In an significant decision touching on a host of issues, the Hawaii Intermediate Court of Appeals (ICA) overturned the circuit court and found numerous insurers had a duty to defend its insured for bodily injury and property damage caused by the 2006 breach of the Kaloko Dam on Kauai. C. Brewer and Co., Ltd. v.Industrial Indemnity Co. et al., No. 28958 (Haw. Ct. App. Aug. 7, 2103) [Kaloko Dam Decision] [Disclosure - our office represents the insured, C. Brewer, in this case].
C. Brewer once owned an earthen dam on Kauai, the Kaloko Dam. The dam was sold in 1987 to James Pflueger, but the responsibility for operating and maintaining the dam remained with a subsidiary of C. Brewer's. After several days of rain, the dam collapsed on March 14, 2006, killing seven people downstream and causing extensive property damage.
Pflueger sued C. Brewer for damages, including indemnification against claims brought against Pflueger because of the dam breach. Pflueger's complaint alleged failure to maintain the dam, breach of duty to properly operate, inspect, and repair the dam, and allowing trees to grow at the foot of the dam, causing seepage that affect the structural stability of the dam.The Fehring lawsuit was filed against Pflueger and C. Brewer for the loss of seven lives. Bette Milder and other downstream property owners filed a third suit for property damage. Pflueger filed cross-claims against C. Brewer in Fehring and Midler seeking indemnification for any damages he was required to pay. The Fehring and Midler suits also incorporated all of the allegations from the Pflueger complaint against C. Brewer.
C. Brewer tendered to its CGL, property and excess carriers, all of whom denied coverage. C. Brewer then sued seventeen of its insurers who had provided coverage from 1987 on.
In a variety of rulings, the circuit court found there was no duty to defend because the injuries and property damage occurred on the date of the breach, March 14, 2006. James River, whose policy was in place on the date of the breach, also had no duty to defend based upon a designated premises endorsement. Claims against the excess policies were dismissed because there was no primary coverage. Finally, the property policies were released based upon the circuit court's ruling that a manifestation trigger applied and C. Brewer had failed to alleged damage had manifested during the policy periods.
The ICA largely reversed the decisions of the circuit court. First, there was a duty to defend the Pfleuger suit. In additional to the underlying allegations, Pfleuger answered an interrogatory confirming the complaint's allegations that there had been "continuous, incremental and indivisible" damage to the dam from 1982 to March 14, 2006. An investigator's report also indicated the dam's failure could have been caused by continuing internal erosion of the embankment of the dam. Finally, extrinsic evidence confirmed that Pflueger was seeking damages for ongoing property damage to his dam over the policy periods of each insurer. Therefore, there was a possibility that C. Brewer could be liable for property damage prior to the dam's breach.
The ICA agreed with the circuit court, however, that there was no duty to defend Fehring or Midler. The underlying allegations in these suits addressed bodily injury and property damage that occurred after the dam breach and subsequent to the policy periods. Pfleuger's cross-claims against C. Brewer did not create a duty to defend because they sought indemnity and contribution for any damages Pflueger had to pay in Fehring and Midler.
Turning to James River, whose policy was in effect in March 2006, the designated premises endorsement was ambiguous. The policy applied to "'bodily injury' or 'property damage' arsing out of the ownership, maintenance, and use of the premises show in the above Schedule." The "above Schedule" merely referred to "Premises: Locations 1-3." Elsewhere in the policy, a "Schedule of Locations" listed 311 Pacific Street, C. Brewer's corporate offices, but did not list Kaloko Dam. The key question was whether the language "arising out of the ownership, maintenance, and use of the [designated premises]" applied to the use of C. Brewer's business headquarters (one of the designated premises) to make negligent business decisions that caused bodily injury and property damage outside of the designated premises.
The underlying lawsuits alleged that C. Brewer made numerous negligent corporate decisions that emanated from 311 Pacific Street, including the failure to warn of the unsafe condition of the dam, failure to adequately maintain the dam, etc. Competing cases were cited on whether bodily injury and property damage occurring away from a designated company headquarters was covered despite this endorsement. The court concluded that the endorsement was ambiguous.
Turning to the property policies, the ICA disagreed with the circuit court that Hawaii had adopted a manifestation trigger for property policies in Sentinel Ins. Co. v. First Ins. Co., 76 Haw. 277, 875 P.2d 894 (1994). It was unnecessary here for the ICA to determine whether the manifestation trigger or the injury in fact trigger applied to property policies because the language of the policies demonstrated that C. Brewer had stated a claim against the property carriers upon which relief could be granted. The policies did not contain language which limited coverage to property damage that was discovered or became manifest during the policy period. Therefore, the property policies were ambiguous as to whether the manifestation trigger or an injury-in-fact trigger should be applied. It was not beyond doubt that C. Brewer would not be able to prove any set of facts entitling it to relief.
Finally, dismissal of the excess carriers was erroneous. Because the circuit court erred in dismissing claims against the primary insurers, the circuit court improperly relied on its ruling regarding the primary insurers in dismissing the claims against the excess insurers.
The final judgment of the circuit court was vacated and the case remanded for further proceedings.