Hart v. Ticor Title Insurance Co.

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Electronically Filed
Supreme Court
SCWC-29467
27-MAR-2012
09:22 AM

IN THE SUPREME COURT OF THE STATE OF HAWAI#I

---o0o---

CHARLES MITCHELL HART and LISA MARIE HART,
Petitioners/Plaintiffs-Appellants,

vs.

TICOR TITLE INSURANCE COMPANY,
Respondent/Defendant-Appellee.

NO. SCWC-29467

CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(ICA NO. 29467; CIV. NO. 1RC08-1-3865)

MARCH 27, 2012

RECKTENWALD, C.J., NAKAYAMA, ACOBA, DUFFY, AND MCKENNA, JJ.

OPINION OF THE COURT BY DUFFY, J.

Petitioners/Plaintiffs-Appellants Charles Mitchell Hart

and Lisa Marie Hart (“the Harts”) filed a timely application for

a writ of certiorari (“Application”), urging this court to review
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the Intermediate Court of Appeals’ (“ICA”) July 21, 2011 summary

disposition order and September 21, 2011 judgment on appeal,

which affirmed the judgment of the district court of the first

circuit (“district court”) entered on December 4, 2008

(“judgment”)1 in favor of Respondent/Defendant-Appellee TICOR

Title Insurance Company (“TICOR”) on the Harts’ claim for breach

of contract. The district court’s judgment also specified that

the Harts’ motion for partial summary judgment filed on October

21, 2008 was denied, and awarded TICOR attorneys’ fees of

$5,000.00 and costs of $281.49.

We accepted the Harts’ Application, which presents the

following questions:
A. Whether the ICA gravely erred in concluding that TICOR had
no duty to defend the Harts against the State’s claim to any
interest in the Harts’ property that may have escheated
to the State where the ICA determined there was no duty to
defend only by relying on procedural defects in the State’s
claim and the State’s subsequent abandonment of the claim.

B. Whether the ICA gravely erred in upholding the award of
attorneys’ fees and costs to TICOR.

Based on the analysis below, we vacate the ICA’s judgment and

reverse the judgment of the district court in favor of TICOR. We

also vacate the district court’s award of attorneys’ fees and

costs to TICOR. We remand the case to the district court with

instructions (1) to enter judgment in favor of the Harts, and (2)

1
The Honorable Christopher P. McKenzie presided.

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to determine an award of attorneys’ fees and costs to the Harts,

with the specific instruction that the Harts’ award be limited to

the period of time from the Harts’ tender of defense to TICOR

until the escheat claim reached resolution through written court

order.

I. BACKGROUND

A. The Harts’ Title Insurance Policy

This appeal arises from TICOR’s refusal to defend the

Harts under their title insurance policy against an escheat2

claim asserted by the State of Hawai#i. The Harts purchased a

title insurance policy from TICOR for their property comprised of

two lots in Ewa Beach (“Policy”); TICOR issued the Policy on July

13, 2005.3 The Policy provides, in relevant part:
Subject to the exclusions from coverage, the exceptions from
coverage contained in Schedule B and the conditions and
stipulations, TICOR Title Insurance Company, a California
corporation, herein called the Company, insures, as of Date of
Policy shown in Schedule A, against loss or damage, not exceeding
the amount of insurance stated in Schedule A, sustained or
incurred by the insured by reason of:

1. Title to the estate or interest described in Schedule A
being vested other than as stated therein;

2
Black’s Law Dictionary 623 (9th ed. 2009) defines “escheat” as:

“(1) Hist. The reversion of land ownership back to the lord when
the immediate tenant dies without heirs. . . . (2) Reversion of
property (esp. real property) to the state upon the death of an
owner who had neither a will nor any legal heirs. . . . (3)
Property that has so reverted.”

3
Policy No. 7407011-30366.

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2. Any defect in or lien or encumbrance on the title;

3. Unmarketability of the title;

4. Lack of a right of access to and from the land.

The Company will also pay the costs, attorneys’ fees and expenses
incurred in defense of the title, as insured, but only to the
extent provided in the Conditions and Stipulations.

(Emphasis added). Additionally, the Policy includes the

following “Conditions and Stipulations,” in relevant part:
4. Defense and Prosecution of Actions: Duty of Insured
Claimant to Cooperate

(a) Upon written request by the insured and subject to the
options contained in Section 6 of these Conditions and
Stipulations [entitled “Options to Pay or Otherwise Settle
Claims: Termination of Liability”], the Company, at its own
cost and without unreasonable delay, shall provide for the
defense of an insured in litigation in which any third party
asserts a claim adverse to the title or interest as insured,
but only as to those stated causes of action alleging a
defect, lien or encumbrance or other matter insured against
by this policy. The Company shall have the right to select
counsel of its choice (subject to the right of the insured
to object for reasonable cause) to represent the insured as
to those stated causes of action and shall not be liable for
and will not pay the fees of any other counsel. The Company
will not pay any fees, costs or expenses incurred by the
insured in the defense of those causes of action which
allege matters not insured against by this policy.

The Policy contains the following “Exclusions from Coverage,” in

relevant part:
9. Claims arising out of customary and traditional rights and
practices, including without limitation those exercised for
subsistence, cultural, religious, access or gathering
purposes, as provided for in the Hawaii Constitution or the
Hawaii Revised Statutes.

10. Rights or claims of persons or entities other than the
insured involving or arising out of: mineral or metallic
mines; geothermal resources; water; fishing, commerce or
navigation; creation or loss of the land or any portion
thereof by accretion, avulsion, erosion or artificial means;
persons residing on or otherwise in possession of the land
or any portion thereof; trails, roadways or other rights of

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way, including without limitation any such rights or claims
under Chapter 264, Hawaii Revised Statutes.

Additionally, Schedule B to the Policy provides, in relevant

part:
All matters set forth in the paragraphs below the caption
“Exclusions from Coverage” on the inside cover of this Policy and
the following matters are expressly excluded from the coverage of
this Policy and [TICOR] will not pay loss or damage, costs,
attorney’s [sic] fees or expenses which arise by reason thereof.

. . .

2. Location of the seaward boundary in accordance with the laws
of the State of Hawaii and shoreline setback line in
accordance with County regulation and/or ordinance and the
effect, if any, upon the area of the land described herein.

B. The Harts’ Land Court Proceeding

On August 2, 2005, the Harts filed a Land Court

petition to consolidate their two lots into one parcel.4 In

response to the Harts’ proceeding, the State of Hawai#i (“State”)

filed an answer to the Harts’ petition for consolidation

(“Answer”) on October 24, 2005. The State’s answer asserted

present interests in the Harts’ property, in relevant part:
THIRD DEFENSE:

. . . [the] State denies any allegations adverse to its interest
in or affecting [the Harts’ property], which are as follows:

1. The State owns the submerged land up to the upper reaches of
the wash of the waves, including the erosion areas.

2. The State owns all mineral and metallic mines of every kind
or description on the property, including geothermal rights,
and the right to remove the same.

4
Land Court Case No. 05-0015, Application No. 242.

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3. The State reserves the rights of native tenants in the
property.

4. The State reserves all right, title, interest[] or claim to
waters having their source upon or flowing over or under the
property.

5. The State reserves an easement for the free flowage of
waters through, over, under[] and across the property.

6. The State reserves any interests in the property that
may have escheated to the State.

7. The State reserves any other interests in the property that
may be revealed during the course of this Petition
proceeding.

(Emphasis added). The State then requested the following

affirmative relief from the Land Court regarding its escheat

claim:
Wherefore, [the] State prays that the Court rules that:

. . .

6. The State has reserved any interests in the property that
may have escheated to the State[.]

Later, on October 30, 2006, the State again asserted these same

claims in its answer to the Harts’ amended petition for

consolidation (“Answer to Amended Petition”). Ultimately,

through its answer and answer to amended petition, the State

twice asserted its present interest in the Harts’ property by way

of escheat and twice asked the Land Court for affirmative relief.

The Harts tendered their defense against all the

State’s claims to TICOR on November 7, 2005. TICOR refused the

Harts’ tender on January 4, 2006. TICOR’s January 4, 2006

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response collectively categorized the State’s claims,

reservations and defenses as the “State’s Claims.” TICOR

explained that because the Harts did not specify which of the

“State’s Claims” they were tendering to TICOR, TICOR assumed that

the tender was “for the defense of the State’s water and mineral

rights, native tenants’ rights, erosion and shoreline setback

claims.” Based on the Policy’s Exclusions for Coverage and

Schedule B, TICOR concluded that defense of these specific claims

was excluded under the Policy.

The Harts replied on January 9, 2006, contending that

TICOR “cited no policy exclusion for [the escheat] claim, and the

[P]olicy insures that the State owns no interest in the insured

property by way of escheat. Thus, [TICOR] is obliged to defend

against that claim.” TICOR disagreed. Significantly, however,

in a March 9, 2006 letter to the Harts, TICOR conceded that a

claim of escheat is not excluded from coverage, but contended

that “[w]hile escheat to the state is not a matter which is

excluded from coverage, it does not appear that the [S]tate is

currently making any claim of escheat.” Rather, the State “has

merely reserved its right to make that claim at some point in the

future.” Accordingly, in TICOR’s view, the State did not assert

any “claim” that fell within the Harts’ Policy coverage.

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Consequently, the Harts proceeded to defend against all

of the State’s claims in Land Court. The Harts filed a motion

for summary judgment to resolve all encumbrances on title claimed

by the State (“Motion for Summary Judgment Re: Encumbrances”) on

June 6, 2007. On June 22, 2007, the State filed a memorandum in

opposition to the Harts’ motion for summary judgment re:

encumbrances, stating “[t]he State is not pursuing any claim of

escheat to the State.” The Land Court heard the motion on July

2, 2007.5 On December 5, 2007, the Land Court granted in part

and denied in part the Harts’ motion:
[the Harts’] Motion is granted as the court has determined that
there is no basis for the State’s claims for the rights of native
tenants, mineral and metallic mines[] and escheat, and is denied
as to the State’s claims for submerged lands up to the shoreline,
underground water and surface streams[] and an easement for the
free flowage of water. However, the State is not foreclosed in
the future from asserting claims for the rights of native tenants
or mineral and metallic mines if they actually manifest in the
future.

(Emphasis added). On February 1, 2008, the Land Court ordered

the consolidation of the Harts’ lots.

On March 28, 2008, the Harts requested reimbursement

from TICOR for the legal fees associated with its defense of the

State’s claims against their property. The Harts contended that

the State asserted an escheat claim covered under the Policy, and

though it was a “false claim[,] . . . defense against the escheat

5
The Honorable Gary W.B. Chang presided.

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claim was inseparably part of the defense of all claims, and

[TICOR] was obligated to see the defense through to conclusion by

court ruling.” Accordingly, the Harts demanded reimbursement for

their attorneys’ fees and costs in the amount of $28,982.43 and

notified TICOR that if it failed to respond by April 18, 2008,

the Harts would file suit. TICOR responded with a letter

affirming denial of the Harts’ defense claim on May 2, 2008.

C. The Harts’ District Court Proceeding

The Harts filed the instant suit against TICOR in

district court for breach of contract under the Policy and bad

faith on May 6, 2008.6 On June 12, 2008, the district court

entered a default judgment against TICOR and awarded the Harts

$21,485.59.7 TICOR responded with a motion to set aside entry of

default and default judgment on June 20, 2008.8 The district

6
TICOR claims that, according to the Harts’ attorneys’ invoices,
the Harts’ counsel reviewed TICOR’s May 2, 2008 letter affirming the denial of
the Harts’ defense claim on May 7, 2008 (i.e., one day after the Complaint was
filed in district court).

7
The Honorable Hilary B. Gangnes presided.

8
TICOR asserted in its Motion to Set Aside Entry of Default and
Default Judgment:

Despite receiving the May 2, 2008 letter, [the Harts] elected not
to notify either Title Guaranty in Honolulu or [sic] TICOR’s
counsel in California that they had filed the Complaint. Instead,
[the Harts] served the Complaint upon “The Corporation Company,”
TICOR’s agent registered with the Division of Insurance,
Department of Commerce and Consumer Affairs.

The return date in this action was set for May 19, 2008, a mere 12
continue...

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court granted TICOR’s motion on July 9, 2008.

The Harts filed a motion for partial summary judgment

on October 21, 2008. The Harts’ motion asserted:
[d]espite conceding that escheat stated a covered claim, TICOR
refused to defend the Harts. TICOR did not investigate the
State’s claim. Instead, to avoid its defense obligation, TICOR on
its own simply recharacterized the State’s claim from “[t]he State
reserves any interest in the property that may have escheated to
the State” to “[t]he State has merely reserved its right to make
that claim at some point in the future.” Relying on its contrived
distinction between the reservation of an interest that arose in
the past and the reservation of the right to make a claim at some
point in the future, TICOR denied coverage.

Ultimately, the Harts contended that the State’s assertion of a

claim for escheat in its answer and answer to amended petition

raised the potential for coverage under the Policy. Accordingly,

Hawai#i law mandates that because a mere potential for coverage

existed under the Policy, “TICOR had a duty to defend the Harts

until that potential was resolved.”

In response, TICOR filed a memorandum in opposition to

the Harts’ motion for partial summary judgment on October 29,

8
...continue
days after the date of service. The Corporation Company mailed
the Complaint to TICOR’s mainland office in California. Before
TICOR could review the Complaint and have opportunity [sic] to
retain Hawaii counsel, however, . . . default was entered against
TICOR.

This case has just begun. There are significant questions raise
[sic] as to the merits of [the Harts’] case. Thus, TICOR
respectfully requests this Court to allow its defenses to be
heard.

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2008.9 TICOR argued that the State failed “to allege a present

claim to an interest insured by TICOR[]” and, therefore, TICOR

was not obligated to tender the Harts a defense. TICOR explained

that the Harts voluntarily filed their lot consolidation action

in Land Court and this voluntary action prompted the State’s

reservation.10 “The State did not file a counterclaim against

[the Harts]. The State’s [a]nswer did not attack [the Harts’]

title.” Instead, the State’s escheat reservation was but one of

many “standard reservations -- the same reservations that the

State asserts in every Land Court case.”

TICOR also asserted that the Harts’ “counsel knew that

the State did not claim to own a present interest by way of

escheat.” Nevertheless, the Harts “tendered the prosecution of

their voluntary Petition to TICOR.” TICOR pointed out that the

9
TICOR also filed its own motion for summary judgment on November
6, 2008. TICOR submitted a proposed order to the district court to deny the
Harts’ motion for summary judgment via letter to the presiding judge, the
Honorable Christopher P. McKenzie. TICOR’s letter to Judge McKenzie stated:

. . . in an effort to conserve judicial resources, the parties
agree that the Proposed Order shall also include language entering
summary judgment against the [Harts] and in favor if TICOR on the
[Harts’] claims for breach of contract, breach of implied covenant
of good faith and fair dealing and bad faith.

TICOR has filed a Motion for Summary Judgment. . . . In the event
that the Court files the Proposed Order, TICOR’s Motion will be
withdrawn . . . .

10
The Harts responded during the motion for summary judgment hearing
on November 3, 2008, that while the State’s escheat claim “arose in the
context of the Harts’ [lot consolidation] petition, . . . it was nonetheless
an affirmative attack on title.”

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Harts’ counsel’s invoices for attorneys’ fees “do not indicate

that any time was spent on the issue of escheat.”

The district court heard the motions on November 3,

2008.11 The district court agreed with TICOR and denied the

Harts’ summary judgment motion from the bench. On November 13,

2008, the district court entered “summary judgment against the

Harts and in favor of TICOR on the Harts’ claim for breach of

contract for failing to defend them.”12 The district court found

“that the [S]tate’s escheat defense was a routine reservation of

a possible defense and did not trigger coverage” and that “the

language raising the escheat defense did not create a realistic

or reasonable potential for coverage” under the Policy. The

district court also awarded TICOR attorneys’ fees and costs in

the amount of $5,281.49.

The Harts appealed. The ICA affirmed the district

court’s judgment, noting “[t]he State’s reservation of possible

rights did not amount to a claim of an escheated interest[]” in

part because the State did not follow the statutory requirements

for making an escheat claim. Hart v. Ticor Title Ins. Co., No.

29467, 2011 WL 2938210, at *1 (Haw. App. July 21, 2011).

11
The Honorable Christopher P. McKenzie presided.

12
Accordingly, TICOR withdrew its own motion for summary judgment.

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Specifically, “a claim of escheat may be raised only in

accordance with Hawaii Revised Statutes § 665-1 (1993)[,]”13

which requires the State to file an action in the first circuit

court setting forth the factual basis for escheat in order to

assert such a claim. Id. According to the ICA, the State failed

to assert any facts supporting a claim of escheat and made no

demand for an escheated interest in its answer. Id.

Additionally, in a footnote, the ICA explained that “[l]ater in

the consolidation proceeding, the State expressly clarified that

it had no escheat claim.” Id. at *1 n.2. As such, “the

[d]istrict [c]ourt did not err in concluding that [TICOR] had no

duty to defend the Harts under the subject title insurance

policy.” Id. at *1. Furthermore, “[g]iven [the ICA’s]

disposition of the Harts’ underlying claim, there is no basis for

disturbing the award [of attorneys’ fees].” Id.

The Harts filed a timely Application on December 20,

13
HRS § 665-1 (1993) provides:

In all cases where real property escheats by law to the State, the
attorney general shall file an information in the circuit court of
the first circuit, setting forth the facts upon which the claim of
the State to the escheat is based. Summons shall be issued as in
other actions. The attorney general shall cause the summons to be
served upon any person in possession of the property, and shall
also cause a copy thereof to be published once a month for three
months in a newspaper of general circulation in the State. Upon
the hearing of the matter, if the court finds the facts averred in
the information substantiated by proof and sufficient in law, it
shall make and cause to be entered a decree declaring the property
an escheat to the State.

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2011. United Policyholders submitted a motion for leave to file

an amicus brief in support of the Harts’ Application also on

December 20, 2011. On December 23, 2011, TICOR filed an

opposition to United Policyholder’s motion. This court granted

United Policyholders’ motion on December 29, 2011 and United

Policyholders filed its amicus brief on January 4, 2012. TICOR

submitted a response to the Harts’ Application on January 4,

2012. On January 9, 2012, TICOR filed a response to United

Policyholders’ amicus brief. We accepted the Harts’ Application

on January 24, 2012 and held oral argument on February 22, 2012.

II. STANDARDS OF REVIEW

A. Summary Judgment

This court reviews a lower court’s summary judgment

decision de novo under the same standard employed by the lower

court. Dairy Road Partners v. Island Ins. Co., Ltd., 92 Hawai#i

398, 411, 992 P.2d 93, 106 (2000). Summary 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 a judgment

as a matter of law.” Hawai#i Rules of Civil Procedure (HRCP)

56(b) (2011). Furthermore, “[a] fact is material if proof of the

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fact would have the effect of establishing or refuting one of the

essential elements of a cause of action or defense asserted by

the parties.” Ka#u Agribusiness Co., Inc. v. Heirs or Assigns of

Ahulau, 105 Hawai#i 182, 188, 95 P.3d 613, 619 (2004) (citing

Hunt v. Chang, 60 Haw. 608, 618-19, 594 P.2d 118, 124 (1979)).

“The evidence must be viewed in the light most

favorable to the non-moving party.” State ex rel. Bronster v.

Yoshina, 84 Hawai#i 179, 186, 932 P.2d 316, 323 (1997) (citing

Maguire v. Hilton Hotels Corp., 79 Hawai#i 110, 112, 899 P.2d

393, 395 (1995)). Stated differently, 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, 79

Hawai#i at 112, 899 P.2d at 395 (citation omitted).

B. Attorneys’ Fees

This court reviews a lower court’s award of attorneys’

fees for abuse of discretion. Allstate Ins. Co. v. Pruett, 118

Hawai#i 174, 179, 186 P.3d 609, 614 (2008) (citation omitted).

“The trial court abuses its discretion if it bases its ruling on

an erroneous view of the law or on a clearly erroneous assessment

of the evidence.” Id. (quoting Lepere v. United Pub. Workers, 77

Hawai#i 471, 473, 887 P.2d 1029, 1031 (1995)). In other words,

“[a]n abuse of discretion occurs where the trial court has

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clearly exceeded the bounds of reason or disregarded rules or

principles of law or practice to the substantial detriment of a

party litigant.” Id. (quoting TSA Int’l Ltd. v. Shimizu Corp.,

92 Hawai#i 243, 253, 990 P.2d 713, 723 (1999)).

III. DISCUSSION

We hold that the ICA erred in concluding that TICOR did

not have a duty to defend the Harts against the State’s escheat

claim in the specific, unique circumstances of this case, and in

affirming the district court’s judgment and award of attorneys’

fees and costs in favor of TICOR.14

A. The ICA erred in concluding that TICOR had no duty to defend
the Harts against the State’s escheat claim.

Hawai#i insurance law regarding the insurer’s duty to

defend is well established. Under our precedent, TICOR had a

duty to defend the Harts against the State’s escheat claim under

the Policy.

14
As noted earlier herein, the district court employed an unusual
procedure in reaching its judgment. The Harts filed their motion for summary
judgment on October 21, 2008. TICOR filed an opposition on October 29, 2008.
The district court heard the motion and opposition on November 3, 2008, and
ruled in favor of TICOR from the bench. TICOR filed its own motion for
summary judgment on November 6, 2008. On November 10, 2008, TICOR submitted a
proposed order to Judge McKenzie via letter. On November 13, 2008, the
district court signed the proposed order, entering “summary judgment against
the Harts and in favor of TICOR.” Also on November 13, 2008, TICOR withdrew
its motion for summary judgment.
Because both parties presented summary judgment motions to the
district court and because TICOR ultimately succeeded, this court will view
the evidence in the light most favorable to the Harts. As explained below in
Section III.A.2., TICOR bore the burden of proving that there was no genuine
issue of material fact with respect to whether a possibility existed that the
Harts would incur an encumbrance on their insured land.

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1. Ambiguities in the insurance contract must be resolved
in favor of the insured.

An insurer’s duty to defend stems from the policy

contract and, thus, the language of the policy involved

determines the scope of that duty. Sentinel Ins. Co., Ltd. v.

First Ins. Co. of Haw., Ltd., 76 Hawai#i 277, 287, 875 P.2d 894,

904 (1994). When interpreting insurance contracts, this court

has acknowledged that “insurers have the same rights as

individuals to limit their liability and to impose whatever

conditions they please on their obligation, provided they are not

in contravention of statutory inhibitions or public policy.”

Dairy Road, 92 Hawai#i at 411, 992 P.2d at 106 (quoting First

Ins. Co. of Haw., Inc. v. State, 66 Haw. 413, 423, 665 P.2d 648,

655 (1983)) (brackets omitted). Furthermore, TICOR correctly

points out that “[a] court must respect the plain terms of the

policy and not create ambiguity where none exists.” Allstate,

118 Hawai#i at 182, 186 P.3d at 617 (internal quotation marks

omitted) (quoting Smith v. New England Mut. Life Ins. Co., 72

Haw. 531, 537, 827 P.2d 635, 638 (1992)).

However, “because insurance policies are contracts of

adhesion and are premised on standard forms prepared by the

insurer’s attorneys, we have long subscribed to the principle

that they must be construed liberally in favor of the insured and

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any ambiguities must be resolved against the insurer.” Dairy

Road, 92 Hawai#i at 411-12, 992 P.2d at 106-07 (brackets and

citations omitted). Courts are to construe insurance policies in

“accord with the reasonable expectations of a layperson.” Id. at

412, 992 P.2d at 107 (citations omitted). Ultimately, “[a]ll

doubts as to whether a duty to defend exists are resolved against

the insurer and in favor of the insured[.]” Id. (quoting

Sentinel, 76 Hawai#i at 287, 875 P.2d at 904).

In the instant case, the parties dispute whether the

State’s escheat reservation contained in its answer and answer to

amended petition qualifies as an “escheat claim” that triggered

coverage under the Harts’ Policy. The Harts maintain that the

State’s answer “asserted interest in and claims against” the

Harts’ property. On the other hand, TICOR argues, and the ICA

agreed, that the State was not making an escheat “claim” in its

Answer, but was “merely” indicating “that it was not waiving, by

its response, any claims based on escheat.” Hart, 2011 WL

2938210, at *1. Accordingly, TICOR contends that the term

“claim” is unambiguous. We agree with the Harts.

In Allstate, this court determined that because the

term “any person” was not defined in the applicable automobile

insurance policy, and given the context of the term’s usage, “any

person” was ambiguous and should, therefore, be construed in

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favor of the insured. 118 Hawai#i at 182, 186 P.3d at 617.

Standing alone, an ambiguous term “should be interpreted

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

speech[.]” Id. (brackets and citation omitted). “However, this

court need not do so if it appears from the policy that a

different meaning is intended.”15 Id. (internal quotation marks

and citation omitted). Some terms have clear meaning when

standing alone, but “that meaning can become ambiguous through

the manner in which those terms are used throughout the

policy.”16 Id. at 183, 186 P.3d at 618 (internal brackets,

ellipses, emphasis and citation omitted).

As persuasive authority, in St. Paul Fire & Marine

Insurance Co. v. Hawaiian Insurance & Guaranty Co., 2 Haw. App.

595, 637 P.2d 1146 (1981), the ICA adhered to the commonly

accepted legal meaning of the term “claim” to determine that when

an insurance policy contained no definition of “claim,” three

15
In Allstate, this court considered the context of the ambiguous
term’s use within the insurance policy; its analysis was “not confined to
either a single clause or term in isolation from the rest of the policy.”
Allstate, 118 Hawai#i at 182, 186 P.3d at 617.

16
“In this regard, when terms are used selectively throughout the
policy’s exclusions in such a way as to create the impression that they refer
to mutually exclusive classes, an ambiguity results, which must be resolved
against the insurer.” Allstate, 118 Hawai#i at 182, 186 P.3d at 617 (internal
citations, quotation marks and brackets omitted).

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separate acts of negligence17 resulted in three “claims” for

purposes of the policy’s liability limitation clause. Though the

ICA decided St. Paul Fire before this court’s landmark decisions

in Sentinel and Dairy Road, the ICA correctly stated therein that

“[i]nsurance contracts are contracts of adhesion . . . [;] they

are to be liberally construed in favor of the insured and against

the insurer.” Id. at 596, 637 P.2d at 1147 (citations omitted);

see Dairy Road, 92 Hawai#i at 411-12, 992 P.2d at 106-07

(“[I]nsurance policies are contracts of adhesion . . . [;] they

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

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

omitted, some brackets added).

Unlike in Allstate, “claim” in the instant Policy is

not used in different ways within the contract as to create

ambiguity. Instead, as in St. Paul Fire, ambiguity arises here

simply because “claim” is not defined in the Policy. Following

the general construction rules explained in Dairy Road and

Allstate, “claim” should be interpreted according to its plain,

ordinary, and accepted sense in common speech consistent with the

reasonable expectations of a layperson. See Dairy Road, 92

Hawai#i at 412, 992 P.2d at 107 (this court construes insurance

17
These three acts of negligence involved two separate insureds and
resulted in the allegation of a single death. St. Paul Fire, 2 Haw. App. at
595, 637 P.2d at 1146.

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policies in “accord with the reasonable expectations of a

layperson”); see also Allstate, 118 Hawai#i at 182, 186 P.3d at

617 (this court construes policy terms “according to their plain,

ordinary, and accepted sense in common speech”). Any ambiguities

must be liberally construed in favor of the insured. Dairy Road,

92 Hawai#i at 411-412, 992 P.2d at 106-07.

A “claim” includes any “interest or remedy recognized

at law; the means by which a person can obtain a privilege,

possession, or enjoyment or a right or thing[.]”18 Black’s Law

Dictionary 282 (9th ed. 2009). TICOR’s argument that “claim” is

unambiguous and that the State did not assert a “claim” withing

the meaning of the policy is unpersuasive.

In this case, the State twice asserted that it had

“interest in or affecting [the property], which are as follows: .

. . 6. The State reserves any interests in the property that may

have escheated to the State.” Additionally, the State twice

requested affirmative relief: “Wherefore, [the] State prays that

the Court rules that: . . . 6. The State has reserved any

interests in the property that may have escheated to the

State[.]” We agree with the Harts that

18
The term “claim” also includes “counterclaim” within its
definition.” Black’s Law Dictionary 282 (9th ed. 2009) (defining “claim” and
referring to the definition of “counterclaim”); id. at 402 (defining
“counterclaim” as “[a] claim for relief asserted against an opposing party
after an original claim has been made; esp., a defendant’s claim in opposition
to or as a setoff against the plaintiff’s claim.”).

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[t]hrough the reservation, the State alleged it had existing
rights and interest in the [p]roperty that may “have escheated”
and that those rights and interest would be noted against the
Harts’ Land Court-registered title. . . . The State’s escheat
reservation was an independent and affirmative claim to an
interest in the Harts’ [p]roperty, just like every other
“reserv[ation]” made in the State’s pleadings. For example, the
State reserved “the rights of native tenants in the property,” and
“an easement for the free flowage of waters through, over, under,
and across the property.” The State prevailed on some of those
claimed interests and lost on others. Those reservations plainly
sought to assert “claims.”

A layperson would have construed the State’s escheat language as

the State asserting a claim against the Harts’ title. Moreover,

interpretation of the State’s escheat claim in accord with the

ordinary, plain and common definition of “claim” indicates

coverage under the Policy. Ambiguity surrounding the definition

of “claim” should have been construed for the Harts and in favor

of coverage.

Ultimately, because “claim” is not defined in the

Policy, and because the State’s allegations twice sought to

establish the State’s present escheat interest in the Harts’

insured property and twice requested affirmative relief regarding

its present escheat interest, the State’s reservation fell within

the broad, common definition of “claim” as covered under the

Policy. The ICA erred in construing this ambiguity in favor of

TICOR and by concluding that the State failed to assert an

escheat claim.

2. The insurer’s duty to defend arises at the mere
potential of coverage under a policy.

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The obligation of an insurer to defend an insured is

distinct from the duty to provide coverage. Pancakes of Haw.,

Inc. v. Promare Prop. Corp., 85 Hawai#i 286, 291, 944 P.2d 83, 88

(1997). Indeed, an insurer’s duty to defend is “broader than the

duty to pay claims and arises wherever there is the mere

potential for coverage[]” under a policy. Dairy Road, 92 Hawai#i

at 412, 992 P.2d at 107 (quoting Sentinel, 76 Hawai#i at 287, 875

P.2d at 904) (emphasis in original). This obligation 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.” Id. (quoting Sentinel, 76 Hawai#i at 287,

875 P.2d at 904) (emphasis in original, brackets omitted).

Indeed, an insurer’s duty to defend attaches when the language of

the pleadings may plausibly be read as asserting a present claim,

as is the case here.19 “The duty to defend is not

19
We do not condone any attempt to create an insurer’s duty to
defend by “artful pleading” of a claim or defense which has no legitimate
basis in the facts alleged or issues raised in the pleadings. In Dairy Road,
this court expressly intended to “ensure that plaintiffs could not, through
artful pleading, bootstrap the availability of insurance coverage under an
insured defendant’s policy by purporting to state a claim for negligence based
on facts that, in reality, reflected manifestly intentional, rather than
negligent, conduct.” Dairy Road, 92 Hawai#i at 417, 992 P.2d at 112
(approvingly citing the primary purpose in Hawaiian Ins. & Guar. Co. v.
Brooks, 67 Haw. 285, 686 P.2d 23 (1984) (overruled on other grounds) and
Hawaiian Ins. & Guar. Co. v. Blanco, 72 Haw. 9, 804 P.2d 876 (1990) (overruled
on other grounds) and noting “[w]ith respect to the facts as alleged within
the four corners of a complaint, we do not disturb the Brooks/Blanco
analysis[]”). Stated differently, “when the facts alleged in the underlying
complaint unambiguously exclude the possibility of coverage, conclusory
assertions contained in the complaint regarding the legal significance of
those facts (such as that the facts as alleged demonstrate ‘negligent’ rather
continue...

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outcome-determined but merely depends on a potential for coverage

and is determined at the time suit is brought and not at the

conclusion of litigation.” Commerce & Indus. Ins. Co. v. Bank of

Haw., 73 Haw. 322, 327, 832 P.2d 733, 736 (1992) (internal

quotation marks omitted) (quoting First Ins. Co., 66 Haw. at 420,

665 P.2d at 653). Stated differently, “to have any effect at

all,” the duty to defend must be determined when the claim is

initially asserted.20 Pancakes of Haw., 85 Hawai#i at 292, 944

P.2d at 89. Furthermore, “an insurer’s ultimate non-liability

should not free it from its concurrent [and distinct] contractual

duty to defend.” First Ins. Co., 66 Haw. at 420, 665 P.2d at 653

(internal quotation marks omitted).

The insurer must employ “a good-faith analysis of all

information known to the insured or all information reasonably

ascertainable by inquiry and investigation[]” to determine

whether the possibility of coverage under a policy exists.

Standard Oil Co. of Cal. v. Hawaiian Ins. & Guar. Co. Ltd., 65

Haw. 521, 527, 654 P.2d 1345, 1349 (1982). “All doubts as to

whether a duty to defend exists are resolved against the insurer

19
...continue
than ‘intentional’ conduct) are insufficient to trigger the insurer’s duty to
defend.” Id. (emphasis in original).

20
In Pancakes of Haw., this court explained the reasoning supporting
an insurer’s broad duty to defend when extending and applying such reasoning
to contract indemnity clauses. See 85 Hawai#i at 292-93, 944 P.2d at 88-89.

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and in favor of the insured.” Sentinel, 76 Hawai#i at 287, 875

P.2d at 904 (quoting Trizec Prop., Inc. v. Biltmore Constr. Co.,

Inc., 767 F.2d 810, 812 (11th Cir. 1985)) (brackets omitted).

In summary, the pleadings underlying the Harts’ tender

reveal that TICOR had a duty to defend the Harts, determined at

the time the State asserted the escheat claim because, at that

time, the language of the State’s answer, answer to amended

petition, and affirmative prayers for relief, plausibly asserted

a present claim of escheat, and TICOR conceded that a claim of

escheat is not excluded from coverage under the Policy. We agree

with the Harts that “[o]nce the possibility of coverage triggered

the duty to defend, TICOR had the duty to defend, regardless of

whether the allegations were ‘groundless, false, or fraudulent’

or whether some of the claims ‘[fell] outside of the policy’s

coverage.’” The fact that the State ultimately clarified that it

was “not pursuing any claim of escheat to the State[]” did not

excuse TICOR from its initial duty to defend. See Hart, 2011 WL

2938210, at *1 n.2. Considering the specific and unique facts of

this case, the ICA erred in concluding that TICOR did not have a

duty to defend the Harts. Id. at *1.

Additionally, we disagree with the ICA’s conclusion

that the State’s escheat claim did not trigger TICOR’s duty to

defend the Harts because the State failed to follow the proper

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procedure for bringing an escheat claim under HRS § 665-1 (1993).

Id. By so concluding, the ICA improperly tied TICOR’s duty to

defend to the sufficiency or merits of the State’s pleading. Put

differently, the ICA erroneously made TICOR’s duty to defend

contingent upon the outcome or ultimate sufficiency of the

State’s escheat claim.

B. The ICA erred in affirming the district court’s award of
attorneys’ fees and costs to TICOR.

The district court awarded TICOR attorneys’ fees and

costs under HRS § 607-14 (Supp. 2010)21 and HRS § 607-9 (1993)22

21
HRS § 607-14 provides, in relevant part:

In all the courts, in all actions in the nature of assumpsit and
in all actions on a promissory note or other contract in writing
that provides for an attorney's fee, there shall be taxed as
attorneys' fees, to be paid by the losing party and to be included
in the sum for which execution may issue, a fee that the court
determines to be reasonable; provided that the attorney
representing the prevailing party shall submit to the court an
affidavit stating the amount of time the attorney spent on the
action and the amount of time the attorney is likely to spend to
obtain a final written judgment, or, if the fee is not based on an
hourly rate, the amount of the agreed upon fee. The court shall
then tax attorneys' fees, which the court determines to be
reasonable, to be paid by the losing party; provided that this
amount shall not exceed twenty-five per cent of the judgment.

. . .

The above fees provided for by this section shall be assessed on
the amount of the judgment exclusive of costs and all attorneys'
fees obtained by the plaintiff, and upon the amount sued for if
the defendant obtains judgment. . . .

HRS § 607-14 (Supp. 2010).

22
HRS § 607-9 provides:

continue...

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as the prevailing party. Because we are vacating the ICA’s

judgment and reversing the judgment of the district court, we

vacate the district court’s award of attorneys’ fees and costs to

TICOR since the Harts are now the prevailing party.

IV. CONCLUSION

For the reasons stated herein, we hold that TICOR owed

a duty to defend the Harts under the Policy against the State’s

escheat claim and prayer for affirmative relief. Accordingly, we

vacate the ICA’s judgment, and reverse the judgment of the

district court in favor of TICOR. We also vacate the district

court’s award of attorneys’ fees and costs to TICOR. We remand

the case to the district court with instructions (1) to enter

judgment in favor of the Harts, and (2) to determine an award of

attorneys’ fees and costs to the Harts, with the specific

instruction that the Harts’ award be limited to the period of

22
...continue
No other costs of court shall be charged in any court in addition
to those prescribed in this chapter in any suit, action, or other
proceeding, except as otherwise provided by law.

All actual disbursements, including but not limited to, intrastate
travel expenses for witnesses and counsel, expenses for deposition
transcript originals and copies, and other incidental expenses,
including copying costs, intrastate long distance telephone
charges, and postage, sworn to by an attorney or a party, and
deemed reasonable by the court, may be allowed in taxation of
costs. In determining whether and what costs should be taxed, the
court may consider the equities of the situation.

HRS § 607-9 (1993).

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time from the Harts’ tender of defense to TICOR until the escheat

claim reached resolution through written court order.23

Philip J. Leas, /s/ Mark E. Recktenwald
Calvert G. Chipchase,
and Christopher T. /s/ Paula A. Nakayama
Goodin (of Cades Schutte
LLP) for petitioners/ /s/ Simeon R. Acoba, Jr.
plaintiffs-appellants.
/s/ James E. Duffy, Jr.
Wayne P. Nasser,
Francis P. Hogan, /s/ Sabrina S. McKenna
and Connie C. Chow
(of Ashford & Wriston)
for respondent/defendant-
appellee.

23
In oral argument, the Harts’ counsel argued that “the duty to
defend continues through the resolution of the claim including any possible
appeal, so the fees cut off at the resolution of the claim including final
judgment and any possible appeal.” We hold that the Harts are entitled to
attorneys’ fees and costs related to their covered escheat claim beginning
with the Harts’ tender of defense to TICOR on November 7, 2005, and ending
upon the Land Court’s final written resolution of the State’s escheat claim in
its December 5, 2007 order.

28