In February, 2006, Federal District Court Judge Helen Gillmor granted the insurer’s Motion for Partial Summary Judgment, determining there was no duty to defend.  Scottdale Ins. Co. v. Sullivan Properties, Inc., 2006 U.S. Dist. LEXIS 11582 (D. Haw., Feb. 27, 2006).   The decision invited Scottsdale move for reimbursement of defense costs.

     Scottsdale’s subsequent motion for summary judgment on the reimbursement issue was granted.   Scottdale Ins. Co. v. Sullivan Properties, Inc., 2007 U.S. Dist. LEXIS 57021 (D. Haw., Aug. 1, 2007).  Judge Gillmor felt certifying the question to the Hawaii Supreme Court was unnecessary.  Review of Hawaii case law convinced her that Hawaii courts would recognize the right of insurers to recoup defense costs when defending under a reservation of rights letter which expressly reserves the insurers’ right to reimbursement. The decision recognizes while there is no Hawaii case law addressing the precise issue, the concepts applied by courts in allowing insurers to recoup defense costs were well established in Hawaii law.

     Hawaii law recognizes the doctrine of unjust enrichment applies where a plaintiff proves it has conferred a benefit upon the opposing party and that the retention of the benefit could be unjust.  An insured is unjustly enriched by an insurer’s payment of defense costs when the insurer never had a duty to defend in the first place.

     Judge Gillmor recognized Hawaii courts follow California case law on insurance coverage issues.  California has long recognized the insurers’ right to reimbursement in, for example, Buss v. Superior Court of Los Angeles, 65 Cal. Rptr. 2d 366 (Cal. 1997) and Scottsdale Ins. Co. v. MV Transportation, 31 Cal. Rptr. 3d 147 (Cal. 2005).  Courts in other jurisdictions have also recognized the insurers’ right to reimbursement.

     Therefore, Scottsdale was entitled to reimbursement of costs and expenses incurred in defending the insured in the underlying case.  The insured’s motion to certify the question to the Hawaii Supreme Court was denied because Judge Gillmor determined Hawaii courts have applied the equitable principles of quasi-contract and unjust enrichment in a matter consistent with reimbursement here.

     Interestingly, another Federal District Court Judge, Judge Mollway seriously questioned the right to reimbursement under Hawaii law in Executive Risk Indemnity, Inc. v. Pacific Educ. Services, Inc., 451 F.Supp.2d 1147 (D. Haw. 2006).  Judge Mollway denied without prejudice a motion for reimbursement of defense costs because the insurer had failed to convince her that Hawaii law supported reimbursement.