Hawaii Court of Appeals Finds Insured AOAO Not Liable for Securing Inadequate Insurance

    The Hawaii Intermediate Court of Appeals (ICA) affirmed the trial court's finding that the insured Association of Apartment Owners (AOAO) was not liable for securing a policy with inadequating coverage. AOAO Queen Emma Gardens, et al v. Wa, 2023 Haw. App. LEXIS 400 (Haw. Ct. App. Dec. 19, 2023).

    In October 2002, the Was purchased a condominium located in the Queen Emma Gardens Condominium. The AOAO's bylaws provided that it would procure and maintain insurance "to insure the Board, the Association, and each apartment owner against claims for personal injury, death, and property damage arising out of the condition of the property or activities thereon . . ." The AOAO secured a CGL policy from Insurance Association, Inc., with coverage limits for bodily injury at $1,000,000 and an umbrella policy providing an additional $5,000,000 of coverage. Each of the policies "insured each individual insurance owner of the insured condominium, but only with respect to liability arising out of the ownership, maintenance or repair of that portion of the premises which is not reserved for that unit owner's exclusive use or occupancy." 

    The Mas leased their unit to Ronald H. Gomes. One night, Gomes' body was discovered on the ground below the unit. The Estate of Gomez sued the Mas and others. Insurance Association defended under a reservation of rights. Eventually, the lawsuit was summarily adjudicated in favor of all defendants, including the Mas.

    The Mas pursued a claim against the AOAO for violating the bylaws in an administrative hearing before the Department of Cultural and Community Affairs (DCCA). The Mas alleged that the AOAO violated the bylaws by failing to provide insurance which covered areas reserved for the individual unit owners' exclusive use or occupancy. The DCCA found in favor of the Mas concluding that the bylaws unambiguously required the AOAO to provide insurance coverage to unit owners for areas under their exclusive use or occupancy. The AOAO appealed to the Circuit Court, which reversed. The court concluded that the DCCA clearly erred in interpreting the bylaws which only required the AOAO to provide coverage for the common elements.

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    The Mas appealed in August 2010. The ICA held that the relevant provision in the bylaws was ambiguous and the DCCA summary judgment in favor of the Mas was inappropriate. The circuit court erred in failing to remand the case to the DCCA for further proceedings to resolve the genuine issue of material fact as to the parties' intent, reasoning that the intent of the parties was essential in resolving the ambiguity of the language of the bylaws. 

    On remand, the DCCA hearing officer found that the bylaws were not ambiguous. Based on the extrinsic evidence, the sole intent of the parties to the bylaws was to provide liability insurance covering only those conditions and activities arising from the comment elements. Nonetheless,, the AOAO was required to procure and maintain insurance coverage for owners against claims for personal injury, death, and property damage arising from both the apartment units and the common elements.

    On appeal, the circuit court granted the AOAO's appeal and denied the Mas' cross-appeal. The circuit court (1) reversed the DCCA hearings officer's conclusion that the bylaws were ambiguous; (2) affirmed the DCCA's finding that extrinsic evidence established the intent of the parties did not require the AOAO to secure liability insurance for the exclusively owned apartment units; and (3) reversed the DCCA's determination that the AOAO was nevertheless required to obtain liability insurance for the exclusively owned apartment units. 

    The Mas again appealed to the ICA. The ICA first rejected the Mas' argument that the circuit court violated their due process rights. While the Mas may have had a protected property interest in their unit, the briefs and record were devoid of any cogent argument, supporting evidence, or on point case law to support the contention that the Mas had a protected property interest in the AOAO-provided insurance for privately owned units. 

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    Further, the circuit court did not err in affirming the DCCA's consideration of extrinsic evidence to resolve the genuine issue of material fact as to the parties' intent, as mandated by the ICA on remand. Based on the extrinsic evidence, the DCCA found that the sole intent of the parties to the bylaws was to provide liability insurance covering only those conditions and activities arising from the Project's common elements. The circuit court's order affirming the DCCA's finding on intent was not clearly erroneous. 

    Therefore, the ICA affirmed the judgment entered by the circuit court. 

    Thanks to my blogging partner, Mark Murakami, for the heads-up on this case.