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Seabright Insurance Company v. Matson Terminals

May 31, 2012

SEABRIGHT INSURANCE COMPANY,
PLAINTIFF,
v.
MATSON TERMINALS, INC., MATSON NAVIGATION COMPANY, INC., DEFENDANTS.



The opinion of the court was delivered by: Leslie E. Kobayashi United States District Judge

ORDER GRANTING SEABRIGHT INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT OF DEFENDANTS' LIABILITY

Before the Court is Plaintiff SeaBright Insurance Company's ("SeaBright") Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment of Defendants' Liability ("Motion"), filed on February 8, 2012. [Dkt. no. 75.] Defendants Matson Navigation Company, Inc. and Matson Terminals, Inc. (collectively, "Matson") filed their memorandum in opposition on April 9, 2012 [dkt. no. 87], and SeaBright filed its reply on April 16, 2012 [dkt. no. 89]. This matter came on for hearing on April 30, 2012. Appearing on behalf of SeaBright were Mark M. Murakami, Esq. and Marc A. Centor, Esq., and appearing on behalf of Matson was Brett Tobin, Esq. After careful consideration of the Motion, supporting and opposing memoranda, and the arguments of counsel, SeaBright's Motion is HEREBY GRANTED for the reasons set forth below, and SeaBright's request for reasonable attorneys' fees and costs is HEREBY GRANTED pursuant to Hawai'i Revised Statutes § 607-14.

BACKGROUND

On November 10, 2004, longshorman Kyle Soares suffered an aggravation and worsening of a pre-existing degenerative disc disease of his lower back while working for and employed by SeaBright's insured, Brewer Environmental Industries, LLC ("Brewer"). [Motion, Decl. of Richard C. Wootton in Supp. of Motion ("Wootton Decl."), Exh. B (Decision & Order Awarding Benefits, dated June 13, 2008 ("ALJ Order")) at 4.] The injury occurred in the course and scope of Mr. Soares's employment as a covered employee under § 902(3) of the Longshore and Harbor Workers' Compensation Act, 33 U.S.C. § 901 et seq. ("LHWCA"). [ALJ Order at 1, 4; First Amended Complaint at ¶ 5.]

Brewer was covered under a SeaBright insurance policy for claims brought by its employees under the LHWCA, and SeaBright initiated payment of compensation benefits to Mr. Soares for medical expenses associated with his injury. [Motion, Decl. of Steven Wiper in Supp. of Pltf.'s Motion for Summary Jdgmt. ("Wiper Decl."), Exh. A (Notice of Final Payment or Suspension of Compensation Payment).] SeaBright alleges that the policy contractually required it to provide legal representation to Brewer in any legal action arising from a claim for compensation made by an employee of Brewer. [First Amended Complaint at ¶ 6; Wiper Decl. at ¶ 4, Exh. B (Workers Compensation and Employers Liability Insurance Policy).]

Brewer and Matson entered into the Asset Purchase Agreement ("Agreement") effective January 31, 2005, whereby Brewer agreed to sell and Matson agreed to purchase HT&T Stevedoring, a business providing stevedoring services on the island of Hawai'i. [Pltf.'s Concise Statement of Material Facts in Supp. of Motion for Summary Jdgmt. ("SeaBright's CSMF") at ¶ 1; Wootton Decl. at ¶ 2, Exh. A (Agreement).] Paragraph 5.3 of the Agreement, also referred to as the "Indemnity Clause," provides:

[Brewer] shall indemnify, defend, and hold harmless [Matson] from and against any and all loss, damage, penalty, claim, cost and expense and any other liability whatsoever (including, without limitation, reasonabl[e] attorneys' fees, charges and costs) incurred by [Matson] by reason of any claim, demand, or litigation relating to the Property Employees which arise from any act, omission, occurrence or matters that take place before the Cut-off Time. [Matson] shall indemnify, defend and hold harmless [Brewer] from and against any and all loss, damage, claim, cost and expense and any other liability whatsoever (including, without limitation, reasonable attorneys' fees, charges and costs) incurred by [Brewer] by reason of any claim, demand or litigation relating to the Property Employees which arise from any act, omission, occurrence or matters that take place after the Cut-off Time. [Agreement at ¶ 5.3.] The Agreement defines the "Cut-off Time" as January 31, 2005 at 11:59 p.m., and Mr. Soares was designated a "Property Employee" in Schedule 1.27 of the Agreement.

[SeaBright's CSMF at ¶¶ 3-4, 8; Agreement at ¶¶ 1.6, 1.11, 1.27.] On or around January 31, 2005, Mr. Soares became a Matson employee. [SeaBright's CSMF at ¶ 10; Agreement at ¶ 5.2.]

During his employment with Matson, Mr. Soares suffered a worsening of his lower back degenerative disc disease. [SeaBright's CSMF at ¶ 11; ALJ Order at 7-9.] On June 10, 2005, he filed a claim for compensation under the LHWCA against Brewer and SeaBright for his November 10, 2004 injury. [SeaBright's CSMF at ¶ 12; Wiper Decl. at ¶ 3.] On February 21, 2006, he filed a second claim for compensation against Matson for "cumulative trauma." [SeaBright's CSMF at ¶ 14; Wootton Decl., Exh. C (letter dated 2/22/06 from Preston Easley to R. Bruininks).]

Brewer tendered the defense and indemnity for Mr. Soares's "cumulative trauma" claims to Matson on June 5, 2006. [SeaBright's CSMF at ¶ 15; Wootton Decl., Exh. D (tender letter).] Matson refused to acknowledge liability, and SeaBright paid compensation, medical benefits, and the costs and fees of defending Brewer. [SeaBright's CSMF at ¶¶ 17, 24; Wootton Decl. at ¶ 5; Wiper Decl. at ¶ 4.]

Following a full hearing before the Office of Workers' Compensation Programs, Administrative Law Judge ("ALJ") Gerald Etchingham held that Mr. Soares's back injury worsened as a result of his employment with Matson and that Matson was the "last responsible employer" pursuant to the LHWCA. [SeaBright's CSMF at ¶¶ 18-20; ALJ Order at 2-3, 24-28.] Brewer and Matson both disputed full liability for Mr. Soares's claims before the ALJ. The ALJ ordered Matson to reimburse SeaBright and Brewer for compensation and medical expenses paid to Mr. Soares for the time period after he began working for Matson on January 31, 2005. [SeaBright's CSMF at ¶ 21; ALJ Order at 28.] Matson appealed the ALJ Order to the Department of Labor Benefits Review Panel, but the ALJ Order was affirmed. [SeaBright's CSMF at ¶ 23; Wootton Decl. at ¶¶ 6-7, Exh. E (Decision and Order dated May 20, 2009).]

SeaBright alleges that it has paid in excess of $140,000 in legal fees and costs in defense of Brewer in connection with Mr. Soares's claims. [SeaBright's CSMF at ¶ 24; Wiper Decl. at ¶¶ 4-5, Exh. B.] Matson continues to refuse to reimburse SeaBright for the legal fees and costs it incurred in defending Brewer. [Motion at 2.]

SeaBright and Brewer filed their original Complaint on August 16, 2010, asserting claims for breach of contract and equitable indemnity. On April 28, 2011, this Court granted in part and denied in part Matson's Motion for Judgment on the Pleadings, dismissing with prejudice the breach of contract claim as to SeaBright and Brewer, and the equitable indemnity claim as to Brewer. [Dkt. no. 46; Brewer Envtl. Indus., LLC v. Matson Terminals, Inc., Civ. No. 10-00221 LEK-KSC, 2011 WL 1637323 (D. Hawai'i Apr. 28, 2011).] The Court granted SeaBright leave to amend its Complaint to clearly articulate a claim for equitable subrogation. [Id.]

SeaBright filed its First Amended Complaint on May 20, 2011. [Dkt. no. 49.] In its First Cause of Action ("Equitable Subrogation"), SeaBright alleges that, under its insurance policy with Brewer, it is contractually required to pay all attorneys' fees and costs incurred by Brewer in connection with Mr. Soares's claim. SeaBright alleges that it is subrogated to the rights and claims of Brewer against Matson for all attorneys' fees and costs expended on behalf of Brewer, for which Brewer would have been entitled to recover from Matson. [Id. at ¶¶ 20-21.]

In its Second Cause of Action ("Equitable Indemnity"), SeaBright alleges that, as a result of Matson's failure and refusal to pay Mr. Soares's compensation and to accept the tender of Brewer's defense, SeaBright expended legal fees and costs on behalf of Brewer in connection with Mr. Soares's claims and continues to expend significant legal fees and costs asserting this claim against Matson. [Id. at ¶¶ 24-25.]

On June 17, 2011, Matson filed its Motion for Judgment on the Pleadings or for Summary Judgment. [Dkt. no. 55.] That motion came on for hearing before the Court on September 29, 2011. In its October 31, 2011 order granting in part and denying in part that motion, the Court granted summary judgment as to SeaBright's Equitable Indemnity claim, but denied summary judgment as to Equitable Subrogation. [Dkt. no. 69; SeaBright Ins. Co. v. Matson Terminals, Inc., Civ. No. 10-00221 LEK-KSC, 2011 WL 5239614 (D. Hawai'i Oct. 31, 2011).]

I. SeaBright's Motion

SeaBright moves for summary judgment or partial summary judgment on the grounds that: (1) Matson agreed to indemnify Brewer against Mr. Soares's claims; (2) SeaBright has a right of equitable subrogation against Matson; and (3) Matson owes SeaBright the cost of Brewer's defense against Mr. Soares's claim and the fees and costs associated with the present action.

A. Contract Interpretation

As an initial matter, SeaBright sets forth basic principles of contract interpretation. [Mem. in Supp. of Motion at 7-8.] SeaBright states that contract interpretation is a matter of law that is appropriate for summary judgment. [Id. at 7 (citing Reed & Martin, Inc. v. City & Cnty. of Honolulu, 50 Haw. 347, 348-49, 440 P.2d 526, 527 (1968); United States ex rel. Int'l Bus. Mach. Corp. v. Hartford Fire Ins. Co., 112 F. Supp. 2d 1023, 1033 (D. Hawai'i 2000)).] SeaBright argues that summary judgment is appropriate in the present case, because the parties do not dispute either the terms of the Agreement or the language of the Indemnity Clause. [Id. at 8 (citing Cont'l Ins. Co. v. Metro-Goldwyn-Mayer, Inc., 107 F.3d 1344, 1346 (9th Cir. 1997)).]

B. Matson's Indemnification of Brewer

SeaBright next asserts that Matson agreed to indemnify Brewer against Mr. Soares's claim. SeaBright argues that the Agreement "unambiguously demonstrates that Matson agreed to indemnify Brewer against any and all expense or liability -- 'including, without limitation, reasonable attorneys' fees, charges, and costs' - incurred by Brewer as a result of any claims 'relating to the Property Employees which arise from any act, omission, occurrence or matters that take place after the Cut-off Time.'" [Id. (quoting Agreement at ¶ 5.3) (SeaBright's emphasis omitted).] SeaBright contends that the ALJ's determination that Matson was responsible for Mr. Soares's disability benefits and medical expenses eliminates any issue of material fact as to whether Mr. Soares aggravated his back after the cut-off time and establishes that the aggravation of the injury was the "occurrence" that forced SeaBright to defend Brewer against Mr. Soares's LHWCA claim. SeaBright argues that the ALJ's findings also confirm that Matson is obligated to reimburse SeaBright for the cost of defending Matson against Mr. Soares's claim.

1. Interpretation of the Indemnity Clause

SeaBright argues that the Indemnity Clause must be interpreted consistent with the entire agreement. It argues that the "cardinal rule" in contract interpretation "'is to ascertain the intention of the parties and to give effect to that intention if it can be done consistently with legal principles and this intention will be gathered not from particular words and phrases but from the whole context of the agreement.'" [Id. at 9 (quoting Hawaiian Pineapple Co. v. Saito, 24 Haw. 787, 797 (Haw. 1919) (SeaBright's emphasis omitted))]. SeaBright argues that the Indemnity Clause cannot be read without reference to the definition of "Property Employees" in Paragraph 1.27.*fn1 It further argues that, because the Indemnity Clause governs the handling of "claim[s], demand[s] or litigation relating to the Property Employees," the Court must consider the nature of the Property Employees and the law governing their potential claims when construing the meaning of the Indemnity Clause. [Id. at 9.]

2. Indemnity Clause in Relation to the LHWCA

SeaBright predicts that Matson will argue that, because Mr. Soares initially injured his back during his employment with Brewer, Matson was under no obligation to indemnify or defend Brewer. SeaBright takes the position that, because the Indemnity Clause specifically refers to potential claims from stevedores, it must be read in relation to the LHWCA. Specifically, SeaBright argues that "any claim that a stevedore brings against his employer for a work-related injury must be under the Longshore Act." [Id. at 10 (SeaBright's emphasis omitted) (citing Ne. Marine Terminal Co., Inc. v. Caputo, 432 U.S. 249, 254 n.4 (1977); Victory Carriers, Inc. v. Law, 404 U.S. 202, 213 n.12 (1971)).] According to SeaBright, because Mr. Soares is a "stevedore" as defined in the Agreement, the Agreement must be read in relation to the LHWCA. [Id.]

3. Compensable Injury in a LHWCA Cumulative Trauma Case

SeaBright next argues that the "last responsible employer rule," also known as the "aggravation rule," applies to all LHWCA claims and "requires that the last liable employer pay the full compensation owing the injured employee, regardless of prior injuries or harmful exposures." [Id. at 11.] SeaBright contends that Matson, Mr. Soares's employer at the time of the aggravated injury, is responsible for the entire claim.

SeaBright notes that the Ninth Circuit has stated that "'the [last responsible employer] rule generally holds the claimant's last employer liable for all of the compensation due the claimant, even though prior employers of the claimant may have contributed to the claimant's disability.'" [Mem. in Supp. of Motion at 11 (quoting Found. Constructors, Inc. v. Dir., Office of Workers Comp. Programs, 950 F.2d 621, 623 (9th Cir. 1991) (SeaBright's emphasis omitted).] According to SeaBright, there can be only one "compensable injury" under this rule, even if the last injury is only an aggravation of a previously existing injury. [Id. at 11-12.] SeaBright further contends that the last responsible employer rule is well settled throughout the country and applies regardless of the claimant's length of employment with the last employer. [Id. at 12-13 (citing Metro. Stevedore Co. v. Crescent Wharf & Warehouse Co., 339 F.3d 1102 (9th Cir. 2003) (holding that the hearings officer correctly determined that the plaintiff was the last responsible employer, even though claimant had been employed only for one day and was scheduled for surgery prior to employment with the plaintiff)).]

In reference to the ALJ Order, SeaBright argues that "the only compensable injury to Mr. Soares was the aggravation of his back problem at BIS/Matson through his last date of employment in May 2005." [Id. at 12 (SeaBright's emphasis omitted).] It argues that Mr. Soares's claim against Brewer arose from the aggravation of the back injury that occurred while Matson employed Mr. Soares. [Id.]

4. Matson's Interpretation of the Indemnity Clause

SeaBright argues that the last responsible employer rule is "such an integral part of the Longshore Act jurisprudence" that Matson, as an employer of longshoremen, cannot "plausibly argu[e] that the Indemnity Clause should be read without reference to that rule." [Id. at 13.] SeaBright states that "'Hawaii courts have long expressed disapproval of interpreting a contract such that any provision be rendered meaningless.'" [Id. (quoting Nautilus Ins. Co. v. K. Smith Builders, Ltd., 725 F. Supp. 2d 1219, 1229 (D. Hawai'i 2010)).] SeaBright argues that, if it cannot enforce the Indemnity Clause, the Indemnity Clause would be rendered meaningless. [Id. at 13-14.]

SeaBright quotes this Court's order of October 31, 2011: "It defies logic and equity to provide Matson the windfall of avoiding any responsibility for the cost of defense (i.e., its share of the attorneys' fees), when it has been found liable for part of the compensation awarded to Mr. Soares." [Id. at 14 (quoting Order Granting in Part and Denying in Part Def.'s Motion for Summary Jdgmt. at 34).] SeaBright argues that the Court "overlook[ed] one point: Matson was found liable not for part but for the entire compensation award to Mr. Soares" and argues that equity requires that the Court give effect to the Indemnity Clause. [Id. (emphasis in original).]

C. SeaBright's Right of Equitable Subrogation Against Matson for Breach of the Agreement SeaBright argues that, under the doctrine of equitable subrogation, it steps into Brewer's shoes to enforce the terms of the Agreement. [Id. at 14 (citing Peters v. Weatherwax, 69 Haw. 21, 28 (1987)).] The Hawai'i Supreme Court has recognized that "an insurer, having paid a loss or claim to or for its own insured, becomes equitably subrogated to the rights of the insured against the third-party who is responsible for the loss." [Id. (citing State Farm Fire & Cas. Co. v. Pac. Rent-All, Inc., 90 Hawai'i 315, 328 (1999)).]

SeaBright argues that it is entitled to equitable subrogation because: (1) SeaBright paid Brewer's attorneys' fees and costs for defending against Mr. Soares's claim; (2) SeaBright was required to pay those fees and costs pursuant to the policy; and (3) SeaBright's rights to recovery are greater than Matson's refusal to pay, because Matson was found liable for Mr. Soares's injury and refused to defend or indemnify Brewer. [Id. at 15.]

D. SeaBright's Recovery of its Expenses for Defending Brewer and Fees and Costs Incurred Bringing this Claim Finally, SeaBright seeks to recover from Matson the attorneys' fees and costs it expended in defending Brewer and the fees and costs incurred in prosecuting the present action. SeaBright argues that, because it paid all of Brewer's defense costs and the ALJ determined that Matson was liable for all of Mr. Soares's compensation and medical benefits, it is subrogated to all of Brewer's rights under the Agreement. [Id. at 16 (citing Peters, 69 Haw. at 28 ("When subrogation occurs, the substitute is put in all respects in the place of the party to whose rights he is subrogated.")).] It argues that the Indemnity Clause provides that, since SeaBright is subrogee to Brewer's full rights under the Agreement, Matson owes SeaBright reimbursement for attorneys' fees and costs expended in its defense of Brewer. [Id.]

SeaBright also requests that this Court award it its fees and costs associated with the present action. SeaBright invokes Paragraph 12.14 of the Agreement, which provides that "the 'prevailing party' in any dispute relating to the sale of the Business 'shall be reimbursed for all reasonable costs incurred in connection therewith, including, without limitation, reasonable attorneys' fees and costs.'" [Id. at 16 (quoting Agreement at ΒΆ 12.14).] According to SeaBright, it steps into ...


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