Construction Defects Not Occurences in Hawaii

The case arises out of mold damage discovered at the Hilton Hawaiian Village's Kalia Tower.  The Tower was completed in May 2001.  In mid-2002, extensive mold growth was discovered in the guest rooms, forcing closure of guest rooms on floors 5 through 25.  An investigation revealed numerous construction defects in the Tower, some of which contributed to or caused the mold growth.

Hilton filed suit in 2003 against numerous defendants, including the subcontractor responsible for insulation in the Tower, Group Builders.  Group was insured by Admiral.  When Group sought a defense for Hilton's suit, Admiral refused.  Group sued, but the circuit court concluded there was no evidence of property damage caused by an occurrence and granted Admiral's motion for summary judgment.

On appeal, the ICA noted there was no dispute that the mold damage and resulting loss of use qualified as "property damage."  But was there an "occurrence" under the policy?  The policy defined "occurrence" as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."   

Adopting the majority rule and confirming the Ninth Circuit's prediction in Burlington, the ICA held that breach of contract claims based on allegations of shoddy performance were not covered under CGL policies.  Further, tort-based claims, derivative of the breach of contract claims, were also not covered.

This case is undoubtedly on its way to the Hawai`i Supreme Court.