Insurance Law Hawaii

Mold Remediation Excluded Based on Anti-Concurrent Causation Clause

   In Builders' Mutual Ins. Co. v. Glascarr Prop., Inc., No. COA09-486, 2010 N.C. App. LEXIS 186, (N.C. Ct. App. Feb. 2, 2010), the court found no coverage for loss caused by mold because of the anti-concurrent causation clause.  Whether reliance on the anti-concurrent causation clause was correct is difficult to determine from the facts set forth in the decision.

   The insured purchased a builders' risk policy.  After completing construction of a house, vandals broke in and left water taps running, causing extensive damage.  After a claim for $102,161.44 was submitted for losses arising from the vandalism, the insurer paid $101,661.44.

   The insured later discovered mold in the house, caused by the water damage.  An additional claim for $39,000 for mold remediation was submitted.  This claim was denied based on the exclusion for losses caused by mold.

   The parties agreed the policy covered losses from water damage caused by vandalism.  The parties disagreed, however, on whether the policy covered reimbursement for the cost of mold remediation.  The insured sued, but the trial court found no coverage. 

   On appeal, the court considered the policy's the anti-concurrent causation clause:

We will not pay for a "loss" caused directly or indirectly by any of the following.  Such "loss" is excluded regardless of any other cause or event that contributes concurrently or in any sequence to the "loss".

.  .  .

  f.  The presence, growth, proliferation, spread, or any activity of "Fungi", wet or dry rot or "microbes."

   The court determined this clause unequivocally excluded payment for losses "caused directly in indirectly by" mold, and the exclusion applied "regardless of any other cause or event that contributed concurrently or in any sequence to the 'loss.'"  Therefore, payment of a claim for the cost of mold remediation was excluded. 

   Should the anti-concurrent causation clause have been applied?  The opinion notes that, "the water damage led to the formation of the mold."  Further, "vandalism caused water damage, which in turn, caused the formation of the mold."  Finally, the mold was discovered "later."

   Typically, the anti-concurrent causation clause involves two different forces contributing to the exact same damage.  If two or more forces cause different, distinct, and divisible damage, only single causation exits and the anti-concurrent causation clause does not come into play.  If water damage "led to" formation of the mold and the mold damage was discovered "later," it does not seem likely the damage was exactly the same.

   Some cases have held that mold loss following water damage is covered despite the exclusion for mold.  See The Home Ins. Co. v. McClain, 2000 Tex. App. LEXIS 969 (Tex. Ct. App. Feb. 10, 2000)(mold loss that follows water damage is caused by water damage, not mold damage, so policy's exclusion for mold does not apply); Flores v. Allstate Texas Lloyd's Co., 278 F. Supp. 2d 810, 815 (S.D. Tex. 2003)(when mold damage ensues form water damage which is covered under the policy, the mold damage is covered despite the exclusion).  Neither of these cases, however, discuss whether the policies included an anti-concurrent causation clause.

 

Additional Insured Survives Summary Judgment on Duty to Defend

   Does a policy's Blanket Additional Insured Endorsement bar primary coverage for an additional insured with a policy of its own?  Although the court answered yes in Kummer Enter., Inc. v. HBE Corp., No. 1:09-cv-109, 2010 U.S. Dist. LEXIS 6403 (W.D. Mich. Jan. 27, 2010), it nevertheless determined the additional insured was entitled to a defense under the policy.

   Plaintiff was awarded a general contract to build an addition to a medical building.  WPM, Inc. was retained as a subcontractor to excavate the basement for the addition.  Under the subcontract, WPM agreed to indemnify Plaintiff for WPM's failure to maintain safe working conditions.  WPM was also required to obtain comprehensive general liability insurance naming Plaintiff as an "additional insured."

   Subsequently, a WPM employee was injured.  The employee sued Plaintiff, who filed a third-party complaint against WPM seeking indemnification. 

    After coverage for defense and indemnity was denied, Plaintiff sued the insurer.  The court agreed Plaintiff was an additional insured under the policy.  The policy's Blanket Additional Insured Endorsement, however, limited coverage under two provisions: (1) the "Your Negligence" provision contained in Section B (1); and (2) the "Excess Insurance" provision contained in Section C (2).

   The Section B (1) provision stated a person or organization was an additional insured "solely for liability due to your negligence specifically resulting from 'your work' for the additional insured." In the underlying suit, there was a possibility that Plaintiff could be held liable for the negligence of WPM.  For example, the jury could determine that WPM's assumed responsibility for the safety of its workers, but still assess liability against Plaintiff.  Therefore, the B (1) limitation did not preclude Plaintiff's summary judgment claim for a defense.

   The Section C (2) provision stated the insurance was excess of any other policy held by the additional insured unless a written agreement specifically required that this policy was a primary policy.  In a majority of jurisdictions, this provision required that the written agreement explicitly state that an additional insured's coverage would be primary before extending coverage to the additional insured.  Here, neither the subcontract, the certificate of insurance, nor any other document satisfied this requirement.  Consequently, the insurance available to Plaintiff as an additional insured was excess of any other policy Plaintiff might have.

   Nevertheless, there was no evidence that other policies existed which could provide primary coverage for the employee's claim.  Therefore, the C (2) limitation left open the possibility that damages assessed against Plaintiff in the underlying suit would be covered by the policy.  Again, Plaintiff was entitled to summary judgment on its claim for a defense.

Underlying Case Stayed for Development of Facts

   This cases touches on both maritime law and insurance coverage.  Therefore, the initial question was which office blog should do the post: our blog or hawaiioceanlaw.com, authored by  Damon Key blogging colleague, Mark Murakami?  Easily resolved: Mark found the case, but passed it on to us.

   In Fireman's Fund Ins. Co. v. Sneed's Shipbuilding, Inc., No. 08-4882, 2010 U.S. Dist. LEXIS 4835 (E.D. La. Jan. 4, 2010), Superior Shipyard and Fabrication, Inc. contracted with the insured, Sneed, to build a dry dock.  When defects were discovered in the dry dock, Superior sued Sneed in state court, alleging that the dry dock failed to meet contract specifications and that the parties' warranty had been breached.  Sneed tendered the defense to its insurers pursuant to a builder's risk policy issued by Firemen's Fund and a marine general liability policy from Federal Insurance Co.  Both insurers denied coverage based on exclusions in their policies. Superior eventually amended its complaint to include the insurers as defendants under the Louisiana Direct Action Statute. 

   Firemen's Fund and Federal then sued Sneed for declaratory relief in federal court based on federal maritime and diversity jurisdiction.  Sneed moved to dismiss, arguing there was no justiciable case or controversy because resolution of any disputed coverage would be necessary only if a state court judgment was entered against Sneed.  In the alternative, Sneed argued the case should be dismissed or stayed in the interests of judicial economy in light of the pending state case. 

   The district court first determined an actual case or controversy existed.  The insurers sought a declaration of their actual liability under their respective policies.  Sneed made an actual claim against each insurer.  Further, the insurers had been directly sued by Superior in state court.  Consequently, the insurers' obligations were not hypothetical.

   Next, the district court ruled that dismissal of the insurers' suit was inappropriate.  The underlying state action would not resolve all of the defense and indemnity issues raised by the insurers in the federal case.  Nevertheless, because the underlying state case was set for trial within the year, a stay of the declaratory judgment action was granted to avoid duplicative litigation.

Knowing Wrongful Act Exclusion Held Ambiguous

   A psychologist was entitled to coverage after the court determined the professional liability policy's Knowing Wrongful Act Exclusion was ambiguous.  See Am. Home Assurance Co. v. Pope, No. 08-2848, 2010 U.S. App. LEXIS 516 (8th Cir. Jan. 11, 2010).

   Sparing you of the tortuous procedural history (running on three tracks: arbitration; up and down the Missouri state courts; three appeals to the Eighth Circuit), we cut right to the chase.  The insured psychologist's patient was a minor victim of sexual abuse by a foster parent. The psychologist never notified state officials of the abuse, although he was obligated by law to do so.

   When the victim sued the psychologist, American Home denied coverage under the Knowing Wrongful Act Exclusion.  The district court found the insured knew of his duty to report sexual abuse to authorities, yet intentionally concealed the abuse.  Therefore, there was no duty to indemnify.

   The Eighth Circuit reversed.  There were two policy provisions at issue.  First, American Home agreed " to pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of any wrongful act committed during the policy period by the Insured . . . ."  "Wrongful act" was defined as "any actual or alleged negligent act . . . ."  The second provision excluded "any wrongful act committed with knowledge that it was a wrongful act." 

   Comparing what was covered with what was excluded demonstrated the ambiguity.  A "wrongful act" defined as "any negligent act" was insured, yet liability for a knowingly wrongful act was excluded.  Predictably, the parties presented two interpretations of the competing provisions.  American Home argued because the insured knew he had a duty to report and violated the duty, a knowingly wrongful act was committed, thereby negating coverage.  The insured, on the other hand, contended that the Knowingly Wrongful Act Exclusion excluded intentional, not negligent, conduct, which required a showing that the insured intended to harm the victim.  Given this ambiguity, the court adopted the construction most favorable to the insured, obligating American Home to insure the negligent conduct. 

Insurer May Have Duty to Indemnify Even Where No Duty to Defend

   The Texas Supreme Court recently held that an insurer may have a duty to indemnify even if the duty to defend never arises.  See D.R. Horton-Texas, Ltd. v. Markel Int'l Ins. Co, Ltd., No. 06-1018, 2009 Tex. LEXIS 1042 (Tex. Dec. 11, 2009).

   The homeowners purchased their house from D.R. Horton.  After moving in, defects were found in the chimney, roof, vent pipes, windows, window frames and flashing around the roof and chimney.  These defects allowed water to enter the house, eventually causing mold damage.  Consequently, D.R. Horton was sued by the homeowners.  D.R. Horton claimed its subcontractor, Rosendo Ramirez, performed masonry work on the home and other repairs which contributed to the alleged defects.

   Ramirez had a CGL policy with Markel which named D.R. Horton as an additional insured, allowing coverage for claims against D.R. Horton arising from Ramirez's work.  Markel, however, refused to defend D.R. Horton because the underlying plaintiffs' petition did not allege Ramirez's work was defective. 

   After defending the suit on its own and reaching a settlement, D.R. Horton sued Markel for reimbursement of defense costs and the settlement payment.  In its summary judgment motion, Markel argued it had no duty to defend under the eight-corners rule because the underlying petition did not contain allegations triggering coverage.  D.R. Horton attached to its opposition affidavits, inspection reports, depositions from the underlying case and mold investigation reports to establish Ramirez's negligence.  Ignoring this evidence outside the allegations of the complaint, the Court of Appeals affirmed.  The court reasoned that because Market had no duty to defend, it also had no duty to indemnify.

   The Texas Supreme Court rejected this reasoning.  Facts established in the underlying suit controlled the duty to indemnify, not allegations in the complaint.  This was especially true when the underlying liability dispute was settled before a trial on the merits, leaving no opportunity to develop the evidence.  Accordingly, regardless of reliance on the eight-corners rule to determine the duty to defend, evidence could be introduced in the coverage litigation to establish or refute the insurer's duty to indemnify.  Consequently, the case was remanded to the trial court.

   Notably, Hawai`i law allows the insured to go beyond the eight-corners of the underlying complaint and policy language to establish a duty to defend.  In Dairy Road Partners v. Island Ins. Co., 92 Hawai`i 398, 414, 992 P.2d 93, 117 (2000), the Hawai`i Supreme Court determined an insured, but not the insurer, can rely on extrinsic evidence to clarify the underlying allegations and demonstrate a duty to defend. 

Exclusion Precludes Coverage for Additional Insured

   Allegations in the underlying complaint proved crucial in analyzing coverage for an additional insured under Texas' eight-corners rule.  See The Burlington N. and Santa Fe R. R. Co. v. National Union Fire Ins. Co. of Pittsburgh, Pa., No. 08-06-00022CV, 2009 Tex. App. LEXIS 9347 (Tex. Ct. App. Dec. 9, 2009). 

   The railroad entered a three-year contract with SSI Mobley for vegetation control along the railroad's right-of-ways.  Pursuant to the contract, SSI Mobley purchased a CGL policy with National Union.  The policy named the railroad as an additional insured for incidents occurring within fifty feet of a railroad track. 

   The railroad was sued when two people were killed in a collision between their automobile and a train.  The decedents' families alleged the collision was caused by the railroad's failure to properly maintain the vegetation at the crossing.   When National Union refused coverage, the railroad sued.  The trial court granted summary judgment to National Union.

   On appeal, the court first considered whether the railroad was an additional insured.  The additional insured endorsement precluded coverage for the railroad's own negligence.  Therefore, the railroad was an additional insured if the underlying plaintiffs sought recovery based on SSI Mobley's negligence.  The court applied the eight corners rule, comparing the policy provisions to the allegations in the underlying complaint.  The decedents' families alleged that SSI Mobley did not carry out its chemical weed control with reasonable care.  This negligence resulted in the overgrowth of vegetation which obstructed the view of the crossing and led to the collision.  The fact that the underlying complaint also alleged the railroad was at fault did not alter National Union's duty to defend the entire suit.

   Nevertheless, coverage was barred based on the products-completed operations hazard exclusion.  Because SSI Mobley had completed its work at the site before the collision, the exclusion precluded coverage.

Additional Insureds Covered in Suit For Helicopter Crash

   Complicated facts but easily understood legal standards were presented in Breaux v. Halliburton Energy Serv., Inc., No. 04-1636, 2009 U.S. Dist. LEXIS 112374 (E.D. La. Dec. 2, 2009).

   Era Aviation, Inc., a subsidiary of Rowan Companies, Inc., transported oil field workers by helicopter to an offshore drilling vessel in the Gulf owned by Unocal.  Halliburton Energy Services, Inc. supplied employees to Unocal to work on the offshore vessel.  On March 23, 2004, two crew members and eight passengers, including four employees of Halliburton, were killed in a crash while attempting to fly to the drilling vessel. 

   By agreement, Rowan (with its subsidiary, Era) and Halliburton apportioned their respective liabilities when Halliburton's personnel were located on Rowan's property to provide services for the same customer on a project.  Moreover, Halliburton agreed to hold harmless and indemnify Rowan and Era against claims arising from such circumstances and to name Rowan and Era as additional insureds in its liability policy.  Paragraph 6 of the agreement required Halliburton to secure the following endorsement: "to the extent such party has assumed liability hereunder, name the other party and its parent, subsidiary, and affiliated companies as an additional insured."  Finally, Halliburton's policy with ACE American Insurance included an endorsement providing that where Halliburton executed a contract requiring the other party to be named as an additional insured, the policy would honor the agreement.

   The widow of one of Halliburton's employees killed in the crash sued Era and Rowan.  Era and Rowan filed a third-party complaint against Halliburton seeking defense, indemnity and additional insured status under the Rowan/Halliburton agreement. 

   In a motion for summary judgment, Era and Rowan contended that as additional insureds, they were entitled to a defense in the underlying suit.  Although the policy included an aircraft exclusion, it expressly did not apply to "liability assumed under any 'insured contract' for the ownership, maintenance or use of aircraft."   Halliburton argued the exception to the aircraft exclusion was inapplicable because Era and Rowan's liability did not arise from their assumption of a third party's tort liability under a contractual agreement, but from direct tort liability based on their ownership and operation of the helicopter. 

   The court disagreed, determining that Era and Rowan were additional insureds under Halliburton's policy.  Moreover, the Rowan/Halliburton agreement was an insured contract.  Under the agreement, Halliburton held Era and Rowan harmless for tort liability to Halliburton's employees and assumed liability for claims arising out of injury to Halliburton's employees.  Accordingly, the exception to the aircraft exclusion applied. 

  

Additional Insureds Not Entitled to Notice of Policy's Cancellation

   Defendants were sued in an underlying state court action.  See Riverport Ins. Co. v. Oakland Cmty. Housing, Inc., No. C 08-3883, 2009 U.S. Dist. LEXIS 104472 (N.D. Cal. Nov. 6, 2009).  Defendants were additional insureds under a policy issued by Riverport.  In its coverage action for declaratory judgment, Riverport secured an order awarding summary judgment that determined there was not duty to defend or indemnify. 

   Riverport now moved for summary judgment on defendants' two counterclaims, seeking declaratory relief that defendants were entitled to notice as additional insureds of cancellation of the policy and that Riverside breached its duty of good faith and fair dealing by failing to provide notice of the policy's cancellation.  Under California law, the insurer was only obligated to give notice of a policy's cancellation to named insureds.  Defendants argued that a certificate of liability insurance they received meant they were named insureds.  The court disagreed.  The certificate did not constitute an agreement between Riverport and defendants, but was simply evidence that a policy had been issued.  Therefore, defendants were not entitled to a declaratory judgment that Riverport should have given them notice of cancellation of the policy.

   Moreover, the bad faith claim failed as a matter of law once it was determined defendants were not entitled to notice of cancellation.

Default Judgment Against Insured Does Not Bar Injured Party from Pursing Coverage Case

   A default judgment against the insured should not deprive the injured party from pursuing the coverage litigation according to the Ninth Circuit's decision in Westchester Fire Ins. Co. v. Northwest Airlines, Inc., No. 07-17383, 2009 U.S. App. LEXIS 23718 (9th Cir. Oct. 28, 2009).  

    The insured provided maintenance services for Northwest Airlines at the McCarran International Airport in Las Vegas.  The insured's liability policy required prompt notice of any possible claim be given the insurer.

   In February 2002, an aircraft owned by Northwest was damaged when it rolled down an embankment.  An employee of the insured was in the cockpit at the time of the incident.  The insured did not report the incident to Westchester.  A few months later, Northwest wrote and notifiedthe insured of Northwest's claim and requesting that the insured forward the correspondence to Westchester.  The insured still did not notify Westchester.

   In November 2003, Northwest directly notified Westchester of the accident and the claim against the insured.  This was Westchester's first notice of the claim.  Westchester commenced efforts to contact the insured and remind it of obligations under the policy.  When the insured was finally contacted, it promised to send to Westchester documents related to the claim, but the documents were never provided. 

   Northwest filed suit in Minnesota and secured an default judgment against the insured for $10.6 million.  Westchester issued a denial of coverage letter to the insured based on failure to cooperate and failure to notify Westchester of the Minnesota lawsuit.

   Westchester then filed an action for declaratory judgment that the insured had breached its duties under the policy and the insurer had no duty to defend or indemnify.  Northwest was allowed to intervene.  Westchester made repeated attempts to depose the insured, but the insured never attended the scheduled depositions.  Westchester moved to strike the insured's answer or compel the deposition.  The court granted the motion to compel, but denied the motion to strike.  When the insured still failed to attend scheduled depositions, however, the court granted the motion to strike and entered a default judgment against the insured under Rule 37 (d) for failure to respond to discovery.  Subsequently, an order entered judgment in favor of Westchester and against all defendants, including Northwest.

   Northwest appealed.  Northwest argued it was entitled to defend against Westchester's declaratory judgment action in its own right and that the district court should not have entered a default judgment against all defendants based on the insured's failure to appear for a deposition. 

   In an opinion by Judge Clifton (of Hawai`i), the Ninth Circuit agreed.  A default entered against an insured should not prevent an injured third party from proceeding on its own behalf.  Northwest was not responsible for the insured's failure to appear for the deposition.  

   Westchester argued that Northwest could not prevail because the insured failed to give proper notice of the claim as required under the policy.  Although this argument might eventually prevail, the default and subsequent judgment did not result from a determination that the insured's failure to notify the insurer about a potential claim relieved the insurer from liability.  Northwest was entitled to present arguments to establish coverage and have them adjudicated on the merits.

   

Federal Court Without Jurisdiction Where Policy is not a Maritime Contract

    Whether the federal court has jurisdiction over a coverage dispute of a purported maritime policy was the issue in New Hampshire Ins. Co. v. Home Savings and Loan Co. of Youngstown, Ohio, No. 08-3902, 2009 U.S. App. LEXIS 21133 (6th Cir. Sept. 24, 2009). 

   National Marine, a yacht dealer and marina operator, purchased a "Yacht Dealer/Mariana Operator's" general liability policy from New Hampshire Insurance Company ("NHIC").  The policy insured National Marine against loss or damage to its inventory, loss or damage to third-party property while in its custody, personal injury or property damage occurring on its boats or at its marina, and loss or damage to its tools and equipment.  The policy also had "Truth in Lending Errors and Omissions Liability Coverage," to insure against "damage due to the unintentional violation of any Federal or State Consumer Credit Act."

   National Marine was sued in state court for fraudulent misrepresentations and failure to deliver boats with clean title.  National Marine sought coverage under the "Truth in Lending" provision of the policy.  NHIC provided coverage under a reservation of rights, but then sued in federal court to resolve the coverage issues.  NHIC asserted jurisdiction under 28 U.S.C. 1333(1), federal maritime jurisdiction.  The complaint requested the policy be rescinded for misrepresentation or a declaration that there was no coverage.  The district court assumed jurisdiction under 1333(1), but dismissed NHIC's action, concluding it had discretion to accept or deny jurisdiction under the Declaratory Judgment Act. 

   The Sixth Circuit questioned whether federal jurisdiction existed under 28 U.S.C. 1333(1) and whether the underlying claims arose under a "maritime contract."  Ultimately, the court determined the policy was not a maritime contract because its primary object did not relate to maritime commerce.  Instead, the policy related to boats as objects of commerce, i.e., "stock for sale", and not as agents of maritime commerce.  Further, the marina operations portion of the policy related to fixed structures such as wharves instead of particular vessels.  Consequently, although the district court properly dismissed the case, dismissal was appropriate due to lack of subject matter jurisdiction.