United States District Court, D. Hawaii
STATE FARM FIRE AND CASUALTY COMPANY, AN ILLINOIS CORPORATION; Plaintiff,
SAARMAN CONSTRUCTION, LTD., and OCEAN TILE, LLC, Defendants.
ORDER DENYING MOTION FOR SUMMARY JUDGMENT
DERRICK K. WATSON JUDGE
insurance coverage dispute arises out of a fatal workplace
injury to an employee of Ocean Tile, the named insured under
a commercial policy placed with State Farm. Before the Court
is State Farm's Motion for Summary Judgment
(“MSJ”) on both its Complaint for Declaratory
Judgment, and on the Counterclaim for Declaratory Judgment
and for Breach of the Covenant of Good Faith and Fair Dealing
filed by Saarman, Ocean Tile's general contractor. MSJ,
Dkt. No. 30. For the reasons set forth below, State
Farm's MSJ is DENIED.
2015, Saarman served as the general contractor for a
renovation project located at the Golf Villas at Maunalani
Resort (the “Golf Villas”) in Waimea, Hawaii (the
“Project”). First Am. Compl. ¶ 9, Dkt. No.
17 [hereinafter FAC]. Saarman was hired to plan, conduct,
oversee and inspect the renovations associated with the
Project (FAC ¶ 9), and towards this end, subcontracted
with Ocean Tile to install tiles outside of Building 1, Unit
1 of the Golf Villas (FAC ¶¶ 10, 19, Dkt. No. 17).
September 16, 2015, Lawrence S. Deponte, an Ocean Tile
employee, fell while working on scaffolding Saarman allegedly
provided. Deponte died of his injuries several hours later.
FAC ¶ 12(A), Dkt. No. 17.
April 8, 2016, Ashley I. Narciso, individually and as the
personal representative of Deponte's Estate, commenced an
action against Saarman in the Circuit Court of the Third
Circuit, State of Hawaii, Civil No. 16-1-126K
(“Underlying Lawsuit”). The Underlying Lawsuit
alleges that on the date of the workplace accident, Saarman
controlled the Project, including the tile work performed by
Ocean Tile, and Saarman was therefore liable for the acts and
omissions of Ocean Tile under the doctrine of respondeat
superior. FAC ¶¶ 12(B)- (C), Dkt. No.
The Underlying Lawsuit seeks general and special damages,
including pain and suffering, emotional distress, loss of
future earnings, medical expenses, funeral and burial
expenses, and all other damages provided in Hawai‘i
Revised Statutes (“HRS”) § 663-3. FAC ¶
13, Dkt. No. 17. There is also a “survivors'
claim” asserted by Deponte's two children that
seeks general and special damages, including emotional
distress, loss of consortium, society, companionship,
comfort, support, economic support, care and attention, under
HRS § 663-3.
12, 2016, Saarman filed a Third-Party Complaint against Ocean
Tile in the Underlying Lawsuit (“Underlying Third-Party
Complaint”). FAC ¶ 15, Dkt. No. 17; see
Harada-Stone Decl., Ex. 1 [Underlying Third-Party Compl.] at
8- 28, Dkt. No. 31-2. In it, Saarman denies having caused or
contributed to the injuries and damages alleged by the
plaintiffs in the Underlying Lawsuit (“Underlying
Plaintiffs”) (Underlying Third-Party Compl.
¶¶ 5-6, Dkt. No. 31-2 at 10); Saarman argues that
if Underlying Plaintiffs suffered the injuries and damages
asserted therein, then “such injuries or damages were
caused by the negligence, strict liability, breach of
warranty, breach of contract, improper acts or omissions,
wrongdoing or breach of duty on the part of Ocean Tile and
other Third-Party Defendants (Underlying Third-Party Compl.
¶ 7, Dkt. No. 31-2 at 3); and Saarman contends that
if any judgment is entered against Defendant and Third Party
Plaintiff Saarman, such damages, costs, expenses and
attorneys' fees will have been caused by Ocean Tile and
other Third-Party Defendants for whom Saarman is entitled to
written indemnification, indemnification, contribution,
subrogation and/or reimbursement from Ocean Tile and other
Third-Party Defendants for the entire amount of such
judgment, if any, rendered against Saarman, together with its
expenses, costs and reasonable attorneys' fees.
(Underlying Third-Party Compl. ¶ 8, Dkt. No. 31-2 at 3).
See FAC ¶¶ 16-18.
Count II of the Underlying Third-Party Complaint, Saarman
also alleges that the Subcontract Agreement between Saarman
and Ocean Tile signed on or about April 2, 2015
(“Subcontract”), obligated Ocean Tile to
“indemnify, defend and hold harmless Saarman from and
against claims, demands, causes of action, damages, costs,
expenses, actual attorney's fees, losses or liability
arising out of or in connection with Ocean Tile's
operation and/or performance under the Subcontract
Agreement.” Ching Decl., Ex. A [Subcontract] § 11,
Dkt. No. 34-3 at 11; see also FAC ¶ 20, Dkt.
No. 17. As such, the Subcontract allegedly entitles Saarman
to a “full and complete defense and indemnification
from Ocean Tile for the claims asserted against
Saarman” in the Underlying Lawsuit. Subcontract §
12, Dkt. No. 34-3 at 12; FAC ¶ 20.
Tile has tendered the Underlying Third-Party Complaint to
State Farm pursuant to Ocean Tile's policy, and State
Farm is defending Ocean Tile against the Underlying
Third-Party Complaint pursuant to a reservation of rights.
FAC ¶ 25, Dkt. No. 17; see also Ocean Tile
Counterclaim ¶¶ 8-10, Dkt. No. 24-1.
Contracts and Insurance Documents
Farm's MSJ implicates the parties' various insurance
and other agreements, the relevant provisions of which are
Farm-Ocean Tile Policy
Farm issued a Business Owners Coverage insurance policy to
Ocean Tile, Policy No. 91-BF-C578-3 (the
“Policy”), that spans the policy period from
January 1, 2015 to January 1, 2016. FAC ¶ 23.
See Corder Decl., Exs. 3 [Policy Declarations], Dkt.
No. 31-5; 4 [Businessowners Coverage Form CMP-4100], Dkt. No.
31-6; 5 [Sched. Endorsement CMP-4786], Dkt. No. 31-7; 6
[Blanket Endorsement CMP-4785], Dkt. No. 31-8.
Policy generally obligates State Farm to provide coverage for
“those sums that the insured becomes legally obligated
to pay as damages because of ‘bodily injury'”
and preserves “the right and duty to defend the insured
against any ‘suit' seeking those damages”
provided, however, that there will be “no duty to
defend the insured against any ‘suit' seeking
damages for ‘bodily injury' . . . to which this
insurance does not apply.” Coverage Form, Section
II-Business Liability ¶ 1, Dkt. No. 31-6 at 24. The
Policy further states:
we defend an insured against a “suit” and an
indemnitee of the insured is also named as a party to the
“suit, ” we will defend that indemnitee if all of
the following conditions are met:
a. The “suit” against the indemnitee seeks
damages for which the insured has assumed the liability of
the indemnitee in a contract or agreement that is an
b. This insurance applies to such liability assumed by the
c. The obligation to defend, or the cost of the defense of,
that indemnitee, has also been assumed by the insured in the
same “insured contract”; . . . .
Form, Section II-Suppl. Payments ¶ 2, Dkt. No. 31-6 at
exclusions, the Policy specifies that coverage does not
include “any obligation of the insured under a
workers' compensation, disability benefits or
unemployment compensation law” (Coverage Form, Section
II-Exclusions ¶ 4, Dkt. No. 31-6 at 26) or
“employer's liability” for “bodily
injury” to “[a]n ‘employee' or a former
‘employee' of the insured arising out of and in the
course of . . . (a) Employment by the insured; or (b)
Performing duties related to the conduct of the insured's
business” (Coverage Form, Section II-Exclusions ¶
5a, Dkt. No. 31-6 at 26)). See also Coverage Form,
Section II-Exclusions ¶ 5b, Dkt. No. 31-6 at 26
(explaining that the employer's liability exclusion
applies “[w]hether the insured may be liable as an
employer or in any other capacity, ” and “[t]o
any obligation to share damages with or repay someone else
who must pay damages because of the injury, ” but it
“does not apply to liability assumed by the insured
under an ‘insured contract'”).
the Policy's Endorsement CMP-4786, Saarman is listed as
an additional insured for both ongoing and completed
operations. Policy Decl. at 6, Dkt. No. 31-5; see
also Counterclaim for Declaratory & Related Relief
¶¶ 12, 13, Dkt. No. 22-1 [hereinafter Saarman
Counterclaim]. As an “additional insured, ”
Saarman is covered under the Policy “with respect to
liability for ‘bodily injury' caused, in whole or
in part, ” by the insured's “acts or
omissions” or “[t]he acts or omissions of those
acting on [the insured's] behalf . . . in the performance
of . . . ongoing operations for that additional
insured.” Sched. Endorsement CMP-4786, Section II-Who
Is An Insured ¶ 1a, Dkt. No. 31-7. Additionally,
“[a]ny insurance provided to the additional insured
shall only apply with respect to a claim made or a
‘suit' brought for damages for which [the insured
is] provided coverage, ” and “[t]he insurance
afforded the additional insured shall be primary
insurance.” Sched. Endorsement CMP-4786, Section II-Who
Is An Insured ¶¶ 2, 3, Dkt. No. 31-7. And with
regard to “Separation of Insureds, ” the Policy
sets forth the following:
with respect to the SECTION II-LIMITS OF INSURANCE, and any
rights or duties specifically assigned in this policy to the
first Named Insured, this insurance applies:
a. As if each Named Insured were the only Named Insured; and
b. Separately to each insured against whom claim is made or