C. Brewer and Company, Ltd. v. Industrial Indemnity Company.

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Electronically Filed
Supreme Court
SCWC-28958
27-MAR-2015
10:24 AM

IN THE SUPREME COURT OF THE STATE OF HAWAIʻI

---oOo---
________________________________________________________________

C. BREWER AND COMPANY, LTD., Respondent/Plaintiff-Appellant,

vs.

MARINE INDEMNITY INSURANCE COMPANY OF AMERICA;
FIREMAN’S FUND INSURANCE COMPANY OF HAWAII; and
JAMES RIVER INSURANCE COMPANY,
Petitioners/Defendants-Appellees,

and

INDUSTRIAL INDEMNITY COMPANY; INDUSTRIAL INSURANCE
COMPANY OF HAWAII, LTD.; NATIONAL UNION FIRE INSURANCE COMPANY
OF PITTSBURGH; UNITED STATES FIRE INSURANCE COMPANY;
LIBERTY MUTUAL INSURANCE COMPANY; TIG INSURANCE COMPANY;
COLUMBIA CASUALTY COMPANY; THE HOME INSURANCE COMPANY;
RELIANCE INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY;
CIGNA PROPERTY AND CASUALTY INSURANCE CO.; PACIFIC EMPLOYERS
INSURANCE CO., INC.; SCOTTSDALE INSURANCE COMPANY;
FIRST STATE INSURANCE CO.; KILAUEA IRRIGATION CO., INC.;
KEHALANI HOLDINGS CO., INC.; STATE OF HAWAIʻI; and
HAWAII INSURANCE GUARANTY ASSOCIATION;
Respondents/Defendants-Appellees,

and

STATE OF HAWAIʻI,
Respondent/Third-Party Plaintiff-Cross-Appellant,

vs.
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MARSH USA, INC., Respondent/Third-Party Defendants-Appellees,

and

KEHALANI HOLDINGS COMPANY, INC.,
Respondent/Third-Party Plaintiff-Cross-Appellant,

vs.

UNITED NATIONAL INSURANCE COMPANY; COMMONWEALTH INSURANCE
COMPANY; ALEXANDER HOWDEN LIMITED; INTEGRITY INSURANCE
COMPANY; HAWAIIAN INSURANCE & GUARANTY COMPANY, LIMITED;
HOLLAND-AMERICA; INTERNATIONAL INSURANCE COMPANY;
TRADEWIND INSURANCE COMPANY, LIMITED; and
ISLAND INSURANCE COMPANY, LIMITED,
Respondent/Third-Party Defendants-Appellees.
________________________________________________________________

SCWC-28958

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 28958; CIV. NO. 06-1-0140)

MARCH 27, 2015

NAKAYAMA, ACTING C.J., McKENNA, POLLACK, AND WILSON, JJ., AND
CIRCUIT JUDGE KUBO, IN PLACE OF RECKTENWALD, C.J., RECUSED

OPINION OF THE COURT BY McKENNA, J.

I. Introduction

On March 14, 2006, a large portion of the Kaloko Dam

(“Dam”) in Kīlauea, Kauaʻi collapsed, releasing over three

million gallons of water, resulting in the loss of seven lives

as well as extensive property damage (“Dam Breach”). At the

time of the Dam Breach, James Pflueger (“Pflueger”) owned the

Dam. Pflueger filed a lawsuit in the Circuit Court of the First

Circuit seeking damages and indemnification from C. Brewer and

Company, Ltd. (“C. Brewer”) for claims brought against him

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arising out of the Dam Breach. Pflueger v. State, Civ. No. 06–

1–1391 (“Pflueger complaint”). According to the Pflueger

complaint, C. Brewer sold him property, including the Dam, while

aware of the Dam’s questionable structural stability. C. Brewer

then filed a complaint in the Circuit Court of the Fifth Circuit

(“circuit court”) seeking rulings regarding obligations owed by

seventeen insurance companies that had issued various insurance

policies to C. Brewer covering different time periods.

This opinion addresses issues arising out of the

policy issued to C. Brewer by James River Insurance Company

(“James River”), a commercial general liability (“CGL”) policy1

in effect at the time of the Dam Breach. The circuit court

granted summary judgment in favor of James River, ruling that a

“Designated Premises Endorsement” (“DPE”), which purported to

limit coverage to specific premises listed in a separate

“Schedule of Locations” (“Schedule”), precluded coverage. The

circuit court ruled that James River was therefore not required

to defend or indemnify C. Brewer against Pflueger’s claims. On

1
CGL policies are “third-party” policies, which “provide[]
coverage for the insured’s liability to another . . . wherein the carrier
generally assumes a contractual duty to pay judgments recovered against the
insured arising from the insured’s negligence.” Sentinel Ins. Co. v. First
Ins. Co. of Hawaiʻi, 76 Hawaiʻi 277, 289, 875 P.2d 894, 906 (1994).
Generally, a CGL policy “is not limited to accidents on the business
premises, but rather has at least nationwide coverage.” 3 New Appleman
Insurance Law Practice Guide § 30.04[3][a] (2015). See also 9A Couch on
Insurance § 129:2 (“Commercial general liability policies are not . . .
strictly confined to operations performed on the insured’s business
premises.”).

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appeal, the Intermediate Court of Appeals (“ICA”) concluded that

the parties’ intent as to the DPE was ambiguous, and remanded

the case for a determination of the parties’ intent regarding

the DPE.

James River raised the following question on

certiorari:

Did the ICA gravely err when it reversed the circuit
court’s finding that the “Limitation of Coverage to
Designated Premises Endorsement” in the James River
liability policy issued to C. Brewer, considered in the
context of the entire policy, unambiguously precludes
coverage as a matter of law, for the bodily injury and
property damage claims stated against C. Brewer in
underlying actions arising from the March 2006 failure of
the Ka Loko Dam and Reservoir.

We hold that the James River DPE provides coverage for

injury and damage that occurs on premises not listed in the

Schedule if the injury or damage arises out of the ownership,

maintenance or use of a designated premises. In determining

whether an injury or damage arose out of the use of a designated

premises, we adopt the legal interpretation of “arising out of”

in American Guarantee and Liability Insurance Co. v. 1906 Co.,

129 F.3d 802 (5th Cir. 1997): “The phrase ‘arising out of’ is

ordinarily understood to mean ‘originating from,’ ‘having its

origin in,’ ‘growing out of,’ or ‘flowing from.’ In the

insurance context, this phrase is often interpreted to require a

causal connection between the injuries alleged and the objects

made subject to the phrase.” 129 F.3d at 807. We therefore

hold that the DPE unambiguously provides coverage for negligence

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claims against C. Brewer arising out of the use of designated

premises.

We further hold that language in a designated premises

endorsement “must be clear and unequivocal[]” to convert a CGL

policy to a premises liability policy2 that limits coverage to

injuries occurring on specific premises. American Empire

Surplus Lines Insurance Co. v. Chabad House of North Dade, Inc.,

771 F. Supp. 2d 1336, 1343 (S.D. Fla. 2011), aff’d, 450 F. App’x

792 (11th Cir. 2011). In this case, the DPE is not sufficiently

“clear and unequivocal” to limit coverage to injuries occurring

on the designated premises, as argued by James River. Thus, the

DPE does not limit liability to injury and damage occurring on

designated premises.

Therefore, the circuit court erred in granting summary

judgment in favor of James River, and the ICA erred in

concluding that it is necessary to determine the parties’ intent

2
A premises liability policy is a type of general liability
insurance that limits coverage to specific premises identified in the policy.
See 3 New Appleman Insurance Law Practice Guide § 30.04[3][a] (2015) (“Some
types of general liability insurance, however, are premises-specific. The
most common such policies are Garage policies and policies of Owners’,
Landlords’ and Tenants’ (“OLT”) insurance.”) A premises liability policy is
“[a] very common form of liability insurance [] which insures the owner,
occupier, or operator of real property against liability incident to his
ownership or use of the premises.” Am. Guarantee, 129 F.3d at 808 (quoting
11 Couch on Ins. § 44:379 at 551 (2d. ed. 1982)). The purpose of a premises
liability policy “is simply to protect against liability arising from the
condition or use of the building as a building[,] [and is] distinguish[able]
from insurance against liability arising from the nature of the enterprise or
activity conducted” in the building itself. Id. (quoting 11 Couch on Ins. §
44:379 at 551).

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as to the effect of the DPE. Accordingly, we affirm in part and

vacate in part the ICA’s October 22, 2013 judgment, and instruct

the circuit court to further proceed consistent with this

opinion.

II. Background

A. Kaloko Dam and Irrigation System

The Kaloko Irrigation System (“System”) was

constructed in the late 1800s by Kilauea Sugar Company (“KSC”),

a C. Brewer subsidiary, to collect and distribute water to

irrigate sugar cane fields in Kīlauea, Kauaʻi. The System relied

on rain water from a State-owned mauka3 watershed, which was

funneled through ditches, flumes, and gates into the Kaloko

Ditch, then into the Kaloko Reservoir (“Reservoir”). The water

was held in the Reservoir by the earthen Dam, and then

distributed through flumes, ditches, and pipes to sugar cane

fields makai4 of the Reservoir.

KSC exited the sugar cane industry in about 1970 and

stopped maintaining the System, which then fell into disrepair.

In 1971, C. Brewer began to sell off some of its lands,

3
In this context, mauka connotes inland or toward the mountains.
See Mary Kawena Pukui & Samuel H. Elbert, Hawaiian Dictionary 242, 485
(1986).
4
In this context, makai means ocean. See Pukui & Elbert, supra,
at 225.

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specifically those makai of the Dam, which were later developed

for agricultural or residential uses.

In 1977, the State of Hawaiʻi (“State”) and C. Brewer

entered into an agreement that required C. Brewer to, among

other things, restore and expand the System.5 C. Brewer formed

the Kilauea Irrigation Company (“KIC”) to satisfy its

obligations to the State, revitalize the System, and sell System

water to local farmers for irrigation.

In February 1987, KIC entered into a Water Rights

Agreement (“WRA”) with an owner of property adjoining C.

Brewer’s land. The WRA made KIC solely responsible for

operating, inspecting, maintaining, and repairing the System and

Dam. In 1987, C. Brewer sold the land under the Reservoir to

Pflueger.

B. Circuit Court Proceedings

James River’s CGL policy was the only policy in effect

on the date of the Dam Breach. Before filing suit, C. Brewer

tendered the defense of the Pflueger complaint to James River,

which refused to defend.

5
In exchange, the State promised to end its condemnation
proceedings over certain C. Brewer agricultural parcels in Kilauea.

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C. Brewer’s second amended complaint (“complaint”)6

noted that C. Brewer was a named insured under James River

policy number 00013398-0, policy period 12/15/2005 to

12/15/2006. According to the complaint, the insuring agreement

under the policy stated:

We will pay those sums that the insured becomes legally
obligated to pay as damages because of “bodily injury” or
“property damage” to which this insurance applies. . . .
This insurance applies to “bodily injury” and “property
damage” only if: (2) The “bodily injury” or “property
damage” occurs during the policy period[.]

Accordingly, C. Brewer alleged that the James River policy

covered claims against it related to the Dam Breach. C. Brewer

also asserted that James River was obligated to defend and

indemnify it because none of the policy’s exclusions applied.

James River moved for summary judgment, arguing inter

alia, that various endorsements and exclusions in its policy

precluded coverage for damages from the Dam Breach. In

particular, James River argued that the policy’s DPE limited

coverage to liability arising out of the ownership, maintenance,

6
C. Brewer’s complaint alleged the following regarding the
Pflueger complaint:

40. The Pflueger Complaint alleges that Plaintiff’s
negligent acts and/or omissions (i.e. failure to inspect,
maintain, and/or repair the dam) caused continuous,
incremental and indivisible physical injury to tangible
property - Pflueger’s dam . . . .
41. On January 19, 2007, plaintiffs in the Pflueger
suit stated in interrogatory responses that the failure of
Plaintiff herein failed to maintain the Dam from before
1982 to March 14, 2006 . . . .

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or use of specifically identified premises. The Dam site was

not listed as a designated premises.

The circuit court granted summary judgment in favor of

James River based upon the DPE, concluding that it unambiguously

precluded coverage for claims against C. Brewer arising out of

the Dam Breach, and that, therefore, James River was not

obligated to provide a defense or coverage to C. Brewer. In

granting summary judgment, the circuit court concluded that the

James River policy contained no ambiguous terms, and that C.

Brewer’s assertion of coverage for claims arising out of the

“use” of its corporate headquarters exceeded the bounds of the

plain and ordinary meaning of the policy terms.

C. Appeal to the ICA

On appeal, the ICA noted:

The key question is whether the language ‘arising out of
the ownership, maintenance, and use of the [designated]
premises’ can be interpreted to encompass the use of C.
Brewer’s business headquarters (one of the designated
premises) to make negligent business decisions that caused
personal injury and property damage outside of the
designated premises.

C. Brewer & Co. v. Industrial Indem. Co, No. 28958 (App. Aug. 7,

2013) (mem.), at 34.

The ICA concluded that the parties’ conflicting

interpretations of the DPE were reasonable, and held the DPE

ambiguous as being reasonably susceptible to more than one

meaning. C. Brewer, mem. op. at 36 (citing Hawaiian Ass’n of

Seventh-Day Adventists v. Wong, 130 Hawaiʻi 36, 45, 305 P.3d 452,

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461 (2013)) (“A contract is ambiguous when its terms are

reasonably susceptible to more than one meaning.”). In so

concluding, the ICA explained:

The use of the language “arising out of the ownership,
maintenance, and use of the premises” suggests that the
parties may have intended to restrict coverage to injuries
and damages occurring on the designated premises. However,
the designated premises endorsement applies not only to
bodily injury and property damage, but also to “personal
and advertising injury” arising out of the use of the
designated premises.

Id. The ICA concluded that the inclusion of “advertising

injury” in the DPE suggested that the parties may have intended

to include coverage for negligent decisions made at designated

premises that results in injury and damage elsewhere. The ICA

reasoned that while decisions made at C. Brewer’s corporate

headquarters would likely be the cause of any advertising

injury, the resulting injury would occur off designated

premises. Id.

Accordingly, the ICA held that the James River policy

was ambiguous as to whether the DPE barred coverage, and thus

raised a genuine issue of material fact with respect to the

parties’ intent.7 C. Brewer, mem. op. at 32, 37. The ICA

7
In further support of the conclusion that a genuine issue of fact
with respect to the parties’ intent existed, the ICA stated in a footnote
that there was “a suggestion in James River’s arguments, based on extrinsic
circumstances, that C. Brewer was winding up its corporate affairs and thus
intended to obtain a different kind of CGL policy -- one that would require a
lower premium but provide more limited coverage.” C. Brewer, mem. op. at 37
n.20.

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therefore vacated the circuit court’s Final Judgment and

remanded to the circuit court. C. Brewer, mem. op. at 43.

III. Standard of Review

This court reviews a circuit court’s grant or denial

of summary judgment de novo under the same standard applied by

the circuit court. Dairy Rd. Partners v. Island Ins. Co., 92

Hawaiʻi 398, 411, 992 P.2d 93, 106 (2000). “[S]ummary judgment

is appropriate if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the

affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to

judgment as a matter of law.” Id. (citation omitted).

This court must view all of the evidence and the

inferences drawn therefrom in the light most favorable to the

party opposing the motion. Maguire v. Hilton Hotels Corp., 79

Hawaiʻi 110, 112, 899 P.2d 393, 395 (1997).

IV. Discussion

A. The Underlying Lawsuit

The Pflueger complaint alleged that C. Brewer was

negligent with respect to (1) its obligation to maintain the

System and (2) its entrustment of the maintenance and operation

of the System to KIC, as follows:

92. Brewer, independently and through its wholly-
owned subsidiary, KIC, owed a duty of reasonable care to
Plaintiffs and others to properly operate, inspect, repair

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and/or maintain the System, including the Dam and
Reservoir.
93. Brewer, independently and through its wholly-
owned subsidiary, KIC, breached its duty to properly
operate, inspect, repair and/or maintain the System,
including the Dam, its appurtenant structures and/or the
Reservoir.
. . .
96. Brewer owed a duty of reasonable care to
Plaintiffs and others to ensure the proper operation,
inspection, repair and/or maintenance of the System,
including the Dam and Reservoir.
97. After its formation of KIC, Brewer knew or
reasonably should have foreseen that KIC was not competent
to operate and maintain the System in general and the Dam
and Reservoir in particular.
98. Brewer knew or should have known that, because of
its lack of expertise, knowledge and/or resources, KIC
would operate, inspect, repair and/or maintain the System
in a manner involving unreasonable risk to others.
99. Brewer was negligent in its entrustment of the
System to KIC.
100. Brewer breached its duty to Plaintiffs and
others by negligently entrusting KIC with the
responsibility to operate, inspect, repair and/or maintain
the System, including the Reservoir and Dam.

Therefore, the Pflueger complaint alleged that C.

Brewer was obligated to pay Pflueger damages resulting from C.

Brewer’s negligent acts or omissions, including its negligent

entrustment of the system to KIC and its alleged failure to

maintain the System, warn about the System’s unsafe conditions,

and adequately capitalize its land operations and the companies

responsible for maintaining and repairing the Dam, which

resulted in injury and damage due to the Dam Breach.

James River’s obligation to indemnify C. Brewer for

claims asserted against it by the Pflueger complaint depends

upon whether the policy covers injury and damage occurring on

undesignated premises that results from C. Brewer’s negligent

acts or omissions arising from the use of designated premises.

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James River’s position is that the DPE precluded any possibility

that it would be obligated to indemnify C. Brewer.

B. Construction of the Designated Premises Endorsement

We note a few general principles of law that will

guide us in interpreting the policy at issue. First, “insurance

policies are subject to the general rules of contract

construction; the terms of the policy should be interpreted

according to their plain, ordinary, and accepted sense in common

speech unless it appears from the policy that a different

meaning is intended.” Dairy Rd. Partners v. Island Ins. Co., 92

Hawaii 398, 411, 992 P.2d 93, 106 (2000) (brackets and citation

omitted). Thus, policy language “must be construed liberally in

favor of the insured and [any] ambiguities [must be] resolved

against the insurer.” 92 Hawai‘i at 412, 992 P.2d at 107

(alteration in original). Second, pursuant to Hawaii Revised

Statutes § 431:10-237 (1993): “Every insurance contract shall

be construed according to the entirety of its terms and

conditions as set forth in the policy, and as amplified,

extended, restricted, or modified by any rider, endorsement or

application attached to and made a part of the policy.”

Moreover, “[b]ecause an insurer’s duty to defend its insured is

contractual in nature, we must look to the language of the

policy involved to determine the scope of that duty.” Sentinel,

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76 Hawaiʻi at 287, 875 P.2d at 904. “[W]henever the insurer

relies on an exclusionary clause of a policy as a defense to

liability, it has the burden of proving facts which bring the

case within the exclusion.” Quinn v. Wilshire Ins. Co., 53 Haw.

19, 21, 486 P.2d 59, 60 (1971). In addition, any ambiguity in

an exclusionary clause is construed in favor of the insured and

“strictly construed against the insurer.” Retherford v. Kama,

52 Haw. 91, 470 P.2d 517 (1970).

The DPE, titled, “Limitation of Coverage to Designated

Premises,” states: “This insurance applies only to ‘bodily

injury’, ‘property damage’, or ‘personal and advertising injury’

arising out of the ownership, maintenance or use of the premises

shown in the above Schedule.” The DPE lists “Locations 1-3.”

The parties are in agreement that “Locations 1-3” includes C.

Brewer’s corporate headquarters at 311 Pacific Street, but not

the Dam site.

James River and C. Brewer present conflicting

interpretations of the DPE. James River argues that the DPE

unambiguously limits coverage under the policy to liability for

injury and damage on premises listed in the Schedule, and thus

it has no obligation to defend or indemnify C. Brewer against

the Pflueger lawsuit because the Dam site is not listed. C.

Brewer argues that the DPE is ambiguous as to whether injury and

damage “arising out of” the “use” of listed premises is covered,

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contending that the “arising out of” language in the DPE

requires broad construction in its favor.

We have held that “[a] contract is ambiguous when its

terms are reasonably susceptible to more than one meaning.”

Hawaiian Ass’n of Seventh-Day Adventist v. Wong, 130 Hawaii 36,

45, 305 P.3d 452, 461 (2013). We therefore begin by analyzing

whether the positions advanced by the parties are reasonable

interpretations of the policy’s language.

James River cites to Union American Insurance Co. v.

Haitian Refugee Center/Sant Refijie Ayisyin, Inc., 858 So.2d

1076 (Fla. Dist. Ct. App. 2003), in support of its argument that

the DPE must be construed to limit liability to designated

premises. In Union American, a Haitian Refugee Center

(“Center”) allegedly failed to provide adequate security at a

street rally it sponsored located far from and unrelated to the

Center’s headquarters, the designated premises, which led to the

shooting of an individual at the rally by another individual in

the crowd. 858 So.2d at 1077. The policy’s designated premises

endorsement limited coverage to “bodily injury . . . arising out

of [t]he ownership, maintenance or use of the premises shown in

the [s]chedule and operations necessary or incidental to those

premises[.]” Id. (first and second bracket in original; third

bracket added) (quoting insurance policy at issue). The

District Court of Appeal of Florida for the Third District

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(“appeals court”) reversed the lower court’s holding that the

policy provided coverage, concluding that the designated

premises endorsement effectively converted the CGL policy into a

premises liability policy despite the words “commercial lines

policy” on the policy’s cover sheet. 858 So.2d at 1078 n.1,

1079 (reversing judgment). The appeals court explained that

providing coverage on the ground that the event was an operation

necessary or incidental to the Center’s business involved a

judicial rewriting of the policy by substituting “business” for

the policy word “premises.” 858 So.2d at 1078. The appeals

court stated: “This is a process in which we may not engage.”

Id.

Union American concerned a wrongful death action based

on an alleged failure to provide adequate security, while this

case involves damages for C. Brewer’s alleged negligent

entrustment of the System to KIC and its alleged failure to

disclose unsafe conditions, adequately capitalize KIC, or

maintain the System. In addition, the injury in Union American

occurred in a manner unrelated to the Center. 858 So.2d at

1077.

In this case, however, the injury and damage arguably

relate to C. Brewer’s “use” of its corporate headquarters to

make negligent business decisions. Union American is therefore

distinguishable.

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C. Brewer contends that the policy provides coverage

for injury and damage arising out of its “use” of its corporate

headquarters to make negligent corporate decisions even though

the resulting damage happened at the unlisted Dam site. In

support, C. Brewer relies on American Guarantee and Liability

Insurance Co. v. 1906 Co., 129 F.3d 802 (5th Cir. 1997)

(applying Mississippi state law), a case in which the court

construed a designated premises endorsement with language

similar to the James River DPE, to include coverage for injuries

and damages occurring on a premises not listed in the

endorsement.

In American Guarantee, an insurer sought a judgment

that the CGL policy it sold to a Coca-Cola Bottling Company

(“Coke Company”) afforded no coverage or defense for injuries

arising out of a photography studio, wholly-owned and operated

as a division of the Coke Company, in which the Coke Company

chief executive officer’s (CEO) son, also an employee,

surreptitiously videotaped female customers changing their

clothes. 129 F.3d at 804. The designated premises endorsement

at issue limited coverage to “‘bodily injury,’ ‘property

damage,’ ‘personal injury,’ ‘advertising injury’ and medical

expenses arising out of . . . [t]he ownership, maintenance or

use of the premises shown in the Schedule and operations

necessary or incidental to those premises[.]” 129 F.3d at 806

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(quoting insurance policy at issue). The studio, located a mile

away from the Coke Company, was not a designated premises.

The Fifth Circuit held that the designated premises

endorsement did not preclude coverage for negligence claims

arising out of the use of the Coke Company headquarters, a

designated premises, regarding supervisory actions over the

studio and the CEO’s son. 129 F.3d at 808. The Fifth Circuit

concluded that the designated premises endorsement unambiguously

covered injuries occurring at uncovered premises if a causal

connection between the injuries and “use” of a designated

premises existed. See 129 F.3d at 807 (“[T]he phrase ‘arising

out of’ the ‘use’ of the designated premises requires that there

be a causal connection between the injuries . . . and the

designated premises . . . .”). In construing a causal

connection, the Fifth Circuit opined as follows: “The phrase

‘arising out of’ is ordinarily understood to mean ‘originating

from,’ ‘having its origin in,’ ‘growing out of,’ or ‘flowing

from.’ In the insurance context, this phrase is often

interpreted to require a causal connection between the injuries

alleged and the objects made subject to the phrase.” Id.

(internal citation omitted).

The Fifth Circuit reasoned that the studio was owned

and operated as a division of the Coke Company, the studio and

Coke Company shared the same general checking account, employees

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of the studio were considered Coke Company employees, and all

major business decisions concerning the studio, from the

purchase of the equipment to the scope and ultimate termination

of the business, were made at the Coke Company’s headquarters, a

designated premises. 129 F.3d at 807-08. The Fifth Circuit

held that “[u]nder the circumstances, a factfinder could find a

causal connection between [the Coke Company] and [the CEO’s]

supervisory activities, the operation of the designated

premises, and the injuries that resulted from [the CEO’s son’s]

intentional and tortious actions at [the studio].” 129 F.3d at

808.

Similarly, in this case, the System was owned and

operated by KIC, a C. Brewer subsidiary, KIC’s employees were

considered employees of C. Brewer, and all major business

decisions concerning the System, including the alleged failure

to capitalize KIC, the entrance into various agreements to

maintain the System, and the eventual sale of the land

underlying the Reservoir, were apparently made at C. Brewer’s

corporate headquarters. Therefore, a causal connection could

possibly be found between C. Brewer and its entrustment of the

System to KIC, the operation of the designated premises, and the

injuries that resulted from C. Brewer’s allegedly negligent

corporate decisions.

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In addition, by relying on Union American, James River

seeks to rewrite the term “arising out of” to limit liability to

injury and damage occurring on designated premises. Such a

construction of the DPE would effectively convert the James

River policy from a CGL policy to a premises liability policy

that limits coverage to certain premises. James River’s

argument contradicts the policy, which specifically states that

it is a “commercial general liability” policy. In addition,

such a construction contravenes general principles of insurance

construction, which provide that policy language “must be

construed liberally in favor of the insured and [any]

ambiguities [must be] resolved against the insurer.” Dairy Rd.

Partners, 92 Hawai‘i at 412, 992 P.2d at 107 (alteration in

original).

In our view, American Empire Surplus Lines Insurance

Co. v. Chabad House of North Dade, Inc., 771 F. Supp. 2d 1336

(S.D. Fla. 2011), correctly analyzes the requirements for

converting a CGL policy to a premises liability policy. The

policy at issue in Chabad House is similar to the James River

policy. Chabad House involved a “commercial general liability”

policy that covered injury and damage occurring anywhere in the

“coverage territory,” defined in the policy as encompassing, at

minimum, the United States, Canada, and Puerto Rico, and also

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contained a similarly worded designated premises endorsement.8

771 F. Supp. 2d at 1339, 1343.

Citing to American Guarantee, in which the designated

premises were specifically incorporated into the policy on the

declarations page so as to put the insured on notice that

coverage was limited to certain premises, the Chabad House court

held that language in a DPE used to convert a CGL to a premises

liability policy “must be clear and unequivocal.” 771 F. Supp.

2d at 1343. We likewise hold that a DPE “must be clear and

unequivocal[]” to convert a CGL policy to a premises liability

policy in order to effectively limit coverage to injury or

damage that occurs on undesignated premises. Id.

In this case, the James River DPE does not clearly

convert the policy into a premises liability policy. The DPE is

similarly incorporated by reference into the policy on the

declarations page; however, the declarations page does not list

the designated premises. Therefore, the DPE is not sufficiently

clear and unequivocal to put the insured on notice and convert

8
The designated premises endorsement in Chabad House states:
“This endorsement modifies insurance provided under the following: Commercial
General Liability Coverage Part.” 771 F. Supp. 2d at 1343 (quoting insurance
policy at issue). It limits coverage to “‘bodily injury’, ‘property damage’,
‘personal and advertising injury’ and medical expenses arising out of: (1)
The ownership, maintenance or use of the premises shown in the Schedule . . .
and operations necessary or incidental to those premises.” Id. (quoting
insurance policy at issue).

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the policy.9 Accordingly, we reject James River’s argument to

construe the DPE as limiting coverage to injury and damage

occurring on designated premises. See Dairy Rd. Partners, 92

Hawai‘i at 412, 992 P.2d at 107 (holding that policy language

“must be construed liberally in favor of the insured and [any]

ambiguities [must be] resolved against the insurer.”).

In further support of its position, C. Brewer contends

that the inclusion of “personal and advertising injury” in the

DPE “suggests that the parties may have intended to include

coverage for negligent decisions made at a designated premises

that resulted in injury and damages elsewhere.” (quoting C.

Brewer, mem. op. at 36). C. Brewer also notes that Chabad House

found that the policy’s broad coverage territory, which included

the United States, Canada, Puerto Rico, and, under certain

circumstances, other parts of the world, contradicted the

designated premises endorsement. James River asserts that C.

9
We note that although the parties are in agreement that the Dam
site was not a listed premises, the DPE does not clearly define which
premises correspond to “Locations 1-3.” The declarations page contains a
section titled, “Endorsements,” which refers the reader to a list of forms
and endorsements in “attached schedule A.” “Schedule A” is essentially a
table of contents, and includes the DPE.
The DPE contains a section titled, “Schedule,” which reads
“Premises: Locations 1-3” with no reference directing the reader on where to
find the list of locations. To find the “Schedule of Locations,” the reader
must refer to a form titled, “Policy Changes,” also listed on “Schedule A.”
The “Schedule of Locations” section contained on the “Policy Changes” page
lists three premises, including 311 Pacific Street, but also lists a number
of vacant parcels identified by TMK number.

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Brewer’s interpretation is overly broad and renders the “arising

out of” language meaningless.

As the ICA reasoned, decisions made at C. Brewer’s

corporate headquarters would likely be the cause of any

advertising injury; however, the resulting injury would not

occur on designated premises. In addition, the James River

policy’s broad coverage territory similarly encompasses the

United States, Canada, Puerto Rico, and, under certain

circumstances, other parts of the world.10 Therefore, C.

Brewer’s arguments further support its interpretation of the

DPE.

C. Classification Limitation Endorsement

James River also argues that its classification

limitation endorsement limits coverage only to “those operations

specified . . . under the ‘description of operations’ or

10
The James River policy defines “coverage territory” to mean:

a. The United States of America (including its territories
and possessions), Puerto Rico and Canada;
b. International waters or airspace, but only if the injury
or damage occurs in the course of travel or
transportation between any places included in a. above;
or
c. All other parts of the world if the injury or damage
arises out of:
(1) Goods or products made or sold by you in the
territory described in a. above;
(2) The activities of a person whose home is in the
territory described in a. above, but is away for a
short time on your business; or
(3) “Personal and advertising injury” offenses that
take place through the Internet or similar
electronic means of communication . . . .

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‘classification’ on the declarations of the policy.” As C.

Brewer emphasizes, the declarations page does not contain a

“Description of Operations,” but rather, a “Description of

Business” in which the phrase “Real Estate Owners” was inserted.

James River maintains that C. Brewer was not the owner of any

real estate at the time of the accident and therefore, the

classification limitation endorsement affirms that the policy,

read as a whole, was clearly intended to provide coverage only

for C. Brewer’s liability as the owner of real estate

specifically listed in the Schedule. C. Brewer maintains that

the classification limitation endorsement does not limit

coverage to “land, owned or otherwise[,]” and that the phrase

“Real Estate Owners” created ambiguity.

The ICA concluded that the classification limitation

endorsement did not resolve the ambiguity regarding coverage

because the James River policy did not define “Real Estate

Owners,” and the allegations in the Pflueger lawsuit “arguably

implicated C. Brewer’s activities and operations as a real

estate owner, such as [its alleged] failure[s] to warn about the

unsafe condition of the Kaloko Dam and . . . to adequately

capitalize its land operations and companies responsible for

maintaining and repairing the Kaloko Dam.” C. Brewer, mem. op.

at 38.

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Contrary to James River’s assertions, the

classification limitation endorsement supports C. Brewer’s

argument that the DPE does not preclude coverage for bodily

injury and property damage on premises not listed in the

Schedule. The limitation specifically states: “The coverage

provided by this policy applies only to those operations

specified in the applications(s) [sic] for insurance on files

with the Company and described under the ‘description of

operations’ or ‘classification on the declaration of the

policy.’” (emphasis added). Thus, the policy specifically

applies to “operations” specified in the application, and not

the specified “premises.” Moreover, it appears that C. Brewer

was leasing the 311 Pacific Street property. Therefore,

according to James River’s argument regarding the classification

limitation endorsement, injury and damage that occur on premises

listed in the Schedule would be excluded from coverage because

C. Brewer did not “own” the property listed. James River’s

argument is illogical and would require this court to rewrite

the terms of the policy to ignore the premises specifically

listed in the Schedule that C. Brewer did not own, despite their

clear inclusion in the policy.

Accordingly, the classification limitation endorsement

also supports C. Brewer’s position that the policy was meant to

cover injury and damage occurring on premises not listed in the

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Schedule. Any ambiguities in this endorsement must also be

construed against James River. See 92 Hawai‘i at 412, 992 P.2d

at 107.

D. Additional Exclusions

The circuit court granted James River’s motion for

summary judgment based on the erroneous conclusion that the DPE

excluded coverage for injury and damage occurring on premises

not listed in the DPE Schedule. Therefore, the circuit court

did not analyze the James River policy in its entirety to

determine whether any other exclusions or endorsements James

River asserted in its motion for summary judgment applied to

preclude coverage under the James River policy.11 We decline to

address for the first time on certiorari exclusions that the

circuit court did not reach.

V. Conclusion

Adopting American Guarantee, we hold that the phrase

“‘arising out of’ the ‘use’ of the designated premises requires

that there be a causal connection between the injuries . . . and

the designated premises[.]” 129 F.3d at 807. We further hold

that the DPE unambiguously provides coverage for “bodily injury”

11
James River included a number of exclusions in its motion for
summary judgment that allegedly preclude coverage, including a “subsidence”
exclusion, a provision limiting coverage to C. Brewer (and thus, precluding
coverage for KIC), an irrigation and earth movement exclusion, and a
provision excluding coverage for misrepresentation, fraud, and breach of the
covenant of good faith and fair dealing.

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and “property damage” that bears a causal connection to the

“use” of designated premises, regardless of where the injury or

damage occurs. Applying American Guarantee to the facts of this

case, we hold that the DPE unambiguously provides coverage for

negligence claims arising out of the use of C. Brewer’s

corporate headquarters.12 Thus, the parties’ intent as to the

DPE is not at issue.

We therefore affirm in part and vacate in part the

ICA’s October 22, 2013 judgment. We affirm that portion of the

judgment to the extent that it vacated the circuit court’s

December 21, 2007 Final Judgment. We vacate in part that

portion of the judgment to the extent that it instructed the

12
Although the duty to defend was not raised on certiorari, it was
raised in the circuit court and the ICA. We note that “the duty to defend
‘rests primarily on the possibility that coverage exists. This possibility
may be remote, but if it exists[,] the [insurer] owes the insured a
defense.’” Sentinel Ins. Co. v. First Ins. Co. of Hawaiʻi, 76 Hawaiʻi 277,
287, 875 P.2d 894, 904 (1994) (alteration in original) (citations omitted).
Thus, the broader duty to defend rests on the possibility that the insured
would be entitled to indemnification under the policy. See id. (“In order to
determine whether [the insurer] had a duty to defend . . . , we must examine
whether the underlying action raised the possibility that the [insured] would
be entitled to indemnification under any of the policies issued by [the
insurer].”). “All doubts as to whether a duty to defend exists are resolved
against the insurer and in favor of the insured[.]” Id. (alteration in
original) (citations omitted).

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circuit court on remand to determine the parties’ intent

regarding the DPE. On remand, we instruct the circuit court to

proceed consistent with this opinion.

Keith K. Hiraoka, /s/ Paula A. Nakayama
Jodie D. Roeca,
Robert J. Romero, /s/ Sabrina S. McKenna
pro hac vice and
Maria S. Quintero, /s/ Richard W. Pollack
pro hac vice, for
petitioner/defendant- /s/ Michael D. Wilson
appellee James River
Insurance Company /s/ Edward H. Kubo, Jr.

Kenneth R. Kupchak,
Tred R. Eyerly, and
Mark M. Murakami
for respondent/plaintiff-
appellant C. Brewer
and Company, Ltd.

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