Judge Kobayashi of the U.S. District Court, District of Hawaii, largely followed earlier precedent established by Judge Mollway in finding no coverage for construction defect claims. See Evanston v. Nagano, 2012 WL 3800320 (D. Hawaii Aug. 31, 2012).
Evanston issued several liability policies to the insured contractor from 2002 and 2011. The insured entered a contract to build a residence in Honolulu. The homeowners were not happy with their home after the work was completed. They filed suit, alleging that the project was delayed and the construction was "riddled with defects." The complaint included claims for breach of contract and breach of warranties. Negligence was not alleged. Evanston defended, but under a reservation of rights.
Evanstonfiled suit for a declaratory judgment and moved for summary judgment. It argued that the underlying complaint alleged numerous breaches of the contract and numerous defects in the construction of the home, but did not allege negligence. Evanston noted that all of the underlying claims arose from the insured's intentional conduct.
The insured argued that Act 83 meant the court must look to Hawaii case law at the time the policies were issued. The Act stated, in part, "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 insured further argued that Hawaii case law at the time the policy was issued favored coverage.
The court agreed with Evanston. The operative case law when the policies were issued were those relied upon by the Ninth Circuit in Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d940, 946 (9th Cir. 2004) and Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 148-49, 321 P3d 67, 73-74 (Haw. Ct. Appeal 2010). These cases led Burlington and Group Builders to conclude that construction defects did not arise from an occurrence, but from a breach of contract, meaning there was no coverage.
The insured urged the court to consider Hawaii case law indicating construction defects are covered under a liability policy, including Sentinel Ins. Co. v. First Ins. Co., 76 Haw 277, 875 P.2d 894 (1994); Hurtig v. Terminix Wood Treating & Contracting Co., 67 Haw. 480, 692 P.2d 1153 (1984); and Sturla, Inc. v. Firemans' Fund Ins. Co., 67 Haw. 203, 684 P.2d 960 (1984). In Ill. Nat'l Ins. Co. v. Nordic PCL Constr., Inc., 2012 WL 1492399 (D. Haw. April 26, 2012), Judge Mollway felt she was constrained to follow the Ninth Circuit's decision in Burlington. Judge Mollway also believed that both Burlington and Group Builders must have taken the cases cited by the insured into account. Accordingly, Judge Kobayashi felt that Group Builders and Burlingtonwere accurate descriptions of the law as it existed in Hawaii in 2002, when the first policy was issued by Evanston in 2002.
Here, all the claims in the underlyng action or claims that arise from the construction contract. Such claims were not occurrences under Hawaii law, meaning there was no coverage under the policies.
