Insurance Law Hawaii

New York Concurs with Hawaii on Coverage For Additional Insureds

     Coverage for an additional insured is typically limited to instances where the insured's negligence causes injury.  For example, in First Ins. Co. of Hawaii, Inc. v. State of Hawaii, 66 Haw. 413, 665 P.2d 648 (1983), the state was named as an additional insured in a policy issued to a contractor building a highway for the state.  The state was covered "with respect to liability arising out of operations performed for the additional insured by the named insured."  An endorsement, however, excluded coverage arising out of any act of the additional insured, "other than general supervision of work performed for the additional insured by the named insured."

     When a motorist was killed, the heirs sued both the contractor and the state.  The verdict in the underlying suit absolved the contractor, but found the state was 15% negligent.  First Insurance refused to indemnify the state.  The Supreme Court agreed there was no duty to indemnify because the state was only covered for liability arising from the named insured's negligence or from an act of the state arising from its general supervision of the work performed by the named insured.  Since a jury found the named insured was not negligent, the state was not covered.  First Ins. Co., 66 Haw. at 424, 665 P.2d at 656.

     A similar result was reached in a recent case decided by the New York Court of Appeals.  Worth Construction Co., Inc. v. Admiral Insurance Co., No. 52 (N.Y. Ct. App. May 1, 2008) (found here).  Worth Construction Co. was hired to construct an apartment complex.  Worth subcontracted with Pacific Steel for construction of a staircase and hand railings.   Pacific provided a commercial general liability policy naming Worth as an additional insured.  The additional insured endorsement provided Worth was an insured, but only with respect to liability arising out of Pacific's operations.

     Pacific completed the installation of the staircase and left the job site.  Concrete then had to be poured before Pacific could return to install the hand railings.  Before Pacific returned, plaintiff was injured when he slipped on a fireproofing installed by another subcontractor.  Pacific played no role in contracting for or applying the fireproofing.

     The plaintiff sued the owner and Worth.  Worth sought a defense and indemnification from Pacific's insurer, Farm Family, but the tender was denied.  Worth then filed a third-party complaint against Pacific in the underlying case.  Worth also sued Farm Family for declaratory relief. 

     In the underlying case, Worth eventually conceded that Pacific was not negligent and should be dismissed.  Farm Family then moved for summary judgment in the declaratory relief action, asserting that Worth now conceded the underlying plaintiff's injury did not arise out of Pacific's work or operations.  The motion was granted.

     The Court of Appeal affirmed.  Pacific's operations involved only the installation of a staircase and handrails.  A separate company was responsible for applying the fireproofing material.  At the time of the accident, Pacific was not on the job site.  By admitting in the underlying case Pacific was not negligent, Worth could no longer argue in the coverage action that there was any connection between plaintiff's injury and the risk for which coverage was intended.  Therefore, the result was similar to that in First Ins. Co.

Ninth Circuit Ratifies Burlington's Mistake

Burlington Insurance Company wins again.  The Ninth Circuit of Appeals issued an unpublished decision a few months ago entitled Burlington Insurance v. Steve's Ag Services, which appears to perpetuate some of the logic flaws in the original Burlington decision.  Although the court refused to explain the underlying facts (instead simply stating "the parties are familiar with the facts . . . ."), the case stems from an administrative proceeding arising out of AG Service's logging without proper permits.  A second claim for indemnification was also filed against AG Service by the landowner.

The court noted that the damages sought in the administrative proceeding were for the "value of the timber taken."  The CGL policy had  an exclusion for property damage to any "particular part of any property that must be restored because 'your work' was incorrect performed on it."  Thus there was no duty to indemnify or duty to defend.

Further, the court concluded there was no obligation to indemnify the landowner because an occurrence is defined as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions."  Repeating the earlier Burlington logic and citing a Hawaii Supreme Court case, the court stated a "breach of contract claim precludes accidental conduct." 

This analysis is plainly wrong.  One could easily breach a contract through accidental conduct.  For example, one could show up to a construction site on the wrong date, order the wrong supplies, etc.  These "accidental" acts meet the policy definition of an "occurrence" regardless of whether they breach a contract or not.  What the court's holding really stands for is the proposition that a CGL policy will never have to cover a breach of contract claim -- language not contained in the policy and clearly contrary to the parties' intent.

The Ninth Circuit's citation to Hawaiian Holiday Macadamia Nut Co. v. Indus Indem. Co., 76 Hawaii 166, 872 P.2d 230, 233 (1994) also materially misstates the holding in that case.  The Macadamina Nut Co. decision held that "[t]he question of what is an 'accident' must be determined by addressing the question from the viewpoint of the insured."  The facts, in that case, stated that there was a breach of contract "based on intentional acts performed by Hawaiian Holiday to defraud" the plaintiffs."  Thus the Hawai`i Supreme Court actually analyzed the underlying acts and determined if there was an accident.  The allegations of a "breach of contract" was immaterial.  It was the "intentional" allegation that was relevant.

Bill Extending National Flood Insurance Program Passes in Senate

     The Associated Press reports here that the Senate passed today its version of a bill extending the National Flood Insurance Program for five more years. In order to make the program more financially solvent, the bill would increase premiums and reduce subsidies.  The Senate rejected extending the program to cover wind damage.  The previously passed House bill did include an expansion to cover wind damage.

Hawaii Court of Appeals Finds Statutory Notice Required In Billing Disputes

     The Intermediate Court of Appeals recently decided two cases regarding a doctor's billing disputes with Island Insurance Company, Ltd.  See Jou v. Schmidt, No. 27369, 2008 Haw. App. LEXIS 213 (Haw. Ct. App. April 29, 2008); Jou v. Schmidt, No. 27370, 2008 Haw. App. LEXIS 215 (Haw. Ct. App. April 30, 2008).

     In No. 27369, Island reduced reimbursement claims submitted by the doctor for services rendered to Island's insured, but never provided formal notice pursuant to Haw. Rev. Stat. 431:10C-304 (3)(B).  Both the Insurance Commissioner and Circuit Court determined statutory notice was not required for billing disputes on no-fault benefits, only for denial of claims.  The ICA reversed, in light of the Supreme Court's decision in Orthopedic Assocs. of Hawaii, Inc. v. Haw'n Ins. & Guar. Co., Ltd, 109 Haw. 185, 124 P.2d 930 (2005).  There, the Supreme Court held the notice requirements were applicable to billing disputes. The same result applied here.  The statute's notice requirement was triggered by a partial denial of claims in the form of reduced or partial payments by the insurer.  Further, the doctor was entitled to interest under Haw. Rev. Stat. 431:10C-304(4) on the balance withheld by Island.  The legislative intent behind the interest provision was to encourage insurers to investigate and act on claims promptly.   Failure to do so would result in the payment of interest.

     The doctor did not do as well in the second case, No. 27370.  There, his invoice for reimbursement was also reduced and no notice was provided.  The doctor failed, however, to request an administrative hearing for over two years.  The ICA determined even though notice should have been sent by Island under Haw. Rev. Stat. 431:10C-304 (3)(B), the applicable two year statute of limitations, Haw. Rev. Stat. 431:10C-315, was not tolled by the failure to provide notice.

More Hurricane Insurance Coverage Made Available for Hawaii

  The Pacific Business News reports here that hurricane insurance should be more easily available thanks to a partnership formed between Argo Group US and First Insurance Co. of Hawaii.  First Insurance will transfer approximately 13,000 hurricane endorsements to Argo, who will then issue new hurricane policies.  The good news is that this partnership will increase the availability of hurricane insurance in Hawaii.

State Court Trend: Moving Away from Burlington

An article recently came out in the "Construct" journal, put out the Construction Litigation Committee of the ABA, entitled "State Courts Trend: Coverage for Faulty Workmanship."  This article is similar to an earlier blog post analyzing the Ninth Circuit decision entitled Burlington Ins. Co. v. Oceanic Design & Constr., Inc. (9th Cir. 2004) and concludes:

In short, courts generally conclude that claims requiring only the replacement of the subcontractor's defective work -- and no more -- are not covered under a CGL policy because there is no property damage.  Only when the claim involves extraneous damage caused by the subcontractor's work will the property damage term be satisfied and thus provide potential coverage.

. . .

The majority of state supreme courts that have confronted these coverage issues have concluded that the insurance industry intended to expand coverage for unintentional property damages caused by subcontractors to the contractor-insured's completed project.

This article does not appear to analyze Burlington, but references several relatively new 2007 cases.

Insurers "No Pay" Attitude

Stripping the job of an insurance company to its basic components reveals a gritty truth: insurance companies make money by collecting more than they pay out.  A successful operation depends on exercising good judgment on what risks to insure (or charging high enough premiums).  Unfortunately, an insurer can also vigorously oppose attempts to obtain coverage -- a "no pay" attitude.  This is a bad business practice -- particularly in states, such as Hawaii, that acknowledge the tort of bad faith -- and disregards the fact that insurance coverage was intended to be a reliable mechanism to transfer of risk.

One example of a "no pay" attitude can be depicted in Hunt Constr. Group, Inc. v. Allianz Global Risks U.S. Ins. Co., 503 F.3d 632 (7th Cir. 2007).  Written by the astute Judge Posner, the facts of the case were as follows:

"Hunt had contracted with Northwest Airlines to build a major terminal facility at the Detroit airport. Heavy rains interfered with the project, causing millions of dollars of loss, including liquidated damages that Hunt had to pay Northwest for delay in the completion of the project caused by the rains. Hunt claimed that this expense was insured under the 'builders risk' policy that Allianz had issued to it, but Allianz persuaded the district court that though called "builders risk" (no apostrophe, though the term could use one), the policy is actually a "fire insurance policy" under Michigan law, which provides that a suit under such a policy "must be commenced within 1 year after the loss or within the time period specified in the policy, whichever is longer." Mich. Comp. Laws Ann. � 500.2833(1)(q). The policy itself specified no time period within which the insured had to sue."

Dryly, Judge Posner observed:

"To call the builders risk policy a fire insurance policy, and subject it to the 19 separate requirements that the statute imposes on 'each fire insurance policy issued or delivered in this state,' id., when the damage for which the insured seeks indemnification was not caused by fire, strains the ordinary meaning of the term 'fire insurance policy.' But the language of insurance contracts is not standard English, so we must press on."

The Seventh Circuit reversed the District Court.  Notable is not that an insurance company would take such a tenuous argument, but that it actually was accepted by the district court.

California Court Finds Binding Arbitration Provision in Insurer's Enrollment Application Unenforceable

     Unlike California, Hawai`i law does not statutorily impose strict disclosure requirements when an insurance enrollment application mandates that disputes be resolved solely by arbitration.  California courts, on the other hand, narrowly construe an insurer's attempt to limit disputes to arbitration, as evidenced by the recent decision in Rodriguez v. Blue Cross of California, B 194066 (Cal. Ct. App. April 23, 2008), found here.PDF

     Under California law, if binding arbitration is required to settle disputes and a right to a jury trial is eliminated, the health care service plan must, in clear and understandable language, make a detailed disclosure.  In Rodriquez, the insured completed Blue Cross' application, which stated in part, "Blue Cross requires binding arbitration to settle all disputes against Blue Cross, including claims of medical malpractice. . . . It is understood that any dispute as to medical malpractice . . . will be determined by submission to arbitration . . . ."  When he was hospitalized and submitted his claim, Blue Cross rescinded the coverage because the insured had omitted material facts from the application. 

     The insured sued and Blue Cross petitioned to compel arbitration.  The trial court denied the petition, finding the arbitration provision as written was limited to issues of medical malpractice. 

      On appeal, the Court noted several prior California appellate court decisions in which the disclosure regarding mandatory arbitration of disputes had been deficient.   Although Blue Cross' disclosure generally met the requirements of the statute, the disclosure only addressed disputes regarding medical malpractice.  While Blue Cross argued the language, "Blue Cross requires binding arbitration to settle all disputes against Blue Cross, including claims of medical malpractice" was sufficiently broad, the majority of the disclosure was expressly limited to disputes involving medical malpractice. The discrepancy between the first sentence, which was expansive, and the remainder of the disclosure, which was limited to medical malpractice, created confusion.  Therefore, the arbitration provision failed to comply with the statute and was unenforceable.

     The Guide to Benefits utilized by Hawaii Medical Service Association ("HMSA"), a licensee of the Blue Cross and Blue Shield Association, provides for an internal review and, if coverage is denied, then allows an insured to choose between arbitration and litigation.

Consider Flood Insurance as Another Hurricane Season Approaches

      In a prior post, we noted that much of Honolulu has yet to be mapped by the Federal Emergency Management Agency for flood insurance purposes.  This leaves neighborhoods unrated for flood insurance, resulting in high premiums even for areas not prone to floods. 

     An informative story appearing over the weekend in the Naples News (Florida), found here.PDF, describes the process by which two counties in Southwest Florida have recently received updated flood maps.  The story explains that based on an area's rating, policy holders can receive a savings on their insurance deductibles.  More accurate maps could also reflect additional flooding areas, however, meaning higher insurance rates for some and mandatory policies for others.

District Court Judge Comes Full Circle on Anti-Concurrent Cause Provision

     Senior Federal Judge L.T. Senter, Jr. of the Southern District of Mississippi has come full circle in his analysis of the anti-concurrent cause provision in home-owner's policies.  Judge Senter has been in the trenches, handling many of the initial Katrina insurance related cases at the trial court level.  In some of Judge Senter's initial Katrina decisions, he struck the anti-concurrent cause clause as ambiguous.  See Leonard v. Nationwide Mut. Ins. Co., 438 F. Supp. 2d 684, 693 (S.D. Miss. 2006); Tuepker v. State Farm, 2006 U.S. Dist. LEXIS 34710 (S.D. Miss. May 23, 2006).  These cases were eventually reversed by the Fifth Circuit.  See See Leonard v. Nationwide Mut. Ins. Co., 499 F.3d 419 (5th Cir. 2007); Tuepker v. State Farm, 507 F.3d 346 (5th Cir. 2007).  Reversing course, Judge Senter recently offered a cogent analysis in discussing the applicability of the anti-concurrent cause provision when denying an insurer's motion for reconsideration.  See Dickinson v. Nationwide Mutual Fire Ins. Co., No. 1:06CV198 (S. D. Miss. April 25, 2008). Dickinson.PDF   

     In language nearly identical to that used by First Insurance Company of Hawaii's home-owner's policy, the anti-concurrent cause provision in Nationwide's policy stated:

   Property Exclusions:

   a.  We do not cover loss to any property resulting directly or indirectly from any of the following.  Such a loss is excluded even if another peril or event contributed concurrently or in any sequence to cause the loss.

Nationwide argued because wind damage preceded the damage from storm surge flooding and therefore occurred in a sequence of events, the "in any sequence" language invalidated plaintiff's claim for wind damage. 

     Judge Senter found this interpretation unreasonable.  The anti-concurrent cause provision applied only to damage to a specific item of insured property that was attributable to both the excluded peril of flooding and also another cause, i.e., wind.  Any loss in which the excluded peril of flooding had no part, i.e., wind damage did not fall within the anti-concurrent cause provision because it was not part of "the loss" the provision referred to.  Wind and storm surge flooding were separate causes of separate damage to the insured property, and the separate wind damage did not contribute, sequentially or concurrently, to "the loss" caused by storm surge flooding.  Accordingly, the wind damage was outside the anti-concurrent cause provision and was a covered loss while the subsequent flood damage was not.

     In conclusion, Judge Senter stated, "Wind and flood were separate and not concurrent causes of damage to the insured property, and the wind damage that precedes the storm surge does not contribute, sequentially or concurrently, to 'the [excluded] loss' caused by storm surge flooding and referred to by the ACC."  The Fifth Circuit could not have stated it better.