Written by Bruce D. Voss - April 15, 2012
The Hawaii Supreme Court has again expanded the "duty to defend" under Hawaii insurance law, finding that coverage may be triggered by a party's routine reservation of a possible affirmative defense.
In Hart v. TICOR Title Insurance Company, the Harts filed a Land Court petition to consolidate their two lots into one lot. The State of Hawaii answered and asserted various routine affirmative defenses, including reserving "any interests in the property that may have escheated to the State." The Harts then tendered the State's escheat "claim" to TICOR for defense and indemnity. TICOR denied coverage, noting that the State had "merely reserved its right to make that claim at some point in the future." The State subsequently clarified that it was, in fact, not making a claim for escheat against the property.
The trial court ruled against the Harts on their claim against TICOR, finding "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 Hawaii Intermediate Court of Appeals affirmed the trial court's ruling, but the Hawaii Supreme Court reversed.
Adopting a liberal definition of the term "claim," the Supreme Court said that a "layperson would have construed the State's escheat language as the State asserting a claim against the Harts' title." The Court then ruled that an insurer's duty to defend attaches when "the language of the pleadings may plausibly be read as asserting a present claim," even if it is later made clear no claim was actually being made. Based on the Supreme Court's ruling, under these circumstances the insurer effectively had a duty to litigate the plaintiff's original claim for relief against the defendant, until the State withdrew its affirmative defense.
While the Court's ruling may be technically correct under Hawaii's already broad duty to defend, the opinion creates a strange situation where an insurance company may become obligated to pick up the tab for an action its insured started.
An important factor in the Hart case was the insurance policy's failure to define the term "claim". Every insurer doing business in Hawaii should review the language of their policies, and if necessary amend their policy definitions to make clear that a "claim" does not include a defendant's routine reservation of an affirmative defense.