Liberty Mut. Ins. Co. v. Sentinel Ins. Co.

• Decision Date: 31 March 2009
• Docket Number: No. 27429.,27429.
• Citation: 205 P.3d 594
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff-Appellant/Cross-Appellee, v. SENTINEL INSURANCE COMPANY, LTD. and Hartford Insurance Group, Defendant-Appellee/Cross-Appellee, Zashell Labrador and PEMCO Mutual Insurance Company, Defendant-Counterclaimant/Appellee/Cross-Appellant, Elisa Tolfree, et al., Defendants.
• Court: Hawaii Court of Appeals

205 P.3d 594

LIBERTY MUTUAL INSURANCE COMPANY, Plaintiff-Appellant/Cross-Appellee, v. SENTINEL INSURANCE COMPANY, LTD. and Hartford Insurance Group, Defendant-Appellee/Cross-Appellee Zashell Labrador and PEMCO Mutual Insurance Company, Defendant-Counterclaimant/Appellee/Cross-Appellant Elisa Tolfree, et al., Defendants.

No. 27429.

Intermediate Court of Appeals of Hawai`i.

March 31, 2009.

As Corrected April 22, 2009.

Thomas Tsuchiyama, (Sumida & Tsuchiyama), Honolulu, for Plaintiff-Appellant/Cross-Appellee.

Phillip L. Carey, Hilo, for Defendant-Counterclaimant/Appellee/Cross-Appellant.

RECKTENWALD, C.J., WATANABE, and FOLEY, JJ.

Partial Opinion of the Court by WATANABE, J., as to Parts I. through II.B.1; Partial Opinion of the Court by RECKTENWALD, C.J., as to Parts II.B.2. and III.; and WATANABE, J., dissenting as to Part II.B.2. and dissenting in part as to Part III.

Partial Opinion of the Court by WATANABE, J.

Plaintiff-Appellant/Cross-Appellee Liberty Mutual Insurance Company (Liberty Mutual) appeals and Defendant-Counterclaimant/Appellee/Cross-Appellant Zashell Labrador (Labrador) cross-appeals from the certified final judgment (Final Judgment) entered by the Circuit Court of the Third Circuit¹ (circuit court) on July 21, 2005. The Final Judgment determined that Liberty Mutual must pay Labrador $50,000 in underinsured motorist (UIM) benefits for injuries Labrador sustained as a passenger in a car driven by Defendant Elisa Tolfree (Tolfree) that allegedly veered off the road to avoid an unidentified truck pulling a trailer (phantom truck).

Tolfree's car was insured under two motor vehicle policies that provided liability and uninsured motorist (UM) coverage. Labrador was insured by her father's policy with Liberty Mutual, which provided stacked UM coverage totaling $140,000 and stacked UIM coverage totaling $140,000.

Following an arbitration between Labrador and Liberty Mutual, an arbitration panel determined that Labrador's damages amounted to $250,000 and that Tolfree was sixty percent at fault and the phantom truck's driver was forty percent at fault for the damages. Labrador reached settlements with Tolfree's insurers for liability and UM benefits and then sought UM and UIM benefits from Liberty Mutual.

Liberty Mutual contends that the circuit court erred when it: (1) held Liberty Mutual liable to Labrador for UIM benefits based on Tolfree's joint-and-several liability for all of Labrador's damages, (2) failed to credit Liberty Mutual with the amounts that Labrador received in UM benefits from Tolfree's insurers in determining that Labrador was underinsured, and (3) awarded attorney's fees to Labrador.

Labrador argues in her cross-appeal that the circuit court erred by failing to: (1) award her prejudgment interest; and (2) invalidate, as against public policy, the "other insurance" clause included in Liberty Mutual's policy.

I. BACKGROUND

On August 5, 1994, Labrador, who was then thirteen years old, was a passenger in a 1990 Subaru Legacy (car) driven by Tolfree when Tolfree veered her car off the roadway and into a utility pole (the accident), allegedly to avoid the phantom truck. Labrador was injured as a result of the accident, underwent four surgeries, and suffered permanent facial scars.

Tolfree's car was insured under a policy with PEMCO Mutual Insurance Company (PEMCO), a Washington state insurer,² which provided $100,000 in bodily-injury (BI) liability coverage and $100,000 in UIM coverage. Under PEMCO's policy, an "underinsured motor vehicle" was defined as "one to which no liability insurance policy or bond applies at the time of the accident" and therefore, included UM coverage. PEMCO's policy included the following "other insurance" clauses:

PART II

UNDERINSURED MOTORIST COVERAGES

....

Other Insurance

If this policy and any other policy providing [UIM] coverage applies to the same loss, the maximum limit of liability under all policies will be the highest limit of liability that applies under any one policy. If other [UIM] coverage applies, we'll pay only our fair share of the loss. That share is our proportion of the total [UIM] insurance that applies to the loss. But any insurance we provide when you or a covered person use a vehicle you don't own will be excess over any other collectible insurance.

....

POLICY PROVISIONS

....

Other Insurance—Primary and Excess Insurance

The insurance we provide for any auto described on the "Declarations" or for any replacement or additional auto we insure under this policy is primary. That is, it pays even if other insurance applies.

Any insurance provided by this policy for any motor vehicle you don't own is excess. That is, it protects you after the limit of primary insurance provided by another policy or loss-protection plan is exhausted or if there's no primary insurance or loss protection for that motor vehicle.

Sometimes, other primary insurance is available for a motor vehicle when our insurance also is primary. Or, other excess insurance is available for a motor vehicle when our insurance is excess. In either case, we'll pay only our fair share of any loss or damage. That share is our proportion of the total liability limit that applies to the loss. This definition of "our fair share" applies to all parts of this policy except "Parts II and III."

(Emphases in original.)

Tolfree's car was also insured under a policy issued by Hartford Insurance Group and Sentinel Insurance Company, Ltd. (H/S), which provided $100,000 in BI-liability coverage and $50,000 in UM coverage. The H/S policy included the following "other insurance" provision in both the UM and UIM sections of the policy:

If there is other applicable similar insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits.

However, any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance.

(Formatting revised.)

Labrador was insured under her father's policy with Liberty Mutual covering four vehicles, which provided BI-liability coverage of $35,000 for each person, property-damage-liability coverage of $35,000 for each accident, stacked-UM coverage totaling $140,000, and stacked-UIM coverage totaling $140,000. Liberty Mutual's policy included the following "other insurance" provision with respect to UM and UIM coverage:

If there is other applicable similar insurance we will pay only our share of the loss. Our share is the proportion that our limit of liability bears to the total of all applicable limits. However, any insurance we provide with respect to a vehicle you do not own shall be excess over any other collectible insurance.

After the accident, Tolfree failed to disclose her H/S policy to Labrador and PEMCO. Tolfree also failed to tell H/S about the accident. Labrador entered into settlement negotiations with PEMCO, the only liability insurer she was aware of, and on October 30, 1996, her attorney notified Liberty Mutual of Labrador's intention to settle with PEMCO "for general damages only ... at [BI-liability] policy limits." Labrador's attorney also informed Liberty Mutual of Labrador's intention to pursue a UIM claim against Liberty Mutual:

If it is your or your principal's position that a settlement would jeopardize my client's claim, if any, to underinsurance, then we request that and your principal promptly notify us of its objection. In that instance we would ask your principal to advance a sum to our client equivalent to that offered by [Tolfree's] insurance company and he [sic] would assign to your principal any interest he [sic] may have to recover from [Tolfree] (but without giving up his [sic] claim to underinsurance).

This UIM letter should be construed as a claim for UIM benefits and as such for tolling the Statute of Limitations under the Hawaii No-fault Law.

We are taking the position that the settlement our client is receiving from [Tolfree's] insurance company is non-duplicative and reimbursement is not required under the statute. We will provide you with a copy of the release and declaration page.

Liberty Mutual neither objected nor consented to the settlement. On November 13, 1996, Labrador settled her claim with PEMCO for $100,000, the policy limit for BI liability, and executed a general release of all claims against Tolfree.

On August 27, 1997, Liberty Mutual informed Labrador of its discovery that Tolfree had an additional policy with H/S, which was apparently administered in Hawai`i by Pacific Insurance Company. Tolfree had purchased the additional coverage on August 2, 1994 upon her arrival in Hawai`i. Liberty Mutual advised Labrador that in light of Tolfree's overlapping policies with PEMCO and H/S, "we will be able to entertain [a UIM] claim only after the limits of liability under any applicable [BI-]liability bonds or policies have been exhausted by payment of judgments or settlements. Thus, we would suggest that you pursue a [BI] claim through Pacific Insurance at this time."

However, because Labrador had released Tolfree from all liability upon settling with PEMCO for the $100,000 BI limits, H/S refused to pay BI benefits to Labrador. H/S insisted that it was only obligated under its policy with Tolfree to contribute fifty percent to the settlement paid out by PEMCO.

By a letter dated March 15, 2000, Liberty Mutual rescinded its earlier offer to settle Labrador's UIM claim for $35,000³ on grounds that Liberty Mutual: (1) was "entitled to a $200,000 offset (the total available amount of underlying [BI] limits), prior to exposing" the UIM policy; and (2) felt "that the value of [Labrador's] claim is under $200,000."

On September 6, 2000, Labrador filed a complaint in the circuit court against Tolfree in Civil No. 00-1-0361, seeking damages caused by Tolfree's negligence and misrepresentation/negligent misrepresentation of her insurance status.

By a letter dated...