76 Hawai'i 166, Hawaiian Holiday Macadamia Nut Co., Inc. v. Industrial Indem. Co.

• Decision Date: 23 March 1994
• Docket Number: No. 16759,16759
• Citation: 872 P.2d 230,76 Hawaii 166
• Parties: 76 Hawai'i 166 HAWAIIAN HOLIDAY MACADAMIA NUT CO., INC., Paul DeDomenico and Anita DeDomenico and Roderick J. Saunders, Plaintiffs-Appellees, v. INDUSTRIAL INDEMNITY COMPANY, Industrial Insurance Company of Hawaii, Ltd., Defendants-Appellants, and John Does 1-10, Jane Does 1-10, Doe Partnerships 1-10, Doe Corporations 1-10 and/or "non-profit" Corporations 1-10, and Doe Governmental Entities 1-10, Defendants.
• Court: Hawaii Supreme Court

Page 230

872 P.2d 230

76 Hawai'i 166

HAWAIIAN HOLIDAY MACADAMIA NUT CO., INC., Paul DeDomenico and Anita DeDomenico and Roderick J. Saunders Plaintiffs-Appellees, v. INDUSTRIAL INDEMNITY COMPANY, Industrial Insurance Company of Hawaii, Ltd., Defendants-Appellants and John Does 1-10, Jane Does 1-10, Doe Partnerships 1-10, Doe Corporations 1-10 and/or "non-profit" Corporations 1-10, and Doe Governmental Entities 1-10, Defendants.

No. 16759.

Supreme Court of Hawai'i.

March 23, 1994.

As Amended April 21, 1994.

Syllabus by the Court

1. An insurer's duty to defend its insured is contractual in nature and courts look to the language of the particular policy involved to determine the scope of that duty.

2. Where a suit raises a 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 of the policy's coverage.

3. Where the pleadings fail to allege any basis for recovery within the coverage clause, the insurer has no obligation to defend.

4. If a plaintiff's complaint against an insured defendant alleges facts that would support a recovery for a loss covered by the policy, it is the insurer's duty to undertake the defense, until such time as the plaintiff's claimed loss is not covered by the insurer's policy.

5. If the alleged facts provide the basis for claims sounding in breach of contract and fraud but not negligence, these facts would not constitute property damage caused by an occurrence within the meaning of a comprehensive general liability policy.

Arthur F. Roeca (Keith K. Hiraoka, with him on the briefs of Roeca, Louie & Hiraoka), Honolulu, for defendants-appellants.

David C. Schutter (Charles J. Ferrera, with him on the brief), Honolulu, for plaintiffs-appellees.

Before MOON, C.J., LEVINSON, NAKAYAMA and RAMIL, JJ., and WONG, Circuit Court Judge, in place of KLEIN, J., recused.

NAKAYAMA, Justice.

Defendants-appellants Industrial Indemnity Company and Industrial Insurance Company of Hawaii, Ltd. (collectively Industrial) appeal orders granting plaintiffs-appellees Hawaiian Holiday Macadamia Nut Company, Inc., (Nut Company) Paul DeDomenico, Anita DeDomenico and Roderick J. Saunder's (collectively Hawaiian Holiday) motion for summary judgment and denying Industrial's cross motion for summary judgment.

The trial court determined that Industrial had a duty to defend Hawaiian Holiday because the complaint which gave rise to the action alleged claims of property damage. However, because the complaint alleged causes of action for breach of contract, fraud, racketeering and misappropriation of assets and did not assert claims sounding in negligence, we disagree with the holding of the trial court, vacate the orders granting Hawaiian Holiday's motion for summary judgment and denying Industrial's motion for summary judgment and remand to the trial court for entry of judgment in favor of Industrial.

I. BACKGROUND

The Nut Company is a Hawaii corporation, wholly owned by Paul and Anita DeDomenico, which grows, processes, ships and retails macadamia nuts. Paul DeDomenico is the Nut Company's president and the chair of its board of directors. Anita DeDomenico is executive vice president and a director of the Nut Company. Roderick J. Saunders was, at the time, the Nut Company's vice president of finance.

The Nut Company entered into a business venture with two Texas-owned limited partnerships, Kohala Agriculture and Keaau Agriculture (the Dallas Plaintiffs), whereby the limited partnerships would provide the funds necessary to cultivate and harvest macadamia nuts and the alternating crops, alfalfa and tropical hay. Pursuant to the planting agreements which the Nut Company entered into with both Kohala Agriculture and Keaau Agriculture, the Nut Company was to lease property to the limited partnerships. The limited partnerships would then purchase macadamia nut seedlings from the Nut Company, and pay the Nut Company to plant and tend the seedlings, and harvest the macadamia nut crop. The Nut Company, thereafter, would purchase the harvested nuts from the limited partnerships.

Unfortunately, the venture did not progress as expected. On July 17, 1986, Kohala Agriculture and Keaau Agriculture filed a complaint in the United States District Court for the Northern District of Texas (Dallas litigation or Dallas complaint), alleging: (1) Hawaiian Holiday made fraudulent misrepresentations in soliciting the Dallas Plaintiffs' purchase of shares in the limited partnerships; (2) the Nut Company breached its farming contracts with the limited partnerships; and (3) the DeDomenicos and Saunders converted limited partnership assets to their own use. The complaint alleged the following claims for relief: (1) fraud; (2) fraud in the sale of securities; (3) racketeering; (4) breach of contract and (5) fraudulent conveyance and misappropriation of assets in violation of fiduciary duty such that the plaintiffs were entitled to a constructive trust. The Dallas Plaintiffs sought benefit of the bargain damages or, in the alternative, restitution or recovery of their money.

Industrial had issued three comprehensive general liability (CGL) insurance policies to the Nut Company and Paul and Anita DeDomenico, as named insureds, covering consecutive periods of time from February 15, 1982 through February 15, 1986. The policy provided, in pertinent part, coverage for property damage resulting from an "occurrence," or accident.

Hawaiian Holiday tendered the defense of the Dallas litigation to Industrial on August 10, 1986, which Industrial declined. Subsequently, Hawaiian Holiday filed suit against Industrial in the Circuit Court of the First Circuit, State of Hawaii, alleging bad faith failure to defend.

Industrial moved for summary judgment, which the circuit court denied.

The circuit court granted Industrial's subsequent motion for leave to file an interlocutory appeal, reasoning that because: 1) the case involved substantial legal issues concerning insurance coverage that were questions of first impression in Hawaii; 2) the financial cost to the parties would be great considering some of the parties and many of the lay and expert witnesses resided on the mainland; and 3) the trial would also tax the resources of the circuit court, a final determination by this court as to the extent of the coverage of the policy at issue would facilitate the speedy termination of the litigation. Meanwhile, Hawaiian Holiday filed a motion for summary judgment, which the circuit court granted, applying the same reasoning as it had in denying Industrial's motion. As it had done for Industrial, the circuit court granted Hawaiian Holiday's motion for leave to file an interlocutory appeal. Subsequently, we consolidated Industrial's and Hawaiian Holiday's interlocutory appeals--Nos. 14703 and 15140.

In a memorandum opinion filed on July 2, 1991, we affirmed the circuit court's denial of Industrial's motion for summary judgment and remanded with instructions. We found that contrary to Hawaiian Holiday's assertion, the claims made in the Dallas litigation were not specifically covered under the advertising injury coverage. 72 Haw. 604, 815 P.2d 27. However, we emphasized that the advertising injury was not the only issue upon which Hawaiian Holiday could possibly rely to obtain coverage. Because the three policies provided by Industrial contained many bases for coverage, and the factual allegations in the Dallas complaint were broadly stated, we remanded the case so that Hawaiian Holiday could particularize the specific allegations in the Dallas litigation upon which they were relying for coverage and the duty to defend.

On remand, Hawaiian Holiday filed a second motion for summary judgment, and Industrial also filed a second cross-motion for summary judgment. The circuit court granted summary judgment as to Industrial's duty to defend in the Dallas litigation, concluding that the Dallas plaintiffs' complaint contained claims for property damage resulting from "occurrences" that raised a potential for indemnification liability and therefore a duty to defend under the terms of the insurance policy. Industrial's timely appeal followed.

Subsequently, on November 30, 1990, the Dallas plaintiffs and Hawaiian Holiday agreed to a settlement and mutual release of the claims asserted in the Dallas litigation.

II. STANDARD OF REVIEW

The standard to be applied by the appellate court in reviewing a grant or denial of summary judgment is identical to that employed by the trial court. Summary judgment is proper when there are no genuine issues of material fact and the moving party demonstrated that it is entitled to judgment as a matter of law. Kaneohe Bay Cruises, Inc. v. Hirata, 75 Haw. 250, 258, 861 P.2d 1, 6 (1993); State v. Magoon, 75 Haw. 164, 175, 858 P.2d 712, 718, recon. denied, 75 Haw. 580, 861 P.2d 735 (1993); HRCP Rule 56(c).

III. DISCUSSION

Because the 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. Commerce & Indus. Ins. Co. v. Bank of Hawaii, 73 Haw. 322, 325, 832 P.2d 733, 735, recon. denied, 73 Haw. 625, 834 P.2d 1315 (1992) (citations omitted).

The policy at issue provides in pertinent part:

The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A--bodily injury,

Coverage...