Insurance Law Hawaii

Excess Carrier Successfully Appeals Primary Insurer's Summary Judgment Award

   Although the excess carrier was given inadequate notice of the underlying arbitration, the trial court determined it shared responsibility with the primary carrier for the arbitration award. Finding disputed issues of fact, the Washington Court of Appeals reversed in Am. States Ins. Co. v. Century Surety Co., 2011 Wash. App. LEXIS 2488 (Wash. Ct. App. Oct. 31, 2011).

   The primary insurer, American States, issued two liability policies to Professional Home Builders (PHB), a siding contractor. The policies were for successive years, 1998-1999 and 1999-2000. Each policy had annual limits of $1 million per occurrence. PHB also had a commercial excess liability policy for 1999-2000 with Century Surety Company.

   PHB was sued by Residential Investment Partners (RIP) for construction defects after moisture entered the building envelope, causing decay and damage. Century's expert determined the decay started before the 1999-2000 policy period.

   RIP and PHB went to arbitration. American States agreed to defend under a reservation of rights. Century was not informed of the arbitration for more than two years. The American States claims handler expected PHB had only a 50-65 percent chance of prevailing on major issues and saw the potential for an award of $1 million. Yet, American States never offer more than $100,000 to settle with PHB.

   The arbitrator eventually awarded $1.9 million against PHB. Century only learned of the award after it was issued. American States, RIP and PHB settled the arbitration award. American States agreed to pay the award to RIP in return for an assignment of PHB's claims against Century.

   American States then sued Century and was awarded summary judgment. The court ordered that Century was liable for all damages in excess of the $1 million limit of the 1999-2000 American States' policy.

   On appeal, Century argued there were questions of fact as to whether the American States' 1998-1999 policy also covered the arbitration award. Century's expert testified that the decay started before September 19, 1999, placing the continuing damage squarely within the 1998-1999 American States' policy period. Further, the settlement American States entered with PHB and RIP did not specify what amount, if any, reflected an obligation owed by Century. American States had the burden of establishing that the payment it made to RIP, or some portion, was not to fulfill its own obligations, but rather to satisfy an obligation owed by Century to PHB. Evidence on whether Century had such an obligation was disputed, however. Therefore, a question of fact existed on whether the American States' 1998-1999 primary policy also covered the arbitration award.

   Finally, the court determined questions of fact also remained as to whether American States breached its duty to pursue settlement given its low offer when it acknowledged PHB could be liable for much more.

SIR Relieving Insurer of Obligations After Insured's Bankruptcy Violates Public Policy

   A self-insured retention provision that excused the insurer from providing excess coverage if the insured was bankrupt and unable to meet the SIR violated public policy in Rhode Island. Rosciti v. The Ins. Co. of the State of Pennsylvania, 2011 U.S. App. LEXIS 20400 (1st Cir. Oct. 7, 2011).

   The Roscitis purchased a mobile home manufactured by Monaco. The mobile home was defective and suffered from water leakage. This led to toxic mold, which rendered the home uninhabitable.

   The Roscitis sued Monaco for negligence, breach of warranty, and strict products liability. Monaco filed for bankruptcy. The Roscitis then amended their complaint to add Monaco's insurers, including The Insurance Company of the State of Pennsylvania (ICSOP), as defendants under Rhode Island's direct action statute. This statute allowed a direct action against the alleged tortfeasor's insurer when the tortfeasor filed for bankruptcy.

   Monaco's policy with ICSOP provided coverage for claims above $500,000. Monaco was self-insured for liability up to a retained limit of $500,000. The policy's Retained Limit Provision stated ICSOP's duty to indemnify arose only after "a complete expenditure of the insured's retained limit by means of payments for judgments, settlements, or defense costs." The Bankruptcy Provision of the policy provided the insured's bankruptcy would not relieve ICSOP from payment of any claim covered by the policy. The provision further stated,

But under no circumstanaces shall such bankruptcy, insolvency, or inability to pay require [ICSOP] to drop down or in any way replace [Monaco's] retained limit or assume any obligation associated with [Monaco's] retained limit.

  The District Court granted summary judgment to ICSOP because Monaco had not exhausted the retained limit, thereby triggering excess coverage.

   The First Circuit initially held there was no inherent conflict or ambiguity between the Retained Limit Provision and the Bankruptcy Provision. Rather, the Bankruptcy Provision was subject to the limitations in the Retained Limit Provision. ICSOP was liable above the retained limit if Monaco was bankrupt, but only after Monaco exhausted the retained limit.

   However, the court determined the Retained Limit Provision violated public policy because it nullified rights under the direct action statute. Rhode Island's public policy was to prevent insurance companies from avoiding their obligations when an insolvent insured was unable to make payment to discharge its liability. If the Retained Limit Provision was enforced, it would allow ICSOP to avoid its obligations thanks to Monaco's bankruptcy, a result contrary to public policy.

Policy Restricts Coverage Under Additional Insured Endorsement to Excess

  Two interesting issues were presented in Jeffrey M. Brown, Assoc., Inc. v. Zurich Am. Ins. Co., 2010 N.J. Super. LEXIS 108 (N.J. Super. Ct. App. Div. June 23, 2010).  First, what was the scope of coverage provided by an additional insured endorsement which provided the coverage was "excess over any other insurance?"  Second, could an additional insured endorsement which provided only excess coverage be construed to provide primary coverage if the policyholder contracted to obtain additional insurance that was primary coverage?

   The general contractor entered a subcontract with CAP Services to demolish a structure at a construction site.  The general contractor had its own CGL policy with Zurich.  But the subcontract required CAP to provide primary additional insured coverage for the general contractor.  CAP was already insured under a CGL policy issued by Interstate.  The policy included an additional insured endorsement which provided coverage that was "excess over any other insurance."  CAP never notified Interstate that it had entered a subcontract and Interstate never issued a certificate of insurance to the general contractor. 

   When employees of a subcontractor of CAP were injured at the job site, they sued the general contractor.  Zurich defended while Interstate argued it had no coverage obligations.  The general contractor and Zurich sued Interstate.  The trial court granted summary judgment against Interstate, finding that under the subcontract between the general contractor and CAP, the Interstate policy provided primary coverage.

   The appellate division reversed.  Interstate's policy was "excess" to any other coverage available to an additional insured such as the general contractor.  Zurich's policy made Interstate's coverage of the general contractor under its endorsement "excess."  Further, Interstate's policy did not commit to provide CAP with coverage for whatever additional insured coverage obligation CAP might later agree by contract to provide.  CAP could not expand the scope of coverage under the additional insured endorsement if it failed to notify Interstate of the terms of the subcontract obligation to provide additional insured coverage.

Insurer Must Defend Under Policy Providing Excess and Umbrella Coverage

   Defense obligations under a policy containing umbrella and excess coverage were before the court in Legacy Vulcan Corp. v. The Superior Court, 184 Cal. App. 4th 285 (Cal. Ct. App. 2010).

   Vulcan manufactured and sold perchloroethylene.  The City of Modesto sued Vulcan, alleging that use of perchloroethylene by the dry cleaning industry had resulted in environmental contamination.  Vulcan tendered its defense to Transport Insurance Company. 

   Transport denied coverage and filed suit for declaratory relief.  The trial court concluded Transport's obligations were limited to those of an excess carrier and that the duty to defend did not arise until the exhaustion of a self-insured retention and all underlying insurance.

   The Court of Appeals disagreed, determining that Transport's policy provided both excess and umbrella coverage.  One clause granted coverage in excess of all underlying insurance, clearly providing excess coverage.  A second clause provided for coverage of claims "not within the terms of the coverage of the underlying insurance listed in Schedule A."  Under this clause, if the underlying insurance listed in Schedule A provided no coverage for a particular claim (as distinguished from coverage that had been exhausted), and the claim was within the scope of the Transport policy, the Transport policy covered the claim.  Accordingly, this second clause provided coverage for claims where the underlying policies specified in the schedule provided no coverage.  As a result, it provided umbrella coverage, which constituted primary coverage.  Consequently, there was a duty to defend under the umbrella clause.

   Further, the reference to "underlying insurance" in the first, excess clause was ambiguous.  The phrase could reasonably be interpreted to mean either the insurance listed in Schedule A only or all underlying insurance held by Vulcan.  Resolving this ambiguity in favor of the insured, the term "underlying insurance" as used in the first clause encompassed only the policies listed in Schedule A.

   Finally, the court considered whether the self-insured retention had to be exhausted before Transport's duty to defend arose.  The Court noted that the impact of an SIR on the duty to defend depended on the particular policy language.  In the absence of clear policy language, to require the exhaustion of an SIR before an insurer had the duty to defend would be contrary to the reasonable expectations of the insured to be provided an immediate defense in connection with its primary coverage.  Transport's policy stated that the duty to indemnify was limited to amounts in excess of the $100,000 retained limit, but did not state that the duty to defend such claims was limited by the retained limit in any manner.  Therefore, the duty to defend was not limited by the policy's SIR.

   Thanks to my Damon Key colleague and fellow blogger (inversecondemnation.com), Robert Thomas, for flagging this case.

  

Lloyd's Seeks to Limit BP's Additional Insured Coverage

   Lloyd's, along with other excess insurers, recently filed suit against BP, seeking a declaration that there is no obligation to cover BP as an additional insured in policies issued to Transocean Ltd.  Certain Underwriters at Lloyd's London v. BP P.L.C., No. 4:10-cv-01823 (S.D. Tex. filed May 21, 2010) (See Complaint).

   Transocean owns the Deepwater Horizon drilling rig that was under contract to BP at the time of explosion and sinking of the rig on April 20, 2010.  In the contract addressing use of the rig, Transocean agreed to defend, indemnify and hold BP harmless from liability for pollution or contamination that originated above the surface of the land or water from spills, leaks or discharges of oil in the possession and control of Transocean.  BP, on the other hand, agreed to defend, indemnify and hold Transocean harmless from liability for pollution or contamination arising out of operations under the contract and not assumed by Transocean.  The contract further provided that BP would be added as an additional insured under policies issued by Lloyd's and other excess insurers only "for liabilities assumed by Transocean under the terms of the contract", i.e., above land or water surface pollution from substances in Tranocean's possession. 

   On May 14, 2010, BP asked Lloyd's for coverage under Transocean's policies.  BP's request was denied.  The excess insurers contend there is no coverage because BP faces liability for its work done below the surface and from BP's well, which was not in Transocean's possession.

   The suit seeks a declaration that BP assumed full responsibility in the drilling contract for all liabilities arising out of the release of oil from BP's well and that the additional insured status in the drilling contract does not extend to the pollution liabilities BP has and will incur.  Finally, the excess insurers request a declaration that BP is not entitled to coverage under any of the policies for its pollution liabilities.

   The complaint states Transocean has excess coverage of $700 million.  BP and Transocean, however, face more than 130 lawsuits already filed by thousands of commercial fishermen, property owners, and tourist businesses in the Gulf area.

Summary Judgment Improperly Granted for Insured's Hurricane-Related Property Loss and Business Interruption Claims

   The insured, Versai, managed apartments that were so extensively damaged by Hurricane Katrina that they were uninhabitable.  See Versai Mg. Corp. v. Clarendon Am Ins. Co., No. 08-30874, 2010 U.S. App. LEXIS 3479 (5th Cir. Feb. 19, 2010).  Versai notified its insurers and submitted claims with the assistance of its private adjusters and contractors.  Estimated repairs amounted to over $17 million, but was later increased by $10 million to comply with building codes.  Lloyd's paid limits of $2.5 million on its all-risk policy.  Standard Fire Insurance Company paid $6 million under a flood insurance policy.  Excess coverage was provided by Clarendon and EFIC up to $13.4 million.  Each eventually paid $2.9 million.

   Versai sued the excess carriers, seeking additional for coverage for property damage, business interruption loss, replacement costs, and code compliance upgrades.  The district court granted summary judgment to the carriers on all claims.

   The Fifth Circuit affirmed in part, reversed in part.  The district court denied further coverage for property loss based on Versai's failure to support its proofs of loss with sufficient documentation.  The Fifth Circuit reversed on this point because the policy did not require additional documentation to support a proof of loss.  The Fifth Circuit also determined summary judgment had been improperly granted to the excess carriers on the business interruption loss because there were issues of fact regarding the length of apartment vacancies after the hurricane.

   The Fifth Circuit affirmed, however, the district court's granting summary judgment on the claim for payment for the costs of bringing the apartments into compliance with current building codes.  The policy did not provide for such costs until after the insured had incurred the expense of compliance with the building code.  Finally, Versai's claim for replacement costs was properly dismissed because the policy required completion of repairs before the insured could be reimbursed. 

Policy's Failure to Define "Additional Insured" Leads to Expansive Definition

   Although the excess insurer sought a narrow reading of "additional insured," the policy's failure to define the coverage allowed a broad reading of the term in Kerrigan v. RM Associates, Inc., No. 100316/08, 2009 N.Y. App. Div. LEXIS 9517 (N.Y. App. Civ. Dec. 29, 2009).

   The decedent was killed in a construction accident.  His Estate sued various contractors, alleging that the decedent had agreed to provide work, labor and services to Erin Erectors.  One of the contractors counterclaimed against the Estate for contractual indemnification.  In this coverage action, the Estate and Erin sued for indemnification coverage under an excess policy issued to Erin by Westchester Fire Insurance Company.

   Westchester's policy listed Erin as the only "named insured," and defined the term "insured" to include, at Erin's option, any person, other than Erin, "included as an additional insured" in the underlying comprehensive general liability policy.  The underlying policy listed Erin and the decedent as named insureds, but listed no additional insureds.  Utilizing a strict interpretation, the lower court held because the decedent was not listed as an additional insured in the CGL policy, he was not covered under the excess policy.

   On appeal, Plaintiffs argued the decedent was an "additional insured" within the meaning of Westchester's policy because he was a named insured in the underlying CGL policy.   The appellate court agreed.  The term "additional insured" was not defined in either the CGL or the excess policy.  An ordinary interpretation of "additional insured" in the excess policy would mean anyone other than the "named insured" in the excess policy (i.e., Erin) who was insured under the underlying CGL policy (i.e., the decedent).  Therefore, the estate was also covered by the excess policy.

Delaware Court Delves into Anti-Assignment and Allocation Issues

   The Delaware Court of Chancery recently issued a detailed, scholarly opinion addressing anti-assignment provisions and the proper allocation for asbestos-related claims.  See Viking Pump, Inc. v. Century Indemn. Co., 2009 Del. Ch. LEXIS 180 (Del. Ct. Ch. Oct. 14, 2009).  Significantly, in determining the anti-assignment clauses did not bar assignment of the policies, the court departed from the reasoning utilized by the the Hawai`i Supreme Court in Del Monte Fresh Produce (Hawaii), Inc. v. Firemans' Fund Ins. Co., 117 Haw. 357, 183 P.3d 734 (2007).

   Prior to the mid-1980's, both Warren Pumps and Viking Pump were independent companies that had been acquired by Houdaille Industries, Inc.  Houdaille divested itself of Warren Pumps in 1985 through an asset sale to New Warren.  Subsequently, Houdaille sold Viking Pump to New Viking in 1987. 

   The new companies, New Warren and New Viking, were sued for asbestos exposure claims by plaintiffs who asserted that they were injured by Viking and Warren's use of asbestos while those businesses were operated by Houdaille.  Houdaille had three layers of insurance coverage: primary liability policies; umbrella excess policies; and additional layers of excess coverage.  Liberty Mutual provided the first two layers of insurance, while the Excess Policies were provided by twenty separate insurers who issued forty-five separate policies.  The policies all provided "occurrence-based" coverage, protecting Houdaille from liability for any injury for which Houdaille was liable that occurred during the policy period.  This phase of the litigation addressed coverage of the new companies under the Excess Policies.

   Anti-Assignment Provisions

   The court first considered whether Houdaille agreed to assign its rights under the Excess Policies to New Warren and New Viking.  An amendment to the asset sale agreement to New Warren specifically gave the buyer Houdaille's insurance rights under the Excess Policies.  After a detailed analysis of the Assignment and Assumption Agreement and the Stock Purchase Agreement with the New Viking, the court determined the insurance rights to the Excess Policies for pre-existing liabilities were assigned to New Viking.

   The Excess Insurers argued the assignments to New Warren and New Viking were void because the Excess Insurers did not consent.  The policies typically provided, "assignment of interest under this policy shall not bind the insurer until its consent is endorsed hereon."  The Excess Insurers relied on the California Supreme Court's holding in Henkel Corp. v. Hartford Accident and Indemn. Co., 129 Cal. Rptr. 2d 828 (Cal. 2003), to argue the anti-assignment provisions barred assignment of rights under the policies.  The Hawai`i Supreme Court followed Henkel in Del Monte v. Firemans' Fund.  In Henkel and Del Monte, the courts found the anti-assignment clauses barred a transfer of insurance claims because even though the underlying tort had already occurred, the insured loss had not been reduced to a fixed amount at the time of the assignment.

   Nevertheless, applying New York law, the Delaware court determined the anti-assignment clauses were unenforceable.  New York law did not permit anti-assignment clauses to bar the transfer of "post-loss claims," or claims for losses that had already happened.  Once the insured-against loss occurred, there was no issue of an insurer having to insure against an additional risk. 

   Allocation of Coverage

  Turning to the allocation issue, the insurers promoted the "pro rata" approach, while the insureds urged the "all sums" concept.  The "pro rata" formula meant any given insurer, having agreed to insure Houdaille for a fixed period of time, was only responsible for some "pro rata" share of the liability the insured owed to an asbestos plaintiff who suffered harm due to exposure through several policy periods.  In contrast, under the "all sums" approach, a policy would be responsible for all liability that flowed from a covered occurrence up to policy limits.  

   The court noted that New York courts look to the intent of the parties to resolve competing interpretations of policy language.  The all sums approach was the one embraced by the Houdaille Policies.  Reading the policies in their entirety, they included either a "non-cumulation provision" or a "prior insurance provision."  Under these clauses, recovery under one policy reduced an insured's recovery from policies in effect in other periods from the same occurrence (e.g., continuous asbestos exposure), and an insurer had to pay for injuries caused by that occurrence that continued into other periods.  The non-cumulation and prior insurance provisions could not sensibly be applied within a pro rata allocation scheme.  Instead, the effect of these clauses was to keep an insured from "stacking" coverage so as to exceed the limits of individual policies.

Dismissal of Excess Carriers Reversed

   The insured Condominium Association had primary and excess coverage.  See El-Ad Residences at Miramar Condo. Assoc. v. Mt. Hawley Ins. Co., 2009 U.S. Dist. LEXIS 92216 (S.D. Fla. Sept. 24, 2009).  Significant property damage was caused by Hurricane Wilma.  The insured alleged that three years after the hurricane, the insurers failed to adjust or settle claims for damages. 

   The insured filed suit seeking a declaratory judgment to determine the enforceability of the policies and the scope of the damage.  Claims for breach of contract and the breach of the implied warranty of good faith and fair dealing were also included.  The insurers moved to dismiss.  The excess insurers aruged exhaustion of the primary insurance was a condition precedent to their liability.  The court disagreed because it was not apparent from the face of the complaint and attached policies that it was beyond doubt that the insured could prove no set of facts in support of this claim.

   Further, the insured was entitled to declaratory relief to determine whether it had a valid and enforceable right to coverage and the total damages sustained from Hurricane Wilma.  Finally, although Florida recognized a cause of action for breach of implied warranty of good faith and fair dealing, here the claim was duplicitous of the breach of contract claim. Both relied on the same facts, i.e., that defendants failed to promptly determine the value of the insured's loss.  Therefore, the breach of implied warranty claims were dismissed without prejudice.

Insurer's Computer-Generated Summaries Admissible as Business Record

   The Ninth Circuit held an insurer's computer-generated summaries of payments were admissible as a business record in U-Haul International v. Lumbermens Mutual Cas. Co., No. 07-16187, 2009 U.S. App. LEXIS 17889 (9th Cir. Aug. 12, 2009).

   U-Haul had a primary policy with Republic Western up to a total limit of $7,000,000 per occurrence in excess of $25,000 in self-insurance.   An excess policy from Lumbermens became payable when the $25,000 self-insurance and $7,000,000 from the Republic Western policy were exhausted. 

   U-Haul settled three claims implicating these policies.  Republic Western and Lumbermens defended and paid settlement costs, but agreed under a reservation of rights to later address issues as to each party's coverage obligations.  A central issue was whether investigation, negotiation, and defense costs paid by Republic Western should be considered in determining whether its policies had been exhausted. 

   Republic Western sued Lumbermens.  After granting summary judgment to Republic Western on several issues, the district court held a bench trial to decide the amount Republic Western had paid on each claim.  This would determine when Lumbermens' excess policy was triggered and how much Lumbermens would be required to pay.

   At trial, a Republic Western claims manager, Thomas Matush, testified about exhibits which contained computer-generated summaries of payments for loss adjustment expenses made by Republic Western on the claims.  Lumbermens objected to the exhibits, arguing they were inadmissible hearsay and not subject to the business records exception in FRE 803 (6).  Further, Lumbermens argued the summaries were not properly authenticated pursuant to FRE 901.  The district court admitted the exhibits and entered judgment in favor of Republic Western in the amount of $1.9 million.

   On appeal, the Ninth Circuit affirmed.  Evidence compiled from a computer database was admissible as a business record, provided it met the criteria of Rule 803 (6).  Here, the exhibits summarizing loss adjustment expense payments for each claim fit squarely within the business records exception.  Matush testified that Republic Western employees input a record of each loss adjustment expense payment into a database at the time each payment was made.  Republic Western employees would then query the database to compile the payment information, generating a summary of the defense costs for each of the claims. 

   Further, the computer summaries were properly authenticated under Rule 901.  "Evidence describing a process or system used to produce a result and showing that the process or system produces an accurate result" was an example of a method of authenticating a process or system under Rule 901 (b)(9). The description of the process used to create the summaries was sufficient to authenticate the evidence.