In a decision authored by Judge Leslie E. Koybayashi, the U.S. District Court for the District of Hawaii followed its prior decisions that construction defect claims were not covered because such claims do not arise from an occurrence. Nautilus Ins. Co. v. 3 Builders, Inc., 2013 U.S. Dist. LEXIS 88480 (D. Haw. June 24, 2013).
3 Builders, the insured, was sued by the Apartment Owners of Mililani Pinnacle for the faulty installation of a new roof. Pinnacle claimed the completed roofs were not properly installed.complaint alleged breach of contract, breach of the duty of good faith and fair dealing, negligence, and other causes of action.
3 Builders tendered the defense to Nautilus, who accepted the tender and defended for three years. Nautilus, however, filed a complaint for a declaratory judgment on its coverage obligations. Nautilus sought summary judgment, contending there was no coverage because all of the claims arose from the contractual relationship to perform the roof work, and a breach of contract was not the type of fortuitous event covered by a CGL policy under Hawaii law. These arguments relied upon prior decisions from the District Court interpreting Hawaii law and a decision from the Hawaii Intermediate Court of Appeals, Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 142, 231 P.3d 67 (Haw. Ct. App. 2010).
The Court considered whether the damages Pinnacle sought in the underlying proceedings were caused by an occurrence. Under Hawaii law, the meaning of the term "occurrence" was construed in accordance with the law as it existed at the time that the policy was issued. Haw. Rev. Stat. 431:1-217 (a). The first Nautilus policy was issued on January 24, 2008. At this point in time, the controlling case was from the Ninth Circuit, Burlington Ins. Co. v. Oceanic Design & Constr. Inc., 383 F.3d 940 (9th Cir. 2004). There, the court held that the contractor's facing a lawsuit for breach of contract after construction of a sub-standard home was a reasonably foreseeable result and not covered by the CGL policy.
Therefore, all of the underlying claims were either contract claims or claims that arose from the contract. The claims were not occurrences within the meaning of Nautilus' policy.
Surprisingly, the decision does not discuss, and apparently 3 Builders did not raise, three Hawaii Supreme Court decisions that suggest that under Hawaii law, construction defect claims do arise from an occurrence: Sturla, Inc. v. Fireman's Fund Ins. Co., 67 Haw. 203, 684 P.2d 960 (1984); Hurtig v. Terminex Wood Treating & Contracting Co., 67 Haw. 203, 684 P.2d 960 (1984); and Sentinel Ins. Co. v. First Ins. Co. of Hawai`i, Ltd., 76 Haw. 277, 875 P.2d 894 (1994).
Thank you to Anna Oshiro, Damon Key blogging colleague, hawaiiconstructionlaw.com, for the heads up on this case.
