Since I am racing my sailboat to Hawaii, it only seems appropriate to look into insurance contract interpretation laws in Hawaii. A federal insurance lawsuit involving an unusual boat sinking seems appropriate. There will be some lessons learned from this case over the next few days. But we’ll start with the basics – how do Hawaii courts interpret insurance policies?
According to Hawaii law, the following rules apply to the interpretation of provisions in insurance policies:
[I]insurance is subject to the general rules for contract construction; the terms of the policy should be interpreted according to their ordinary, usual and accepted meaning in ordinary speech unless it appears from the policy that a different meaning is intended. In addition, each contract of insurance shall be construed in accordance with all its terms and conditions set forth in the policy.
Nevertheless, following the plain language and literal meaning of the provisions of the insurance contract is not without limitation. We have recognized that because policies are binding contracts and are based on standard forms prepared by the insurer̵7;s attorneys, we have long subscribed to the principle that they must be liberally construed in favor of the insured and any ambiguity must be resolved against the insurer. In other words, the rule is that policies must be interpreted in accordance with the reasonable expectations of a layperson. Dairy Rd. Partners v. Island Ins. Co., 92 Hawai’i 398, 411–12, 992 P.2d 93, 106–07 (2000) (internal citations, quotation marks, brackets, and ellipses omitted); Huh. ins. & Guar. Co. v. Fine. Sec. ins. Co., 72 Haw. 80, 87–88, 807 P.2d 1256, 1260 (1991) (‘[W]e shall interpret assurances according to their plain, ordinary and accepted meaning in ordinary speech, unless it appears that a different meaning was intended. Moreover, this court has explained that it is committed to enforcing the “objectively reasonable expectations” of parties claiming coverage under insurance contracts that are “construed in accordance with the reasonable expectations of a layperson.” ‘ (citations omitted)); see also Burlington Ins. Co. v. Oceanic Design & Constr., Inc., 383 F.3d 940, 945 (9th Cir. 2004) (‘In Hawaii, the terms of an insurance policy are to be construed according to their plain, ordinary and accepted meaning in ordinary speech.’).
In reviewing an insurance contract, a court applying Hawaii law should “look no further than the four corners of the document to determine whether there is an ambiguity.” State Farm Fire & Cas. Co. v. Pac. Rent–All, Inc., 90 Hawai’i 315, 324, 978 P.2d 753, 762 (1999). A contractual term is ambiguous only if it can reasonably be understood in more than one way. Cho Mark Oriental Food Co., Ltd. v. K & K Int’l, 73 Haw. 509, 520, 836 P.2d 1057, 1063-64 (1992). ‘[T]the parties’ disagreement about the meaning of an agreement or its terms does not make plain language ambiguous.2
Another court noted:
An insurance contract must be interpreted according to whole of its terms under the policy. HRS § 431:10–237 [ (1993)3]; see also Smith v. New England Mutual Life Ins. Co., 72 Haw. 531, 534, 827 P.2d 635, 636 (1992). Since insurance contracts are adhesion contracts, they must be liberally interpreted in favor of the insured and all ambiguities are resolved against the insurer. Sturla, Inc. v. Fireman’s Fund Ins. Co., 67 Haw. 203, 209, 684 P.2d 960, 964 (1984). However, this rule does not automatically apply when an insured and insurer disagree on the interpretation of the insurance provisions and a claim of ambiguity arises. Furthermore, a complex provision and/or policy does not in itself create ambiguity. Ambiguity exists ”only when the agreement as a whole is reasonably subject to different interpretations.” ‘ see also Fortune v. Wong, 68 Haw. 1, 10-11, 702 P.2d 299, 306 (1985). “A court must ‘respect the plain terms of the policy and not create ambiguity where none exists.’3
This is a fairly common law on the interpretation of insurance contracts.
A blog I read regularly is Insurance Law Hawaii. Tred Eyerly keeps up with insurance laws in Hawaii and throughout the United States. It is very rewarding reading.
Hawaii is a paradise. It sounds cocky to say it, but there’s music in the air there.
1 Deguchi v. Allstate Ins. Co., no. 07-144, 2008 WL 1780271 (D. Haw. Apr. 9, 2008).
3 Barabin v. AIG Hawaii Ins. Co., 82 Haw. 258, 263, 921 P.2d 732, 737 (Haw. 1996)