Court Holds Coverage Is Not Limited To Designated Locations
The Supreme Court of Hawaii, applying Hawaii law, held that coverage was not limited to premises listed in a schedule of locations in the policy. The court found that the policy unambiguously provided coverage for bodily injury and property damage bearing a causal connection to the use of the designated premises, regardless of where the injury or damage occurs, and such causal connection could be found in this case through negligent business decisions.
C. Brewer and Company, Ltd. (“Brewer”), constructed an irrigation system, including a dam creating the Kaloko Reservoir. Brewer later formed Kilauea Irrigation Company (“KIC”) to manage its obligations under an agreement with the state to maintain the irrigation system. Brewer sold the land under the Reservoir to James Pflueger in 1987. In 2006, a large portion of the Kaloko Dam collapsed, resulting in seven deaths and extensive property damage. Pflueger sued Brewer for damages and indemnification for claims brought against him arising out of the Dam breach. Pflueger alleged that Brewer was negligent in its maintenance of the structural stability of the Dam and in its entrustment of the maintenance and operation of the Dam to KIC. James River Insurance Company’s (“James River”) CGL policy was Brewer’s only policy in effect on the date of the Dam Breach. Brewer tendered defense of the Pflueger complaint to James River, which refused to defend. Brewer filed a declaratory action seeking rulings regarding James River’s and 16 other insurers’ coverage obligations.
James River argued that the policy’s Designated Premises Endorsement (“DPE”) limited coverage to liability arising out of the ownership, maintenance, or use of specifically indentified premises and the Dam was not listed as a designated premises. The circuit court accordingly granted summary judgment in favor of James River, finding the policy unambiguously limited coverage to the DPE’s listed premises. The court of appeals reversed and remanded to the trial court, finding a genuine issue of material fact because the policy was ambiguous as to whether the language “arising out of the ownership, maintenance, and use of the designated premises” could be interpreted to encompass the use of the premises to make business decisions causing injury or damage outside of the designated premises.
In holding that the DPE unambiguously provided coverage for negligence claims arising out of the use of Brewer’s corporate headquarters, the Supreme Court of Hawaii adopted the rationale of American Guar. and Liab. Ins. Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997). The court found that the term “arising out of the use of designated premises” required there be a causal connection to the use of the designated premises, but the policy covered damage and injuries that occurred elsewhere if such causal connection existed. The court then held that a causal connection could be found between Brewer’s alleged negligent business decisions made on the designated premises regarding maintenance of the Dam and the injuries and damage from the Dam collapse.
The court also noted that James River’s asserted interpretation would effectively convert the policy from a CGL policy to a premises liability policy, in direct contradiction to the policy, which specifically stated that it was a commercial general liability policy. If James River intended such a conversion, the language “must be clear and unequivocal,” and it was not sufficiently so, in this case, to put the insured on notice of a conversion. Further, the court stated that James River’s construction contravened general principles of insurance law, which provides that policy language is to be construed liberally in favor of the insured and any ambiguities must be resolved against the insurer. C. Brewer & Co., Ltd. v. Marine Indem. Ins. Co. of America, No. SCWC-28958 (Haw. Mar. 27, 2015).