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Hawaiian Dredging Construction Co., Inc. v. Fujikawa Associates, Inc.

Supreme Court of Hawaii

June 8, 2018

HAWAIIAN DREDGING CONSTRUCTION COMPANY, INC., Respondent/Plaintiff-Appellant,
v.
FUJIKAWA ASSOCIATES, INC., dba Continental Mechanical of the Pacific, Petitioner/Defendant-Appellee.

          CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS (CAAP-14-0000842; CIV. NO. 13-1-0 900-03)

          Sheree Kon-Herrera for petitioner

          James Shin (Jodie D. Roeca on the briefs) for respondent

          RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

          OPINION

          RECKTENWALD, C.J.

         This case arises from a worksite accident in which an employee of Hawaiian Dredging Construction Company, Inc. (HDCC) was injured, allegedly due to the actions of HDCCs subcontractor, Fujikawa Associates, Inc., dba Continental Mechanical of the Pacific (Fujikawa). After paying workers' compensation benefits to its injured employee, HDCC sought reimbursement from Fujikawa based on a breach of contract theory, claiming that workers' compensation benefits were within the scope of their subcontract's indemnity clause. The circuit court granted summary judgment in favor of Fujikawa based on its interpretation of the subcontract's indemnity clause.

         While we affirm the grant of summary judgment, we do so based on our interpretation of Hawai'i Revised Statutes (HRS) § 386-8, which governs a third party's liability for workers' compensation. As set forth below, we conclude that this statute provides the exclusive remedy for an employer to recover workers' compensation benefits from a third-party tortfeasor. Because HDCC did not avail itself of that exclusive remedy, summary judgment for Fujikawa was appropriate.

         I. Background

         A. The Subcontract and Accident

         HDCC hired Fujikawa to perform repairs to Edmonson Hall at the University of Hawai'i at Manoa. On May 1, 2012, HDCC and Fujikawa entered into a subcontract agreement (Subcontract).[1] The Subcontract's indemnity clause provided:

12.4 To the fullest extent permitted by law, Subcontractor shall indemnify, and save harmless Contractor and Owner, and their agents and employees, from and against all Liabilities on account of: . . . (B) the filing of any claims by persons or entities furnishing labor, materials, equipment or other services or facilities in connection with the Work; (C) any breach or default by Subcontractor of its obligations under this Agreement; or (D) any and all damage or injury to person or property arising directly or indirectly from the performance of the Work and/or the operations of Subcontractor to the extent any such damage or injury is attributable in whole or in part to the acts or omissions of Subcontractor, anyone directly or indirectly employed by Subcontractor or anyone for whose acts Subcontractor may be liable; and, when requested by Contractor, Subcontractor shall defend any and all actions and pay all charges of attorneys and other expenses arising therefrom.

         The Subcontract defines "Liabilities" as: "Separately and collectively, any loss, injury, damage, fine, penalty, cost and expense (including legal fees and costs) and other liability whatsoever, and any action, suit, proceeding or claims, relating to such liability."

         HDCC alleges that, in the course of performing repairs at the University of Hawai'i, HDCC employee Gabriel Balon was injured. HDCC sent Fujikawa a "Notice of Claim and Demand for Indemnification, "[2] which asserted the following:

On June 26, 2012, [] one of HDCC's employees, Mr. Gabriel Balon, a 55-year old laborer, sustained injuries at the Project site when he was struck by a piece of an air duct being installed by [Fujikawa]. As a result of this accident, Mr. Balon suffered a concussion and contusions of his back and leg, and has not returned to work. Moreover, he has filed a claim for indemnity and medical/rehabilitation benefits under Hawaii's Workers' Compensation Law, H.R.S. Chapter 386, and HDCC is currently making payments thereunder.

         HDCC demanded that Fujikawa indemnify it "and its insurer(s) from and against any and all liability, costs and expenses . . . incurred in connection with the subject accident and the resolution thereof."

         B. Circuit Court Proceedings[3]

         HDCC subsequently filed a complaint in the circuit court. HDCC alleged that Fujikawa breached the Subcontract by refusing to indemnify HDCC for the amounts it paid "on account of the bodily injury to Gabriel Balon."

         Fujikawa filed an answer, denying that it caused Balon's injury and denying that it breached the Subcontract. Fujikawa asserted affirmative defenses related to comparative negligence, estoppel, unclean hands, failure to mitigate damages, waiver, and failure to join indispensable parties.

         HDCC filed a motion for partial summary judgment, requesting judgment in its favor on the issue of Fujikawa's assumption of liability under the Subcontract for Balon's accident. HDCC argued that summary judgment was appropriate because the "Subcontract 'clearly and unequivocally' assigns Fujikawa a responsibility to indemnify HDCC."

         Fujikawa opposed HDCC's motion, and requested the court to instead enter summary judgment in its favor. Fujikawa argued that workers' compensation benefits were outside the scope of the Subcontract's indemnity clause, and that summary judgment for HDCC would violate Fujikawa's due process rights and contravene public policy by "attempt[ing] to use an ambiguous, equivocal contractual indemnity to shift and evade [HDCC's] liability for compensation." Fujikawa also argued that HDCC's action "conflicts with the procedure for reimbursement mandated by the Legislature" in HRS § 386-8.

         The circuit court held a hearing, and granted summary judgment in favor of Fujikawa based on its interpretation of the Subcontract. The circuit court found no clear and unequivocal assumption of liability to pay workers' compensation benefits for a work-related injury under the terms of the Subcontract. The court denied HDCC's motion for partial summary judgment and granted summary judgment in favor of Fujikawa. The court subsequently entered judgment in favor of Fujikawa.

         C. ICA Proceedings

         HDCC timely appealed, arguing that the circuit court erred in failing to find Fujikawa liable for workers' compensation payments under the plain language of the Subcontract. HDCC contended that Hawai'i law allows "risks of liabilities in construction" to be allocated by contract, and that such an allocation between contractor and subcontractor has no bearing on an injured worker's ability to secure workers' compensation benefits. HDCC argued that Fujikawa's broad promise in the Subcontract to indemnify HDCC for "Liabilities" attributable to Fujikawa should be interpreted to include workers' compensation costs, and that partial summary judgment should have been granted in its favor.

         In its answering brief, Fujikawa characterized HDCCs appeal as an attempt to pass on its statutory workers' compensation obligations through a vague contractual term. Fujikawa argued that the circuit court correctly interpreted the Subcontract, as "HDCC s definition of ''Liabilities' did not include any reference to ''benefits, ' statutory obligations, ''compensation, ' disability payments or benefits - any term that would clearly and unequivocally indicate that Fujikawa agreed to indemnify HDCC for payments made for Gabriel Balon's workers' compensation benefits."

         Fujikawa also argued that HDCCs claim attempted to avoid the process specified by HRS § 386-8[4] (1993) ("Liability of third person"), which establishes the procedure by which an employer may seek to recover the workers' compensation payments that it made to its injured employee when a third party is allegedly liable for the employee's work-related injury. Fujikawa also argued that HDCC's request for damages conflicted with HRS § 386-8's provision that the "amount of [workers'] compensation paid by the employer . . . shall not be admissible in evidence in any action brought to recover damages." The ICA vacated the circuit court's judgment, concluding that the Subcontract's indemnification clause encompassed workers' compensation benefits. The ICA held that "the Subcontract includes the clear and unequivocal agreement of Fujikawa to assume all Liabilities arising from its acts or omissions, including costs and expenses related to Balon's workers compensation claim." The ICA rejected Fujikawa's arguments that HDCC was attempting to evade its statutory workers' compensation obligations, relying on Iddings ...


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