Construction Claims

Limitations & Repose Periods

Statutes of Limitations

The statute of limitations for tort claims is two years under Hawaii law. HRS §657-7. Breach of contract actions must be brought within six years. HRS §657-1. Hawaii has adopted the “discovery rule” that tolls that running of the statute of limitations until the time when the plaintiff knew or should have known of the defendant’s negligence. Board of Directors of Assn of Apartment Owners v. Regency Tower Venture, 635 P.2d 244, cert. denied, Board of Directors v. Regency Tower Venture, 64 Haw. 689 (1981). The statute of limitations begins to run from the time the cause of action accrues. Board of Directors of Assn of Apartment Owners v. Regency Tower Venture, 635 P.2d 244, cert. denied, Board of Directors v. Regency Tower Venture, 64 Haw. 689 (1981). A cause of action accrues when the plaintiff knows, or, in the exercise of reasonable care, should have discovered that an actionable wrong has been committed. Jacoby v. Kaiser Foundation Hospital, 622 P.2d 613 (Haw. 1981). Hawaii imposes a two-year limitations period for actions for damages based on construction improvements to real property. HRS §657-8. It provides:

No action to recover damages for any injury to property, real or personal, or for bodily injury or wrongful death, arising out of any deficiency or neglect in the planning, design, construction, supervision and administering of construction, and observation of construction relating to an improvement to real property shall be commenced more than two years after the cause of action has accrued, but in any event not more than ten years after the date of completion of the improvement. Id.

Statute of Repose

A. Hawaii has adopted a statute of repose that requires actions “arising out of any deficiency or neglect in the planning, design, construction, supervision, and administering of construction, and observation of construction relating to an improvement to real property” to be commenced within ten years. HRS §657-8

Right to Repair Laws and/or Pre-Suit Statutory Procedures       

“Chapter 672E of the Hawaii Revised Statues contains important requirements that must be followed before you may file a lawsuit or other action for defective construction against the contractor. . . Ninety days before you file your lawsuit or other action, you must serve on the contractor a written notice of any construction conditions you allege are defective. Under the law, a contractor has the opportunity to make an offer to repair and/or pay for the defects. You are not required to accept any offer made by a contractor. There are strict deadlines and procedures under the law, and a failure to follow them may negatively affect your ability to file a lawsuit or other action.” Ward v. Management Development company, LLC v. Nordic PCL Construction, Inc., 2018 WL 3733608, 6 (US Dist, D. Haw, 2018).

The Act requires dismissal without prejudice of an action filed prematurely:

§ 672E-13. Dismissal without prejudice.

The court ... shall dismiss, without prejudice, any action failing to meet the requirements of this chapter, unless:

1. The failure to meet the requirements is the direct result of the wrongful conduct of another party;
2. Circumstances beyond the control of the party prevented compliance; or
3. An applicable statute of limitations on actions would prevent the refiling of an action, in which case the action shall be immediately stayed to provide the claimant with an opportunity to comply with this chapter, but for no longer than six months; provided that the exceptions provided by this section to any specific requirement of this chapter shall not excuse a party from substantially complying with the remainder of the chapter.

Indemnity and Contribution

Indemnity

Any covenant, promise, agreement or understanding in, or in connection with or collateral to, a contract or agreement relative to the construction, alteration, repair or maintenance of a building, structure, appurtenance or appliance, including moving, demolition or excavation connected therewith, purporting to indemnify the promisee against liability for bodily injury to persons or damage to property caused by or resulting from the sole negligence or willful misconduct of the promisee, the promisee’s agents or employees, or indemnitee, is invalid as against public policy, and is void and unenforceable. HRS § 431: 10-222

Contribution

1. The right of contribution exists among joint tortfeasors.
2. A joint tortfeasor is not entitled to a money judgment for contribution until the joint tortfeasor has by payment discharged the common liability or has paid more than the joint tortfeasor’s pro rata share thereof.
3. A joint tortfeasor who enters into a settlement with the injured person is not entitled to recover contribution from another joint tortfeasor whose liability to the injured person is not extinguished by the settlement.
4. When there is such a disproportion of fault among joint tortfeasors as to render inequitable an equal distribution among them of the common liability by contribution, the relative degrees of fault of the joint tortfeasors shall be considered in determining their pro rata shares, subject to section 663-17. HRS § 663-12.

Certificate of Merit – Experts

In Hawaii, there is no requirement for filing certificate or affidavit of merit for claims against design or construction professionals.

Economic Loss Doctrine

In Hawaii, the economic loss doctrine “bars recovery in tort for purely economic loss.” Leis Family Ltd. Partnership v. Silversword Engineering, 126 Hawai’I 532, 535 (2012) citing City Express, Inc. v. Express Partners, 87 Hawai’i 466, 469 (1998). It “marks the fundamental boundary between the law of contracts, which is designed to enforce expectations created by agreement, and the law of torts, which is designed to protect citizens and their property by imposing a duty of reasonable care on others.” Id. (quoting Berschauer/Phillips Constr. Co. v. Seattle Sch. Dist. 881 P.2d 986, 990 (Wash. 1994)) (internal quotation marks omitted). The doctrine “was designed to prevent disproportionate liability and allow parties to allocate risk by contract.” Id.

Negligence claims of condominium owners’ association against masonry subcontractor, based on alleged violations of contract specifications, were barred by economic loss rule. Association of Apartment Owners of Newtown Meadows ex rel. its Bd. Of Directors v. Venture 15, Inc., 115 Hawai’I 232, 292-93 (2007). Economic recovery is barred where there is no privity of contract between the plaintiff and the defendant, if the recovery was allowed, would blur contract and tort law. Id.

Negligence claims by apartment owners claiming that the contractor violated pertinent sections of the building code, is not barred by the economic loss doctrine as these damages do not arise purely out of contract. Id. at 395.

Contractor Licensing Requirement.

In Hawaii, no person . . . shall act, or assume to act, or advertise as a general engineering contractor, general building contractor, or specialty contractor without a license previously obtained under and in compliance with this chapter and the rules and regulations of the contractor’s license board. HRS § 444-9.

Common Law & Statutory Claims

Under Hawaii common law, construction defect claims sound in breach of contract, specifically claims based on allegations of shoddy performance are not covered under CGL policies, nor are tort-based claims, derivative breach of contract claims.

Construction Damages

Cost of Repair

The measure of damages in building contracts is generally cost of correction. Quedding v. Arisumi Bros., Inc. 66 Haw. 335 (1983) citing Izumi v. Kwan Doo Park, 44 Haw. 123, 128-29 (1960). However, such cost is limited to correction according to original plans and specifications, if adequate. Izumi 44 Haw. At 129. In addition, the plaintiff has a duty to minimize damages. Id. at 128. The plaintiff is not required to make large expenditures to minimize the cost, but the cost of repair will be reduced to a reasonable cost “within a reasonable time after discovery.” Id. In, Izumi, the Court found that a lapse of five years from the discovery of the defect until the initial repairs resulted in a 20% increase in construction costs, thus plaintiff’s recovery was reduced by 20%. Id.

Diminution in Value

Hawaii recognizes first party diminution in value claims, as an alternative to cost of repair, for losses to real property. See Clog Holdingsm N.V. v. Bailey, 92 Hawaii 374 (2000), Opinion Ordered Depublished (April 20, 2000). In order to recover diminution in value for a property that has been repaired or will be repaired, the plaintiff is required to prove evidence of lingering negative public perception that would exist even after the property has been fully repaired or, in other words, a stigma exists on the property as a result of the alleged damages. See Uy v. Spencer Homes, Inc., 135 Hawai’i 533 (2015).

Punitive Damages

Punitive damages “are generally defined as those damages assessed in addition to compensatory damages for the purpose of punishing the defendant for aggravated or outrageous misconduct and to deter the defendant and others from similar conduct in the future.” Masaki v. Gen. Motors Corp., 71 Haw. 1, 6 (1989). In order to recover punitive damages, “[t]he plaintiff must prove by clear and convincing evidence that the defendant has acted wantonly or oppressively or with such malice as implies a spirit of mischief or criminal indifference to civil obligations, or where there has been some willful misconduct or that entire want of care which would raise the presumption of a conscious indifference to consequences.” Id. at 16–17. Simple negligence by a contractor during the construction of a contract does not justify the award of punitive damages. Association of Apartment Owners of Newtown Meadows ex rel. its Bd. Of Directors, 115 Hawaii at 298.

Attorney’s Fees

HRS § 607-14.5 provides that in any civil action wherein the Court determines that all or a portion of a party’s claim or defense was frivolous, they may award a reasonable sum for attorneys’ fees and costs.

In addition, in all actions in the nature of assumpsit or other contract in writing that provides for attorneys’ fees to be paid by the losing party, the Court may determine the reasonableness of the fee and order losing party to pay the fees. This is provided this amount shall not exceed twenty-five percent of the judgment. HRS § 607-14.

Joint and Several Liability (specific to construction)

In Hawaii, joint and several liability for joint tortfeasors has been abolished with limited exceptions, including intentional torts, torts relating to environmental pollution and toxic and asbestos-related torts. H.R.S. § 663 10.9.

Hawaii has a specific liability statute for design professionals involved in the design, construction and maintenance of highways, where they are determined to be a joint tortfeasor and the degree of negligence is 10% or less. In this specific circumstance, the pro-rata share of negligence shall not exceed the available policy limits. HRS §663-10.98 (a). In order for this statute to apply, the services performed must be less than $500,000 with policy limits of no less than $1,000,000 (per occurrence and aggregate); or the services performed must be less than $1,000,000 if the liability insurance has limits of no less than $1,000,000 (per occurrence) and $2,000,000 (aggregate). Id. It should be noted that this section does not apply to design professions with an annual gross revenue of $10,000,000 or more during any of the three calendar years immediately preceding the effective date of the subject insurance policy. Id. at “(b).”

Cost Incurred to Access Repair Areas

None.

Consequential Damages

Consequential damages for breach of contract are recoverable only “as may reasonably be supposed to have been in the contemplation of the parties at the time the contract was entered into.” Amfac, Inc. v. Waikiki Beachcomber Inv. Co., 74 Haw. 85, 128 (1992). Essentially the recoverability of consequential damages relies on foreseeability.

Coverage Trigger of Coverage

Definition of an Occurrence

The Hawaii Supreme Court has held that allegations of an intentional breach of contract do not meet the definition of an “accident” or “occurrence” under a standard commercial general liability (CGL) insurance policy. See Hawaiian Holiday, 76 Haw. 166, 171 (1994). The court held that an intentional breach is not an “accident,” and thus, the insurer had no duty to defend or indemnify when the injury was the expected or reasonably foreseeable result of the insured’s own intentional acts or omissions. The Ninth Circuit Court of Appeals addressed the issue of insurance coverage for construction related claims in Burlington Ins. Co. v. Oceanic Design and Construction, Inc., 383 F.3d 940 (9th Cir. 2004). The Ninth Circuit held that, under Hawaii law, contract and contract-based tort claims are not covered within the scope of CGL policies. Relying on the precedent set in Hawaiian Holiday, the court reasoned that any claims resulting from breach of contract did not fall within the definition of an “occurrence” as provided for in the policy. Id. Thereafter, in Group Builders, Inc. v. Admiral Ins. Co., 123 Haw. 147, 148-49, 231 P.3d 67, 73-74 (Haw. Ct. App. 2010) (superseded in part by statute, Haw. Rev. Stat. § 431:1-217(a), as recognized in Ill. Nat’l Ins. Co. v. Nordic PCL Constr., Inc., 870 F.Supp. 2d 1015 (D. Haw. 2012)), the Hawaii Appellate Court held that construction defect claims do not constitute an occurrence under a CGL policy; thus breach of contract claims for shoddy performance and tort-based claims derivative of such breach of contract claims were also not

Duty to Defend

Hawaii adheres to the “complaint allegation rule.” Pancakes of Hawaii v. Pomare Properties Corp., 85 Haw. 286, 292 (Haw. App. 1997). Thus, the duty to defend is limited to situations where the pleadings alleged claims and facts which fall within the insurance contract’s terms of coverage. Where the pleadings fail to allege any basis for recovery within the coverage clause, the insurer has no obligation to defend. Hawaiian Holiday Macadamia Nut Co. v. Industrial Indus. Indem. Co., 76 Haw. 166, 169 (1994).

Additional Insureds

An insurer’s duty to defend an additional insured relies on the language of the policy that covers the additional insured. See Nautilus Ins. Co. v. Lexington Insurance Co., 132 Hawaii 283 (2014). Therefore, depending on the language of the policy, coverage could be provided for the additional insured’s own negligence. Id. However, if the policy only provides coverage for the Additional Insured solely as a result of the negligence of the named insured, than coverage will not be provided for the additional insured’s negligence. Id. An insurer will owe a defense to the additional insured, as long as some of the complaint contains allegations that if proven true would allow coverage to the additional insured.

Under Hawaiian law, a primary insurer may not look to another insurance policy in disclaiming its duty to defend. If a primary insurer is tendered a defense, and believes that it is actually an excess insurer or otherwise has no duty to defend by operation of its “other insurance” clause, then that primary insurer must still defend in the action. This is the appropriate remedy, rather than leaving the defense up to other insurers or, potentially up to the insured, where the insured has contracted for primary insurance coverage. Id.

Insureds Right to Independent Counsel and Consequences of Rejecting a Defense

The insured does not have the right to select counsel to represent its interests solely due to an insurer’s reservation of rights. Finley v. Home Ins. Co. 90 Hawaii 25, 31 (1998).

Reservation of Rights

An insurer has the right to defend under a non-waiver agreement or reservation of rights, permitting an insurer to “satisfy its duty to defend the policyholder while simultaneously preserving its ability to rely later on any available policy defenses that might have vitiated the duty.” Id.; see AIG Hawaii Ins. Co., Inc. v. Smith, 78 Hawai’i 174, 179–80 (1995) (discussing the validity of a reservation of rights by the insurer in connection with tendering a defense). It has been explained that “[a] reservation of rights agreement is notice by the insurer to the insured that the insurer will defend the insured but that the insurer is not waiving any defenses ... it may have under the policy.” First Ins. Co. of Hawaii, Inc. v. State, 66 Haw. at 422, (internal quotation marks and citation omitted). In the event that it is later determined that the insurer had no duty to defend, the insurer may recoup its expenses from the insured. See 22 Appleman § 136.7, at 46.

Coverage Defenses

Lack of an Occurrence

Under Hawaiian Law, for purposes of a liability insurance policy that covers occurrences of damage or injury during the policy period and that insures a construction professional for liability arising from construction-related work, the meaning of the term “occurrence” shall be construed in accordance with the law as it existed at the time that the insurance policy was issued. HRS 431:1-217(a). The absence of an “occurrence” as defined by the subject insurance policy will preclude coverage by the insurer. Group Builders, Inc. v. Admiral Ins. Co., 123 Hawai’I 142 (2010). It is the insured’s burden to prove coverage existed, and the insurer’s burden to prove that an exclusion is applicable. Id.

Choice of Law (Forum Selection Clauses)

The choice of law provision in a contract will generally be upheld when the chosen law has some nexus with the parties or the contract. Del Monte Fresh Produce (Hawaii), Inc. v. Fireman’s Fund Ins. Co., 117 Hawai’i 357, 364-65 (2007).

Targeted Tenders

Under Hawaiian law, a primary insurer may not look to another insurance policy in disclaiming its duty to defend. If a primary insurer is tendered a defense, and believes that it is actually an excess insurer or otherwise has no duty to defend by operation of its “other insurance” clause, then that primary insurer must still defend in the action. This is the appropriate remedy, rather than leaving the defense up to other insurers or, potentially up to the insured, where the insured has contracted for primary insurance coverage. Nautilus Ins. Co., supra. However an insurer may tender a defense under a reservation of rights. Id.

Consent Judgments

Nil