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The Burlington Ins. Co. v. Sanford's Serv. Ctr., Inc.

United States District Court, D. Hawaii

December 16, 2014

THE BURLINGTON INSURANCE COMPANY, Plaintiff,
v.
SANFORD'S SERVICE CENTER, INC., SANFORD IWATA, and FRANCISCO ABADILLA, JR., Defendants

For The Burlington Insurance Company, Plaintiff: William C. Morison, Morison & Prough, LLP, Walnut Creek, CA.

For Sanford's Service Center, Inc., Sanford Iwata, Defendants, Cross Defendants: Duane R. Miyashiro, Nenad Krek, LEAD ATTORNEYS, Carlsmith Ball LLP Honolulu, Honolulu, HI.

For Francisco Abadilla, Jr., Defendant, Cross Claimant: Steven K. Hisaka, Hisaka Stone Goto Yoshida Cosgrove & Ching, Honolulu, HI.

ORDER GRANTING DEFENDANTS SANFORD'S SERVICE CENTER, INC. AND SANFORD IWATA'S MOTION FOR PARTIAL SUMMARY JUDGMENT; AND DENYING PLAINTIFF THE BURLINGTON INSURANCE COMPANY'S MOTION FOR SUMMARY JUDGMENT OR, IN THE ALTERNATIVE, PARTIAL SUMMARY JUDGMENT

Leslie E. Kobayashi, United States District Judge.

Before the Court are: Defendants/Cross Defendants Sanford Service Center, Inc. (" SSC") and Sanford Iwata's (" Iwata, " collectively " the Sanford Defendants") Motion for Partial Summary Judgment, filed on October 22, 2014 (" Sanford Motion"); [1] and Plaintiff The Burlington Insurance Company's (" Burlington") Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment, also filed October 22, 2014 (" Burlington Motion"). [Dkt. nos. 21, 24.] Burlington filed its memorandum in opposition to the Sanford Motion on November 10, 2014 (" Burlington's Memorandum in Opposition"), and the Sanford Defendants filed their reply on November 17, 2014 (" Sanford Defendants' Reply"). [Dkt. nos. 29, 33.] The Sanford Defendants filed their memorandum in opposition to the Burlington Motion on November 10, 2014 (" Sanford Defendants' Memorandum in Opposition") and Abadilla filed his opposition that same day (" Abadilla's Memorandum in Opposition"). [Dkt. nos. 30, 32.] Burlington filed its reply on November 17, 2014 (" Burlington's Reply"). [Dkt. no. 34.] These matters came on for hearing on December 1, 2014. After careful consideration of the motions, supporting and opposing memoranda, and the arguments of counsel, the Sanford Motion is HEREBY GRANTED and the Burlington Motion is HEREBY DENIED for the reasons set forth below.

BACKGROUND

On March 27, 2014, Burlington filed its Complaint against the Sanford Defendants and Abadilla (collectively, " Defendants"), asserting diversity jurisdiction, and seeking reimbursement from Iwata (" Federal Count I"), a declaratory judgment that it has no duty to defend any of the Defendants (" Federal Count II"), and a declaratory judgment that it has no duty to indemnify any of the Defendants for any judgment or settlement (" Federal Count III"). In essence, the Complaint asks this Court to determine whether Burlington has a duty to defend Iwata in light of the law of the case in an underlying personal injury case brought by Abadilla against Iwata in state court, Abadilla v. Iwata, Civil No. 07-1-0036 (Hawai'i 3d Cir. 2007) (" the State Case").

I. Undisputed Facts

The following facts are undisputed.

On December 13, 2004, Burlington issued Commercial General Liability insurance policy number 223BW03872 (" the Policy") covering the period from November 29, 2004 to November 29, 2005. [Burlington's Response to Sanford's Service Center, Inc.'s and Sanford Iwata's Separate and Concise Statement of Facts in Supp. of Motion for Partial Summary Judgment (" Burlington Resp. CSOF"), filed 11/10/14 (dkt. no. 29-1), at ¶ 3.] The named insured on the policy was SSC. [Burlington's Separate and Concise Statement of Material Facts and Supporting Evidence in Supp. of Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment (" Burlington CSOF"), filed 10/22/14 (dkt. no. 24-2), Decl. of BJ Cleaver in Support of Burlington Insurance Company's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment (" Cleaver Decl."), Exh. A (Policy) at 405.[2] ]

On February 2, 2007, Abadilla filed the State Case. [Sanford Defs.' Separate and Concise Statement of Facts in Supp. of Motion for Partial Summary Judgment (" Sanford Defs. CSOF"), filed 10/22/14 (dkt. no. 22), Decl. of Sanford Iwata (" Iwata Decl."), Exh. A (" State Court Complaint").] Then, on March 15, 2007, Abadilla filed his First Amended Complaint (" First Amended State Court Complaint"), alleging that on or about May 17, 2005, he was injured during the course of his employment at SSC. Abadilla alleged that he was greasing an impactor machine owned by SSC (" the Impactor") when, due to the machine's defective mechanical condition, it exploded causing him severe injuries (" the Incident"). [Burlington CSOF at ¶ 1 (citing Request for Judicial Notice in Support of Burlington Insurance Company's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment (" Burlington Request for Judicial Notice"), filed 10/22/14 (dkt. no. 24-5), Exh. 1 (First Amended State Court Complaint) at ¶ 7); Sanford Defendants' Responsive Concise Statement of Facts in Support of Opp. to Plaintiff's Motion for Summary Judgment or, in the Alternative, Partial Summary Judgment, Filed October 22, 2014 [Dkt. 24] (" Sanford Defs. Resp. CSOF"), filed 11/10/14 (dkt. no. 31), at ¶ 1.] At the time of the Incident, Iwata was the president and general manager of SSC, and his duties included serving as a supervisor, mechanic, job estimator, laborer, trainer, safety compliance officer, equipment operator, and driver. [Burlington CSOF at ¶ ¶ 2-3; Sanford Defs. Resp. CSOF at ¶ ¶ 2-3; Burlington Resp. CSOF at ¶ ¶ 12-13.]

The First Amended State Court Complaint consisted of claims for: negligence and joint and several liability for knowledge or constructive knowledge that the Impactor was unfit for use and unsafe (" State Count I"); Doe Defendants failed to implement adequate safety and training in the use of heavy machinery (" State Count II"); Iwata was negligent in failing to fulfill his responsibilities to properly supervise Abadilla, inspect and repair the Impactor, and ensure proper safety precautions were followed in repairing the Impactor (" State Count III"); strict liability (" State Count IV"); and Iwata was reckless and grossly negligent in performing his duties, and thus liable for punitive damages (" State Count V"). [First Amended State Court Complaint at pgs. 2-7.]

Iwata sent the summons and complaint to Burlington. [Burlington Resp. CSOF at ¶ 9; Iwata Decl. at ¶ 7.] Burlington initially sent a letter, dated March 7, 2007, to Iwata, stating it would not defend or indemnify him related to the State Case. [Burlington Resp. CSOF at ¶ 10; Iwata Decl., Exh. B (" 3/7/07 Burlington letter to Iwata").] On April 17, 2007, counsel for Iwata in the State Case, Gregory Markham, Esq., wrote to Burlington requesting that it reconsider its position. [Burlington Resp. CSOF at ¶ 14; id., Decl. of Gregory Markham (" Markham Decl."), Exh. D (" 4/17/07 Markham letter to Burlington").] On May 29, 2007, Burlington, represented by William Morison, Esq., accepted the defense of Iwata under a reservation of rights. [Burlington Resp. CSOF at ¶ 15; Markham Decl., Exh. E (" 5/29/07 Morison letter to Markham").]

On April 28, 2009, the circuit court entered judgment in favor of Iwata on all counts against him. [Burlington CSOF at ¶ 6; Sanford Defs. Resp. CSOF at ¶ 6; Burlington Request for Judicial Notice, Exh. 4 (Abadilla v. Iwata et al., Civil No. 07-1-0036, Final Judgment (Hawai'i 3d. Cir. April 28, 2009) (" Circuit Court Judgment")).] On January 31, 2013, the Intermediate Court of Appeals (" ICA") vacated the judgment on State Counts I, III, and V, because the Hawai'i worker's compensation law, which was the basis for the Circuit Court Judgment, does not preempt liability for injuries by co-employees for willful and wanton misconduct. [Burlington CSOF at ¶ 7; Sanford Defs. Resp. CSOF at ¶ 7; Abadilla v. Iwata, No. 29851, 2013 WL 377301 (Hawai'i Ct. App. Jan. 31, 2013), as corrected (Mar. 15, 2013) (" Abadilla I").] On August 19, 2013, the Hawai'i Supreme Court remanded the case to the ICA to determine if Abadilla's other theories of liability and Iwata's other capacities (beyond willful and wanton injuries by co-employees) warranted summary judgment. [Burlington CSOF at ¶ 8; Sanford Defs. Resp. CSOF at ¶ 8; Abadilla v. Iwata, 130 Hawai'i 300, 308 P.3d 1231 (Hawai'i 2013) (" Abadilla II").]

On September 30, 2013, the ICA issued a summary disposition, in which it clarified that the sole remaining claim against Iwata was as a co-employee, for engaging in willful and wanton misconduct. [Burlington CSOF at ¶ 8; Sanford Defs. Resp. CSOF at ¶ 8; Abadilla v. Iwata, 130 Haw. 351, 310 P.3d 1052, 2013 WL 5442998 (Hawai'i Ct. App. 2013) (" Abadilla III").[3] ]

II. Disputed Issues

While the parties are in agreement as to the foregoing facts, they dispute: (1) which claims remain in the State Case; and (2) the extent of Burlington's coverage as to those claims. These disputes turn on the state courts' application of worker's compensation preemption, and insurance interpretation.

STANDARD

I. Worker's Compensation Preemption

The exclusivity provision of the Hawai'i worker's compensation law, Haw. Rev. Stat. Chapter 386, provides that " [t]he rights and remedies herein granted to an employee . . . on account of a work injury suffered by the employee shall exclude all other liability of the employer to the employee[.]" Haw. Rev. Stat. § 386-5. However, Chapter 386 provides an exception as to the liability of third parties, in particular, as to willful and wanton misconduct:

When a work injury for which compensation is payable under this chapter has been sustained under circumstances creating in some person other than the employer or another employee of the employer acting in the course of his employment a legal liability to pay damages on account thereof, the injured employee or his dependents (hereinafter referred to collectively as the ...

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