Krafchow v. Dongbu Insurance Co., Ltd. Consolidated With Case No. CAAP-21-0000517.

FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Electronically Filed
Intermediate Court of Appeals
CAAP-XX-XXXXXXX
17-FEB-2023
08:30 AM
Dkt. 115 OP
IN THE INTERMEDIATE COURT OF APPEALS
OF THE STATE OF HAWAI#I
---o0o---
EDMOND KRAFCHOW and KATHLEEN KRAFCHOW, Plaintiffs-Appellees,
v.
DONGBU INSURANCE CO., LTD., nka DB INSURANCE CO., LTD.,
JOHN MULLEN & CO., INC., Defendants-Appellants,
and
JOHN DOES 1-10, JANE DOES 1-10, and DOE ENTITIES 1-10,
Defendants
NO. CAAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CIVIL NO. 2CC191000266)
EDMOND KRAFCHOW and KATHLEEN KRAFCHOW, Plaintiffs-Appellees,
v.
DONGBU INSURANCE CO., LTD., nka DB INSURANCE CO., LTD.,
JOHN MULLEN & CO., INC., Defendants-Appellants,
and
JOHN DOES 1-10, JANE DOES 1-10, and DOE ENTITIES 1-10,
Defendants
NO. CAAP-XX-XXXXXXX
APPEAL FROM THE CIRCUIT COURT OF THE SECOND CIRCUIT
(CIVIL NO. 2CC191000266)
FEBRUARY 17, 2023
GINOZA, CHIEF JUDGE, HIRAOKA AND WADSWORTH, JJ.
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
OPINION OF THE COURT BY HIRAOKA, J.
These consolidated appeals arise from first-party
insurance claims1 made by Plaintiffs-Appellees Edmund Krafchow
and Kathleen Krafchow (collectively, the Krafchows) under
insurance policies issued by Defendant-Appellant Dongbu Insurance
Co., Ltd. (now known as DB Insurance Co., Ltd.). We must decide
whether the appraisers and umpire who were to appraise "the
amount of loss" had the power to decide what amount was owed by
Dongbu to the Krafchows under the insurance policies. We hold
they did not. They were to decide the amount of the Krafchows'
loss irrespective of insurance coverage, not the amount of
covered loss. Accordingly, we vacate (1) the "Order Granting
Plaintiffs' Motion to Confirm Appraisal Summary and Awards"
entered on July 26, 2021; (2) the "Amended Order Denying
Defendants' Motion to Vacate and/or Modify Three Appraisal Awards
or, in the Alternate, to Stay, and Reconfirming the Appraisal
Awards" entered on June 13, 2022; and (3) the "Amended Order
Denying Defendants' Motion to Vacate and/or Modify Three
Appraisal Awards and Reconfirming Appraisal Awards" entered on
June 14, 2022.2
BACKGROUND AND PROCEDURAL HISTORY
The Krafchows owned real property on the island of
Maui. There were three structures on the property: the Villa;
the Cottage; and the Garage. The structures were insured under
separate insurance policies issued by Dongbu to the Krafchows. A
homeowners policy covered the Villa. The Cottage and the Garage
were covered by dwelling fire policies.
The structures and their contents were damaged because
of a wildfire. The Krafchows made insurance claims for their
1
A "first-party claim" is made under one's own insurance policy
"for losses suffered by the insured." Best Place, Inc. v. Penn Am. Ins. Co.,
82 Hawai#i 120, 124 n.4, 920 P.2d 334, 338 n.4 (1996).
2
The Honorable Kelsey T. Kawano presided.
2
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
loss. Dongbu tendered over $300,000 to the Krafchows (under
reservations of rights)3 pending preparation of "final settlement
figures[.]" Dongbu also raised issues about coverage and limits
of liability, and asked the Krafchows for additional information
about their claims.
The parties disagreed on the amount of the Krafchows'
loss (among other things). The homeowners and dwelling fire
policies contained substantially identical appraisal provisions:
Appraisal
If you and we fail to agree on the amount of loss, either
may demand an appraisal of the loss. In this event, each
party will choose a competent and impartial appraiser within
20 days after receiving a written request from the other.
The two appraisers will choose an umpire. If they cannot
agree upon an umpire within 15 days, you or we may request
that the choice be made by a judge of a court of record in
the state where the ["residence premises"/Described
Location] is located. The appraisers will separately set
the amount of loss. If the appraisers submit a written
report of an agreement to us, the amount agreed upon will be
the amount of loss. If they fail to agree, they will submit
their differences to the umpire. A decision agreed to by
any two will set the amount of loss.
Each party will:
1. Pay its own appraiser; and
2. Bear the other expenses of the appraisal and umpire
equally.
(Bold italics added.)
The Krafchows invoked the appraisal provisions of the
insurance policies, but Dongbu did not name an appraiser. The
Krafchows then sued Dongbu and its claims adjuster, Defendant-
Appellant John Mullen & Co., Inc. (collectively, DB). The
3
A reservation of rights "is a notice by the insurer to the insured
that the insurer . . . is not waiving any defenses it may have under the
[insurance] policy." First Ins. Co. of Haw. v. State, 66 Haw. 413, 422, 665
P.2d 648, 654 (1983) (original ellipsis omitted) (first quoting Crawford v.
Ranger Ins. Co., 653 F.2d 1248, 1252 (9th Cir. 1981); and then citing 7C J.
Appleman, Insurance Law & Practice § 4694 (Berdal 1979)).
3
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
complaint alleged that Dongbu breached the insurance policies by
failing to participate in the appraisal process.4
Dongbu's answer asserted these affirmative defenses:
38. This action is barred by the terms and
conditions in the subject policies.
. . . .
40. Coverage under the subject policies is barred in
whole or in part by the terms, exclusions, conditions, and
limitations contained or incorporated in such policy,
including any and all endorsements.
. . . .
42. [The Krafchows]' claims for additional damages
are barred to the extent [their] claims are for losses or
damage that were not covered or excluded under the Policy.
. . . .
57. To the extent that [the Krafchows] breached or
failed to comply with the terms and conditions of the
subject policies, [they] are barred from recovery.
. . . .
58. To the extent that [the Krafchows], or someone
acting on [their] behalf, has [sic] concealed,
misrepresented or negligently failed to disclose material
facts in their applications and/or claims for the purpose of
inducing [Dongbu] to pay benefits, any claims for coverage
under such policy are barred.
The Krafchows filed a motion to compel appraisals. DB
opposed the motion. DB argued it was premature to appraise the
amount of loss because coverage issues had not been resolved.
The Krafchows' reply memorandum stated:
To the extent that [DB], who have already paid out over
$300,000 in covered losses to the KRAFCHOWS, believes there
is information which would preclude coverage, that is a
question which is separate from appraising the value of the
loss. The appraisal of the claim only establishes the value
4
The complaint also alleged that DB: breached the implied covenant
of good faith and fair dealing; breached a fiduciary duty to the Krafchows;
intentionally or negligently inflicted emotional distress upon the Krafchows;
committed unfair and deceptive acts and practices in violation of Hawaii
Revised Statutes (HRS) § 480-2; negligently failed to adjust the Krafchows'
claims; and committed consumer fraud elder abuse in violation of HRS § 480-
13.5. The circuit court stayed proceedings on those claims pending the
disposition of these appeals.
4
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
of the loss and does not go to coverage. Insurance coverage
is outside of the scope of an appraisal. Wailua Associates
v. Aetna Cas. and Sur. Co., 904 F.Supp. 1142 (D. Haw., 1995)
(stating the appraisal panel should not consider issues
pertaining to coverage and liability under the insurance
policy as these issues are beyond the scope of the
parties['] agreement to arbitrate).
(Emphasis added.)
The circuit court granted the motion to compel
appraisal, without referring to insurance coverage. The
Krafchows and Dongbu each appointed an appraiser: the Krafchows
appointed Chris Arnold; Dongbu appointed Jim Reinhardt. The
circuit court appointed a retired judge to serve as the umpire.5
Arnold and Reinhardt each issued appraisals; they did
not agree on the amount of loss. Under the appraisal provisions
of the insurance policies, if the appraisers did not agree on the
amount of loss, the amount of loss would be the one with which
the umpire agrees. The umpire agreed with Arnold's appraisals.
Each of Arnold's appraisals stated:
This is to certify that we, the undersigned, pursuant to our
appointment as appraisers and umpire, have carefully
examined the documents and/or the damaged property and/or
evidence thereof and have determined the following values
and loss:
(Bold omitted.)
Each appraisal established replacement cost value,
depreciation, and actual cost value for various categories of
loss,6 reduced the appraised amount by a deductible amount, and
stated: "This award shall be payable within 20 calendar days.
. . . All prior payments shall be deducted [from] this award."
5
The orders granting the motion to compel and appointing the umpire
were entered by the Honorable Peter T. Cahill.
6
The categories were building; other structures; landscaping;
contents; and additional living expense/loss of use.
5
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Each appraisal contained the following notation:
The undersigned Umpire, pursuant to the footnote on page 2
of the foregoing Appraisal and Award,[7] hereby makes the
following notation at the request of appraiser Jim Reinhart
[sic]. Mr. Reinhart [sic] has not executed the Award for
the reason that, in view of Dongbu Insurance Co. Ltd., the
Award includes amounts that are not covered by the
applicable policy. More specifically, that the work for
which awards are made is prohibited by Maui County
Ordinance. The undersigned has forwarded this notation to
both appraisers.
The Krafchows moved to confirm the appraisals. DB
moved to vacate them. At the hearing, Dongbu argued:
The function of appraisers is to determine the amount
of damage resulting to various items submitted for their
consideration. It is certainly not their function to
resolve questions of coverage and interpret provisions of
the policy.
The Krafchows argued:
[I]n this particular case, I think Judge Cahill had ordered
the appraisal. It was clear there were no restrictions on
it.
The circuit court stated:
[T]he Court determines and rejects the argument that the
umpires [sic] exceeded their scope of authority in
determining the appraisal amounts. And this is pursuant to
the Court's order directing such appraisal.
The Court determines that pursuant to HRS Section
658-23, there are no grounds for vacation of the award on
grounds that the arbitrator exceeded the arbitrator's
powers. . . .
. . . .
So clearly, the arbitrator's and umpire's decision did
have to take into consideration arguments pertaining to
scope of coverage and exclusions.
(Emphasis added.)
The circuit court entered orders granting the motion to
confirm and denying the motion to vacate, expressly recognizing
7
The footnote stated: "Further detailed documents may be attached
to this summary of the award."
6
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
that the appraiser's and umpire's values included "consideration
[of] . . . scope of [insurance] coverage and exclusions." In
CAAP-XX-XXXXXXX, DB appeals from the order granting the
Krafchows' motion to confirm the appraisals. In CAAP-XX-XXXXXXX,
DB originally appealed from the orders8 denying its motion to
vacate the appraisals; on temporary remand the circuit court
entered amended orders that denied the motion to vacate and also
reconfirmed the appraisals.9 We consolidated the appeals.
POINTS OF ERROR
DB contends that the circuit court erred by granting
the motion to confirm and denying the motion to vacate the
appraisal awards, because the appraiser and the umpire exceeded
their authority when they considered insurance coverage issues
and decided whether the insurance policies provided coverage for
certain claimed loss.
STANDARDS OF REVIEW
"[T]he scope of an agreement to arbitrate is an issue
that a court must decide." Nat'l Union Fire Ins. Co. v.
Reynolds, 77 Hawai#i 490, 494, 889 P.2d 67, 71 (App. 1995)
(cleaned up). The construction of, and legal effect given to, an
arbitration agreement is a question of law reviewed de novo.
8
The circuit court entered two orders denying DB's single motion to
vacate the three appraisals.
9
We temporarily remanded the case "to allow for the issuance of an
amended order denying the motion to vacate the appraisal awards and
reconfirming the appraisal awards under HRS § 658A-23. See Bennett v. Chung,
143 Hawai#i 266, 268, 428 P.3d 778, 780 (2018) (holding that although order
denying motion to vacate arbitration award was not appealable under Hawaii
Revised Statutes § 658A-28, subsequently-issued, amended order denying motion
to vacate was appealable where order also reconfirmed award).
In the future, if a circuit court grants a motion to confirm an
arbitration award and denies a motion to vacate the award, we suggest both
motions be disposed of in a single order. See HRS § 658A-23(d) (2016);
Bennett, 143 Hawai#i at 280, 428 P.3d at 792 ("[I]n the interest of judicial
economy, absent the filing of a motion to vacate, a circuit court should wait
to file an order confirming an arbitration award until the ninety-day period
in which to file a motion to vacate has elapsed.").
7
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
Yamamoto v. Chee, 146 Hawai#i 527, 533, 463 P.3d 1184, 1190
(2020) (quoting Brown v. KFC Nat'l Mgmt. Co., 82 Hawai#i 226,
239, 921 P.2d 146, 159 (1996)). The determination whether an
arbitration agreement is ambiguous is also a question of law
reviewed de novo. Id.DISCUSSION
The appraisal provisions in the insurance policies are
arbitration agreements, subject to Hawaii Revised Statutes (HRS)
Chapter 658A.10 See Wailua Assocs. v. Aetna Cas. & Sur. Co., 904
F. Supp. 1142, 1148 (D. Haw. 1995) (Wailua I) (relying upon
former HRS Chapter 658 and relevant Hawai#i case law to determine
what constitutes an "agreement to arbitrate" under the Federal
Arbitration Act) (first citing Hung Wo Ching v. Hawaiian Rests.,
50 Haw. 563, 566, 445 P.2d 370, 372 (1968); then citing Leeward
Bus Co. v. City & Cnty. of Honolulu, 58 Haw. 64, 69-70, 564 P.2d
445, 448-49 (1977); and then citing Loyalty Dev. Co. v. Wholesale
Motors, Inc., 61 Haw. 483, 487-88, 605 P.2d 925, 928 (1980)).
HRS Chapter 658A contains these relevant provisions:
Confirmation of award. After a party to an
arbitration proceeding receives notice of an award, the
party may make a motion to the court for an order confirming
the award at which time the court shall issue a confirming
order unless the award is modified or corrected pursuant to
section 658A-20 ["Change of award by arbitrator"] or 658A-24
["Modification or correction of award"] or is vacated
pursuant to section 658A-23.
Vacating award. (a) Upon motion to the court by a
party to an arbitration proceeding, the court shall vacate
an award made in the arbitration proceeding if:
. . . .
(4) An arbitrator exceeded the arbitrator's
powers[.]
. . . .
(d) If the court denies a motion to vacate an award,
10
HRS Chapter 658A applies to "an agreement to arbitrate made on or
after July 1, 2002." HRS § 658A-3 (2016). The insurance policies were issued
in January and February 2018.
8
FOR PUBLICATION IN WEST'S HAWAI#I REPORTS AND PACIFIC REPORTER
it shall confirm the award . . . .
Judgment on award; attorney's fees and litigation
expenses. (a) Upon granting an order confirming . . . an
award, the court shall enter a judgment in conformity
therewith. The judgment may be recorded, docketed, and
enforced as any other judgment in a civil action.
HRS §§ 658A-22, -23, -25 (2016).
I. The Appraiser and the Umpire Had No Power to
Decide What Amounts Dongbu Owed to the Krafchows
What issues, if any, are beyond the scope of a contractual
agreement to arbitrate depends on the wording of the
contractual agreement to arbitrate. An arbitration
agreement is interpreted like a contract, and as with any
contract, the parties['] intentions control. Further, we
have long expressed our disapproval of interpreting a
contract such that any provision be rendered meaningless.
County of Hawaii v. UNIDEV, LLC, 129 Hawai#i 378, 394-95, 301
P.3d 588, 604-05 (2013) (cleaned up) (emphasis omitted).
The appraisal provisions in the homeowners and dwelling
fire policies state that the appraisers and the umpire, if
necessary, are to determine the "amount of loss." None of the
policies defined the word "loss." Thus, the word "should be
interpreted according to [its] plain, ordinary, and accepted
sense in common speech unless it appears from the [insurance]
policy that a different meaning is intended." Dairy Rd. Partners
v. Island Ins. Co., 92 Hawai#i 398, 411, 992 P.2d 93, 106 (2000)
(cleaned up).
A common meaning of the word "loss" is "decrease in
amount, magnitude, value, or degree[.]" Loss, Merriam-Webster,
https://www.merriam-webster.com/dictionary/loss (last updated
Jan. 30, 2023). The word appears 258 times in the homeowners
policy and 149 times in each of the dwelling fire policies — with
and without qualifiers.11 For example, the homeowners policy
11
According to Merriam-Webster, an alternate definition of "loss" is
"the amount of an insured's financial detriment by death or damage that the
insurer is liable for[.]" Loss, Merriam-Webster, https://www.merriam
-webster.com/dictionary/loss (last updated Jan. 30, 2023). That definition is
(continued...)
9
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provides:12
SECTION I — PERILS INSURED AGAINST
We insure against risk of direct loss to property described
in Coverages A, B and C, only if that loss is a physical
loss to property.
We do not insure, however, for loss:
1. Under Coverages A, B and C:
a. Excluded under Section I — EXCLUSIONS[.]
. . . .
B. Coverage C — Personal Property
We insure for direct physical loss to the property
described in Coverage C caused by any of the following
perils unless the loss is excluded in Section I —
Exclusions.
. . . .
SECTION I — EXCLUSIONS
A. We do not insure for loss caused directly or
indirectly by any of the following. Such loss is
excluded regardless of any other cause or event
contributing concurrently or in any sequence to the
loss. These exclusions apply whether or not the loss
event results in widespread damage or affects a
substantial area.
. . . .
SECTION I - CONDITIONS
A. Insurable Interest And Limit Of Liability
Even if more than one person has an insurable interest
in the property covered, we will not be liable in any
one loss:
11
(...continued)
inconsistent with the language of the insurance policies, which specifically
refer to "loss" that is "excluded" or not "covered" or for which Dongbu "will
not be liable."
12
The homeowners policy is 55 pages long. The dwelling fire policy
is 46 pages long. Each contains, in addition to the declarations, a number of
notices, schedules, forms, and endorsements, some of which replace or modify
the terms or conditions of other portions of the policy. However, "mere
complexity" does not create ambiguity. Sturla, Inc. v. Fireman's Fund Ins.
Co., 67 Haw. 203, 209, 684 P.2d 960, 964 (1984). Ambiguity exists "only when
the contract taken as a whole, is reasonably subject to differing
interpretation." Id. at 209–10, 684 P.2d at 964. The policy provisions
material to the disposition of this appeal are not ambiguous.
10
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1. To an "insured" for more than the amount of such
"insured's" interest at the time of loss; or
2. For more than the applicable limit of liability.
B. Duties After Loss
In case of a loss to covered property, we have no duty
to provide coverage under this policy if the failure
to comply with the following duties is prejudicial to
us. These duties must be performed either by you, an
"insured" seeking coverage, or a representative of
either:
. . . .
C. Loss Settlement
In this Condition C., the terms "cost to repair or
replace" and "replacement cost" do not include the
increased costs incurred to comply with the
enforcement of any ordinance or law, except to the
extent that coverage for these increased costs is
provided in E.11. Ordinance Or Law under Section I —
Property Coverages. Covered property losses are
settled as follows:
. . . .
F. Other Insurance And Service Agreement
If a loss covered by this policy is also covered by:
1. Other insurance, we will pay only the proportion
of the loss that the limit of liability that
applies under this policy bears to the total
amount of insurance covering the loss[.]
. . . .
PERSONAL PROPERTY REPLACEMENT COST
LOSS SETTLEMENT
A. Eligible Property
1. Covered losses to the following property are
settled at replacement cost at the time of the
loss:
a. Coverage C; and
b. If covered in this policy:
(1) Awnings, outdoor antennas and
outdoor equipment; and
(2) Carpeting and household appliances;
whether or not attached to buildings.
2. This method of loss settlement will also apply
to the following articles or classes of property
11
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if they are separately described and
specifically insured in this policy and not
subject to agreed value loss settlement:
. . . .
Personal Property Replacement Cost loss settlement
will not apply to other classes of property separately
described and specifically insured.
(Bold italics and underscoring added.)
Similarly, each dwelling fire policy provides:13
PERILS INSURED AGAINST
A. Coverage A - Dwelling And Coverage B - Other
Structures
1. We insure against risk of direct physical loss
to property described in Coverages A and B.
2. We do not insure, however, for loss:
a. Excluded under General Exclusions[.]
. . . .
B. Coverage C - Personal Property
We insure for direct physical loss to the property
described in Coverage C caused by a peril listed below
unless the loss is excluded in the General Exclusions.
. . . .
GENERAL EXCLUSIONS
A. We do not insure for loss caused directly or
indirectly by any of the following. Such loss is
excluded regardless of any other cause or event
contributing concurrently or in any sequence to the
loss. These exclusions apply whether or not the loss
event results in widespread damage or affects a
substantial area.
. . . .
B. We do not insure for loss to property described in
Coverages A and B caused by any of the following.
However, any ensuing loss to property described in
Coverages A and B not precluded by any other provision
in this policy is covered.
. . . .
13
See supra note 12.
12
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CONDITIONS
A. Policy Period
This policy applies only to loss which occurs during
the policy period.
B. Insurable Interest And Limit Of Liability
Even if more than one person has an insurable interest
in the property covered, we will not be liable in any
one loss:
1. For an amount greater than the interest of a
person insured under this policy at the time of
loss; or
2. For more than the applicable limit of liability.
C. Concealment Or Fraud
We provide coverage to no persons insured under this
policy if, whether before or after a loss, one or more
persons insured under this policy have:
1. Intentionally concealed or misrepresented any
material fact or circumstance;
2. Engaged in fraudulent conduct; or
3. Made false statements;
relating to this insurance.
D. Duties After Loss
In case of a loss to covered property, we have no duty
to provide coverage under this policy if the failure
to comply with the following duties is prejudicial to
us. These duties must be performed either by you or
your representative:
. . . .
E. Loss Settlement
In this Condition E., the terms "cost to repair or
replace" and "replacement cost" do not include the
increased costs incurred to comply with the
enforcement of any ordinance or law except to the
extent that coverage for these increased costs is
provided in Other Coverage F.12. Ordinance Or Law.
Covered property losses are settled as follows . . . .
(Bold italics and underscoring added.)
Dongbu and the Krafchows disagreed on the amount of the
Krafchows' loss because of the wildfire. The insurance policies
require that the amount of loss be determined by the appraisers
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and, if necessary, the umpire. But not all of the Krafchows'
loss is necessarily insured or covered under their insurance
policies; Dongbu's liability to pay for a "loss" is limited by
the coverage provisions, exclusions, and other terms and
conditions of the policies. The appraisal provision does not
limit itself to covered loss; it does not preclude appraisal of
non-covered or excluded loss, or loss for which Dongbu is
otherwise not liable; and it does not empower the appraisers to
consider policy or coverage defenses.
Nothing in the appraisal provision empowers the
appraisers and umpire to determine whether any part of the "loss"
being appraised is or is not covered under the insurance
policies. See, e.g., Wailua I, 904 F. Supp. at 1149 ("Clearly,
the appraisal panel should not consider issues pertaining to
coverage and liability under the insurance policy as these issues
are beyond the scope of the parties['] agreement to arbitrate.");
St. Paul Fire & Marine Ins. Co. v. Wright, 629 P.2d 1202, 1203
(Nev. 1981) ("The function of the appraisers is to determine the
amount of damage resulting to various items submitted for their
consideration. It is certainly not their function to resolve
questions of coverage and interpret provisions of the [insurance]
policy.") (quoting Jefferson Ins. Co. of N.Y. v. Superior Ct. of
Alameda Cnty., 475 P.2d 880, 883 (Cal. 1970)).
The Krafchows argue that Dongbu waived the issue of
whether the appraisers and umpire had the power to decide
insurance coverage issues because Dongbu failed to appeal from
the order granting the Krafchows' motion to compel appraisals.
The argument is without merit. First, the order granting the
motion to compel appraisals was not an appealable order. See HRS
§ 658A-28(a) (2016). Second, the Krafchows' reply memorandum in
support of their motion to compel appraisals cited Wailua I and
acknowledged that "[t]he appraisal of the claim only establishes
the value of the loss and does not go to coverage. Insurance
coverage is outside of the scope of an appraisal." Accordingly,
the order granting the Krafchows' motion to compel appraisals
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cannot be interpreted to empower the appraisers and umpire to
decide insurance coverage issues. Indeed, the order itself makes
no reference to insurance coverage issues.14
The insurance policy provisions are not ambiguous
because, read as a whole, they are not reasonably subject to
differing interpretation with respect to the word "loss." See
Sturla, Inc. v. Fireman's Fund Ins. Co., 67 Haw. 203, 209-10, 684
P.2d 960, 964 (1984). Under the circumstances of this case, the
unqualified word "loss" in the appraisal provision refers to the
Krafchows' loss because of the wildfire, not what Dongbu is
obligated to pay under any of the Krafchows' insurance policies.
Simply put, the appraisers and umpire had the power to appraise
what the Krafchows lost because of the wildfire. The appraisers
and the umpire had no power to decide what amounts Dongbu owed to
the Krafchows under the insurance policies, because what Dongbu
actually owes to the Krafchows depends upon coverage issues that
must be decided by the circuit court.
II. The Appraiser and the Umpire Exceeded Their Powers
by Deciding How Much Dongbu Must Pay to the
Krafchows, and When the Payment Must Be Made
Citing Tatibouet v. Ellsworth, 99 Hawai#i 226, 233, 54
P.3d 397, 404 (2002), the Krafchows argue that their appraiser
(Arnold) and the umpire did not exceed their powers, but made
only "mistakes in the application of law and in their findings of
fact" that are not a basis to vacate the awards.
It is well-established that "parties who arbitrate a
dispute assume 'all the hazards of the arbitration process
including the risk that the arbitrators may make mistakes in the
application of law and in their findings of fact.'" Tatibouet,
99 Hawai#i at 233, 54 P.3d at 404 (quoting Wayland Lum Constr.,
14
Dongbu argues that the Krafchows are judicially estopped from
taking a legal position contrary to Wailua I, which they cited in support of
their successful motion to compel appraisals. We need not address the
judicial estoppel argument.
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Inc. v. Kaneshige, 90 Hawai#i 417, 422, 978 P.2d 855, 860
(1999)). The Tatibouet court also noted, however:
[T]his court has, thus far, reserved the phrase "exceeded
their powers" as reference to arbitrators' improper
consideration of matters outside the scope of the
arbitration agreement:
[P]recisely because "the scope of an arbitrator's
authority is determined by agreement of the parties,"
it follows that "[a]n arbitrator must act within the
scope of the authority conferred upon him by the
parties and cannot exceed his power by deciding
matters not submitted." Clawson v. Habilitat, Inc.,
71 Haw. 76, 78, 783 P.2d 1230, 1231 (1989) (citations
omitted). Accordingly, . . . where an arbitrator has
exceeded his or her powers by deciding matters not
submitted, this court has held, pursuant to HRS
§ 658–9(4), that the resulting arbitration award must
be vacated. Brennan v. Stewarts' Pharmacies, Ltd., 59
Haw. 207, 223, 579 P.2d 673, 681–82 (1978).
Mathewson[ v. Aloha Airlines, Inc.], 82 Hawai#i [57], 75,
919 P.2d [969], 987 [(1996)] (some alterations in original
and bracket omitted).
Id. at 235, 54 P.3d at 406.
The appraisals themselves do not reveal whether Arnold
or the umpire made mistakes in finding facts or applying the law.
Arnold and the umpire may or may not have made factual or legal
mistakes when they valued what the Krafchows lost, but that is
not at issue in these appeals. At issue is Arnold's and the
umpire's decision about how much Dongbu owed the Krafchows under
the insurance policies, and when Dongbu's payment must be made.
The appraisals specifically state how much Dongbu was to pay the
Krafchows (after subtraction of deductibles and prior payments),
and when payment was to be made. Those awards could not have
been made without considering the scope of insurance coverage.
They show that Arnold and the umpire purported to appraise what
they believed to be covered loss, because under the insurance
policies Dongbu is not obligated to pay uncovered or excluded
loss, or loss for which Dongbu is otherwise not liable. Indeed,
in granting the Krafchows' motion to confirm and denying DB's
motion to vacate the appraisals, the circuit court stated that
the appraiser and umpire included "consideration . . . of
[insurance] coverage and exclusions."
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Rather than issue awards directing Dongbu to pay,
Arnold and the umpire should have appraised the value of what the
Krafchows lost because of the wildfire, irrespective of insurance
coverage. See Koolau Radiology, Inc. v. Queen's Med. Ctr., 73
Haw. 433, 834 P.2d 1294 (1992) (arbitration agreement limited
scope of arbitration to determining lease values and did not give
arbitrator power to decide legal issues such as statute of frauds
or parol evidence rule related to alleged oral agreement); Wailua
Assocs. v. Aetna Cas. & Sur. Co., 27 F. Supp. 2d 1208, 1211 (D.
Haw. 1997) (Wailua II) ("The Court recognizes that the Award
includes a number of 'appraised values' and that there are
additional issues to be adjudicated which may or may not affect
the final amount to be awarded under the policy."); cf. Nat'l
Union Fire Ins. Co. v. Reynolds, 77 Hawai#i 490, 494, 889 P.2d
67, 71 (App. 1995) (holding, under arbitration clause of
underinsured motorist policy, that arbitration on question of
whether insured was "legally entitled to recover damages" is
limited to determining tortfeasor's fault and amount of insured's
damages, and did not include whether underinsured motorist
coverage applied under any particular circumstance).
The Krafchows also argue that Dongbu waived its right
to challenge the appraisals because Dongbu's statement of the
points of error on appeal did not include the circuit court's
denial of Dongbu's request to stay enforcement of the appraisal
awards. The argument lacks merit. Dongbu challenges the
entirety of the appraisals, which include provisions that "[t]his
award shall be payable within 20 calendar days." Under HRS
§ 658A-25 the Krafchows could have, but did not, request entry of
a judgment on each of the appraisals. The resultant judgments
could have been recorded and executed against Dongbu. When
Dongbu filed its notice of appeal before the Krafchows moved for
entry of a judgment on the order confirming the appraisals,
Dongbu's stay request became moot because there were no potential
enforcement procedures to stay.
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CONCLUSION
For the foregoing reasons, we hold that the Krafchows'
appraiser and the umpire exceeded their powers by deciding what
amounts Dongbu owed to the Krafchows, rather than appraising the
value of the Krafchows' loss because of the wildfire. Because
the appraiser and umpire exceeded their powers, the circuit court
erred by granting the Krafchows' motion to confirm the
appraisals, and by denying DB's motion to vacate the appraisals.
The following orders are vacated: (1) "Order Granting Plaintiffs'
Motion to Confirm Appraisal Summary and Awards" entered on
July 26, 2021; (2) "Amended Order Denying Defendants' Motion to
Vacate and/or Modify Three Appraisal Awards or, in the Alternate,
to Stay, and Reconfirming the Appraisal Awards" entered on
June 13, 2022; and (3) "Amended Order Denying Defendants' Motion
to Vacate and/or Modify Three Appraisal Awards and Reconfirming
Appraisal Awards" entered on June 14, 2022. This case is
remanded to the circuit court for further proceedings.
On the briefs:
/s/ Lisa M. Ginoza
Wesley H. H. Ching, Chief Judge
Nadine Y. Ando,
Jennifer Cook Clark, /s/ Keith K. Hiraoka
for Defendants-Appellants Associate Judge
Dongbu Insurance Co., Ltd.,
nka DB Insurance Co., Ltd. /s/ Clyde J. Wadsworth
and John Mullen & Co., Inc. Associate Judge
Peter N. Martin,
Thomas C. Zizzi,
for Plaintiffs-Appellees
Edmond Krafchow and Kathleen
Krafchow.
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