First Ins. Co. of Hawaii v. State, 66 Haw. 413

Summary

The Supreme Court of Hawaii held that an insurer had a duty to defend the State, an additional insured, in the entire underlying negligence action because the pleadings created a potential for coverage, even though the insurer ultimately had no duty to indemnify the State. The court further held that defending another insured and reserving rights did not discharge the insurer's duty to provide the State with separate counsel where a conflict of interest existed. The judgment was affirmed in part and reversed in part.

Holdings

1. An insurer's duty to defend is determined when the action is brought and arises whenever the pleadings create a potential for indemnification liability under the policy; the duty is not defeated by the insured's ultimate nonliability under a covered theory.
2. When a lawsuit includes at least one claim potentially within policy coverage, the insurer must defend the entire lawsuit, including claims that may ultimately fall outside coverage.
3. Defending an insured under a reservation of rights preserves policy defenses but does not relieve the insurer of responsibility for defense costs when the insurer was obligated to defend.
4. When an insurer has a duty to defend codefendant insureds whose interests do not coincide, the insurer must provide separate counsel for each insured; appointing counsel for one insured does not satisfy the duty owed to the other.
5. The policy did not require First Insurance to indemnify the State for liability arising from the State's own negligence where Sonomura was found not negligent and the State's negligence was not related to its general supervision of Sonomura's work.

Questions Presented

1. Whether First Insurance had a duty to defend the State against the entire Furukado lawsuit when the pleadings alleged potentially covered liability arising from Sonomura's operations or the State's general supervision, even though the State was ultimately found negligent on a noncovered theory.
2. Whether First Insurance had a duty to provide separate independent counsel for the State when it also defended Sonomura and the parties' interests potentially conflicted.
3. Whether the policy obligated First Insurance to indemnify the State for liability resulting from the State's own negligence after the jury found Sonomura not negligent.

Disposition

other