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Arthur v. State, Department of Hawaiian Home Lands

Supreme Court of Hawaii

June 27, 2016

WILLIAM A. ARTHUR, SR., Individually, and THE ESTATE OF MONA ARTHUR thru William A. Arthur, Sr. as the Personal Representative, Respondents/Plaintiffs/Appe11ants/Cross-Appellees,
v.
STATE OF HAWAI'I, DEPARTMENT OF HAWAIIAN HOME LANDS; KAMEHAMEHA INVESTMENT CORPORATION; DESIGN PARTNERS INC., Respondents/Defendants/Appellees/Cross-Appellees, and COASTAL CONSTRUCTION CO., INC.; SATO AND ASSOCIATES, INC.; and DANIEL S. MIYASATO, Petitioners/Defendants/Appellees/Cross-Appellants, KAMEHAMEHA INVESTMENT CORPORATION, Respondent/Third-Party Plaintiff/Appellee/Cross-Appellee,
v.
KIEWIT PACIFIC CO., Respondent/Third-Party Defendant/Appellee/Cross-Appellee KIEWIT PACIFIC CO., Respondent/Fourth-Party Plaintiff/Appellee/Cross-Appellee,
v.
PACIFIC FENCE, INC., Respondent/Fourth-Party Defendant/Appellee/Cross-Appellee.

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-13-0000531; CIVIL NO. 05-1-1981-11)

          Kevin P.H. Sumida for petitioners, Sato and Associates, Inc. and Daniel S. Miyasato

          Brad S. Petrus for respondent, Kamehameha Investment Corporation

          Michiro Iwanaga and Wayne M. Sakai for respondent, Coastal Construction Co., Inc.

          RECTENWALD, C.J., McKENNA, POLLACK, WILSON, JJ., AND CIRCUIT COURT JUDGE BROWNING, IN PLACE OF NAKAYAMA, J., RECUSED

          OPINION

          McKENNA, J.

         I. Introduction

         This case is a contract dispute between Petitioners/ Defendants/Appellees/Cross-Appellants Sato and Associates, Inc. and Daniel S. Miyasato (collectively, "Sato" or "Engineer"), and Respondent/Defendant/Appellee/Cross-Appellee Kamehameha Investment Corporation ("KIC" or "Developer"). Sato timely applied for writ of certiorari ("Application") on August 7, 2015 from a June 8, 2015 Judgment entered by the Intermediate Court of Appeals ("ICA") pursuant to its February 27, 2015 Opinion ("Opinion"). In relevant part, the ICA affirmed the Circuit Court of the First Circuit's ("circuit court['s]") "Order Granting Defendant and Third-Party Plaintiff Kamehameha Investment Corporation's Motion for Partial Summary Judgment Against Defendant Sato & Associates, Inc. ..." filed May 27, 2011. Heavily relying on Pancakes of Hawaii, Inc. v. Pomare Properties Corp., 85 Hawai'i 286, 944 P.2d 83 (App. 1997), the ICA concluded that pursuant to the Project Consultant Agreement ("Agreement") between Sato and KIC, Sato had a duty to defend KIC in the wrongful death action brought by Respondents/ Plaintiffs/Appellants/Cross-Appellees, William A. Arthur, Sr. ("William") and the Estate of Mona Arthur (collectively, "Arthurs") upon KICs tender of defense to Sato. See Arthur v. State, Dep't of Hawaiian Home Lands, 135 Hawai'i 149, 171, 346 P.3d 218, 241 (App. 2015) .

         In its Application, Sato presented two questions:

1) Was Pancakes wrongly decided?
2) In applying Pancakes, did the ICA fail to strictly construe the indemnity contracts at issue by treating Sato and other contractual indemnitors as insurers and the subject indemnity contracts as insurance policies?

(formatting added). KIC opposed the Application, whereas Coastal Construction Co., Inc. ("Coastal"), a co-defendant in the Arthurs' suit, filed a response in support of the Application.

         The Application was accepted on September 18, 2015. This court requested supplemental briefing from the parties addressing the following:

(1) Is the duty to defend presented in Sato's non-insurance, construction contract with KIC coextensive with Sato's duty to indemnify?
(2) Given case law and legislative history, does Hawai'i Revised Statutes [("HRS")] § 431:10-222 (2005), render void any provision in a construction contract requiring the promisor to defend "the promisee against liability for bodily injury to persons or damage to property caused by or resulting from the sole negligence or wilful misconduct of the promisee, the promisee's agents or employees, or indemnitee?"

         Upon considering the parties' briefs, oral arguments, and the relevant law, we hold as follows:

(1) HRS § 431:10-222 renders invalid any provision in a construction contract requiring the promisor to defend "the promisee against liability for bodily injury to persons or damage to property caused by or resulting from the sole negligence or wilful misconduct of the promisee, the promisee's agents or employees, or indemnitee";
(2) Pancakes, 85 Hawai'i 286, 944 P.2d 83 (App. 1997), does not apply to defense provisions in construction contracts; and
(3) the scope of a promisor's duty to defend that is imposed by a construction contract is determined at the end of litigation.

         II. Background

         A. The Arthurs' Wrongful Death Action

         Mona Arthur ("Mona") and her husband, William, lived on property in the Kalawahine Streamside Housing Development ("Project") under an Assignment of Lease and Consent they executed with the Department of Hawaiian Home Lands ("DHHL") on October 31, 2000. They typically gardened on the hillside behind their home about three times a week. To access the hillside, the Arthurs crossed a concrete drainage ditch and climbed over a two-foot-high chain link fence. Mona wore sneakers with snow spikes to prevent her from sliding down the hill.

         On November 10, 2003, Mona and William gardened on the hillside. William left Mona's side for a few minutes to get some water for Mona, and when he returned, he found her lying in the concrete ditch. No one witnessed how Mona came to be in the ditch. Mona suffered severe head injuries, fell into a coma, and died on March 9, 2004.

         The Arthurs subsequently filed suit for Mona's wrongful death on November 4, 2005. Their First Amended Complaint, filed November 8, 2005, alleged that Mona, while gardening on the hillside, "slipped and fell, rolled down the slope of the hillside over a fence, fell into the drainage embankment and hit her head against the concrete walling. . . . [Mona] . . . sustained injuries such that she was in a coma until her death . . . ." The Arthurs asserted Mona's injuries and death were due to the negligence of DHHL, KIC (as the developer), Design Partners, Inc. ("Design Partners") (as the architect), Coastal (as the general contractor), Sato (as the civil engineer), and other "Does"; and that that negligence was composed of, but was not limited to, the following:

a. Negligent design of the hillside area, including the fence and culvert;
b. Negligent construction of the hillside area, including the fence and culvert;
c. Negligent supervision of the construction of the hillside area, including the fence and culvert.[1]

         These claims were unaltered in the Arthurs' Second Amended Complaint, filed December 3, 2009. [95:315] The Second Amended Complaint differed from the first primarily due to the addition of the following allegations, which asserted a punitive damages claim against KIC:

20. ELTON WONG was the project manager for [KIC].
21. At all times relevant, WONG was acting within the scope of his employment with [KIC].
22. ELTON WONG, ordered [Sato] to lower the chain link fence guarding the concrete drainage ditch from 4 feet to 2 feet.
23. The lowering of the fence reduced the construction costs and thereby increased Defendant's profits.
24. ELTON WONG, in his own handwriting, directed that the chain link fence be looked at for "value engineering".
25. ELTON WONG knew that the fence was intended to protect persons from falling into the drainage culvert.
26. ELTON WONG specifically met MONA ARTHUR at least 20 times and knew that she was going onto the steep hillside[.]
27. If ELTON WONG had allowed the fence to remain 4 feet high, MONA ARTHUR would not have been fatally injured; because of her lower center of gravity, a 4 foot high fence would have prevented MONA ARTHUR, who was 5'4" in height, from falling into the drainage ditch.
27.[sic] Instead of maintaining the safety of a 4 foot high fence, ELTON WONG ordered the fence lowered to 2 feet. He ordered the fence lowered simply to increase the Defendants [sic] profits, without consideration to the safety of persons such as MONA ARTHUR. He reduced the height of the fence knowing that residents, such as MONA ARTHUR, were required to maintain the steep hillside.
28. [KIC]'s overriding concern was for a minimum-expense operation, regardless of the peril involved.
29. [KIC] acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference to civil obligations.
30. [KIC]'s conduct constituted wilful misconduct or an entire want of care which would raise the presumption of a conscious indifference to consequences.[2]

         B. KICs Tenders of Defense against the Arthurs' Claims Pursuant to the Hold Harmless Clauses in Its Agreements with Parties Involved in the Project's Construction

         A March 10, 1998 Project Consultant Agreement ("Agreement" or "Contract") between KIC and Sato with respect to the Project described Sato's "scope of work" to involve preparing, among other things, grading and drainage plans, electric and telephone plans, and sitework civil drawings for various permit applications as necessary. The Agreement also contained a paragraph titled, "Indemnity by Consultant, " which stated:

Consultant [Engineer] hereby agrees to indemnify, defend and hold harmless Developer, and each of its officers, directors and employees, from and against any and all claims, demands, losses, liabilities, actions, lawsuits, proceedings, judgments, awards, costs and expenses (including reasonable attorneys' fees), arising directly or indirectly, in whole or in part, out of work undertaken by Consultant [Engineer] outside the scope of this Agreement and/or out of the negligence or any willful act or omission of Consultant [Engineer], or any of its officers, directors, agents or employees, in connection with this Agreement or Consultant's [Engineer's] services or work hereunder, whether within or beyond the scope of its duties or authority hereunder. The provisions of this Section shall survive completion of Consultant's [Engineer's] services hereunder and/or the termination of this Agreement.

("Hold Harmless Clause"). KIC's contracts with Design Partners, Coastal, and the general contractor for grading and site work, Kiewit Pacific Co. ("Kiewit"), each contained indemnity language, similar to that in the Hold Harmless Clause, requiring the subcontractor to "indemnify, defend, and hold harmless" KIC. Kiewit's contract with Pacific Fence, Inc. ("Pacific Fence") to construct a debris fence between the constructed homes and the adjacent hillside also contained language requiring Pacific Fence to indemnify and defend Kiewit.

         By a letter dated December 15, 2005, KIC tendered its defense against the Arthurs' claims to Sato, pursuant to the Hold Harmless Clause. Although Kiewit was not named in the First Amended Complaint, based on its agreement with Developer, KIC also tendered its defense to ...


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