We will pay the necessary medical expenses incurred or medically ascertained within three years from the date of an accident causing bodily injury....

(Boldfaced emphases in original.)

Section II contained several exclusions, including the following "household exclusion," which is the only exclusion at issue on this appeal:

1. Coverage L and Coverage M do not apply to:

....

h. bodily injury to you or any insured within the meaning of part a. or b. of the definition of insured.

This exclusion also applies to any claim made or suit brought against any insured to share damages with or repay someone else who may be obligated to pay damages because of the bodily injury[.]

(Boldfaced emphases in original.) The definition of "insured" referred to in the household exclusion is as follows:

4. "insured" means you and, if residents of your household,

a. your relatives; and

b. any other person under the age of 21 who is in care of a person described above.

(Boldfaced emphasis in original.) The definition section also stated that the references to "you" and "your" in the policy were to the "named insured" as shown on the Declarations page of the policy. The named insureds were Felipe, his wife Susana, Indalescia, and Armando; all of the named insureds were listed as residing at the same street address in Waipahu, Hawai'i.

B.

On December 6, 1994, Angeline's parents, Indalescia and Armando (collectively the Salviejos), filed a tort action (the underlying action) against Defendant CKI, Inc., dba McDonald's Waipahu, (CKI) and Defendants John Does 1-10, Jane Does 1-10, Doe Partnerships 1-10, Doe Corporations 1-10, Roe "Non-Profit" Corporations 1-10, and Roe Governmental Entities 1-10 (collectively referred to herein as the Doe defendants). Indalescia, as guardian prochein ami for Angeline, sued for general damages suffered by Angeline, and the Salviejos, as individuals, sued for, inter alia, general damages for their emotional distress.

On May 17, 1995, CKI filed a third-party complaint against Defendant Bounce-A-Bout, Inc. (BAB), Defendant Wapello Fabrications Company (WFC), and Felipe, alleging that they were negligent and seeking indemnification and/or contribution from them. By a letter dated May 22, 1995, Plaintiffs' counsel requested that State Farm provide a defense to Felipe against CKI's complaint, pursuant to the policy. Felipe was a named insured.

By a June 27, 1995 letter, State Farm denied the request to defend Felipe against CKI's complaint. Citing the household exclusion, State Farm noted that Angeline is Felipe's granddaughter and thus would fall in the policy's definition of "insured." State Farm later "admit[ted] that it denied a defense and coverage for [Felipe] because he was sued by a third-party who in turn had been sued by a member of [Felipe's] own household," but asserted that it "also relied upon other provisions in the policy as well" as the household exclusion to deny Felipe a defense. ¹

On May 31, 1995, BAB and WFC filed a cross-claim against Felipe, alleging that he was negligent and seeking indemnification and/or contribution from him. Plaintiffs have represented that Felipe also tendered the defense of this cross-claim to State Farm, but again State Farm "refused to so defend or extend coverage." In its answer to Plaintiffs' subsequent declaratory judgment complaint, discussed infra, State Farm neither admitted nor denied this allegation. There are no letters in the record indicating that Plaintiffs tendered a defense of the cross-claim to State Farm, or that State Farm refused to defend against the cross-claim. ²

On July 11, 1995, CKI filed a counterclaim against Indalescia, individually, and Armando, again alleging negligence and seeking indemnification and/or contribution. By a July 21, 1995 letter, the Salviejos tendered the defense of the counterclaim to State Farm. State Farm rejected this tender of defense for the same reason that it denied Felipe a defense against CKI's complaint.

C.

On August 31, 1995, Plaintiffs filed a declaratory judgment action against State Farm, CKI, BAB, WFC, and the Doe defendants. Plaintiffs requested the court to order that (1) State Farm had a "duty to defend and/or indemnify Plaintiffs against the claims made against them by other defendants in [the underlying action], and to provide [Plaintiffs] liability coverage up to the limits of their insurance policy"; and that (2) the household exclusion was "null and void as against public policy." ³

On October 16, 1996, State Farm filed its motion for summary judgment. ⁴ In its supporting memorandum, State Farm asserted that there were no factual disputes regarding "the substance of the various claims that have been asserted against Plaintiffs[,]" the policy's provisions and terms, or the relationships between Plaintiffs and Angeline. State Farm argued that it was entitled to judgment as a matter of law because an insurer's duty to defend is triggered only when the claims alleged against its insured raise a possibility of coverage; since the household exclusion "preclude[d] coverage for any claims against an insured because of 'bodily injury' to Angeline[,]" State Farm reasoned, there was no possibility of coverage for these claims and, hence, State Farm had no duty to defend against them. State Farm further contended that the household exclusion did not violate any public policy. ⁵

On November 6, 1996, the Salviejos filed their opposition memorandum to State Farm's motion. Their sole argument was that the household exclusion violated public policy and was therefore void and unenforceable. ⁶ Felipe filed his opposition memorandum the same day, and also maintained that the household exclusion contravened public policy.

At the November 8, 1996 hearing on the motion, Plaintiffs' counsel admitted that the household exclusion applied to the facts of the case, and that Plaintiffs could not cite to legal authority from any jurisdiction invalidating a household exclusion provision in a homeowner's insurance policy.

D.

On December 5, 1996, the court entered a written order granting State Farm's motion. The court explained its reasoning as follows:

[Plaintiffs] acknowledge and concede that the facts of this case fall squarely within [the household exclusion]; however, Plaintiffs argue that this clause is void against public policy;

Plaintiffs acknowledge that they know of no case which has invalidated a similar clause in a homeowner's insurance policy;

There being no genuine issues of material facts and based on the foregoing;

IT IS HEREBY ORDERED that [State Farm's] Motion for Summary Judgment is hereby granted in favor of [State Farm] and against [Plaintiffs] as to any and all claims in this action;

Judgement is hereby entered in favor of [State Farm] and against [Plaintiffs] on the Complaint for...