J. MICHAEL SEABRIGHT, District Judge.
On January 28, 2008, Gabriel Campbell ("Campbell") filed a complaint in the Second Circuit Court of the State of Hawaii against K. Smith Builders, Kyle Smith, and others, seeking damages for injuries he sustained while working on a job site where K. Smith Builders and/or Kyle Smith was the general contractor (the "underlying action"). At the time of the accident, Defendants K. Smith Builders and Kyle Smith ("Defendants") had a commercial general liability insurance policy (the "Policy") issued by Plaintiff Nautilus Insurance Co. ("Plaintiff"). Plaintiff has been providing defense coverage to Defendants in the underlying action, but filed this action seeking a declaration that it is not required to indemnify and/or defend Defendants because the Policy is not applicable to Campbell's claims against Defendants.
Currently before the court are cross motions for summary judgment. The parties agree that summary judgment is appropriate based on the terms of the Policy, but dispute whether the Policy indemnifies Defendants in the underlying action. The Policy excludes liability coverage for bodily injury to "an employee of any insured" and the court must determine whether Campbell was an "employee" within the meaning of the Policy. The court finds that Campbell was an "employee" and, based on the following, GRANTS Plaintiff's Motion for Summary Judgment and DENIES Defendants' Motion for Summary Judgment.
On June 28, 2007, Campbell suffered injuries when he fell from a second floor deck while working at a construction site where K. Smith Builders and/or Kyle Smith was the general contractor. Compl. ¶ 14 (citing the First Amended Complaint in the underlying action). Campbell alleges that he fell after making contact with a rail that "was unsafe, dangerous and presented an unreasonable risk of harm to all parties in its vicinity including Plaintiff Campbell." Id. The rail at issue was installed by Ben Fischer Construction, Inc. ("Fischer Construction"), a subcontractor for K. Smith Builders. Kyle M. Smith Decl., Apr. 6, 2010 ("Apr. 6 Smith Decl.") ¶ 10; Id. Ex. G.
While working at Defendants' construction site, Campbell was an employee of ProService Hawaii. Deborah K. Wright Decl., Apr. 9, 2010 ("Apr. 9 Wright Decl.") Ex. F at 7-9 (indicating that Campbell was
In the underlying action, Campbell alleges claims for negligence and respondeat superior liability against Defendants as well as Fischer Construction and Ben Fischer, the owner of Fisher Construction. Compl. Ex. 3 at ¶¶ 17-38.
At issue in this action is whether Campbell's claims in the underlying action are covered by the Policy. The Policy identifies K. Smith Builders as the named insured and covers Kyle Smith as an insured based on his status as an officer of K. Smith Builders. Compl. Ex. 6 at E001; id. Ex. 6 at CG 00 01 12 04, § II(1)(d).
Id. Ex. 6 at CG 00 01 12 04, § I(1)(a).
Id. Ex. 6 at CG 00 01 12 04, § IV(7).
The Policy includes several provisions relevant to determining Defendants' bodily injury coverage. Section § I(1)(b) provides:
Id. Ex. 6 at CG 00 01 12 04, § I(1)(b).
Id. Ex. 6 at L205, § A. The Endorsement Exclusion defines "employee:"
Id. Ex. 6 at L205, § C.
The Endorsement Exclusion is preceded by a notice across the top of the page: "THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY." Id. The Endorsement Exclusion changes the Policy by replacing § I(2)(e), which excluded coverage for "[b]odily injury to an `employee' of the insured." See id. Ex. 6 at CG 00 01 12 04, § I(2)(e) (internal punctuation modified for clarity).
On October 21, 2009, Plaintiff filed a Complaint seeking a declaratory judgment that (1) bodily and property damage liability coverage in the underlying action is precluded by Endorsement Exclusion; (2) Plaintiff has no coverage obligation to Defendants; and (3) Plaintiff has no duty to defend and/or indemnify Defendants in the underlying action. Compl. ¶ 36.
Summary judgment is proper where there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). The burden initially lies with the moving party to show that there is no genuine issue of material fact. See Soremekun v. Thrifty Payless, Inc., 509 F.3d 978, 984 (9th Cir.2007) (citing Celotex, 477 U.S. at 323, 106 S.Ct. 2548). If the moving party carries its burden, the nonmoving party "must do more than simply show that there is some metaphysical doubt as to the material facts [and] come forward with specific facts showing that there is a genuine issue for trial." Matsushita Elec. Indus. Co. v. Zenith Radio, 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (citation and internal quotation signals omitted).
"An issue is `genuine' only if there is a sufficient evidentiary basis on which a reasonable fact finder could find for the nonmoving party, and a dispute is `material' only if it could affect the outcome of the suit under the governing law." In re Barboza, 545 F.3d 702, 707 (9th Cir.2008) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986)). When considering the evidence on a motion for summary judgment, the court must draw all reasonable inferences on behalf of the nonmoving party. Matsushita Elec. Indus. Co., 475 U.S. at 587, 106 S.Ct. 1348.
Both parties contend that summary judgment is appropriate in their favor under the terms of the Policy. The parties dispute, however, whether Campbell is an "employee" whose bodily injuries are excluded from coverage pursuant to the Endorsement Exclusion. Additionally, the parties dispute whether the Policy indemnifies Kyle Smith even if it does not indemnify K. Smith Builders. Finally, Defendants argue that even if the Policy does not cover bodily injury to Campbell, Plaintiff nevertheless owes Defendants a duty to defend in the underlying action. The court addresses these issues in turn.
Pursuant to Hawaii Revised Statute ("HRS") § 431:10-237, "[e]very insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy, and as amplified, extended, restricted, or modified by any rider, endorsement or application attached to and made a part of the policy." Thus, under Hawaii law, courts must look to the language of the insurance policy to determine the scope of the insurer's duties. See Sentinel Ins. Co. v. First Ins. Co. of Haw., 76 Haw. 277, 287, 875 P.2d 894, 904 (1994); see also Hawaiian Ins. & Guar. Co. v. Fin. Sec. Ins. Co., 72 Haw. 80, 87, 807 P.2d 1256, 1260 (1991) ("In the context of insurance coverage disputes, we must look to the language of the insurance policies themselves to ascertain whether coverage exists, consistent with the insurer and insured's intent and expectations."); Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 945 (9th Cir.
Insurance policies must nevertheless be construed "in accordance with the reasonable expectations of a layperson." Hawaiian Isle Adventures, Inc. v. N. Am. Capacity Ins. Co., 623 F.Supp.2d 1189, 1194 (D.Haw.2009) (citing Dawes v. First Ins. Co. of Haw., 77 Haw. 117, 121, 883 P.2d 38, 42 (1994)). The Hawaii Supreme Court classifies insurance contracts as "contracts of adhesion" and "ha[s] long subscribed to the principle that [insurance contracts] must be construed liberally in favor of the insured and any ambiguities must be resolved against the insurer." Guajardo v. AIG Hawai`i Ins. Co., 118 Haw. 196, 202, 187 P.3d 580, 586 (2008) (citing Dairy Rd. Partners v. Island Ins. Co., 92 Haw. 398, 411-12, 992 P.2d 93, 106-07 (2000) (internal citations, quotation marks, brackets, and ellipses omitted)).
The plain and ordinary meaning of the Policy precludes coverage for K. Smith Builders' liability, if any, for Campbell's bodily injury. In pertinent part, the Endorsement Exclusion provides that "[t]his insurance does not apply to ... "[b]odily injury" to: (1) An "employee" of any insured arising out of and in the course of... (b) [p]erforming duties related to the conduct of any insured's business;...." Compl. Ex. 6 at L205, § A. The Endorsement Exclusion then broadly defines "employee" as:
Id. Ex. 6 at L205, § C.
Campbell was on the construction site as a worker loaned out to and performing work for Pro Interiors, one of K. Smith Builders' subcontractors. As a worker on the construction site, Campbell was a person "who provide[s] services directly or indirectly to" K. Smith Builders. Whether Campbell's work for Pro Interiors was a direct service to K. Smith Builders (based on Campbell's work on the construction project itself) or an indirect service (based on Campbell's contribution to a subcontracted component of the construction) is ultimately immaterial-either way, Campbell was providing a service for K. Smith Builders based on his work to K. Smith Builders' construction site. As a result, the court finds that Campbell was a person "who provide[d] services directly or indirectly to any insured."
Because the parties do not dispute that Campbell suffered "bodily injury" while "[p]erforming duties related to the conduct of any insured's business," the court finds Campbell's status as an "employee" determinative on the issue of K. Smith Builders' coverage. Based on the Endorsement Exclusion's preclusion of liability for "[b]odily injury to an `employee,'" Compl. Ex. 6 at L205, § A (punctuation modified for clarity), the court finds that the Policy does not cover K. Smith Builders' liability, if any, for Campbell's bodily injury.
Defendants assert many arguments in opposition, contending that (1) Campbell is not an "employee" of K. Smith Builders; (2) the definition of "employee" is ambiguous and should be construed in Defendants' favor; (3) the Declarations in the Policy are ambiguous or misleading; (4) information outside the Policy demonstrates an intent to cover bodily injuries to workers, including Campbell; and (5) denial of coverage under the Policy is contrary to public policy. The court considers these arguments in turn.
Defendants argue that Campbell is not an "employee" of K. Smith Builders as defined by either the Hawaii Workers' Compensation Act, HRS § 386-1, or the Policy.
The definition of "employee" in the Hawaii Workers' Compensation Act is immaterial to the present dispute because under Hawaii law, the court must look to the language of an insurance policy itself, not a state statute, to determine the scope of the insurer's duties. See Sentinel Ins. Co., 76 Hawai`i at 287, 875 P.2d at 904. Defendants' first contention therefore fails.
Defendants next contend that Campbell is not an "employee" as defined by the Policy because Campbell was not a person "hired by, loaned to, or contracted by any insured or any insured contractor, subcontractor, or independent contractor...." Compl. Ex. 6 at L205, § C. Specifically, Defendants argue that Campbell was "leased" to Pro Interiors by ProService Hawaii and therefore not hired by, loaned to, or contracted by Pro Interiors, one of Defendants' subcontractors. Defendants are fruitlessly splitting hairs. There is no meaningful difference between "leasing" an employee and "loaning" an employee—Defendants cannot identify a difference and, indeed, the Hawaii Supreme Court has referred to the terms interchangeably. Frank v. Hawai`i Planing Mill Found., 88 Haw. 140, 146, 963 P.2d 349, 355 (1998) (discussing the "lending employer" in the context of an "employee leasing" agreement) (quoting Ghersi v. Salazar, 883 P.2d 1352, 1357-58 (Utah 1994)).
Moreover, the Policy's definition of "employee" is not as limited as Defendants suggest. The Endorsement Exclusion specifically defines "employee" as "including, but not limited to" those covered by the language emphasized by Defendants (i.e., those "hired by, loaned to, or contracted by any ... subcontractor"). Compl. Ex. 6 at L205, § C. The phrase "including, but not limited to" is an expression of enlargement, indicating that the examples that follow are simply an illustrative non-exhaustive list of examples subject to expansion. See Bloate v. United States, ___ U.S. ___, 130 S.Ct. 1345, 1354, 176 L.Ed.2d 54 (2010) (finding that a list of items following "including but not limited to" language is "illustrative rather than exhaustive"). Campbell is an "employee" because he satisfies the general terms of the Endorsement Exclusion's definition and because his status as a leased employee is similar in nature to the specific words used in the Endorsement Exclusion's definition, including those "hired by, loaned to, or contracted by any ... subcontractor." Defendants' suggested reading—that Campbell is not an employee because he was not hired by, loaned to, or contracted any subcontractor—would render meaningless the expansive "including but not limited to" language in the Endorsement Exclusion's definition of employee. Accordingly, the court finds unpersuasive Defendants' contentions that Campbell is not an "employee" of K. Smith Builders.
Defendants contend that the Policy's multiple definitions of "employee" create an ambiguity as to the meaning of "employee" and that this ambiguity should be construed in Defendants' favor. Section V(5) of the Policy defines "employee" more narrowly than the Endorsement Exclusion. Compare Compl. Ex. 6 at CG 00 01 12 04, § V(5) (defining "employee" as including a "leased worker" but not a "temporary worker"), with id. Ex. 6 at L205, § C (defining employee as "any person or persons who provide services directly or indirectly to any insured....").
No ambiguity exists—the Endorsement Exclusion expressly substitutes its broader definition of "employee" for the more narrow definition used elsewhere in the Policy. The Endorsement Exclusion prefaces its definition of "employee" with language explaining when the different definitions apply: "For the purposes of this endorsement, the definition of `Employee' in the Definitions Section [i.e., § V] is
Defendants contend that Plaintiff is required to indemnify them in the underlying action because the Declarations section of the Policy is misleading. The Declarations section sets forth the Policy's costs and lists three classifications of coverage: "Contractors-Executive Supervisors or Executive Superintendents," "Contractor—subcontracted work-in connection with building contraction, reconstruction, repair or erection—1 or 2 family dwellings," and "Additional Insured (9)." Apr. 6 Smith Decl. Ex. C at S150.
Defendants provide no explanation for why they would read the subcontractor classification so broadly. The plain, ordinary, and accepted common sense meaning of the terms used in the subcontractor classification do not suggest that the Policy covered all liability for bodily injuries caused by contractors. More importantly, when read as a whole, the Policy plainly limits such liability coverage. The court thus finds no support for Defendants' contention that the Declarations section is misleading or leads to an ambiguity. Instead, the court finds that a reasonable person reading the Declarations and the Endorsement Exclusion would not expect coverage for K. Smith Builders for Campbell's injuries.
Defendants argue that prior insurance contracts issued to them by Plaintiff demonstrate that the Policy provides coverage for Defendants in the present case. This extrinsic evidence is inadmissible because Defendants have not shown that the Policy's
Finally, Defendants contend that denying coverage in the underlying action is contrary to public policy. Defendants argue that denying coverage violates public policy because HRS § 444-11.1 requires general contractors to maintain liability insurance for "comprehensive personal injury and property damage liability." HRS § 444-11.1(a)(2). See also Hawaii Admin. R. § 16-77-10(b)(4) (setting specific coverage requirements to maintain compliance with HRS § 444-11.1).
Defendants' public policy argument is specious. HRS § 444-11.1 regulates only the insurance coverage general contractors must maintain—not the coverage insurance companies must provide. Nothing in the statute suggests that every insurance policy must satisfy a general contractor's statutory coverage requirements. HRS § 444-11.1 thus creates no obligation for Plaintiff and likewise has no bearing on how the court interprets the Policy.
In sum, the court finds that Campbell was an "employee" of K. Smith Builders as defined by the Policy's Endorsement Exclusion. Accordingly, the court finds that the Policy does not indemnify K. Smith Builders for Campbell's bodily injury.
Plaintiff argues, and Defendants dispute, that the Policy likewise precludes coverage for Kyle Smith for his liability, if any, in the underlying action. Assuming that Campbell is not an "employee" of Kyle Smith,
Courts are divided on how to interpret policies containing both an "any insured" exclusionary clause and a separation of insureds clause. A minority of courts hold that a separation of insureds clause mandates that an insurance agreement—including its exclusions—be read as if each individual seeking coverage is the only "insured" covered. See, e.g., Shelby Realty LLC v. Nat'l Surety Corp., 2007 WL 1180651, at *3 (S.D.N.Y. Apr. 11, 2007). Thus, in the minority view, when a separation of insureds clause is present, an exclusion precluding coverage to an employee of any insured applies to each insured individually. In other words, the separation of insureds clause controls over the "any insureds" exclusion cause. The majority of courts, however, have found just the opposite. The majority opinion holds that a separation of insureds clause does not prevent an exclusion from barring coverage to any insured, even when the particular insured seeking coverage is not himself the employer. See Michael Carbone, Inc. v. Gen. Accident Ins. Co., 937 F.Supp. 413, 419 (E.D.Pa.1996); Evanston Ins. Co. v. OEA, Inc., 2005 WL 1828796, at *8 (E.D.Cal. July 25, 2005) (collecting cases); Allstate Ins. Co. v. Kim, 121 F.Supp.2d 1301, 1308-09 (D.Haw.2000) (finding that a separation of insureds clause did not negate the policy's exclusion of coverage for bodily injuries resulting from the intentional acts of any insured).
The majority reasoning is more persuasive and the court believes that the Hawaii Supreme Court would adopt this approach. To give full effect to the terms of the Policy, the court must interpret an exclusion barring coverage to "any insured" differently from an exclusion barring coverage to "the insured." Under the minority review, the two phrases are treated indistinguishably—that is, like "the insured," "any insured" is interpreted as if it encompasses only the particular insured seeking coverage. See Evanston Ins. Co., 2005 WL 1828796, at *8 ("To hold that the term `any insured' in an exclusion means `the insured making the claim' would collapse the distinction between the terms `the insured' and `any insured' in an insurance policy exclusion clause, making the distinction meaningless."); Allan D. Windt, Insurance Claims & Disputes: Representation of Insurance Companies and Insureds, 3 Ins. Claims & Disputes 5th § 11:8 (2010) (stating that the minority approach "is not justifiable" and citing cases following the majority view). Hawaii courts "have long expressed ... disapproval of interpreting a contract such that any provision be rendered meaningless." Stanford Carr Dev. Corp. v. Unity House, Inc., 111 Haw. 286, 297, 141 P.3d 459, 470 (2006). Accordingly, the court rejects the minority view because that approach would render meaningless the term "any insured."
The history of the separation of insureds clause further supports the court's conclusion and "makes clear that the `separation of insureds' clause only affects exclusionary clauses referring to `the insured,' and not `any insured.'" Evanston Ins. Co., 2005 WL 1828796, at *8. Prior to 1955, courts interpreted exclusions concerning "the insured" to preclude coverage for any insured—a result contrary to the intentions of the insurance companies. Norman Risjord & June Austin, "Who is `The Insured'" Revisited, 28 Ins. Couns. J. 100,
In this case, the Endorsement Exclusion expressly modified the terms of the Policy by changing the bodily injury exclusion to cover "bodily injury to an employee of any insured," Compl. Ex. 6 at L205 § A (internal punctuation omitted and emphasis added), and not "bodily injury to an employee of the insured," Compl. Ex. 6 at CG 00 01 12 04, § I(2)(e) (internal punctuation omitted and emphasis added). The court gives effect to this modification and finds that the Endorsement Exclusion precludes coverage for Kyle Smith because Campbell is an employee of any insured— in this instance, K. Smith Builders.
In opposition, Defendants advocate the minority view and contend that the phrase "an employee of any insured" is ambiguous and must be construed in their favor. The court finds no ambiguity. Although a split exists among courts over how to interpret exclusions concerning "any insured" when a separations of insureds clause is present, the majority position is strongly established and has been previously applied by a court in this district. See Allstate Ins. Co., 121 F.Supp.2d at 1308-09 (D.Haw. 2000) (adopting the majority rule and citing cases). Further, the term "any insured" is not, in fact, ambiguous. "Any" is defined by the Oxford English Dictionary as "concerning a being or thing of the sort named, without limitation as to which...." Oxford English Dictionary 2d (1989). Accordingly, a layperson would understand "any insured" as used in the Policy to include both K. Smith Builders and Kyle Smith because each is an insured. As a result, the court finds no ambiguity.
In further opposition, Defendants rely on Tri-S Corp., 110 Hawai`i at 491-92, 135 P.3d at 100-01, and argue that Hawaii courts would find that the Policy indemnifies Kyle Smith. Defendants significantly distort the findings of Tri-S Corp. Tri-S Corp. interpreted a policy exclusion relating to the conduct of "the insured" and found that "the phrase `the insured' in a policy exclusion must be read to refer to the insured seeking coverage as opposed to the `named insured' or `any insured.'" Tri-S Corp., 110 Hawai`i at 492, 135 P.3d at 101. Far from furthering Defendants' position, Tri-S Corp. supports the court's conclusion that "the insured" has a distinct meaning from "any insured."
In sum, the court finds that the severability of insureds clause does not render meaningless the Endorsement Exclusion's use of the term "any insured." Campbell is an employee of any insured—specifically, K. Smith Builders—and, as a result, the Policy precludes coverage for Kyle Smith.
Defendants contend that even if the Policy does not cover bodily injury to Campbell, Plaintiff nevertheless owes Defendants a duty to defend them in the underlying action. Specifically, Defendants argue that Plaintiff has a duty to defend them against Campbell's allegations in the underlying suit that Defendants negligently failed to supervise and negligently failed to warn.
An insurance company's duty to defend is broader than its duty to indemnify and "arises whenever there is the mere potential for coverage." Commerce & Indus. Ins. Co. v. Bank of Haw., 73 Haw. 322, 326, 832 P.2d 733, 735 (1992) (citations omitted). "Where pleadings fail to allege any basis for recovery within the coverage clause, the insurer has no obligation to defend." Burlington Ins. Co., 383 F.3d at 944 (citing Hawaiian Holiday Macadamia Nut Co. v. Indus. Indem. Co., 76 Haw. 166, 170, 872 P.2d 230, 234 (1994) (citations omitted)). Doubts about the extent of the duty to defend are to be resolved, however, "against the insurer and in favor of the insured." Sentinel Ins. Co., 76 Hawai`i at 287, 875 P.2d 894, 904 (citations and quotations omitted). Further, "where a suit raises a potential for indemnification liability of the insurer to the insured, the insurer has a duty to accept the defense of the entire suit even though other claims of the complaint fall outside the policy's coverage." First Ins. Co. of Haw., Inc. v. Hawaii, 66 Haw. 413, 417, 665 P.2d 648, 652 (1983).
In this case, the pleadings in the underlying action fail to allege any basis for recovery within the Policy. Campbell's claims in the underlying action all arise from his bodily injury. As discussed above, based on the terms of the Policy, Plaintiff does not owe Defendants a duty to indemnify them for such bodily injury claims. Because these are the only claims at issue, Plaintiff likewise does not owe Defendants a duty to defend.
In opposition, Defendants argue that Campbell alleges negligence claims distinct from his bodily injury claims. Defendants contend that Plaintiff thus owes Defendants a duty to defend against these negligence claims even if the Policy does not cover Defendants' liability for Campbell's bodily injury. In so arguing, Defendants create a false distinction. Contrary to Defendants' representations, Campbell's bodily injury claims are his negligence claims—Campbell alleges that his bodily injuries are the direct and proximate result of Defendants' negligence. Compl. Ex. 3 at ¶ 40. As a result, Plaintiff owes no separate duty to defend Defendants against Campbell's negligence claims.
In sum, the court finds that the pleadings in the underlying action fail to allege any claims that may be covered by the Policy and, as a result, Plaintiff owes no duty to defend.
Based on the above, the court GRANTS Plaintiff's Motion for Summary Judgment
The Clerk of Court is directed to close the case.
IT IS SO ORDERED.
Second, Defendants emphasize that the Policy does not contain a term found in the earlier insurance contracts that excluded coverage for bodily injury arising from operations performed by contractors and subcontractors. See Defs.' Mot. for Summ. J. at 20 (discussing Form S012). That the Policy does not contain a term used in prior years that excluded coverage for some acts of contractors and subcontractors does not support Defendants' contention that the present Policy covers the specific liability at issue in the underlying action. Further, Form S012 appears to have concerned bodily injury caused by subcontractors, which is a distinct issue from the claim raised in the underlying action—that is, a claim for the bodily injury incurred by a subcontractor's leased employee. As a result, the court rejects Defendants' contention that the premium for subcontractor coverage is illusory; in the event a subcontractor injured a non-employee, such as a bystander, the Policy would indemnify Defendants against those bodily injury claims.
