GGA, Inc. v. Kiewit Infrastructure W. Co.

• Decision Date: 22 January 2020
• Docket Number: Civ. No. 18-00110 JMS-WRP
• Citation: 611 F.Supp.3d 1000
• Parties: GGA, INC. dba Pacific Fence ; and Island Insurance Company, Limited, Plaintiffs, v. KIEWIT INFRASTRUCTURE WEST CO., fka Kiewit Pacific Co. ; et al., Defendants.
• Court: U.S. District Court — District of Hawaii

611 F.Supp.3d 1000

GGA, INC. dba Pacific Fence ; and Island Insurance Company, Limited, Plaintiffs,

v.KIEWIT INFRASTRUCTURE WEST CO., fka Kiewit Pacific Co. ; et al., Defendants.

Civ. No. 18-00110 JMS-WRP

United States District Court, D. Hawai‘i.

Signed January 22, 2020

Inia Marie Yevich, Robert P. Richards, Samantha Storm, Myhre Tsuchida Richards & Storm, Honolulu, HI, for Plaintiffs.

Sheree A. Kon-Herrera, Wesley H.H. Ching, Fukunaga Matayoshi Ching & Kon-Herrera, LLP, Honolulu, HI, for Defendants.

ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT OR PARTIAL SUMMARY JUDGMENT, ECF NOS. 36, 49, 51, 57

J. Michael Seabright, Chief United States District Judge

I. INTRODUCTION

In this complicated declaratory-relief action, the parties raise an open and important question of Hawaii insurance law: whether (or under what circumstances) an insurer that defends an insured after issuing a reservation-of-rights letter may seek reimbursement of defense costs and fees. Compare Scottsdale Ins. Co. v. Sullivan Props., Inc. , 2007 WL 2247795, at *7 (D. Haw. Aug. 2, 2007) (predicting under the Erie doctrine that the Hawaii Supreme Court would allow reimbursement from an insured where the insurer expressly reserved the right to recoup costs) with Exec. Risk Indem., Inc. v. Pac. Educ. Servs., Inc. , 451 F. Supp. 2d 1147, 1163 (D. Haw. 2006) (declining to adopt such a ruling, commenting that "a ruling on reimbursement would be a major decision on Hawaii insurance law that could have a tremendous impact on the duty to defend in hundreds of other cases") and Burlington Ins. Co. v. Panacorp, Inc. , 758 F. Supp. 2d 1121, 1133 (D. Haw. 2010) (staying declaratory relief action, reasoning in part that "Burlington's entitlement to reimbursement while it is currently defending Panacorp, Norva, and PSC implicates important and unsettled state interests").

After carefully analyzing the voluminous record, however, the court does not weigh in on the insurer-insured reimbursement question—this action's complex procedural history provides a poor vehicle to address it. And, ultimately, the main issue is different. Here, the court addresses reimbursement based on narrow construction-contract indemnity provisions (that is, not based on an insurance contract), and where an insurance company is not seeking reimbursement from its insured. Moreover, this court is deciding motions after Hawaii state courts have already specifically ruled, in a unique set of circumstances, that the indemnitor owed no duty to defend (and never should have had such a duty). Based on these unique factors, the court issues this narrow, but necessarily lengthy order. The court turns to the specifics:

In this action, Plaintiffs GGA, Inc., dba Pacific Fence ("Pacific Fence") and Island Insurance Company, Ltd. ("Island Insurance") (collectively, "Plaintiffs") seek reimbursement from Kiewit Infrastructure West Co. ("Kiewit") of the fees and costs incurred by Island Insurance for defending Kiewit in an underlying state court action, Arthur v. Department of Hawaiian Homelands, et al. , Civ. No. 05-1-1981-11 (JPC) (Haw. 1st Cir. Ct.) ("the Arthur litigation"). The court now faces four motions. Plaintiffs move for partial summary judgment, ECF No. 36, seeking a declaration that they owed no duty to defend Kiewit in the Arthur litigation. Kiewit opposes and responds with counter-motions for summary judgment, arguing that Plaintiffs' action fails on several waiver-related grounds—judicial estoppel, res judicata (claim preclusion), prior lack of a compulsory counterclaim, statute-of-limitations bar—or fails because reimbursement of defense fees and costs is unavailable as a matter of law. See ECF Nos. 49, 51, 57.

As detailed to follow, the court GRANTS the motions in part and DENIES them in part. Specifically, the court GRANTS Kiewit's motion directed at Pacific Fence, ECF No. 49, and DISMISSES Pacific Fence as a Plaintiff. Pacific Fence was dissolved in 2013, and lacks standing to seek reimbursement relating to duties arising out of the indemnity provisions of its October 15, 1999 subcontract with Kiewit. Nevertheless, co-Plaintiff Island Insurance does have standing to seek declaratory relief, and its claims are not barred. The court DENIES Kiewit's motions arguing otherwise, ECF Nos. 51 & 57.

The court GRANTS Plaintiffs' motion seeking declaratory relief, ECF No. 36, in favor of Island Insurance. Pacific Fence—and thus Island Insurance, which covered Pacific Fence's potential liability arising out of the indemnity provisions of Pacific Fence's subcontract with Kiewit—owed no duty to defend Kiewit in the Arthur litigation. This conclusion follows from (1) the main holding in Arthur v. Department of Hawaiian Home Lands , 138 Haw. 85, 377 P.3d 26 (2016) (" Arthur II "); and (2) subsequent October 2017 rulings in the Arthur litigation by the First Circuit Court of the State of Hawaii. Island Insurance is entitled to enforce its May 8, 2006 reservation-of-rights letter against Kiewit.

II. BACKGROUND

The underlying historical facts are largely undisputed. To explain the context for the current motions, the court draws upon (1) the Hawaii Intermediate Court of Appeals' 2015 opinion in Arthur v. Department of Hawaiian Home Lands , 135 Haw. 149, 346 P.3d 218 (Haw. Ct. App. 2015) (" Arthur I " ); (2) the Hawaii Supreme Court's 2016 opinion in Arthur II , which affirmed Arthur I in part and vacated it in part; and (3) specific documents from the Arthur trial court proceedings (both before and after Arthur II's remand) that the parties have made part of this court's record or are viewable on the public docket. The Arthur litigation spanned nearly thirteen years, involving questions of negligence and extensive proceedings regarding duties to defend and indemnify arising out of various construction contracts between several parties. The court recounts only the background necessary to understand the current dispute between Island Insurance and Kiewit, although that background is nevertheless quite lengthy.

A. Relevant Contracts and Indemnity Provisions

In 1998, the State of Hawaii Department of Hawaiian Home Lands ("DHHL") retained Kamehameha Investment Corporation ("KIC") to develop a Honolulu residential subdivision, the Kalawahine Streamside Housing Development ("Kalawahine Streamside"), on Hawaiian home lands. KIC then contracted with, among others, (1) Sato and Associates, Inc. ("Sato") for civil engineering work, (2) Coastal Construction Co. ("Coastal") as the general contractor, (3) Design Partners, Inc. ("Design Partners") as an architect, and (4) Kiewit as a general contractor for grading and site work. See generally Arthur II , 138 Haw. at 87-88, 377 P.3d at 28-29. In turn, Kiewit subcontracted with Pacific Fence to construct a "debris fence between the constructed homes and the adjacent hillside." Id. at 89, 377 P.3d at 30.

The KIC/Kiewit contract was large—KIC paid Kiewit over $5 million. See Arthur I , 135 Haw. at 156, 346 P.3d at 225.

The Kiewit/Pacific Fence subcontract was not—Kiewit paid Pacific Fence "approximately $18,235.74" for construction of a "chain link fence." Id. at 157, 346 P.3d at 226 ; see also ECF No. 36-5 at PageID #772.

KIC's contracts with Sato, Coastal, Design Partners, and Kiewit each included similar indemnity (or "hold harmless") clauses, ostensibly requiring the contractors to indemnify KIC for harm caused by the contractor's negligence or willful actions or omissions. For example, a March 10, 1998 Project Consultant Agreement between KIC and Sato contained the following hold harmless clause:

Consultant [Sato] hereby agrees to indemnify, defend and hold harmless Developer [KIC], and each of its officers, directors and employees, from and against any and all claims, demands, losses, liabilities, actions, lawsuits, proceedings, judgments, awards, costs and expenses (including reasonable attorneys' fees), arising directly or indirectly, in whole or in part, out of work undertaken by Consultant [Sato] outside the scope of this Agreement and/or out of the negligence or any willful act or omission of Consultant [Sato], or any of its officers, directors, agents or employees, in connection with this Agreement or Consultant's [Sato's] services or work hereunder , whether within or beyond the scope of its duties or authority hereunder. The provisions of this Section shall survive completion of Consultant's [Sato's] services hereunder and/or the termination of this Agreement.

Arthur II , 138 Haw. at 88, 377 P.3d at 29 (names and emphasis added).¹ KIC had an equivalent provision with Kiewit, requiring Kiewit to indemnify KIC as follows:

To the fullest extent permitted by law, [Kiewit] shall indemnify, defend, and hold harmless [KIC], [Sato], [and DHHL] ... from and against all claims, damages, losses, costs, and expenses, including but not limited to attorney's fees, arising out of or resulting from performance of the Work, provided that such claim, damage, loss or expense is attributable to bodily injury, sickness, disease or death, or to injury to or destruction of tangible property (other that (sic) the Work itself) including loss of use resulting therefrom, but only to the extent caused in whole or in part by any negligent acts or omission of the Contractor, a Subcontractor, ... or anyone for whose acts they may be liable, regardless of whether such claim, damage, loss, or expenses is caused in part by a party indemnified hereunder.

Arthur I , 135 Haw. at 156-57, 346 P.3d at 225-26 (square brackets in original).

In turn, Kiewit's October 15, 1999 subcontract with Pacific Fence included a similar indemnity provision requiring Pacific Fence to indemnify Kiewit for "claims, suits, or liability" for damages caused by Pacific Fence. Much of the present action arises from disputes regarding the scope of this subcontract's indemnity provision. The subcontract provided:

Section 11. INDEMNIFICATION. To the fullest extent permitted by law, Subcontractor [Pacific

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