Hawaii Restores Coverage for Construction Defect Claims

Hawaii Gov. Neil Abercrombie has signed legislation its supporters hope will restore coverage for construction defect claims under a commercial general liability (CGL) policy that was called into question by a 2010 court ruling. However, an attorney specializing in insurance coverage warns that the new law (H.B. 924) could create new legal issues for insurers because state law on construction defects is still not clear.

The new law was written to address the uncertainty for the construction industry caused by the 2010 decision in the Group Builders v. Admiral Insurance Co. case by the Hawaii Intermediate Court of Appeal. The ICA ruled that construction defects did not arise from an occurrence and therefore allegations arising from either a breach of contract or tort were not covered under a CGL policy. The new law states that “occurrence” in a liability policy “shall be construed in accordance with the law as it existed at the time that the insurance policy was issued.” The law applies to all liability policies in effect at the time the bill was signed into law.

But, according to attorney Tred Eyerly, an associate with the law firm of Damon Key Leong Kupchak Hastert, the new law creates its own uncertainty. The problem is that it’s not clear what the state’s prevailing law on construction defects has been or is. He said insurers and insureds are likely to rely upon conflicting precedents to support their views. Eyerly said that because the issue remains murky, it will be expensive to litigate and difficult to establish what the state of the law was at the time. In addition, he said, courts will have to address the retroactivity of the bill. “There are very few opinions from the high courts in Hawaii addressing construction defect,” he said.