The Hawaii Supreme Court held that a Designated Premises Endorsement provided coverage for injury and damage that occurred away from a listed location if the injury or damage arose out of the ownership, maintenance or use of the designated premises. C. Brewer and Co., Ltd. v. Marine Indemn. Ins. Co., 2015 Haw. LEXIS 62 (Haw. March 27, 2015). [Disclosure: our office represents C. Brewer].
The case involves coverage for the former owner (C. Brewer) of land under the Kaloko Reservoir. The Reservoir was fronted by an earthen dam. The Dam burst in March 2006, killing seven people and causing extensive property damage downstream.
In 1977, the State of Hawaii and C. Brewer entered an agreement requiring C. Brewer to, among other things, restore and expand the irrigation system that provided water to sugar cane fields in Kilauea, Kauai. C. Brewer formed the Kilauea Irrigation Company (KIC) to satisfy obligations to the State, revitalize the System, and sell System water to local farmers for irrigation.
Under a Water Rights Agreement entered in 1987, KIC became solely responsible for operating, inspecting, maintaining, and repairing the System and Dam. In 1987, C. Brewer sold the land under the Reservoir to James Pflueger.
After the Dam burst, Pflueger was sued in various wrongful death and property damage cases. Pflueger sued C. Brewer seeking damages and indemnification. Pflueger alleged that C. Brewer sold him property, including the Dam, while aware of the Dam's structural instability. C. Brewer was therefore obligated to pay Pflueger damages based upon C. Brewer's negligent entrustment of the system to KIC and its alleged failure to maintain the system, warn about the System's unsafe conditions, and adequately capitalize its land operations and the companies responsible for maintaining and repairing the Dam.
James River Insurance Company was C. Brewer's liability carrier on the date of the Dam's breach. James River refused to defend C. Brewer in the Pfueger lawsuit. C. Brewer filed suit against James River and sixteen other insurance companies that had issued policies to C. Brewer going back to the 1980's.
James River moved for summary judgment, arguing among other things, that the Designated Premises Endorsement limited coverage to liability arising out of the ownership, maintenance or use of specifically identified premises. The Dam was not listed as a designated premises in the policy. The circuit court granted summary judgment to James River based upon the Designated Premises Endorsement.
The Intermediate Court of Appeals held the policy was ambiguous as to whether the Designated Premises Endorsement barred coverage, and determined a genuine issue of material fact existed regarding the parties' intent. [Prior post on the ICA decision is here.] The ICA therefore vacated the circuit court's Final Judgment and remanded to the circuit court.
The Supreme Court affirmed in part and vacated part of the ICA's decision. The Court started its analysis by construing the Designated Premises Endorsement, which stated, "This insurance applies only to 'bodily injury', 'property damage', or 'personal and advertising injury' arising out of the ownership, maintenance or use of the premises shown in the above Schedule." The listed properties included C. Brewer's corporate headquarters, but not the Dam site.
James River argued that the Designated Premises Endorsement limited coverage to injury and damage occurring only on premises listed in the Schedule, which did not include the Dam. C. Brewer argued that the endorsement was ambiguous as to whether injury and damage "arising out of" the "use" of listed premises was covered, contending that the "arising out of" language in the endorsement required broad construction in its favor.
C. Brewer further argued there was coverage for injury and damage arising out of its "use" of its corporate headquarters in making negligent corporate decisions even though the resulting damage happened at the unlisted Dam site. C. Brewer relied upon Am. Guar. and Liab. Ins. Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997), where the court construed a designated premises endorsement with language similar to James River's endorsement, to include coverage for injuries and damage occurring on a premises not listed in the endorsement. As in Am. Guar., a causal connection could be found between C. Brewer and its entrustment of the System to KIC, the operation of the designated premises, and the injuries that resulted from C. Brewer's allegedly negligent corporate decisions.
James River, on the other hand, sought to rewrite the term "arising out of" to limit liability to injury and damage occurring on designated premises. This construction of the Designated Premises Endorsement would convert the policy from a CGL policy to a premises liability policy that limited coverage to identified premises.
In Am. Empire surplus Lines Ins .Co. v. Chabad House of North Dade, Inc., 771 F. Supp. 2d 1336 (S.D. Fla. 2011), the court held that language in a Designated Premises Endorsement used to convert a CGL to a premises liability policy "must be clear and unequivocal." The Hawaii Supreme Court agreed with this construction. The James River Designated Premises Endorsement did not clearly convert the policy into a premises liability policy. Therefore, the court rejected James River's argument to construe the Designated Premises Endorsement as limiting coverage to injury and damage occurring on designated premises.
Further, the inclusion of "personal and advertising injury" in the Designated Premises Endorsement suggested a broader reading than James River offered. Decisions made at C. Brewer's corporate headquarters would likely be the cause of any advertising injury; however, the resulting injury would not occur on designated premises. Further, the James River policy's broad coverage territory encompassed the United States, Canada, Puerto Rico and other parts of the world. This further supported C. Brewer's argument that the Designated Premises Endorsement did not limit coverage merely to listed locations.
Finally, the Supreme Court considered James River's argument on the Classification Limitation Endorsement, which limited coverage only to "those operations specified . . . under the 'description of operations' or 'classification' on the declarations of the policy." The declarations page did not contain a "Description of Operations', but rather a "Description of Business" in which the phrase "Real Estate Owners' was inserted. James River argued that C. Brewer was not the owner of any real estate when the Dam burst. James River further contended the classification limitation endorsement affirmed that the policy, when read as a whole, was intended to provide coverage only for C. Brewer's liability as the owner of real estate specifically listed in the Schedule. C. Brewer argued that the classification limitation endorsement did not limit coverage to "land, owned or otherwise," and that the phrase "Real Estate Owners" created an ambiguity.
The court agreed with C. Brewer's interpretation. The classification limitation endorsement supported C. Brewer's argument that the Designated Premises Endorsement did not preclude coverage for bodily injury and property damage on premises not listed in the Schedule. The classification limitation endorsement stated, "The coverage provided by this policy applies only to those operations specified in the applications for insurance on files with the Company . . . ." Therefore, the policy only applied to "operations' specified in the application, and not the specified "premises."
The court further noted C. Brewer was leasing its corporate headquarters. Under James River's argument, injury and damage that occurred on premises listed in the Schedule would be excluded from coverage because C. Brewer did not "own" the property listed. This construction was illogical and would require the court to rewrite the terms of the policy to ignore the premises specifically listed in the Schedule that C. Brewer did not own, despite being listed in the Schedule. Therefore, the classification limitation endorsement also supported C. Brewer's position that the policy was meant to cover injury and damage occurring on premises not listed in the Schedule.
Affirming in part and vacating in part the ICA's October 22, 2013 judgment, the circuit court was instructed to proceed consistent with the opinion.