Since I am racing my sailboat to Hawaii, it seems only fitting to research insurance contract interpretation law in Hawaii. A federal insurance law case involving an unusual sinking of a boat seems appropriate. There will be a few lessons from this case over the next few days. But we will start with the basics—how do courts in Hawaii interpret insurance policies?
Under Hawaii law, the following rules for interpreting provisions of insurance policies apply:
[I]nsurance policies are subject to the general rules of contract construction; the terms of the policy should be interpreted according to their plain, ordinary, and accepted sense in common speech unless it appears from the policy that a different meaning is intended. Moreover, every insurance contract shall be construed according to the entirety of its terms and conditions as set forth in the policy.
Nevertheless, adherence to the plain language and literal meaning of the insurance contract provisions is not without limitation. We have acknowledged that because insurance policies are contracts of adhesion and are premised on standard forms prepared by the insurer’s attorneys, we have long subscribed to the principle that they must be construed liberally in favor of the insured and any ambiguities must be resolved against the insurer. Put another way, the rule is that policies are to be construed in accord 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); Haw. Ins. & Guar. Co. v. Fin. Sec. Ins. Co., 72 Haw. 80, 87–88, 807 P.2d 1256, 1260 (1991) (‘[W]e shall construe insurance policies according to their plain, ordinary, and accepted sense in common speech unless it appears that a different meaning was intended. Moreover, this court has stated that it is committed to enforce ‘the objectively reasonable expectations’ of parties claiming coverage under insurance contracts which are ‘construed in accord 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 interpreted according to their plain, ordinary, and accepted sense in common speech.’).
When reviewing an insurance contract, a court applying Hawaii law ‘should look no further than the four corners of the document to determine whether an ambiguity exists.’ State Farm Fire & Cas. Co. v. Pac. Rent–All, Inc., 90 Hawai‘i 315, 324, 978 P.2d 753, 762 (1999). A contract term is ambiguous only if it is capable of being reasonably understood in more than one way. Cho Mark Oriental Food, Ltd. v. K & K Int’l, 73 Haw. 509, 520, 836 P.2d 1057, 1063–64 (1992). ‘[T]he parties’ disagreement as to the meaning of a contract or its terms does not render clear language ambiguous.’2
Another court noted:
An insurance contract must be construed according to the entirety of its terms and conditions 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). Because insurance contracts are contracts of adhesion, they must be construed liberally 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 whenever an insured and insurer disagree over the interpretation of the policy provisions and an assertion of ambiguity arises. Furthermore, a complex provision and/or policy does not in itself create ambiguity. Ambiguity exists ‘ ‘only when the contract taken as a whole, is reasonably subject to differing interpretation.’ ’ 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 pretty standard insurance contract interpretation law.
Thought For The Day
Hawaii is paradise. It sounds cheesy to say it, but there’s music in the air there.