The federal district court ultimately stayed a construction defect case, but offered comments on the current status of coverage disputes for such defects in Hawaii. See National Union Fire Ins. Co. of Pittsburgh, Pa. v. Simpson Mfg. Co., 2011 U.S. Dist. LEXIS 128481(D. Haw. Nov. 7, 2011).
National Union filed a complaint for declaratory relief to establish it had no duty to defend or to indemnify Simpson Manufacturing Company in four actions pending in the Hawaii state courts. The state court actions concerned allegedly defective hurricane strap tie hold downs that were manufactured and sold by Simpson. The hurricane ties allegedly began to prematurely corrode and rust, causing cracking, spalling and other damage to homes.
National Union contended the underlying allegations did not constitute "property damage" caused by an "occurrence," as defined in the policies. National Union relied upon Group Builders, Inc. v. Admiral Ins. Co.,231 P.3d 67 (Haw. Ct. App. 2010), where the Hawaii appellate court held, "under Hawaii law, construction defect claims do not constitute an occurrence under a CGL policy." Id. 73.
Simpson moved to dismiss, urging the court to decline jurisdiction because of the four actions pending in Hawaii state court which would potentially address the existence of any property damage and the cause of such damage. Simpson also argued the court would have to untangle unsettled questions of Hawaii law, including the continued viability of Group Builders in the face of H.B. 924. This legislation stated that "the meaning of the term occurrence shall be construed in accordance with the law as it existed at the time that the insurance policy was issued."
The court agreed to stay the proceedings pending the outcome of certain state court cases that would resolve relevant factual and legal issues. The court noted that the state of Hawaii insurance law was very much in flux given Group Builders and H.B. 924. Therefore, a stay was appropriate.
Simpson argued, in the alternative to dismissal,that the case should be transferred to the Northern District of California, where a related case was pending. The court rejected this effort. Hawaii's strong public policy interest in insurance law in the construction context, which was expressly stated in H.B. 924, outweighed the risks and inefficiencies associated with parallel proceedings pending in California. Although not as clearly drafted as it might be, the court noted under H.B. 924,"the purpose of this Act is to restore the insurance coverage that construction industry professionals paid for and to ensure that the good-faith expectations of parties at the time they entered into the insurance contract are upheld."
As the state judiciary had not yet addressed the continuing viability of Group Builders and H.B. 924, and because Simpson had indicated it intended to seek to apply California law to the policies, Hawaii's public policy interest in the case provided compelling weight in favor of retaining the case.
