Further demonstrating a difference of opinion between federal district court and state court trial judges, Judge Mollway denied a motion to certify a proposed question to the Hawaii Supreme Court regarding coverage for construction defects. Illinois Nat’l Ins. Co. v. Nordic PLC Constr., Inc., Civil No. 11-00515 SOM/KSC (Order Denying Defendant’s Motion to Certify Question to Hawaii Supreme Court, Jan. 14, 2013)(Download Order here).

   Nordic sought coverage for alleged defects at Moanalua Shopping Center and a Safeway store. The insurer denied coverage based upon the Hawaii Intermediate Court of Appeals decision, Admiral Ins. v. Group Builders, 123 Haw. 142, 231 P.3d 67 (2010), in which the ICA  determined property damage claims caused by faulty workmanship did not arise from an “occurrence.” Instead, such claims derived from breach of contract and were therefore not covered.

   In a prior decision, Judge Mollway agreed with the insurer that construction defects alleged against Nordic were not “occurrences.” Judge Mollway relied not only on Group Builders, but also on the Ninth Circuit’s case, Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940 (9th Cir. 2004). The court also determined that Act 83, passed by the Hawaii legislature in the wake of Group Builders, did not change the analysis. Act 83 required that the meaning of “occurrence” be determined based on Hawaii law at the time the policy was entered. Here, the policy was issued post-Burlington, so Judge Mollway determined that the analysis in Group Builders was correct. 

   Nordic’s current motion sought certification of the following: in light of Group Builders and Act 83, does a CGL policy that includes “products/completed operations” coverage, in the absence of an applicable policy exclusion, provide coverage for claims of property damage to the completed work of an insured if such damage arises out of the deficient performance of a construction contract by the insured or its subcontractor? The policy considered in Group Builders did not include coverage for products/completed operations. Nordic argued there was no controlling precedent from the Hawaii courts.

   Judge Mollway denied certification. While 83 was new legislation, it provided that the law applicable before Group Builders remained in effect. Burlington was not only decided before Group Builders, but also discussed Hawaii law in effect in 2004 when Burlington was issued.

   At least three state court judges have recently determined that Act 83 undermines Group Builders. One of these judges expressly considered three decisions from the Hawaii Supreme Court, decided long before Group Builders, which suggested that property damage caused by faulty workmanship does arise from an “occurrence.” 

   Thanks to David Schulmeister, Esq., counsel for Nordic, for providing a copy of the order.