The Hawaii Supreme Court addressed four certified questions regarding "other insurance" clauses in commercial general liability policies. For the first question, the court found that an insurer cannot disclaim its duty to defend based solely on another insurer's policy, but may do so if its own policy explicitly references the other policy. For the second question, the court ruled that an excess clause can release an insurer's defense duty between insurers. For the third question, the court determined that a court should first assess the relevance of policies' excess clauses before analyzing irreconcilability. Finally, for the fourth question, the court concluded that a primary insurer cannot avoid its defense duty by arguing it is excess based on another policy's clause.

2. “OTHER INSURANCE”
PROVISIONS
Nautilus Ins. Co. v. Lexington Ins. Co.
132 Haw. 283, 321 P.3d 634 (2014)

3. Commercial General
Liability Policy (CGL)
Covers the insured against suits
filed by third parties.

4. • Duty to Defend
• Duty to Indemnify
CGL POLICY:

5. Nautilus Ins. Co. v. Lexington Ins.
Co.
132 Haw. 283, 321 P.3d 634 (2014)

6. • Owner/Developer (VP & PK) insured
by Lexington
• Subcontractor (Kila Kila) insured by
Nautilus
• VP & PK is additional insured under
Nautilus policy
BACKGROUND
FOR NAUTILUS CASE

7. LEXINGTON POLICY
• Other Insurance Clause: “This
insurance is excess over . . . any
other primary insurance available
to you . . . for which you have
been added as an additional
insured . . .”

8. NAUTILUS POLICY
• Other Insurance Clause: “This
insurance is excess over . . . any other
primary insurance available to you . . .
for which you have been added as an
additional insured . . .”
• Who Is An Insured: [VP&PK] is an
insured “but only for liability arising out
of your [Kila Kila’s] negligence...”

9. • Different “other insurance”
clauses.
• Pro Rata Clauses: If there is other
applicable liability insurance we
will pay only our share of the loss.
Our share is the proportion that our
limit of liability bears to the total of
all applicable limits.

10. • Excess Clauses: This
insurance is excess over other
valid and collectible insurance
except insurance written
specifically to cover as excess
over the limits of liability that
apply in this policy.

11. • Escape Clauses: Provided that where
the insured is, irrespective of this
insurance, covered or protected
against any loss or claim which would
otherwise have been paid by the
underwriters under this policy, there
shall be no contribution or
participation by the underwriters on
the basis of excess, contributing,
deficiency, concurrent, or double
insurance or otherwise.

12. • VP & PK and Kila Kila sued by
homeowners for damages resulting
from construction
• Underlying allegations implicate both
policies

13. • Nautilus defends both Kila Kila
and VP & PK
• Lexington maintains it is excess
• Only VP & PK is found liable
• Judgment entered for $232,700

14. • Lexington satisfies the Judgment
against VP & PK
• But, Lexington refuses to
contribute to Nautilus for defense
costs

15. • Nautilus sues Lexington in federal
court
• Ninth Circuit certifies four
questions to Hawaii Supreme Court

16. CERTIFIED QUESTION #1
Whether an insurer may look to
another insurer's policy in order
to disclaim the duty to defend,
where the complaint in the
underlying lawsuit alleges facts
within coverage.

17. CERTIFIED QUESTION #1
• Hawaii Supreme Court begins its analysis by
examining the holding of Dairy Road Partners v.
Island Ins. Co., 92 Hawaii 398, 992 P.2d 93
(2000).
• Dairy Road’s Three Main Lessons:
1. Duty to Defend Broader than Duty to
Indemnify.
2. All doubts whether duty to defend exists
resolved
against the insurer and in favor of the
insured.
3. DTD rests on the possibility that coverage
exists.

18. NAUTILUS’ ARGUMENT
• Dairy Road excludes the possibility for an
insurer to look to any extrinsic evidence
beyond the allegations in the complaint in
determining whether it has a duty to defend.
• The fact that VP & PK was named as an
additional insured under the Nautilus policy
cannot be considered by Lexington in
disclaiming the duty to defend.

19. LEXINGTON’S ARGUMENT
• Adoption of Nautilus’ position would render
“other insurance” clauses meaningless,
because if insurers cannot consider other
policies covering their insured, insurers
would be deprived of information they use in
determining whether they have a duty to
defend.
• Case law holds that contract provisions
should not be interpreted such that they are
rendered meaningless. Stanford Carr Dev.
Corp. v. Unity House, Inc., 111 Hawaii 286, 141
P.3d 459 (2006).

20. COURT DISTINGUISHES
DAIRY ROAD
“The extrinsic evidence considered in
Dairy Road Partners included factual
matters relevant to the outcome of the
underlying litigation. Here, in contrast, the
question is whether an insurer may take
into account the operation of its policy in
conjunction with other insurance policies,
to determine if it must defend a particular
suit.”

21. “While the insurance company in Dairy Road
Partners conducted independent investigative
research into the circumstances of the underlying
occurrence, here, in contrast, the “research”
contemplated would be identifying and interpreting
the policies of other companies that had potentially
applicable insurance. Therefore, extrinsic “facts”
may be distinguished analytically from extrinsic
“policies”, and Dairy Road Partners does not
mandate a specific answer to the first certified
question.”
COURT DISTINGUISHES
DAIRY ROAD

22. COURT ANALYZES
“OTHER INSURANCE” CLAUSES
IN BOTH POLICIES
• Nautilus’ policy included VP & PK as an
additional insured but only for liability arising
out of Kila Kila’s negligence.
• Lexington’s “other insurance” clause,
however, only applies if VP & PK has other
insurance, and so in order for Lexington's
“other insurance” clause to become operable,
the “additional insured” endorsement in
Nautilus's policy must be triggered.

23. LEXINGTON’S POSITION
RE “OTHER INSURANCE”
It does not matter whether the Additional
Insured Endorsement in the Nautilus policy
was conditioned on Kila Kila's negligence,
because there were allegations in the
underlying action that Kila Kila had been
negligent, and Nautilus had a duty to defend
based on those allegations. Just because it
was later determined that Kila Kila was not
negligent, does not negate Nautilus' duty to
defend.

24. NAUTILUS’ REPLY
• Lexington misinterpreted Nautilus' Additional
Insured Endorsement to be contingent on
“alleged negligence” when in actuality it is
contingent on “actual negligence.” If
Lexington's interpretation of the Additional
Insured Endorsement were accurate, then
Nautilus would have had to pay the judgment
against VP & PK so long as the complaint
alleged negligence against Kila Kila,
regardless of whether the jury found Kila Kila
to actually be negligent.

25. COURT’S CONCLUSIONS
AS TO QUESTION #1
“Any ambiguities in an insurance contract
regarding coverage are resolved in favor of
the insured as against the insurer.” Tri-S
Corp. v. W. World Ins. Co., 110 Hawaii 473,
489, 135 P.3d. 82, 98 (2006).

26. COURT’S CONCLUSIONS
AS TO QUESTION #1
• “[A]n otherwise primary insurer may not
disclaim its duty to defend on the basis of a
general “other insurance” provision,” but…
• Footnote 7:
“Where one insurance policy explicitly
contemplates the operation of another specifically
named policy by reference, the insurer will not be
looking outside its own policy, and therefore may
look to that named policy in disclaiming its duty to
defend.”

27. COURT’S REASONING
AS TO QUESTION #1
“Where an insured has contracted for primary
insurance, an insurer should not be able to
refuse to defend and place the risk on the
insured, of the insurer's erroneous
understanding of another insurance policy that
is not part of the original contract. Instead, all
primary carriers should be involved in the initial
proceedings where the complaint alleges facts
within the scope of coverage.”

28. CERTIFIED QUESTION #2
Whether an “other insurance” clause
that purports to release an otherwise
primary insurer of the duty to defend
if the insurer becomes excess as to
liability is enforceable.

29. NAUTILUS’ POSITION
• Lexington's “Other Insurance Clause” is
contingent on the outcome at trial, and
since Kila Kila was found not to be
negligent, Nautilus was not responsible
for any loss and therefore VP & PK had
no “other valid and collectible
insurance.”

30. LEXINGTON’S POSITION
• There is no public policy against
enforcement of “other insurance”
provisions, and the ICA has recognized
the utility of excess “other insurance”
clauses in the context of uninsured
motorist insurance.
• Liberty Mut. Ins. Co. v. Sentinel Ins.
Co., 120 Hawaii 329, 205 P.3d 594
(App. 2009).

31. COURT DISTINGUISHES
LIBERTY MUTUAL
“This case presents a different question,
however, in that Liberty Mutual Ins. Co.
considered an excess “other insurance”
clause in the context of the duty to
indemnify—and here we consider the
validity of that type of provision when it
allows the insurer to escape or become
excess as to the duty to defend where the
insurer is excess as to liability.”

32. COURT’S HOLDING
AS TO QUESTION #2
• An “other insurance” clause purporting to
release an otherwise primary insurer of the
duty to defend if the insurer becomes excess
as to liability is enforceable, but only as
between two or more insurers seeking to
allocate or recover defense costs.
• Result is consistent with the expectations of
the insured, specifically that where the insured
is paying for primary insurance, it will be
defended where there is a possibility of
coverage.

33. CERTIFIED QUESTION #3
Whether the irreconcilability of
“other insurance” provisions in
otherwise primary insurance
policies should be determined
before or after the operation of
the “other insurance” provisions
is determined.

34. COMPETING VIEWS ON TIMING
• Nautilus’ View: Determine whether there
is a conflict between “other insurance”
provisions first, then determine the
operation of those provisions.
• Lexington’s View: First determine if the
“other insurance” provisions are
relevant; if so, then determine whether
they conflict.

35. COURT’S ANALYSIS
• The majority view is that “other insurance” policies that are
irreconcilable, or “mutually repugnant” will negate each
other, and neither will be enforced.
• However, the Court decides to sidestep the “mutually
repugnant” discussion and focuses on the relevancy of
“other insurance” provisions instead.
• “Only Lexington's “other insurance” provision could
potentially take effect in this case, because VP & PK was
added as an “additional insured” onto Nautilus' policy. By
contrast, the “other insurance” provision in Nautilus'
policy would not have taken effect because Kila Kila was
not an “additional insured” on Lexington's policy.”

36. COURT’S ANALYSIS
• “Where it is possible to avoid a finding of
“mutual repugnance” altogether, therefore, it
should be determined from the face of the two
policies, and the allegations in the complaint,
whether such allegedly “mutually repugnant”
clauses are actually relevant before both clauses
are deemed inoperable.”
• “Lexington's clause is relevant and Nautilus' is
not. Based on this preliminary determination,
there would be no need to consider
irreconcilability or mutual repugnance.”

37. COURT’S HOLDING
AS TO QUESTION #3
• The relevance of the “other insurance”
provisions should be determined from the
face of the policies and the allegations in
the complaint first, and then it can be
decided whether the relevant “other
insurance” provisions are irreconcilable or
mutually repugnant.
• The complete operation of the “other
insurance” clauses may be resolved
thereafter.

38. CERTIFIED QUESTION #4
Does an otherwise primary
insurer who becomes an
excess insurer by the “other
insurance” clause owe the duty
to defend from the time the
defense is tendered.

39. Primary insurers who could
become excess insurers under
the “other insurance” clause
cannot look to other policies
when determining their duty to
defend.

40. Primary insurer can only rely on
“other insurance” provision to
argue it is excess when seeking
contribution from another
insurer.

41. All carriers should be
encouraged to participate in
initial proceedings; therefore,
otherwise primary insurers
must defend and avoid
uncertainty as to who will
provide the insured’s defense.

42. MAHALO.