Insurance Update – ICA Issues Second Group Builders Opinion
On April 15, 2013, the Hawai`i Intermediate Court of Appeals (“ICA”) issued a memorandum opinion in Group Builders, Inc. v. Admiral Insurance Company (“2013 Opinion”), holding that Admiral Insurance Company had a duty to defend Group Builders Inc. (“Group Builders”) with respect to claims arising out of alleged design and construction defects which led to mold infestation in the Kalia Tower in the Hilton Hawaii Village hotel complex.
On May 19, 2010, the ICA issued a controversial decision in the same case, holding that Admiral had no duty to indemnify Group Builders. Group Builders, Inc. v. Admiral Insurance Company, 123 Haw. 142, 231 P.3d 67 (App. 2010)(“2010 Opinion”). The Court based its holding on the conclusion that “construction defect claims do not constitute an ‘occurrence’ under a CGL policy.” The 2010 Opinion surprised the construction industry and had the potential of stripping away from developers, contractors, subcontractors and others in the construction industry insurance coverage which they always thought that they had and for which they had paid significant premiums.[1]
The 2013 Opinion acknowledged the 2010 Opinion that effectively held that there was no possibility of coverage because Admiral had no duty to indemnify. However, the ICA noted that the duty to defend is determined at the time of tender. And at the time of tender, Hawai`i law was “unsettled”with respect to whether property damage from a construction defect constituted an occurrence. Therefore, a legal ambiguity existed, giving rise to the duty to defend pursuant to Sentinel Ins. Co., Ltd v. First Insurance Co. of Hawai`i Ltd., 76 Haw. 277, 875 P.2d 894 (Haw. 1994): “Admiral owed a defense because the courts were split as to whether construction defect claims constituted an ‘occurrence’ under a CGL policy at the Admiral refused to undertake a defense on behalf of Group Builders.”
Within the limitations of a memorandum opinion, the 2013 Opinion mitigates some of the 2010 Opinion’s adverse consequences to insureds.[1] While insurers may resort to the 2010 Opinion in efforts to limit their duties to indemnify, the 2013 Opinion gives hope to insureds in the construction industry that at a minimum, their insurance companies may be required to defend them if they are sued for property damage caused by alleged construction defects.
[1]In response to the 2010 Opinion, efforts were undertaken to overrule the decision through legislation. Initial bills provided that courts were to “presume that the work of a construction professional that results in property damage, including damage to the work itself or other work, is an accident unless the property damage is intended and expected by the insured.”Ultimately, the bills were watered-down to provide that “[t]he 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.” Governor Abercrombie signed the legislation into law on June 3, 2011.H.R.S., §431:1-217(a).